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SCMP Reporter

Chinese family firms must radically change their corporate cultures and operating methods if they are to remain competitive in the era of globalisation and e-commerce, a new study has concluded.

The rigid hierarchies and relationship-based approach of family firms are ill-equipped to deal with accelerating competition and increasing complexity in post-crisis Asia, says an Economist Intelligence Unit (EIU) report.

Business groups controlled by overseas Chinese have amassed huge wealth across Asia in recent decades, dominating the economies of Indonesia, Malaysia, the Philippines, Singapore and Thailand.

However, companies face the daunting task of rebuilding their businesses if they are to maintain leadership, the report says.

'The Asian crisis rocked the foundation on which [Chinese family businesses] were built. The realisation is that familiar market places are becoming increasingly complex and traditional rules of conducting business are no longer relevant,' says the report.

The study, produced in co-operation with management consultancy Andersen Consulting, was based on interviews with 35-40 large companies across the region.

The report says the Internet is cutting out the middleman role on which many Chinese trading empires were built, and undermining the value of business networks by increasing the flow of information.

'By providing information to all, the Internet attacks head-on the owners of companies who have relied on the scarcity value of their knowledge and connections for success,' it says.

Meanwhile, economies are liberalising, removing the closed markets and government support that have underpinned the success of many firms.

These firms built their success by maintaining strong relationships with a handful of other key players. By contrast, e-commerce has developed by breaking these traditional relationships, it says.

'Where the typical Chinese company is closed, hierarchical and rigid, successful e-commerce requires structures that are open, non-hierarchical and flexible.'

Those determined to survive in the new Asia must jettison their 'secretive, conservative and risk averse' characteristics, it says.

Andersen Consulting managing partner Joseph Lobbato said companies faced a choice: 'You can be a dragon or a dinosaur.'

Chinese family firms needed to do three things: have a clearly focused strategy, use the power of the Internet and invest in their employees, he said.

'If they don't do that, their best people will leave . . . and they will be left with the lowest quality people, so they won't be able to compete, not just with foreign multinationals but with other Chinese family businesses that are investing in their human capital.'

Attracting and retaining high-quality staff will be a challenge, according to the report. These firms often treat their employees as commodities and fail to invest in training them, it says.

The report cites the launch of Jimmy Lai Chee-ying's Admart online retailing business as a 'clear-cut illustration of how the economic world in which Asia operates has changed'.

'Hong Kong is still recognisably an economy centred on oligopolies and cartels,' it says. 'Now, however, Hong Kong is finding itself subjected to forces to which even its previous openness to trade and capital flows had never exposed it.'

Graphic: cfb30gbz



Changing times challenge firms with Chinese characteristics