Entrepreneurs consider successful family succession in private sector

SHANGHAI - As many first generation Zhejiang entrepreneurs are entering their 50s and 60s, they face a common problem of succession.

"It's not a problem of 'who?' - we all want to pass our businesses to our children - but of 'when?'," said 60-year-old Li Rucheng, founder and chief executive officer of Youngor, one of the largest garment makers in Ningbo, East China's Zhejiang province.

This is understandable because most Chinese enterprises in the private sector were founded within the past 30 years in a fast-changing business environment that has no precedent anywhere in the world, management experts said. Many local entrepreneurs are not sure if their Western-educated children can cope with the unique style of development in China in general, and Zhejiang in particular, the experts said.

Youngor is a case in point. The company, with total assets valued at about 60 billion yuan ($9.2 billion), is steeped in the management style that reflects the personality of Li, who calls it the "Youngor spirit".

"Although I share only 8.5 percent of the holdings of my company, I still have to consider and choose the next generation carefully to ensure that he or she is able to inherit the Youngor spirit," said Li.

The lack of abilities and experience among the next generation worries the current entrepreneurs most, because their actions will directly affect the customary operations of the enterprise immediately.

"The incoming five to 10 years will be the peak period of passing on the family enterprises, and also the potential recession of the private economy in Zhejiang province," said Mao Lixiang, the founder of Ningbo FOTILE Kitchen Ware Co Ltd.

Mao added that for more than 90 percent of private family enterprises, how the second generation handles the business would influence the sustainable development of the private economy in Zhejiang.

In order to solve the problem, studying abroad or enrolling in an executive master of business administration (EMBA) course seems to be the way forward.

In an era of intense economic competition, the EMBA program emphasizes the need for businessmen to also serve the broader social good. Social stability and national prosperity depend on entrepreneurs' willingness at times to sacrifice some of their individual desires in service to society.

The EMBA in Cheung Kong Graduate School of Business is well known for its team-oriented culture by encouraging a frank and honest exchange of ideas and opinions, promoting camaraderie and the development of life-long friendships.

The tuition for the 20-month program for classes beginning in the 2010 academic year was 568,000 yuan.

Targeted at young management leaders, or the so-called rich second generation, with a decision-making role in a business and demonstrating leadership potential, the Cheung Kong EMBA course, which also requires a 2,000 yuan application fee, involves classes held once a month over a four-day weekend, thus minimizing intrusion into the regular work schedule.

According to Teng Binsheng, associate professor of strategic management at Cheung Kong Graduate School of Business, the EMBA course enables potential leaders to realize their roles in management and guides them so they can run their companies confidently while applying their own innovations in the face of doubting parents.

Teng said that there would be hidden conflicts between two generations with decreasing trust and contrasting personalities.

According to research carried out by HSBC and consulting agencies last year, about 70 percent of second generation businessmen failed to expand the family enterprise. Only 30 percent of them succeeded.

Teng added that the reason behind perceived failures among second generation enterprises was conflict with first generation shareholders.

Instead of taking a short-term EMBA course in China, those new to the reins of power can study and work abroad to gain more experience and ability, confidence and independence.

"Recruiting applicants who have been educated or worked abroad, along with applying innovative methods, will give impetus to local private enterprises to rethink their direction and develop the potential to boost development," said He Xiaogang, a professor at the School of International Business Administration at Shanghai University of Finance and Economics.

Becoming a successful businessman is a goal for Jin Feipeng, a 29-year-old from Wenzhou, who took control of Shanghai Jiuding Clock Co Ltd from his father. He has transformed the family company from a small-time manufacturer into a top global brand in the clock industry after taking over the business six years ago.

Jin graduated from Thames Valley University, London. He was born with a business mind, selling DVDs at a weekend market in London one-month after arriving in the United Kingdom at the tender age of 17.

"I wanted to earn and spend my own money instead of asking my parents to cover my living expenses so I chose to be a peddler," said Jin.

The teenager sold bags, accessories and commodities during the first year. Then he became a landlord by renting two rooms of the house he lived in to other students.

"I worked in a lot of places including bars and restaurants during my four-year stay in the UK and I kept my business brain running without stop," said Jin.

Jin returned to China and took over his father's 10-year old clock company in 2005, when Jiuding was just an original equipment manufacturer (OEM) for clock replacements and clocks owned by international brands.

Jin soon realized that being an OEM wasn't enough to guarantee the future of the company so he stopped most of the OEM orders and started building Jiuding into a brand that manufactured high-end clocks for the domestic market.

"I've successfully enabled 85 percent of our products to meet the demands of the domestic market and, with Jiuding as a Chinese brand, it has now stepped out on to the world stage," said Jin.

Jiuding clocks feature original German moving pieces combined with high quality other parts in a solid wood casing, with a unique finish and a variety of colors.

Apart from manufacturing his own clocks, in a revolutionary move, Jin also hired a team of experts to invent an efficient industrial microwave technology between 2005 and 2008 to ensure all the solid wood components of his clocks were completely dried before assembly.

"Our team has managed to shorten the time of drying from the traditional 48-hour microwaving to six hours, and created a more effective result," said Jin.

At the moment, Jiuding clocks are sold in more than 200 outlets in China. The company has acquired a German clock brand and owns interests in brands from the US, Germany and Japan in the China market.

"My aim is to develop Jiuding from a single brand into a multi-branded company and from a manufacturing-based enterprise into a trading as well as service-concentrated enterprise. Then I want to open a Jiuding clock shop," said Jin.

Shi Jing contributed to the story.

China Daily

(China Daily 04/11/2011 page13)