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Hong Kong family businesses underperforming
Hong Kong family businesses have found the last financial year to be difficult with only 37% reported growth in the last 12 months compared to two-thirds (65%) of family businesses worldwide
The Asset 21 Oct 2014
Hong Kong family businesses have found the last financial year to be difficult with only 37% reported growth in the last 12 months compared to two-thirds (65%) of family businesses worldwide. They are also more cautious about future growth – 73% expect to grow in the next five years, versus 85% globally.
 
These findings were revealed in the latest PwC survey of 2,378 family business executives in more than 40 countries worldwide. The report – titled Up close and professional: the family factor – is PwC’s seventh survey of family businesses globally.
 
“Family businesses are generally more optimistic than non-family businesses in their sector. But in Hong Kong this confidence is relatively low. The sputtering global economy, uncertainties in export markets, exchange rate volatility, attracting and retaining talent and succession issues are just some of the challenges facing these businesses,” says Richard Sun, head of entrepreneurial group, PwC Hong Kong and China South. “If they want to survive, family businesses here have no choice but to look into adapting faster, innovating earlier and becoming more professional in the way they run their operations.”
 
One surprise finding from this year’s survey is that the need to professionalize the family business is gaining ground, driven by an almost perfect storm of competitive pressure, rising costs and global megatrends. It barely registered in 2012, but this year 40% of respondents globally agree that this is a key challenge over the next five years. That number is higher in Hong Kong, with 46% of respondents saying professionalizing their family-run businesses would be a challenge.
 
So what does ‘professionalizing the business’ mean for the family enterprise? It’s about giving structure and discipline to the vision and energy so often shown by  family businesses. This will help them innovate better, diversify more effectively, export more and grow faster.
 
“But getting the business on a professional footing is not in itself enough. It has to be accompanied by greater professionalism on the part of family members in their business dealings. This means, for example, putting processes in place to govern how the family interacts with the business – including establishing an infrastructure for decision-making and formal channels for communication. It’s about protecting the family’s interests, and safeguarding their survival,” says Kitty Chung, assurance and business advisory services partner, PwC Hong Kong.
 
The tough economic environment has resulted in family-run companies becoming much more ‘business-minded’ since the 2012 survey. The long-term future and success of the enterprise come first, more than family and community-related aspects. Fifteen-percent of Hong Kong respondents say their top priority in the next five years is to improve profitability: compare that to the 4% who listed contributing to the community and leaving a positive legacy as important.
 
In PwC’s 17th Annual Global CEO Survey, 79% of those questioned cited technological advances as one of the three global trends most likely to transform their businesses over the next five years. Family businesses in Hong Kong similarly recognise the growing impact of digital technologies, with 80% citing technological advances as the top trend. A high 73% accept they will have to adapt the way they operate externally, exploit the full opportunities of digital and avoid being overtaken by more advanced competitors.
 
Hong Kong businesses are more likely than the global average to want to pass ownership and management of their business to the next generation. But very few have concrete succession plans in place. Twenty-seven percent say they have succession plans in place for some, if not all, senior roles. But only a worryingly low 4% say they have a robust succession process.
 
“A plan that is not written down is not a plan: it’s just an idea. And this is an issue family firms must address with the same commitment and energy as they devote to professionalizing other aspects of the business. Without a firm succession plan in place, the whole enterprise is at stake,” Sun.
 
Overall, this year’s survey indicates that – despite a tough economic environment, with pressures around skills shortages, innovation and governance – family firms worldwide remain dynamic and resilient. Indeed, family businesses account for 70%-90% of GDP globally, and are an effective barometer of the health of the economy.
 

    

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