Firms with CEOs under clan culture influence are more likely to be internationally focused

Xinming He, Professor of Marketing and an expert in international strategy, explains how leadership can be influenced by strong family connections.

My research in collaboration with colleagues Professors Feifei Liu and Tao Wang of Wuhan University sought to understand the impact of clan culture –a collective culture among households originating from natural blood based on the same common ancestor – on crucial firm decisions, such as internationalisation.

Analysing characteristics

Our research team analysed a sample of 285 publicly listed Chinese firms from 2012 to 2018. The data included the CEO’s characteristics, such as family they came from and their location. We also reviewed the business decisions made by these firms as to whether they worked internationally or not, comparing their overall income to the percentage that came through international activities.

The research found there are three reasons as to why clan CEOs are much more likely to have an internationally-focused strategy:

1. They have a long-term focus. Whilst international strategies can be risky in the short-term, they are likely to have longerterm benefits, which clan CEOs can wait for.

2. CEOs with a long-term outlook also value resilience. If a firm simply has a local outlook, then shocks and downturns in their country are likely to have a greater impact on that firm. However, if a firm operates more internationally, then they are much more likely to be able to mitigate risks and build resilience to these country-specific shocks.

3. Clan CEOs are more likely to secure support from stakeholders, including shareholders, suppliers, and distributors, due to their familiarity and the increased trust given to them, which can help them secure support for internationalisation.

We also found that the domestic market, as well as the economic policy in their home country, can also impact on how internationally a firm chooses to operate. When the domestic market is intense, internationalisation becomes more appealing to CEOs, whereas when economic policy at home is uncertain, firms take a greater focus in their short-term, local efforts.

Internationalisation is a strategy that comes with long-term benefits but also short-term risks. There is certainly a trade-off between the two, and the decision to become more internationally focused or not often rests upon the values and preferences of the CEO. Those that have greater sense of serving their longlasting family and believe they can look further towards the future in their positions – like clan CEOs — will take more of an international approach to their strategic decisions.

Hiring candidates who match company culture

These findings have important implications for firms, boards, and policy makers, including highlighting the importance of selecting a CEO whose managerial style matches the corporate culture and strategic target, such as hiring a CEO from a clan culture background if the firm wants to be international.

I believe that selecting a CEO with clan culture background who values long-term orientation is a wise decision when the domestic market competition is stiff, and the economic policy is not uncertain.

Finally, our research has relevance for policy makers as the findings showcase the importance of internationalisation too, and policy makers should look to provide a predictable and reliable environment which may help CEOs with stronger clan culture background to make international efforts.

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