Family businesses struggle to remain competitive

In Kampala, at the chief executive officer business forum on competitiveness of Ugandan businesses, the conference hall in one of the top hotels is filled with some of the country’s top businesspeople. The discussion is centred around a new PricewaterhouseCoopers (PwC) report on family owned businesses. The discussion revealed that family owned businesses which account for 90 per cent of private companies in Uganda are increasingly more attractive to foreign investors.

“If you look at the risk free rate in the foreign market, you will probably get 0.1 per cent if you invest in Europe or the US. But the rate of return in emerging economies is 20 to 25 per cent. They are of great interest to foreign investors and for us to grow our economy, we need to focus on family businesses to ensure we create a conducive environment for them,” Mr Cedric Mpobusingye, partner PwC says.
But research done by PwC this year indicates Uganda’s family owned businesses are having a hard time regarding competitiveness. The report indicates 84 per cent of the businesses admit the key challenges to their growth are the economy, rising cost of doing business and competitiveness.

Challenges
According to the report, the impediments to competitiveness identified by family owned businesses range from corruption as they have to make payments to get through government bureaucracy, lack of transparency in policy making that has resulted into the introduction of regressive taxes such as that on mobile money transactions, low market demand, affordability of finance and high tax rates.
“This is not a surprise,” Mr Mpobusingye says, considering that in the Global Competitiveness report released by World Economic Forum, Uganda scored 11 per cent out of 137 countries. Uganda emerged 122nd as the taxes are deemed a disincentive to investment.

Internally, the “family factor” was reported as the other issue silently eating up the businesses. Mr Mpobusingye’s best advice for the owners was to establish a formal framework for decision making, professionalise the businesses, diversify them, help members to transition from managers to owners and most importantly do succession planning.
PwC found the statistics around succession planning troubling. Only 15 per cent of family businesses have a documented and discussed succession plan. Only 30 per cent of family businesses are progressing to the third generation and 15 per cent to the fourth generation.

Family owned business
Take Ms Joseline Kateeba’s case. She has been working at Crest Foam Limited as a managing director, a role she took on after her mother. Her journey into taking on this role was never planned. However, it traces back to 2004. She had spent eight years away from Uganda, studying and working abroad. She returned and did a nine-month stint at Crest Foam out of curiosity about this family owned business. Even without a proper title at the company, she found the work insightful. Having understood how the different departments fit together to deliver mattresses to the market, she left the country for eight years and returned in 2014.

It was after taking on the senior level that Ms Kateeba wished she had fit in earlier.
“When I think about it, would I have liked it to be a little different? I think that would have helped me more because if I had spent two years back then, there is probably more that I would have understood from the bottom to top. Coming in 2014 at a more senior level, there is quite a bit that you skip as you try to catchup,” Ms Kateeba says.

Succession plan
In PwC’s research, family business owners admitted succession talk is uncomfortable. The emotional stakes are high. Mr Suleiman Kiggundu, group chairman CFS, understands this.
“For someone who is an entrepreneur, they believe that they are central to the business and the decisions which is why you find in the early stages they want to control a lot of things. Usually what happens is that as they become more successful, they start wondering who is going to take over and that usually happens too late,” Mr Kiggundu says.
As uncomfortable as it is, PwC said succession planning must become a culture of every business.
“What is important for the founder is to recognise that indeed, there will be a transition at some point; so they deliberately create an activity outside the business that can keep them engaged after they give power to the next generation,” Mr Mpobusingye says.

Mr Kiggundu wishes there were some golden points to enable longevity where planning succession is still limping but offers a few tips. Formal communication is one of them so that decisions are communicated across the family. The other is understanding where you want the business to grow in future especially now that markets are rapidly changing.
Mr Patrick Bitature, the founder and chairman of Simba Group of Companies, describes himself as a second generation family business owner. Three of his children have graduated with business degrees in preparation to run the family business.
But this, he says, many not necessarily work. He finds it is not so much about talent because a lot emphasis is put on skilling which is key. But what stands out for him is resilience.

Success tips
“To succeed in this environment, you have got to have resilience that is bordering on craziness because you have to push until you see sanity in what you are doing. I tell my children that they have got to be as adaptive as a cockroach because you spray insecticide and somehow they keep evolving. That is the kind of resilience a tough skin needs in doing business in this environment,” he says.
For Mr Mpobusingye, should a founder establish that the next generation has no interest in the family business, inculcating the idea of the family investment is the best way to move forward, probably before their children finish their education.

Advice
The ‘family factor’. Mr Mpobusingye’s best advice for the owners was to establish a formal framework for decision making, professionalise the businesses, diversify them, help members to transition from managers to owners and do succession planning.

BITATURE’S EXPERIENCE ON WHAT WORKS
Mr Patrick Bitature, the founder and chairman of Simba Group of Companies, describes himself as a second generation family business owner. Three of his children have graduated with business degrees in preparation to run the family business.
But this, he says, many not necessarily work. He finds it is not so much about talent because a lot emphasis is put on skilling which is key. But what stands out for him is resilience.