Succession crisis looms for China's family businesses
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To inherit a fortune and a family business from a rich father is a dream for many. But when it comes to reality it can be a headache, if not a nightmare.
Zou Lihan is a 28-year-old who recently took over her father's textile factory. Now, she often argues with him about business decisions.
"We have different ideas about how the business should be run. He wants to buy more equipment and build more factories while I think we should be cautious about expansion," she said.
"What bothers me most is that my father is still acting as the company boss, even though he is supposed to have retired," Zou added.
Zou's troubles with her father are not uncommon in east China's Zhejiang Province, the home of many companies that pioneered the development of China's private sector.
Before reform and opening up, China had a planned economy and private businesses were illegal.
The Chinese government adopted a set of policies in the 1980s that eased restrictions and instituted conditions favorable to the development of private businesses.
Over three decades of development, private businesses in China have created massive wealth and employment opportunities for much of the nation's workforce.
According to the China Private Economy Development Report released by the All-China Federation of Industry and Commerce in 2006, China's private economy accounted for around 65 percent of gross domestic product (GDP) in 2005 and generated 84.1 percent of job opportunities in the secondary and tertiary industries.
Now, as the first generation of Chinese entrepreneurs near retirement age, the issue of succession has risen to the fore.
According to Zhejiang Chamber of Commerce research, about 80 percent of private enterprises face succession problems.
Reluctance to inherit
"One problem for family businesses is that sons and daughters of business founders often have their own ideas and interests and are unwilling to take over the family business," said Shi Ping, an official from the Federation of Industry and Commerce in Shengzhou City, Zhejiang Province.
The Beijing-based Legal Mirror newspaper conducted a survey on succession issues in July. The survey showed that less than 20 percent of children of business founders want to take over their parents' enterprise.
College graduate Zhu Xiaofeng has dreamed of opening a restaurant for years but his parents oppose the idea.
"My parents don't think running a restaurant is a good job, and they are trying to persuade me to stay in the family business," he said.
"A friend of mine chose to work in a bank instead of taking over his father's company. His parents were furious. They called him a bad son," Zhu said.
Shi Ping said, "Apart from differences in interests, often the offspring of entrepreneurs lack the ability to successfully run the family business."
Unlike their parents who often came from nowhere, many children of business owners grew up amid affluence and are used to indulging themselves in lavish lifestyles, said Zhang Ming, professor of political studies at Renmin University of China.
They lack the ability to endure hardship and take on responsibility, Zhang added.
Operational barriers
Researchers have found that many retired entrepreneurs are reluctant to give up control of the family business even after they have handed over the reins of the business to their children.
"Many second generation entrepreneurs feel they are being manipulated by their parents and are simply the figurehead of the enterprise," said Chen Ling, a Zhejiang University researcher.
"Parents' interference in the business may frustrate the heirs and discourage them," Chen added.
Key to business success is often the relationships between relatives, since many entrepreneurial family enterprises are run by family members.
"At the time of succession, rivalry and jealousy can trigger a scramble for power and lead to conflict among the relatives," Chen Ling said.
"The young entrepreneurs may find it hard to deal with the relatives, especially the elder ones."
To help family enterprises overcome succession crises, many institutes have been established in China. They offer training courses to groom second-generation entrepreneurs and help with succession planning.
Some scholars say the government should invest in cultivating professional managers to take over enterprises in place of the incapable or unwilling children of the entrepreneurs.
Mao Lixiang, head of Ningbo FOTILE Kitchen Ware Co., Ltd., said, "Even if the children lack ability, the bosses will only feel at ease if their offspring take over their company."
Chen Ling said, compared with their parents, many second generation entrepreneurs received a good education, have broader horizons and are more innovative and open-minded.
"If the family enterprise can survive the problems arising from the succession, it has a bright future."
