Characteristics of family businesses that hold the key to regional economic growth
More than 90% of companies in Japan are reported as family businesses by the National Tax Agency. And a considerable number of these enterprises have been around for over 100 years. Accelerating economic prosperity across Japan, especially in the regions outside of Tokyo, has been a key policy platform of the Government. The regional creation policy is one proposed measure for increasing regional economic prosperity. Given the important role played by these family businesses, it is important to learn the unique characteristics of these companies and provide appropriate support.
To date, research on family businesses has been largely restricted to family-owned listed companies i.e. the likes of Toyota, Suzuki, and Cannon. The characteristics of unlisted small and medium-sized enterprises that account for the majority (90%) of all family-owned businesses have not been considered in much detail. In order to understand the situation of these small and medium enterprises, we carried out research on unlisted family-owned businesses.
Using Teikoku Databank’s credit reports as of 2016, the unlisted family-owned businesses were classified into 7 categories based on the management type. The categories included founder; family inheritance; acquisition; external promotion; outside invitation; seconded: and part of a chain. Additionally, using the shareholder information, the businesses were further classified as individually owned, corporate ownership and other. Table 1 shows the distribution of the unlisted family-owned business across the different categories.
Table 1: Management and ownership type of approximately 470,000 unlisted companies
Some of the key characteristics of unlisted small and medium-sized family businesses that were uncovered in this research included:
- A considerable number of 'founded' and 'family inheritance' businesses are individually owned and managed. Highlighting that it is difficult to separate management from ownership. On the other hand, there is a relatively greater proportion of outside ownership in the 'internal promotion', 'external hire', and 'seconded' management structures.
- The sales distribution by management type shows that ‘founder’ and ‘family inheritance’ businesses are smaller than other types of family businesses.
- The age distribution by management type shows that businesses that are ‘part of a chain’ are younger, whereas, ‘family inheritance’ businesses have a long history. Although, there is a positive relationship between the number of years and company size. A number of the ‘founded’ and ‘family inheritance’ businesses remain small despite their history. This suggests perhaps growing the company size is not necessarily a priority for these companies.
- The proportion of family-owned companies engaging in M&A activity is relatively smaller among ‘founder’ and ‘family inheritance’ management types. Once again suggesting that the propensity for external growth is weak.
Tokyo Institute of Technology Joint Researcher
TDB Advanced Data Solutions Division, Hayato Goto