Business Family firms show solidity in recession but handover headache beckons for many

26-05-2014 13:41 | Chris Johnstone

Family firms have a strong tradition but troubled history with many falling victim to the tides of twentieth century Czech history. A new wave of firms have been created but many of them will soon be facing the big question of how to deal with the handover to the next generation.

Photo: PleasPhoto: Pleas Don’t forget Czech underwear is one of the messages of the country’s biggest producer.

With annual production of around 12 million items, Havlíčkův Brod-based Pleas could just about provide one pair of pyjamas, or other item from its production, to every Czech. But, with a large part of the home market dominated by sales from China and other low cost countries, Pleas has had to seek its own export sales and aim for a higher slice of the market. It produces, for example, for the German brands Schiesser and Christian Berg. Czech sales account for around 5.0 of its overall market.

Last year, the formula as well as the low crown paid off with turnover rising by around 40 million crowns to around 1.1 billion crowns, the second year in succession it has passed the billion mark. This year it expects to at least match that result and again turn a profit.

Pleas is exceptional in that it is still thriving in a textile sector which has seen widespread closures over the past 20 years. The factory can claim a history going back to 1873 and the creation of a large textile and cotton processing plant by German-Jewish entrepreneur Josef Mahler, though the Pleas name itself only dates from 1939. The firm was nationalized in the aftermath of the Second World War. Last year, its ownership was transferred to the multinational Israeli textile group Delta Galil.

Pleas’ transformation away from a family run firm is far from exceptional in the business history of former Czechoslovakia and the Czech Republic. One result is that while family firms account for around 80 percent of businesses across Europe, in the Czech Republic that proportion is just around 25 percent, according to some estimates, with their turnover accounting for around 15 percent of Gross Domestic Product.

A survey by the Association of Small and Medium-Sized Enterprises and Crafts of the Czech Republic published last week underlined both the strengths and weaknesses of the family firm. One of the strengths highlighted is that a far smaller proportion of family firms went under in the recent Czech recession. The solidity of such firms helped them get by and around half are now looking forward to more prosperous times with only 10 percent expecting a further downturn in their performance.

But while two-thirds of family firms still said in the recent survey that the family foundation was an advantage, fewer were strongly convinced of the advantage than in the past.

Two-thirds of the heads of current Czech family firms want to hand them to their successors, But only around half of them have started steps to allow the change to take place smoothly.

International surveys have frequently underlined that the succession is probably the weakest link for family firms. Experience shows that only around a third of family firms survive the progression from the founding first generation to the follow-up second. A further 10 percent of such firms do not survive the transition to the third generation.

Many Czech family businesses were founded following the collapse of Communism in 1989 and therefore lack the deep roots of traditional family firms. Even so, a lot will sooner or later be facing the challenge of the first generational handover.

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