Megan Ross
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August 29, 2000
Chinese Family Businesses in Asia Urged to Focus on Corporate Transformation to Compete in Global Economy

Hong Kong, August 29, 2000 – Asia’s increased importance as an influential economic region has meant that multinational companies (MNCs) will have to understand and take note of the changes impacting Chinese Family Businesses (CFBs). The globalisation of the economy has forced CFBs to transform themselves to embrace the New Economy. Furthermore, companies seeking to invest in Asia will need to note that such changes in the New Economy will have a major impact on the way these businesses are run.

A new report, issued today by Accenture and the Economist Intelligence Unit (EIU) titled "Beyond the Bamboo Network", says that the traditional strengths of CFBs – the role of middleman and the reliance on personal relationships – will matter less then their ability to build markets and acquire new customers. To survive in the New Economy, most of these companies will have to change radically and adopt strategic thinking, marketing and effective management of human capital in order to meet the challenges put forward by globalisation, liberalisation and e-Commerce.

CFBs control an extremely large percentage of Asia’s economic wealth in comparison to their proportion of Asia’s overall population. This report is the first true regional assessment of the outlook of this significant segment of Asia’s economy under the New Economy and comes on the eve of China’s potential accession to the World Trade Organisation (WTO).

"The elimination of trade barriers among the Asia Free Trade Agreement (AFTA) members will make Asia an attractive region for outside investors. Hence, an understanding of how CFBs operate and are changing will be important for MNCs, should they decide to build alliances in the Asia-Pacific region"said Joseph Lobbato, a Partner with Accenture’s Organisation and Human Performance practice in Asia. "The practices and values that have made multinational businesses strong will become much more important to Chinese Family Businesses as globalisation opens up Asian markets to more competition from overseas players,"he added.

"Historically, CFBs have succeeded in building their businesses according to family-focused, hierarchical management styles. In the past, these family-run businesses had a strong emphasis on family status. Information was shared only among top management, and overall, tended to be less transparent in their corporate operations. While these factors have accounted for much of the families’ previous successes, it is increasingly evident to them that such management styles will not support their transition into the New Economy. They too are seeking alliances with international partners to take advantage of the global marketplace"

"As globalisation and e-Commerce significantly alter operations of the business environment, CFBs will enter into commercial engagements with MNCs at a much faster rate. This report aims to help CFBs learn how they can be successful in such interactions, and this will be crucial – not only for CFBs but the whole future of the region – as Asia continues to be a central focus for global economic development."said Mr. Ken Davies, Chief Economist and Bureau Chief, EIU Asia.

Lobbato added, "There are some fine examples of CFBs undergoing transformations across the Asia-Pacific region. However, a great many more are going to have to embrace change and new thinking if they are to survive and attract the best international partners."

For instance, Li Ka-Shing, popularly known as one of the wealthiest businessmen in Asia, is well on his way to transforming his ‘family empire’ into a multinational organisation. This is evident as he has recently closed record deals with several overseas companies – his Orange telecommunications business was sold to Mannesmann and subsequently to Vodafone Airtouch. His Hutchison Group also greatly benefited by its 23% stake in Voice Stream that was sold to Deutsche Telekom. More recently, of course, his company has established 3G alliances with several multinational corporations including NTT DoCoMo."

With e-Commerce rapidly emerging as a potent driving force in the global business landscape, CFBs will be revolutionised to a degree never before. Currently, many Asian companies are downplaying the potential importance of e-Commerce, as demonstrated by low penetration rates of Internet usage in most Asian countries to date. Certainly, CFBs have the money to engage in e-Commerce, but they lack the know-how as this is a new field of enterprise. Therefore, CFBs will need to acquire or develop new capabilities in order to succeed, by creating a new network that is Internet- and technology-savvy.

In addition to other detailed findings, the report states seven critical factors of success for CFBs in Asia. Specifically, these include the need to:

  • Abandon over-reliance on networking and concentrate on building markets and acquiring customers. CFBs need to build partnerships and strategic alliances that transcend the limitations of the ‘bamboo network’ that used to bind them together;
  • Learn to take advantage of the tremendous opportunities opened up by the development of e- Commerce. e-Commerce enables CFBs to reach out to global suppliers and markets at lower cost and connect with their customers, wherever they are. This development will force CFBs to develop stronger marketing and brand- building capabilities;
  • Concentrate on the core businesses in which CFBs have a competitive advantage, so that they can survive the increasingly fierce onslaught of competition from abroad as markets are further opened in Asia;
  • Move away from command-and-control systems which transmit orders down the hierarchy. Instead move towards a people-centred strategy which focuses on the effective management of human capital;
  • Plan and implement a transition from relationship-based to rule-based governance within the company. CFBs need to restructure internally to maximise the potential of all their staff. They need to readjust as the laws and other rule-based systems replace older ways of securing business;
  • Win the war for talent in a tight labour market. Market-transforming forces ranging from globalisation to e-Commerce will produce a dramatic increase in the number of different skills required to propel CFBs successfully into the future; and
  • Install leadership that is fast and flexible enough to deal with varying crises. Successful CFBs will be those who build teams of executives with diverse talents, not those that remain dependent on a single chief executive.
Lobbato concluded, "Overall, the outlook is bright for CFBs across Asia in partnering with multinational companies. As economic globalisation takes hold, the geographical boundaries between Asia, Europe and the U.S. are become increasingly blurred. The first step is for CFBs to recognise the need for fundamental transformation and restructuring in order to deal with competitive pressures brought on by factors such as e- Commerce and globalisation. Once this is accomplished, CFBs can move full-speed ahead with aggressive programs aimed at increasing their competitive advantages and their future success in partnering with multinationals. Likewise, foreign investors must recognise the changes that are taking place in Asia, as CFBs will be a central force and key entry point to help expand their business ventures into Asia."

About Economist Intelligence Unit

The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years, it has been a source of information on business developments. Economic and political trends, government regulation and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works, through specific research reports, whether for general release or for particular clients : through electronic publishing. The firm is a member of The Economist Group.

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