Family businesses must evolve to continue being the backbone of Cyprus’ economy, shake off the coronavirus pandemic and deal with the impact of the war in Ukraine.
Family firms in Cyprus, accounting for over 90% of businesses, are responsible for job creation and driving the economy.
It is higher than the rate of 60% recorded across the European Union according to the European Family Businesses, the EU federation of national associations representing long-term family-owned enterprises.
The COVID-19 pandemic, globalisation, topped by the war in Ukraine, has made things harder for businesses to survive, with advisors arguing that Cyprus family firms need to adapt to new technologies.
In comments to the Financial Mirror, KPMG partner and family business advisor Demetris Vakis said that the pandemic, the war in Ukraine and sanctions on Russia have pushed up operating costs to unknown heights.
“From time to time, family businesses face various challenges, which require swift and flexible action.
“This is even more true today amid an ever-changing business environment,” said Vakis.
He argued the economy is heading for a prolonged period of instability, where nothing can be taken for granted.
“It is important for family businesses to onboard new technologies, turning digital where possible.
“The coronavirus pandemic and lockdowns have accelerated the digitalisation process of the economy and social life.
“As people spend more time working from home, using their mobile phones and social media for entertainment and information, Cypriot businesses need to turn to digital platforms to market products and services.”
Vakis believes family businesses will need to open up to deal with challenges posed by ever-increasing competition.
“In these times, family businesses should be more outward-looking, open to recruiting people with expertise and know-how who may not belong or have ties with the family.”
He explained that small businesses would need to onboard management staff but also connect with advisors able to see the bigger picture, unbiased by family ties.
“Things are changing so rapidly that a family business may have to adopt, stepping out of the ‘family tradition’ of doing things.
“This could mean they might have to turn to new products to complement their existing line or move into an entirely new line of products,” said Vakis.
On top of the new challenges brought on by the ever-changing business environment, family firms have their own special challenges, which have brought down many family ’empires’.
Talking to the Financial Mirror, family business advisor Marios Loucaides said apart from financial and competitive challenges; the succession process is another equally important challenge that all family businesses will face.
Loucaides said the issue of succession and laying down the rules for family members are the thorniest of issues troubling such ventures.
“The main issue would be the transition of the business to the next generations of the family. A process that marks the future course and the survival of the business itself.”
Noting that in Cyprus, handing down the business to the next generation is more like a ceremonial change of guard, Loucaides said that a strategically planned transition is vital for the continuation of the company and its survival.
According to data from the Family Firm Institute (FFI), only 30% of family businesses manage to survive the transition to the second generation.
Only 10% of family companies make it down to the third generation.
Loucaides said that family businesses should be more concerned about how they can increase their know-how, even if this means they will enrich their cadre with people who are not related.
“Enriching a family company with know-how and modernising the business is one of the guarantees for continuing the family business and the transition to the next generation.
“This certainly does not mean this enrichment will remove the businesses’ family identity.
“On the contrary, the common goal and the values cultivated in family businesses are elements that contribute positively to their competitors”.
The consultant said family businesses need to lay down their rules of the game, making it clear what the role of each member and stakeholder is.
“Quite rightfully, a family member who is an employee will be looking for a better salary, while another family member who is on the board will be looking to improve the company’s operations, bringing down costs.
“Setting the rules down early will help the family business grow and facilitate the transition to the next generation when the time comes.
“In today’s competitive environment, a family business cannot afford to waste time over arguments involving the status of each member in the business.
“Family quarrels over work, status and positions are not uncommon in family businesses.
“But they need to be kept in check to keep an eye on the ball, which is the market and their competitors.
“When the time comes, the family members should sit down with their board of directors and advisors to evaluate the situation and decide what serves the company’s best interest.”