Radu Magdin is CEO of Smartlink Communications. Global analyst, consultant, passionate about leadership, communications and competition.
Globally, about 500 family businesses generate about $8 trillion in revenue. Together, they could be the third largest economy after the United States and China. In my previous article, I spoke about some of those businesses that originated in China and India, highlighting how they evolved and could evolve going forward. But there is also an “ancien regime,” composed of the upper business echelons in countries such as the United States, Germany, Japan, South Korea, the United Kingdom and France that carry valuable lessons.
These elite family businesses may not only refuse to go quietly into “that good night” but even seek to expand their share of the economy. If they choose to move on that path, they have significant competitive advantages on their side: connections, financial capital, people and activist governments. Let’s look at each factor in turn.
Connections
The ancien regime puts equal or even higher emphasis on personal networks and personal connections—it’s simply a matter of them being formalized, institutionalized and professionalized. With things like private schools and college fraternities, a future leader of a family business in the West may have already built a genuinely personal and stellar international network before they’ve ever reached management age. This can be more effective than a Rolodex of wined-and-dined bureaucrats.
Financial Capital
The ancien regime has access to a tremendously high sum of money. The total capitalization of public companies worldwide is about $90 trillion. Of that, roughly $40 trillion, or 44% (or 61% according to some estimates), comes from the United States alone. Japan, the United Kingdom and Germany add another $12 trillion. While emerging markets are expected to contribute about 65% of economic growth by 2035, it’s important to keep in mind that growth in itself and company growth are two different things. Consider that $10,000 invested in the U.S. stock market in 2000 would be worth about $27,000 these days (in no small part due to exposure to that emerging market growth), while the same sum invested in global equities would yield about $16,000.
People
Both China and India are excelling at educating the world’s STEM graduates, so much so that 41% of all degrees awarded in China are STEM degrees. However, that is where the good news ends for Chinese HR departments, for many of those graduates end up working in the United States, Japan or Europe, with brain drain affecting every business. This allows the largest family businesses in places such as the United States to have access to the world’s best and brightest, and thus create globally competitive products. In talking to business leaders in the United States, China and India, I believe this will be most difficult aspect for Chinese and Indian family businesses to overcome.
Activist Governments
While direct government help is often associated with Chinese industrial policy, the reality is a bit more nuanced. The U.S. government set aside $1.2 trillion for the Infrastructure Investment and Jobs Act, as well as another $280 billion for the CHIPS and Science Act. As I see it, neither China nor India can afford such sums at the moment.
What does all of this mean for businesses? The top family businesses in the Western world, and the United States in particular, are far from helpless in their competition with Chinese and Indian counterparts. In fact, I believe they are better financed, have better access to people and better personal connections, as well as the backing of some of the most important governments in the world. As such—and quite contrary to the popular narrative—I would personally say they possess a set of synergistic competitive advantages, which means it is they who have the upper hand when it comes to the world’s third largest economy: family business.
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