The development of family businesses is crucial for the economy

At the event, they analysed why it is worthwhile to work for a family business; what are the keys to success for small and medium-sized enterprises in Hungary; and what obstacles SMEs need to overcome in order to be outstanding in the international arena as well.  

“Family businesses start out with huge disadvantages, which are the more serious the smaller SMEs are,” Dr. György Drótos, Associate Professor at Corvinus University of Budapest, highlighted at the 5th International Family Firm Conference on Tuesday, 23 May 2023.  

Such disadvantages include, among others, their smaller size, lack of visibility, and more limited financial means – the researcher said, pointing out that employees also express concerns about family businesses, for instance, they do not find career prospects very bright, workplaces are often in remote locations, and company culture is also more conservative.  

In Hungary, family businesses have diminished chances of employing workers, as the economic environment is not favourable for micro, small and medium-sized enterprises (SMEs) due to the fact that nearly full employment has been achieved, making it difficult to find workers. Additionally, we experience a demographic decline, a fact that should also be taken into account – the presentation by György Drótos revealed.  

“Looking at the outflow of labour from Hungary, we suffer a deficit, with more qualified workers leaving than coming in. It doesn’t help either that workers are tied up by multinational companies, and workforce is sucked away by giant investments. From the perspective of family businesses, the jobs created in this way are more of a threat,” the expert said. He noted that small family businesses are financially unable to manage rising wages.  

Multinational companies are viewed as more attractive  

György Drótos presented a survey conducted to ask managers of family businesses about their ability to compete with multinational companies in the labour market. More than sixty percent of respondents stated that they have significantly worse or slightly worse chances when competing with multinational companies in the course of recruitments.  

“As this is not only attributable to external reasons, many family firms have set off on a path towards a professional organisation. As good as this may sound, we observed that HR is usually the last consideration in family businesses.   

They prioritise finance and accounting, because they think they may suffer a bigger loss there, but that is not necessarily true,” György Drótos said.   

He pointed out that positive changes in human resource management is often torpedoed by the managers themselves, when they repeat sentences such as “Why to deal with HR when family members are in key positions?” or “We have always been approached by plenty of candidates, on their initiative”.  

Problems with HR management are also underpinned by data, with 38 percent of family firms in the University’s research using a family member in the HR role, and a quarter of these firms having no such manager at all. Most of the managers of the companies surveyed do not even really understand what the concept of HR means. This figure is also shocking, according to the researcher, because the average number of employees in the companies surveyed was over 200 and they had generated several billion euros in sales income. This fact may be one of the contributing reasons why Hungarian workers find multinational companies more attractive.  

In Germany, however, the situation is the other way round: employees consider family businesses to be more attractive than multinational companies in terms of 12 key aspects – the expert said, presenting the results of a survey initiated by Stiftung Familienunternehmen, the foundation of a German family business that also supports the Corvinus Centre of Family Business. These aspects include good working conditions, doing work independently, and the absence of a hierarchical structure.  

Hungarian family businesses need to level up 

When family businesses in Hungary grow to a critical level, employee retention becomes an increasing challenge – Dr Éva Vajda, assistant professor at Corvinus University of Budapest, said, who had examined HR practices within family firms.   

According to the researcher, the key to retaining staff is for family businesses to combine the family-like atmosphere and informality characteristic of them with the professionalism typical of multinational companies.    

“Smaller family businesses have a culture based on mutual care and personality. But when a company grows, formalisation comes into play. This is where family businesses have something to lose, as their competitive advantage, the culture based on deep trust, is curtailed,” the expert said. According to her, family firms can be the most successful where this deep interpersonal trust is partly transformed into trust in the corporate governance system.   

She agreed with the findings of the previous speaker, Dr. György Drótos in that attracting talent is a major challenge for family businesses. That is the very reason why it is important to build a company strategy, which, if well-founded, can easily include an HR strategy – according to the expert, this will help to create a sense of belonging, a possibility for development, and a clear set of career goals.     

Generation change is a huge problem 

The managers who established companies right after the change of regime played a pioneering role in Hungary’s development. But after thirty years of success, it is time for them to pass the baton to the next generation.   

While in more developed market economies, for example in Germany, transferring family businesses to the next generation has been an unbroken practice for more than a hundred years, in Hungary there is no tradition of this for historical reasons – László Palkovics, Chairman of the Széchenyi István University Foundation and former Minister of Innovation and Technology, pointed out. He considers that problem especially significant, as nearly four out of ten companies are affected by generational change, and one in five employees work for such companies.  

This fact was confirmed by Dr. Reinhold Mayer, board member of the Péter Horváth Stiftung foundation, who pointed out that Hungary had to restart family businesses after the change of regime. This is why he considers the exchange of experience between German companies with a longer history and Hungarian businesses to be of the utmost importance, and the 5th International Family Firm Conference offered an opportunity for this.  

The Chairman of the Board of Trustees considers the success of Hungarian SMEs as attributable to their positioning themselves higher up in value chains through investment and continuous development. He explained that this goal has been and continues to be supported by the government.   

“SMEs have received three times as much aid as multinational companies, so it is not the multinational companies that benefit the most from subsidies,” he pointed out based on a research by the Makronóm Institute. The development of family businesses in Hungary is especially important, in his view, as 99.1 percent of businesses in Hungary are SMEs, they employ 68.6 percent of the workforce, yet they produce less added value than large companies, representing nearly one percent of businesses.  

He pointed out that Hungary’s investment rate is exceptionally high, standing at 28.7 percent, attributable, among others, to significant FDI inflows and aid to domestic SMEs.  

However, Hungary is lagging far behind in terms of digitalisation, occupying the not-so-prestigious 22nd place in the EU ranking. According to László Palkovics, this is a situation that may be improved through the model change taking place at universities and the establishment of centres of excellence. At Széchenyi István University, cross-disciplinary innovation research units have been set up in line with the University’s key competences, with the involvement of giant industrial companies.   

Hungarian family businesses can be attractive  

“We do not want to compete with multinational companies, instead we want to find competences that may specifically benefit SMEs,” Gabriella Szécsi, Managing Director of BI-KA Logistics, a Hungarian logistics company, explained. They have already successfully completed their first generation change, 

and have set themselves an ambitious goal – to be one of the large companies within five years.  

She believes that a family business will be attractive if it retains family values as it grows. She considers it a problem that SMEs in Hungary are often preoccupied by “daily fire-fighting”, as they are unable to think in terms of strategic time periods.  

She explains that one of the advantages family businesses have over multinational companies is that employees have more insight into overall company operations. A family firm is also an organisation for learning, it can offer its employees the experience of creativity and the joy of creation – Gabriella Szécsi says.  

The Managing Director advises SMEs to identify their target market of employees, the employees who will add the most value to the company, but to also keep in mind a continuous development of employees.