importance of family business essay

importance of family business essay

The Importance of Family Businesses: A Comprehensive Analysis

1. Introduction to Family Businesses

Family businesses remain the most common organizational form worldwide, accounting for the large majority of companies in existence, addressing different industries, sizes, and corporate governance models, and existing across different cultures and laws. In strong economies, family businesses must always be mentioned as strong drivers of growth, jobs, and creation of wealth. Despite the common idea that explains the size of the universe of family businesses and its positive influences on economics, social and society, they are not widely studied as each potential contribution justifies. At some point, the family and the corporate worlds separate and both entities must be separated in our analysis. Therefore, and for the above-mentioned reasons, the subject of family businesses is a broad and comprehensive area of study, converging different sub-areas. When studying family businesses, and because of the complex structure and nature of this kind of business, a multidisciplinary approach is required to understand the motivations and behavior of units, as well as what family means.

2. Benefits of Family Businesses

Due to its structural specificities and traditional ways of acting, the family business – which is a blend of family and business systems – can be understood as a unique kind of organization. This offers a certain number of advantages. Similar to other companies, family businesses search for their existence in the marketplace, giving emphasis to the exactness of judgment and to risk-taking. However, unlike the majority of other types of business, they do not prioritize the concept of profit. Such an idea can be translated into educational or social terms. Many family businesses develop themselves with the intent to direct toward an activity linked to the expertise of the founders – normally in the industrial area. They have confidence in developing a workable occupation for family members and for other employees. This aspect represents an enormous weight in the determination of their precise strategies.

Family businesses signify an extensive part of all business ventures. Sometimes, small businesses are omitted in statistical activities of family businesses. Nonetheless, in regards to the economy, the family business sector builds up an extremely important economic power. Family-owned businesses signify an increasingly important aspect in the literature on economics and business. As marital matters have been increasing significantly, academic researchers have come after economic and business-related sociologists in stating that the family business should not be avoided and must be closely observed.

3. Challenges Faced by Family Businesses

The answers proposed to ensure that all the benefits are felt are not consensual; but despite the typical euphemism, adapting and balancing the relationship between business and family are among the challenges that Business Administration must overcome. There is a wide consensus that the myth of a family business lasting forever because of its apparent sense of unique identity, greater commitment to business success, and longer-term orientation has some basis. However, and precisely because of this involvement and that long-term orientation, it seems that the challenges succeed in being formidable to them. Recent sociology studies have highlighted the importance of time and space for rethinking the sense of a full sense of individuals, families, and their companies. Family businesses face technological, economic, legal, managerial, market, and human resources challenges, which are the object of individual chapters that will follow.

Family businesses not only face professional challenges (corresponding to increasing their ability to succeed and survive as a species), but also significant specific governance, management, and succession risks and challenges linked to the sense of identity and family unity ordinarily related to the family sphere. The dual challenge of compatibility of these two spheres is one of the main reasons that the ‘family business’ name has been used. This means that, through the institutions acting in a combined manner, risks are reduced, efficiency and speed in making decisions increase, and there is hope that the family affectio societatis is not lost among its members. These institutions exist either formally, voluntarily created by the family and acting as a filter to the market’s standard regulation, or informally through creation by the business itself, such as the attachment of key employees with the cause of the company, the company’s social networks, organizational culture, and a clear long-term vision with the family as a shareholder.

4. Strategies for Success in Family Businesses

From a management point of view, the creation of a family council, as a space for dialogue, debate, and conflict resolution, is indicated to give voice to the different segments of the larger family, so that the strategic direction of the business can be decided collectively, without moments of great conflict being inevitable, and so that the family, in its entirety, feels the power to influence decision-making. It is essential to define and show the capabilities and skills required for the stewardship of the business. It is incumbent on the business to clearly define the vision, mission and objectives of the organization, and therefore of the family, to clearly define the family policy, in relation to ownership, remuneration, development and succession, and to evaluate, select, and promote family and non-family members who share the same values. The appointment of a non-family manager or the realization of family group governance, using, for example, an independent group of directors or a board of directors, is also an argument in favor of impartial decision-making.

Family businesses, the most common organizational form in the world, are companies that, besides pursuing the creation of economic wealth and stability and expansion of business, create and maintain family harmony, family ownership and business continuity over several generations. In short, in addition to acting as business entities, these companies also fulfill roles in two other areas: ownership and family. This characteristic of being organizations that serve three different systems, in a symbiotic relationship, is called the trilemma of family businesses. The business entity must pursue economic gains in a way that guarantees its continuity and perpetuation, while the owners wish to receive and reinvest dividends, and the family, in turn, must seek the common good, preserving family harmony and unity.

5. Conclusion and Future Outlook

For this reason, it is possible to state that family businesses are necessary for the Turkish economy, as in the world, and they can increase their effectiveness and competitiveness. For this to be ensured, the family business must first become an institution. They should run company governance, as in other companies, correctly. They should manage financial resources explicitly and ensure strategic management. They should not mix individual indivisibility and company decisions because it will be effective for the sustainability of the company to establish the right balance of control with the employed managers. They should work better on the legal regulations in the family business and ensure that the family businesses have access to long-term finance. They should also consider supporting family businesses by the government as in Europe. It should work on raising awareness, protection, and strengthening of the family business’ identity. In this context, making business decisions within the company by professionalizing the management of the family business can be essential for sustainable target-oriented plans and strategies for their success.

Today, family businesses are becoming widespread more than ever due to globalization. As in every country, the family has an essential position in mostly Turkish firms. Especially in the construction sector, entrepreneurship is passed down from father to son, and family name dominates many of the companies. Accepting this term, in Turkey, family companies have a considerable place in our country’s growth and sustainability moves. The participation of family businesses in total employment and Gross Domestic Product (GDP) is very high. This shows us that the Turkish economy and family businesses share a positive relationship. To establish how much Turkish family businesses are effective in the Turkish economy, in this context, growth and sustainability factors of family businesses were studied. When family business and firms with different ownership structures are compared, they are efficient, competitive, and sustainable. They can quickly achieve the carrying out and, by doing this, they provide added value to the economy. Consequently, they contribute to jobs and an increase in income more than other companies.