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Long life: how family businesses outlast their rivals

A new study by an influential business school challenges the perception that, in Spain at least, the biggest and most successful companies cannot be owned or controlled by families. Indeed, the main conclusions of Empresa Familiar: Ni Tan Pequeña, Ni Tan Joven (The Family Company: Neither Too Small Nor Too Young) are that there are more large, family-owned companies than not and, on average, they tend to last longer than companies with different kinds of ownership.

"Spain's most successful and longest living family-owned companies are characterised by an application of business strategies that mix an ability to reinvent themselves according to the circumstances while keeping the core values of the family," says Josep Tapiès, a management expert at IESE Business School, who authored the study. 

Such characteristics have come into particular focus during the current economic crisis, he argues, as the tendency of family entrepreneurs to be cautious about borrowing money to prop up their businesses has limited their exposure to the near-collapse of the global financial system. "Everybody thinks that family-owned business are synonymous with SMEs," Tapiès says. "This is not true."

Spain's two largest companies (telecom behemoth Telefonica and oil giant Repsol) are listed on the country's IBEX stock exchange, but a majority (57%) of the 2,254 non-financial firms with a turnover of more than €50 million in 2005 – the universe studied by Tapiès – are family-owned. Even among those with turnover of €100 million and above, the number is roughly the same (560 family-owned companies versus 583). 

As companies get larger, family-owned groups tend to become more heavily outnumbered by their peers. A total of 108 Spanish companies posted more than €1 billion of turnover in 2005, but only 35 of them were family-owned businesses, according to Tapiès. This is also reflected by the fact that, although being a majority in number, family-owned companies answered for only 35% of the global turnover and 42% of the workforce employed by all the 2,254 firms combined. The average turnover of family-owned companies, at €215 million, was slightly less than half the average of the others.

Conservative practices might be one explanation why the largest family businesses are not as big as Spain's mammoth listed corporations. And it is certainly an important factor that helps to account for the other main conclusion of the study: that family-owned companies live longer. 

On average they last 37 years, against 31 for other firms. No publicly-owned company can claim to have been around for over 200 years, while five family groups have earned themselves the right to such a boast. When winemakers Grupo Codorníu started producing their famous cavas, for example, Queen Elizabeth I was on the throne. A total of 86 firms in Spain have been trading for more than 90 years, and 60 of them are owned by families. 

Interestingly, some sectors of the Spanish economy present a particular hegemony of family-owned businesses. They amount to two-thirds of the producers of food, drink and tobacco products with more than €50 million of turnover, and five of the top 10 firms in the industry. 

In the hotel industry, 64% of the leading companies are family-owned, including the two largest groups: Sol Meliá, which belongs to the Escarrer family, and Barceló, controlled by the family of the same name. 

In the textile industry, the ratio of family-owned firms is 62%, accounting for 72% of the total turnover. Inditex, founded and owned by Armancio Ortega, is the indisputable leader of the market. Family-owned groups are also hegemonic in construction, representing 88% of all large companies in the sector, which has been the most affected by Spain's dramatic economic slowdown.

International expansion has been a major strategy of Spanish companies to achieve high growth rates, and that has been the case with family-owned groups such as construction giant FCC and food and wine producers Grupo Osborne. This is a strategy that is set to gain new supporters, as a sluggish economy has been forecast for Spain to the foreseeable future, turning the attention of firms to new markets abroad.

Although working with their own capital has been a strategy favoured by huge firms such as the Alvarez family retailers El Corte Inglés, some companies such as confectioners Europastry (Gallés family) and train makers Patentes Talgo (Oriol family) have joined forces with financial groups to fund their growth. A number of others, including energy firm Abengoa (Benjumea family) and media group Prisa (Polanco family), have listed part of their capital, but without the original owners relinquishing control of the firm.

It is also possible to find in Spain cases such as the Roca family, owners of Roca Corporación Empresarial and winners of the IMD-LODH Family Business award 2008, who have delegated the management of the group to professional managers since the mid-1970s, distancing themselves of the day-to-day routine of the family business while keeping control of the board.

The search for creative business solutions is unlikely to take a break right now. With experts of all stripes forecasting a long period of sluggish economic growth in Spain and elsewhere, family groups will have to show that they haven't lost the ability to adapt. Otherwise, they will struggle to survive the most challenging business environment most of them have ever faced.

Picture: Toro de Osborne, the symbol of the Osborne group

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