Despite their great number, the academic and business community have yet to define uniformly what exactly constitutes a family business. The long-running debate has never garnered conclusive results. When defined as businesses that are majority-owned by a single family’s members, it is estimated that the total economic impact of family businesses to global GDP is over 70%. Discovering the additional means by which families contribute is the main purpose of the following overview that was created by consulting over 40 studies and including countries from all continents.
What we know about the economic impact of family businesses
Before diving into the facts and figures, let us review what is commonly known about family businesses and the contributions they make to their respective economies:
1. Family businesses show higher profitability in the long run.
2. Family businesses are less likely to lay people off and more likely to hire despite the possibility of an economic downturn.
3. Family businesses are more likely to give charitably to their respective communities and engage in extensive philanthropic activities.
4. Family businesses have a more long-term strategic outlook due to their main motivation consisting of creating a legacy for generations to come.
5. Family businesses are less likely to raise debt and are widely deemed financially prudent.
In spite of these promising qualities, it is also known that merely 30% of family firms make it to the 2nd generation and only a third because of that survive to the 3rd generation. Usually, family conflict is the impetus of this disappointing statistic. However, another factor may come into play. The institutional environment family businesses operate within may not always recognise their importance and do not provide much support. Therefore, while family businesses undoubtedly have an impact on the economy at large, the question is often raised of whether economic institutions are engaging enough to safeguard the survival of family-owned companies.
Measuring Impact – A Numbers Game
While the virtues of family business are often lauded, how much of their economic impact is duly measured? To fully grasp the sway these enterprises have on the world’s bottom line it is important to gather the figures available. The lack of a unified definition of what constitutes a family business however, makes this task increasingly difficult. For the sake of this article, a family business will be considered a company that is controlled and majority-owned by members of the same family. It is not possible to adjust all statistics to this definition, but for the most part national data will allow for such a generalisation.
We have collected statistics based around the following indicators allowing for analysis that points to family businesses having a considerable impact on their respective economies:
1. Percentage of family businesses in the private sector. (Fig. 1)
2. Percentage of workforce employment by family businesses. (Fig. 2)
3. Percentage of family business contribution to national GDP. (Fig. 3)
By looking at these numbers we can begin to understand not only the importance of family businesses within their national economies, but also how crucial their survival is for the stability of various nations.
Importance by sector and size
The impact of family businesses can also be considered by economic sector. In the Netherlands for instance, the highest concentration of family-owned businesses can be found in agriculture. This constant for the Dutch can be found repeated in many other economies around the world. Another key pattern to consider is the high concentration of family ownership found among small and medium-sized enterprises in real economy sectors such as agriculture, manufacturing and construction. Among small and medium-sized companies, the percentages of family businesses can reach as high as 98% and the employment rate for family-owned SMEs is typically more than 65%.
There are considerable parts of the world where the role of family businesses is largely undocumented. Key regions such as Africa, the Middle East and large parts of Asia have long gone unstudied. The difficulty that results from having no accurate data on the role of family businesses in these economies in turn leads to a lack of understanding on how family businesses can expand their roles in supporting their economies and what aid can be provided by government institutions to enable their sustainability.
Better impact for the future
The bearing of family businesses on national economies is undeniable, however this influence is not uniformly documented. More efforts should be directed towards studying the contribution of family businesses in order to establish the proper institutional frameworks to support their longevity.
This article was originally published on Tharawat Magazine, Issue 22, 2014