1.

2 The Chinese Family Business The first set of theories assumes that there is a distinct and more or
less stable form of management within ethnic Chinese family firms. This specific type of firm is
termed the Chinese Family Business (CFB). Family firm research explicitly recognises the special role
of the controlling family, which often participates in the management of the firm.5 If the ownership,
control and leadership are combined, it enables a very powerful leadership role for one or more
family members. Contrary to managerial firms, where the manager is not the owner, family firms do
not have to align the interests between managers and shareholders (agency problem) since these
roles are combined in one family.6 The family leader, with his or her unique position of power, may
profoundly influence the corporate strategy of the firm. In many Asian family firms, with a tradition
of hierarchy and respect, family firm leaders are often patriarchs with strong control over all
operations. This family leadership role gives continuity to the firm since the leadership changes
perhaps only with the passing of the generations. As is the case in all family businesses, ethnic
Chinese family firms are strongly influenced by the internal dynamics within the family. Many ethnic
Chinese firms are known to have fallen apart as a result of internal family conflicts, particularly with
the arrival of a new generation.7 Those that have successfully managed the generational transition
have done so by adopting new strategic ideas and new challenges.8 Given the strong role of the
family in the firm, their values are argued to be essential for corporate strategy.9 There are
numerous studies on the particular characteristics of ethnic Chinese family firms.10 This model is
sometimes called the Chinese Family Business, or CFB11 or more broadly ‘Chinese Capitalism’.12 The
fact that it was called a Chinese 16 THE RHYTHM OF STRATEGY model already indicates that
researchers tended to look for intrinsic qualities in Chinese businessmen. What are these Chinese
values that influence a firm’s strategy? Extant research emphasises the influence of Confucian values,
in particular the social norms for different types of relationships. Hofstede and Bond describe four
key principles in Confucian societies: 1. the stability of society is based on unequal relationships
between people; 2. the family is the prototype of all social organisations; 3. virtuous behaviour is
treating others as you would like to be treated; 4. virtue with regard to one’s task in life consists of
trying to acquire skills and education, working hard, not spending more than necessary, being patient
and persevering.13 It is argued that Confucian values play a central role for entrepreneurs of Chinese
descent and guide them when doing business. Hence, it is believed that the Chinese have a
preference for patriarchal family businesses with a frugal mentality. Businessmen of Chinese descent
are argued to value trust in relationships with others. A typical list of ‘Chinese’ family business
characteristics is available in table 1.1. Other authors have given similar accounts of what constitutes
the Chinese Family Business.14 The ‘Chinese culture’ argument has been very important in studies of
ethnic Chinese business. As Ruth McVey15 puts it: ‘The arguments explaining the Chinese’ continued
centrality to the region’s economy, while they may take note of historical and economic factors, tend
to find the principal reason in culture: roughly, that Southeast Asia’s Chinese have a value system
which elevates business success and promotes business-like behaviour, while the indigenous
populations do not’. There is now increasing criticism of this ‘cultural’ model of Table 1.1
Characteristics of Chinese Family Business Characteristics 1 Small scale; relatively simple
organisational structuring. 2 Normally focused on one product or market. 3 Centralised decision-
making, with heavy reliance on one dominant CEO. 4 Family ownership and control. 5 A paternalistic
organisational climate. 6 Linked via strong personal networks to other key organisations such as
suppliers, customers, sources of finance, etc. 7 Normally very cost conscious and financially efficient.
8 Relatively weak in terms of creating large-scale market recognition for own brands, especially
internationally. 9 Subject to limitations of growth and organisational complexity due to a
discouraging context for the employment of professional managers. (There are now some exceptions
to this). 10 A high degree of strategic adaptability, due to a dominant decision maker. Source:
Redding (1995, p. 64) INTRODUCTION 17 Chinese family businesses. It would set the Chinese apart
from the indigenous populations as these explanations quietly assume that the Chinese have
superior business values. Moreover, by linking the Chinese family business to a more or less stable
set of cultural characteristics, many authors tended to pay less attention to the rapid changes that
have occurred within ethnic Chinese firms, especially within those family businesses that were
successful and grew substantially. Critics of the cultural perspective argue that it ignored important
changes within ethnic Chinese firms, such as growth and diversification over a number of decades,
thus increasing the complexities of running the family business and calling for new and more
sophisticated management strategies.16 With increased size, these businesses moved away from the
simple structures, hired professional non-family members as managers, implemented pyramid
structures,17 and used the stock exchange to satisfy increasing capital requirements for
expansion.18 Although some businesses sold majority stakes of their companies to the investing
public, many ethnic Chinese families keep control over their groups through pyramid ownership
structures that ensure majority control rights, although not always substantial rights to the economic
fruits of the business.19 With expansion, which forced new management approaches and
organisational structures, usually came internationalisation, which added another layer of complexity
to the family business.20 Furthermore, events such as the Asian Crisis, and trends such as the world-
wide globalisation processes21 and the rise of the Chinese economy22 also exercise a strong
influence on the strategy of ethnic Chinese family business. Given these changes, is the cultural view
on the traditional ‘CFB’ which characterises it as based on paternalism, family ownership, control,
personal networks, adaptability and simple organisational structures, still valid? One of the questions
this study seeks to answer is how many typically ‘Chinese strategies’ today’s large ethnic Chinese
family business groups have.