Growth strategies used by italian SMEs and western scholars

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Family enterprises are firms in which the majority of the equity is held by one, or few families connected from ties of relative, affinity or solid alliances (Corbetta et al. , 2002) . They still represent the dominant business model all over the world. In Italy, they account for approximately 83% of the total number of medium and small capital enterprises (Corbetta et al. , 2002).

Less than 50% of all family-owned firms survive into the second generation, less than 20% are still viable into the third generation and very few reach the dimension of most corporate companies in which property differs from the management. Firms with greater family control tend to exhibit lower rates of sales growth and may be susceptible to failure, given the below par financial performance. For most family businesses, growth is limited not by financing constraints but by family-related attitudes (Anaïs Hamelin, 2009).

Objective and Purpose

The purpose of this study is to contribute to the literature on small and medium Italian family businesses, to evaluate the different strategies adopted by these firms, to explore the coherence or discrepancies between the strategies proposed by scholars and those practiced by the selected firms.

Justification

Although a substantial amount of literature relating to the analysis of the best growth strategies exists, very little has been said about the specific strategies adopted by Italian small and medium family enterprises. In addition, having studied entrepreneurship for many years, in Italy first and then in the UK, I recognize that there are some discrepancies in the literature relating to Italian SMEs. What is taught as winning growth strategies for SMEs in the international context differ from the Italian approach. This research will not only provide clarity on the topic but it will also constitute an important tool for entrepreneurs of small and medium businesses in understanding the role played by the environment in shaping business emergence and the strategies they have adopted.

The Research question

By exploring the Italian context, is it possible to identify specific and generic growth strategies adopted by the Small and Medium Italian Family Businesses? Do these strategies differ from those proposed by Western scholars?

In order to provide answer(s) to the question above it is necessary to consider the following:

Evidence of growth within the context of Italian Family Businesses

Owner-managers' attitude regarding company's growth:

Reluctance of family businesses to involve independent directors on company boards than non-family firms.

Pro-growth vs. growth inhibiting attitude

Growth Strategies:

Segmentation of the core market and change in the unit of business

Expansion outside company's core markets

Acquisitions and alliances

Other strategies (those emerging from the primary research)

The final result that this research aims to achieve is to verify or reject the following hypothesis:

Italian small and medium Family Businesses pursue different growth strategies from those proposed in the international entrepreneurship literature.

Literature Review

This research will draw upon entrepreneurship literature such as the growth models, family business and SME literature in general. For the purpose of this research a sample of Small and Medium family businesses will be explored in an attempt to understand their growth dynamics (this is explained in detail later). To understand the focus of this study it is first necessary to provide a definition of this category of enterprises and the quantitative and qualitative criteria that will be used in selecting the companies and secondly a definition of the elements which characterize a company's growth path.

With regard to company dimensions, we will adopt the following criteria: no more than 250 employees and an annual turnover lower than 50 million euro (Article 2 of the Commission of Recommendation). With regard to the company governance, family businesses will be identified as those in which "the majority of decision-making rights are in the possession of the natural person(s) who established the firm […] or in the possession of their spouses, parents, child or children's direct heirs" where "at least one representative of the family or kin is formally involved in the governance of the firm" (Direction General Entreprises Et Industrie, 2009).

Turning to growth, as Weinzimmer et al. (1998) underlined, it is a dynamic measure of change and scholars have historically used a very wide range of quantitative and qualitative tools to define growth indices. These are mostly based on the analysis of independent variables measured using secondary data sources (Weinzimmer et al., 1998). However, very few research has been conducted to identify which are the most appropriate measures of organizational growth (Moreno & Casillas, 2008; Birley & Westhead, 1990). In order to conduct this study, the approach used to assess growth, is whether the enterprise has experienced 'growth' in the following areas (Hangstefer, 2000):

Market position strength

Organizational vitality

Productivity gain

Financial performance

Stakeholder value produced

After assessing growth using the listed growth measurement criteria, the next step will be to compare the strategies adopted by companies which achieved positive increases in at least three of the listed areas. To facilitate easier comparison and clarity of analysis of the findings, quantitative values will be used in assessing companies' performance.

The field of entrepreneurship has a substantial body of literature relating to growth strategies that scholars suggest small and medium business might pursue. For this study, the most relevant categories of entrepreneurship literature have been identified:

Change in company's unit of business and in the performances on existing key metrics (McGrath & MacMillan, 2005). For a company's success is essential to define what its competitive advantage over rivals is. According to Michael Porter, every company bases its activities on two macro categories of market strategies: differentiation (niches) and cost leadership. Companies which compete on the cost are generally the biggest ones, able to reach economies of scale and cost advantages over competitors. This work studies the case of SME; to explore why SMEs make bad cost leaders (Welsh & White, 1981) and the impossibility of a 'price-clash' with the giants of the market. The only strategy that these companies can successfully pursue is differentiation. In their study, McGrath & MacMillan underlined the possibility for companies operating in markets of commodities or poorly differentiable products to differentiate their offer matching customers' need. They suggest, through market segmentation, the shift from selling mere products to value for customers. In addition to that, the authors identified some company's key metrics which are largely responsible for organization's performance. By the combined modification of these factors, the business can pursue low risk growth.

Growth, creating new growth platforms (Laurie, Doz & Sheer, 2006). In their study, the authors identified NGPs as a powerful tool to evaluate and catch new market opportunities where develop new lines of products or services in areas outside company' core and therefore guarantee sustainable growth rates. This is a framework that many companies use to extend their own specific capabilities into new markets. NGPs result from the match between industry's innovation and market's macro trends, unmet customers' needs and company's capability to satisfy those needs.

Growth through acquisitions (Anslinger & Copeland, 1996). In their analysis the authors consider the case of companies which grow through the means of acquisitions. This choice is particularly advisable for enterprises which operate in mature markets where further capital investments in the industry would have low return prospects. Anslinger and Copeland identified two major categories of corporate acquisitions: financial and synergistic.

The main literature available on Italian family small and medium enterprises relate to corporate governance (e.g. Corbetta et al. , 2008, Colarossi et al. , 2008), intergenerational passage of the company (e.g Vallone, 2008) or focus on specific sector or companies (e.g. Harris et al., 1994). The lack of literature about Italian family SMEs growth models justifies this study.

Research Design

The research aims to do an in-depth study of the growth strategies adopted by Owner-Managers of Italian small and medium family businesses. An inductive/deductive approach will be used and the initial exploratory study will be followed by the verification of one hypothesis (Bryman & Bell 2007). The inductive element of the research is the analysis of the growth strategies adopted by this category of companies in the past and the ones that are planned to be used in the future whereas the deductive element will be the testing of the hypothesis that family SMEs adopt growth strategies that differ from those proposed by scholars. In order to obtain he information needed for the study, the research will be conducted in two phases. Both will involve primary data collection. The first one, a survey of 20 family businesses, will be carried out through the use of questionnaires. This aims to identify 6-7 representative companies to analyze in more depth. The format used will be phone interviews with enterprises' representatives where the interviewer and interviewee will work together to fill a structured questionnaire. At this stage, respondents are asked to provide mostly quantitative data. These are related to the performance achieved over a five years time in the following area: market position strength, organizational vitality, productivity gain, financial performances and stakeholder value produced (Hangstefer, 2000). Once raw data are collected, they need to be organized and categorized in order to identify the 6-7 companies in the sample that experienced the highest growth rates.

These identified 6-7 companies will be the focus of the second phase of the research. At this stage the interviewer will collect primary data through semi-structured face-to-face filmed interviews with owner-manager of the selected firms. The purpose of this second phase is the identification of the strategies adopted by these companies to pursue growth. Given the expected great variety of strategies adopted and considerations that drive these choices, the data collected will be mainly qualitative (e.g. entrepreneur's assumptions, background, drivers etc). Interviews will have time limitations (10 minutes) and a preconceived set of questions to cover. In this way the focus can be maintained on the relevant aspects and the following comparison study will be facilitated. Once data are collected and organized, an analytical induction analysis (Bryman & Bell, 2007) will be used to determine whether or not there is evidence of general growth strategies pursued by a relevant amount of Italian small and medium family businesses. Afterward, the identified adopted strategies will be compared to those proposed by scholars: Growth through segmentation, expansion outside company's core, acquisitions and alliances (literature review) in order to evaluate similarities and differences. If similarities are found to exist, the hypothesis will be disproved; if not the hypothesis are verified.

Practical and Ethical Issues

Because of the nature of the research and of the questions asked, respondents might be reluctant to provide the sensitive data that relates to aspects of the business that constitute sources of competitive advantage. For this reason, an agreement will be arranged where the interviewer and the people involved in the research commit themselves not to disclose to third parties any of the information collected and to use them only with the intent of conducting academic entrepreneurship research.

Project Planning

The above figure illustrates the project plan.

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