Family businesses in Malta have grown less than the global average over the past year, but not significantly so.
A survey carried out by PwC found that 57 per cent of Maltese companies had grown compared with 65 per cent in the global survey, which encompassed over 40 countries and regions.
Growth plans for the future are also more conservative, with five per cent aiming to grow quickly and aggressively over the next five years, compared with 15 per cent globally.
The study is carried out every two years; this is the third in Malta.
Maltese family-owned businesses are no different to their international counterparts and their concerns broadly follow the international results, with one exception: they are less concerned about the economy.
One of the main concerns is the increase in competition, especially from new sources such as online shopping.
“The challenge is clearly to diversity and to digitalise,” PwC’s advisory service line leader Joe Muscat said.
Another emerging trend is the increase in staff mobility, with people with the right background becoming harder to find and harder to retain. Staff recruitment was cited as the top issue by 46 per cent of respondents for the coming 12 months, and by 48 per cent for five years’ time. However, this was still lower than the global figures of 49 per cent and 61 per cent respectively.
“A big investment is needed to attract staff. It is possible that family businesses were not attractive career options in the past because family tended to crowd out the higher positions, but that is no longer the case,” Mr Muscat said.
“We encounter many businesses that seek out top talent, even from outside the family. We are also seeing a much more defined split between management and ownership. However, it is increasingly important in such scenarios for the owners to demand regular reports and strategy updates from their managers.”
This trend is indirectly improving skills even among the second- and third-generations of family businesses who are more likely to get higher qualifications as they know that blood ties alone will not be enough to get them to the top.
Having said that, there is still a long way to go. PwC’s middle market leader David Valenzia said family members still account for a high percentage of employees, and almost two-thirds of board members are relatives. All family businesses have family members working as senior executives, higher than the global average of 93 per cent.
“On the plus side, we are seeing many more family councils and non-executive directors on boards.
“However, even though we are seeing more non-family members being employed, it is still rare for non-family members to be shareholders,” Mr Valenzia said. “It is very important as we are talking about a cultural approach here and it is clear from the survey that family businesses are less open to new thinking and ideas.
“This is very important because family businesses are the bread and butter of the economy and they have generally been very successful. The way they approach difficult situations is very different, and this may explain why they last longer than their overseas counterparts.”
The profile of family businesses is slowly but surely changing: fewer and fewer start-ups are family-owned. The aging profile of established family companies means that more changes will surely come as these transfer to the second and third generations. The survey found that only 17 per cent of the companies in Malta are first generation, compared with 30 per cent globally. On the other hand, 49 per cent of Maltese companies are in the second generation, compared with the 40 per cent found in the global survey.
“They say that every generation needs to create three businesses in order to survive but it is no longer about passing on machines and patents. It is now about innovation and diversification. The next generation needs to go out and do something different,” Mr Muscat said. The survey found that 68 per cent found the need to innovate as the key challenge in five years’ time, compared with 64 per cent globally.
“We are seeing the children of the ‘captains of industry’ taking on their roles with great enthusiasm,” Mr Valenzia added. “It is easy for motivation to wane when you get to the second generation; you always perform better when you are ‘hungry’.”
They often do not have much choice as increasing competition is forcing them to rethink everything from product and marketing to acquiring and retaining customers. This requires skill sets that might not be found within the family, particularly high-tech skills.
“We have been seeing a lot more investment in outside talent, and in all sectors, not just in retailing. Companies need to be technologically savvy, and nowadays that includes business intelligence and management tools,” Mr Muscat said. The younger generations have an advantage here and are frequently the ones mentoring the company founders.
Succession planning is an issue for Maltese companies: the survey found that almost a quarter of them have no procedures in place to deal with issues and conflicts, and only 16 per cent have a robust and documented succession plan.
www.pwc.com/mt/fambizsurvey