The business of being rich and idle(2)

Rugged relationships

It's not just bad reputations that discourage young people taking over a family business. One major stumbling block is the relationship between parents and children.

He Liang's father owns a medium-sized optical fiber manufacturing company in their hometown - Guang'an, Sichuan Province. The company employs more than 300 workers. The 31-year-old son, however, has been in Shanghai for more than 10 years now.

His father started the company in the 1990s and has dedicated most of his life to the business. "I was sent to a boarding school in Nanjing when I was in 5th grade because my parents were too busy to take care of me. I lived in Nanjing until I came to Shanghai in 2000," he said.

There was not much communication between the two generations. He remembers his father as a strict man. "I was afraid of my father when I was a child. He works hard and I respect him, but I don't want to live his life," he said.

He seldom goes home except for holidays. He has been avoiding talking to his father about inheriting the family business. "I don't want to go back. I tried working with my father five years ago until it got too hard. I was bored so I left," he said. He now runs a jade investment company in Shanghai, work that suits him, he said.

He knows he will have to face the problems eventually. "My father is 58 and I am the only child. I will have to think about taking over the family business even though I really do not want to go back. I am hoping that some of my relatives will take over instead of me," he said.

Professor Yu said many of the first-generation entrepreneurs and their children have very different personalities, which leads to constant conflict. Some parents and children find it hard to work together.

"When the second generation were growing up, the first generation were busy with businesses. They rarely had time to be good parents. The two generations have little communication and hardly ever talk about what they are thinking," Yu said. "Many of the children were sent to study abroad which causes the two generations to drift even further apart as they then have different cultural backgrounds."

"About 65 percent of the Rich 2G studied abroad. They are westernized. Some have even refused to return to China. Some think their parents use the promise of an inheritance as a way of tying them down," Yu said.

Zuo Ying, the only child of Zuo Zongshen, the president of the motorcycle manufacturer - the Zongshen Industrial Group, was sent to Paris and the US for high school and college education. She married an American and likes to travel around the world and play the stock market rather than take over her father's business.

Though Zuo Ying was lured back to China, her lifestyle and westernized personality gave her father headaches. Chinese media reported how she posted pictures of herself in a bikini on her microblogs and plucked her eyebrows in the office. Once she fled the country to escape her father and the responsibilities of running his business.

"It was reported that after the father had handed over the business to the daughter, he later took it back because he was so dissatisfied with her," Yu said.

Apart from the differences in lifestyles, Yu said that the Rich 2G knew about system management but lacked experience. They preferred to keep a distance from employees and were more interested in talking about macro-economics.

The first generation were totally different. "I have talked to many first-generation entrepreneurs. They are the rags-to-riches pioneers. They are very emotional and enthusiastic and want to share their stories of how they started. They stay close to their employees, but they are also very stubborn and overconfident and don't like to change their minds," he said.

Different approaches

The first and the second generation tend to have very different approaches to businesses. While most of the first generation started manufacturing and had practical involvement, the second generation preferred to work in virtual economics.

He Liang said that he could not adapt to working in manufacturing. "I don't want to stay all day in a factory. It is boring and tiring managing the trivia involved in a manufacturing company like my father's. Moreover the profits are not as good as they were in the 1990s. Investing is more relaxing and profitable."

Billionaire advisor Mao said: "The young generation think that their parents' businesses have been left behind. They want to do something new and exciting. This is understandable. I suggest parents give their children 2 to 5 million yuan ($317,000 to $792,445) and see what they can make for themselves. If they fail, they can still come back and focus on the family business."

Mao said that although the younger generation were more interested in virtual economics, manufacturing was the basic of the economy, and would remain the most prosperous sector in China given the advantages of the market here and the huge supply of labor.

Professor Yu said many Rich 2G, who helped with the family business, had disagreements with their fathers when they tried to reform management or business modes. "There is a saying in China that failure is the mother of success. But for the first generation, success can be the mother of failure. They are too stubborn about the old business modes, which once won them success and fortune. But when times change the older generation are not catching up and they are reluctant to let the children reform what they have established."

Another major challenge for Rich 2G is that family businesses usually carry the parents' significant personal styles.

"Zong Fuli, the daughter of Zong Qinghou, the owner of the Hangzhou Wahaha Group, the leading beverage producer in China, once complained to media that the group would be reduced to nothing if her father's influence was removed. The father had such a tight control over the business. This is typical in Chinese family businesses and makes it very difficult for successors to be as influential," Yu said.

Changing minds

Though many Rich 2G may be rebellious and unwilling to take over the family businesses when they have just graduated, many change their minds years later.

Hu Xiang, a 24-year-old from Wenzhou, whose family runs an antiques investment company, said that many Rich 2G he knows return to the family businesses after discovering the hardships in starting their own businesses.

"Many second generation go through a rebellious period where they want to start their own careers instead of taking over their parents' businesses. But after spending a few years outside the family, many come back because they realize it is much easier to stand on a giant's shoulders," he said.

Li Long, 24, whose family operates a machinery manufacturing business in Jiading district, is one who changed his mind. "When my father asked me to take over the family business, I was reluctant and thought about it for several months," Li said. Li returned from Australia two years ago and hoped to start a photovoltaic company.

"I then figured out that it was difficult to start a business myself because I lacked networks and experience. There is great danger in investing in a new business," he said. "I can achieve more a lot easier with what we already have in my family's business."

Hu Xiang said that power and money were always ultimate attractions. "No matter how rebellious someone is, he or she will find the way back when they realize that taking over the family business is a way of ensuring access to power and wealth."

Though hiring professional managers can be an alternative for parents, most Chinese family businesses are not yet ready for this option.

"Many family business owners find it hard to trust outsiders. There is no specific law in China to ensure profits for owners or professional managers. If a manager helps bring in more profits, there is no law guaranteeing his or her right to be rewarded. If he or she causes the business to suffer a big loss, there is no law in place to make the manager compensate the owner," Yu said.

"One businessman once told me that however bad his son was at running the business, his fortune was large enough to last 10 years if the son squandered it. But if he hired a professional manager, he faced the danger of losing the entire fortune the next day," Yu said.