Family businesses in Vietnam are expecting growth to pick up over the next two years, looking beyond the COVID-19 pandemic.

According to PwC’s Family Business Survey 2021 – Vietnam Report, 65% of the surveyed Vietnamese family businesses predict growth in 2021. The view for 2022 is more positive, with three out of four respondents saying that they are optimistic about growth, and 33% anticipating that the growth will be “quick” and “aggressive” – higher than the regional and global responses, which stand at 28% and 21%, respectively.

In keeping with such growth aspirations, the findings also reveal that business expansion and technology adoption are the key priorities. 55% of the respondents confirmed a focus on bringing new products and services to the market, with 52% on the increasing use of new technology. Given that the global pandemic is marking permanent changes, the rethinking or adaptation of new business models is also top of mind for 52% of respondents.

There are also apparent shifts towards business diversification and more externally managed structures for family businesses. Within five years, 45% of Vietnamese family businesses are aiming to become more diversified, highlighting the need for sustainable revenue streams for future disruptions. The current operating model – which centers on businesses that are owner-managed and family-managed – is expected to shift towards a “family-owned / externally-managed” or “externally-run” model, increasing from 12% to 60% over the next five years.

Over half (52%) of Vietnamese family businesses expect that the next generation will become majority shareholders within five years’ time. However, only 36% of respondents claim to have a formal succession plan in place.

Discussing this, Johnathan Ooi, Private Business Services Leader at PwC Vietnam, said: “Family businesses are having to navigate a faster pace of change than ever before. An equal focus should be placed on strategic planning and succession planning. Making a head start in this area will therefore be helpful for the next generation. They will be equipped with the necessary tools to drive the business forward and in the right direction.”

Challenges involving digital capabilities and adapting to changes could hinder growth

Although the survey findings indicate a strong emphasis on digital, innovation, and technology initiatives, progress in those areas remains limited. Only 30% of respondents said that they have strong digital capabilities, as compared to 38% globally, while a mere 9% say that their digital journey is complete.

This slow progress could be tied to the reportedly high levels of resistance to embracing change within the company, as revealed by 67% of respondents. This is significantly higher than the perceived sentiment of regional peers, at 29%, and global peers, at 33%.

Johnathan Ooi said: “The lack of the digital tools and capabilities that are needed for a rapidly changing world will present significant challenges to family businesses in protecting their legacy. Moving faster along the digital journey will require more than just bridging the technology gap. Transformation must be a part of a cultural shift that is supported by highly engaged leaders, as well as a commitment to upskilling the workforce.”

In 2019, when we asked the next generation in Vietnam how they thought that they could best contribute to their family businesses, 55% expressed confidence in their skills to help develop a business that was fit for the digital age.

“Businesses should consider how they can take on board the fresh insights of Next Gens – the digital natives – when it comes to prioritizing their digital agenda,” added Johnathan.

Greater focus is needed on Environmental, Social, and Corporate Governance

The report also shed light on the growing need for Vietnamese family businesses to Environmental, Social, and Corporate Governance (EGS) credentials into their plans for securing their legacy.

In a year in which businesses have had to transform the ways they meet the needs of society and the environment, falling behind in terms of addressing sustainability and wider EGS issues could create a potential business risk.

While the majority of Vietnamese family businesses (85%) are reportedly engaged in some form of social responsibility activities, issues relating to sustainability are currently far down the list of priorities. Only 21% of the surveyed family businesses feel that there is a responsibility to fight climate change, versus 50% in both Asia Pacific and globally.

Johnathan Ooi commented: “The world is changing, and so is the formula for lasting family business success. Tomorrow’s family businesses require a new approach to enhancing their legacy – one that is based on keeping ahead of digital transformation, with a greater focus on sustainability goals, and professional family governance.”