Hello, welcome to Roundtable, where we serve up piping hot debates on the issues that sizzle in China and beyond.
I'm Neil Hong -Lin. Handing over a family business to the next generation, what could possibly go wrong?
Well, imagine succession.
But with less cooperative espionage and more awkward family dinners.
Where your dad still insists on calling you kiddo while handing you a multi -million dollar empire.
Today, we're diving into the drama, the comedy, and the occasional tragedy of second -generation business leadership.
But go up, it's going to be a wild ride.
For today's show, I'm joined by Ding Hong in the studio and Brendan Yeats on the line.
Now, grab your virtual compass and follow us to the heart of the discussion.
In today's China, family businesses play a crucial role in the private economy.
These enterprises are not only vital to the private sector, but also significantly contribute to the overall economy, with estimates suggesting that private businesses make up about 60 % of China's GDP.
With over 40 years of reform and opening up, many family businesses are at a crucial turning point.
The first -generation entrepreneurs dispute business empires with their exceptional talents in a distinctive period in time, but can their second -generation successors, often armed with international degrees, but lacking the same entrepreneurial instincts, navigate the contemporary landscape, and lead
their companies to continued successions.
I think this is a very interesting topic, and though multi -million dollar businesses sound so far away from our life, it actually affects our lives because we buy stuff from these companies and the economy is affected by these companies.
So having a little bit discussion about the world of private sectors, especially the second -generation owners, or the second -generation leadership of these businesses, is quite interesting.
So I was wondering, do the second -generation family members want to take over to start with?
Are we only assuming?
No, not necessarily, because according to a media report done by the Shanghai -based The Paper, nearly 60 % of the second -generation heirs in China are either unwilling or uncertain about taking over their family businesses.
And in the US case, according to the Forbes magazine, there are over 24 million family -owned businesses in the United States, accounting for some two -thirds of the American GDP.
But despite their significant impact, some 70 % of those businesses face challenges with regard to the second -generation, often resulting in failure or sales.
So I guess some scholars or experts in the field of business administration would tell us that the most critical thing for a successful generational transition is really the second -generation's willingness to take over.
First, it's essential that they need to have a genuine love, a genuine passion about this industry, about their family business.
Second, they must have a deep desire to really take on to this responsibility of running this business.
Definitely. And we know that because we mentioned a little bit about the 40 years of reform and opening up, we talked about during that period, it's kind of a golden time to start a business.
We still need a lot of different businesses, different companies in different areas.
And that was kind of the time that a lot of the current big -name companies here in China have started to find their ground, started to figure out what is their sector and what is the direction of their company.
And that is why now, for a lot of companies here in China, it is time to think about who the next generation of leaders would be, especially for these quote -unquote family businesses.
But I was wondering, what's the situation in South Africa?
Is this the similar kind of phenomenon in South Africa as well?
I mean, there's definitely some very successful family businesses in South Africa that have a long history of success and having an impact on the South African economy.
But I think with family businesses, something that is quite universal is that the succession plan for any family business, I think, is quite a tricky thing because generally people that start the businesses are incredibly passionate, incredibly motivated, really hard workers, they start from the ground
up, they learn the business from top to tail.
So that passing on that level of motivation and insight, I think, particularly to family members, is quite a tricky thing to get right.
But you probably find that a lot of the success of these family businesses, or at least the continued success, is going to be down to how successful that succession planning is.
So I think a lot of the responsibility in terms of maintaining the success of some of these family -owned businesses is ensuring that the succession plan is really fine tuned and starting it from an early age, getting, for example, kids or nieces or nephews or any other family members motivated from an early
stage, getting them involved in the business, getting them passionate about the certain industry that that business may be in.
So I think, you know, but with that being said, you know, you can do all of that as a family business owner and then the people that you're planning on handing the business over to may still not be motivated to work, or they may not be interested in that particular industry, or they might just want
to, you know, sit back and enjoy the fruits of, you know, hard labor that's already gone into the business.
So I think there's a lot of variables that need to be looked at when it comes to succession plans for family businesses.
And there's also, of course, the personal element, you know, when it comes to, you know, other industries, I mean, even in our industry, yes, we develop personal relationships with colleagues, etc, etc, but we don't really get to know the founders of the business or the big bosses and that kind of thing.
So there's no like personal drama, you know, drama that can be found away from, you know, the day -to -day operations of business that could actually either negatively or positively impact the business.
So there's just so many things to consider that can really have a major impact on, you know, a succession plans, failure or success.
Definitely. I totally agree.
I think when it comes to figuring out whether or not this person is the best person to inherit a huge company and business empire, there are so many different factors.
The type of the business, the personality of the candidate, the background and passion, everything is involved, which is why I think doing a little bit of case study would be helpful.
Let's figure out what are some successful, rather not successful, or even interesting and also inspiring cases we are looking at here in China.
So for example, we have the case of Zhongfu Li, who is the daughter of Zhongqing Ho, the prominent Zhejiang, you know, business leader and founder of the beverage brand Waha who passed away earlier this year, you know, so now basically all eyes are on the future of Waha and attention will naturally shifting
to Zhongfu Li, who is currently Waha's vice chairperson and general manager.
Now, her resume was interesting in the sense that she went to study in the United States at a very young age, and after returning to China, she studied in some workshop management and gradually worked her way up to become the president of Hongshan beverage group.
Now, Hongshan is technically the contractor manufacturer of Waha, but in terms of corporate structure, it is not a Waha subsidiary.
And I guess a couple of years ago, she was appointed as the vice chairperson and general manager of Waha while her father remained as the chairperson until earlier this year when Zhongqing Ho passed away.
So people would somehow assume that Zhongfu Li has some kind of a holistic comprehensive understanding of this beverage industry and that will benefit Waha's future.
So we will keep an eye on this company's future development.
This is actually a very interesting case because when it comes to Waha, in Chinese, this name basically means kid lol, right?
Just being very happy, a happy kid.
And the reason kid is very happy is suggested that or it is suggested that having this beverage would make the kid very happy.
So the beverage is relatively healthy for young kids.
And also it has this milky flavor, yet it's not exactly yogurt or milk.
It's kind of the flavor for our generation, for our childhood.
I do not think it's that popular or it owns the same kind of popularity in today's children.
It's not like the number one drink in their book, while it was the number one drink at least for my childhood.
But we can see that with the second generation leader come into place, we do see Zhongfu Li trying pretty hard to find a way to be innovative.
We see a lot of different types of advertising campaign trying to bring about the nostalgia feeling for our generation.
We see the brand cooperating with major other types of companies and rolling out different types of sidekick kind of product.
They innovate to find different types of cartoon image for these brand.
And also we also see actually Wahaha is actively researching on the quote unquote healthy beverages.
It's like the using sweet subsidies instead of using sugar because it's considered healthier for today's younger generation.
So definitely one, the second generation of leadership comes in place, they have their initiatives.
They can inherit the spirit and the value, core value of the company while finding a way to innovate.
That is one plus, in my opinion.
Is there any similar cases or different cases in the overseas market, Brendan?
Did you notice any of these second generation leadership doing a really good job or maybe not a really good one in the overseas market?
Yeah, definitely. I think there's multiple examples, but just as a general overlook at that trend, you know, when second generational leaders come in, I think when it comes to innovation and trying to leave your mark on a family business, I think there are a lot of second generational ownership and leadership
that come in that try and kind of put their stamp on a certain product.
And I definitely think that has its pros and cons, because obviously the pros is that, you know, the new generation can come in and, you know, take the business into the new into the into the future and innovate with new products and actually find ways to make sure that the company maintains success
during changing times.
And, you know, so there's there's many benefits to that sort of innovation.
But on the other side of things, if you come in and you change too many things.
So for example, if you've got a very original product that has been very successful for many, many years, if you know, new leadership or you know, the second generational family ownership or leadership comes in and starts to change that product or introduce new products that overshadow the product that has brought
them so much success, that can sometimes be a risk that pays off or sometimes it can be a massive failure.
And customers that have been loyal to the brand for many, many years might use confidence in that brand.
And then all of a sudden, you know, find themselves going towards the competition.
So I think there's definitely pros and cons to new leadership coming in and trying to, you know, lay their market down in terms of impacting the future success of the company and trying to leave their legacy when they pass it on to the next generation.
I think there's definitely pros and cons to that approach.
So I think it really depends on the company, it depends on the products or products that that company produces.
But I think either way, when new generations of leadership come into a family business, I think it's always going to be tricky to see if that level of success can be maintained and if the innovation that comes in is either going to be a success or massive failure.
Yeah, I guess, when we talk about some specific examples outside of China.
Yeah, there are some pretty okay examples like John Elkin, who is the grandson of Guiani Agnelli, the legendary Italian industrialist who transformed Fiat into a global powerhouse.
Now, John Elkin basically took over the reins of the family business after his grandfather passed away.
And I guess later he played a pretty crucial role in terms of this merger, giant merger, high profile merger between Chrysler and Fiat and then successfully navigated the company through the challenging times, including the 2008 -2009 financial crisis, which hit basically the whole industry pretty hard.
And he was instrumental in terms of this merger a couple of years back that really ended up forming the Stellantis, now one of the world's largest auto companies.
So this is definitely a very interesting example.
I think it does verify for different industries for sure, because now here in China what we're looking at is a very interesting phenomenon.
We talked about the advantages and the disadvantages of second generation leaders a little bit already, but I think it is worth our time to truly discuss each and every point because now what the trend here in China is that for the second generation who are interested in the company, there are generally
two ways to go. First is you get into the company as soon as possible with your international backgrounds, with your almost customized training by the founder of the family business.
And with all that you get into it and you get yourself involved in the decision -making process.
You learn certain expertise from people actually in the board or sometimes those in the company who are also in the leadership group.
And a very interesting other direction here in China is that we see many young, let's say second generation of the founder of the company, instead of getting into the decision -making circle of their family business, they try new things.
They try to become the face of the business of the family.
What they do is to, for example, start doing advertising for their family business online, start directly selling product for their company in online live streaming studios.
This is very interesting because they're facing the consumers directly, conveying their business core value, trying to find a way to kind of like test their theory, test their innovation direction for their family.
Like Brenda said, if you compromise the core product of your business, you might lose trust and faith from your consumers.
So what you do is you go to the live streaming studios and face the customers directly.
And that has been an interesting trend that we see different daughters and sons of the founding father of their family business starting to promote their product in the studio or basically research or develop a sub -product line under their original brand.
And it also has been quite interesting.
Some of them are again quite successful, some can be a little bit or meeting challenges at least.
So do you think there are some other advantages?
If we take this as an advantage of having them working for or inheriting basically their family business, do we see any other advantages?
Yeah, so I guess they are raised in an environment where they are very familiar with their family business and they're often, you know, I mean familiar in the sense that familiar was not only the operational matters of the business, but I guess the core values represented by their family business, the mission,
the corporate culture, they're supposed to be familiar with that.
Whether that's really the case, I guess it's a, you know, case by case analysis.
Definitely. Yeah. So you could expect a level of continuity, which can be very crucial for maintaining the branding of a particular business, its corporate identity, its marketing identity, et cetera, et cetera.
So definitely this can be seen as one of the advantages.
How about some disadvantages if we get into really get into the point?
Because, well, I don't have money, I cannot say that, but I really don't have a lot of money to start with.
So I do not really understand the pressure of legacy, but I, by saying I do not understand, I mean, I do not have personal feelings about it, but it's kind of imaginable that with such a huge enterprises, such a huge amount of people that their lives depend on your company, depend on sometimes the kind
of decision that you are about to make, it can be overwhelming and it may lead to conservative decision -making or reluctant to take risks.
Maybe for them, the idea is to maintaining the business is much more important than taking it into new heights.
That is a disadvantage I can think about.
How about you, Brendan?
Yeah, I mean, there's the old saying, if it ain't broke, don't fix it.
So I think if there are some businesses that are already incredibly successful, then I think the pressure of maintaining that success or maintaining the future of that company is just as daunting as trying to come in and be innovative.
So I definitely think when second generational family leadership comes in, I think the pressure that comes with that must be immense, especially if it's a very solo sort of role.
You would have to hope that a lot of the second generational leaders that are coming in also have a great support team around them.
So let's say a founding father retires or passes away.
I'm sure that person wasn't the only person within the company making certain decisions and trying new things.
He probably had a whole team of people around him that probably also weren't family members.
So when a new family member comes in, there definitely needs to be a very well thought out handover phase.
And you would also have to imagine that there would be a team of people around the new leader coming in that already has great experience in terms of that day to day running of the business has knowledge of the customers has great knowledge of the product has knowledge about what changes need to be
made, what innovations are possible and not possible.
So while there is definitely pressure that comes with taking over a family business, and you know, there's also probably that connotation that they have to deal with that, Oh, my colleagues just view me as somebody that is a leader because I'm related to the previous leader.
So that's also some insecurities that new leaders might have to deal with.
But beyond that, you would have to hope for the second generational leadership's mental well being that there's also a team of people around them supporting them that has experience and can help that second generational leader take the successful family business into the future.
Actually, now we know that only 30 % of family owned businesses making it past the second generation in the United States, it's kind of crucial for founders to plan succession early and train their successors effectively.
So we have actually different ways to do things.
I totally understand if I have the talent and ability and chance to create a, I don't need a million dollar enterprise, let's call it a million yuan enterprise.
That's good, good too good, even to be true for me.
But I want to pass it down to my second generation, pass it down to my son or daughter for sure.
But I also want to be responsible for the stakeholders.
And I also want to be responsible for the future of this brand that I carefully created.
So definitely there is the way to give it to a second generation family member.
There's also the way to give it to a professional manager.
So how should a business owner make the decision?
Be it a huge company or just a small business?
Well, this is a pretty difficult question to answer because on one hand, you have this love for your next generation.
I mean, for the founders on one hand, they have this kind of love for their next generation.
On the other hand, they want to have a sustainable development of the businesses that they have established.
And if there is any conflict, if somehow they found their son or daughter are not the right type of not up for the job, huh?
Yeah. So how would you do?
Maybe give them some money and encourage them to develop their own career, whatever.
And I think you raised a good point earlier where, you know, there may be certain instances where the first generation of leadership doesn't feel that the second generation is right to lead the family business into the future.
When that does happen, and they do hand the business over to somebody that's outside the family or to senior management, then another plan needs to be made for that second generational family to do something on their own, whether it be set them up in a different business or give them the funding to
pursue their passions in a different sort of industry.
I think that's equally important to planning the future success of the company, because if it's only the future success of the company that's being focused on and the second generational family members are kind of ignored and aren't really given any sort of succession plan to have their own future away
from the business, then that's when I think a lot of conflict can come into it.
And you'll have family members making decisions about that business without any experience or interest, when the first generation of leadership either retires or passes away or whatever it may be.
So if there is going to be a disconnect between the family and the business, there needs to be equal succession plans made for the business and that second generational family membership group.
Definitely. I think taking over a family business is quite challenging.
It's like being handed the keys to a Ferrari, and then realizing the brakes are a bit wonky.
The next generation has to figure out how to keep the car on the road while dealing with backseat drivers who built the thing.
And it's tough gig, but with a little innovation, a lot of patience, and maybe some earplugs for the inevitable family debates.
They just might pull it off.
