The Chinese Way

Tuesday, February 7, 2012

“THE only people you can trust are family -- and a business enterprise is created as a familial life raft.” – John Cao, Harvard Business Review

“KUNG Hei Fat Choi!” to our Chinese friends and clients in the Philippines and elsewhere in the world.

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The Chinese Filipinos have always been one of the largest ethnic Filipino groups in the country with Chinese immigrants comprising the largest group of immigrant settlers in the Philippines. As with other Southeast Asian nations, the Chinese community in the Philippines has become a repository of traditional Chinese culture. These traditions have remained largely untouched in the Philippines such as in the observance of festivals like the Chinese New Year.

Dragon and lion dances are common during Chinese New Year. It is believed that the loud beats of the drum and the deafening sounds of the cymbals together with the face of the dragon or lion dancing aggressively can evict bad or evil spirits. Lion dances are also popular for opening of business offices.

The biggest event of any Chinese New Year's Eve is the reunion dinner where members of the family, near and far away, get together for the celebration. This meal is comparable to Christmas dinner in the West. It is customary to serve dumplings as it is believed to symbolize wealth because the shape resembles ancient Chinese gold ingots. Glutinous sweet cakes (tikoy) are eaten and given as gifts to relatives and friends to maintain harmonious relations. After dinner, some families go to local temples hours before midnight to light incense and pray for a prosperous new year. Like Filipinos, the Chinese value the importance of family ties and this is one reason why many Chinese immigrants adjust well in foreign countries.

The Chinese in the Philippines are mostly business owners and their life centers mostly in the family business. These small or medium enterprises play a significant role in the Philippine economy.

A handful of these entrepreneurs run large companies and are respected as some of the most prominent business tycoons in the Philippines. Chinese Filipinos attribute their success in business to frugality and hard work, Confucian values and their traditional Chinese customs and traditions. They are very business-minded and entrepreneurship is highly valued and encouraged among the young.

Although family-owned businesses can generate and significantly improve the financial wealth which stems from the family's original fortune, most Chinese family businesses are relatively short-lived, rarely extending beyond one generation. The high mortality rate in family businesses points primarily to the challenges of management succession.

There is recognition that inter-generational succession is essential for both the profitability of Chinese family businesses and the welfare of the family as a whole. However, the intentions of inter-generational pursuit of continuity can be subject to the different goals and interests of key participants, as well as the surrounding context in which the business develops. For one, Chinese family business leaders often neglect the issue of succession particularly if they are entrepreneurial founders, until it is too late.

A more likely reason is that the first generation founder might have a certain vision or dream of all of his children owning the business and working together to continue the joint venture in the future. It might not be acceptable within the family to question the feasibility of this vision or dream, and as such any talk about shareholders’ agreements or the possibility of family members exiting is perceived to be too sensitive.

On the other hand, bigger family firms (corporations) usually employ two options in the business succession planning: they either groom family members (typically sons and nephews) to become successors or tap capable professional intrapreneurs to the corporate ‘family’ as future heirs to top management posts. For the first option, many Chinese patriarchs send their children to top universities and business schools.

They also allow their children to get employed first in multinational companies to learn new business practices before returning to manage the family business.

However, as the family business empire expands across regions and countries, a Chinese family firm will eventually run out of family members to occupy top management positions within the group. Besides, an ownership structure that worked well for one generation can quickly turn dysfunctional in the next.

A company owned by three siblings may operate effectively, but if all three siblings have children working in the business, the next generation may find that joint ownership by seven cousins doesn't work too well.

This reality is not just true in the Chinese context. Most Asian families do not have a family shareholders agreement or other form of ‘exit plan’ in place. This might be one example of the impact of a culture but this is not to say that Asian families do not need these agreements.

An Asian family that can talk about the need to put in place an exit plan today to provide for the future is going to be much better off than one without such a plan.

Prof. Soriano is the chairperson of the Marketing Cluster of the Ateneo Graduate School of Business. He is also a Senior Consultant of Wong+Bernstein Business Advisory Group. For comments, send email at sorianoasia@gmail.com