Cao Chunhui: Opportunities and Challenges of China's Family Business Succession


According to the survey of the All-China Federation of Industry and Commerce, the private economy, which is dominated by family businesses, accounts for about 67% of China's GDP and claims 70%-80% of the total economy. In the capital market, China's listed family companies also play an important role. According to the statistics of China's A-share market in 2015, 33.9% of listed companies belonged to one single-family group. In the SME board and the GEM, listed family companies even accounted for more than 80%. More and more evidence leads to a conclusion: family businesses play a pivotal role in providing employment and stabilizing the economy with its predominant number and share of GDP growth. The development of family businesses directly influences the national economy and people's livelihood.

Nowadays, for the majority of Chinese family businesses, a huge challenge ahead is leader succession. Most of the entrepreneurs who started their business more than 30 years ago after China's Reform and Opening-up have entered the twilight of their life while their children enter their prime time of 30. As a new generation of rags-to-riches enters the economic arena, most of China's family businesses are right in a period of leader succession. On the one hand, they hope to seek a smooth transfer of corporate leadership and maintain the momentum of the enterprise; on the other hand, they are confused by the problems involved during succession.

Compare to the majority of a family business in the world, Chinese one has a relatively short life cycle, making further expanding difficult. I believe that at least two major factors constrain its development: First, a lot of entrepreneursof China's family businesses flourished in the 1980s mainly because of a political bonus after the Reform and Opening-up. Their limited managerial experience fell short when faced with rising competition brought by globalization and company expansion; Second, similar to the family business in other countries, when the first generation of entrepreneurs handed their leadership over to their successors, common problems like succession, professionalism, conflicts between family and the enterprise system loomed. After the reform and opening up of China, ill choice of successors led to stagnation, disturbance and even demise of family businesses. All this happened because the first generation of entrepreneurs lacks the systematic cognition of leader succession; plus, there were no precedents of sound succession available for consideration. Without smooth succession of a family business, the sustainable development of the economy will encounter obstacles, and the quality of economic growth will deteriorate. Mao Lixiang, chairman of Fang Tai Group, even believes that a terrible succession of a family business is more dangerous than a financial crisis.

Although for family businesses in China, the road to a successful succession is replete with challenges due to lack of experience and systematic knowledge, the author believes that new opportunities are also being conceived during this round of power transfer. Unlike their predecessors who rely on the political dividend, the second generation of family business leaders have more advantages in education and global vision, they display higher market sensitivity and the will of innovation. They always pursue a more scientific style of management and praise professionalism. Therefore to some extent, the succession of the family business can also be seen as an opportunity for company transformation and upgrading.

The Chinese people have always advocated inheritance of cultivation and reading but have never heard of inheritance of business down the bloodline. The neglect of family business succession may well explain the short life cycle of small and medium-sized enterprises in our country. The great rejuvenation of China cannot be realized without sustainable growth of family businesses. Therefore, the succession of family businesses in the next 5-10 years remains a key part of this historical period where opportunities and challenges coexist. A period of prosperity. A period of demise.

Cao Chunhui, assistant professor, School of International Business Management, Shanghai International Studies University; Ph.D. in Management, Xi'an Jiao tong University; Visiting Scholar, Smith School of Business, University of Maryland, USA. Mr. Cao has chaired many research projects including the National Natural Science Fund of China, Shanghai Youth Teacher Funding Program, projects of general research and teaching reform. His research results were published in Leadership Quarterly, Management Review, Scientific Research Management, Management Journal and other well-known domestic and foreign journals and his main research direction are leader succession, leadership, and organizational change, family business governance, social network of leaders and university reform, etc.

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