European and Cypriot family businesses remain confident and embrace innovation
Almost three quarters (73%) of European family business owners expressed confidence towards their business in the future, according to the recent European Family Business Barometer 2018 (seventh edition), released by the European Family Business (EFB) and the KPMG which surveyed 1.576 family business executives in 26 countries across Europe. European family businesses identified innovation, improving profitability, increasing turnover and attracting new talent as top priorities while they named global skills shortage, political uncertainty and the heightened regulatory environment as top challenges.
After several years of improving economic results, family business owners are looking towards the future and seeking new ways to capitalise on the momentum of their success, including reinvesting profits into the business. Of the businesses that were surveyed, 64% reported increased turnover over the past year while almost one quarter (23%) plan to expand and diversify their products to drive future growth; more than half (54%) plan to expand into new markets. One of the key strategies revealed for growth is embracing innovation; 86% are investing in the core business, 83% are investing in innovation and technology and 81% are investing in recruitment and training. In this increasingly digital and technology driven world, Europe’s family businesses also recognise the need for new skill sets and capabilities among leadership; one third of respondents are considering hiring an external CEO.
Mr. Jonathan Lavender, Global Chairman, KPMG Enterprise & Co-Chair Global KPMG Enterprise Family Business said: “We are seeing good progress this past year as family businesses are preparing for growth. The next step will require scaling their operations, which is a delicate and crucial operation. As they do business on the world stage, they will find themselves going head-to-head with companies from around the world. They have to factor increased global competition in their growth and expansion plans.
”While overall confidence is up across Europe, the UK was a notable exception, with confidence dropping from 83% in 2017 to 68% this year. With Brexit negotiations ongoing, growing protectionism and contentious trade talks front and centre on the world stage, UK family businesses are looking to the future with caution. Still, in general, Europe’s family businesses are navigating their way through, taking a long-term approach and being proactive in their talent acquisition and streamlining decision making to ensure that they have the agility to respond to changes in real time.
The war for talent was ranked as a top challenge facing family businesses (53%). This compares to 43% in 2017 and 37% in 2016. Other top challenges this year included the increased cost of labour and political uncertainty (both with 36%), as well as regulatory change (32%). On the other hand, international expansion is being postponed. In this year’s survey, only 36% of respondents said they had increased their activities abroad over the past year – compared with 44% in 2017 and 65% in 2016.
Mr. Jesús Casado Navarro-Rubio, Secretary General, European Family Businesses, said: “As family businesses grow, it becomes increasingly important for them to reach out beyond the family, to find the additional skill sets they need. This is particularly true in the case of highly specialised roles in areas ranging from digital innovation through to key roles at the production or assembly line level. Unfortunately, these specialised roles are increasingly difficult to fill. The growing skills gap must be urgently addressed by policy makers.”
As far as Cypriot family businesses are concerned, 79% of the respondents are feeling confident regarding their economic outlook for the next 12 months, while 73% reported an increase in turnover over the past year and 45% have increased their staff. 21% of family business owners increased their activities abroad while 27% managed to maintain them at the same level. Moreover, 34% of the respondents identified increased turnover and 23% improved profitability as the two top priorities for the next two years. The current strategic plans of Cypriot family businesses include investments in innovation and new technology (82%) and investments in recruitment and training (79%).
Increased competition was ranked as a top challenge by 23% of respondents. In addition, the “war for talent” is considered as a growing concern (15%), together with decline in profitability (10%), increased cost of labour (8%) and political uncertainties (8%) including Brexit; interestingly, 79% of the Cypriot family businesses do not feel prepared for Brexit yet. 67% of the respondents cited sustainability as part of their company’s future strategy, while 61% of them stressed that the role of their Board Council is crucial in the daily operations of the company; 39% of them are considering the appointment of a non-family CEO within the family business. 63% of the respondents are considering passing the governance (strategic oversight) of the business to the next generation while 61% of them indicated that the next generation is already placed in management positions. Finally, 52% of the respondents aspire their business to demonstrate significant organic growth within the next 5 years.
Mr. Demetris Vakis, Board Member and Head of Family Business at KPMG in Cyprus said: “Family businesses in Europe are confident about the future but must become more agile, innovate faster and attract top talent to remain competitive and continue to grow. Relating to the Cypriot family businesses, three major challenges were identified in the survey: increased competition, war for talent/recruiting skilled staff and decline in profitability.”
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.