Europe’s family businesses are confident about the future but must become more agile, innovate faster and attract top talent to remain competitive and continue to grow. These are among the key findings of the latest European Family Business Barometer, which surveyed 1,576 family business executives in 26 countries across Europe, including Romania, published by KPMG Enterprise and European Family Business (EFB).

The European Family Business Barometer is the seventh survey of Europe-based family businesses and reveals that family businesses continue to build on the momentum of past strong economic growth.

“We’re seeing good progress this past year as family businesses are preparing for growth. The next step will require scaling their operations, which is a delicate and crucial operation,” says Jonathan Lavender, Global Chairman, KPMG Enterprise & Co-Chair Global KPMG Enterprise Family Business. “The business world is globally connected. As European family businesses prepare to do business on the world stage, they will find themselves going head-to-head with companies from around the world. They have to factor increased global competition in their growth and expansion plans.”

Key highlights:

• 73% of respondents report that they are confident or very confident in their family business’ economic prospects over the next 12 months. About one in five (19.5%) are neutral and 6.04% are negative or very negative about the future.
• While overall confidence is up across Europe, the UK was a notable exception, with confidence dropping from 83% in 2017 to 68% this year. With Brexit negotiations ongoing, UK family businesses are looking to the future with caution.
• 64% of total respondents reported increased turnover over the past year. Only 11% of respondents reported decreased turnover in the past 12 months.
• Improving profitability (49%); increasing turnover (38%); and attracting new talent (27%) are the top three priorities for the next two years.
• The war for talent was ranked as a top challenge facing family businesses. This year, 53% of respondents identified the war for talent as one of their top three concerns. This compares to 43% in 2017 and 37% in 2016. Other top challenges this year included the increased cost of labor (36%) and political uncertainty (36%).
• International expansion is being postponed. In this year’s survey, only 36% of respondents said they had increased their activities abroad over the past year – compared with 44% in 2017 and 65% in 2016.

Investing in innovation and people to fuel growth

Europe’s family businesses are planning for growth. Almost one quarter (23%) plan to expand and diversify their products to drive future growth and more than half (54%) plan to expand into new markets.

As René Schöb, Partner, Head of Tax & Legal KPMG in Romania, explains: “Family businesses are showing resilience to external pressures and challenges, focusing on talent and innovation as key assets in growing the business and pursuing new opportunities. The rising importance of these two success factors is reflected in the high levels of investment expenditure, more than three-quarters of respondents ranking these two issues in their top-three priorities. It is reassuring to see that the family businesses surveyed remained confident and optimistic about their outlook for the future and continue to make their crucial contribution to the European economy.”

One of the key strategies for growth is embracing innovation. Respondents are capitalizing on past growth and reinvesting profits into the business. The majority (86%) are investing in the core business, 83% are investing in innovation and technology, and 81% are investing in recruitment and training. This is also a direct response to the top two challenges facing respondents: the skills shortage (53%) and the rising cost of labor (36%).

In this increasingly digital and technology driven world, Europe’s family businesses also recognize the need for new skill sets and capabilities among leadership. One third of respondents are considering hiring an external CEO.

“As family businesses grow, it becomes increasingly important for them to reach out beyond the family, to find the additional skill sets they need. This is particularly true in the case of highly specialized roles in areas ranging from digital innovation through to key roles at the production or assembly line level. Unfortunately, these specialized roles are increasingly difficult to fill. The growing skills gap must be urgently addressed by policy makers.” – Jesús Casado Navarro-Rubio, Secretary General, European Family Businesses.

Managing volatility

With Brexit, growing protectionism and contentious trade talks front and center on the world stage, it’s not surprising that more than one-third of respondents (36%) cite political uncertainty as a top concern and challenge. Still, Europe’s family businesses are navigating their way through, taking a long-term approach and being proactive in their talent acquisition and streamlining decision making to ensure that they have the agility to respond to changes in real time.

About the Barometer

The European Family Business Barometer is based on the responses of an online survey from over 1,500 questionnaires which were received from family businesses across 26 European countries from 7 May to 7 July 2018.