Shifting mindset set to change family business model in Vietnam

The survey, which covered more than 240 family business owners in Vietnam and 1,300 across Asia, reveals a shifting mindset among first generation business owners in Vietnam.

More than 75 percent of younger owners surveyed believe there will be fewer family owned businesses in future, while over 60 percent feel owners will opt to sell their business rather than pass it on to the next generation.

Sun Life’s Future of Family Businesses in Asia survey also found that the Covid-19 pandemic was likely to weaken the competitiveness of younger businesses as they are less prepared for unexpected challenges and disruptions.

The multigenerational family business model could decline soon as the younger generations’ attitude changes.

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, conducted in December 2019, collected feedback from 1,378 business owners across six markets: Vietnam, Indonesia, Hong Kong, Malaysia, the Philippines and Singapore. They were 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 of Sun Life Asia.

The Covid-19 pandemic has also created serious challenges for businesses that further complicate retirement and succession planning, he said.

Risk mitigation tools

The survey found perceptions of risk and risk management strategies evolve over time for family businesses 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 well-being of these leaders is integral to the health of the business. Almost all surveyed business owners in Vietnam (96 percent) 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 first emerged.

According to the survey, 74 percent of mature business owners had personal health insurance in place and 67 percent had key man insurance protection. By contrast, only 53 percent of startup and 51 percent of growth business owners had personal health insurance protection, and 33 percent of startup and growth business owners had key man protection.

The survey also found that only 53 percent of startup businesses provide employees with health and accident insurance, compared with 78 percent of mature businesses.

Many Vietnamese business owners agree the family business model has many advantages.

Generation gap on future directions

Vietnamese family business owners agree on the advantages of their business model but are divided on its outlook for the future, the survey found.

More than 60 percent of owners agree the family business model has many advantages. These include the management’s commitment to the firm (63 percent) and the ability to take a long-term perspective of business development (60 percent). Most believe family businesses will become more competitive (85 percent) and deliver more technological or business innovations in future (80 percent).

But younger business owners believe the model will change. Most startup (75 percent) and growth (76 percent) business owners expect the number of family-controlled businesses to decrease in the future as professional managers from outside the family are placed in charge. By contrast, only 9 percent of mature business owners see that happening in the years ahead.

In addition, over 64 percent of startup and growth business owners believe more founders will prefer to sell businesses before they retire instead of passing it to their children. However, only 10 percent of mature business owners agree.

On retirement and succession planning, almost all (96 percent) of Vietnamese family business owners surveyed had considered their exit plans while 82 percent had started succession planning.

All Asia- Insurance currently in place to protect businesses.

Continuity a priority

The top succession planning priority for all Vietnamese business owners was the survival and continuity of the company (66 percent), especially among mature business owners (86 percent). Preserving the founder’s legacy and reputation was also a top priority for mature businesses (68 percent) while fewer were concerned about family harmony (52 percent).

In a sign that business owners may be leaving retirement planning too late, mature business owners on average expected to retire at 56 years old, nine 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 that survival and continuity of the company is the top priority in their succession planning.

When considering exit strategies, many Vietnamese mature business owners (59 percent) 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 of the need to do it early, they may be stuck in their plans as more than 60 percent of those surveyed did not know which governance structure they would use and a staggering 84 percent said they would not seek external advice.

Owners of startups and growth businesses were much more open to seeking advice.

The Covid-19 pandemic has created serious challenges for businesses.

While the first priority for business owners is to steer their businesses safely through the pandemic, Sun Life officials said they encourage 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.

Sun Life is a leading international financial services organization providing insurance, wealth and asset management solutions to individual and corporate clients. It operates in a number of markets worldwide, including Canada, the U.S., the U.K., Ireland, Hong Kong, the Philippines, Japan, Vietnam, India, mainland China, Australia, Singapore, Malaysia and Bermuda. As of June 30, 2020, it was managing assets valued at $1.122 billion.

More information about the firm can be obtained atwww.sunlife.com