As part of a fourth-generation family-owned Argentinean firm, Associate Professor and the Sheikh Saoud bin Khalid bin Khalid Al-Qassimi Chair in Family Business at the American University of Sharjah Rodrigo Basco has always been interested in the nuances of family businesses. His research skills have allowed him to build a solid reputation as a leading family business scholar in the Middle East.
The AUC School of Business recently welcomed Basco as a visiting professor to present his paper about talent retention in family firms. We spoke to him during his stay in Cairo to find out more about the rising importance of studies in the family business field.
What intrigues you in studying family businesses?
One of the most exciting things from my childhood in a remote province in Argentina was when my grandfather brought my cousins and I to his family firm’s production plant. For me, this experience was comparable to being in “Alice in Wonderland.” You can imagine a place full of people moving around – a colorful and noisy environment with machines constantly running and expelling white steam, and innumerable hiding places where our imaginations could run free. I grew up in a middle-class business family, so part of my interest in family firms comes from my own experience. When I finished my MBA and PhD in Spain, I wanted to dedicate my time to investigating these types of firms because they fascinate me. I view family business as a unique space for emotions that trigger economic development.
What insights do you think family businesses could provide that could also be applied to other businesses?
There are a lot of lessons that family firms can provide to non-family firms. When the family is able to unify its perspective among members and avoid internal conflicts, it can alter four main business resources – financial capital, physical capital, human capital and social capital – turning them into unique, inimitable, rare and non-substitutable resources. This is the source of family firms’ competitive advantage.
When the family is the main decision maker in a firm, it creates a patient capital for investment. The family is able to wait for profit because it has invested in something beyond economic return. This long-term investment strategy is another root of the competitive advantage [for family businesses]. Families that are able to consolidate their physical capital, instead of breaking up into different family branches, are better positioned to compete. Human and social capitals are strategic aspects of family firms when there’s knowledge of how to manage and transmit resources across generations. Tacit knowledge that can be transmitted from one generation to another, such as innovative behavior and entrepreneurial spirit, are key points for long-term survival. Families, because they are locally embedded, capture social relationships to exploit opportunities and boost development through economic and social wealth.
What would you say are the main differences between family businesses and "normal" businesses?
Family firms and non-family firms have similar characteristics: both have to compete by developing a specific internal structure and strategy to satisfy customer needs, be profitable to maintain or grow their level of employment and dividend distribution, and succeed across time.
Nevertheless, family firms are different in that they are owned and/or managed by a group of people with strong relationships [among themselves]. Family affects the way these organizations are owned, managed and governed because family members pursue economic and non-economic goals, have a long-term orientation and have psychological ownership. In other words, families have economic, social and emotional investments in the company they own, altering the reference point for decision making. As a result, family firms are different and cannot be understood or advised in the same way as non-family firms. This is the reason universities around the world are incorporating more and more courses related to family business in their programs.
What do you feel is the importance of studying family business in the Middle East?
Family firms are the backbone of the Middle Eastern economy. They are the salient economic actor. Most of our students belong to business families and are going to directly or indirectly participate in family businesses as managers or potential owners. For students who do not belong to a business family, they are likely going to work in one after graduation, so understanding the logic behind family businesses could help them in their professional careers.
Middle Eastern countries’ potential lies in the capacity of next-generation family members to boost current businesses, make firms competitive at the international level and continuously create wealth to reduce inequality by creating jobs and opportunities. If policymakers and those in managerial positions at leading universities throughout the Middle East are not able to see how important family firms are in the region, they are mortgaging the future of the region’s economies.
How different do you feel family businesses are in different countries in the Middle East?
It is wrong to think that the Middle East is a homogenous bloc of counties. There are similarities, but there are also differences that make each county unique in terms of how it does business. Cultural, political and religious dimensions affect the way families interpret and conceive their businesses. As such, each family is a unique world in terms of how economic resources are organized. The conditions to create a business, develop it and survive across time are different in Egypt and the UAE, for instance. The particularities of the context and of the family are what make family firms different across countries.