The Quandary Facing China’s Second-Generation Entrepreneurs
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2016-05-10 08:00:29

The younger Ke is a model child. He always keeps his crisp white shirt tucked smartly inside his suit trousers, one button left unfastened at the collar. His family runs a high-end Cantonese restaurant chain which enjoys great renown across many cities in China, including Beijing and Shanghai.

When he returned from his studies abroad in Australia five years ago, his father installed him as in one of the restaurants as assistant manager. Two years later he was regional manager. 

His father completed the handover package last year when he appointed his son both legal representative and company chairman of the board.

“Mr. Wu,” the young Ke asked me one day, “Do you want to know why my father handed these two positions to me? He told me, ‘If you slip up I can still help you get back on your feet, but if I slip up, both of us are done for.’”

But the question is, will the second generation be able to cope with difficulties inherited from their parents at a crucial point in time when both business and the industry in general are experiencing fundamental transformations?

For the moment, the younger Ke publicly runs the company while the elder Ke quietly pulls the strings. But the father has an unusual temperament. Whenever someone commends his son, there is an inevitable dressing-down later on.

“He’s worried I’ll become complacent by the compliments, but I’m 30 years old now. I have my own ideas about management and I need to build my own team. He won’t stop worrying,” the young Ke told me.

A similar story befell the Li family, who run a textile printing and dye business. The company was founded by his father, who was among the first-generation rural entrepreneurs and who had become an extremely well-known figure in the eastern Chinese provinces of Jiangsu and Zhejiang.

The younger Li and I are the same age. After graduating from vocational college he entered the factory where he spent the better part of the next 10 years working away tirelessly on the production line, his father having given his word that he would pass the mantle upon reaching 60.

But at 59 years old, the elder Li evidently had no intention of stepping down. Since the son knew I was on good terms with the father, he asked me to try and find a way of bringing up the matter with him.

The father seemed to know the reason for my visit the moment I entered his office. Mid-conversation he commented out of the blue, “Recently I came across a line I really like: ‘A soldier does not cease to be a soldier until he reaches the grave.’”

Six months afterward the young Li threw an enormous dinner party to celebrate his father’s 60th birthday. The following day the son resigned, headed south, and set up a magnetic materials company with 20 million yuan he had managed to secure from the family business. Later, he branched out into property and finance and 10 years on he has successfully carved out his own kingdom.

When China began internationalizing in the 1980s, many of the country’s citizens began building what would become successful businesses. A couple of decades later and China’s industries were booming. This was a generation of entrepreneurs, but fundamental transformations in the market in recent years have meant that a large number business owners of the older generation have collectively encountered a period of tension.

Many have found their traditional modus operandi to be ineffective, and this has prompted some parents to invest all their hope into a strategy based around their children bringing the business into the modern world.

But the question is, will the second generation be able to cope with difficulties inherited from their parents at a crucial point in time when both business and the industry in general are experiencing fundamental transformations?

Cases of family business handovers indicate that the most successful situations tend to take place under one of two sets of circumstances. The first occurs when the takeover happens during a period of sustained growth with the industry. A long time spent shadowing and learning on the job eases the children into the role, leading to a smooth transition. The other occurs when those in the second generation launch their own companies and learn through personal experience before taking over the family business at a later time.

But there is also a third model. The Wei family manage a sports clothing empire currently listed on the Hong Kong stock exchange. In university the son was under strict orders to major in fashion design. Since graduation, he has worked in two design companies in Singapore and Japan. His father recently called him in for a talk and asked him to take over the family business.

The young Wei told me, “It’s an impossible legacy for me to inherit. The company’s performance has been consistently low over the last few years because of the influence of e-commerce, and we are closing more shops each week. Middle and senior management is filled with the people who struggled through the ups and downs alongside my parents over the past 10 years, and they are set in their ways. It’s simply not possible for them to sit with me and have a constructive meeting.

“But my parents are pinning all their hopes on me. Their strength is drained, and they admit that they don’t understand young people these days, or new ways of doing things. They hope I can take on the business so that I can turn it into a successful online retailer, but I just don’t know if I can achieve that.”

Compared with the two ideal handover models, the situation facing the Wei family is undoubtedly the riskiest of all. There is a distinct possibility that the crisis faced by the older generation will be directly transferred to the younger generation, and this may end in bitterness or resentment within the family.

I’ve been asked many times in recent years how I view second-generation entrepreneurs. I believe that since most of them are “first generation” when it comes to globalization and the internet, they often outdo their parents in the scope of their vision, their body of knowledge, and their values. They prefer to enjoy life and understand the importance of a good work-life balance. The loafers — those who end up as thorns in their parents’ sides — are a minority.

Meanwhile, the scrutiny they are subjected to by their families and the challenges they face have never been experienced by the first generation, and thus cannot possibly be comprehended by their parents.

The older generation’s unrealistic expectations of seamless handovers coupled with misunderstandings because of age differences mean that familial conflicts may occur in greater frequency among the wealthy classes than ordinary households. Furthermore, the conflicts may manifest themselves in a more serious and harmful way since the stakes — that is, the family lifeblood: the business — are higher.

Another peculiarly China-centric issue is that the vast majority of those born during the 1980s and 1990s are children of the one-child policy, making the conflict all the more unavoidable since the family only have one child to inherit the business.

Many children stumble when trying to recreate the success of their fathers’ generation. This has created two primary scenarios. The first occurs when children, like the young Ke or Wei, enter the family business, but cannot put their talents to use or are assigned a task they couldn’t possibly accomplish. But the second scenario — and perhaps representative of the greatest number of cases — is when the second-generation children decline to enter the businesses, and instead settle for an easy life wheedling away their parents’ money in the investment markets.

How things will turn out is unclear as of yet. But how the second generation responds to the quandaries facing them will have a decided influence on China’s future.

(Header image: The reflection of two men is seen in the window of an office building in the central business district, Shanghai, Oct. 15, 2012. Yang Shenlai/Sixth Tone)