Family businesses in Asia are facing numerous challenges – chief among them the question of succession and the need to adapt to a fast-changing world. Some Japanese firms are leading the pack, demonstrating true innovation and entrepreneurship as they transition for the future.

Japan, the land of family businesses

Family firms have existed in Japan for more than a millennium. The 10 oldest surviving family firms in the world are Japanese, and small and medium-sized enterprises (SMEs), many of which are family-led operations, account for more than 90% of all Japanese businesses.

However, in just one region alone, the number of SMEs that have closed or dissolved has exceeded 1,300 for four consecutive years. Generational and demographic shifts have been a key issue. In a country where the birth rate has plummeted and the average age of business owners has risen to around 62, there are succession challenges ahead.

Many firms struggle culturally with conversations about who will take over when founders are no longer able to spearhead the company, others are left without any family succession options at all. The situation has become so challenging that, for one founder, the solution has been to simply give his business away. Others, meanwhile, are turning to sons-in-law as a way to ensure business continuity.

However, some firms have been able to buck the trend by embracing a more entrepreneurial spirit. One such firm is Smartvalue, which has been around since 1928. The firm was an auto repair shop in the city of Sakai in Osaka until 2012, when Jun Shibuya took over from his father and turned it into a cloud solutions company, creating a smartphone app for logging commercial driver data, a medical appointment system for local governments, and an app for child rearing support.

Another firm that has seen significant transformation is Airweave. The company initially made weaving machines for fishing nets, and was based in Aichi Prefecture. Since Motokuni Takaoka took over from his uncle in 2004, it has transitioned to become a manufacturer of innovative mattresses.

Takenaka, an international construction and engineering firm set up by Tobei Masataka Takenaka in 1610, initially to construct temples and shrines, has shown similar innovation. In 2017, Takenaka Corporation became one of the first construction firms in Japan to adopt digital twin technology for construction and mechanical, electrical, and plumbing projects through a building’s lifecycle.

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Regional challenges

Finding successors for the country’s SME businesses remains a key challenge, however, and one that is also being felt further afield. In China, for example, where most family firms are still in their first or second generations, more than a third of listed companies and around 90% of private firms are classed as family businesses – these have been growing faster than their counterparts in the rest of Asia. In Hong Kong, family firms are the biggest contributors to wealth creation, with the 15 wealthiest families controlling assets worth 84% of Hong Kong’s GDP. Meanwhile, family firms represent 65% of Taiwanese firms by number, and 55% of total market value in the Taiwanese economy.

Across the region, all of these businesses face succession planning issues. In Singapore, for instance, although family businesses make up the majority (52%) of companies listed on the Singapore Exchange, representing 33.1% of total market capitalisation, just 26% have a documented succession plan in place.

At Lombard Odier, we believe in family businesses and entrepreneurs. Founded by entrepreneurs ourselves, we have a first-hand understanding of the needs and challenges entrepreneurs face, and we have supported many businesses as they transition to embrace the future.

Family businesses have the potential to produce superior economic returns while focussing on long term strategies and megatrends. They are more likely to prioritise the handing down of wealth to the next generations, which can translate into greater stability and a stronger long-term vision than other companies. The nature of transgenerational wealth means that stewardship for future stakeholders is held in sharp focus.

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Remaining future ready

As families change over the generations, there is one constant that singles out those businesses  able to stay the course over time: the ability to adapt and develop.
 

With succession planning a key issue, family businesses must strive to innovate, to explore new opportunities, and to maintain the entrepreneurial culture of their forefathers, embracing digital disruption and new technologies.

We believe that family businesses have a great deal to offer, not only in Japan, but across Asia.