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Rediff.com  » Business » China prepares for the handover

China prepares for the handover

January 30, 2008 12:49 IST

On June 1 last year, almost half of Hong Kong's 7m population switched on their televisions to discover who would inherit a HK$600m ($77m) family business at the centre of a popular fictional drama.

Family businesses and their inter-generational conflicts are rich fodder for Hong Kong scriptwriters. TV series including Steps (ostensibly about ballroom dancing), The Drive of Life (the Chinese car industry) or Best Selling Secrets (a media conglomerate) all feature an elderly patriarch presiding over a sprawling family business.

The shows' popularity reflects the importance of family businesses to Hong Kong. Most prominent public figures - tycoon Li Ka-shing, Asia's richest man, or Tung Chee-hwa, Hong Kong's first post-colonial chief executive, who had previously worked in his father's shipping empire - have made their wealth from such businesses.

Hong Kong's economy thrives on businesses that have grown from mom-and-pop store beginnings into publicly listed companies. Many Hong Kong Chinese started businesses, mostly in manufacturing, after the end of the second world war and the Japanese occupation when the economic and political environment improved.

As founding fathers head into their fourth or even fifth decade at the helm, succession is becoming a pressing issue. Victor Zheng, an assistant professor at the University of who has conducted research into the subject, says succession issues for Hong Kong companies first surfaced in the late 1980s - typically two to three decades after the company was founded. But for many prominent Hong Kong family businesses the issue only really hit home after 2000, according to Mr Zheng, because their tenacious founders remain actively involved well into old age.

Now Chinese companies on the mainland, typically founded in the wake of the country's economic liberalisation in the 1980s, are looking to their Hong Kong counterparts for guidance on how to handle succession issues, says Mr Zheng. "[Chinese companies] see Hong Kong family businesses as sharing the same Chinese culture and values, and because the Hong Kong companies have a head start and are already facing these issues, they are keen to learn about their experiences."

Problems include choosing an heir and generational clashes in management style. YT Lau, 28, is the eldest son and heir apparent at Starlight, a maker of audiovisual devices that now employs 6,000 workers and is listed on the Hong Kong stock exchange. YT's father, Philip, founded the company in 1969 and YT himself began working there in 2003, a year after graduating from Indiana University in the US with a degree in marketing.

Returning to Hong Kong to work in the family business, he says, "was the expectation. It was unsaid but you felt it."

When YT joined the company, his first move was to bring in management consultants to make its factories more efficient. "Dad was quite reluctant at first," he recalls. "He felt consultants were useless and a waste of money."

However, YT finally managed to convince his father to hire the consultants by promising measurable results within a year, which he delivered by doubling capacity while reducing the number of workers by a third. "After that, my father became more comfortable with my ideas," he says.

Gigi Ng has also shaken up her family's business. Seven years ago, when her father's health began to fail, she quit her banking job to help run her family's renowned 120-year-old snake restaurant. The 34-year-old overhauled the restaurant's menu, increasing the number of non-snake dishes and launched a big marketing push, which included enrolling her reclusive and grumpy chefs in cooking contests.

But the greatest break with tradition was to consider selling the restaurant to a large corporation. Several years ago, a large restaurant chain made an offer but the family turned it down. Now, Gigi says, she "will take it" if a similar offer were to come along. Part of the reason for this is that her mother, for 60 years the driving force behind the restaurant, is nearing an age when running day-to-day operations becomes too onerous.

For many second-generation owners, the idea of relinquishing control is a matter of good business sense rather than issues of parental health. In 2003, Simon Wong picked up the reins at SIM Technology, the electronics business his parents are still involved in. While he thinks the family will continue to run the company as long as their health permits, Mr Wong, 35, says market conditions in Hong Kong are making it more difficult

for traditional family businesses.

"The pace of competition is getting more intense, and it is not as easy as before for small companies to stay in business for decades and provide economic support for a whole family," he says.

Sim Technology's revenues rose by a quarter to HK$3.4bn in 2006, and Mr Simon says that as the company continues to grow his father's micro-managing style will become less viable.

Recruiting from outside the family, however, remain a thorny issue. In spite of "four years of brainwashing", YT has still to sell his father on the idea of bringing in a non-family chief executive.

"[My father] is 60 years old and I don't see him retiring for the next 10 years. He really enjoys his hands-on approach to management," YT says. "I'm probably just as passionate about the company [as my father is] but I don't think there is a need to do everything myself."

Mr Zheng says such resistance is common among patriarchs of Chinese family businesses. Even at Hong Kong companies, which have acquired at least some of the trappings of western corporations - independent non-executive directors, annual shareholders' meetings - final decision-making power always rests with the family.

"They would rather the company remain on a small scale than lose control of it," Mr Zheng says. "It is partly tied to the concept of filial duty - one cannot give away the business that ones' ancestors founded. If something goes wrong they feel that it is the family's reputation, not just the company's, that has been harmed."

YT points to another reason for his father's reticence. "The Chinese don't really trust people...from the outside," he says, adding that there is also an element of saving face.

His father is wary of others seeing his son as a princeling who reaps the company's rewards without doing any of the work.

But YT believes he is winning his father over - a sign, perhaps, that the younger generation of Chinese business owners is beginning to change the way the family traditionally does things.

Power suits swapped for aprons and a louder management style

The first few years of Gigi Ng's career were typical for a Hong Kong-born graduate. After venturing overseas for her undergraduate education, Ms Ng entered banking and worked her way to being a quality control officer for retail banking operations at a leading bank. She even studied part-time and earned an MBA along the way.

But in 2000 her father's health began to fail and Gigi returned to help run the family business - Ser Wong Fun, a 120-year-old snake restaurant and arguably the most famous of its kind in Hong Kong.

For Gigi, it was a return to childhood memories of helping skin snakes in the kitchen but also a complete culture shock. Aside from swapping her power suits for an apron - albeit worn over stylish dresses more at home in a swanky mall than a chaotic restaurant floor - and having to help serve dishes and even clean the toilets when things got hectic, Ms Ng says the biggest change was in adjusting her style of management.

"If there was an issue [at the bank] involving, say, our customer representatives, I could just schedule a meeting and talk about it with them, but at the restaurant, 'meeting' means shouting at everyone for several minutes before the evening dinner rush starts," she says.

"It was no use explaining why something would work better by doing it a certain way. You have to physically show them, and when it really does work they'll grudgingly accept it."

As for the management techniques taught at the MBA course? "That wasn't much help, either," she says, "I've had to become a lot more street-smart in the past few years."

Robin Kwong/FT