TORONTO, February 5, 2011—Canadian family businesses have come through the economic downturn better than their global counterparts and are now strongly positioned to compete with them in the future, according to a PwC global report.
Reflecting on the last 12 months from the time the survey was conducted, 66% of Canadian respondents say they experienced modest to significant growth in demand for their products/services compared to 45% of their counterparts in other mature global markets. Only 5% of Canadian companies said they experienced a significant reduction compared to 15% in other mature global markets.
However, Canadian family businesses remain keenly alert and aware of the volatile world economy, with 74% citing market conditions as their top external issues in 2010, up from 62% in 2007.
“Canadian family businesses and Canadian companies in general have been well recognized internationally over the last 24 months for how they met the challenges of the recession head on. They were cautious, optimistic and above all pragmatic,” says Tahir Ayub, Canadian leader of PwC’s Private Company Services practice. In fact, 70% of this year’s respondents said they believe being a family business helped them get through the economic crisis. “Family businesses are good at focusing on long-term relationships—with employees customers, suppliers and service providers such as banks—and those relationships carry them through the tough times,” Ayub says.
The survey findings also indicate that 31% increased their spending over the last 12 months; 67% said they have access to surplus cash flow and 97% are very or somewhat competitive in their markets.
While overall Canada’s family businesses may not have their full swagger back, 66% are striving for growth and expansion in the next 12 months, compared to a higher confidence level of 74% in the 2007 PwC survey. Sixty-one percent expect the market within their core area of business to get a little or a lot better.
However, in terms of improvements, the findings show that only 54% of this year’s Canadian respondents have a formal strategic plan. In many family businesses, family members spend their whole lives in the company and so while they know the business inside-out and understand the strategy, they assume everyone else does too, says Yves Bonin, Montreal’s Private Company Services Leader. “You have to make sure your entire team understands the strategy, their role and that you allocate tasks and follow-up to ensure you are executing the strategy,” he says.
AREAS OF FOCUS
The priorities of Canadian family businesses going forward are clear. When asked which areas they were planning to invest in to improve productivity and competitiveness in the next 12 months, 75% cited sales activity, 73% mentioned human resources and training while 70% said marketing and 59% are planning to invest in IT infrastructure. Says Ayub, “These are all strong foundations necessary for sustainable growth, but if Canadian families want to keep growing significantly, they are going to have to think global.”
The majority, 63% of family businesses surveyed, do not export goods and services to foreign markets. Of those that do, 76% export to the U.S., 22% to Europe and 16% export worldwide. Only 16% export to Asia, 3% to the Middle East and 3% to South America and 3% to Africa. “The U.S. is still the world’s biggest economy and it makes sense that Canadian family businesses are taking advantage of living next door. However, Canadian family businesses have to also consider going into emerging markets because that is where the growth will be in the next decade,” says Ayub.
In 2010, Canada’s family business leaders have their eye back on the war for talent, especially now that the economy is recovering and there will be shrinking pool of high-quality, high-powered management available, the report states. Fifty-six per cent cited recruitment of skilled labour as their top internal challenges. This compares to 64% in 2007.
One of the biggest disadvantages many smaller businesses face in competing for top management talent is in the area of remuneration. “A public company will be able to offer such things as stock options. I think family businesses need to think less in terms of salary and more in terms of market-based compensation in order to compete effectively for key talent,” says Ayub.
One of the more surprising statistics showed that fewer owners are recruiting from within their own family ranks, the survey shows. When asked how many successors for key senior roles are likely to be family members, 31% of this year’s respondents said none, 20% said two and only 16% said three to five.
Good succession planning starts well in advance of the transition. When this year’s respondents were asked if they anticipate any change in ownership of the business, 27% said yes, within the next five years. According the findings, 51% of respondents have chosen the next business leader, but 49% have not. At the same time, 78% believe they have provisions to deal with both business and family issues in the event of the untimely death of key managers or shareholders.
The PwC Global Family Business Survey 2010-2011 covers small and mid-sized family companies in 35 countries. In Canada, 100 family business leaders were interviewed from July to August, 2010. For the full report, go to www.pwc.com/ca/familybusiness
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