Long-term growth of family businesses threatened by accelerating demographic shifts, disruption and lack of skilled talent
London, 21 September 2017
- Family businesses' growth priorities to now focus on geographical expansion, acquisition and innovation in wake of disruption
- Family businesses are poised to significantly outpace World Bank global GDP growth projections
Demographic shifts, globalization and technology are impacting family businesses of all sizes and ownership structures, creating both challenges and new opportunities according to analysis released today by the EY Growth Barometer: Family Business Report.
The study reveals that over the next 12 months, family businesses view demographic shifts as having the most immediate impact (with 34% of responses), followed by technology (24%) on their business strategies and growth projections. Talent rounds out the slate of challenges, with lack of skilled talent (15% of responses) ranking higher than disruption and insufficient cash flow (the top two challenges ranked by non-family business leaders).
The study’s analysis examines the key challenges, ambition and strategies to growth for family businesses building upon its sister report, the EY Growth Barometer: Global Highlights, which surveyed 2,340 C-suite, middle-market executives from 30 countries. Family-owned businesses constitute 18% (421) of that global total.
Marnix van Rij, EY Global Family Business Leader, says:
"Uncertainty is the new normal and family business owners are not afraid of this. A focus on long-term strategy, the agility to invest in innovation and a solid and stable capital base have always been hallmarks of family businesses, wherever they operate. But to be successful moving forward, family businesses must place greater emphasis on geographic expansion and talent as drivers of growth.”
According to the survey, almost four in ten family business companies (38%) are targeting current-year growth of 6%-10% and more than one in four (27%) are looking at revenue growth rates of 11%-25%, significantly above World Bank forecasts of global GDP growth this year of 2.7% and well ahead of non-family business peers.
Family businesses in Australia (33%) and Mexico (29%) top the list of companies pegging growth of 16%-25% this year. India (33%) and the Netherlands (29%) follow with family businesses in those respective countries targeting growth rates of 11%-15%. These rates are significantly ahead of non-family businesses their respective countries.
The study also found that the sector in which the family businesses operates has a significant role in determining immediate growth plans. Family businesses focused on financial services are planning the highest levels of growth with almost one in four family businesses (24%) targeting growth of 11%-15%, while more than one in five (21%) technology family firms are pegging the same growth rate of 11%-15%. The automotive and media and entertainment sectors, in particular, have more modest growth plans, as they are being challenged by digitization and convergence. These sector differences are also consistent with the wider global respondent pool.
An emphasis on company culture
Nowhere in the survey results are the differences between family businesses and other businesses more starkly differentiated than in leaders' approaches to talent. Overall, 72% of family-owned businesses plan to increase staff, compared to just 56% of non-family peers. Breaking this down, the headcount increases in full-time jobs account for 33% for family businesses compared to 26% for non-family firms, while increases in part-time and freelance roles account for 39% of family businesses and just 30% of non-family organizations. These hiring plans reflect family business leaders' confidence in the long-term sustainability of their growth plans and their embracing of new ways of accessing talent through the gig economy.
Van Rij, says: “In family firms, employees see themselves as part of a broader family culture. Leaders' commitment to their staff is second-to-none, and many employees, as a result, work for the same family firm for their whole careers. Family business leaders must look to internal strengths to drive their innovation agenda by harnessing the power of their own people's creativity and insight, which will ultimately enhance their business’ productivity and growth."
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About the EY Growth Barometer
EY commissioned Euromoney Institutional Investor to undertake an online survey of 100% C-suite (60% CEOs, founders or managing directors) in companies from 30 countries and with annual revenues of US$1m to US$3b. The survey was conducted from 31 March-12 May 2017. The 2,340 respondents are geographically representative of global GDP (as per World Bank 2016 data) with an additional six ““wild card” countries that represent high-growth economies in the developing world. EY further invited its global network of Entrepreneur Of The Year® alumni to take the survey. The survey was available in English and six other languages. Further in-depth follow-up interviews were conducted during May 2017 to provide additional specific insights, some of which are included in this report.
About EY’s Growth Markets Network
EY’s worldwide Growth Markets Network is dedicated to serving the changing needs of high-growth companies. For more than 30 years, we’ve helped many of the world’s most dynamic and ambitious companies grow into market leaders. Whether working with international, mid-cap companies or early stage, family businesses, venture-backed businesses, our professionals draw upon their extensive experience, insight and global resources to help your business succeed. For more information, visit ey.com/gl/en/services/strategic-growth-markets.