Living in Peru : your everyday companion

Family businesses are very prominent around the world. They range from small convenient stores to large conglomerate multinational companies like Walmart, or they are centuries old like Zildjian, which was founded in 1623. Peru is not absent of such a plethora. Most of the corner stores, or rather ‘bodegas’ in our neighborhoods around Lima are family run businesses. However, at the other extreme, the largest bank and largest insurance company in Peru are family owned businesses. In either case, family businesses provide well needed services to all levels of society and for all sectors of the economy. Family-owned businesses are vital for the health of an economy, especially here in Peru.

Around the world, people are quite unaware of family businesses, perhaps viewing them as informal, conservative, and that they are unwilling to adapt to modern global pressures. In retrospect, family businesses have many advantages over non-family businesses. Compared to their non-family counterparts, family businesses are unique because of the sentiments between the family and the business or businesses they own. Family sentiments that arise in family businesses can be virtues because family members are willing to stick together in rough times, be flexible, pool family resources for common goals, and pull together for the better of the entire family. The family creates a strong sense of dedication to the family business, which if well maintained, endures many generations. In other terms, family members do not only work hard for the family, but work hard because they are owners or will be future owners.

Another aspect that separates them from non-family businesses is their endurance over time. Many family businesses tend to focus more on the long term. Family businesses tend to outlast transnational companies, governments, cities, etc. For example, the oldest family business is the construction company Kongo Gumi, in Japan, which was founded in 578 and ended its operations in 2007. Thus, family businesses or business families are concerned about future generations, and therefore tend to have long term visions, and business and strategy plans.

In certain circumstances, many family businesses do not grow enough or grow at an unsustainable rate because the family grows much larger than the business. In these cases, the family either has to accept that there will be more family members in the company and/or as shareholders, meaning more members to share the cake, or the family must diversify their capital and create more companies, which then means that the family business transforms into a business family.  The classic case in Peru is the business family Wong. They had one family business, a ‘bodega,’ which grew into large supermarkets, and then they sold their main business, but are now investing as a group in a variety of businesses, turning them into a business family. 

Recently, I participated in a consultancy project as an independent consultant for Dvalor Consultores whose client is a very large and successful family business in Lima - entering the sixth generation.  It was a unique opportunity to work with the only specialized family business consultancy firm in the country. The consultancy firm’s work is based on a theoretical framework that they apply to all their consultancy projects. They devised their theoretical framework after earning years of experience in the same field in Chile.

The framework is based on three main factors: culture, vision and leadership. Dvalor believes that, depending on the family, these three aspects are either virtues or weaknesses to the business, and they can be strengthened or improved. Thus, family businesses grow by strengthening good family values and cultural traits throughout their lifetime, aligning the vision of the family and family business, and defining clear leadership roles. Family business can fail if certain cultural traits and values exist that are deterrent to the company itself, like using the company as a personal piggy bank, or having family disputes spillover into the work environment. Moreover, these companies fail if vision and leadership roles are not aligned or well defined and respected.

The majority of family businesses, roughly 13% globally, cease to exist past the third generation. The number one reason why family businesses fail to achieve longevity is the transition from one generation to another. Dvalor understands how delicate these situations can be and how family businesses can be surrounded by complexities. Therefore, they use their theoretical framework to understand the family and the company and begin their analysis based on the fact that all family businesses function as an organization, composed by two systems: the family and the company. This allows Dvalor to indentify the level of complexity of the ‘organization’ and then determines the adequate structure each ‘organization’ needs to administrate that complexity. One mechanism that assists these families in administering their complexities are family protocols. In addition, a family advisory board is formed in order to provide a platform where family members discuss and decide issues that concern the family and their businesses.

Many people may still see family businesses as backward and informal; however the potential for family businesses to grow and become a business family with a holding company and be owners of a variety of different businesses is very promising. It is about time that Peruvians value family businesses and the huge potential that they have. All it takes is for Peruvians to recognize the strengths in their own families and capitalize on those strengths. Peru may be a mining country, but the real mine is not the shiny minerals underneath the ground, but by the values families have. The advantages definitely outweigh the disadvantages for family businesses, but it depends on how the family and their companies manage their complexities, their vision, leadership and values.