Innovation and Internationalization as Efficiency Engines for Family Businesses: Analyzing the Case of Portugal

Abstract

Not rarely, family businesses (FBs) are central to the economy; in Portugal the estimated impact of these structures reaches two-thirds of the GDP, absorbing half of the labor force and ascending to 80% of the firms in operation. Most of them are SMEs, but there are also FBs quoted on the stock exchange. These organizations play a central role in job creation, local development, long-term knowledge transfer, and territorial cohesion. The development of innovative activities is a critical factor for a competitive economy, yet innovation exposes firms to increased risks. FBs are often considered as conservative and risk-averse, resisting change. They prefer relying on internal factors rather than opening their structure to the external environment, consequently postponing innovation, thus pledging their future. The literature is not consensual in tying innovation with FBs. On the one hand, there is a strong belief that these firms have a reduced propensity to innovate due to their embedded culture; on the other hand, and due to values as loyalty and trust and informal networks, they will be more prone to develop either individual or collective innovation processes. Using a dataset of 110 family firms located in Portugal, we aim at observing the role of innovation and internationalization along with other structural characteristics to their economic performance. A multivariate model is applied to provide evidence reinforcing the determinant role of innovation, exports, and human capital in the performance of family firms. A deep understanding of the effective role of innovation, internationalization, and other structural characteristics of FBs will shed some light on the determinants of their economic performance, productive potential, longevity, and success. Given the importance of these structures, effective policy schemes should be designed, reinforcing the cohesion of the industry.