The family business lays the foundations on which Asian economies are built. They are a dynamic entrepreneurial force that has shaped business within the region and improved the lives and livelihood of communities by creating jobs, delivering goods and services, and developing new solutions to problems.
To understand how business owners operate and view the family business model, and how it will evolve in the decade ahead, financial services company Sun Life ran an extensive survey in six Asian markets at the end of 2019. The results of “The Future of Family Businesses in Asia” revealed many of the unique advantages inherent in family businesses while also uncovering their vulnerabilities, especially when viewed in the current pandemic environment.
There are many kinds of family businesses that continue to play major roles in Asian economies. From start-ups to SMEs to multinational corporations, family businesses account for approximately two-thirds of all businesses around the world, generating about 70 to 90 percent of global GDP; according to a report by Family Firm Institute.
The evolution, succession and future leadership of family businesses is important not only to shareholders and national economies, but also the employees and communities to which they contribute. These businesses are the cornerstone of Asian economies and are an indispensable part of these communities.
With the arrival of the COVID-19 pandemic, businesses and economies around the world have been greatly disrupted. The Sun Life report reveals that younger businesses may be far more vulnerable to this unexpected disruption. On the other hand, more mature businesses perceive greater risks and have taken more precautionary steps to mitigate the damage.
Family businesses often rely on a small group of key decision makers to run the firm and the health and wellbeing of these leaders is integral to the health of the business. Almost all business owners (96 percent) reported that if they, or their key people, are incapacitated, the business would face serious ramifications, with more than half of them describing the situation as ‘very serious’.
The preparedness of mature businesses puts them in a better position to respond to the disruption caused by the pandemic, allowing them more time to mitigate damages with regards to productivity and talent retention. COVID-19 has proven that there are significant health threats to business continuity and that younger growth businesses have fewer options at their disposal to manage the impact.
The future of a family business also depends on a properly managed exit strategy and succession plan. While almost all family-run businesses have some form of an exit strategy, mature businesses tend to have a more realistic view on retirement age. However, according to the report, mature business owners tend to not seek outside advice with regards to formulating a succession plan. Owners of start-ups and growth businesses are much more open in seeking advice.
There is also a significant divide of opinions with regards to the future outlook of the family business. Mature business owners expect the family business model to remain strong in the future. On the other hand, start-up and growth business owners believe that family controlled businesses will decrease as the need for professional managers from outside the family increases.
Essentially, there is a clash of ideals between the previous generation and future generation of business owners. The more mature business owners have the advantage of experience and a record of success, which makes them hesitant to illicit extreme changes; such as ceding control to ‘outsiders’. The younger growth business owners are more open to change, as well as recruiting as much competent talent and assistance possible to grow their businesses.
The diverging perspectives suggest the Asian family business model could be set to change with the next generation of owners.