Internationalization Decisions in Family Firms: The Impact of Bifurcation Bias

Family firms possess unique features that shape their international strategies. These features include family-based asset specificity and associated resource constraints when embarking on internationalization, as well as an inherent propensity towards bifurcation bias: a dysfunctional decision rule that de facto favours family-based (“heritage”) assets and routines over those assets and routines that do not have a direct connection to the family (“commodity”). Bifurcation bias creates affect-based governance practices that may clash with (boundedly) rational economic considerations to guide international strategy. Using internalization theory as our conceptual lens, we explore the impact of bifurcation bias on governance-related aspects of international strategy. We argue that in the long run, the internalization theory prediction holds, whereby only efficient governance structures will be retained. In the short- to medium-term, bifurcation-biased family firms may deviate from efficient international governance choices, which will negatively affect their success in host markets. We explore factors that influence the firm’s propensity toward bifurcation bias and the magnitude of the bias’s dysfunctional effect on international strategy These factors include: macro- and micro-level cultural characteristics, the firm’s ability to implement anticipative and corrective safeguards, and the firm’s recombination capability.