Chinese entrepreneurship is known to be influenced by historically traditional and cultural characteristics. The concept of Chinese businesses that the family patriarch critically manages them continues to hold true, although in the modern world as opposed to two decades ago, it has slowly changed. However, much of the management is held by a male member of the family, whether they operate a business upon their property or if they lease or rent the property. The tradition of a Chinese family-run business retains its discernible mark in worldwide business.
As motivated as they may be maintaining past practices for the sake of tradition, Chinese nowadays are facing challenges against a rapid and advancing period. Business and property succession attributed are more difficult to manipulate within the family focus. This paper is a dissertation targeted at exploring resources based on written literature and experiences expressed by authors with extensive knowledge of Chinese business culture. The main focus first describes the comparison between Chinese and Western family business ownership, leadership, and organizational structure and uncovering the transition of Chinese family businesses among generations. This dissertation mainly explains how and why Chinese family businesses function as they do rather than exhaustively listing solutions that are only briefly suggested near the end of this report. The body within this report breaks down the components of a Chinese family as closely followed by entrepreneurs. The findings also indicate the importance of family relationships and the relationships within the business in general in order to achieve higher regard and praise as opposed to performance. In many cases, Chinese patriarchs found how the importance of reliability and independence upon family members reach their desired goals based upon family focus if they intend to adapt to the modern developing age.
Keywords: Chinese family business, Chinese and Western business comparison, Chinese family hierarchy, paternalism, succession
The characteristics of small Chinese family businesses can be estimated to date back as far as Confucius’ concept of unity approximately 2,500 years ago. Confucianism as far as unity is observed continues to govern virtually any kind of relationship involving Chinese, whether they are domestic or business relationships (Sorenson, 2004). Interestingly although Chinese culture evolved and diversified since the Confucian times, most of the Chinese population retained unity as one of the most significant characteristics. Many non-Chinese cultures and ethnic groups perceive Chinese culture in business functions difficult, if not impossible to understand (Kumar, 2014). Hence many Westerners intensely studied Chinese culture ethnically and corporately to understand and follow how and why Chinese culture persists as it does nowadays.
In spite of China being diverse by region and by language dialect, the population shares its unity and a common language (Putti & Chia, 1996). Small family businesses owned and operated by Chinese are rooted within their ethnic groups. The majority of Chinese ethnicity belongs to the Han where they loyally follow the Confucian unity system. Additionally when Chinese migrate to other countries, the first generations to relocate often retain their nationalism as a reminder of retaining their culture. They continue to refer to themselves as Chinese instead of declaring patriotism to a country they migrate to even after many generations because of their unique culture (Bernard, 2013). Many Chinese business owners transition their cultural practices into the corporate world and base then upon family-oriented values. The most common family-based management procedures are, but not limited to, dominant family head, enduring roles and family obligations, family financed and family accountable organizations. More examples will be expressed in this report.
The main purpose of this report is to analyze Chinese small family businesses from various characteristics and how they adaptably operate in diverse environments while maintaining their business family models. Sources such as journal articles from renowned news article media by authors with extensive knowledge of Chinese culture and business have been included. To further assist in the understanding of Chinese business, the study was conducted to include historical-based as well as current-based sources to illustrate the definite linkage between past and present practices. Much of the research is covered geographically to identify Chinese influence of small family business operations in and out of country.
Networking in the last 15 years has been instrumental among worldwide business. Chinese business people have the instinct of pursuing opportunities whenever possible. Sources providing similarities and difference between Chinese and western business has been achieved and presented thoroughly by incorporating factors such as motivation, formality and authority. The author of this research report additionally grew up locally with second-generation Chinese of immigrant parents who began family businesses as one of the sole purposes of assisting their children’s future.
3.0 Differences Between Chinese and Western Family Businesses
3.1 Western Business Culture
Much of Western family business culture particularly in North America, business practices are observed to be hesitant and defensive (Middleton, Koh, Chandramohan, Pettigrew, 2012). Often family business owners seek consent from other family members when planning to take upon new business ventures, regardless if the patriarch is in charge of the business. Children of family businesses are not as inclined to inherit the family business as they once have historically. In the Western world prosperity is generally indicated by sources of performance, profit and capital on a timely basis. Western family businesses practice pragmatically in spite of educated professionals hired by the company (Carlock, 2014). Prior to hiring a non-family member, they examine past employment records, experiences, education, and references. Employees are expected to be innovative and improvised in given situations.
Out of over 10 million businesses in North America, at least 80 percent are family owned and incorporate several variables (Lussier & Sonfield, 2004). These family businesses contribute to interpersonal family dynamics, succession, estate issues, and performance. Previously patriarchs and their sons called all operation of the business. But in the last 20 years, wives and daughters have been climbing the family corporate ladder. Furthermore, non-family professional management is included and are sometimes predominant for essential operations within the family business. Depending on the type of company, the paternalistic aspects are heavily involved but are either absolutely present or remain in the background. Non-family members are chosen as trusted employees and are treated with nearly the same respect and dignity as the direct family members (Stewart, 2010). Sometimes the purpose of hiring non-family members is entrepreneurs do not always have full trust in family members. Instead they hire non-members to monitor progress of their own family members.
3.2 Chinese Business Culture
One of the major differences between Chinese and Western family business is succession planning and association (Lin, 2006). Chinese families have a strong affiliation among company professionals or specialists (Tan, 2002). They are generally in association with one another on various occasions, whether for business or leisure. Some observations state Chinese business owners are sometimes seen on their own. However, if they are observed to be in association with someone in virtually most gatherings: business, social, or otherwise, they are mostly likely to be family members, trusted employees, or trusted close relatives in the business (Wah, 2001). Although Chinese hire professionals, they are normally not seen with them for the reason of maintaining company confidentiality because of the impact it may have on the succession plan. Externally it may seem Chinese do not often require professional advisors.
Chinese family business estates do not often hold public shareholder agreements because of their affiliation to family values (Redding, 1980). Promoting shareholders may only incite the dissolution of a family business. The very first generation business founder usually has a vision of bequeathing the business to their children and will continue training and advising them of how the family business is to function until they the founder passes on (Mills, 2005). The family business founder’s vision is to be executed in the exact same procedure as envisioned and shall not be altered. Involving any employees or members outside the family is carefully analyzed even prior to any discussion or mention of inviting a non-family member into the business.
4.0 Components of Chinese Family Businesses
4.1 Paternal and Pragmatic Approach
In Chinese business as well as culture, family is the basic building block of society. The same family values and integrity are shared by Confucian society and are responsible for the formation of all relationships. Chinese management entails the pragmatic process to ensure prosperity and survival of the family business, although being social is a highly recommend if not a mandatory attribute (Chen & Chen, 2014). The pragmatic approach combined with the paternal approach determines management motivation. But not every business is prosperous without any conflict between the family and the business. In such situations the entrepreneur shall be reasonable in dealing with business disputes but must hold firm to business principles while remaining austere with family members as the most expedient way to simultaneously maintain business and family integrity (Dumont, 2012). This dual resolution helps Chinese family entrepreneurs balance business and family values when introducing the family to managerial principles essential to the success of the family business.
Family fundamentals drive Chinese organizational and managerial functions. The Chinese managerial system has great influence during the course of a small family business. Management is centered about the decision-making process especially when quick business decisions are to be made. Family values are important in Chinese organizations when dealing with collectivism, group behaviour, family management and ownership. Culture alone normally acts as the umbrella enveloping other mandatory components such as organizational structure, people management, leadership style, and business orientation strategy (Lockett, 1980), and shall be illustrated in subsequent topics.
4.2 Organizational Structure
Chinese businesses have unique signatures of family orientation with a solid weight upon a specific hierarchal system and order. Naturally family and business matters frequently mix, and even when the plan is to keep the two entities separate, they end up in combination obliviously. A study regarding Chinese family business hierarchy states a close resemblance between the organizational and family categories (Redding, 1980). Unlike western workplace organizations, Chinese organizations normally do not have an organizational chart to illustrate the company hierarchy. The reason is management is defined as the single and individual person holding the position, authority, and seniority in the family business. Those employed, whether they are direct family members, are highly expected to acknowledge the person in management without much questioning and constant reminders. Lacking this knowledge may lead to a dishonour to the family name.
The job description is virtually unclear and unspecific in regards to the structuring of activities. Even more so, during events of uncertain and ambiguous procedures, relationship reporting is interchangeable that evidently create conflict among various working roles (Numakazi, 1997). The cause is the lack of officially written rules where job description may overlap and those who feel qualified lay claim to their relevant tasks. Hence, the family business becomes a policy-based outfit with past prologues without a formulation rulebook. But because of centuries of hierarchal leadership, Chinese policy dictates high expectations of their employees and subordinates working habits. Subordinates are conditioned to enact their worthiness in their performances to earn the trustworthiness of their superiors.
4.3 Managing People
In spite of hardened disciplinary procedures, Chinese family businesses place a system of humanitarian as an important criterion of good management and leadership. Although the definition of humanism states resolution can be achieved without faith and religion, the Confucian ancient philosophy declares its indoctrination through religious values that heavily involve diligence, acts of kindness, courtesy, and respect for elders (Hong & Chen, 1989). Fellow employees develop genial and politeness with the working environment imagined to be a familial place. The practice of de-emphasizing of self-imagery and egoism and replacing them with relationship building among employees become a top priority.
Chinese family businesses focus on collectiveness of all stakeholders besides direct family members to integrate to be officially regarded as family members. In fact, they believe people or relationship orientation is more important and guarantees prosperous results rather than a performance-based orientation (Lui, 2012). Even if progress and goals are not reached as expected, the final analysis of relationships between people are the lifeblood of a family business (Chua, 2012). Seniority among employees expressing ethical practice of good behaviour is more instrumental in achieving a promotion within a family business. As aforementioned, seniority is also somewhat directly related to the age of the successful candidate receiving the promotion, because Chinese culture, and much of Asian culture, dictates those who manage and guide others are the elders. But in larger companies, expression of good performance, integrated and comprehensive performance are taken into consideration (Schulman, 2006). Yet, as a general rule of Chinese family enterprises, people relationships are never dismisses as part of a performance assessment.
4.4 Leadership Policy
Most Chinese businesses of various sizes have begun as smaller family owned businesses. The most common and prevailing characteristic is paternal hierarchy. The paternalistic style is only followed by nepotism, but paternalism still dominant. Nepotism may only be applied when the patriarch of a Chinese family has passed on and lacks a son to continue as an heir to the business. According to Chinese tradition, the patriarchal style is considered the most practical when fused with family values (Hays, 2012). The patriarch holds the duty and responsibility of moral and ethical practices. Chinese patriarchs with their positions of corporate power are regarded as the protectors and providers of those in lower ranks and subordinate positions as well as their well-being. Generally Chinese family patriarchs provide their personnel with life-time employment if their personnel and family members can prove to continue retaining a positive track record. Normally lower than expected performance does not result in employee discharge as long as employees do not commit serious faults or offences.
A successful family businessman would normally assume their sons, if any, would be the successors of the family business, or at least inherit a high-ranking position (Carlick, 2014). One drawback patriarchs face though, is their sons may show lack of interest in the family business. Confirmations from Chinese immigrants indicated challenges as the first generation of family business patriarchs also lack interest in preparing their sons’ involvement and participation in executive positions. Simultaneously, Chinese immigrants throughout Asia, other than China, have developed a legacy with attributes to strength of family ties in a business. Cultural barriers may hinder successful businesses but the formation of economic unity becomes a single motivation among Chinese.
The practice of nepotism or relative recruitment normally in small to medium-size families often takes place. But in larger organizations, non-family members are often recruited for professional positions in family businesses. In most circumstances, Chinese business owners project their vision of their business journey in the far future, while simultaneously retaining observation of the present and the past. As long as prosperity coexists in the present and past, Chinese family business owners capture a similar business opportunity they envision in the future. Most of these visionaries are naturally, participated by the family patriarch resulting in business decisions. These mind techniques assists them in leaving behind their estate to their children in the future and practically reinvest their earnings to rebuild.
4.5 Business Orientation
A common value known as saving face or guanxi In Chinese culture is important for strengthening relationships in business (Luo, 2008). Chinese are selective in granting and refusing face in implementing influential business behaviour. The purpose of face and guanxi is to preserve the fabric of a business atmosphere for the sake of the family and individuals that make up the business. Saving face is one of the main reasons why Chinese family business owners practice patience as a mandatory virtue to protect the family name. Although nowadays banks are essential for business investments, Chinese used to avoid approaching banking facilities otherwise it would be a sign of weakness or failure because it indicates they could not handle their financing efficiently, and result in a loss of face.
When relationships between two people are strong, it denotes they possess good guanxi because of its essentiality in a business community. Guanxi within a family business promotes effective networking and smooth functioning. Chinese continue to practice guanxi in other countries as well as their own. When observed in business environments or networking, they are often seen interacting with others in their culture or engaging in networking within their own group. Nowadays, technology advancement and environment changes initiate scrabbling to maintain integrity with excellent performance instead of striving for survival. Chinese prefer to retain past practices instead of fully adapting to modern practices in business (Hu & Schaufeli, 2010). Unfortunately, modern practices cannot be ignored and shall be accepted to correspond to changes in the business world. But for Chinese family business leadership, traditional values are important to maintain.
5.0 Family Business Inheritance
Many argue that inheritance of the family business either lands in the hands of the patriarch’s sons or if a transfer takes place, business growth may be obstructed. However, these are not always the circumstances. Chinese inheritance whether domestic or corporate estate transfer depends on the level of prior responsibility. A family of both sons and daughters does not guarantee all the corporate estate is transferred to the sons. Chinese business owners and patriarchs usually plan business and property transfer to continue along the lineage of the family estate. For example, if a Chinese family has physically worked on an owned parcel of land, they normally retain the land under the family name while renting or leasing the land for future and potential businesses not linked with the family. Their main purpose is to continue the cash flow into the family estate.
Chinese family business and landowners designate an executor among their children for future financial planning in the event their children need financial assistance for their own families if they plan them. Hence, family patriarchs do prepare a plan for their children contrary to the aforementioned that they do not plan otherwise. What they omit is how they plan as opposed to what they plan. Much of the focus is transferring economic capital instead of human ad social capital to bring the estate to a new level (Yan, 2014). Within the family, patriarchs may have equal trust among their children, but designate a future executor and ensure they are careful with what financing their siblings shall receive and abide by protocols of the family estate.
Transferring the family business also involves monetary finances when it is learned the family will no longer continue, but the estate is very important. The transfer enables the family reduce property taxes and lessens the chance of the business becoming partitioned after the patriarch or both parents have passed on. The property and business transfer contributes to the risk management plan. The family business is divided in percentage or financial portion in correlation to the responsibility and contribution to each family member. In the majority of cases, the eldest son, if any, receives a slight percentage higher than the younger children (Wang, 2008). As opposed to the quantitative financial gain, the tensions and disputed are lessened when the inheritance is designated by the quality of the inheritance. The eldest son is considered the one capable of continuing the family name and the main duty following the patriarch’s death. Similarly, the eldest grandson is selected as another trustee with the rights to claim the finances earned by the family business achieved by the grandfather.
6.0 Future of Chinese Family Business
Chinese family-owned businesses need to change their protocols for the second-generation business owners to inherit and maintain success. However, regardless of the training and experience Chinese patriarchs provide for their children, patriarchs may need to discover alternate ways to adapt if their children prefer to continue the family business. Second-generation Chinese may acquire and possess all kinds of talents, but may other areas of interest (Forsythe, 2014). One-third of China’s success motivated by family businesses is due to its status as being the world’s second largest economy. But many first generation entrepreneurs are aging and are struggling to transition their businesses to the second generation. They make the assumption that their children will automatically continue the business because they spend much time assisting in building the family empire. But the patriarchs lack the attention in planning for their children’s activities in the business.
In other locations in Asia other than China, Chinese normally retain family values and develop a Chinese clientele. They establish a business in locations where they know a Chinese community will migrate to (Le, 2013). For many years Chinese learned to adapt to communal norms and lifestyles in spite of cultural barriers. Their drive and motivation revolving about respect, communications, and hierarchies are what Chinese family businesses contribute to. In the event children of business patriarchs do not have any interest in continuing the business, the patriarchs emphasize the importance of their children’s future occupation. Chinese students remember the teachings of their family patriarch and employ them into their education. Chinese patriarchs teach their children the value of educating themselves in order to begin a family business of their own (Wangshu, 2014).
Additionally a solution Chinese entrepreneurs may search is to fall back on a past practice. In previous years, both Chinese parents tended to many of their small family businesses. Their children would frequently alternate to assist in the family business before finishing grade school. Nowadays many leave behind family business involvement behind to pursue their own goals (Carlock, 2014). However, the patriarch’s children may be encouraged to return to family business values by returning to assist their parents’ family business or at least assist in tending to the family estate. When children are raised within Chinese entrepreneurial parents prefer to show interest in the family estate, inheritance from the parents usually proceeds smoothly among the family. There may not be a need to completely alter family tradition, but an adjustment to the modern age may also assist in improving family business relationships. The succession procedure would reduce legal matters, as the distribution of the business would be considered fair.
In spite of Chinese being apart of a very self-preserving culture, many of their family business strongholds are showing a decline (Boyde, 2012). For many centuries the family business concept has proven to be effective. Though in modern times, they may need to convert family business into a more professional environment to preserve business. However, Chinese culture being attuned with the family business model for many years is not a business aspect to be completely replaced or phased out by a professional environment (Carlson, 2012). What they may consider are key components such as the relationships among management, owners, and entrepreneurs. If a family business plans to expand, containing more employees can be a challenge especially if they establish family-owned businesses in other countries where avoiding conformation with variable traditional values will be difficult.
In the 21st century business models are continuously changing. If Chinese prefer to participate as a family business, they need to address a few important issues. Yet, many Chinese businesses are still to employ their own family members who eventually become the entrepreneurs (Lockett, 1988). Secondarily, they hire relatives and close family friends who most likely over non-family members land the higher-ranking positions to magnify the social environment in the family business. Managers and non-managers are diverse in the roles and responsibilities, not only in performance, but also in their philosophies about patience, persistence, and preferences.
Hence, Chinese entrepreneurs can learn from other family businesses worldwide. They mostly have planning ability but do not understand how to execute the plan (Shul, 2009). Otherwise, their instinct for planning can be used to solve the problem with continuing with the family business. This century (21st century) is a time period Chinese entrepreneurs can look forward to in preparing for their families (Ran & Jing, 2013). For centuries Chinese families have highly demonstrated how family unions are powerful and hold the meaning of business models overseas. Harmonizing the business can only be achieved by harmonizing the family. The next step for Chinese family-owned businesses is to re-enact their overseas prosperity on their homeland.
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