Family firms benefit more than nonfamily firms from local embeddedness and achieve higher levels of growth especially in rural areas. ‘Roots to grow’ are important and family ﬁrms can gain competitive advantages in rural contexts.
Local embeddedness can contribute to business growth as it shapes the basic conditions that support productivity and competitiveness. In a local context, firms can have direct contact with customers and suppliers whilst also accessing tangible assets, such as technology and a skilled labor force, and intangible assets, such as localized knowledge. A locally embedded firm may make use of local knowledge and resources in such a way as to gain a competitive advantage.
Local embeddedness is a particularly important feature of family ﬁrms as they tend to be more deeply connected to a local community than non-family-businesses. They often make a concerted effort to preserve and enhance relationships with local stakeholders, and demonstrate their commitment to the community and its economic and social development. As the level of embeddedness increases, family ﬁrms may be further motivated to grow because of this commitment. The depth and quality of relationships established at the local level, motivate the firm to invest in the community and its future.
Whilst it is true that certain features of family ﬁrms inhibit growth in comparison to nonfamily ﬁrms, local embeddedness, particularly in a rural context, bring some balance to this. In rural areas where resources are scarce, local embeddedness allows for the identiﬁcation and exploitation of growth opportunities. In such conditions, it becomes even more important to eﬀectively leverage available resources, and, compared to nonfamily ﬁrms, family ﬁrms tend to build stronger and more durable relationships with the local community, providing them with the knowledge and resources needed for ﬁrm growth. As rural ﬁrms often rely on informal relationships and ﬁnancing through family and friends, family ﬁrms have an important advantage over nonfamily ﬁrms in this regard because of their informal and trust-based relationships and their strong local roots in the region.
This post is a summary of part of the research article “Roots to Grow: Family Firms and Local Embeddedness in Rural and Urban Contexts” published in Entrepreneurship Theory and Practice Volume: 43 issue: 2, page(s): 360-38, written by Massimo Baù, Francesco Chirico, Daniel Pittino, Mikaela Backman, and Johan Klaesson.