The good news is the majority of family businesses reported sales growth in the last year, and their intent is to keep growing steadily. The bad news, however, is these businesses are struggling to attract the right skills and talent from the workforce to drive this growth.
Sixty percent of Canadian family businesses reported sales growth in the last year, and in the next five years 87 percent plan to grow steadily, according to the Canadian supplement of PwC’s Global Family Business Survey.
However, attracting a skilled workforce was the top concern for 62 percent of Canadian family businesses, while the economy is the primary issue for 66 percent of global respondents.
The difference in challenges facing family businesses nationally and internationally comes down to the unique position of Canada’s economy, says Sharon Duguid, director of the Centre for Entrepreneurs and Family Enterprise at PwC.
“The difference lies in the relative stability of the Canadian economy, aging workforce, and the tight talent pool Canada is facing,” says Duguid.
“Everyone is competing for the same talent,” she adds.
“Typically, family businesses are not able to compete with multinational players when it comes to compensation. On the development end, their conservative growth strategies are not appealing for younger talent who want to climb the ranks quickly.”
Despite their challenges, the unique structure of the family business has some significant benefits for employees, such as agility, continuity, and a long-term mindset.
“People are attracted to companies that have strong values and where they know their efforts will be recognized, both of which are characteristics of family businesses,” says Duguid.
“Family businesses need to do more to highlight their competitive advantages—their commitment and loyalty to their people.”
Not Always Passed on to the Kids
Just over half of Canadian family businesses (51 percent), compared to 41 percent globally, plan to pass on management of the business to the next generation.
An additional 14 percent plan to pass on ownership but employ non-family members to oversee the business. A further 17 percent plan to sell their company in the next five years, and 16 percent don’t know yet what they will do.
“Few families in Canada are having the conversation and asking their children whether they’re interested in taking over or not, whereas in Europe and Asia, families start that dialogue with their children early on,” says Duguid.
“It’s critical to be transparent and set the guidelines on how the business will be transferred from one generation to the next, because this can build the family firm—or break it.”
More than 80 percent of those surveyed have procedures in place to deal with family conflict, especially related to business ownership transference. The top three procedures included shareholders’ agreements, (69 percent), incapacity and death arrangements (61 percent), and entry and exit provisions (45 percent).
“Clear communication is essential throughout the entire business, especially when dealing with conflict. It’s important that the right procedures are in place to resolve issues as efficiently as possible,” says Duguid.
Local vs. Global
The majority of Canadian family businesses prefer to focus on growing domestically over globally, the survey found, as 65 percent of respondents do not generate sales from exporting goods or services to foreign markets. In the next five years, 26 percent have no plans to move into new markets at all.
Globally, sales in international markets account for a quarter of total sales today and are expected to grow to 30 percent in the next five years.
“This reluctance to expand into global markets is a problem for Canadian family business,” says Tahir Ayub, Canadian private company services leader at PwC.
“Growth activity lies in the developing markets—where the demand is. It’s impossible to grow significantly in the next five years unless you dive into the international markets.”
Canadian family businesses cited several factors impeding international expansion, including exchange rate fluctuations (32 percent), competition (24 percent), and containing costs (21 percent).
In the coming years, innovation will be a key factor for Canadian family businesses hoping to compete globally, says Ayub.
“Exporting is an area where family businesses can learn and spark new ideas from other multinationals,” he says.
“Partnerships and alliances are a powerful way of gaining insights from academic institutions or larger corporations, ranging from formal business or agency agreements in new overseas markets to informal networking.”
The PwC Family Business Survey 2012 covers family companies with a sales turnover of more than US$5 million in over 30 countries/regions. Interviews with top executives in 1,952 companies took place between June and September 2012. The 2012 Canadian supplement included 77 Canadian family business interviews.
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