Asian economies are characterized by family businesses that still dominate the business landscape. Two-thirds of the world’s largest family-owned, private companies are based in Asia.
Family-owned companies in many Asian countries have been adept at creating wealth spanning multiple generations. In the process, they have created rich legacies that have benefitted society as a whole. But globalization and digital technologies are changing the playing field. A study by Accenture’s ASEAN strategy division says family businesses need to make some changes to retain their relevance in this new world.
The Accenture study authors believe Asian family businesses owe their success to two primary characteristics: a long-term, entrepreneurial approach to growth and strong, lasting relationships of trust with a cross-section of stakeholders. This trust is still as critical as ever, but the process of building it is changing. Instead of relationship-based trust, companies wishing to be part of the global economy must adjust to a concept of trust that's based on digital visibility and transparency.
The New Trust Equation
Digital trust is often narrowly defined in cybersecurity terms—how safe is my personal data, and what other purposes will it be used for? But Accenture says the digital age exposes companies' core principles and ways of working. These must inspire trust, too. Companies must consistently and transparently display competence, integrity, commitment to purpose, and familiarity.
New digital commerce models have created new ecosystems that may force family businesses to form new relationships. For some, it may mean seeking outside investment for the first time, leaving them less in control than they have been used to in the past. And in their home bases, family members have strong "brand accountability" that can be hard to uphold under the pressure of today’s 24/7 news and social media cycles.
The authors propose that trust in the digital age is a case of balancing micro-trust and macro-trust in a “new trust equation.” Micro-trust is represented by individual customers' willingness to trust that an organization will reward them for sharing their data, and macro-trust is the public’s perception of the company’s transparent and ethical operation.
The Value of Trust
Earlier research by Accenture found that trust has a quantifiable effect on revenue. A study conducted by the firm in 2018 included 7,000 international public companies from 20 different industries. The study found that material reputational damage could result in as much as $180 billion lost revenue.
The researchers included B2B and B2C businesses and considered trust with multiple stakeholders, including customers, employees, suppliers, media, analysts, and investors. Trust with end consumers had the most significant impact. Almost half of all customers who switched their business to another company did so due to lost trust.
The Key Pillars of Trust
Modern trust-building needs to become a core value for family businesses in Asia (and around the world) to retain their footing in today's increasingly open and digital economies. Accenture emphasizes that companies should consciously strive to build trust with key stakeholder groups. Working on the quality and sustainability of these stakeholder relationships should be central to C-level decision-making and succession planning.
1. Employees
Traditional Asian employment cultures are being diluted by global exposure. As elsewhere in the world, the next generation of employees is seeking employers who share their values. As family businesses are generally perceived as more value-driven than others, this puts them in a good position.
However, these employees also demand empowerment. As a result, greater levels of transparency and autonomy will be demanded by employees in the future. Family businesses will need to adjust to distributed decision-making. For those that can make the transition, it will mean a more agile organization capable of seizing opportunities. But handing over decision-making to professional management will require high levels of trust for both parties.
2. Customers and Consumers
Consumers show a tendency to trust family businesses more than non-family businesses. But this also means they hold them to a higher standard. In the digital age, family businesses will need to develop a "listening infrastructure" that will capture only the minimum data necessary to design products and services to suit their customers' needs. They must do this transparently, allowing customers to set their data-sharing preferences. Like employees, the next generation of consumers wants to patronize organizations whose values align with their own, meaning CSI will become increasingly important.
3. Investors and Shareholders
There is a growing emphasis on environmental, social, and governance (ESG) factors as pre-selection criteria for investment. Family businesses looking for financing and outside investment will need to establish relationships of trust with potential funders, giving them confidence in their ability and willingness to commit to responsible ESG practices and transparent reporting.
4. Ecosystem Partners
“New-style” collaborative, digital ecosystem-based business models hold great promise but can also increase cybersecurity risks. Careful structuring, control, and governance are critical. Family businesses making new partnerships in this environment should look for those who share their values and establish robust protocols for data management and security.
Family businesses in Asia were put under the spotlight for lack of transparency and accountability during the Asian Crisis of 1997. However, it would be a mistake for investors to underestimate their adaptability and resilience. Those that can transition to the new digital economy will carry with them a formidable legacy.