Family businesses continue to thrive, but where's the talent?

With growth potential on the radar - innovation and succession planning are a must

TORONTO, Feb. 25, 2013 /CNW/ - Sixty per cent of Canadian family businesses reported sales growth in the last year and in the next five years, 87% plan to grow steadily. However, securing talent to drive this growth is a challenge, according to the Canadian supplement of PwC's Global Family Business Survey.

For the next five years, attracting a skilled workforce is the top concern for 62% of Canadian family businesses, while the economy is the primary issue (66%) for global respondents.  Sharon Duguid, Director, Centre for Entrepreneurs and Family Enterprise, PwC, says "The difference lies in the relative stability of the Canadian economy, aging workforce and the tight talent pool Canada is facing." 

Duguid continues, "Everyone is competing for the same talent. Typically, family businesses are not able to compete with multinational players when it comes to compensation. On the development end, their conservative growth strategies are not appealing for younger talent who want to climb the ranks quickly."

However, a family businesses' structure can offer significant benefits - particularly their agility, continuity and their long-term perspective mindset. Duguid says, "Family businesses need to do more to highlight their competitive advantages; their commitment and loyalty to their people. People are attracted to companies that have strong values and where they know their efforts will be recognized - both of which are characteristics of family businesses."

Who's taking over - Family ties or step outside?
Just over half of Canadian family businesses (51%), compared to 41% globally, plan to pass on the management of the business to the next generation, while an additional 14% of Canadian family businesses plan to pass on ownership, but employ non-family members to oversee the business. A further 16% don't know what they will do at this stage.

"Few families in Canada are having the conversation and asking their children whether they're interested in taking over or not, whereas in Europe and Asia, families start that dialogue with their children early on," says Duguid. "It's critical to be transparent and set the guidelines on how the business will be transferred from one generation to the next because this can build the family firm-or break it."

Duguid adds, "Clear communication is essential throughout the entire business, especially when dealing with conflict.  It's important that the right procedures are in place to resolve issues as efficiently as possible." More than 80% of those surveyed have procedures in place to deal with family conflict. The top three procedures include:

• Shareholders' agreement (69%)
• Incapacity and death arrangements (61%)
• Entry and exit provisions (45%)

Local vs. Global
Canadian family businesses remain focused on growing domestically as 65% of respondents do not generate sales from exporting goods or services to foreign markets. In the next five years, 26% of Canadian family businesses surveyed have no plans to move into new markets at all.

Globally, sales in international markets account for a quarter of total sales today and are expected to grow to 30% in the next five years.

"This reluctance to expand into global markets is a problem for Canadian family business," says Tahir Ayub, Canadian Private Company Services Leader, PwC. "Growth activity lies in the developing markets - where the demand is.  It's impossible to grow significantly in the next five years unless you dive into the international markets."

Canadian family businesses cite a number of factors as challenges to international expansion:

• Exchange rate fluctuations (32%)
• Competition (24%)
• Containing costs (21%)

"Regardless of size, we're digitally connected. Anyone can reach into your market and offer consumers the same product or service," says Ayub. "At the same time, Canadian family businesses also have the same opportunity with global customers. They are in a good position to take on more risk and debt to finance global growth."

Ayub concludes, "Identified as one of the key challenges in the years ahead, innovation will be vital for Canadian family businesses to evolve, grow and secure a competitive advantage against its global counterparts. Exporting is an area where family businesses can learn and spark new ideas from other multinationals. Partnerships and alliances are a powerful way of gaining insights from academic institutions or larger corporations - ranging from formal business or agency agreements in new overseas markets to informal networking."

For more information on PwC's Family Business Survey, please visit www.pwc.com/ca/familybusiness. Affiliated PwC Family Business Survey articles can also be found here:

• Plan more, pay less - Effective tax strategies for your family business
• Succeeding through succession - Using succession planning to build value and talent within a business
• Planning the next move - Successfully transitioning to a professionally-managed business

About PwC's Global Family Business Survey
The PwC Family Business Survey 2012 covers family companies with a sales turnover of more than US$5 million in over 30 countries/regions: Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, India, Ireland, Italy, Malta, Mexico, the Middle East (several countries), Romania, Russia, Singapore, South Africa, South Korea, Sweden, Switzerland, Taiwan, Turkey, the UK and the US. Interviews with top executives in 1,952 companies took place between June and September 2012. The 2012 Canadian supplement included 77 Canadian family business interviews.

Follow PwC on Twitter at @PwC_Canada_LLP and on Facebook at www.facebook.com/pwccanada.

About PwC's Private Company Services (PCS)
More than 65% of PwC Canada's clients are private companies, ranging from high net worth individuals to owner-managed family businesses and large, professionally-managed businesses. PwC's Private Company Services (PCS) group is a dedicated team of business advisors who help private company owners resolve day-to-day business issues and achieve long-term success. PCS offers the perspective of a third party with professional industry knowledge, business consulting, tax and accounting expertise. For more information about PwC's Private Company Services, please visit www.pwc.com/ca/private.

About PwC Canada
PwC Canada helps organizations and individuals create the value they're looking for. More than 5,700 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms with close to 169,000 people in 158 countries. Find out more by visiting us at www.pwc.com/ca.

© 2013 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved.

PwC refers to the Canadian member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

SOURCE: PwC Management Services LP

Abby Yung
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Emily Abrahams
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