Times are changing for family businesses around the world. It is no longer business as usual–at least not as far as the next generation is concerned. Increasingly, next-generation leaders are leading their family businesses into new sectors, new products, new services, and new territories. They are testing out new business models, going global, and embracing digitalisation. In doing so, they are taking the family business out of its comfort zone and adopting sustainable practices.
With the bulk of next-generation leaders leading the charge for change, there is one burning question: Why and how are family businesses changing in these times of disruption?
Leading family-owned powerhouses in Asia now account for 17 percent of the world’s 500 largest family firms, including Reliance Industries from India (oil and gas), Sun Hung Kai Properties from Hong Kong (real estate), and Kuala Lumpur Kepong Berhad from Malaysia (consumer products). Furthermore, in Asia, many family firms are transitioning from the second to third generation, and some like the Ayala Corporation have been around for almost two centuries (established 1834) presently being run by the eighth generation. So we ask: What is making family businesses take the bit of change between their teeth and run like the wind?
Three megatrends
No firm is immune to the impact of three megatrends: Globalisation, digitalisation and sustainability. These three vectors are dramatically reshaping businesses across the globe.
With globalisation, family businesses find new competitors challenging their formerly-protected domestic markets.
The evolving digital economy and technological changes have far-reaching consequences on the business models of the typical family business.
Sustainability is fast becoming a major marketing force.
Global citizens steering global businesses
Family businesses have traditionally started and grown in domestic markets. But in a world that is becoming globally competitive, they are realising the need to internationalise in order to survive.
Every firm can gain access to a much wider market, both physically and digitally. Family businesses know that in this hyperconnected world, a global mindset goes beyond geographical expansion to a more holistic view of global networks and conduits as gateways to collaborations and market-making opportunities.
What is helping today’s family businesses harness these opportunities is a new global mindset among their younger leaders. Growing up in the family business can result in their leaders becoming very self-focused. But family firms are adjusting well to this new global world because their next-generation talents have spent a lifetime thinking about how their firm is related to the world.
An agile and quick structure
Digitalisation spares no firm and can seem quite threatening to family-owned businesses. The best-in-class family firms understand that disruptive technologies can render their core competencies utterly irrelevant, forcing them to chart a new trajectory. They know that they are in a perpetual global race for everything, from talent and partners to raw materials and customers.
Fortunately, family firms have some unique strengths that they can leverage to capitalise on the boons of globalisation and to tackle the shockwaves that digitalisation brings.
First, family firms have traditionally taken a long-term perspective and are less constrained by short-term pressures to succeed. Whether it is going into a new international market or investing in new technology, family firms are not slowed down by having to answer to multiple stakeholders.
Secondly, one of the hallmarks of family-owned enterprises is their agility. The flat structure of family firms allows them to make strategic decisions swiftly—faster than their non-family counterparts. Their short chain of command allows for quick communication and decision-making, making them highly flexible and adaptable to changes. This enables family-owned businesses to respond better to rapid technological change.
One family firm that is firmly seizing the opportunities presented by globalisation is KBZ Bank. Started as a one-branch operation in 1994 in Myanmar, the bank opened its first international office in Bangkok in 2016, closely followed by Singapore and Kuala Lumpur. Today this bank is busy establishing global representative offices that offer advisory services to foreign investors and helping them find the right local partner in Myanmar.
Another example is the Ayala Corporation, one of the Philippines' oldest and most successful conglomerates. The group holds majority stakes in a range of businesses, including real estate development (Ayala Land), banking and financial services (Bank of the Philippine Islands, or BPI), telecommunications (Globe Telecom), water utilities, and power generation. With its rich multi-industry experience, it recently embarked on a series of strategic investments to accelerate the development of the Philippine's digital economy and contribute to nation-building. Ayala's pioneering entry into e-commerce focuses on an online pharmacy (ePharmacy), inclusive financial technology, and online retail spaces—sectors that are critical to the social and economic transformation of the country.
That said, this same flat structure can limit family firms, too, as the simplicity of their structure is often not suitable for the complex planning required in internationalising. In addition, in globalising, many family firms still feel limited by the experiences and knowledge of the business owners.
Locally committed, locally trusted
Another unique strength that family firms have is the trust they enjoy among the communities they serve. This trust is invaluable when it comes to providing products and services centred around sustainability.
Most family firms do not have to prove their social and environmental credentials. Enduring family businesses are good stewards of the communities they operate in. Consequently, a hallmark of a family firm is their commitment to the local community. Unlike firms driven solely by the bottom line, many family firms want to solve local issues and do good by the local community. As a result, family firms are readily aided by the local community in their endeavours.
Because of this level of trust built up through generations, family firms can reach out quickly to the local community and get them behind their sustainability undertakings. Health Management International (HMI), an SGX mainboard listed company founded in 1991 is one such example. With a presence in five Asian countries, HMI aims to develop and build a network of comprehensive tertiary hospitals offering specialty and sub-specialty services in the markets it serves. To address manpower challenges in the sector and improve the healthcare standards in the region, HMI has developed a dedicated training institute to provide continuing healthcare education. To date, the HMI Institute of Health Sciences has trained more than 3,500 healthcare graduates in various aspects of holistic care.
In addition, family firms can make hard choices to achieve a long-term vision and run with new ideas longer than their non-family counterparts. And family firms are capitalising on this strength. We are now seeing trendsetters in Asian family businesses harnessing business value creation with social value creation by integrating sustainability into their purpose and products. For these firms, it has become a strategic imperative to create products and services that are founded on fair trade, that are against fast retailing, that are kind to the environment, or that support communities.
A good example is FoodXervices, which started as a humble household provision shop in the 1930s and has since then evolved into a food trading and distribution business under the stewardship of siblings Nichol and Nicholas Ng. Through her experience with the family’s food business, Nichol realised that while Singapore imports 90 percent of its food, it discards a massive 30 percent of it each year. Determined to find a solution to the country’s food wastage problem, The Food Bank Singapore Ltd. was started as a charitable organisation in 2012 and later adopted by the family business. This company today receives about 720 tonnes of unused food a year mostly from corporations, which it then redistributes to the needy through its 250 partner organisations.
Family firms believe in their ability to change
Another strength that family firms bring to the table is their strong self-belief. In PwC’s “Global Family Business Survey 2016”, 57 percent of family firms said they believe they are able to reinvent themselves with each new generation. Many family businesses in Asia are aggressively harnessing technology not only to improve business processes, but to reinvent their products and customers’ experience to keep ahead of their global competitors.
The Singapore family-owned group YCH is a great example. Started in 1955 as a passenger transportation company, YCH today focuses on integrated supply chain management solutions and operates in 14 countries with a throughput of US$38 billion a year. It is currently the region's leading supply chain partner that counts some of the world’s largest MNCs and aspiring growth companies amongst its valued clientele.
Another Singapore family business that is a role model of reinvention through technology is Sing Lun. The company first began as a textile trader, then into apparel manufacturing, and is now a diversified holding company in areas of manufacturing, real estate and investments. In order to cope with industry changes, Sing Lun’s apparel manufacturing business embarked on ‘innofacturing’—innovating in manufacturing to create high-value technical sportswear products. Its last reported annual revenue is around US$230 million.
Think global, think digital, think giving, and think generations
In an era of rapid change offering boundless opportunities, family businesses need to transform themselves from wealth creators to value creators to stay ahead. To thrive in this world of flux, family businesses must embrace a new ethos of think global, think growth (which includes digital), think giving, and think generations.
To survive in an economy characterised by a blazing pace of change, emerging technologies and disruptive business models, family businesses must have a clear and informed picture of what the near future will look like for their firms.The research shown so far has indicated that if family businesses are willing to adapt, they are poised to thrive, and the 21st century will belong to family businesses.
Talent Management & Succession Planning
‘Succession Planning’ takes on a certain significance when applied to family businesses run by several generations. Having to join the global race for talent and partners alongside everyone else, family businesses must likewise place particular importance on sourcing talent from outside of the family.
In light of the unique needs of their respective organisations, HR practitioners in family businesses such as Health Management International, Food Xervices, YCH and Sing Lun require a deeper understanding of the strategies at SMU Academy’s Talent Management & Succession Planning.
As part of the Academy’s HR Graduate Certification, this module equips participants with skills for identifying talent risks, as well as formulating appropriate succession and talent development plans. Find learning objectives, topics line-up, registration requirements and other details, here.
Originally published by SMU Asian Management Insights, 30 May 2018 by Annie Koh. Access the case in full here.
