All in the family is the business model(2)

One of the oldest family businesses in the world is the Hoshi Ryyokan hotel in Japan currently being managed by what is claimed to be the 46th generation of its founding family.

India, however, is home to the highest number of family businesses in the region, with family firms accounting for 67 percent of all listed companies.

According to Credit Suisse, a global financial services company, family businesses are a key source of private wealth creation in Asia and form the backbone of the region's economies.

The study Asian Family Businesses analyzed the performance of more than 3,500 publicly listed family businesses in the Chinese mainland, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.

In seven of these 10 locations it was found that between 2000 and 2010, family businesses outperformed non-family-run companies. Family firms in the Chinese mainland, Malaysia, Singapore and South Korea proved the strongest at outperforming their local competitors.

A survey by PricewaterhouseCoopers, Family firm: A Resilient Model for the 21st Century, shows that family companies are robust, vigorous and successful. It says family firms are ambitious, entrepreneurial and delivering solid profits, even in the continued uncertain economic environment.

Family businesses also make a substantial but undervalued contribution to stability and growth.

The report says that with longer-term thinking and a broader perspective, family firms are in many ways the epitome of "patient capital". Family businesses are willing to invest for the long term, and do not suffer from the constraints imposed on their listed competitors by the quarterly reporting cycle and the need for quick returns.

The report also indicates that family firms feel a stronger sense of responsibility to create jobs, and will make more strenuous efforts than other companies to keep their staff, even during tough times, translating into greater loyalty and commitment from those they employ.

"In some Asian economies, job creation for locals is spurred by thriving family businesses," says Ng Siew Quan, private client services leader at PwC Singapore. "Family firms are generally more resilient to external variables that impact the economy. When a crisis hits, family business owners are in better capacity and have the authority to act decisively and sometimes in a more flexible manner. Recovery is relatively faster too."

He adds that the family business long-term approach and wider perspective in the business, coupled with tighter management of funds, provide some buffer to the consequences that Asian economies face in an economic downturn.

Ng also believes that employment should not be the only factor in evaluating family firms' contribution to the economy.

The other pertinent point creating success for family firms is "a more personal approach to business based on trust". Family firms are notable for their strength of culture and values, and this belief grows stronger with time.

Experts make clear that family firms win business because they are closer to their customers, and have a more personal relationship with them - indeed that they are chosen precisely because they are not multinationals.

A KPMG report, Performers: Resilient, Adaptable, Sustainable, states that family values have a major impact on both how the business is operated and the sense of belonging by many who work there. Family businesses are often perceived as having a positive, nurturing and family-like environment. Indeed, the report says that family firms' employees may feel a sense of ownership of the organization.

Nevertheless, the success of family businesses depends largely on their ability to transfer the mantle from one generation to the next. The issue of succession is increasingly significant in Asia, where family businesses are younger than their US and European counterparts.

The KPMG report indicates that "achieving a successful transition between generations has often been viewed as an indicator of success to many families in business".

"Asian businesses are built on strong family ethos and a deep sense of family responsibilities that pass from one generation to another in preserving family values and wealth, so successful transition in Asian business families is critical to continued success and sustainability," says Annie Koh, associate professor at Singapore Management University.