Maltese family firms are positive about the future with 63 per cent expecting their respective markets to get better, according to PricewaterhouseCoopers’ second global Family Business Survey, which has just been published.
The survey shows that half of Maltese firms intend to expand their businesses over the next 12 months, and that similarly to firms in other countries, the most common internal challenge facing Maltese businesses relates to labour shortages.
Family businesses in Malta, however, like other mature European markets such as France, UK and Spain, have seen only a modest recovery in the demand for their products, with only 40 per cent witnessing growth compared to an average across all countries of 48 per cent.
During the survey PwC talked to over 1,600 entrepreneurs around the world. Entrepreneurs spoke about how they were faring in tough economic conditions, how they are planning for the future and how their experiences vary from one region to another.
Similarly to other countries, the three most common external challenges cited by Maltese family businesses were, in order of importance: market conditions, competition, and concerns over government policy and public spending.
However, Maltese family businesses showed a much greater consensus over the importance of these three external factors and the other factors obtained significantly less mention than in other countries. This implies that while market conditions are by far the biggest concern for Maltese family businesses, concerns over competition and government policy are also very relevant.
On the other hand, concerns over other issues such as interest rates, taxes, exchange rates and problems in foreign markets, appear to be relatively unimportant to Maltese family firms at present. Concerns about market conditions in Malta are considerably greater than in the other European countries analysed.
In line with the 27 per cent average across all countries, 26 per cent of Maltese family businesses expect their business to change hands over the next five years. The amount of family businesses planning to pass on ownership to a family member is however somewhat greater in Malta (63 per cent) than in other countries (53 per cent). Thirteen per cent of Maltese family businesses have a succession plan for all senior executives compared to a global average of 17 per cent.
Many Maltese family businesses nonetheless do have succession plans to cover some more senior positions or a limited amount of key positions (47 per cent compared to a global average of 32 per cent). Overall, succession planning in Maltese family businesses is fairly in line with the global average; this does not however alter the fact that 40 per cent of Maltese family businesses do not have any succession plans whatsoever.
Maltese family businesses appear to be on average, better informed about their domestic tax implications compared to family businesses in other countries. Nonetheless, 32 per cent are not aware of their domestic capital gains tax implications and 27 per cent are not aware about their domestic inheritance tax implications.
Maltese family businesses are significantly less aware about international tax implications than their foreign counterparts. Out of Maltese family businesses with potential international inheritance tax implications, 90 per cent do not know what these are. Similarly, out of Maltese family businesses with potential international capital gains tax implications, 88 per cent do not know what these are.
The survey shows that North American, British, Maltese and South African firms rely heavily on high salaries and good management techniques to retain and incentivise senior executives. German and Brazilian firms likewise prefer to pay and manage people well, but they place almost as much or more weight on challenging job opportunities and career progression, while Canadian firms trade on their ability to provide a good work/life balance.
The attitudes of Maltese family firms to corporate social responsibility are in line with the global average; 79 per cent of local business reported that CSR has had a positive impact compared to 73 per cent globally. Nonetheless, over the last two years, Maltese family businesses have undertaken more CSR initiatives than their foreign counterparts. Only 40 per cent of Maltese family businesses have not made any CSR related changes, compared to a global average of 51 per cent.
Similarly, Maltese family firms remain committed towards undertaking more CSR initiatives in the future, despite the hard economic climate, with 66.1 per cent of Maltese family businesses expecting to undertake major or minor CSR initiatives in the next two years, compared to a global average of just 48.3 per cent.
The survey shows that family firms in Brazil have greatly prospered. A full 74 per cent saw demand for their products and services rise last year, and for 41 per cent the increase was significant. But about two-thirds of Swedish and Canadian family firms also grew, outstripping the pace in South Africa.
Over half of all Danish and Finnish family businesses succeeded in boosting their operating profits, whether or not demand for their offerings rose – suggesting that Danish and Finnish entrepreneurs are particularly good at cutting costs. Elsewhere, however, the picture’s less rosy. Irish, Italian and Japanese companies have been especially hard hit, with operating profits down by 70 per cent, 46 per cent and 45 per cent, respectively.
These differences have clearly shaped the short-term plans of the family business owners interviewed. More than half (56 per cent) believe their core markets will improve this year, and more than half (60 per cent) hope to pick up more business. Brazilian and Swedish entrepreneurs are especially optimistic about the potential for growth. But 70 per cent of US entrepreneurs and 79 per cent of German entrepreneurs are also planning to expand.
British, Spanish and Japanese entrepreneurs are far more pessimistic. Over a quarter of British entrepreneurs, and over-two fifths of Spanish entrepreneurs, think their core markets will get a lot worse, as their governments wield the knife. And a third of Japanese entrepreneurs are simply struggling to stay afloat, although they’re paddling very hard; two-thirds intend to change their business models, which is half as much again as the average.
According to the survey entrepreneurs in Brazil, Japan, South Africa and North America are particularly anxious about the shortage of skilled labour. Danish and Irish entrepreneurs are more concerned about cash flows, while French entrepreneurs worry about margins and Swedish entrepreneurs about capacity.
More than four-fifths of US entrepreneurs worry about the state of the market, as do three-quarters of Brazilian and Canadian entrepreneurs. Conversely, only half of all French entrepreneurs are bothered about market conditions – possibly because they’re almost equally preoccupied with government policy and competition. Swedish, Danish, Swiss, British and South African entrepreneurs are also seriously concerned about exchange rates, while Canadian entrepreneurs worry about the tax regime.
Many of the family firms in the survey plan to invest in becoming more productive this year. The top three priorities are human resources and training, sales and marketing. But here, too, there are some marked national differences. American and Maltese entrepreneurs are investing heavily in human resources and IT. They’re also focusing on sales and marketing, like their Canadian peers.
South African entrepreneurs are more interested in beefing up their manufacturing, governance and logistics, while Brazilian and Italian entrepreneurs plan to invest across the board. Swiss entrepreneurs are the odd ones out; only 38 per cent plan to invest in human resources, in contrast with their German and Austrian neighbours.
Twenty seven per cent of those surveyed expect to bow out over the next five years –11 per cent of them within the next two years alone. The turnover rate’s likely to be especially high in Brazil, Denmark and Finland, where well over a third of entrepreneurs want to hang up their boots.
More than half of those expecting a change of ownership think the firm will stay in the family, but the percentage varies substantially from one country to another. Only 36 per cent of British proprietors and 41 per cent of those in the Germany, Austria and Switzerland plan to pass the business on to their descendants, for example, compared with 81 per cent of their Japanese counterparts.
However, many family businesses have made little provision for handing over the reins or dealing with contingencies. More than half of all Swedish, Italian, Belgian and French firms, and more than two-thirds of all Danish and Finnish firms, haven’t got succession plans for any senior executives. More than half of all Spanish and Brazilian firms haven’t got plans for coping with the sudden loss of a key manager or shareholder. And only a fifth of French, Spanish and Japanese firms have appointed caretaker management teams to step in, if the chief executive unexpectedly dies.
The exception to this pattern is Germany, where entrepreneurs are typically much better prepared. A full 50 per cent have succession plans for every senior executive role in place. They’re also more likely than entrepreneurs in most other countries to have made plans for dealing with events like the illness or death of a key manager or shareholder and for looking after the business while the heirs grow up.
The use of annual bonus schemes is also much more common in the US, UK and South Africa than it is in other countries. And many US family firms operate deferred bonus schemes or share plans for their most highly prized executives. However, Japanese, Danish and French firms use all such incentives much less frequently – relying more, perhaps, on loyalty.
More than half the Brazilian and Italian entrepreneurs interviewed said their families quarrel about the future direction of the business. In Swedish and Danish family firms, by contrast, it’s the role of relatives and whether or not they should be allowed to work for the business that’s most likely to trigger dissent – a marked difference from the situation in the majority of Dutch, British, US, German, French and Spanish firms, where the role of in-laws causes little, if any, tension. Sixteen per cent of Danish family firms also experience a lot of strife over future strategy.
Results for Maltese family business are in line with the global averages, with discussion over the firm’s future strategy and issues regarding the performance of family members possibly being of slightly more concern in Malta than in other countries. Family businesses were asked how important they consider various changes that would require government intervention to be. Lower taxes and simplification of the tax regime are perennial concerns, particularly for German, Italian, Brazilian, and also Maltese, family firms.
However, more than a third of Danish, Spanish, Swedish and South African entrepreneurs also regard better links between industry and academia for the purposes of product development as a top priority. Two-fifths of Japanese and South African entrepreneurs, and half of all Maltese and Brazilian entrepreneurs, likewise put more rigorous enforcement of corporate compliance high on the agenda, while more than a quarter of Spanish and South African entrepreneurs stress the importance of greater access to the capital markets.
Attitudes towards corporate social responsibility also vary. Family-business owners in Brazil and Germany, Austria and Switzerland (one region) are especially upbeat; 48 per cent and 47 per cent, respectively, say that it’s had a very positive impact on their organisations. And though British entrepreneurs are slightly less enthusiastic, nearly two-thirds of them have made changes to address the CSR agenda during the past two years, which is significantly higher than the norm.
By contrast, only 10 per cent of Swedish entrepreneurs think CSR had a particularly positive effect on their companies, but that’s probably because many of them regard it as a prerequisite for doing business. Sweden’s far ahead of the game, as the fact that it earned first place for corporate ethics in the World Economic Forum’s latest Global Competitiveness Report clearly demonstrates. However, many Brazilian and Italian firms are still in catch-up mode, which explains why they’re more likely to be planning major changes than their counterparts in most other countries.
In this regard, the attitudes of Maltese family firms to CSR are in-line with the global average; 79 per cent of local business reported that CSR has had a positive impact compared to 73 per cent globally.