Are Southeast Asian family businesses ready for Industry 4.0?
THE impact of the Fourth Industrial Revolution is forcing many businesses to equip themselves with the necessary tools in order to avoid being left behind.
In Asia, family-run firms are a prominent feature of the business landscape. Compared to newer businesses, these companies are characterized by a more traditional way of running things. The often long tenures of owners can result in rigidity and prevent any innovative overhauls of the business.
Asian family business owners are often reluctant to retire, and having grown up in a much less digitally-mature era, they may not fully grasp the power of new technologies and consumer trends.
This, unfortunately, puts family-run businesses in a poor position to innovate. But with the rapid pace of change in technology and customer loyalty diminishing, there is no choice for family businesses to innovate or risk falling at the hurdle.
A recent study by The Economist Intelligence Unit (EIU) assessed the readiness of family businesses across Asia-Pacific to address future challenges to the way they run.
The study “Planning for prosperity: assessing family business future-readiness in South and South-east Asia” is based on the survey results of 300 family business executives across eight countries in the Asia-Pacific region: Bangladesh, India, Indonesia, Malaysia, Singapore, the Philippines, Sri Lanka, and Thailand.
Family-owned businesses remain positive about the future
Despite concerns about the preparedness of family-businesses for digital disruptions, according to survey results, it seems that such businesses remain positive and are looking forward to offering new products (94.3 percent) and to enter new markets (93.7 percent). Among the findings were:
Of the 300 executives of family-owned businesses surveyed, 70 percent are “very confident” in the digital proficiency of their employees.
Over 60 percent are not worried about the pace of change in new technologies. Of these, 94 percent reported feeling prepared to utilize data analytics, 88 percent for machine learning, and 88 percent for cloud applications.
The survey also shows the chief concerns of family businesses in innovating revolve around external circumstances rather than internal capabilities. This included domestic economic weakness and government regulation.
Are these businesses overconfident in their ability to keep up with change?
Despite the respondent’s high levels of confidence, according to experts the actual preparedness to meet future challenges is not as strong as it should be.
“Family businesses cannot last beyond this generation if they do not innovate,” explained Annie Koh, academic director of the Business Families Institute at Singapore Management University.
The survey indicates that family businesses are very confident in the ability of their employees. For instance, seven in ten survey takers say they are very confident in the digital proficiency of their workforce
But this is a pretty high number given the global concerns in this area. In a study measuring the extent to which 35 education systems around the world are teaching young people the skills they are likely to need in the future, Singapore and Japan were the only Asian economies ranking in the top ten.
“Although the survey shows that family businesses are aware of emerging technology trends, it remains to be seen whether they are actually taking advantage of these given the questions surrounding the need for greater professionalism,” said Koh.
Bringing the next generation into the family business
According to the report, if businesses are wanting to stay ahead in the fourth industrial revolution, they must change their governance structure- and this lies heavily with the younger tech-savvy generation.
“What we’ll see with the next generation is that they will manage the companies very differently,” predicted Roger King, director of Tanato Center for Asian family business and entrepreneurship studies at HKUST, Hong Kong.
“Whereas the older generation doesn’t even have organizational charts, the new generation will have more structure and be technology-driven to stay abreast of trends, such as AI and globalization,” he added.
However, getting the next generation to join the business may be a challenge in itself.
According to King, around eight in 10 of the next generation do not want to join the family business and would much rather start up on their own.