As Asia begins to feature prominently on the global economic stage many Asian family businesses are starting to go through a period of generational transition. The research highlights the growing opportunity for family offices to increase market share in the region, said Marcel Kreis, head of private banking, Asia Pacific, in the Zurich-based bank's inaugural Asian Family Businesses Report 2011.

The report surveyed 3,568 publicly-listed Asian family businesses with a market capitalization of $50 million or more, in ten Asian countries. Family businesses are those defined as 20 per cent owned by a family either directly or indirectly.

Firms surveyed include Samsung Electronics, 22 per cent owned by Korea’s billionaire Lee family, and Reliance Industries, divided between India's wealthy Ambani brothers.

First generation growth

While Asian family businesses occupy over half of Asian stock exchanges, by comparison, in the US just over third of Fortune 500 businesses are family companies. In the UK, only 8 per cent of the largest listed firms are family-owned. In France, 37 per cent of the largest 100 companies have families as their largest shareholders, 36 per cent in Germany and 30 per cent in Italy.

The total market capitalization of Asian family businesses has expanded roughly six-fold between 2000 and 2010, said the report. This reflects the entrepreneurial drive of early stage family businesses to seek growth opportunities through fundraising in the capital markets, and the rapid development of the Asian capital market since the Asian financial crisis in 1997-1998.

The survey also showed that Asian family businesses are at an early stage of their life cycle, with 38 per cent having listed their shares after the millennium. However their growth trajectory is steep. Asian family businesses outperformed their local benchmarks in seven of the 10 Asian markets during 2000-2010, delivering a 261 per cent cumulative total return and compound annual growth rate of 13.7 per cent during the period.

Family businesses in China, Malaysia, Singapore and South Korea achieved the strongest outperformance in total return against their local benchmarks during the period.

"In Asia, many family businesses are first generation businesses, in contrast with many family businesses in Europe and the USA which are already in their fourth or even fifth generation. Their early life cycle development stage underpins a growth bias among Asian family businesses," said Dr Nannette Hechler-Faydherbe, managing director, head of global financial markets research, Credit Suisse Private Banking, who presented the report to media today in Singapore.

Important employers

The analysis shows that family businesses have been a crucial source of private wealth creation in Asia and are an important pillar of the region's economies.

They are also one of the biggest employers. In South Asia family businesses account for 57 per cent of all listed companies’ employees and nearly a third in North Asia.

However, as a percentage of the total labor force, they contribute only 0.7 per cent and 1 per cent respectively, a reflection of the fact that the bulk of employment in Asia is accounted for by the public sector, unlisted firms and self-employment. Family businesses are heavily concentrated in the consumer discretionary sector, accounting for nearly two-thirds of the employees in that sector, followed by the financial sector at nearly a third and the industrial sector at over 30 per cent.

Dr Hechler-Fayd'herbe pointed out that Asian family businesses share the common characteristics of their western peers, as they typically act as committed stakeholders with long-term investment horizons rather than a short-term focus on boosting current earnings, well exemplified by their frequent share buyback activities during the market downturn. 

Long-term commitment of the family business owners also translates into well-considered business strategy and investment decisions that focus on the firm's long-term financial and management well-being rather than short-term share price performance.

“In our view, family ownership provides firms with the crucial stability and continuity in business ownership and management structure to implement long-term investment strategies that maximize long-term firm value, placing far less emphasis on short-term results. Too short-term a focus can discourage strategic investment in brand building, research and development, human capital development and other vital intangible investments,” she added.