Doing Business in China Presentation

Family owned businesses in ChinaDoing business in ChinaMarch 22nd 2012

Andrew Lam Shin CheungTiciane Takami

Raphaël Zerbato

Agenda

1 Introduction and definition

2 Problematic

4 Suggested solutions

5 Conclusion

3 Succession issues

6 Bibliography

IntroductionSection 1

Family owned businesses in China

Family Business in China

Introduction

•85% of all privates companies in China are family businesses

Important figures

•Wholesale, Retail, Manufacturing industry

Principal Activities

•«Companies that are owned and controlled by over 50% by one single family» by Carsrud

Definition of family business

Introduction Problematic Issues Solutions Conclusion Bibliography | 4

ProblematicSection 2


SWOT Analysis: Weakness of Family business

Weakness2. The interest of the family does not always follow the interest of the company

Weakness 1. Traditional management can sometime lead to some wrong decision

making

Weakness 3. Because of the familial environment, it can become harder to open to new talents.


Weakness 4. Family businesses are usually short lived businesses in China

Succession IssuesSection 3


The succession problem in China – an overview

| 8Introduction Problematic Issues Solutions Conclusion Bibliography

A family business that lacks multigenerational leadership and vision can hardly be positioned to retain the competitive advantages that made it successful in a previous, often more entrepreneurial, generation.

Succession is not an event; it is a hard and long process that takes several years.

In China:

• Due to the short history of family business, most families do not have the experience and they need to seek their own way because of different culture than in foreign countries

• Only 33% of family companies make a successful transition to the second generation, while only 10 to 15% make it to third generation (Galura 2006).

• Confucian filial piety is also characterized strongly by father-son identification and the notion of family continuity

Main causes of the succession problem in China •The problem

is mainly separated into two forms, the incapable successor and the unprepared successor – patriarchal succession

•The wealthy second generation - More than 80% of founders or owner-managers think their next successors can not replace or take charge successfully in China.

•One child policy – lack of choices

•Only less than 30% family business will choose to hire a professional manager when their children are unwilling or incapable of taking charge of the family business.

Ability of successors

•A famous Chinese family business entrepreneur said, "drawing up the succession plan positively, is like preparing my funeral positively.”

•First generation – reluctant to change and centralized authority

Lack of

succession plan

| 9

•Founder -> successor - the relationship with the senior managers would change (loss of influence)

•Successor might meet some problems when dealing with the customers, suppliers and creditors.

Internal and external pressures

•Lack of separation between ownership and management

•Decision of the successor often account for family requirements that may not be in the interests of the business - Family rivalries and bids for power

Lack of trust on external managers

Introduction Problematic Issues Solutions Conclusion Bibliography

• Delicate tripartite relationship between the succeeding generation, the current one and employees, loyal to one generation, might have difficulties working with the other;

• Stepping out of daddy’s shadow’ syndrome• Employees involved in the training of the successor

might neglect the daily business administration


Suggested solutionsSection 4


Suggested solutions

Requirements in order to keep a traditional family business structure:


Family Member (with family

council)Shareholder Director

Executive Manager

Plan ahead the succession:- Effective transfer of ownership between older and younger generations- Ensure future effective business leadership- Maintain and promote family harmony

Clearly distinguish and separate the 4 following roles: 1

2

Complementary solutions

Co-governance model (half professional management)

•Minimize agency costs (CEO’s wage)

•Limit the risk of agency problem and moral hazard problem due to imperfect monitoring and asymmetric information between shareholder’s and management

•Lack of law to enforce contracts upon external managers

Governance

•Reduce nepotism

•Increase opportunity and fair treatment for non-family employees

• Make company more attractive in the public employment market, increase efficiency and employee motivation

Human resources

| 13

Successor leadership training

•Transition time between generation is usually really long

•Successors often have to prove themselves before by working within the company

Belated succession

•Expand the business internationally by getting onsite experience

•Expand the business Guanxi of the company

•Effective way to test and select the successor through practical experience

•Limit the spreading of any “bad news” to the home country

Overseas training


ConclusionSection 5


Conclusion

| 15

ForeignExamples

1. Developed countries also have trust the family business model and it paid off.

The importanceOf

HumanResources

1. An easiest access to an higher education must be achieved for average Chinese students.


BibliographySection 6


Bibliography


1) Chinese Family Business and Issues of Succession and Human Resource ManagementWei WANG, 2008

2) Succession in Family Business - Differences between foreign family business and Chinese family businessZheng Ting, 2009, Mikkeli University of Applied Sciences

Documents

Doing Business in China Presentation