India has 108 publicly-listed family-owned businesses, third highest in the world, while China tops the tally with 167 such companies followed by the US which has 121, says a Credit Suisse report. As per the Credit Suisse Research Institute’s (CSRI) latest “CS Family 1000” report, with an average market capitalisation of USD 6.5 billion, India ranks 5th in Asia Pacific excluding Japan, and 22nd globally, in terms of average m-cap. Besides China, the US and India, the top 10 countries in terms of number of family-owned companies include France (4th place), Hong Kong (5th), Korea (6th), Malaysia (7th), Thailand (8th), Indonesia (9th), Mexico (10th).
However, in terms of average size, the ranking changes much more in favour of developed markets, the report said.
Average market capitalisation of family-owned companies is greatest in Spain (USD 30 billion), the Netherlands (USD 30 billion), Japan (USD 24 billion) and Switzerland (USD 22 billion), the report that covered close to 1,000 family-owned, publicly-listed companies by region, sector and size said. It further said Indian companies surveyed are more mature, with 60 per cent of family businesses in their third generation compared to 30 per cent of Chinese companies.
According to Credit Suisse, the financial performance of family-owned companies is also superior to that of non- family-owned peers. Furthermore, family businesses appear to focus more on long-term growth and they have outperformed peers in terms of share price returns. “At country-level, Chinese, Indian and Indonesian family-owned companies appear to be the most expensive, trading at high absolute multiples, with a 12-month median price to earnings (P/E) of 15-16 times, compared to around 10 -13 times P/E multiples of companies in Korea, Hong Kong and Singapore,” the report said. The definition used for the database of family or founder-owned companies is a minimum shareholding of 20 per cent and/or minimum voting rights of 20 per cent.
In terms of key concerns and challenges, Chinese family- owned companies rank succession planning as their least important issue and do not envisage a reduction in ownership. However, they tend to worry much more about the threat of technological disruption (30 per cent said this was very concerning) which may be driven by China’s overall greater exposure to disruptive technologies globally and its state of economic development. On the other hand, challenges seen as most prominent in India include succession planning, followed by greater competition and talent retention.
“Overall, our findings indicate that our Indian family-owned businesses appear to be more optimistic with regard to future revenue growth and have a slightly more conservative approach to funding that growth,” the report said. More than half of the Indian and Chinese family companies that Credit Suisse surveyed generate revenues in excess of USD 500 million, with the majority of these businesses located across sectors of IT, financials and industrials. India lags slightly behind China not just on the adoption of environment related issues, but also on social issues, with 35 per cent of companies implementing policies in relation to this compared to 65 per cent for China.
“Our research seems to suggest that investors are not too concerned about the level of ownership but rather how involved the family owners are in the daily running of the business. This seems to be at the core of the success of family-owned companies in our view,” Eugene Klerk, Head Analyst of Thematic Investments at Credit Suisse and the report’s lead author, said.