Family business

Asian businesses keep it in the family

Asian family businesses deliver consistently strong financial returns, according to a Credit Suisse private banking report.

Against the backdrop of Europe’s sovereign debt crisis and the slowdown in global economic growth, Asian family businesses continue to outperform. The backbone of Asia’s economies, family businesses have registered a six-fold increase in market capitalisation during the past decade.

Asian family businesses have delivered a 261% cumulative total return during the past 10 years, with businesses in many Asian countries outperforming local benchmarks, according to Credit Suisse’s Asian Family Businesses Report 2011, which analysed firms in China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

In Asia’s family-owned firms, large shareholders generally have a long-term perspective and occupy senior management positions. This long-term commitment and the alignment of interests of owners and managers are two of the reasons for the outperformance, said Nannette Hechler-Fayd’herbe, head of global financial markets research at Credit Suisse private banking.

“The one interesting difference between European [family] businesses and those in emerging market is that [Asian family businesses] are relatively young.” said Hechler-Fayd’herbe.

The Credit Suisse report found that 38% of family-owned public firms in Asia took their companies public between 2000 and 2010. In countries with active new-listings markets, such as China and Hong Kong, the percentage reaches an even higher level of 61% and 49% respectively.

Fan Cheuk Wan, head of Asia-Pacific research at Credit Suisse, said that IPOs of family-owned firms in the region will continue to increase.

Although 62% of listed firms in Hong Kong are family businesses, they account for only 26% of the total market capitalisation — because the exchange is dominated by the huge Chinese state-owned enterprises also listed in Hong Kong. However, family businesses have grown faster during the past decade, with market capitalisation increasing by 10.9% a year, outperforming the 7.5% growth in the Hang Seng index.

The market capitalisation of family businesses is equal to 34% of Asia’s nominal GDP as of the end of 2010, said Hechler-Fayd’herbe. But this figure varies significantly in different countries.

Hong Kong’s family businesses are three times its GDP, while China’s family-owned firms represent only 7%, which is the lowest among Asian countries. In India, which accounts for more than half of all listed firms in the survey, family businesses represent 46% of the economy.

“Wealth management is not just about transactions, but about forging deep relationships of trust,” said Hans-Ulrich Meister, chief executive officer of private banking at Credit Suisse. “Credit Suisse has supported the current generational leaders of family businesses in Asia with world-class management services for more than 40 years and we want to be there for their next generation as they take up the responsibility of stewardship.”

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