China business and economy

Why mainland Chinese children are starting to turn their backs on the family business

  • Study by PwC finds 58 per cent of the second generation are helping run the family business, down from 71 per cent in 2016
  • Children want to choose their own career paths rather than work under the scrutiny of mum and dad, say PwC analysts
PUBLISHED : Friday, 09 November, 2018, 9:45am
UPDATED : Friday, 09 November, 2018, 9:45am

There is a saying in China that it is very hard, if not impossible, to pass on family wealth to the third generation. If a new survey by accounting giant PwC is anything to go by, it seems that increasingly the same could be said of the second generation.

The children of family businesses in China are becoming less inclined to take over the reins from their parents, preferring instead to choose their own career paths, according to the study released on Thursday.

PwC’s biannual survey of family dynasties found that in 58 per cent of cases, the second generation was helping to run the business founded by their parents this year, down from 71 per cent in 2016.

“Many family businesses in the mainland are relatively new, after China’s reform and opening up and may only have a history of about 20 years,” said John Wong, family business and private client services leader at PwC.

Chinese family businesses are increasingly looking beyond their kin for managers

“These companies are still run by the founders who are still actively managing the companies. The children tend not to like to work under the tight scrutiny of their parents.”

He said young people also had more career options available to them these days, making them less likely to settle for the business their parents founded. This worked both ways, with the parents putting less pressure on them to join the family business.

“Many mainland children and youngsters study overseas nowadays,” said Wong. “They prefer to find a job that fits in with their personal interests, like being artists, lawyers, architects and so on. Many of them do not want to return to run the family business.”

As well as highlighting a growing reluctance among the younger generation to take over, the survey indicated the parents are making less effort to plan the hand over of their empire.

Why more Chinese women are taking over the family firm or starting their own business

Only a fifth of mainland family businesses had a succession plan in place in this year’s survey, compared with 35 per cent two years ago.

“It’s not ideal for these companies if they do not have a plan. Without a robust succession plan, it’s not easy to keep a family business going for long,” said Kitty Chung, entrepreneurial group assurance partner at PwC.

The Global Family Business Survey covered 2,953 family businesses across 53 countries and regions including mainland China, Hong Kong, and the US.

The findings were very different in Hong Kong, where the same survey showed children are more willing to take over their parents’ business. Fifty-seven per cent of Hong Kong youngsters had already joined the family firm this year, up from 44 per cent two years ago.

The founders in Hong Kong had better succession plans in place too, with 45 per cent of them preparing to pass on the companies to the next generation.

“Many Hong Kong family businesses are well established and have a history of 50 or even 100 years,” said Benson Wong, entrepreneurial and private business regional lead partner at PwC. “Many founders are already pretty old. So it is time to pass on the family business to the second or even the third generation now.”

Besides succession planning, the issue of how to introduce new technology to the family business is seen to be the major challenge faced by the family dynasties.

The top five fields that bother Asian family businesses nowadays are big data, artificial intelligence, the internet of things, renewable energy, and robotics, according to another study by global wealth and asset manager Lombard Odier.

This is where the skills of the younger generation could make a real difference, according to Wong.

“Millennials are well-educated digital natives that have a wealth of skills to offer to drive innovation and out-of-the-box thinking. By setting up a development programme for next generation family members, business owners can empower them either to set up their own venture within the business or take the existing business to the next level,” he said.


business-article-page