Liu Minxia

    mllmx@msn.com

    FAMILY-CONTROLLED businesses in China are facing mounting challenges in terms of sustaining growth and transferring ownership as most founders of these businesses, as a result of China’s economic reforms over the past three decades, are approaching retirement age.

    Prominently, manufacturing-based family businesses that flourished in a previous era are having to find new avenues for growth in order to achieve sustainable growth. Findings from PwC’s biannual global survey of family businesses showed: The overall Chinese economy is upgrading itself from the previous manufacturing-based model to a new one driven by consumer demand and the service sector.

    Only 73 percent of the surveyed family businesses in China have seen sales growth in 2016, compared with 84 percent in 2014. Compared to survey results two years ago, a larger proportion of family businesses aim to grow steadily rather than grow aggressively.

    In regards to ownership transition, only 10 percent of family businesses in China have a robust, documented and communicated succession plan in place. The situation has improved gradually while the percentage is still lower than the global average of 15 percent.

    Private enterprise has only been allowed in China for a few decades. As a result, many Chinese family-owned businesses still remain controlled by their founders. There are very few examples of succession in China, which has contributed to the lack of succession plans or the lack of recognition for the need of one.

    “In view of the challenges, family businesses in China should put focus on business transformation and innovation, and invest more on people and talent retention,” said Charles Chow, lead partner of PwC China’s Shenzhen office. “Improving profitability, and ensuring long-term development and succession of business are the key goals for family businesses.”

    China’s economic reforms of the past three decades spawned one of the world’s wealth booms and turned the country into one of the world’s fast-growing sources of new billionaires.

    There are between 7 and 8 million private enterprises in China, and family businesses account for more than 80 percent of those, Asialinks Essays data showed. This means there are nearly 6 million family businesses in China — substantially more than in the United States.

    Chinese family businesses that are among the most successful in their field globally include China beverage giant Wahaha, led by billionaire Zong Qinghou and his family, and Soho China, led by the husband-wife billionaire team of Pan Shiyi and Zhang Xin. Wanda Group, the China giant led by the country’s richest man Wang Jianlin, is expected one day to be led by Wang’s son Sicong.

    The next five to 10 years will be the peak succession period as the first wave of entrepreneurs to benefit from the economic reforms begin to retire. However if they pass the baton to someone in the family, the odds are against them.

    The PwC survey results revealed that family businesses’ growth outlook could be curtailed by the organization’s own lack of long-term strategic planning rather than economic factors or other external concerns. Many issues now facing family businesses come back to a lack of strategic planning in managing both the family as well as the business, especially in areas including succession planning, PwC said.

    The next generation will play an important role in creating Chinese family business’ future, said Chow, although he admitted that many of the founders are finding that their children aren’t interested in taking over the family business. Chow’s point was echoed by Jean Lee, co-director of the Center for Family Heritage at China Europe International Business School in Shanghai, who said that they have found the problem appearing at more than half of China’s traditional private sector companies.

    “It will be fruitful to involve the next generation in strategic planning as they will be the change agents for business transformation and digitalization,” said Chow.