Professor Roger King, director of anoto Center for Asian Family Business and Entrepreneurship Studies of the Hong Kong University of Science and Technology, speaks at a seminar on ‘Succession and Innovation in Family Businesses: Comparing Overseas Chinese and Jewish Diasporas’ in Hong Kong on June 2, 2017. (PHOTO / TANOTO CENTER FOR ASIAN FAMILY BUSINESS AND ENTREPRENEURSHIP STUDIES)
HONG KONG – Chinese family businesses are facing a succession challenge as less than 35 percent of the next generation are willing to take over their parents’ enterprise.
Research at the Hong Kong University of Science and Technology (HKUST)’s Tanoto Center for Asian Family Business and Entrepreneurship Studies shows Chinese family businesses are less sustainable than those in other countries, and reluctance of the younger generation to take over the family business further dents their outlook.
While the founders of Japanese family businesses tend to give the ownership to one offspring and give the rest money, those of Chinese family business like to give the ownership to many of their children, which is bad for decision-making.
Prof Roger King, Director, Tanoto Center for Asian Family Business and Entrepreneurship Studies
None of the top 100 oldest family businesses in the world are Chinese. Among family businesses with an annual turnover of more than US$50 million that have survived more than 100 years, only a handful are Chinese firms, the research said.
Japan has the most century-old family business in the world, with 25,321 family firms surviving 100 years, while the Chinese mainland only boasts 204 such family businesses.
The curse of the Chinese saying: “Shirtsleeves to shirtsleeves in three generations” seems to apply in Chinese family business.
Ownership pruning is the key differentiator in Japanese family businesses’ longevity, said Professor Roger King, director of Tanoto Center.
“While the founders of Japanese family businesses tend to give the ownership to one offspring and give the rest money, those of Chinese family business like to give the ownership to many of their children, which is bad for decision-making,” he said.
Richie Eu, general manager of strategic development at Eu Yan Sang International and also the fifth-generation of the traditional Chinese medicine family business, which has run for more than 138 years, echoed the view.
“My grandfather is one of the 13 sons of my great-grandfather; if you have 13 sons, and the business ranges from banking to mining shipping, property and Chinese medicine, you can’t make decisions. It was a huge mess,” he said at a forum in Hong Kong on Wednesday.
Founder of Eu Yan Sang, Eu Kong Pai, opened his first Chinese medicine shop in 1879 in Gopeng, Malaysia. When it came to the third generation, the family assets were passed to his 13 sons in equal shares, with most of the business sold or liquidated by then.
Richie Eu’s father, the fourth generation, bought back Eu Yan Sang in the 1990s and renamed it Eu Yan Sang International (EYSI). The company quickly expanded from less than 20 stores to over 300 across five countries. EYSI was listed on the main board of the Singapore Stock Exchange in 2000.
Yet Richie Eu believes family values give family businesses an edge over their non-family peers. “My last name is embedded into the branding of our company,” he said, and the key things for a family business to prosper is to “carry the passion beyond the first generation”.
Compared with the first generation of Chinese family business who start from scratch, King said the next generation is much better educated. Many of the offspring of family businesses received education abroad and are competent in taking a lead role.
But that also can make them unwilling to take over the family business, King continued. They shrug off taking on a business that was built on low costs and cheap labor, the typical scene of first generations’ business model, and look forward to working for industries which are “fancier”.
Professor Winnie Peng from HKUST said their research shows that among the next generations who do not want to take over the family business, “half of them want to work in the finance world”.
If a family business does not have smooth succession, chances an outsider will buy it out are also small, King said. Chinese family business are more relationship-driven and potential buyers would worry that if the boss left, it would be hard for him to reunite the rest of the employees. “Early planning and systematic thoughts about succession are essential for Chinese family businesses,” King cautioned.