Some 43% of the 2,802 family businesses with sales turnovers ranging from US$5 million to more than US$1 billion surveyed in 50 countries between May and August, said they didn't have a succession plan in place, according to PwC's biennial global survey of family businesses: The 'Missing Middle': Bridging the strategy gap in family firms.
Only 12% of family firms reach the third generation, and just 3% make it past the fourth generation.
Niphan Srisukhumbowornchai, a tax partner at PwC Thailand, said that although family firms remain a vital part of the world economy as they contribute to the global GDP and create jobs, they are facing the risk of lacking a strategic plan that links to growth and not being open to change.
"A good strategic plan must serve family, owners, and organisation," Niphan said. "Each aspect of the plan cannot work independently, but rather needs to support one another. Most importantly, there needs to be a clear plan, written down, agreed, and communicated.
"Having a strategic plan that links where the business is now and where it could be has never been more important if family firms were serious about taking their business all the way to the end."
Other issues surrounding globalisation, digital and innovation are also causes of concerns faced by family firms.
Despite sluggish global growth and uncertain geopolitical developments, almost two thirds (64%) of family businesses have grown over the past year, the PwC report says.
The sector has ambitious plans to grow, diversify, and internationalise their businesses in the next five years.
Family businesses in Asia Pacific, in particular, are the most determined, with 21% looking for the quickest and most aggressive growth. This compared with family businesses in Western Europe (10%) and North America (12%).
Brexit impact
Following the 23 June referendum in the UK on leaving the European Union, questions about the potential impact of Brexit on businesses were added to the PwC questionnaire. Some 1,145 respondents answered.
In the near term, respondents didn't see Brexit affecting their growth ambitions, with only 15% globally saying it will have a negative impact.
However, fears about the potential impact of Brexit in the next one to two years were highest in the UK (38%), EU countries (22%) and the global average (15%).
"We believe that the post-Brexit impact on the Thai economy should be limited given its minimal exposure to the UK," Niphan said.
"Thai exports to the UK account for less than 2% of total exports. That being said, any family businesses with direct exposure to the EU and those engaged in international trade should follow developments closely and hedge against foreign exchange to mitigate risks if Brexit hurts the EU."
Next gen leader to lead digital changes
Some 64% of respondents say the most important challenge over the next five years will be the need to continually innovate.
Less than half (45%) also believe their business is prepared for dealing with a data breach or cyber-attack.
Yet, the great majority of family firms still underestimate the impact of digitisation, with only 25% feeling vulnerable to digital disruption and many claiming to have a strategy fit for a digital world.
The survey finds that the new generations will become the change agents for digital transformation as they play a vital role in creating their family business' future.
Next generation family members are more certain they have to work harder to prove themselves than the current generation believe they do (88% vs 66%). Nearly two thirds say they are properly appraised (65% vs 59% in current generations).
"The next generation are ambitious, dynamic, and open to change. They come to work with different expectations, different priorities, and are easy to adapt to new technology.
"Many families are now starting to professionalise their business by hiring an external CEO or professional teams to get fresh eyes on how they should run their operations," Niphan said.
Three out of five respondents surveyed planned to bring in non-family executives to help run the business. However, they need to be given the freedom and ability to make decisions in order to do the job properly.
Almost half (48%) of family firms believe that they need to work harder than non-family businesses to recruit and retain top talent. A third also say that they find it harder to access capital (32%) than their non-family business counterparts.
The report also suggests that a more uncertain economic environment is like to prompt family firms to spin off their business.
Fewer than half of family businesses plan to pass both ownership and management of the business fully to the next generation (39% will pass on management; 34% will pass on ownership).
First generation business owners are now almost twice as likely to be planning to sell or float their business (29% vs 17% average across all businesses).