Family businesses are an engine for economic growth, but need Government support in designing a stable legislative and fiscal framework, investments in infrastructure and education
Entrepreneurs and family firms bring stability to the economy and represent an engine for growth, but they also feel the need for recognition of their role by the society and Government and they wait for its support in promoting a stable and predictable legislative and fiscal framework, as well as higher investments in improving the country’s infrastructure and the quality of the education system, in order to better train future graduates for the realities of the labour market. These are the main conclusions of the PwC study – Family Business Survey Romania, launched today in Cluj-Napoca at an event organized together with the Babeº-Bolyai University and Ziarul Financiar.
On the same occasion, the private company services team of PwC Romania launched also the PwC – Entrepreneurship and Family Businesses chair at the Business Department of the Babeº-Bolyai University, an educational platform meant to foster the dialogue on the specific problems of family firms.
“Entrepreneurs are the salt of the Earth. They are the ones that transform ambitions to reality, innovating, clattering long established hierarchies and creating value. They are the indispensable engine of any economy; they bring stability and create jobs. PwC understands to honour the Romanian entrepreneurs by launching this first study dedicated to the problems that family firms face, but also by creating a chair aimed at producing tomorrow’s entrepreneurs”, stated Vasile Iuga, Country Managing Partner, PwC România.
“At PwC we are invested in understanding and advising entrepreneurial families who have founded and developed some of the largest private companies in Romania. By joining the global PwC Family Business Survey we are now laying a new landmark and offering entrepreneurs and family businesses a new platform to share their views on economic trends and specific matters that influence their growth. At the same time, this initiative comes as recognition and appreciation of the distinctive role they play in society“, said Alexandru Medelean, Director, Private Company Services Leader, PwC Romania.
In a very difficult market environment, Romanian family businesses have performed well in the past year, with 71% of respondents indicating an increase in sales. Moreover, family business owners and managers are reasonably bullish about growth perspectives in the next five years, with 61% indicating that they expect their companies to grow steadily, while 13% aim at an aggressive growth, including through mergers and acquisitions.
Around one quarter of Romanian family businesses are rather cautious about the future and plan to consolidate their structure at the current turnover level.
These results are well aligned with those at the global level, where 69% of respondents aim for steady, organic growth, while 12% pursue more aggressive growth strategies.
When it comes to challenges for the organization, most family business owners and managers focus on external factors, such as the market conditions (52%) or increasing competition (32%). 42% of the respondents are concerned about the tax regime and 29% about regulation and government policy. On a more positive note, concerns connected to the availability of finance, a pressing issue in the wake of the global financial crisis, seem to have subdued, with only 13% of respondents quoting this as a challenge for their organization.
Also, there seems to be confidence in the capacity of the Romanian National Bank to manage the exchange rate volatility, with only 16% of respondents voicing concerns over this issue, as well as about the interest rates levels.
With still weak connections to external markets and a smaller proportion of exports in overall turnover, Romanian family businesses seem less concerned about the European economic crisis, with only 13% of respondents indicating this as a threat.
In terms of internal challenges, respondents are preoccupied about staff recruitment and retaining (39%), with most family business owners and managers fearing that they are being put to an unfair disadvantage with multinational firms over attracting the best employees, due to differences in remuneration and career track perspectives.
32% of respondents plan to focus on reorganizing their companies in the years to come, while 26% worry about production capacity and capability to meet the orders of their customers. The pressing issue of cash-flow management and cost control seems to have been mitigated to a large extent, with only 19% of respondents quoting cost-cutting as a pressing challenge and only 10% focusing on tax planning and optimisation.
While exports generate about one third of Romania’s annual GDP, private companies seem less connected to the external market, with an average of only 15% of their turnover being represented by exports, as compared to a global average of 25%. This makes Romanian entrepreneurial companies much less connected to the outer world than their counterparts in South-East Asia, where exports generate about 50% of the turnover, or Western Europe, where private companies generate between 30 to 50% of their turnover from exporting sales. Yet, there are also countries where private companies are even less connected to foreign markets, such as entrepreneurs from the US, Australia, Canada, Russia, Brazil and the UK. In such countries that have large internal markets, private companies are much more inward looking.
However, Romanian entrepreneurs look poised to change that situation, with estimates of exporting sales of up to 26% of the turnover in five year’s time. This makes Romania the country where exports of private companies are most expected to increase (77%), ahead of Greece (70%), Turkey (64%) and Italy (67%).
As for the destination markets of exports, these are not very diversified, with almost 70% of the sales going to Europe, out of which 10% to Hungary alone. The second most important export destination for Romanian entrepreneurs are countries in the Middle East and the Gulf states, where 10% of the exports go, while Africa and Asia Pacific share third place with only 7% of the exports.
Private companies’ owners and managers would like to see the Government take initiative in order to ease the tax burden, by exempting companies from paying income tax for reinvested profits. They would also wish for a stable and predictable legislative framework and a reduction of red tape. Another request for the Government would be to offer support for accessing new markets by granting state guarantees, but also support for developing the business, through networking and marketing activities. Family firms would like to obtain state loans or tax credits in order to acquire new technologies that would allow for an increase in productivity and competitiveness.
Also, local entrepreneurs feel the inadequacy of the Romanian education system to the realities of the labour market and express dissatisfaction with the poor training of fresh graduates. 58% of the owners and managers of family firms stated that youngsters don’t have the proper abilities to bring added value to their employers.
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