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Family businesses and succession issues in Slovenia

20 April, 2016 - 16:59

Slovenia’s transition from the former socialist economy to the market economy was closely connected with the development of private SMEs, also family SMEs. The social and economic changes created opportunities for establishing private enterprises and enabled family business development. Namely, during the socialist period (starting after World War II and lasting until the early 1990s), the tradition of family businesses persisted mostly within the craft sector. During that period, operating a family firm within the craft sector was not really attractive due to various obstacles (e.g., limitations in employees’ number, value of productive resources) 1, 2. However, the number of private SMEs increased dramatically since the beginning of the transition in the 1990s. According to some of the latest results for the year 2010, there were 126,965 enterprises in Slovenia, of which 99.8% were micro enterprises (0 to 9 employees), small enterprises (10 to 49 employees), and medium-sized (50 to 249 employees) enterprises. Large enterprises (more than 250 employees) represent only 0.2% of all enterprises in Slovenia and provide 30% of the nation's jobs. The size structure of enterprises and the employment share in Slovenia are comparable to those in EU-27. However, big differences exist in value added per employee: In EU-27, it is 47,080 €; in Slovenia, it is 29,840 €, indicating that Slovenian enterprises lag considerably behind EU-27 average value added per employee 3.

Different data and estimations exist regarding the share of family enterprises in Slovenia, mainly due to the use of different definitions and sampling methods. The importance of family businesses for the Slovenian economy is often measured by their share among all enterprises or SMEs (Figure 6.1).  4 estimated the share of family businesses in employment and value added based on the estimated share of family businesses among SMEs in Slovenia. According to the author’s conservative (i.e., bottom-line) estimation, family businesses employ at least 26% of the active adult population and contribute 22% to the total value added in the Slovenian economy.

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Figure 6.1 Source: [ Duh M. Distinctive characteristic of family business and supporting infrastructure: comparison of Slovenia with EU and other countries. In: Širec K. (ed.) Dynamics of Slovenian entrepreneurship: Slovenian entrepreneurship observatory 2008. Maribor: Faculty of Economics and Business; 2009. p105-121.]  Estimations of the share of family enterprises in Slovenia 

Other estimates indicate an even higher share of family enterprises, falling in the range of 60% to 80% 5, contributing 30% of the GDP 67 estimated the number of family enterprises in different class sizes in Slovenia, finding that micro family enterprises prevail in Slovenia.

Recently, the discussion in Slovenia has turned to the problem of transferring family firms to the next generation. Family firms established in the 1990s are approaching a critical phase of transferring ownership and management to the next family generation. Research findings indicate that the majority of Slovenian owners/managers believe that a business should stay in a family 8, 9, 10. Regarding succession in management, research results  11 indicate that the majority of respondents decided to realize the succession within the family. Other options, such as transfer to the employees/management or closure of a firm, occur less frequently. Similarly, the majority of respondents reported on realizing ownership succession within the family and less frequently on other options.

Slovenian owners/managers believe that children should be introduced into a business at an early age and be educated about the business needs. Furthermore, they believe only one successor and not a team should take over the leadership; a successor should be found among family members as a business is considered stronger with family members involved. Slovenian owners/managers are quite sure about the capabilities of their children to take over and manage a family business. They also believe that children should become co-owners when they join a business and when their parents are active in the business 12, 13. The concept of “primogeniture,” where the oldest child takes over a business, is firmly present in Slovenian family businesses, although the gender aspect is not that important. The most common way of transferring a family business is through the gift process; owner-managers are not inclined to the idea of selling a business 14. Another research finding indicates that the succeeding generation wants to retain more freedom when deciding about entering a family business. Successors lack a proper training and mentoring and, therefore, feel uncertain about their capability to manage a firm 15. As the majority of Slovenian family businesses are still under the ownership and management of the founding generation, many lack succession experiences 16, 17, 18.

The research findings of  19 show that less than 60% of Slovenian family business owners/managers are actually planning the succession. One fifth of Slovenian owners/managers even believe that succession planning is not necessary. Similarly,  20 found that a situation is better among owners/managers who are older than 50 years, although 20% of them still believe that succession planning is not necessary.

An analysis of institutional actors and policy actions in Slovenia demonstrates that different actors as well policy measures and actions exist that support and promote SMEs and other business organizations; however, family businesses are not recognized as a special group within SMEs. Some efforts have been undertaken in research; educational support also exists, provided mainly as special courses, and special training and consulting activities are also offered (e.g., by the Chamber of Craft of Slovenia) 21.