The Dragon Network

Inside Stories of the Most Successful Chinese Family Businesses

A. B. Susanto, Patricia Susanto

• Publisher: Bloomberg Press
• Year: 2013
• Print ISBN: 9781118339374
• eBook ISBN: 9781118339404
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

What's driving the burgeoning global Chinese family businesses?

Chinese family businesses are the driving force behind Asia's economic prosperity. As the world becomes more global they have had to adapt to the new environment. This timely book draws on an extensive regional survey to reveal the key players and the strategies that will drive their success going forward. The book discusses and analyzes the business life and achievements of some prominent overseas Chinese family businesses in Asia and reveals their life philosophies, their business journey, and their family role in business.

• Includes analysis regarding how the senior Chinese generations prepare their children to run the business in the future
• Reveals that flexibility, ability to adapt to changing business environments, and resilience contribute to the success of many overseas Chinese family businesses
• Offers illustrative examples of successful family businesses from Malaysia, Indonesia, The Philippines, and China

Based in solid research and filled with illustrative examples, The Dragon Network offers an inside look at how family businesses succeed and thrive in Asia.

Chapter 1

Revealing Fast-Growing Overseas Chinese Family Businesses

In every country or region, there are always people who move and live outside their area for many reasons. Chinese people are no exception. Many of them have left and then lived outside of China. These people are known as overseas Chinese. The word “China” as denoted here includes the People’s Republic of China (also known as mainland China), Taiwan, Hong Kong, and Macau. Hong Kong and Macau are part of the People’s Republic of China, while the status of Taiwan as a state is still disputed.

Many Chinese people migrated to various regions in Southeast Asia, North America, Australia, Europe, Latin America, and Africa. These people then created a community in every place in which they settled. Many Chinese people left their home country due to political instability, wars, starvation, poverty, and rampant corruption. Most of them were poor, were poorly educated, and were illiterate. Many of them worked as a laborer for low wages.

Between 1840 and 1940, about 20 to 22 million Chinese people left their country to live in other regions, according to McKeown (2010). Southeast Asian countries such as Malaysia, Singapore, Indonesia, Thailand, Vietnam, and the Philippines became their main destinations. Most of these people found work in mines and on plantations. About 75 percent of them then went back to China once their contracts had expired, while the rest stayed and started to build small family businesses. These businesses served as the middlemen in export and import activities, connecting local markets, as well as Southeast Asians.

Currently, there are about 50 million overseas Chinese people around the world. Most of them live in Southeast Asia, and location proximity might be the reason why most of these Chinese people chose to move to this region. Singapore is the only country in the world outside of China where ethnic Chinese constitute the majority of its people. In countries such as Malaysia, Indonesia, Thailand, the Philippines, and Vietnam, overseas Chinese make up a large minority. Many overseas Chinese come from regions such as Guangdong, Fujian, and Hainan, and most work in the area of commerce and finance, where their contribution to the economic development in this area is very significant. This is different with overseas Chinese living in North America, Europe, and Australia, where their professions are varied, such as lecturers, doctors, and artists.

Migration by Chinese people to western countries—such as the United States, Canada, Australia, New Zealand, and Europe, as well as to Latin American countries such as Mexico, Peru, and Panama—began in the 19th century. Nevertheless, their number was much smaller compared to those moving to Southeast Asia. In 2010, for example, in Germany the number of ethnic Chinese was about 76,000 people. In Austria, the number was about 15,000 to 30,000 people.

The number of overseas Chinese in South Korea was less than 30,000 people, according to Hyung-Jin (2006). Recently, the Chinese government has made an effort to strengthen their relationships with African countries, along with the continent’s higher economic growth. Many Chinese companies are involved in infrastructure development, and Chinese people can be found in African countries such as South Africa, Nigeria, Namibia, Zambia, Algeria, and Angola. In Russia, the number of ethnic Chinese in the Far East region has increased significantly. In 2006, the number was almost 1 million, while in 1989 the number was 2,000. In the next two to three decades, Chinese are expected to become a dominant ethnic group in the Far East region.

Overseas Chinese often transfer money back home to improve the living conditions of their family and relatives. Overseas Chinese also play an important role in the rising economy of China. Many of them have set up businesses in the country, which has now overtaken Japan as the second largest economy in the world.

For Chinese, ethnic background is usually more important than nationality or citizenship. Someone is considered Chinese if he or she is of Chinese descent, regardless of where they live. And he or she will be classified as overseas Chinese if they live outside China.

Assimilation

Assimilation refers to a situation where newcomers that have different cultures arrive in a new place. In the next stage, both newcomers and the host society contribute some of their cultures and create a new society with a new culture. Communication plays an important role in shaping the new culture. This process takes place gradually, and the degree of assimilation varies. Full assimilation occurs when the differences between newcomers and the host society no longer exist.

Overseas Chinese vary widely regarding their degree of assimilation with the host society. The most successful assimilation happens in Thailand. King Rama I, the founder of the Chakri Dynasty and the current monarch, is half Chinese. His predecessor, King Taksin, is the son of an ethnic Chinese from Guangdong province who migrated to Thailand. King Taksin’s mother, Nok-iang, is a Thai. In Burma, overseas Chinese adopt Burmese culture while at the same time maintaining their culture and tradition.

In Indonesia, Singapore, Brunei, and Malaysia, overseas Chinese have a strong and visible cultural identity, and the same thing often happens in western countries. In the Philippines, there is a difference in the degree of assimilation between the younger and older generations of overseas Chinese. While younger generations can assimilate well, the older ones still consider themselves outsiders.

Discrimination

Discrimination is the prejudicial treatment of individuals based on their membership, or perceived membership, in a certain group, such as race, ethnicity, religion, skin color, etc. It involves the group’s initial reaction or interaction, influencing someone’s behavior toward the group, restricting members of one group from opportunities that are available to another group, leading to the exclusion of the individual or group based on logical or irrational decision making.

Most of the early generations of Chinese immigrants were economically poor, with little or no access to economic resources and job opportunities. They also had to deal with uncertainty and hostile receptions from the host communities. Later, many overseas Chinese also experienced discrimination and restrictions (although most of the discriminatory and restrictive practices now have been abolished). In North America, for example, many of the overseas Chinese who worked on railways in North America in the 19th century suffered from racial discrimination in Canada and the United States. Although discriminatory laws have been repealed or are no longer enforced today, both countries had at one time introduced statutes that barred Chinese from entering the country, for example, the United States Chinese Exclusion Act of 1882 (repealed in 1943) or the Canadian Chinese Immigration Act of 1923 (repealed in 1947).

In Southeast Asia, ethnic Chinese faced restrictions in countries such as Malaysia and Indonesia. In Malaysia, there are policies which give Bumiputeras (the Malays) privileges over other ethnicities. Such policies have lasted for about four decades, and are generally called affirmative action. Affirmative action is provided in the form of the Malaysian New Economic Policy or what is now known as the National Development Policy. Under this affirmative action policy, ethnic Malay are given many concessions, such as 70 percent of all of the seats in public universities, all initial public offerings (IPOs) must set aside a 30 percent share for Bumiputera investors, and financial support is provided to Bumiputeras if they want to start their own businesses. Malaysian Chinese are considered “non-bumiputera” and hence cannot enjoy these concessions.

In Indonesia, in the new-order era under President Suharto, expressions of Chinese culture through language, religious activities, and traditional festivals were prohibited. Ethnic Chinese were encouraged to change their names into Indonesian names. In 1998, when Bacharuddin Jusuf Habibie became Indonesia’s third president after Suharto resigned, he issued two presidential instructions. The first was the abolishment of the terms pribumi and non-pribumi (indigenous and non-indigenous) in official government documents and business. Second, the ban on the study of Mandarin Chinese was lifted. The 1996 instruction that abolished the use of the Indonesian Citizenship Certificate (Surat Bukti Kewarganegaraan Republik Indonesia or SKBRI) to identify citizens of Chinese descent was also reaffirmed. In 2000, Abdurrahman Wahid, the new president, abolished the ban on public displays of Chinese culture and allowed Chinese traditions to be practiced freely. Two years later, President Megawati Sukarnoputri declared that the Chinese New Year would be marked as a national holiday beginning in 2003. In 2006, the legislature passed a new citizenship law defining the word asli (“indigenous”), in the Constitution, as a natural-born person, allowing Chinese Indonesians to run for, and to be chosen as, president. The law further stipulates that children of foreigners born in Indonesia are eligible to apply for Indonesian citizenship.

Nevertheless, the discriminatory policies were limited only to politics. In economic and business areas, ethnic Chinese were still able to engage in their activities more freely. Many of them established new businesses, which would later play an important role in the economies of Malaysia and Indonesia.

Background of the Overseas Chinese Family Business (OCFB)

In every place they settled, Chinese immigrants always created a society where they could help each other. For example, they lent money to each other, since most of them were very poor. This money was used for specific purposes, such as establishing new businesses. The majority of overseas Chinese businesses are family owned, and family, knowledge, contacts, and trust are crucial.

Many OCFBs were able to develop beneficial relationships with their customers, local businesspersons, government institutions and officials, and people from outside the government. This enabled them to reduce cost and expand their businesses.

Most overseas Chinese family businesses diversified and expanded their business by following the development of products, services, and technology in the local, regional, and global market. These products, services, and technology were then adapted and offered to the local market, both in rural and urban areas, as well as to other countries. Many of them started with trade before diversifying to other sectors such as real estate, transportation, financial service, manufacturing, etc. Being involved in joint ventures and strategic partnerships with foreign companies helped OCFBs develop their global knowledge. They reinvested their growth surplus not only in the local market, but also in their country of origin and other countries.

Through collaboration and partnership, Chinese family businesses were also able to strengthen their position in specific markets. They did this by controlling manufacturing, trading, wholesaling, retailing, financing, and logistic activities. After earning enough money, the founders of Chinese family businesses send their children, who are expected to take over the businesses one day, to study in reputable higher institutions around the world. They hope their children will gain modern knowledge and skills that can be useful to the family business.

Strong bonds among Chinese communities in every place they settle have helped many OCFBs to flourish. Many of these businesses are grouped together, based on the market they serve, to strengthen the network and to exchange knowledge and resources.

Overseas Chinese Family Businesses in Southeast Asia

Overseas Chinese play an important role in Southeast Asian countries. In Indonesia, Chinese Indonesians own Indonesian private domestic capital. In Malaysia, the Chinese comprise 30 percent of the population but control 50 percent of the total corporate assets. This is despite affirmative action policies which give Malays special privileges. In Thailand, Thai Chinese society plays an important role in business and politics (most Thai Prime Ministers are of Chinese origin). In the Philippines, Chinese Filipinos make up only 1 percent of the total Philippine population. Nevertheless, they control about 60 percent of the country’s wealth.

As the colonialism era ended, Chinese Diasporas in Southeast Asia quickly began to fill the void in cross-border commerce. They capitalized on their access to cross-border capital, materials, labor, markets, and technology, mainly from Japan (Gupta, Graves, and Thomas, 2010). At the beginning, they structured their companies in a simple way, where the owner decided everything, as revealed by Redding (1995). They also only focused on one product that served one market, as well as built networks with customers, suppliers, and investors. Later, some of them diversified their businesses into unrelated sectors, becoming conglomerates that were united under the control of the family (Weidenbaum, 1996). Usually, in these kinds of businesses the husband and wife shared duties. The husband became the CEO, while the wife oversaw the financial operations by becoming the CFO (Tsang, 2001).

Starting in the 1970s, OCFBs evolved themselves. They did not only act as middlemen, but also started to build manufacturing companies as well. According to Weidenbaum (1996), thanks to their innovative nature, flexibility, high entrepreneurial skills, and spirits, they became the backbone of the Southeast Asian economy. They also created what was later known as the “bamboo network” (we will discuss the bamboo network in more detail in Chapter 8). Thanks to this network, which spread across Southeast Asia, the transaction cost could be reduced, exchanging information about business opportunities was easier, partnerships became more flexible, and barriers to trade could be minimized (Rauch and Trindade, 2002). When many western companies had to be restructured due to stiff competition from Japanese companies, these Chinese family businesses moved quickly to take benefits from such situations.

When the economic crisis hit the Southeast Asia economy in the late 1990s, many OCFBs in the region were badly affected. As a result, they had to restructure their businesses. In addition, many of them also saw the crisis as an opportunity to prepare the younger generation so that they were ready to take over the businesses some day. The founders of Chinese family businesses, who had only limited formal education (some of them only finished elementary school), recognized the importance of education if they wanted their children, as well as their business, to move forward to deal with the new challenges.

Here are some prominent business families in the Southeast Asia region.

Indonesia

The Hartonos

Budi Hartono is from an old, established Chinese family in Kudus, Central Java, which controls P.T. Djarum Kudus, one of Indonesia’s three major cigarette companies. Budi Hartono was chosen by his father—instead of his older brother, Michael Bambang Hartono—to run the business, but they continue to work together. In the 1970s, Budi diversified into electronic assembly, textiles, food processing, and banking. His son, Victor Rachmat Hartono, is the heir-apparent to the family business.

The Riadys

Mochtar Riady is the founder of Lippo Group. He was born on May 12, 1929, in Malang, East Java. The Lippo Group diversified its businesses into manufacturing, real estate, financial services (banking, investment, securities, insurance, asset management, and mutual funds), and infrastructure (power plants, gas production, roads, sanitation, and communication) sectors, which are largely handled by the Lippo Group Hong Kong office. In 1996, Lippo Group acquired 50 percent of retailer Matahari, owned by Hari Darmawan.

Mochtar’s son, James, now runs the family business in Indonesia, while son Stephen takes care of their interests in Hong Kong.

The Widjajas

Eka Tjipta Widjaja was born in 1922 in China’s Fujian province, the son of a trader based on the island of Sulawesi, and established the Sinar Mas Group, which specialized in plantations, pulp and paper, shipping, real estate, financial services, and much more. In the 1990s, he set up two pulp-and-paper companies in Jakarta, as well as Asia Pulp and Paper in New York. He was the controlling shareholder of Bank International Indonesia (which is currently owned by Maybank from Malaysia). Sinar Mas also controls Singapore’s largest food company, Asia Food and Properties. During the Asian financial crisis, Sinar Mas lost its banking and other assets, while Asia Pulp and Paper managed a record emerging markets debt default of nearly US$14 billion in 2001. Despite this, the Widjajas retained control of their businesses. His four sons, Teguh, Indra, Muktar, and Franky, are the main managers of the family business today.

The Liems

Liem Sioe Liong’s Indonesian name was Sudono Salim. He was born in Fuqing, Fujian province, in China in 1916, Liem Sioe Liong’s father was a farmer, and he was the second son. He left Fujian in 1936 to join his brother, Liem Sioe Hie, and brother-in-law, Zheng Xusheng, in Medan, North Sumatra. Salim diversified their peanut oil trading business into the clove market, wh...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Acknowledgments
• Introduction
• Chapter 1: Revealing Fast-Growing Overseas Chinese Family Businesses
• Chapter 2: How Do Chinese Values Support Business Values?
• Chapter 3: Combining Modern Management and Chinese Traditional Values
• Chapter 4: Anatomy of Conflict Management
• Chapter 5: The Succession Conundrums
• Chapter 6: The Role of the Wife in Overseas Chinese Family Businesses
• Chapter 7: Leadership Styles of Overseas Chinese Family Businesses
• Chapter 8: The Importance of Social Organization in Chinese Family Businesses
• Chapter 9: Dealing with Risk
• Chapter 10: Issues on Sustainability in Family Businesses
• Chapter 11: Suggestions for Developing Chinese Family Businesses
• Chapter 12: The Future of Overseas Chinese Family Businesses: Toward a More Global Management Style
• About the Authors
• Bibliography
• Index