In the recently-published report entitled “Planning for Prosperity: Assessing Family Business Future-Readiness in South and South-east Asia” by the Economist Intelligence Unit, family business executives expressed high levels of confidence in their readiness to adopt to the ever-changing business environment.
The report, sponsored by SAP – a market leader in enterprise application software – was conducted in January and February 2018. The respondents were 300 family business executives from Bangladesh, India, Indonesia, Malaysia, Philippines, Singapore, Sri Lanka, and Thailand.
Based from the results, family businesses in the Philippines topped other countries with an average of 8.29 on a 0-10 scale indicating little assurance (0) to most confident (10). It was followed by Thailand (8.26), Indonesia (8.21), Singapore (7.44), and Malaysia (7.28), respectively. The score of the countries were measured based on four categories namely people, environment, processes, and technology (see table on Findings).
Source: The Economist Intelligence Unit
First, family businesses are most confident on the processes category (8.33). Most of them are optimistic that they will be able to adopt new business models, offer new products and services, and enter new markets. But in order for these businesses to do so, they must take into consideration the fluidity of their structure, the dexterity of their employees and workplace culture, on the back of new technological trends. On the other hand, it could be said that innovation breeds business, while technology paves its way.
Second, the people category (8.19) had gained relatively high confidence level from the respondents. According to the Economist Intelligence Unit, “about seven in ten survey-takers say they are very confident in the digital proficiency of their employees.” True enough, technology will be more integrated into everything that we do in the future – the internet, artificial intelligence (AI), etc. – as the way of working improves in this fast-paced, technology-fueled business environment. Family businesses need to eliminate bureaucracy and silo mentality in their institutions to be able to efficiently respond to these changes.
Third, the technology category (7.89) received substantial confidence level as well. This means that the family businesses are prepared to utilize technologies such as data analytics, machine learning, enterprise automation, and cloud applications. Just like technology, businesses in general entail a complex web of processes. Hence, business mixed with technology have made it possible to penetrate a wider market in the global setting.
Last but not the least, the environment category (7.84) got a fair level of confidence, despite rated as the lowest. Family businesses are lenient on the support they could get for their companies, namely government-provided financial services; government policies supporting digital transformation; quality of the education system in training new talent; and quality of ICT infrastructure in each country. With this, governments must strengthen their efforts in digital strategies, technology-related legislations, and projects that that promote digitization.
With all these being considered, the Economist Intelligence Unit came up with the following key themes they observed through the survey:
• Technology: the pace of technological change is a chief challenge.
• Succession: planning on paper, not in practice.
• Partnerships: external solutions are increasingly palatable.
• Regional disparities: survey takers in South Asia are more bullish in their readiness than those in Southeast Asia.
In terms of technology, skepticism among older generations lags its implementation. Another reason that is considered a challenge by family businesses is the fast-paced change in new technologies. To cite a few, some of the most notable poignant criticisms of technology are Aldous Huxley’s “Brave New World” and other writings, Anthony Burgess’ “A Clockwork Orange,” and George Orwell’s “Nineteen Eighty-Four.” In relation to this, an infamous anti-technological publication is Theodore Kaczynski’s “Industrial Society and Its Future” which is an effort against the techno-industrial infrastructure.
Although the survey showed that 95% of the respondents claim their business has a clear and definite plan for leadership and ownership succession, researchers claim that only around 30% of family businesses survive into a second generation. During the transition process, problems (i.e. pressure to hire family members, lack of training and external opinions, and misunderstanding between family members) arise. According to Milan Hnátek, to have an effective succession, “there is a need for functioning direct cooperation between family-owned businesses and family business professionals from both the private and academic environment.”
To stimulate growth, family businesses aspire to establish and increase partnerships. With reference to the survey, 37% prefers partnerships with foreign SMEs, while 35% wants large domestic companies, and 34% favors large foreign companies. The Economist Intelligence Unit thinks that it is “likely because they enable access to new technologies and markets.”
While Southeast Asian family businesses scored 7.90 in the confidence barometer for the survey, South Asian family businesses scored 8.31. According to the report, one reason could be due to the latter being older than the former. This implies a better history of family business, which contributes more knowledge and advantage. In addition, South Asia, also known as the Indian subcontinent, is supported by significantly numerous external evidences.
Notably, Strategy&, one of PwC’s networks, wrote about the “digitization megatrend.” It states that an entire generation – Generation C (for “connected”) – will grow up in an already digital world where the Internet of Things are considered as their second nature. According to Strategy&, this megatrend phenomenon is “reaching an inflection point.” With the rise of Generation C, the way businesses work will transform inevitably, and this is one thing that family businesses should be prepared with.
Author: Allanne Tiongco