Only 17 per cent of Kenya family businesses haves a robust succession plan
More than 80 per cent of family businesses in Kenya have expressed confidence in the country’s economy, a survey by professional services firm PricewaterhouseCoopers(PwC) has revealed, despite a number of challenges among them corruption affecting investments.
PwC Kenya’s latest report “The values effect: PwC 2018 Family Business Survey” shows that family businesses in Kenya have plans to grow over the next five years with 83 per cent of survey respondents remaining confident of their businesses growth potential.
The survey was conducted in late 2018 and involved key decision makers in family businesses in 53 countries including 46 business leaders from Kenya. The report highlights specific trends, challenges and opportunities for family businesses.
According to the report, released in Nairobi on Thursday, family business owners identified corruption (72 per cent) as the biggest challenge affecting investments, a trend expected over the next two years.
The second most challenging thing is access to the right skills and capabilities (52 per cent) followed by high prices of energy and raw materials(52 per cent), international competition (52 per cent), innovation and the economic environment(50 per cent) as the main challenges affecting businesses.
Other key challenges expected over the next two years include regulatory framework, domestic competition, cybersecurity, professionalization of the business succession, digitalization, data management and access to financing.
Only 17 per cent of Kenya family business owners report having a robust, documented and communicated succession plan in place, compared to 15 per cent globally.
Succession planning is vital not only to safeguard business continuity but also to ensure the goals of the owners, the family and the objectives of the business are properly aligned over the medium to long term.
“Developing, implementing and communicating a robust succession plan as early as possible before the actual handover will ensure a seamless transition from one generation to the next.A well-managed succession process can be a rallying point for the family firm, allowing it to reinvent itself in response to changing circumstances and find new energy for growth, diversification and professionalization,” said Michael Mugasa, Partner PwC Kenya and the firm’s Private Company Services Leader.
Of the 46 correspondents, 35 have a plan but less formal, 43 per cent have no plan in place while four per cent don’t know their succession plans.
Access to credit
On access to credit, the interest rate capping has continued to stifle businesses as a huge number struggle to get funding for expansion.
This comes even as bank lending (credit line) remain among the top sources for financing businesses, accounting for 84 per cent.
Internal resources however lead as the top source of cash used to fund the family businesses at 85 per cent.
Other sources include venture capital (24 per cent), capital markets (47 per cent) and stock market (four per cent).
Globally, banks top the list of sources for funding family businesses, accounting for 81 per cent of funds.
Internal financing comes in second, accounting for 71 per cent of sources used in funding these businesses.
“This publication, based on conversations with family business owners, is an effort to share insight about some of the trends affecting family businesses in Kenya. Family businesses and private companies contribute exceptional value to the economy in Kenya and the East Africa region and our publication focuses on their purpose and values as well as their challenges and opportunities going forward,” said Peter Ngahu, Regional and Country Senior Partner, PwC, East Africa Region.
Despite these challenges, family businesses have a competitive advantage in disruptive times.
“In a fast-changing and challenging business environment, family businesses in Kenya need to be able to think beyond the immediate demands of the day-to-day business and develop an informed view of the future. Digital technology is disrupting business; sustainability is becoming key to the conduct of business; winning trust is more important than it has ever been and millennials present an enduring demographic change,” said Mugasa.
According to the survey, family business leaders are aware of the power of digital disruption.
The need to continually innovate to keep ahead is important to 50 per cent of Kenya family business owners, compared to 66 per cent globally.
35 per cent of Kenya respondents said that they feel vulnerable to digital disruption, compared to 30 per cent globally.
The specific technological advances cited as challenges by Kenya survey respondents include cybersecurity (39 per cent) and digitisation (30 per cent).
67 per cent of Kenya respondents are aiming to take significant steps in terms of digital capabilities in the next two years, compared to 57 per cent of global respondents.
“Our survey shows that Kenya’s family businesses may feel more vulnerable, overall, than their global counterparts but they are investing in digital capabilities – perhaps helping them to feel more confident about the changes ahead,” said Mugasa.
The survey also shows that 87 per cent of Kenya respondents felt that they had a clear sense of values and purpose as a company, compared to 79 per cent globally. 73 per cent felt strongly that having a clear sense of agreed-upon values increased revenues and profitability (compared to 70 per cent globally).
73 per cent felt that having a clear sense of values gave them a competitive advantage (compared to 75 per cent globally), and 68 per cent said that strong values helped to attract potential joiners (compared to 79 per cent globally).
“Family businesses focus on values and purpose as a driver of their success. It has long been recognised that a family firm – ranging from a global enterprise to a business in a small community – is more likely than other companies to treat each day’s activity as an investment in the long-term, prioritising broad stakeholder interests,” said Mr. Mugasa.