The Survival of Family-operated Firms under Developed Conditions: The Case of Hassfurt, Germany

Abstract

The prevalence of family firms in the commercial sector of preindustrial and developing societies is often commented upon. I It is also assumed that this type of firm will lose its importance once societies reach industrial maturity.2 In this paper I will address this assumption by examining the retail trade sector of a town in Germany. I will show that in this community family firms continue to be important in spite of the developed character of the economy, and I will try to explain why this is so. I will conclude by arguing that this case is relevant to the development experience of contemporary Third World countries. Background Many definitions of the family firm exist. To highlight the problem of explaining the continued importance ofthis institution under economically developed conditions, I will use a narrow definition and confine my discussion to the family-operated firm. As the name implies, not only is such a firm owned by a family, but much of the management and some of the work is performed by two or more family members. It has up to 50 employees, and the enterprise is a major source of income to the family.3 Among the factors which encourage the existence of the family-operated firm, four are frequently mentioned: the need for personalized means to ensure trust, low opportunity costs, diseconomies of scale, and the presence of ethnic plurality. An essential ingredient for the successful operation of every firm is some degree of trust between the owners and personnel ofthe enterprise.4 This can be assured through either legally binding contracts or personal knowledge and connections.5 When legal and other state institutions are easily corruptible, contractual means to generate trust and loyalty cannot be enforced. Under such circumstances, firm operators resort to personal connections to assure trust. Usually the most convenient source ofpersonally