New Hope Group CEO and Chairwoman Liu Chang (劉暢), the daughter of a billionaire industrialist, went to boarding school in the US, traveled the world and married a hip Chinese film director. Next move in her charmed life: running one of China’s largest pig feed and dairy companies.
“With my background, I am almost an outsider to the family business. Once I step in, I can bring new perspectives, new thoughts, fresh ideas,” said the 37-year-old, who is now being groomed to take over the US$15 billion agribusiness company founded by her father, 66-year-old Liu Yonghao (劉永好).
Family firms, which make up about 90 percent of China’s 21.6 million private businesses, are on the cusp of a sweeping succession wave that could be the biggest the world has seen yet.
About 3 million founders will hand over the reins within five to 10 years, said Wu Xiaobo, author of Storming 30 Years: 1978—2008 Chinese Enterprises, a book on the history of China’s private companies, in a commentary published last year.
China has not experienced such a wealth transfer on this scale before. Private firms did not emerge until after the country abandoned its socialist path for market reform in 1978.
“Deng Xiaoping (鄧小平) only allowed private businesses starting in the 1980s, so these family businesses are all relatively young,” said Roger King (金樂琦), director of the Tanoto Center for Asian Family Business and Entrepreneurship Studies at the Hong Kong University of Science and Technology. “Now their founders are reaching retirement age.”
Already, some big-name Chinese entrepreneurs have completed the handover. Zong Qinghou (宗慶后), the 71-year-old, chain-smoking founder of beverage maker Wahaha, has named his 35-year-old daughter Zong Fuli (宗馥莉) as president.
Yang Guoqiang (楊國強), 62 and founder of Foshan-based real-estate and private-education giant Country Garden, in 2005 transferred management and ownership to his daughter Yang Huiyan (楊惠妍). She now has a net worth of US$19.2 billion and is the sixth-richest person in China, according to the Bloomberg Billionaires Index.
The succession shift will not always be seamless. Many Chinese family businesses are in traditional industries like export manufacturing and face challenges such as rising labor costs. Younger executives are gravitating toward fast-growth sectors like e-commerce.
Only 40 percent of the next generation heirs (usually just one given China’s one-child policy) are willing to take over the firms and they often do so only because of pressure from their parents, King said, citing the 2015 Chinese Family Business Succession Report.
Then there is the generation gap. Many of the second generation have been educated overseas. By contrast, their fathers often never finished high school and adult life has been focused on building their companies. That can add up to huge differences in management style between the scrappy founders and their offspring, said Rebecca Wang (王穎), an expert on family businesses and a partner at PwC China in Shanghai.
Thirty-nine-year-old Sun Meng (孫蒙), who in 2013 took over from his 63-year-old father, Sun Dawu (孫大午), as president at Hebei Dawu Agriculture and Animal Husbandry Group, said that the elder partners who joined the firm early on have criticized him for focusing too much on his family.
Sun takes his daughter to school every day, which they frown on, he said.
“My uncles thought I was like a playboy. I had many conflicts with them,” said Sun, using a respectful term for the senior partners. “But I believed you should have a balance between life and work, so even until today we quarrel about that.”
Some company founders are likely to look outside the family for successors. Wang Jianlin (王健林), the former PLA soldier who founded real-estate and entertainment giant Wanda, last year publicly said his 29-year-old son Wang Sicong (王思聰) will not take over the company.
The younger Wang, who studied in London, has become a controversial social media sensation, notorious for showing off his wealth by posting pictures of his pet Siberian husky Coco with the gold Apple watches and iPhone 7s he gave her.
“I have asked my son and he said he did not want to live a life like mine,” the elder Wang said in a speech in Beijing last December. “Perhaps it is better to hand it to the professional managers.”
The track record for transferring power within Asian family firms is not encouraging, said Joseph Fan (范博宏), a professor at the Chinese University of Hong Kong.
Over the five years before and three years after a company transfers management from the founder to the next generation, about 60 percent of a family firm’s stock value dissipates on average, Fan’s research on businesses in Hong Kong, Taiwan and Singapore shows.
That is likely to also be true with family firms based in China, he said, adding that not enough firms have completed succession yet to carry out a rigorous study.
“To flourish in China, business must depend heavily on intangible assets such as relationships,” including with government officials and business partners, Fan said. “But those values are very hard to transfer to a son or daughter. So that is why succession usually means loss of value.”
With many family firms now exiting low-end, low-margin manufacturing and instead developing brands and service businesses, relying on old relationships might be less important. Instead, having management savvy about changing consumer tastes and e-commerce could be key.
That is what Liu Chang and Liu Yonghao are counting on as New Hope Group expands into areas including health care and new finance.
“Service and experience are what our generation cares most about,” said Liu Chang, adding that she convinced her father to introduce consumer centers to monitor customer needs.
“Liu Chang is young and fashionable. She can bring innovative, Internet-related ideas,” Liu Yonghao said. “This traditional company needs to be transformed.”
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