IN A family business, it’s the third generation that presents the big problems. The first generation founds the company and has the drive and the dedication to move it forward. The second generation rides that wave. The third generation wants to do their own thing. They’ve seen Broadway; they’ve had all the advantages. – Gale Petronis
Like every business organization, the Asian family business has a unique set of challenges and problems.
Family business mixes pride and passion with pain and glory and a very hardworking pathway to success. Sometimes a family finds peace and prosperity without apparent effort, while others seem to lurch from one crisis to the next.
A famous saying about family owned businesses in Mexico is “Father, founder of the company, son rich, and grandson poor.” The founder works and builds a business, the son takes over and is poorly prepared to manage and make it grow but enjoys the wealth, and the grandson inherits a dead business and an empty bank account.
Can the Asian family business model survive in the era of globalization?
Richard Lyons, Dean of the Haas School of Business, University of California, Berkeley, says the answer is an emphatic yes.
“There are several strengths of the Asian family business model. First, family members generally have a high level of trust and respect for one another; whereas in other business models, trust and mutual respect take a lot of time and effort to cultivate.
“Second, with family businesses, it’s much more difficult to disassociate or separate from family members, so there’s a high level of commitment to making things work.”
“Third, family businesses can make things happen quickly and effectively without the red tape or bureaucracy involved in non-family-related ventures. Because of this flexibility, family businesses tend to be highly creative and entrepreneurial, and able to capitalize on opportunities that more conventional companies do not.”
Two challenges must be faced by the Asian business model, he stresses.
“Negative family dynamics may hinder family businesses – mixing interpersonal emotions with business. These conflicts can stunt growth and cause business upheaval.
“Another hindrance is that ownership and management tend to be tightly linked, which can make attracting the best employees difficult.
“On the other hand, two characteristics that produce the best Asian family business leaders are: (1) visionary leadership and (2) an innovative mindset to deal with business problems and constraints.” Lyons points to three examples: Hong Kong’s Li Ka-shing, Wee Cho Yaw of Singapore and the Ambani family in India.
Li Ka-shing is the founder of Cheung Kong Holdings and Hutchison Whampoa and has been an expert at anticipating trends and seeing emerging markets early. He is known as “Superman” in Hong Kong for his uncanny ability to make great deals despite heavy regulations in China.
According to Lyons, the same qualities are seen in Wee Cho Yaw, chairman of United Overseas Bank in Singapore. Under Wee’s visionary leadership, the bank has grown into one of the biggest banks in Asia and continues to grow both regionally and locally.
“In India, Reliance Industries is the biggest family-run business, founded in 1966 by Dhirubhai Ambani. Turning a negative into a positive, his two sons (Mukesh and Anil), who had severe differences, divided the company into two in 2006.
“Both companies continue to grow and prosper because of the leaders’ vision. The family also has a reputation for innovative ways of dealing with the many political and regulatory constraints in India,” notes Lyons.
To be successful, a family business must meet two intertwined challenges: achieving strong business performance and keeping the family committed to and capable of carrying on as the owner.
Five dimensions of activity must likewise work well and in synchrony: 1) harmonious relations within the family and an understanding of how it should be involved with the business; 2) an ownership structure that provides sufficient capital for growth while allowing the family to control key parts of the business; 3) strong governance of the company and a dynamic business portfolio; 4) professional management of the family’s wealth; and 5) charitable foundations to promote family values across generations.
Four new trends
On the new trends affecting Asian business families, Lyons sees four obvious trends. One is online and technology. The dramatic changes in technology poses a major challenge to family businesses.
Second is global competition. “Family businesses must compete with multinational corporations in their home markets. Form strategic alliances with their peers so that they can pool resources to compete effectively like combining purchasing to obtain bulk discounts for raw materials,” says Lyons.
“Third is credit tightening which will especially affect the smaller ones. These businesses must innovate and redesign their business models to improve their competitiveness.
“Fourth is grooming talent. It is important that families identify their members’ talents,” he emphasizes. “If there is a hole or gap in expertise and experience, they need to look outside the family to fill their businesses’ needs.
In the same vein, family business leaders and CEOs should educate heirs and other family members in formal settings that provide knowledge beyond on-the-job training” – all these form the keys to long-term success and competitiveness of the Asian family business in the globalization era.
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Prof. Soriano is the Turnaround Advisor of wongadvisory.com and the Chairman of the Marketing Cluster at the Ateneo Graduate School of Business. For comments please email writer at [email protected].