IN THE FAMILY WAY
Are Scotland’s family-owned businesses a blessing or a curse?
Big problems always look the more daunting, but in Scotland the most daunting ones on the economic front are small. Policymakers too often focus on the big macro picture, those whole economy GDP numbers (not good – they showed a fall in the 2016 fourth quarter) and the plight of multi-nationals struggling with the complexities of Brexit. But the more intractable problems are small scale – and evident in every town and village across the land.
For years politicians and think tanks have wrestled with the demise of traditional high streets as businesses have sold out, moved or gone under. Our towns and villages have fallen victim to rural depopulation, the rise of online shopping, the increasing dominance of the giant out-of-town behemoths – and a host of cost increases and expenses that have made life increasingly difficult for the private shopkeeper and entrepreneur.
Now comes a report that tens of thousands of jobs in Scotland’s retail sector are under threat and many town centres face being ‘hollowed out’ with the loss of their shops, according to industry research. The Scottish Retail Consortium (SRC) estimates that almost a quarter of Scottish shops, more than 4,000 premises, could close by 2025.
Let’s not burst into inconsolable grief. Many consumers like the range, quality and convenience of the retail superstore. But rural locations are likely to be among the hardest hit as technological change combines with rising costs to make many outlets unsustainable.
The revelation will add to business and political concerns over Scotland’s stuttering economy. By the time you read this, figures for the period January to March could very well show that the economy has contracted again, and Scotland will be officially in recession.
Areas which are already most economically fragile are most likely to be affected by these changes. The SRC believes urgent action is required. ‘The retail industry is undergoing the most profound transformational change of the last fifty years,’ says SRC chairman Andrew Murphy. ‘Scottish retailers are being forced to adapt their business model at pace to a new world where digitally enabled customers have more information, wider choice, lower prices and multiple fulfilment options.
‘This has enormous implications, especially for long-established businesses. As sales move online, retailers must invest in their online and multi-channel offers while reducing their retail outlets, their physical presence, to only the most powerful locations.’
The problem may, however, be even more deep-seated than this. Many thousands of Scotland’s small businesses are family-owned (especially compared to England, for example), which is a marked feature of the retail sector. This is troubling given that the SRC’s report coincided with a separate release of figures which found that family-owned businesses and companies run by the founder’s relatives tend to be substantially less productive than firms with outside owners and managers. That makes the task of combating the broad high street decline all the more challenging.
The survey, from the Office of National Statistics, finds that companies with the founder’s family at the helm are on average 20 per cent less productive than other businesses. This, it concludes, could be one factor holding back UK growth.
The ONS also found poorer management practices among family firms, with other businesses focusing particularly on monitoring staff performance,
setting targets and offering promotions. Around three-quarters of UK firms are family-owned, so their relatively poor productivity performance is a concern for growth across the economy. In Scotland this points to a substantial opportunity cost – growth that we could be enjoying if firms were more productive and efficient. A recent research project involving business experts at Musselburgh-based Queen Margaret University revealed how family businesses and SMEs in Scotland have the potential to boost the country’s annual economy by up to £1.23 billion. The study, which also involved government bodies, businesses and professional advisers, concluded that Scotland needs to do more to build and protect this important sector. There is an opportunity for Scotland to lead America and parts of Europe in providing the knowledge , skills and support needed to become a worldw ide centre of excellence. In Scotland, SMEs account for an incredible 99.3 per cent of all private sector e nte rpr ises and 63 per cent of these are family businesses.
‘All our research and work with businesses emphasises the importance of family-owned and managed businesses,’ said QMU’s Dr Claire Seaman. ‘That’s why we’re tailoring some of our educational provision around family business – our research suggests that family businesses are crying out for the right kind of support to help them succeed across the generations.
‘If we want to change thinking and practice and improve business succession across these businesses, we need an integrated approach to learning, research and influencing policy.’
Everyone agrees that productivity growth is a vital source of improved living standards and wages, and so its sluggish growth is a worry.
Andy Haldane, chief economist at the Bank of England, has noted that managers in unproductive businesses often fail to realise that the company has fallen behind its more cuttingedge peers.
It’s easy to slide from this sort of critique into a cartoon depiction of old-fashioned change-resistant mums and dads – or their cossetted offspring – soldiering on, defiant of market changes and the benefits of having a website and online trading. And studies such as that by the ONS may treat too lightly the more latent benefits of customer loyalty and trust, and the long-term benefits of the risk-averse nature of family-owned companies.
For many such little businesses, life is about more than maximising profits, boosting productivity numbers by staff cutting and dispensing with personal attention. Many businesses have arguably lasted far longer than a McKinsey spreadsheet would have allowed for by dint of the powerful pull of personal service and customer contact.
That said, there is much in the SRC’s wish list that is deserving of attention and support. These include reforming the business rates system to be simpler, more flexible, and more competitive; lowering the overall tax burden paid by physical retailers; boosting investment in physical and digital infrastructure – still lamentable in many parts of rural Scotland – and providing skills funding and a framework which is fit for the changing retail environment.
‘Around threequarters of UK firms are familyowned’