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Family Business
With David Pring
Welcome
Welcome to KPMG Family Business feature articles. If you would like to discuss these articles or how KPMG can help with your business please feel free to contact me on 9455 9996 or davidpring@kpmg.com.au
ROBYN LANGSFORD
FAMILY business with their long-term mindset and resilient family members places them in a key role to lead Australia’s economic recovery.
Crucially, during the pandemic their unique structure meant families could draw on support from multiple generations, leveraging past experiences of older generations to manage critical challenges while using the insights of younger members to drive modernisation.
Th ese are some of the insights from our latest report co-authored with the STEP Project Global Consortium, Mastering a comeback: How family businesses are triumphing over COVID-19
Globally, three strategies to maintain business continuity stood out. Social responsibility, a commitment to business transformation and patience.
During COVID-19, family businesses took steps to address the impact not only on operations but on the welfare of society as a whole and the needs of all their stakeholders including employees, customers, suppliers and local communities.
On a scale more closely aligned with Australia, the pandemic saw just 7.95 percent reduction of employees in family businesses across Asia-Pacifi c.
Th e willingness to quickly change direction in response to the volatile business environment stood out among family businesses; businesses with multiple generations were 45 percent more likely to implement a business transformation strategy than single-generation family fi rms. Successful restructuring in Asia-Pacifi c businesses resulted in 87 percent seeing their revenue increase or remain on par with pre-COVID times. Domestically, results showed business transformation played a large part in Australian family businesses successfully dealing with the fall out of the pandemic.
Rather than a reactive short-term approach to the pandemic family businesses leveraged their ‘patience capital’; taking time to fully understand the impact of COVID-19 both on their business and others in their industry.
Families maintained their R&D focus
Th ere was also renewed focus on protecting succession plans and a long-term future for the next generation. Overall, they focused on building plans for the long term, rather than just mitigating the short-term impact of the pandemic.
Locally, family members drew on intergenerational knowledge and, in turn, 70 percent of families reported they maintained their R&D investments and continued to launch new products and services throughout the pandemic.
Th e pandemic opened up opportunities for young, tech-savvy family members to introduce digital technology solutions that streamlined their business operations and launched a host of new products into the market.
As we look at a post-COVID future, maintaining a focus on governance and implementing meaningful KPIs, to track performance and productivity, is vital for the future success of Australian family businesses.
Unregulated private companies such as Family Businesses are not subject to the same regulatory and legislative direction as ASX-listed companies and therefore can act with a higher level of autonomy and fl exibility. However, this means that they may not necessarily capture the benefi t of diversity by having independent directors on board.
Typically, these entities may appoint friends as board members and resist the unfamiliar. Rethinking the composition of their board can benefi t the whole sector.
Overall, there are many lessons for family businesses from the COVID-19 experience. What is clear is they have shown resilience, risen to the challenge and applied the learnings from the pandemic. Continued application of these and implementing the changes which saw the sector strive through the pandemic will be the key to family businesses continuing to lead the way in Australia’s ongoing economic recovery.
To read the full report, Mastering a comeback: How family businesses are triumphing over COVID-19 please visit KPMG.com.au First published Robyn Langsford, Partner In Charge Family and Private Clients, KPMG Australia on KPMG Newsroom on 25 March, 2021
Faster global rollout of COVID -19 vaccine a $17bn boost to Australia
BRENDAN RYNNE
IN our latest Quarterly Economic Outlook, KPMG forecasts a global rise of 4.4 percent in GDP this year. But there is a big caveat. So much is dependent on the speed and success of international vaccine distribution.
So much so, that we modelled two scenarios for the global roll-out of vaccines – fi rstly, an effi cient, equitable distribution, which will lead to all countries opening their borders to international travellers by the start of 2022. In this ‘upside’ scenario we assess a 2.8 percent boost to the world economy, compared to our base forecast.
But in a downside scenario, failure to deliver a comprehensive and timely program for low and lower-middle income countries will see thwarted mobility and global services trade being hit.
In this downside scenario we assess a 1.2 percent drop in the world economy. GDP would be weaker in all countries – especially, but only, those who have been unable to secure suffi cient doses of the vaccine.
Th is would have a meaningful impact on the Australian economy. Th e smooth international roll-out of vaccines this year envisaged in the upside scenario would boost the Australian economy by $17bn and generate nearly 40,000 jobs.
On the downside, continued international travel restrictions until the end of 2021, resulting in global services trade remaining depressed, would result in lower Australian GDP of $4bn and 13,100 fewer jobs. Our economy is particularly vulnerable to a drop in service exports.
Th ese scenarios come just aft er a year since the COVID virus turned the world upside down. From an economic perspective thankfully prospects of recovery from the low point of mid-2020 – when world GDP had declined by seven percent (compared to 2 percent in the GFC in 2009) – looks brighter each day as vaccines get rolled out and new vaccines come on-line.
But a return to full capacity will take some time. All economies are poorer than they would have otherwise been if not for the pandemic.
Th e global economic recovery is likely to be uneven, driven by vaccine distribution but with lockdowns still aff ecting much of the Northern hemisphere.
Th e covid recovery will be consistent with the history of how the world economy has recovered from previous global events – where the maturity and robustness of industrial and institutional structures and policy responses are critically important.
Th e recovery is also going to be driven by how monetary and fi scal policy has been utilised by individual countries. Only some countries have cut interest rates to their lowest levels (or beyond) and/or employed Quantitative Easing, while some have used government spending more sparingly than others.
For example, some policy support has involved guaranteeing loans to businesses to maintain their viability; therefore the fi scal cost of responding to the coronavirus crisis will rise for those jurisdictions adopting this policy only if the supported businesses eventually fail.
Importantly, there is an understanding that the monetary and fi scal policy response associated with combating the economic fallout of the pandemic is not free.
Rapid increase in deficits
We have seen a rapid increase in defi cits and government debt; so far the increase has been about 15 percentage points on pre-pandemic levels for advanced economies and around 10 percentage points for emerging economies.
Such an increase would usually raise concerns for global institutions like the IMF and World Bank, but given the unique circumstances they have tacitly endorsed the conclusion that “doing nothing” is not an acceptable option.
Globally, while the fi nal quarter of 2020 saw a return to lockdowns in the northern hemisphere, industrial activity appeared to be returning to pre-pandemic levels.
However, the personal services, travel, accommodation, food, and entertainment sectors, remains severely impacted by the government policy interventions aimed at limiting the spread of the coronavirus.
Job losses have also tended to be concentrated in these sectors, and, given these sectors tend to employ low-wage workers, the coronavirus pandemic has exacerbated income and wealth distribution problems in society.
Th e economic performance of individual countries during 2020 was heavily infl uenced by consumption spending.
Household spending over the past year has necessarily focused on the purchase of goods (as opposed to services), which has meant those countries producing manufactured output have (generally) seen a sharper recovery than countries that have an industrial structure biased towards services.
Our high resilience rating
Australia has weathered the global coronavirus pandemic bett er than most other countries. A mix of good management and good luck has meant that the spread of COVID-19 within the Australian population has been limited, and as a consequence of that (and also due to the high-quality health system that exists in Australia) the fatality rate associated with the disease has been very low.
Australia is ranked No.2 in the world behind New Zealand in Bloomberg’s COVID Resilience Ranking, refl ecting not only the strong health response that has been undertaken to date but also due to the fact we have secured enough doses of the AstraZeneca / Oxford University vaccine to inoculate the whole population.
So what of the near future? In terms of outlook this year will see a strong performance in the Australian economy, with GDP boosted by the pent-up demand from a lockdown-aff ected 2020 being met, but this will start to taper off in 2022.
Our forecasts on infl ation (rising) and unemployment (falling) mean that by next year the RBA will come under pressure to review its pledge to keep ultra-low interest rates until 2024. Th e infl ation genie is still in the bott le, but can defi nitely be seen edging up the sides.
Real wage growth will continue to be minimal and refl ects Australia’s need to implement measures to boost productivity, coming out of the covid era. KPMG analysis has shown a clear link historically between increased capital/technology investment and higher wages. Capex is still a worry, despite recent improved fi gures.
To read our Quarterly Economic Outlook, please visit KPMG.com.au First published by Brendan Rynne, Chief Economist, KPMG Australia on KPMG Newsroom on 23 March 2021.
