Families bear the brunt of manufacturing's demise

The global financial crisis has put the family business sector through massive changes. Over the next decade, it will be barely recognisable.

The latest RMIT-MGI survey shows only 20 per cent of family businesses are now in manufacturing. Ten years ago, 40 per cent of family businesses were in that sector. By 2006, this had shrunk to 26 per cent and in 2010, just 24 per cent. Once it was the heartland of Australian family business – not any more. 

This shrinkage is likely to continue. Although the Australian dollar has fallen from its recent highs and is likely slip even further when the Federal Reserve cuts back on quantitative easing, manufacturing is a sector in decline. The next survey could see the number of family businesses in manufacturing contract to 15 per cent. Indeed, KPMG demographer Bernard Salt says the sector employs 980,000 workers now but he foreshadows that will contract sharply.

“If you go back to 1976, that figure was around about 1.7 million so over a quarter of a century we have gone from 1.7 to under a million and in 10, 15 or even 20 years’ time, we’ll still be making stuff but we might not need 980,000 workers,” Salt says.

“We might only have 600,000 workers and we might be making bricks and beer, stuff that’s too hard to bring in from overseas at an effective rate, or it might be high tech products that only the Australian market can make.

“But in either case, the continued diminution of the manufacturing I would see – not elimination but continued erosion.”

With the shrinkage in manufacturing, family businesses overall will be employing fewer people. Not surprisingly, the RMIT-MGI survey shows a decrease in the number of family business employees, from 31 to 23 when expressed as a mean.

This will also transform the sector. Right around the world, manufacturing has always been at the heart of family business.  According to the survey, most manufacturers are family businesses (20 per cent, compared to 13 per cent for non-family manufacturers). It’s a similar story in retail (18 per cent are family businesses, compared to 7 per cent non-family).

Look at many of the longest lasting family businesses in the world; they all seem to come out of manufacturing.   

Why have family businesses been drawn to manufacturing? It’s because family businesses are opportunistic by nature. They seize niches in the market which makes manufacturing a perfect fit.

For example, world renowned firearm manufacturers, the Beretta family, have been crafting guns in Italy for kings and sportsmen since 1526. The oldest family firm in the United Kingdom, textile makers John Brooke & Sons have been spinning wool since 1541.  One of the oldest family businesses in the world is Venetian glass maker Barovier & Toso. They opened for business in 1295.

Similarly, many family business manufacturers in Australia are highly specialised, quick to move in on opportunities. They tend to be more agile than other businesses. Globalisation, however, will challenge those strengths and the manufacturing sector will continue to contract. Watch what will happen, for example, to the car parts manufacturers, many of them family businesses, when Ford closes down its plant in Geelong.  It is estimated that 37,000 people are employed by ancillary services, including more than 180 component manufacturing businesses. These would include family businesses.

Not surprisingly, the survey showed that 55 per cent of family business owners were concerned about particular problems in their industries, up from 15 per cent in 2003.

The RMIT-MGI survey shows wholesale and retail is flat tracking, moving from 30 per cent in 2003 to 29 per cent in 2013, just a touch above the 27 per cent recorded in the 2010 survey.

However, there has been significant growth in construction. Back in 2003, only 10 per cent of family businesses were in that sector. In 2010, this had only increased marginally to 11 per cent. But the 2013 survey found that this had increased to 16 per cent. Technology-based family businesses grew from 5 per cent in 2003 to 8 per cent in 2013.

So where will the future growth come from? The two booming sectors of the economy are in education and healthcare. Over the next 10 years, we can expect to see more family businesses in that space, particularly in aged-care.

Lucio Dana, who worked on the RMIT-MGI research, says the sector will change but family businesses are not disappearing, they’ll just move into new industries.

“A number of family businesses may be disappearing but the fact is that if your parents are entrepreneurially minded, the chances are that some of it will rub off on you,” Dana says.

“I believe family business will not only survive but it will thrive because it always has and always will. Because we are an affluent society with a high level of education, we have options and that means society constantly reinvents itself and that means people migrate from one particular industry to another, or the industry itself is transformed.”