JEDDAH – Family businesses are thriving globally with 65 percent of them registering growth in sales in the past year, compared with less than half in 2010, PwC Family Business Survey 2012 issued this month said. It noted that there was particularly strong growth in Eastern Europe, Latin America, and Middle East. Only 19 percent of our respondents saw a reduction in their sales in the last year, as against 34 percent in 2010. Family businesses are ambitious and confident about their prospects with over 80 percent of the businesses surveyed anticipating steady or aggressive growth in the next five years, and 39 percent of those who aim to grow are very confident about their company's prospects over that period. The increases were pointed out substantially for companies in India, the Middle East, Singapore, South Africa, and South Korea. Given the low levels of confidence in other sectors of the economy, PwC study said the sentiment is powerful proof of the significant role family businesses can play in creating jobs and stimulating recovery. The economic environment remains the key external challenge. Just like every other business, the family firm is still facing major challenges in the current downturn. The three issues identified by most respondents were market conditions (54 percent), competition (27 percent), and government policy and regulation (27 percent). The latter category, however, showed a very wide variation on a market-by-market basis, ranging from 64 percent in Greece and 46 percent in the Middle East, to as low as 6 percent for Austria and 3 percent for Sweden. Internally, the main issue is the recruitment and retention of skilled staff. The recruitment of skilled staff and shortages of labor have become more acute challenges than they were in 2010, increasing from 38 percent to 43 percent. By contrast, the need for company reorganizations or restructuring is no longer so pressing, though larger companies with a turnover of more than $100 million were more likely to cite this as an issue. Cashflow and cost control has also reduced significantly as an issue from 30 percent in 2010 to 17 percent in 2012, which suggests that many businesses have now taken the action needed to streamline internal processes, improve inventory control, and reduce debtors. A number of businesses also cited the importance of establishing or improving their internal and IT systems, especially in relation to regulatory compliance. Even though most family firms are confident about the prospects for their business, there is still some uncertainty about what the future holds. The economy remains a cause for concern 59 percent of our respondents cited price pressures as a likely future issue, and this was particularly prevalent in the construction and automotive industries. Forty percent pointed to increased competition within the market, often driven by the entry of new players, and 66 percent cited the general economic situation – those companies anticipating a business contraction tended to cite this as the cause. Thirty nine percent believed regulation would continue to be an issue, and 27 percent anticipated growing challenges relating to their supply chains. Globalization will be crucial to success – or failure. The issue that emerges more strongly for 2017 and beyond is that of globalization. There is clear apprehension about the impact of an ever more international approach to business, and the growing power of global megabrands, though many businesses remain confident that local knowledge, agility, and the ability to exploit profitable niches will keep the family business buoyant. Turning to the internal management of the business, the key emerging issues were innovation, skills, and succession planning. Sixty two percent of respondents cited the need to continue to innovate, and 37 percent anticipated the need to invest in new technology. Companies in Italy, Turkey, and South Korea were particularly concerned about innovation, and firms planning to grow aggressively were also more likely to focus on this. The war for talent is still waging – certainly for family businesses Attracting appropriately skilled staff (58 percent) and then retaining them (46 percent) were also high-profile concerns for the future, and again, especially for those planning high levels of growth. Many respondents said that it is particularly difficult for family businesses to attract talented employees with the right qualifications, because the brightest candidates tend to prefer working for listed multinationals, where the career path is clearer, and there is the possibility of equity at some stage. The transition between generations can build the family firm – or break it 32 percent of our respondents were already apprehensive about the transfer of the business to the next generation, and 9 percent saw the possibility of family conflict as a result. Some family businesses are planning to manage the transition process – and reinforce the business for the future – by bringing in external management. Taken overall, 64 percent of family businesses have non-family members on the board, a figure which increases to 75 percent for firms with turnover of more than $100m. However, this overall figure masks considerable differences across the world – for example, the numbers with non-family directors are very high in Denmark (92 percent) and India (96 percent), and also high in Asia Pacific as a whole (74 percent), partly because a very high proportion of family businesses in this region are listed, and are therefore required to have independent Board members. By contrast, the numbers are as low as 49 percent for the UK and North America. – SG/QJM
