In a recent article, Florence Tsai and John A. Davis have outlined the succession problems facing family businesses in China. After the country’s brief 30 year experience with market economy, the founder generation of China’s family businesses have just started their transition to the second generation. The founder generation is split in China between older Phase 1 founders who started in the 1980s and early 1990s, and younger Phase 2 founders who launched private companies in the late 1990s and 2000s. The Phase 1 founders are mostly in their 70s now, and were mostly involved in transforming state enterprises that weren’t doing very well into private enterprises; they were part of the state structure and their thinking has been influenced by that culture. The Phase 2 founders, who are mostly in their 50s, started their own companies from zero and are more similar to the entrepreneurs in the West. It is the older Phase 1 founders that currently face the greatest challenge with succession, for three predominant reasons.
One-child policy. This policy has restricted choice in terms of who can be appointed as the successor. This problem is compounded as China lacks a deep pool of professional, non-family, senior management talent.
Cultural divide. Due to the cultural gap between the senior and junior generation family members, many next generation family members do not want to work in the family business. These feelings are amplified if the next generation is educated abroad.
Extended family. The concept of the extended family, places a lot of pressure on the only child when it comes to managing expectations. The successor is expected to give relatives jobs inside the company or support them in their own business ventures.
Source: Family Capital
