Episode 9: Why private businesses shape the world’s economy

Full transcript

Timothy Cosulich: And for us, in a way, the priority has always been the business more than the family. We've always reinvested 100% of the profits into the business for 165 years. We've never distributed dividends.

Peter Englisch: Welcome to Up Next for Your Private Business, the PwC video podcast series that brings together professionals from around Europe, the Middle East, and Africa to uncover how private business leaders, governments and policymakers can work together to build an enabling environment for private businesses to flourish and grow.

My name is Peter Englisch, Global Family Business and EMEA Entrepreneurial and Private Business Leader, a Partner based at PwC in Germany.

Today, we are covering the Private Business Landscape, one out of eight important categories of our PwC Private Business Attractiveness Index 2022. While private businesses are all different, they share some common needs that are applied in every case and every location.

But which factors are most important, and how will those need to change in the future? To answer those questions, I'm more than happy to be joined today by Hristo Hristov, CEO of Darik Radio, Bulgaria's largest private radio station and Timothy Cosulich, CEO and Board Member of Fratelli Cosulich Group and major, multigenerational and multinational logistic group from Italy.

Welcome. So, as many studies have shown, private businesses are the backbone of most economies contributing to GDP growth, innovation and job creation. Accordingly, there's no doubt that finding the right formula to support private businesses in growth is of critical importance.

According to Hristo and Timothy, what are the most important factors for creating an environment that supports private businesses? What do you think?

Hristo Hristov: I would say that in the very fast-changing world that we live in right now, I think, you know, to be able to foresee, see into the future and have a common framework that is not going to be changing every six months, 12 months, two, three years. So basically I would say clarity and uh, you know, the framework of doing business in each and every country.

So if I have, if my business or my family's business has a clear understanding of what the tax structure is, how much do I pay for VAT? Do you know what the minimum wage is? What is the general framework for doing business in any given country? Then this is very important for me to be able to invest in the long run because family businesses generally, we don't, you know, invest for several quarters or even a couple of years.

We invest in the generational, you know, time frame. So we invest for like ten years, 20 years, 30 years. We invest so to speak, for the next generation. So not having any surprises in terms of regulations, tax changes, currency volatility, or Central Bank policies is a critical, critical milestone for doing business in any country, I would say.

Peter: So predictable conditions to operate under. Timothy, what do you think? What have you been experiencing? Having lived and worked in so many different countries?

Timothy: Yeah, well, I completely agree with what Hristo just mentioned regarding the predictability of the work environment and the business environment. And having been based in Singapore for the last 12 years, I had the opportunity, and the privilege to appreciate how a country that can plan for the long-term works.

In addition to what Hristo just mentioned, I would say that what I see sometimes lacking in Italy at least is the ability to have true stakeholder management. And so being able to understand that in the life of a business, you will have moments in which the business will have to support society and times in which society will have to support business.

And at some point, you know, the business cannot succeed without the support of society and vice versa. So having a broad and wide approach to a business that can benefit society and stakeholders and shareholders at the same time is something that sometimes we see as lacking.

And we do see a little bit of a win-lose dynamic as opposed to a discussion on how to have a business that can be successful in a society that benefits from the presence of that business.

Peter: It's a very interesting point that you are touching on, Timothy. So especially because you have different expertise, having lived in Singapore or different other European countries, and just recently returned to Italy. So with the new government in place, which is constantly changing business conditions currently with a lot of geopolitical uncertainties and also high energy prices and inflation.

Do you observe already that there is a change in the private business landscape in Italy, for instance?

Timothy: Well, certainly when you see uncertainty, the first reaction of many businesses is really to put a lot of investments on hold, or at least to become a little bit less entrepreneurial or aggressive. And this is where sometimes family businesses, as Hristo was mentioning earlier, can make a difference because we don't look at what's going to benefit our companies this quarter or this year.

We look at things in a much longer term. So this is where even if there is uncertainty, we can make a difference.

Peter: I couldn't agree more. So you also talked about investment, innovation and the like. So and Hristo, you are not just currently the CEO of your family business. You have been a serious entrepreneur at the beginning of your entrepreneurial career and you are now an investor as well.

So if you now for a second, change your head from the leader of your family business to be an investor from an investors perspective. So what is it? What do you expect from just quid pro quo governance has to do something for the business and business has to do for the government. So what's needed from an investor's point of view in these current times of uncertainties?

Hristo: So what we expect as a tech sector is a tech scene in Europe, by the way, is again, very much related to what I previously mentioned. So you expect to have a certain amount of predictability that, for example, the Netherlands, where the majority of the venture-based funds are located, doesn't dramatically or drastically change its framework for VCs.

Or the same goes for Switzerland. So we saw that one market's changing dramatically with Brexit. We saw how this affects everything from education, which is access to talent, to access to capital, which is changing even in the real estate market, which is having some hard times right now. So I would say predictability, access to talent and access to capital.

And capital now, with the rising interest rates and tightening of the monetary policies, is becoming more and more scarce. We see the markets are not so liquid. They are drying up. Investors are bracing for the money that they have and they are looking for so-called, you know, for the first signs that the recession will not be so hard and that the economic times will be better. And only then can they start spending.

Peter: Yeah, it's interesting what you're saying about the VC capital and the availability of funding from investors. I think this is a place where the government can set the right conditions.

And I observe that in Europe, some territories you mentioned, the Netherlands, for instance, are doing pretty good to attract institutional investors so that funds are available in that particular country and other countries also have good leading practices.

But I think I would not consider that the interference of the government to attract investors would most likely be something to support the ecosystem in a way that allows startups and young entrepreneurs to find a potential investor.

So turning to you Timothy so your family business is more than 160 years old. Wow, what an amazing history. So you went obviously through all ups and downs, political, geopolitical crises, even wars in the history of your family business.

So from a long-time perspective, is it also that availability to investors borrowing more the lending facilities from banks or what? What is it that makes a huge difference for you to survive in the long run managing such a crisis?

Timothy: I think that in our case I can only speak for ourselves. What made a difference was that the priority for our family business and you know, having seen a lot of different family businesses, I cannot say there is a right or wrong.

There are just different approaches depending on what the priorities are. And for us in a way, the priority has always been the business more than the family

We've always reinvested 100% of the profits into the business for 165 years. We've never distributed dividends and we always kept our debt level at very manageable levels.

We've always had a relatively conservative approach to the business, but at the same time trying to maintain an entrepreneurial mindset to business and focus on the long term. So accepting that for certain businesses within the group, we might have not achieved certain results within the first year, the first two years, and the first five years.

But in some cases, we were convinced that those businesses had the potential for the group and we decided to stick to them and in most cases, it paid off. So I think that and that is the long-term approach together with a conservative mindset and putting business first in a way has helped.

At the same time, you know, you have a long experience I'm sure with seeing family businesses and one of I would say one of the main weaknesses with family businesses is sometimes the lack of meritocracy and the fact that you don't have necessarily the best people getting to the top but getting the family people at the top.

And in our case, we have a board of directors where five out of six are from the family, so out of 2000 people. So either we have an incredible coincidence where the five best people out of 2000 people are from the family, or we also lack a bit of meritocracy.

And at the same time, you know, we try to have certain processes in place where we do our best to reduce or minimise the impact of that lack of meritocracy, such as having a minimum period of about ten years for family members before they're allowed to join the group.

And then having sort of an introduction for those who join the group as well. Maybe they can gain the respect then of and the trust of the people who work within the group. So I think trying to have as much meritocracy as we can and putting business first is one of the things that's kept us afloat over the years.

Peter: That is super interesting and Glen to see how you tried to avoid creating a sense of entitlement and dividend, uh, in your family. It's super interesting. What, from your point of view, is an important, uh, condition that different countries find, which allows you for this generational transition?

And if you compare what you have observed, let's say in a vibrant ecosystem in a country like Singapore compared with European countries.

So what can European countries learn from Singapore about fostering an entrepreneurial spirit and passing the baton to the next capable person? And what is your personal experience? So what was this, uh, this encouraging element that you found being in the vibrant ecosystem away from home?

Timothy: Yeah, I think one of the things that we have observed not only in Singapore but in most big cities, I would say is a bit of a shift from, you know, a market where at least in Italy until recently, I would say the market was very much in favour of the employer. So it would almost be the employee looking for a job, being grateful for having a job to a situation where companies are indeed fighting for talents to attract talent.

And you don't realise that shift has happened, then you find yourself ending up with those who are not particularly talented or particularly ambitious and who are not willing to invest in their career. So I think making that effort and realising that as a company, we have to make a real effort to attract the top talent.

That is one of the things that if you are not in one of the main cities, is one of the aspects that you might miss. And it's very clear.

If you are based in Singapore, in Hong Kong or New York or London, job mobility, the fact that young generations don't have a much shorter time horizon when they look at employment and every X number of years they want to see something new.

And again, taking it upon ourselves as a company to make sure that if we have talent within our organisation, it is our responsibility to make sure that we continue to provide our young colleagues with opportunities to learn and develop within the group. So those are clear trends that I have personally observed, not only in Singapore but in the main cities.

Going through your earlier question about the country, what I noticed in Singapore is that the culture was never afraid to invest in innovation, or in general learning, I would say. And that is quite important. It might even be the difference between a country giving a loan versus a country giving a grant.

It's quite a significant difference if you're a startup, if you are starting a project for a relatively midsize or large company, of course, you might have the means to invest and to do something new.

But if you are a startup having a subsidy, a real subsidy, money from the government can make a difference.

Peter: I think this is super important. This is also confirmed by our survey and by our research that there is a strong correlation between the attractiveness of private businesses and the country, which means that the government can provide an enabling environment for private businesses to grow and flourish. So Hristo sometimes we have interesting findings.

Also this time we had interesting findings from our research, for instance, we found that the least time bureaucracy CEOs and owners spend was in Estonia because there is a high level of digitization in a public function and so on. So looking at Bulgaria, what is the audience’s surprise about the positive things that are currently happening in Bulgaria?

Hristo: Now that you mention Estonia because like I hear from a lot of companies that are either registered there or the founders, they have Estonian citizenship, they apply it online. Their electronic signatures are their identity card.

It's the same thing. You can sign and move everywhere with it. Uh, I would wish I could see that level of digitization in Bulgaria. Unfortunately, over the last, you know, couple of years, there is more or less a political crisis here with governments changing quickly.

Now, we are like two and a half months past the elections and we still don't have a government. And I don't think this is a very, very positive sign for businesses.

Peter: What I hear from both of you is having a clear vision for the future. This is of critical importance for sure, and not only for your own business but also for our country. So as we are heading towards the end of this conversation, is there any final message from you, Timothy and Hristo that you would send to our audience?

And is there anything that you wish to achieve for your country and your business in the next three to five years? Timothy.

Timothy: Well, I will just build on something that both you and Hristo mentioned about the idea of the vision. And indeed I agree that it is important for a country and for a company to have a clear vision of where you want to go. At the same time, I think that it's very, very important to be able to adapt because change is inevitable and you might have the best vision ever.

But the reality is that then COVID happens and your vision, we all know where it goes, so I think it is very important to be able to adapt to change. And for that, it's very important to have that open communication between the business community, the government and so on. And I do want to highlight what Hristo mentioned earlier about the predictability of the system.

Also in terms of I mean, this is maybe a bit of a wider discussion, but sometimes I do find that politicians tend to focus on ideas and projects and proposals that get them re-elected as opposed to projects that are good for the country that might not get them votes.

So I think it might be useful to find a way to get the political class to focus more on what brings benefits to society, a real benefit as opposed to bringing in votes.

Peter: This is going to be a very interesting separate discussion, Thank you, Timothy. Hristo.

Hristo: Yeah, I think ultimately this goes into company comparison as well. Like if you compare our family business type of perspective to a let's say Nasdaq listed company perspective is the same as Nasdaq listed companies, the same as the government. So they optimize for the quarterly outcome rather than the like ten years, 20, 30 years or more.

So it's I think it's a matter of it should go both ways. So you should be able to speak and educate the mass audience through media and influencers and social media so that they don't expect immediate returns as well. So it's like your shareholders in the company that you are, they don't expect immediate returns with the fact that you have an issue with the dividend and so on.

Compare it to, let's say like 10 million Italians, they expect immediate returns. They expect now to get paid for Christmas because they don't want to think for like the next five years or the next seven years. Towards the end, I would like to share something very, very interesting.

Again, it's a dichotomy type of thing, but I would like to compare the technology ecosystem and the startup world with, let's say separate countries.

When we sit together with the technology entrepreneurs and the VCs and let's say the success stories of our region like Romania, Bulgaria, Turkey, Greece, we don't see it as separate markets, we see it as one pipeline. So we see this one talent pool and one capital market. So we don't see the borders.

So we're not afraid to share knowhow, we're not afraid to share data, we're not afraid to share best practices. We collaborate. And I think countries and especially European countries tend to collaborate more, building on the best practices of other peers or collaborating with other continents or with countries from other continents.

I think we can accelerate as a society much further and we can progress and take this next down market and downtrend and build on that through technology to, you know to have better lives and to have better jobs and have for, you know, better outcome because the technology element now, you know, creates a different ballgame.

It's now not the same as Peter, you producing the outcome of X, and Timothy producing the outcome X plus 0.5, and me producing X -0.3. So it's through technology, we can leverage many moralities and competencies. And this creates enough, I would say, a world for everybody.

Peter: And I think this is a very nice closing remark Hristo because you were just saying that and highlighting its importance to ecosystems and we should think more about ecosystems and some industries. This trend has already happened.

Shipping technology is so many are part of a bigger ecosystem where neither an individual company nor an individual country can change the game and the rules of the game.

But there can be value added to produce that if players and the ecosystem work to our previous points, working towards a common goal for mutual benefit.

And I wish that we'll find more interesting ideas for collaboration with the different stakeholders in the open communication mindset that you and Timothy were referring to, to build an ecosystem, which crosses borders, which crosses industries.

So the question is how to find this common ground. Thank you both Timothy and Hristo for joining the podcast and sharing your insights today. I'm sure that our audience found a discussion as insightful as I did.

To everyone watching or listening. Thank you for tuning in. If you enjoyed this episode, please subscribe to the podcast series. We will release a new episode each month, so watch out for next month's episode. Hope to see you then. And on that happy note, thank you and goodbye.