History of Chinese Family Business
The family business is an important part of Chinese economic History, and its success has always been based on transition. According to statistics, as of 2017, family business enterprises were contributing to about 60% of the country’s GDP and employing about 80% of the workforce (Flannery, 2016). The family business in the Chinese community is important in the economy and has rich stories on the nature of succession. China’s family business landscape replicates the History and tales of entrepreneurship and how most people in China have risen from humble backgrounds to form a significant part of the community.
The family business in China is the economic engine in post-industrial development as they have been given credit for nurturing entrepreneurial talent across generations of the Chinese community. In China, the family business has significantly risen to form an important part of industrial development, controlling the mist of the firms (Flannery, 2016). The family business has been based on what is called succession, where the next generation gets endorsed by the family to take the business and make continuity of the business development.
How Current Problem is derived from History
The current crisis with succession in Chinese family business can be derived from History, where the development is opening routes for young generations, and they are shifting from continuing their parent’s business to making their roots in entrepreneurship. The biggest challenge the business is experiencing is embracing the new generation into the family fold. More than half of the children of a new generation in the wave of entrepreneurs that built China’s export economy after the leader Deng Xiaoping started the communist nation to come up with free market capitalism in 1979, and these children are not interested in inheriting their fathers business as studies suggest (Rovenick, 2017). Instead, they want to work for their own business or fashionable industries like technology, banking and investment sectors. The report suggests that what China is encountering is social and economic loss, as Joseph Fan, the co-director of in economic and finance centre at the Chinese University of Hong Kong. The projection is that a lot of business will stop for the business owners contributing to more than half of the country’s GDP with the rest of the economy.
The cause of this trend is unique because it is based on the factors of individualism of Chinese millennials to the fact that their own business, which parents own, has been working hard to succeed in business which they did not bother showing their children. The other thing is that most business owners have sent their children to study from a western aspect. When these children come home, they are inspired to start their businesses and venture into different industries besides what their parents do. According to Joseph Fan, more than 6 out of 10 children of family business owners are not willing to go on with the family business, with his opinion of research (Dinh, & Calabro, 2019). He holds that he talks to more than 100 Chinese family business owners monthly about his research and his constancy business on succession planning. When the parent has the capacity, it becomes very diverse for their children to venture into their path of development and make them experience their capacity for development because of the exposure they have been given. These dynamics have made the parentsperience crises in handing over the business to the children. T due to these dynamicshere is also the notion that when they inherit the business when they are more than one child, they will at some point come to start overpowering each other, and the business will sink in the process.
China’s Current Political Systems Contribution to Family Business Succession Crisis
The China political and economic system is based on protecting their properties and reducing consumption from outside their economy. Their political and economic approach is creating some trade with the superpower countries like the United States of America. In these countries, most of the family businesses in the past depended on selling their products. The ongoing trade war, which began after the era of Trump, is shoving the children to succeed in business which relied on these countries for development because they will face high competition. They will probably come down because of these issues related to the trade war. Instead, the new generation is trying to create rapport with the countries by getting to the competitive sectors like the technology industries, allowing them to tap the market outside China without being crucified in the trade wars. For example, Apple Company has a strong plant in China using Chinese technology talents to grow their business; thus, children might not want to associate themselves with the business which has ill relation with these countries that offer markets and jobs.
China’s political system is now encountering the fourth industrial revolution, where the major characteristic of the revolution is a change in development approach, which is shifting from “Black Development.” And the new approach is the green development model, which has prudent approaches to ecological boundaries. Open innovation is experienced in these forms of development to respond to the new era of technological revolution, understanding new innovative management that family businesses did not embrace in the black development (EY Greater China, 2020). Open innovation and green governance have been the most discussed approach, changing the concept of governance even in the business world. The change from the capitalist approach to the communist approach of the business approach is also a factor which is putting the family business to be in a more old-fashioned approach of the controlled market rather than the current open market where the new generation seems to embrace the new market in the process of entering the business.
Possible Solution to Family Business Succession Problem
The success is a growing crisis for a family business for the Chinese community, which needs to be addressed before these businesses, which give significant GDP to the economy of China, die. The first solution is based on the family and parents, who need to step up and start training their children on how to handle such business and make continuity (Dinh, & Calabro, 2019). Most family businesses employ people from outside the family in critical departments like management and finance only to inject their children in the late stages when they know nothing. It is high time for the family to embrace and endorse their children as early as possible so they can get used to the business as early as possible.
Naming person in charge the family need to name the person in charge as early as possible so that he or she may be able to interact with the forces and understand the dynamics as early as possible. Depending on the government formation, it is important to name the CEO or the board of directors so that the named individual can adjust to the new business formation. This will be able to control the family expectation and the family plans for leadership and possession of the business. Again the person in Charge will be in charge of defining the family’s legacy and continuity of the values the business dictates. The other approach is preparing the next generation to take over from the business which has been being run by the family (Soleimanof, et al., 2018). The training needs to start as early as possible, both in nature and about changes in the firm they are set to inherit. The government can also buy shares in such businesses so that the succeeding children will not change the policies, which will bring down the business.
References
Dinh, T. Q., & Calabro, A. (2019). Asian family firms through corporate governance and institutions: A systematic review of the literature and agenda for future research. International Journal of Management Reviews, 21(1), 50-75.
EY Greater China, (2020). How are family businesses in China planning for succession. https://www.ey.com/en_cn/china-opportunities/how-are-family-businesses-in-china-planning-for-succession
Flannery, R. (2016). More Than Half Of China’s Family Businesses Face Succession Dilemma. https://www.forbes.com/sites/russellflannery/2016/07/24/more-than-half-of-chinas-family-businesses-face-succession-dilemma/?sh=7b50a6d83f5f
Rovenick, N. (2017). China faces family business succession crisis. https://www.ft.com/content/5fa885ac-c61b-11e7-b30e-a7c1c7c13aab
Soleimanof, S., Rutherford, M. W., & Webb, J. W. (2018). The intersection of family firms and institutional contexts: A review and agenda for future research. Family Business Review, 31(1), 32-53.
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