The main results of the Campden FB/Mishcon de Reya survey provided some telling insights into the general mood of family business. However, responses differ from region to region (four were surveyed: Asia-Pacific, Europe, North America and South America) and show some cultural variations that affect how families and their businesses operate.
The one result where this was not the case concerned how families rate the economic conditions. Wherever they hail from in the world, respondents said they were somewhere in the middle of the spectrum, neither very good nor very bad. The consistency of the results confirms the global nature of the current downturn.
As businesses attempt to cope with the difficult trading climate many introduce cost cutting measures such as staff redundancies. Family businesses are no exception to this; however, a greater percentage of North and South American companies (67.3% and 60% respectively) laid off staff compared to those in Europe and Asia-Pacific (54.9% and 56.5%).
Ford is one American family business that has made ruthless job cuts as part of a wider cost reductions scheme. And the plan seems to be working, as it is the only US carmaker to have avoided needing state intervention to stay afloat.
As trading gets tougher we might expect to see an increase in tensions within family companies, but most respondents had not seen this occur. The one notable exception was family businesses in South America, where 55% reported increased tensions. Although the crisis has not increased tensions a significant amount in the Asia-Pacific region, this area showed a higher level of tensions present before the crisis, suggesting underlying problems for family businesses there.
Results for Asia-Pacific also showed contrasting views of the market for buying new business. Firstly, the region emerged as the area where family businesses are most actively seeking acquisitions. However, when asked later if they had been approached by others to buy the family business, 86% said they had not. These results suggest family businesses in Asia are in a stronger position to purchase companies when compared to other businesses in the region.
This is in contrast to North America, where families are evenly split over whether they are seeking to purchase companies. It was also the only region where a majority of respondents (54.2%) had received an approach to buy their business in the last 12 months.
"It is likely those firms that have undertaken the preparation and have the means in place to acquire new businesses will hold an advantage," commented Jonathan Berman, partner in the Families in Business Group at Mishcon de Reya. "Preparation is key to any acquisition strategy and can be a lengthy process: it is not unusual for two years to be spent tracking potential targets.
"Our experience shows, however, that there is a propensity for those currently preparing an acquisition strategy to be based in Asia with a much more conservative approach being adopted by businesses based in the US and Europe who are concentrating their efforts on protecting their existing portfolio. The question, therefore, is whether family businesses, because of recent experiences, are being too conservative in not considering the possibility of acquisitions and will they regret not at least preparing a strategy at this stage?'
Despite the tough economic climate the preference of the majority of respondents from all regions was to continue under the current ownership structure. Those in Europe were most keen to do this with 96% responding in this way. The ongoing saga between the Porsche and Piech families is one recent example of the desire by European family businesses to remain under family control. The Porsche branch of the family sacrificed its non-family CEO and even its independence in order to keep the company within the founding family.
Although most families do not want to sell the business, they should still prepare for this eventuality. The majority of the survey respondents had not planned for selling the business but the problem was highlighted as the most severe in the Asia-Pacific region, where 95% said they had not (Click here to read Yulin Yang's analysis of some of the issues facing Asian family businesses).
When asked about the likelihood of selling the family business in the next two years there was once again a split between the Americas and Europe/Asia Pacific. Although no region had a majority response stating that selling the family business was likely, no-one in Asia-Pacific responded in this way while just 2% of Europeans did. This is in comparison to South America, where the response was 11% and North America, where it was 13%.
A difference in business attitudes between the regions is further highlighted by the principal reason given by families for selling the family business. Receiving an offer you can't refuse was the most popular response given by all regions; however, the next most popular reply from those in the Americas was that the business is not sustainable under market conditions. This was not the case in Asia-Pacific and Europe, where respondents felt family succession was more important, stating a reason to sell was no other family members willing/able to take over.
Similar sentiments are echoed when families explain what they see as the biggest drawback to selling the family business. In the Asia-Pacific region the desire to give the next generation more than just money was the biggest problem. North America was split between the desire to create a legacy and getting the right price for the business. In contrast to the previous response about succession, those in Europe were most concerned about getting the right price and South America was split between also getting the right price and wanting to pass the business onto the next generation.
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