According to data from the Chinese Academy of Social Sciences, more than 3 million private businesses will encounter succession issues in the next 5-10 years when the first-generation entrepreneurs hit retirement age. This is especially significant considering that families control the majority of private businesses in China. An estimated 30% of them will have smooth successions, while the remaining 70% will encounter various difficulties, which may even draw an end to the enterprise created by the first generation. The succession issue is not unique to China. However, in western countries children want to keep up with their family business, although they are frequently incapable of rising to the challenge. Chinese children on the other hand actively shun their family business despite possessing the requisite skills. An investigation done by Shanghai Jiaotong University shows, at present, only 18% of the second generation is willing to take on the family business from their parents, while the remaining “successors” are not willing to take the initiative. This poses particular risks in a country where there are few professional managers, and families are reluctant to hire outsiders for fear they will take control of the businesses.
Different generations, different situations, different values
The first-generation Chinese generally grew up in poor families due to the hard conditions in China 40-50 years ago. Since China’s opening-up and reform more than 30 years ago, surviving and leading a decent life became the major motivations to become an entrepreneur. The first generation was trained to be “the first to endure hardships, and the last to enjoy themselves.” On the contrary, the second generations were raised in rich families, and were often sent abroad to live and study, thus it is difficult for them to empathize with the hardships their parents endured and view their careers as appealing. What they are facing is not survival pressure; instead, they are facing the pressure of “self realization” and more intense market competition.
In addition, the businesses built by the first generation are usually traditional in nature, such as mining, manufacturing, etc. The foreign-educated second generation usually majors in finance, business management, designing, or hotel management, which are more financial service and innovation oriented. They may find little or no interest in their parents’ mining or steel making businesses, especially when they witnessed the hard work and helplessness their parents experienced.
Starting from zero, the first generation cherishes their business like their own babies, and focus more on the day-to-day operation, sales network, etc. than on introducing new business ideas or technology innovation. At the opposite end of the spectrum, the second generation normally has the desire to create new business models or to link their parents’ traditional businesses with international networks as well as capital markets. The second generation is more interested in catching up with their peers and trying new things. Sometimes these innovations are supported by the first generation, and a few achieve success, but often times their trials fail due to mindset differences between the two generations and two cultures (Chinese and western, where the second generation was educated).
Having said that, examples of successful successions do exist, such as Wahaha group and New hope group. It is believed that smooth succession depends on the way the first generation cultivates their children. In most successful succession cases, the second generation started working at their parents’ businesses at a relatively low level to be exposed to all business units within a certain period of time. Gradually, we see the tendency of some first generation entrepreneurs to learn from European entrepreneurs, and they send their children to work for their friends’ companies before inheriting the companies. By having more comprehensive exposure to different businesses, the second generation usually acquires better knowledge and more confidence to manage their own businesses when the succession time comes.