Family Business

GAC008 Assessment Event 4: Academic Research Essay

Advantages and Disadvantages: Doing Business

Student Name: Aaron Student ID#: Teacher: Rose Hyson Due Date: 17 May 2013 Word Count: 1,032

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Question: The benefits of running a family business far outweigh the disadvantages. Relate this to your personal experience. Use specific examples and provide appropriate evidence to support your answer.
Family business occupies a large part of business structure and earns an estimated 70% to 90% of global GDP annually (Bryant, 2007). However, it is facing some vital challenges in recent years such as: aging time, the gender issues, vast quantities of expenses, deficient innovations and scale. While there are some difficulties, the advantages of family business are still distinct. Some positive aspects include professionalism, the trust of employees and the sustainable features of family business. The challenges are vital for family business. One of these problems is aging time. The American Family Business Survey made by MassMutual Financial group demonstrated that “within 10 years, 40.3% of business owners want to retire or make a total transition. And fewer than half of them want to retire within 5 years” (Glavin 2007, 4). Aging time brings not only the dramatic decrease among high position leaders as they become too old to work but also the decrease of stability of family business interior employment structure. That may form a negative effect on family business’s further development. Another problem is related to demographic. In 2002, only 24% of family business leaders were women (Glavin 2007, 5). That leads to a social problem – sexism, which is wildly concentrated worldwide. Businesses not only need men, but also need women to adjust the inner relationships and communications within the company. Also, the statistic

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demonstrates the positive increase in women involved in family business. Compared with 2002, there were only 10% of women on the top position in family businesses (Glavin 2007, 5).The gender discrimination is decreasing now, and may generate much more equality in the work circumstance. Not only demographic problems, but commercial problems are also cardinal to family business. These issues are usually related to capital and maintenance fee. Family business maintenance costs are extremely heavy burdens. The survey made by MassMutual also finds that there are 8 aspects which are potential risks for businesses functions. They are “labor costs, health care costs, finding qualified employees, foreign competition, labor union demands, domestic competition, oil prices and availability of credit from lenders” (Glavin 2007, 5). These risks are all connected to human resource management and trade relationship. In addition, this list illustrates that maintenance costs are central to every business and occupies a large part of expenditure. The commercial problems lead to another significant problem – innovation. According to PWC’s survey, “62% of respondents cited the need to continue to innovate, and 37% anticipated the need to invest in new technology. Companies in Italy, Turkey, and South Korea were particularly concerned about innovation” (PWC 2012, 8). Family business still needs some innovations to advance their current products or services in order to progress with the contemporary changing society. They need to change, in order to succeed. However, modernization and innovation is occurring worldwide, and should be considered carefully by thousands of businesses.

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Scale is another problem which interacts with innovation. The survey made by PWC demonstrated that even if family business is developed well, is still very difficult to develop further. The reason is due to the limited size of family business, which will lead to future problems hazardous time if there is no significant change. Even though it is a challenge to expend business, if the changes are implemented, it will create new opportunities in domestic market and will prompt new products and innovations (PWC 2012, page 10). Family business can change or innovate in order to expend the future market and development. The beneficial aspects are still obviously displayed, such as the contribution to the global economy, professionalism, and the sustainability of family business. The first advantage of family business is its contribution to the world economy. It is mentioned that family business contributes an estimated 70%- 90% of world GDP, which means family business occupies a large part of GDP distributions. Though family business is so-called exclusive and monopolistic, it actually contributes a positive effect on whole economy. The second advantage is professionalism, which is commonly misunderstood. It is assumed that family business all lacks professionalism in interior structure. “Slightly more than one third of the firms (36.6%) have a written strategic plan. Similarly, a bit less than one third (31.1%) use a formal process to establish a strategic plan” (Glavin 2007, 7). The truth of family business is that it does have professional business functions just as the strategic plan mentioned above, which enhances the potential for success or further development. Another issue is the professional employment. 20% of all family businesses had or have a non-family CEO which demonstrates the high demand of professionalism
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and standards among the businesses. Also, 45.2% of businesses have resource management systems that take care of recruiting, performance appraisals and benefits administration. (Glavin 2007, 7) Another widely recognized advantage of family business is sustainability, the IMD research affirmed that “The long-term sustainability will be the legacy which will hold the family together for generations to come” (IMD 2011, page2). In addition to, three features are gathered to define the sustainability of family business which is common in contemporary family business –uniqueness, inseparability and synergism (Tapies 2010, 3). Aronoff and Ward (2000,p 1) emphasized that “ shared values enable family members to derive pleasure and meaning from cross-generational relationships and striving toward mutual goals.” Often, family businesses inherit 9 aspects to help them develop further they are: template for decision making, inspiration for top performance, supporting a patient, long-term view, reducing the cost of capital, challenging conventional thinking, adaption to change, improve strategic planning, executing strategy (Tapies 2010, 3). All of aspects are evidence that family businesses do have high sustainability, which means they have capabilities to run a business and maintain it for future generations. So, family business’s sustainability is a large aspect which demonstrates the high proportion of survival in the intense competition of modern markets. Although, family businesses face many more challenges than advantages, they do have capabilities to deal with the problems and challenges at hand. However, these challenges should be considered carefully, not only in order to achieve business goals but also to succeed in contemporary society and the market. Family businesses still have a
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long way to go before they become innovative and stable.

Reference list
Glavin,B., Arstrachan, J.& Green, J.(2007), American Family Business Survey, Massachusetts Mutual Life Insurance Company, Springfield, MA Tapies, J. & Fernandez, M. (2010), Values and Longevity in Family business: Evidence from a Cross-cultural analysis, Av. Pearson, Spain Liu, F. & Lennox, B. (2011), Family Business at the Forefront of Global Change, IMD J. Chrisman, J., Chua, H, J.& P. Steier, L. (2003), An Introduction to Theories of Family Business, College of Business and Industry, Mississippi State University, Mississippi State Winkeljohann, N. & Andrew, E. (2012), Family Firm: A Resilient Model for the 21st Century, PWC “Family business”, www.bryant.edu, http://web.bryant.edu/business/family_business.html, Access Date: [17th/Mar/2013]

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