Even before the phenomenal blockbuster Crazy Rich Asians hit the cinemas middle of last year, Asia has already been attracting tons of attention for its growing number of wealthy populations. Two of the most populous nations on earth are in Asia – China and India – and are both minting millionaires and billionaires faster than ever before. Add to that, the rapid technological advancements are creating huge advantages for businesses run by Asian families, allowing them to directly compete with their Western counterparts. The result is an unprecedented explosion of opportunity for wealth creation.
The growing number of Ultra-High Net Worth Individuals (UHNWI) in Asia is certainly an indication that a lot of correct decisions were made by the current generation of business owners. However, faced with digital disruption brought about by things such as big data, artificial intelligence (AI) and fintech, how are the current generation of business owners preparing the next generation in line? How are the next generation in line going to confront technological disruption in the family business? Is proper succession planning in place? The Digital Banker investigates.
Asia – Home of the Ultra-Rich
The Asia Pacific region is home to the world’s richest families. According to a recent study by UBS and PwC, the region had 814 billionaires at end-2017, an increase of 14% from previous year. This accounts for 38% of the global billionaire population. It’s also interesting to note that China’s billionaire entrepreneurs are not only leading their country’s economic transformation but that of Asia’s as well. In fact, many Chinese entrepreneurs are challenging Silicon Valley, producing many unicorn companies (companies with a valuation of US$1 billion or more) that rival that of the United States’.
Fueled by China’s economic rise, the net worth of APAC billionaires grew by 32% to USD 2.7 trillion in 2017. With this trajectory, it is projected that they will be wealthier than their American counterparts in about three years or less.
After China, India and Indonesia both provide a conducive atmosphere for wealth creation. According to the same study, “India’s billionaire wealth increased by a substantial 36% in 2017 at USD 440.1 billion. The number of local billionaires increased by 19 to 119. In Indonesia, billionaire wealth increased by 37% to USD 72.5 billion, while the number of billionaires stood at 20.”
In terms of High Net Worth Individuals (HNWI), or individuals having investable assets of US$1 million or more, Asia Pacific remains a global powerhouse. A report by Capgemini reveals that APAC generated 41.4% of all new global HNWI wealth and is on track to surpass US$42 trillion in HNWI wealth by 2025.
High Net Worth Individuals (HNWI), or individuals having investable assets of US$1 million or more, in Asia Pacific remains a global powerhouse.
Biggest Technological Trends That Will Disrupt Business
Over the last ten years, the scale of technological advancement has increased manifold. Brought about by the democratisation of data and hyper speed connectivity, we are now faced with a uniquely different set of challenges – or opportunities, depending on how you look at it – that will surely have an impact on how family businesses are being ran. In fact, according to a whitepaper recently released by J.P. Morgan entitled “Embracing Data, Digital and Disruptions: Planning ahead for Succession”, it revealed that “two thirds of family businesses indicate that technology advancement has altered business operations in the last ten years.” Looking at the current technological landscape, the next ten years would be absolutely game-changing.
Big Data Analytics
Big data refers to large sets of data obtained from multiple sources such as customer databases, business transactions, usage patterns, medical records and activity logs. Because of efficient management of data, companies can take advantage of operational efficiencies resulting in reduced costs and improved profitability. The challenge is with the democratisation of data, valuable information can now be easily obtained, and using the right tools, can be harnessed for monetisation purposes. Businesses that used to benefit from the exclusive possession of valuable data will now find themselves losing their leverage. In addition, due to existing laws and regulations, managing large volume of data now require significant infrastructure investments to ensure privacy and safeguards are in place.
Many business owners know that artificial intelligence (AI) has the power to alter the way they do business, either positively or negatively. Standing still, when it comes to AI adoption, is no longer an option. The bigger question is: HOW. Some organisations are slowly trying to adopt through the implementation of chatbots and other similar initiatives. But this is barely scratching the surface of AI. How will you define your AI strategy? How can you find AI-literate staff to fill in key positions of your organisation? How do you ensure the reliability and trustworthiness of your AI? These are just some of the questions, whose answers will create a cascading impact in the way wealthy families run their business.
Perhaps one of the most consequential technologies we see of late is Fintech. A portmanteau of finance and technology, fintech represents a collision of two worlds that are locked in a tight embrace creating unprecedented disruption and synergies. We now see traditional banks being disrupted by neobanks or digital banks, whose customers don’t need to visit a physical branch to perform regular banking transactions. We see the rise of digital payments and how this mode of payment cuts away the middlemen. We also see governments recognising the growing impact of fintech in their economies and in response, creating laws and incentives to ensure its smooth implementation. The businesses of tomorrow will be impacted by fintech, one way or the other.
J.P. Morgan Surveys Present and Next Generation of Ultra-Rich Families
J.P. Morgan Private Bank, the industry’s most illustrious name when it comes to financial advice and solutions for wealthy clients and families, ran a survey of the current and next generation of business owners. The respondents span across 10 different countries in Asia whose annual turnover is less than $50 million to more than $1 billion. Its findings revealed that:
- Decisions concerning the main family business continued to be made within the family: by the head of the family (36%), followed by the company board or a selected few (34%). Businesses with annual turnover of $1 billion and above were disinclined to entrust non-family executives with decision making powers.
- Just over half (55%) of the next generation feel ready to confront technological disruption in the family business; amongst the next generation who did not feel they were prepared, more than half (56%) say they lack experience.
- A large majority (87%) of current business owners say the family business has already experienced changes in the last decade; 85% felt the changes have been positive
- A majority (80%) agree the family business will experience tech disruptions in the next ten years and a significant 92% in the 41-60 years age category agreed.
- Technological disruption experienced in the last decade, and expected ahead vary across sectors: financial services, industrial, primary industries (mining, agriculture) were seen to be most disrupted; whilst real estate and construction, were seen to be least disrupted.
The two most cited priorities for how the next generation plan to restructure their family business are: investing in new technologies and professionalising management. For respondents from Southeast Asia, geographical expansion was a high priority, second only to investing in new technologies.
More than 50% of business successors are ready for future technological disruption. However, their self-rated readiness is a tad more pessimistic than current business owners, 67% of whom were of the view that the next generation leaders are ready for the future of technological disruption.
Two thirds of family businesses indicate that technology advancement has altered business operations and communications in the last ten years. A vast majority (87%) of the current generation of business leaders agree that the family business has changed in the way it functions in the last ten years, compared to 57% of the next in line business owners, an overwhelming majority (85) felt technology-led changes have been positive.
The most common cited outcome were: improved efficiency (75%); streamlined workflow (67%), higher productivity (57%), increased revenue and profitability (42%).
Two thirds of family businesses indicate that technology advancement has altered business operations in the last ten years.
Next 10 Years: 4 in 5 expect significant change
Four in five family businesses say they expect to experience “significant change” to the way their business runs due to technological advancements in the next 10 years. The respondents of age 41-60 years old were most inclined to agree, with 92% of this cohort holding this view, compared to 75% under 40 years old, and 79% above 60 years old.
Establishing Trust to Safeguard the Future
While wealth in Asia is still relatively low today compared to other regions such as Europe and North America, it is only a matter of time before the situation gets totally reversed. As the number of ultra-high net worth families in Asia continue to grow, and their investment needs become more complex which include multiple jurisdictions, the question of succession planning becomes all too important.
Succession planning is a long and complicated process. And while families realise the importance of adopting a holistic approach, the conversation must start early to create the life and legacy that you envision.
In Asia, Singapore remains one of the top financial and legal centres hence, the demand for trust companies, whose sole function is to administer wealth planning for succession, is on the rise. Just recently, J.P. Morgan announced the launch of J.P. Morgan Trust Company (Singapore) Pte. Ltd. (JPMTC SG), which will support J.P. Morgan Private Bank’s clients and their families in Asia.
“With the establishment of JPMTC SG, we will be in a better position to support clients who have complex wealth planning needs and serve a wider range of clients in one of the fastest, wealth-generating hubs in the world,” said Kam Shing Kwang, Chief Executive Officer for J.P. Morgan Private Bank in Asia and Vice Chair of Investment Banking for Greater China.
Ethan Chue, Head of J.P. Morgan Trust Company (Singapore) Pte. Ltd. added that, “By having a presence in Asia, we can service our clients and their families in the region more efficiently, and be more proactive in working with them to anticipate changes and plan for succession to future generations. It is important to address business and family needs in conversation, to get the structures right, and to work with a professional in order to get unbiased views.”
Building a legacy is a tall order. As the world evolves and technology continues to flourish, the amount of disruption these will create to your business will depend on how prepared you are in planning for the future. Like a double-edged sword, technology can enable you, or destroy you. It all depends on how you wield it and which team will be by your side, in order to emerge successfully. It’s absolutely no crazy thought that technology, harnessed correctly, can keep anyone crazy rich for a long time.
Succession planning is a long and complicated process. Conversation must start early.
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