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Instant

Why are Family Businesses More Sustainable?

Operations Management
Published on:

In a world that is currently confronting a climatic crisis caused in part by overconsumption and garment manufacture, it is critical to determine which industry actors can effectively be drivers of the move to a more sustainable lifestyle. Based on a field study in the Portuguese textile and clothing industry, Monica Santos Silva, a SASI Master student supervised by Operations Management Professor Sam Aflaki, explains the mechanisms that make family businesses more competitive and sustainable.

Textile_Pekic-IStock-GettyImages_cover

Family businesses are now 70% of the global GDP and the backbone of various economies. They are known for their motivation to pursue long-term investments due to the incentive of passing on the business to future generations, close relationships with their stakeholders, a value-driven business model, and a strong brand mission. These businesses have a family name attached to them and are under societal pressure to maintain and protect this name and be recognized for ethical practices.

These characteristics and many more allow a competitive advantage and facilitate the global advancement of the sustainability concept. To understand that in practical terms, we have investigated three dimensions – economic, social and environmental -, of 14 Family businesses, leading a 30-45 min interview with each of them (12 online and 2 in writing), including Torres Novas, Becri, Laranjinha, Tetriberica, Riopele, and Valerius.

1. Economic dimension

Family businesses are economically more stable within a long period horizon.

Succession

This is a fundamental element to guarantee the long-term survival of a company. Having a next generation waiting to be involved in the business allows for a strategy that has a long-term and more ambitious focus. Along with that, the CEO's lengthy tenures and the non-financial pressure from shareholders makes this possible and more viable.

Management

Family members are welcomed into the company from an early age. This allows individuals to absorb knowledge, decision-making processes, and essence much more quickly. In practice, this translates to increased confidence in managing and controlling the business, as well as a clear alignment with the company's purpose and values. Furthermore, they are able to merge the know-how with the elder generation through a co-management style.

Project motivation

Family businesses incorporate their beliefs and purpose into all they do. As a result, the motive for particular projects isn't always purely financial. As a result, they are more forceful and passionate about their intentions for the future. This work, values, and priorities then create space for sustainable decisions to be made, with long-term success as the primary goal.

 

Family businesses are motivated to pursue long-term investments due to the incentive of passing on the business to future generations, close relationships with their stakeholders, a value-driven business model, and a strong brand mission. 

 

2. Social dimension

Family companies sustain more prosperous long-lasting relationships between their stakeholders and foster more sustainable regional economic and social development.

Stakeholder relationships

Employees spend virtually their whole lives with the organization and consider it a second family. Customers are long-term partners that allow the business to grow and return because they understand the trust, transparency, and integrity of their relationship. Local institutions remain unchanged in an effort to give back to the local community. These firms interact with research institutions and universities to promote education and innovation. They seek a healthy and fair atmosphere where the co-helping system among suppliers and rivals advances the country's know-how. This allows them to stand out in terms of social responsibility.

Region development

By assuring their development and growth in their home region, family businesses contribute to regional development on numerous levels, including infrastructure, training, the attraction of complementary firms, and tax contributions that benefit both the community and the enterprise. Instead of focusing on financial gain, the companies have maintained close relationships with their stakeholders. This allows a cluster to form around the organization, granting the businesses greater control over the entire supply chain and greater transparency among parties.

3. Environmental dimension

Family business products have a lower environmental footprint.

Quality and durable products 

These are the main characteristics of a family firm that are part of its identity and character, what customers identify them for, and what gives them market credibility. This involves also creating products that encourage circularity and repairability to that the product cycle is extended.

Shift to natural processes 

With the environmental impact awareness, family businesses are changing to natural dyes, for example, which are a significant polluter in the supply chain. This reflects the concern to change their well-established processes and supply chain in order to guarantee that they have a lower environmental impact. 

Textile waste 

To ensure this there are two ways: (1) To minimize waste where family businesses have been making technological investments to optimize the business's resources (2) To manage the waste: where they have been investing in recycling centers, re-design and upcycling strategies to ensure that this waste is being repurposed in other segments or pieces.

Investment in green energies 

Family businesses - mostly the bigger ones, such as Valerius, Riopele, Tetriberica and Becri -, are aiming to reduce the environmental impact of their activities by investing in greener energies such as solar and biomass, which simultaneously allows them to guarantee economic sustainability by relying less on price volatile energy sources.

The role of legacy: Passing on family values to society

Family businesses believe they have a moral obligation not only to seek this type of education, but also to safeguard the long-term viability of their company for the next generation. Their priority is to create a value-added product and a supply chain that may serve as a model for others. They will remain true to their values at all costs while establishing a healthy and fair atmosphere among industry players based on co-helping values. They see their company as a means of passing on their family values to society and spreading the concept of sustainability. As a result, family businesses have the potential to be the industry's principal driver of sustainability.

 

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