[Sun Life Vietnam – News Release] Family Business Model in Vietnam Set to Change with New Generation of Business OwnersSeptember 17, 2020
Family Business Model in Vietnam Set to Change with New Generation of Business Owners
- Over 75% of younger business owners think there will be fewer family owned businesses in future
- Younger businesses less prepared to manage risk in COVID-19 pandemic
- Startup owners expect to retire 9 years earlier than mature business owners
Vietnam – (Month Day, Year) The multigenerational family business model could be set to decline, according to a survey of more than 240 family business owners in Vietnam and 1,300 across Asia conducted by Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF). The research reveals a shifting mindset among first generation business owners in Vietnam as more than 75% of younger owners surveyed believe there will be fewer family owned businesses in future and more than 60% believe owners will opt to sell the business rather than pass it on to the next generation.
Sun Life’s “Future of Family Businesses in Asia” survey also finds that the COVID-19 pandemic is likely to weaken the competitiveness of younger businesses as they are less prepared for unexpected business challenges and disruption.
The research was designed to uncover how today’s first generation business owners operate. It looked at their perceptions and attitudes to risk, retirement and succession planning and the future outlook for the family business model in the next decade. The survey was conducted in December 2019 and collected feedback from 1,378 business owners across 6 markets: Vietnam, Indonesia, Hong Kong, Malaysia, the Philippines and Singapore. They are categorized into startups (0 to 5 years), growth companies (6 to 10 years) and mature companies (over 10 years).
“Family businesses are the foundation of Asia’s economies. There remain many advantages to running a family business in Asia. But the younger generation of business owners are thinking differently about the future of their business. They prefer to build fast, sell and retire early, rather than pass it on to family as has been favored in the past,” said Leo Grepin, President, Sun Life Asia. “The COVID-19 pandemic has also created serious challenges for businesses that further complicates retirement and succession planning.”
Health and critical illness protection gap as COVID-19 emerging
The survey found perceptions of risk and risk management strategies build over time for family business owners as mature owners have heightened perceptions of the range of risks facing their business and are more likely to use risk mitigation tools to build resilience.
Family businesses often rely on a small bench of key decision makers to run the firm. The health and wellbeing of these leaders is integral to the health of the business. Almost all surveyed business owners in Vietnam (96%) reported that if they, or their key people, suffered an incapacitating illness it would have a serious impact on their business. Yet a health and critical illness protection gap existed between mature businesses and their younger counterparts in Vietnam as COVID-19 was first emerging.
According to the survey, 74% of mature business owners had personal health insurance in place and 67% had key man insurance protection. By contrast, only 53% of startup and 51% of growth business owners had personal health insurance protection and 33% of startup and growth business owners had key man protection.
In addition, only 53% of startup businesses held employee health and accident insurance, compared with 78% of mature businesses.
Impact of incapacitating illnesses on business performance (table for reference)
Divided views on future family business model
Vietnamese family business owners agree on the advantages of the business model but are divided on the future outlook.
More than 60% of owners agree that the family business model has many advantages. These include management’s commitment to the firm (63%) and the ability to take a long-term perspective of business development (60%). Most believe that family businesses will become more competitive (85%) and deliver more technological or business innovations in future (80%).
But the younger business owners believe the model will change. Most startup (75%) and growth (76%) business owners expect the number of family-controlled businesses to decrease as professional managers from outside the family are placed in charge in future. By contrast, only 9% of mature business owners see that happening in the years ahead. In addition, over 64% of startup and growth business owners believe that more founders will prefer to sell businesses before they retire instead of passing it to children. However, only 10% of mature business owners agree.
Advantages of a family business model (table for reference)
Survival and business continuity are priorities
On retirement and succession planning, almost all (96%) of Vietnamese family business owners surveyed have considered their exit plans and 82% have started their succession planning.
The top succession planning priority for all Vietnamese business owners is the survival and continuity of the company (66%), especially among mature business owners (86%). Preserving the founder’s legacy and reputation is also a top priority for mature businesses (68%) and fewer are concerned about family harmony (52%).
In a sign that business owners may be leaving retirement planning too late, mature business owners on average expect to retire at 56 years old, this is 9 years later than their startup counterparts.
“Startup and growth business owners aspire to retire early, whereas the expectations of mature business owners reflect the reality that it takes time and planning to accumulate wealth for a comfortable retirement,” said Larry Madge Chief Executive of Sun Life Vietnam. “For business owners their retirement savings are often locked up in the value of the business, which requires comprehensive succession planning to start early. The COVID-19 health crisis has caused much uncertainty for businesses globally. It may drive owners to work even longer, especially given the survival and continuity of the company is the top priority in their succession planning.”
When considering exit strategies, many Vietnamese mature business owners (59%) are looking to pass the business on to their children or other family members. Yet while Vietnamese mature business owners are aware of the need of succession planning and to do it early they may be stuck in their plans as more than 60% of those surveyed do not know which governance structure they will use and a staggering 84% will not seek external advice. Owners of startups and growth businesses are much more open in seeking advice.
The COVID-19 pandemic has created serious challenges for businesses. While the first priority for business owners is steering their businesses safely through the pandemic, Sun Life encourages business owners not to lose sight of their longer-term plans and to take a holistic view of the range of financial solutions available to offset their risks and protect and strengthen their business and succession plans for generations to come.
Important factors when business succession planning (table for reference)
About Sun Life
Sun Life is a leading international financial services organization providing insurance, wealth and asset management solutions to individual and corporate Clients. Sun Life has operations in a number of markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Vietnam, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda. As of June 30, 2020, Sun Life had total assets under management of $1,122 billion. For more information, please visit www.sunlife.com.
Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol SLF.
Note: All figures in Canadian dollars