More family businesses in China and Hong Kong adjusting to "steady", rather than "aggressive", growth

73% of China's family businesses reported growth in 2016 - PwC Global Family Business Survey

Hong Kong, 3 Nov 2016

- According to findings from PwC's latest biennial global survey of family businesses: The ‘Missing Middle’: Bridging the strategy gap in family firms, 64% of family businesses globally have grown over the past year, despite economic uncertainties. Family businesses in Asia Pacific are the most ambitious, with 21% looking for aggressive growth, compared to Europe (10%), North America (12%) and Global (15%).

As the Chinese economy transforms from a state-led, manufacturing-based model to one driven by consumer demand and the service sector, the manufacturing-based family businesses that flourished in a previous era are having to find new avenues of growth. 73% of surveyed family businesses in China have seen sales growth in 2016 – down from 84% in 2014. Compared to two years ago, more family businesses are aiming to grow steadily rather than aggressively.

"The main challenges facing Chinese and Hong Kong family businesses over the next 12 months are market conditions, exchange rates, company re-organisation, staff recruitment and competition," says John Wong, PwC China and Hong Kong Private Client Services Leader. "Family businesses in China and Hong Kong should focus on innovation, be aware of the general economic situation and invest more in people. Improving profitability and ensuring their long-term future are the key goals for family businesses."

The proportion of HK family businesses that have seen sales growth has remained steady, despite an 11% rise in those reporting a sales reduction in 2016. A higher proportion of Chinese family businesses are planning to grow their core business in existing markets. Among those expecting to grow by 10% or more, 93% will use external financing to help fund this growth, compared to the global average of 78%. In HK, 85% are seeking growth in existing markets, although around half also plan to enter new markets.

Only 10% of family businesses in China and HK have a robust, documented and communicated succession plan in place, against a global average of 15%. More family businesses in both China and HK are inclined to pass on ownership but bring in professional management compared to 2014.

"The next generation play an important role in creating the family business’s future," says PwC Hong Kong Entrepreneurial Group Assurance Partner Kitty Chung. "The vast majority of family businesses around the world don't believe they are vulnerable to digital disruption. In our experience they underestimate the impact of digitisation. It is very important to listen to the next generation and have them be the agents of digital transformation."

Despite the relatively steady outlook, the report warns that growth could be curtailed by family businesses' lack of strategic planning, rather than economic factors or other external concerns. The 'missing middle' in the report’s title refers to the lack of a plan that links where the business is now to where it could be in the long term. This results in many families not being able to turn early promise into sustainable success.

"The survey confirms that family businesses are economic powerhouses and are having to navigate the same challenges as non-family businesses," says John Wong, in conclusion. "Their owners have to provide stewardship through an evolving commercial environment with changing stakeholder expectations. To do this, they need to be more open to global trends and outside advisors. They have to adapt to innovations and best practices, while diversifying their business."

Findings at a glance:

A number of the key challenges respondents from over 2800 businesses in 50 countries identified related to their strategic planning:

  • Succession:

    Only 16% of family firms have a plan for their succession process for all senior executives; 43% have none at all.

  • Innovation:

    64% identify innovation as a key challenge to keep ahead in the next five years.

  • Digital:

    47% say keeping pace with digital and new technologies is one of their key challenges, yet only a quarter think their business is vulnerable to digital disruption.

  • Professionalisation:

    three out of five respondents say they will bring in non-family professionals to help run the business.

  • Skills:

    58% say their ability to attract and retain the right talent is a key challenge over the next five years. Almost half believe that they need to work harder than non-family businesses to recruit/retain top talent (48%).

  • Finance:

    A third say that they find it harder to access capital (32%) than their non–family business counterparts. Three quarters (76%) say they will use their own capital to fund growth.

  • Cyber security:

    Fewer than half (45%) believe their business is prepared for dealing with a data breach or cyber-attack

  • Geopolitical concerns:

    The majority of family businesses identify political and economic stability as more important than growth potential when considering new export markets.

For a full report, please visit www.pwc.com/fambizsurvey2016.

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Peter Craughwell
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Kitty Liu
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