Ukraine needs a family business for development. And that's why. I will name five reasons
25.10.2019
I do not know any other factor of stability in Ukraine, except for Ukrainian business. It survives in conditions where Western companies probably would not be able to survive - war, revolutions, loss of territories, hyperinflation, that is, a fall of the national currency by more than 50% per year.
However, there is another reason for the vitality of Ukrainian business - most private companies are essentially family-owned ones. And it is a family business that is needed for the development of Ukraine. Why? I will mention five reasons.
1. It gives predictability to the country
In terms of the world, the family-owned companies account for more than 80% of all enterprises in countries with free economy and bring 70–90% of the world GDP. They can be called the basis of the economy.
What is the economy in Ukraine based on? Ukraine is not among the most stable countries on the planet. No analyst can tell you what will happen tomorrow, in a month, next year. Everything is very fragile: our foreign and domestic policies, laws and currency.
At the same time, the Ukrainian family companies founded in the 90s exist up to now; many of them have outlived six presidents and they are likely to outlive the next six ones. They survive, make progress, sometimes shrink, sometimes grow, but generally withstand the market stress and continue to exist. In fact, this is a configuration that plays the role of a stabilizer in the society, and one of the few factors of stability in the country.
2. Family-owned companies play in the long run
Unlike public or state-owned companies, the private ones build their policies in a way that allows the next generation to survive, to outlive a new government, crisis, to pay off debts, get on their feet, start growing, cope with the new tax system and all the changes that shock the business and make it weaker in the short run. They aim to become a unifying force for the next generation.
The statistics show that in case of bankruptcy or sale of a business, a family as a community breaks up in most cases. Therefore, for the owners of family-owned companies, their business means not only their wealth, but it serves also the basis of their family integration.
3. Family business - it is about efficiency
A study published in the Journal of Business and Economics in December 2017 reports that the business dynasties own a third of global capital. In the EU, there are about 14 million family-owned companies, 50% of which indicate a steady increase in sales over the past 10 years. Among the largest taxpayers in the European Union, 40% are family-owned companies.
This business model is on average 10-15% more effective than any other is. However, the main indicator is the long-term existence of business. If you take the list of public companies, you will see that public companies that have existed for a hundred years or more can be counted on the fingers, and there is about a thousand of family companies in this age around the world.
Family companies outlive the others, as they rarely get into adventures, in contrast to the management of a public company, which must prove itself in 3-5 years, or unlike members of a government and a president who need to impress in order to be re-elected for the next term. At family companies, there is no need to surprise each other; they are focused on increasing profit and efficiency more than on creating capitalization and the value of their shares. For them, living long and adapting is more important than living brightly and dying beautifully.
4. Family business pay salaries for 60% of working population on planet
Another reason why Ukraine needs family business is the fact that it affects the level of employment in the country. Family-owned companies are significant employers; it is not only their stability that matters. State-owned companies can function even if they are deeply unprofitable. Private companies cannot afford it.
The level of employee satisfaction in private companies is higher than in state-owned ones. And the employees can confidently look to the future. Because they have contact not only with the leaders, but also with the owners. This is often inspirational, as owners are the sources of vision for the company.
5. Family-owned companies are influential and develop their countries of presence.
Each industry has its dominant family-owned companies. The world's largest family-owned company by number of employees is Walmart, which is owned by the Walton family. Walmart employs more than a million people, and that means a huge impact on the economy. Walmart changed the infrastructure and made available many products by lowering purchase prices. This is a benefit to the citizens.
If we look at car manufacturers, then family-owned companies own all auto groups. They also significantly affect the economy.
Many good things in the development of humankind were invented precisely by private business - from email to the mobile phone; private companies are developing even spaceflights now.
As for Ukraine, the entire retail, from grocery to household appliances, as well as the construction business (the two largest bourgeoning sectors that create jobs) is nothing else than the family business.
According to my estimates, in Ukraine 90% of companies can be considered family-owned, as we actually have no public sector, and there are not so many state-owned companies in percentage terms. At the same time, many private Ukrainian companies have not yet recognized themselves as family-owned. If at least half of them are self-identified, this will affect significantly the country's economy. Because they will be able to use the tools designed specifically to extend the life of family-owned companies and to identify family problems in business at an early stage. This will allow them to avoid nepotism and other sources of family conflict, as well as ensure the continuity of power and generations. To assist in this process, Ukraine launched the Family Business Awards 2019.
