Budapest, February 14, 2022 - The dimension of family and business is inextricably intertwined in the case of Hungarian family wineries, according to the latest research at Budapest Business School (BBS). This phenomenon can be both an advantage and a disadvantage in the operation of these endeavours, but it certainly poses countless dilemmas and challenges for the owners. Family wineries represent a very exciting and unique type of family business, and through research, we can learn even more about their mindset, their goals and their operations.
In Hungary, because of the prominent role of family businesses in the national economy (which is not only due to their large number), it is important to learn as much as possible about them. BBS has been working on their systematic research and has been unearthing valuable information about their characteristics for years. One of the university’s most recent fields of research focuses on a very exciting and unique type of family business- Hungarian family wineries, with particular reference to the owners’ short- and long-term corporate, economic, family and individual goals. Based on the first results, the inseparability of the company and the family is very striking in several dimensions, which poses a number of closely related challenges to Hungarian family wineries.
FAMILY VS. FINANCIAL OBJECTIVES
Not suprisingly that the most important feature in the case of family businesses is that the family and personal, as well as the economic goals are all very much blurred. “The financial security of the family or the financial security of the business… ( ) are one and the same”, emphasizes one research participant. This phenomenon can have both advantages and disadvantages in the operation of the business, but it does raise dilemmas. During the pandemic period for example, the potential financial difficulties of businesses are offset by the financial stability of the family, just as some family goals and desires may be financed from the company's assets.
A dilemma may also occur for example, in the case of a more serious development or investment. In the long-run, innovation is of primary interest for the company, but it is understandably an uncertainty for the family. “For them, the preservation of wealth means security, and they are reluctant to expose it to the risks associated with innovation. Overall, it can be said that family businesses are much more risk-averse than those companies where family assets are not involved”, explains Dr. Balázs Heidrich, head of the research team.
SHORT VS. LONG-TERM FOCUS
During the interviews, family wineries strongly emphasise the importance of long-term goals, typically related to inheritance, generational change, or even sustainability. “Perhaps because of the strong emotional, almost religious attachment, sustainability issues related to the natural environment are very prominent. Land and grapes are the most important values, and protecting them is not just a business interest, but an internal need”, explains Heidrich. Equally important is the connection to the local community: suppliers and employees often come from the local region, because where ever possible, the wineries try to choose local partners. “It is very important that there are grape growers we have been working with for 15-20 years”, one interviewee stressed. Responsibility to consumers is also strongly evident: “it matters whether you give such a product to a small child or the juice of a grape that has been sprayed to death”, says another respondent. Thus, the interviews strongly show that the triad of suppliers, employees, and consumers is sacred, and that the long-term commitment toward them stems from a strong internal motivation.
On a practical level, at the same time there are short-term, specific goals set by the owners, such as service expansion or technological development. “When the renovation started at the cellar in 2011, I set two goals: to establish a place to store the wines, since it is not only important to be able to make wine, but equally important is the tasting room where I can receive guests. (…) These two were the most integral, and following that, the subsequent developments took place over many years”, says one of the owners involved in the research. Of course, every company tends to think simultaneously in the short and the long-term. Wineries and family businesses tend to perceive long-term investments as dangerous for a number of reasons, and their financial returns in the short-term are difficult to identify, especially if they have to be financed from their own resources ”explains Heidrich.
INNOVATION VS. FAMILY HERITAGE
Although the willingness to innovate in a broad sense is clearly important for the competitiveness of companies, unfortunately, according to the latest BBS survey, approximately 1/3 of Hungarian companies have not recently implemented any innovation, either product-related, service-related, or organisational development-related. The interpretation of the term is also relatively narrow in the case of wineries. According to those surveyed, innovation is interpreted as a technological advancement which focuses on viticulture and wine production. In addition, in their case we may refer to innovation activity in connection with the expansion of service packages, but they typically do not think about social and especially organisational innovation.
On the other hand, in addition to innovation, the dimension of family heritage and respect for traditions is strongly predominant, even if the specific winery is not necessarily able to refer to their own decades-long, centuries-old entrepreneurial past. “It can be said that this is a sacred attraction, the players in this industry express their quasi-religious attachment to the age-old processes of viticulture and wine-making. Add to this the fact that wineries and/or the products (wines) usually bear the name of the family. Thus, in addition to the general oenological traditions, family heritage and emotional wealth also enter into the picture. In addition to the perception of limited innovation, development can also be hampered by this over-reliance on traditions”, says Heidrich.
STATUS QUO VS. DEVELOPMENT
It is also characteristic of these companies that there is little attempt to develop a new organisational or business model at the corporate governance and strategic level, even though this may be necessary for development, growth, portfolio expansion or the multi-family model that inevitably emerges with generational change. It is no surprise that in this profession, it is less likely that successors will want to take the companies forward. This is partly due to the fact that children are typically involved in the family business from an early age, as respondents say it is a necessary involvement: “() It is for definite sure that (…) if you are not brought up in it, you will not do it”, says one respondent.
In the case of wineries, the involvement of external investors or professional management does not emerge as an option for development or growth. Yet wineries of course, really want to thrive. The way to accomplish this is primarily by improving the quality of the product and technology, which can lead to an increase in sales revenue and an opportunity to enter the international market. „Nevertheless, it must be recognized that the routes to organisational development must also be invented. The lack of this, taking into account the current growth needs of companies, may appear to be a serious obstacle in the near future”, concludes Balázs Heidrich.
Background:
In 2017, Budapest Business School was the first in Hungary to launch a Family Business Research Programme, and in this framework began to systematically examine this specific and fundamentally important field of entrepreneurship. In addition to representative surveys in recent years, the research programme has included deep exploration in a number of areas. One of these is the study of family wineries, which deserve special attention due to their particular characteristics. As a result of the first phase of the research project, in which a qualitative survey was conducted at 21 wineries, several important topics and dilemmas emerge that could serve as a basis for further research.