Re-Envisioning Formal and Informal Family Businesses in Nigeria: The Evolution, Opportunities, Succession Model, and Sustainability Challenges

Re-Envisioning Formal and Informal Family Businesses in Nigeria: The Evolution, Opportunities, Succession Model, and Sustainability Challenges

Lukman Raimi (American University of Nigeria, Nigeria)
DOI: 10.4018/978-1-7998-3648-3.ch011

Abstract

This chapter discusses the evolution, opportunities, succession model, and sustainability challenges of formal and informal family businesses in Nigeria. Using qualitative research method, while relying on content analysed secondary data, the chapter found that the family businesses that evolved in Nigeria laid the foundation for socio-economic development, and they contributed immensely to employment generation, stimulation of indigenous entrepreneurship, mobilization of idle savings, and growth of gross domestic product. Family businesses in Nigeria prefer relay succession planning for transferring control to family members. The major sustainability challenges include poor succession planning, harsh macro-economic environment, conflict of interest, emotional family problems, parochial family vision, absence of mentoring, competition from multinational corporation, poor access to funding, inadequate entrepreneurial knowledge, weak financial management, bad governance, and a host of others. The chapter concludes with research implications, limitations, and suggestions for further research.
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Introduction

Family business as the oldest model of business throughout the world starts from corner shops with few employees to multinational corporations (MNCs) with thousands of employees. Examples of the world’s largest family-run businesses are WALMART in the United States, Dangote Group of Companies in Nigeria, SAMSUNG in Korea, TATA in India, and FOXCONN in Taiwan (Raimi et al., 2016b). With specific reference to the United States of America, India, and Italy, family businesses played a very impressive role in the socio-economic development of these countries – a fact that has made them relevant and indispensable (Rome Business School, 2019). Similarly, family businesses in Nigeria have recorded a commendable level of growth, and they aim to grow aggressively at 25% over the next five years as against the global growth rate of 15% (PwC Nigeria (2017).

Before the independence and post-independence era, Nigeria experienced an explosive growth of formal and informal family businesses among the various ethnic groups in the country. The size of the family businesses and their geographical spread across the country suggest that they are viable and represent the preferred way of doing business (Joseph, 2014). Family businesses have for long flourished in both developed and developing economies, as they account for about 70 and 95% of all functional businesses contributing between 50-80% to national employment in most countries (European Family Business, 2012; Ogbechie and Anetor, 2015). Family businesses in Nigeria contribute approximately 47% of the nation’s GDP (SMEDAN, 2012). Besides, family businesses also accounted for the largest percentage of businesses in contemporary times (Colli, 2003; Zahra and Sharma, 2004). As a distinct field of entrepreneurship, the family business has attracted a lot of attention in academic and policy circles because of its exploits across the globe. It is largely seen as a source of value addition, wealth creation and creation of job opportunities for family members and other people in the community. As a family asset, the management of a family business is sustained through the transfer of management and control from one family generation to the next generation (Shanker and Astrachan, 1996; Naseer et al., 2018).

In retrospect, family businesses perform wealth-creation, wealth reallocation and wealth-preservation roles thereby serving as intergenerational and geographical transmission mechanisms for owners’ families (Carney, 2007). Other socio-economic roles of family businesses include stimulation of indigenous entrepreneurship (through the provision of goods and services) employment generation in the operating environment, wealth creation, embedding a culture of innovations and creativity, foreign exchange earnings, competing with large scale businesses including multinational companies (MNCs), mobilization of savings for production, and contribution to the GDP (Ogbechie and Anetor, 2015).

Despite the advantages inherent in modern shareholder-oriented businesses with heterogeneous owners, the family business model is still preferred and continued to be relevant in contemporary times because of several reasons. In family businesses, family members are passionate about keeping watch over the businesses with keen interest; they pay attention to details and minutest matters; and unlike outsiders, family members are committed to the continued survival and sustainability of the business (Ugoani, 2015). This argument finds justification because family businesses avoid the overlapping principal-agency problem in the Agency Theory of corporate governance. Agency theory explains the transactional contract between the principals (owners) and the agents (executive management) within an organization’s corporate governance structure (Luhman and Cunliffe, 2013). The principals as owners engaged executive managers or agents with the promise to pay agreed remuneration on the condition that the latter protect the self-interests of the owners in the organizations (Laiho, 2011). Family businesses are protected from agency problem because the incentives for the principals and agents converge, that is, the owners are the executive managers running the organizations (Joshi and Akbar, 2012). Also, the governance of family businesses provides relative advantages in developing, sustaining, and appropriating value from a class of assets that are generic non-tradeable (GNTs), which are combined with tradable assets for maximum benefits (Gedajlovic and Carney, 2010).

Key Terms in this Chapter

Formality: This means operating based on legal contracts and explicit rules set by government and other supervisory agencies in charge of business.

Coup d’état Succession: This is a violent and unorganized succession that entails forcing candidates to occupy leadership position in the organization in order preserve the fortunes of organisations in a period of instability.

Outside Succession: This type of succession entails hiring external candidates or outsiders to occupy leadership position in the organization, possibly in the absence of capable insiders with the right managerial and professional competencies to occupy the leadership positions.

Non-Relay Succession: This type of succession involves getting the right candidates to take over leadership of an organisation.

Relay Succession: This is a common pathway in leadership succession that entails transferring the reign of leadership by the founder to a successor over a long period of time.

Boomerang Succession: This type of succession entails bringing back a former leader with outstanding records of performance to lead the organization in a period of turbulence.

Family Business: This is a business entity where ownership and management including decision-making are influenced and concentrated in one or multiple generations of a family.

Sustainability: This refers to the enduring continuity and long-term commitment of businesses while operating to meeting the needs of both the present and future generations while contributing to socio-economic development.

Informality: This means operating based on traditional management system built on social relationships and implicit norms.

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