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Succession Crisis? Fostering Next Gen in China

In this issue Kevin Au, professor at the Chinese University of Hong Kong discusses how advisors can help with the potential succession crisis in China. The background for this is a Reuters article, Dying out? China’s young shun family firms, published July 31, 2013. The article was picked up by major news outlets around the world and has reignited conversations surrounding the impending succession issues in that country.
In the article, the Chinese Academy of Social Sciences says, “more than three million private businesses will have to deal with succession issues in the next three to eight years.” These first generation family businesses represent $611 billion and “any succession crisis could severely dent a key growth engine of the world’s second-biggest economy.” And perhaps most troubling is that many of the would-be second gen are uninterested in joining the family business.
Successful Successions in Chinese Family Businesses = Nurturing Entrepreneurship Spirit
Kevin Au, Chinese University of Hong Kong
Succession planning in Western cultures often focuses on business strategy, successors’ availability and suitability, mindset of the preceding generation, among other things. Nurturing entrepreneurship may be on the radar but it is infrequently the first discussion item when advisors meet with their clients on the topic of succession planning.
In the Chinese cultures, however, entrepreneurship and family businesses are arguably synonymous. Family entrepreneurial spirit fuels the engine of businesses in the mainland, just as it has done for other Chinese entrepreneurs in the Asia Tigers. A large part of the entrepreneurship spirit arises from the family, so successful succession is not just about enticing the incoming generation to take over the family business from the first generation. Instead it is about building a platform for the incoming generation.
From playing the role as a family business angel to nurturing the future entrepreneurs in multiple stages, so that they can thrive on the foundation and resources of the family and the family firm, Chinese families must look at successful trans-generational success as the goal.
In mainland China, the rapid growth and changes in the environment and the society mean that many of the businesses established by first-generation entrepreneurs after the Open Door Policy in the 80’s and 90’s have become outdated. Many of the private businesses started out as mom-and-pop or father-and-son shops. Some of them managed to expand rapidly and even gradually grow into multinational companies. Yet, if they intend to survive across generations, they need to renew their business by creating a brand, carrying unique functions, or coming up with new technology and creative features.
To do so, Chinese family business firms can work with their advisors to focus on identifying, educating and nurturing the second generation to become next-generation entrepreneurs. They must learn to take calculated risk, overcome fierce competition, act proactively on new markets, and innovate continuously, such that they can expand an already existing business to become a leader in the industry and other sectors in China and even across the globe.

Tuesday, August 13, 2013
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FFI The Practitioner