The Need for the Incorporation of Family Business Models into the Economy - Essay Example

Family business Introduction The current economic landscape points to the need for incorporation of family business models into the economy. Family businesses dominate the economies of most nations’ showing the essential role they play in such economies. Therefore, it is paramount for policy makers and governments to realize the importance of family businesses. Family business models have grown tremendously because of the recognition of the contribution by founders, women, non-family members and the next generational family members. The roles of these contributors are crucial in understanding the key individual stakeholders. Various studies have added to the knowledge of the successes and problems that family businesses face in their operations; including conflicts in succession (Douglas, Douglas, & Davies 371-386). This essay focuses on showing how the benefits of starting a miniature family business outweigh the disadvantages. Commitment, dedication, confidence and trust are vital pillars when starting a family business. These principles describe crucial attributes of family business such as firm identity, reciprocal altruism, social capital and the closeness of the family unit. Commitment describes the relationship between the family members and the business. The neglect of relationship domain is a problematic issue because of the ubiquity and relevance of relationships in a family business. These relationships are vital because they present a range of targets, means and points of commitment for a family business (Henning 1). Trust is a vital component in any family business. Trust can occur at different levels of the business; interpersonal, individual, inter-group, and at the society level. Trust in family business is beneficial because it progresses predictability and limits the agency cost. Trust should be reviewed carefully because it can lead to amoral behaviors and blind faith. Therefore, trust in family business should be comprehended in the context of the family business, and how it can be quantified because it can have both negative and positive consequences (Kimberly, Morgan & Torsten 113). Company Name Stemcor Steel Company Location and Year of Foundation The company located in London, UK was founded by Hans Oppenheimer in 1951 together with a German company. Mr. Oppenheimer’s family negotiated for the acquisition of 50% stake held by the trading company. Vision The vision statement for Stemcor is to become the global trader of steel. The company aspires to become the largest purchaser and producer of steel in the world. This will be achieved by nurturing strong and well-built business relations and continuously improving and adding value to its processes. Mission Statement The company’s mission is to strengthen the business sectors that are dependent on steel through the fulfillment of requirements that enhance production of quality and standard products. This will multiply the societies, end user and clients profits. This mission will be achieved by using advanced technology, and incorporation of research in the development of excellent steel products. Products Offered By Stemcor The company produces a variety of steel products including MS and HT angles, channel and beams. Customers Targeted The target customers for Stemcor are all the consumers of steel. This includes retailers, distributors, corporate consumers and end users. Main Objectives Stemcor’s main objective is to ensure customer satisfaction, while expanding its business operations. The objectives are achievable through the application of technology, research and developments of new products. Company Contact Information and Website The company has offices worldwide. However, its contact information for the London headquarters is; Floor 27 City Point One Ropemaker Street. Zip: EC2Y 9ST, telephone number 44-703-188481. The company’s website is Advantages of Opening a Family Business Starting or joining a family enterprise has many benefits that are not to be found in other enterprise. These include common values, strong dedication, devotion, stability and decreased costs. Family businesses offer the advantage of sharing common values in the family. The family is given a platform for sharing the same beliefs and ethos on work. This gives a sense of pride and purpose to the family, and an edge in competition for the business (Henning 1). A family business helps in the development of a strong business commitment. Building a family business means that more efforts and hours must be dedicated to the business. These hours and efforts must be applied in a flexible manner to ensure effective application. So the collective application of efforts and hours by each family member can ensure this. Family businesses help in developing well-built family attachment (Kimberly, Morgan & Torsten 113). By sticking together, the family shows the determination needed for the success of the business. Family businesses help in building stable financial futures for the coming generation. Therefore, family businesses encourage long-term thinking necessary for success and growth (Kimberly, Morgan & Torsten 113). Family businesses have a low cost of operation. Members of the family are more willing, or are in a position to make financial contributions and sacrifices. A family member would accept low salary for the sake of the business than he/she would accept at another company or business. Also, family members can defer wages in case of financial problems. Employers can avoid liability through the employment of family members (Henning 1). Flexibility is another main advantage of a family business. Unlike a publicly owed, traded company or business, a family business is not required to have a board for direction, or hold yearly meetings. Decisions are made among the family members, and they do not need voting for approval. A family business is less fragile to the effects of harsh economic conditions. The businesses also have less overheads because of the less strict filings associated with mailing and responsibilities of operating a public company. Family businesses can also apply for special status in the IRS. This is an enormous advantage because income is taxed on the shareholders, and not on the corporation. Individual shareholders can reduce the taxable income in case the company is operating at a loss (Henning 1). Disadvantages of a Family Business Access to finances is one of the disadvantages of a family business as the business seeks to meet its expenses or expansion. Unlike a public company, family businesses rely on loans that must be collateralized. Another disadvantage of family business is the high cost of formation. Family businesses are often associated with high filing and legal fees, which in many cases are prohibitive. However, family businesses are exempt from these requirements by making an application to the Securities and Exchange Commission (Douglas, Douglas, & Davies 371-386). Shareholders in a family business have an inability of cashing out of the enterprise. This is due to the businesses inability of funding stock redemption. The unavailability of funds and the unwillingness of owners to seek financial helps aggravate these problems. Changes in business management lead to changes in business policies, which lead to the involvement of in-laws in business matters. As a result, funds are seldom available for members or the business (Henning 1). These disadvantages can therefore, create risks leading to the failure of the business. A weakness in the commitment and unity of the family, conflict clash between the members can lead to the crumbling of the business. Indiscipline and poor management may drive the business into bankruptcy, forcing it to close down (Henning 1). Conclusion A family run or owed business refers to any corporation that is closely held in the family set up. They function more like a partnership than a company or corporation. As a result, this organization operate without the stringent formalities that are associated with other corporations; non-family businesses. Stemcor, a British multinational has operations in over 80, nations. The company began as a partnership between a German trading company and Hans Oppenheimer, in 1951. Later, Mr. Oppenheimer’s family acquired 100 percent stake in the company, and they operate the company to date. It is one of the largest steel production and purchasing company in the world. The company is an excellent example of how advantages outweigh disadvantages in the formation of a family business. The company also exemplifies how some of the family businesses changed disadvantages into advantages enhancing their operations. Family businesses can utilize government and legal protection such as asset protection, and exemption from taxation and payment of legal and filing fees. Family businesses have their disadvantages, but the advantages of such a model typically outweigh these disadvantages. Works Cited Douglas, Alex. Douglas, Jacqueline & Davies, John. Differentiation for Competitive Advantage In a Small Family Business. Journal of Small Business and Enterprise Development. Volume 17. Pp. 371-386. 2011. Henning, Mike. Disadvantages of Family Business Ownership. Heritage Newsletter. Page 1. 2007. Web. 15 May 2012. Available at: Kimberly, Eddleston. Robert, Morgan & Torsten Pieper. Trust and Relationship Commitment In Family Business. Journal of Family Business Strategy. Volume 2. Pp. 113. 2011. Read More