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Family businesses at crossroads

D&T
July 19, 2015

Nearly half of all family businesses in the CEE region plan changes in ownership within the next 5 years. But most of them don’t have clear processes in place for this turnover and require restructuring to be competitive in the future.

Family businesses have been growing rapidly across the region since the big social change in the early 1990's. Now, 20-25 years on, many of the founders face the biggest task: how to hand over the leadership to a younger member of the family. As many pioneering business owners approach retirement, 40% plan changes in ownership within the next 5 years. At the same time, many are looking to improve growth and profitability by expanding international sales, transforming operations, and investing in technology.

The next generation

According to PwC's latest global report 61% of CEE family businesses plan to pass down ownership to the next generation at some point in the future, while 28% plan to sell or float the business. PwC interviewed 2,378 family businesses in 40 countries worldwide, including 162 in Central and Eastern Europe.

To take over management effectively, next generation leaders need experience before taking the helm. So it is rather surprising that most CEE family businesses do not have a clear successor or formal succession plan in place.  Only 39% of them have a succession plan for at least some roles compared to 53% globally.  Likewise, only 29% of CEE family businesses currently have next generation family members working for the business, compared with 55% globally.

Conflicts about the management of the business can have terrible consequences on family relationships, while family issues – such as death, divorce, illness or accident – can throw the business into disarray. Having clear processes in place can prevent disagreements about the business from escalating into family crises, and vice versa. However, only 52% of CEE family businesses have a procedure in place to deal with conflict. This is much lower than the global average of 83%

Growing despite challenging markets

Despite the difficult climate, family businesses continue to perform well and are optimistic.  67% of CEE family businesses have grown in the last 12 months and 90% are aiming to grow over the next 5 years.  More than half of family businesses in Central and Eastern Europe sees geopolitical risks as a threat to growth - 54% see the economic situation and political instability as key challenges over the next 5 years, while 51% are concerned about market instability.
As family-owned businesses in CEE mature, they are looking to evolve their entrepreneurial culture to a more structured approach. They are increasingly investing into making their operations more professional and corporate. Within CEE, 52% of respondents pointed out the need to “professionalise” as one of their key challenges. This was significantly higher than the global average of 40%. Finding the right staff is a key success factor in creating a more professional organization, and 61% of CEE family businesses see attracting the right talent as a key challenge over the next 5 years.
Technology and innovation
The pace of technological change is a major force in the market and 43% of CEE family businesses believe that technology will transform business over the next 5 years. Furthermore, 73% of them see the opportunity to raise awareness of their organization through digital channels.  To take advantage of these new opportunities, 70% see the need to adopt to the new digital landscape.
Overall, CEE family businesses are less focused on innovation than their global colleagues. 46% of family businesses in CEE are focused on the need to innovate as a key challenge, compared to 64% globally. As business becomes increasingly international, CEE companies could face greater threats from more innovative foreign competitors entering their market.
Good successors in Hungary
There are plenty of good examples to demonstrate that the next generation is capable to take over the management of a family business. Let's take the famous Zwack family. In 2008, after 20 years as Chairman of the Board, Péter Zwack passed the baton to his son, Sándor, while his daughter Izabella also became a member of the Board of Directors. In this way family tradition has continued into the sixth generation. Since then Zwack has managed to increase sales and introduced new products. Apart from working for the 225 years old company Izabella now runs a winary on her own.
Foreign markets offer growth opportunities
CEE family businesses are looking to new markets for growth. 78% of family businesses in Central and Eastern Europe currently sell to foreign markets, and on average, international sales account for 21% of revenue. CEE companies are looking to increase international sales to 29% by 2019, and the vast majority plan to expand mainly within Europe.

D&T

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