Factors lead to Decline of Family Businesses in China

        Factors lead to Decline of Family Businesses in China

1. Introduction

The family business is a business run or owned by members of a single-family. The family business represents the most prominent and prevalent form of innovativeness in the social and economic landscape. A family business can also be defined as the family managed and owned enterprises exercising the managerial and considerable financial control.  The sector of family businesses represents the essential components of the development of private enterprises. The kinship networks of the family serve as the foundation of resources in the development of private enterprises, especially in the event of less constant economic conditions and all the emerging industries.

China has several problems with their family business exactly after18th national congress of the communist party of china in the year 2012. More than half of the children of the china’s entrepreneurs who participated in building the economy of China after the formation of the communist nation to the free market of communist by Deng Xiaoping in 1979, were not willing to proceed their parents in running or managing the businesses. However, they would instead start their companies and ran it for themselves or even joining some other trendy companies such as investment, technology, and banking.

Chinese citizens chose to be entrepreneurs because business is not incomplete by time, space, and location. However, the Chinese knew that company gives several opportunities to improve their lifestyles and also sharpens their instincts on businesses. Furthermore, the market also promises to harvest stability and prosperity in personal life. In managing their family businesses, Chinese citizens encounter two different phenomena, the failure situation and succession story of companies.  In other words, an event many times leads to the fragmentation of a loving family. However, family firms may foster conservative tactical behaviours relatively than innovation and creativity.

• Literature Review
  • Chinese Culture and inheritance

China adopts a patriarchal system of business since 1200AD whereby only first bone sons are with the legitimate wives has the right to inherit all his father’s properties and even have a right to take his father’s thrown. However, the Chinese believe that the firstborn son from the second wife cannot inherit his father’s throne unless the first wife is unable to bear a son. This policy was made in china to avoid the seizing of the father’s properties and thrown. However, the Chinese also believed that their children should inherit their businesses from them, of which their kids ignored and looked for other opportunities.

The sector of family businesses in China has lacked a culture of educating and raising their children in the ways of their own family business culture and telling the natural ways on which they should follow when they grow up. The 18^th National Congress of the communists’ party of china had several objectives, and one of the goals is to change the education system. However, most of the entrepreneurs” children came up with other different ideas and decided to start their businesses and ignores their family’s activities.

When the family is financially stable, the kids have many options and many opportunities for whatever they want to do in life. According to Jinping (2017), wealthy people took their children to study abroad, and then after graduation, they’ll have options on what they have to do next. Also, the family businesses do not excite kids from a wealthy background when they can start, manage, and invest in their own companies. However, cultures are one of the main factors which lead to the recession of the Chinese family businesses after the 18^th National congress of the communist party of china.

2.1 Advancing New Urbanization

Advancing the new urbanization was one of the projects of the 18^th National congress of the communist party. Additionally, it is one of the factors which lead to Chinese family businesses to decline. The report of the 18^th national congress of the communist party contained both old and new ideas of advancing the new urbanization renovating china and also doubling the income of every citizen of China. However, the advancement affected the business in different ways; urbanization is a in which economic resources are distributed from low competence areas to high-efficiency sectors.

The new urbanization in china was coined by Li Keqiang, who officially addressed the necessary reforms of china. Besides, he started the reformation of the registration systems of households and the strategy of changing the living standards of Chinese citizens by increase each and everyone’s income and the transition growth of the country driven by the consumption by citizens. Building beautiful china was one of the goals that the 18^th National Congress of the communist party (NCCP) had. Besides, the NCCP wanted to encompass the environment and political reforms to create a stunning and sustainable development not only in China but in the whole world. 

2.2 Building a beautiful China campaign

The 18th CCP National Congress proposed a gorgeous, exquisite China. General Secretary Xi Jinping also mentioned that individuals wish to steer a much better life, including living during a clean and comfortable environment. The National Congress indeed embraces the people’s collective will. Low-carbon economies, ecological protection, and environmental beautification have already become a tide throughout the planet. To deal with the environmental problem, we must solve the energy issue. As a brand new energy industry, the photovoltaic power industry is both a strategic highland for a brand new wave of international competition and a vital means to create a pretty China. It’s well-known that energy is a fundamental force that drives human development. Men were distinguished from animals the day they learned a way to drill wood to create fire. To date, the production and utilization of fossil energy have significantly shaped the planet.

Comparatively speaking, traditional fossil fuels will soon be burnt up, and that they cause severe pollution. Atomic power can provide lots for energy, but safety could be a significant concern. The Chernobyl nuclear power plant has changed an unlimited area of Ukraine into barren land. The earthquake in Japan demonstrated that the security of atomic power is stringent to make sure, and it takes a protracted time for nuclear radiation and nuclear waste to decay. As long as water flows, it can generate hydraulic power. However, it poses a negative ecological impact. The controversy on the Three Gorges Dam and power station continues to be occurring today. Some people call it a sword hanging over the heads of the Chinese people.

The cascade development on the upper reaches of the Chang Jiang has caused a significant ecological impact. Alternative energy doesn’t cause any pollution. However, it’s restricted to windy areas, and it’s hard to manufacture and maintain the tall alternative energy towers. Solar energy is inexhaustible and doesn’t cause any pollution. Moreover, it’s easy to assemble and install solar panel panels, which may be installed on roofs, walls, in space, and deserts. Therefore, photovoltaic power is a crucial means to unravel the long-run energy problem and build a good-looking China. China’s photovoltaic power industry has undergone a step forward in its growth. Take the Wuxi-based Suntech utility as an example. It was established in 2001 and put the primary line into operation in 2002, which could produce 10 megawatts (M.W.) of solar panels. However, Product capacity was expanded to 150 MW by 2005, 470 MW by 2007, and 1,000 MW by 2010.

In 2011, the corporate put the fourth mechanical system into operation, increasing the assembly capacity to 2,400 MW p.a. Devoting 5% of annual revenues to research and development (R&D), the corporate now has two R&D centres and five global production bases staffed with over 20,000 employees. But now, like China’s photovoltaic power industry, Sun tech Power has also plunged into trouble. The difficulty has two root causes. One cause is the blind development dominated by the government. Spurred by the policies issued by the central government, local governments vie with one another in fixing solar battery manufacturing facilities. Many enterprises in traditional industries, like textile, clothing, home appliances, and conventional power industries, moved into the photovoltaic power industry, giving rise to production capacity surplus. In 2011, the world market capacity totalled 290 MW, but China’s production capacity exceeded 300 MW.

The second cause is dramatic changes within the market. In November 2012, the U.S. made a final verdict to impose a high impost on solar panels imported from China. Now 95% of the polysilicon and 50% of the solar battery production capacity is pack up. Take Sun tech Power as an example again.

2.3 Employee motivation

In a Chinese family, businesses hire new employees to work on their organizations a sequence of employment of clan familiarization processes to clarify different obligations of the original interprets and recruits of his or her duty within the family business. On the other hand, the family businesses in china based their recruitment processes across the tribal line. They believed that their family members should manage their family business. The duty of family members as the employees are expected to work or monetary compensation. However, family employees sometimes get rewarded in no financial terms such as the medical cover, education and diet expenses.

Jinping (2017), pointed out that the Chinese citizens’ majors their trusts on their family members hence employing any other person in their family business was not an easy task for them. Additionally, they believed that a none-family member might interfere with their management systems and even steal their products.  Bizri (2016), thought that if the Chinese businesses could go bent beyond the family members, the culture of the organization would be of low trust. Nevertheless, despite all the Chinese family businesses remaining to be a centralized decision-making process, the founder and the company owners always withdraw themselves from daily management of the business.

To break the trust between the families in the CFBs and the owner of the business, some of the highest-ranking managers of the company are pointed to ran and managed the business. However, the managers are supposed to come from the same family line. It is a tendency that there is an increase in professional management against nepotism. For employees, some of the china family businesses let them get involved in a benefit the family and warm atmosphere just as what the company offers to all the members of the family.

According to Jinping (2017), the best method of governing business is by establishing central or powerful government but through the moral education of people managing the business. In the government of China is a non-action through the solid groundwork of moral influences in the country. Therefore, the motivation towards all the workers in an organization is driven substantially intrinsic by the collectivist nation of the overall failure of a family business and also the overall longevity and future longevity. Lack of employee’s motivation in China’s family businesses was one of the factors towards the failure of the company.

The 18^th national congress of the communist party in China campaigned against industries which made their workers work for long hours but earn a small amount. However, the coming of the National congress party of the communist fought for the rights of all employees. As a result, many of the family businesses failed due to lack of employee’s motivation.

The 18^th National Congress of communist claimed that when employers are paid or motivated, they will always try their best to raise the productivity of the company by all means. Still, when they are not being paid nor driven, they can as well do their best lower the richness of the firm. Therefore, all employees should get a token of motivation from their employers, whether the business is in their family lines or not. There are several themes which impacted the motivation of the employees in the organizations. According to Bozer & Santora (2017), all the employees in an organization have the qualities of diligence, trustworthiness and deduction. Therefore, all the employees should be given equal rights in the company for the daily goals in the company to be successful.

On the other hand, all the employees should be told of the importance of their roles in the company. Nevertheless, all the workers in an organization should be taught how to approve, manage and solve the techniques of the organization. Once, an employee is in a position to manage and solve all the methods within the organization, and there would be a decrease in company loses and an extreme increase of the company income. Also, employees should be educated on how to identify between rivals and clans of the community.  This will assist the employee get an easy time in helping the organization reach its targets.

The familiar and enabling environment offers an excellent culture communication and commitment of the employees in an organization. However, these themes do not observe for the viewpoint of a specific individual faithfulness to the business, but also from the perspective of personal respect to monetary and job security rewards. This will always be concluded that all workers can still be motivated and encouraged to work by putting the interest and the welfare towards the business. Furthermore, an industry can be better run than its competitors while earning monetary compensation and also safeguarding the company jobs for diligent and loyalty work.

3.0 Methodology

3.1 Research Purpose and Question

The main objective of the dissertation is to find out all the challenges the China family businesses had by analyzing the practices and the literature in China family businesses in different areas of succession. However, this chapter contains two research questions;

1. What are the current challenges that China Family Businesses undergo from the perspectives of HRM and perspectives?
2. Is it possible that the China Family Businesses to survive those challenges while preserving their traditional business running ways with the combination of management and the ownership of the companies?

The reason for researching on these questions is that more and more CFBs are facing both succession and HRM problem when they grow up currently. As for succession issue, the influence of Confucianism makes the inheritance of CFBs contain not merely the transition of ownership of company shares, but also the transformation of family business control. Therefore, the succession of CFBs will make a significant impact on the future development of the enterprise, such as the managerial structure and leadership style. Hence the quality of a familial successor is the critical point.

As for HRM issue, CFBs will face the HRM problem in the family business when the number of employees is increasing, such as nepotism and centralized managerial structure. However, Many CFBs may lack enough experiences to cope with these 45 setbacks. Some problem arises thereby: How to bring up a high-quality successor to accomplish a smooth transition? Are there better non-family employees who can motivate techniques? Are there any methods to avoid family break-up after the succession of a family business? And are there any recommendations for improvement to the current managerial structure? These are the significant issues this dissertation is going to explore. This chapter aims to provide a detailed explanation of the methods of research and the rationale of my research plan, which enable the research findings to be more reliable.

3.2 Research Methods

Theoretically, there are two research methods within social science: qualitative research method and quantitative research method. However, both of the arrangements were used in doing researches.

3.2.1 Qualitative Research Method

According to Poza (2013), qualitative research is “an array of interpretative techniques which seek to explain, decode, translate and otherwise come to terms of with the meaning, not the frequency, of certain more or less present phenomena within the social world”. Meanwhile, defined 46 qualitative Research as a kind of inquiry that explores phenomena in their natural settings and uses multi-methods to interpret, understand, explain and convey aiming to them.

Furthermore, Colli (2003), leading qualitative experts have proposed a definition which is taken into account as fundamental and classic: qualitative research is multi-method focused, involving an interpretive, naturalistic approach to its material. Therefore, as Flick demonstrated the qualitative research is inherently multi-method focused, qualitative researchers mainly study things around their natural settings. They fight to grasp or describe the phenomena in terms of the meaning people awaken them. All in all, qualitative research is many things to several people. Because the investigation goes more profound, they concluded the essence of qualitative research: a high commitment to some version of the naturalistic, interpretive approach to its material (Handler, 1994). Thus, qualitative research emphasizes on the processing quality of the research objects. It’s more dedicated to the analysis and evaluation process in the study.

References

Bizri, R., 2016. Succession in the family business: drivers and pathways. International Journal of Entrepreneurial Behavior & Research.

Bozer, G., Levin, L. and Santora, J.C., 2017. Succession in the family business: multi-source perspectives. Journal of Small Business and Enterprise Development.

Campopiano, G., Minola, T. and Sainaghi, R., 2016. Students are climbing the entrepreneurial ladder—International Journal of Contemporary Hospitality Management.

Colli, A., 2003. The history of the family business, 1850-2000 (Vol. 47). Cambridge University Press.

Jinping, X., 2017, October. Secure a decisive victory in building a moderately prosperous society in all respects and strive for the great success of socialism with Chinese characteristics for a new era. In delivered at the 19th National Congress of the Communist Party of China in October (Vol. 18, No. 2017, pp. 2017-11).

Handler, W.C., 1994. Succession in the family business: A review of the research. Family business review, 7(2), pp.133-157.

Poza, E.J., 2013. Family business. Cengage Learning.