(Ecns.cn)--Family businesses account for over eighty percent of all private business holdings in China, and now is the critical moment for many of these enterprise owners to pass them on to the next generation.
The All-China Federation of Industry and Commerce (ACFIC) released the China Family Business Development Report on December 12, says the National Business Daily. The report shows the typical family business has a life span of 8.8 years, and 59 percent of them were established after 2001, so they are still in the early stages.
Those established in the 1970s or 1980s, however, are casting about for a management successor, a crisis of middle age.
Family, a love knot in business
Of all the 3,286 private enterprises polled by the survey, the 85.5 percent classified as a family business dominate. Valid samples were obtained by excluding those who refused to disclose the extent of their family's share.
Also learnt by the survey, 2,135 private enterprises have family members actively engaged in it, while 1,151 are controlled and managed by single proprietors.
In Zhejiang Province, the family business category also takes the lion's share - over ninety percent, says Chen Ling, vice president of the School of Management, Zhejiang University. Chen adds that some private enterprises are unwilling to admit they are family owned and operated, presumably because of the nature of public opinion about this type of company.
Zhu Jian'an, vice president of the Family Enterprise Research Institute, has analyzed the phenomenon in Zhejiang Province. He reflects that, "Family culture is a love knot for Chinese. Especially in Zhejiang, many businessmen have started their business from virtually nothing, so they had to call on all their connections to succeed. It is common to see family playing a key role in a private enterprise."
Zhu says many brilliant private enterprises are working hard to adopt advanced western management techniques because the public, as well as some experts, often associate the family business with close-knit, backward management styles. Many private enterprises simply avoid mentioning in public the nature of their family's involvement.
Heirs not apparent
The report shows only 16 percent of the offspring of such enterprise owners have aspirations to take over the family business. This is backed up by another survey: of 103 sons and daughters of Zhejiang businessmen polled, only 36 percent are willing to engage in the family business.
For enterprises in the aeronautical and astronautical industries, the majority of heirs apparent have no interest in taking over what could be theirs. Despite the rapid growth and development of the modern service sector, only a minority of 75 among the 509 interviewed expressed a clear intention to follow in the footsteps of the older generation.
The report came to some tentative conclusions, one of which is that the higher the standard of the operation, the stronger the intention of offspring to take it over.
In Chen Ling's view, modern families are already decentralized and lack the motivation to stick together. This attaches some restrictions to a smooth handover.
Zhu Jian'an, as a local observer in Zhejiang Province, fingered two reasons for the 'low intention' phenomena. First, many enterprises founders are in their fifties or sixties, and still glowing with energy and devotion to their brain child. The younger generation understands the disposition of their elders and doesn't think the timing is right.
Secondly, many young Chinese have overseas study experience now and see the high profits made in the financial and new technology industries, while a great number of family enterprises are traditional manufacturing operations coping with steadily diminishing profit margins.
Bumpy road
Classic cases of "fortune passed on to the next generation" do exist. For instance, Mao Zhongqun officially grabbed the baton of the Fotile Group in 2006 and stayed in the race his father started. And Ruan Weixiang stepped into his father's shoes to become chairman of Longsheng Group in 2007.
According to the report by ACFIC, Chinese enterprises are collectively facing the largest-scale handover of family businesses in history. And it is deemed by many people who have been there and done that, to be a bumpy road. Chen Ling said at present many enterprises simply have no concrete succession plan.
The report estimates only 30 percent of family enterprises will survive to the second generation, and only about 10 to 15 percent will be successful at passing on their business to the third generation.
Almost all, it concludes, are doomed to battle with the twin demons of managing family life and family enterprise. Family issues affect enterprise operation, and one problem is that family members are hard pressed to avoid conflict of interest situations, always a threat to harmonious family relationships.
