Asian family firms are ill-prepared for disruptors: report

Asian family firms are ill-prepared for disruptors: report

A study published today has found that the majority of Asian family businesses in China, Hong Kong, Indonesia, Japan, the Philippines, Singapore and Thailand are aware of technological forces disrupting their businesses, but less than half are adequately prepared.

The report, published by Lombard Odier, concludes that family firms should better harness generational diversity, overcome entrenchment and engage external sources of talent and capital to sustain growth between generations, and urges they devise the necessary response strategies as a matter of priority.

94.1% of family businesses in Asia have experienced or foresee impact from at least one technological disruption, but less than half are prepared to go beyond the awareness stage to actively integrating disruptive technologies into their business models, according to a study commissioned by Lombard Odier, a global wealth and asset manager.

The report, titled “Where Technological Disruptors Meet Asian Family Businesses: Rethinking Next-Generation Leadership and Career”, is authored by Professor Roger King and Jeremy Cheng of the Tanoto Center for Asian Family Business and Entrepreneurship Studies at The Hong Kong University of Science and Technology (HKUST) and based on the results of an extensive survey conducted by Lombard Odier and HKUST of 119 next generation members of family businesses in South-East Asia and North Asia.

The top five disruptors to Asian family businesses identified by the report are: big data (60.5%), artificial intelligence or AI (52.1%), Internet of Things (48.7%), renewable energy (42.0%), and robotics (40.3%).

Awareness but limited action
While over 60% of respondents have taken steps to identify and understand the nature of disruptive technologies, only one-third have developed a clear perspective on the future direction for their own industry, market, and business amid technological disruptions. 12% did not take any action at all when facing technological disruptions, while only less than 30% managed to embrace deep transformation by integrating disruptive technologies into their existing business models.

The report found that, on average, it took 28 months for Asian family businesses to identify and execute a response to a disruptive technology.

Barriers to countering
Major barriers to Asian family businesses overcoming disruption include rigid mental models, emotional ties to loyal staff and existing assets, formalization, and political resistance. Asian family businesses also show low dependence on resources from external capital providers, indicating their concern about control dilution.

Families should rethink their control mentality.  Those choosing to delicately balance control and resources may stand a better chance of exploiting opportunities presented by technological disruption.

Professor Roger King, from the Tanoto Center for Asian Family Business and Entrepreneurship Studies at HKUST, said: “Today’s owners of Asian family businesses need to open up, embrace technological disruptions and rethink their businesses.

Many Asian family businesses are still in the awareness stage and remain far from formulating competitive strategies to exploit opportunities fuelled by technological disruption. External advisors and investment can be valuable in this process, yet our findings showed that only one quarter of family businesses in Asia had engaged outside expertise to manage technological disruptions. Such entrenchment could be an expensive lesson to a family business facing abrupt environmental changes.”

Other regions less impacted than Asia

Over 94% of the respondents in Asia said that their family businesses would be affected by at least one disruptive technology. This is in strong contrast to a separate 2017 survey, where over half of family businesses in Europe, Middle East, and Africa indicated that they did not experience any market disruptions.  While technological disruption is not a unique phenomenon in Asia, it appears that Asian family businesses are facing a keen drive in transforming themselves facing waves of technological disruptions.

“Family businesses must strive to maintain flexibility and agility to be able to respond to disruptions in a timely manner. This can be a challenge when a family business grows in size and is passed down across generations,” said Vincent Magnenat, Limited Partner, and CEO Asia Pacific at Lombard Odier.

Encouraging next generation members of the family business to create their own ventures that leverage disruptive technologies can lead to new revenue streams for the family. Alternatively, even exiting the business to refocus on different areas is a valid and valuable option, if well planned, to counter disruptive forces.

Magnenat added, “The study has highlighted Generation Y’s ability to add value by identifying disruptive technologies quicker than prior generations, but an increasing number want to create their own ventures. Families should look to embrace the next generation’s digital savviness within the family business, or alternatively grab opportunities to turn next generation start-ups or spin-offs into a disruptor.”

You can read the full report here.

Author spotlight

Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.

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