Why China has so few old family run companies
China and Hong Kong rank well down the list when it comes to the number of family-owned businesses that have at least 100 years of history, according to an academic study.
In fact, international peers such as Japan and the US rank much higher when it comes to nurturing a company through different generations of leadership, according to Roger King, director of Tanoto Center for Asian Family Business and Entrepreneurship Studies.
“A lack of diversification of business, and a lack of outside professionals to help run the business are part of the reasons fewer Chinese family businesses last for over 100 years. We should learn more from Jewish, Japanese, American and European families,” King said on Wednesday.
Of family businesses operating for at least a century, Japan has 25,321, the US has 11,273, and Germany has 7,632.
Although Japan leads the league table, its oldest companies are mainly comprised of small players such as restaurants or confectionery markers.
Taiwan ranked 19th with 209 century-old companies, while mainland China ranked 21st place with 204. Hong Kong ranked 31st with 89 companies meeting the centurion threshold.
King said Japan benefited from a culture of passing business ownership onto a son-in-law or an adopted son without blood relationship, as long as the adoptee agreed to take on the family name.
“Chinese companies usually pass on a business only with male members, usually the eldest son, of the family,” he said.
This limits the choice of successor. He added that it was not uncommon for large families with many male offspring to quarrel over control of the family business.
King said Chinese families should learn from the Jewish tradition, which tends to be more opened minded in allowing outside professionals to run the business.
He added that the Jewish tradition encourages the expression of differing opinions, whereas in the Chinese culture, it is considered impolite for children to ask their parents for details on what happens upon their death.
“In the Chinese culture, it would be hard for children to ask their parents on succession planning,” he said.
Richie Eu, managing director of Eu Yan Sang Trading, is the fifth generation of his family to run the Chinese medicine company founded more than 100 years ago.
Eu said his great grandfather, the second generation to run the family company, sired 24 children, including 13 boys.
In an effort to end conflict over the ownership structure, Eu’s father eventually took control via a buyout of other shareholders.
“A clear ownership is important to lead the family ownership to move forward,” Eu said.