The Service that Southeast Asia’s FOBs Provide to their Society
Emerging economies can be the very definition of VUCA (volatile, uncertain, complex and ambiguous). What challenges do family-owned businesses (FOBs) face in furthering economies in emerging markets they operate in?
Family-owned businesses (FOBs) help provide stability and even assist in building infrastructure. While FOBs tend to be less popular in established economies like the US, UK and Japan[i], they play an even more critical role as they form a huge part of the economy in Asia. According to a recent piece in McKinsey Quarterly[ii] , FOBs in Asia are “stronger than their non-family counterparts on several specific management practices, including shared vision, strategic clarity, employee involvement, and creativity and entrepreneurship.” This cannot be attributed to just one reason; rather this is likely because of the long-term view a family business takes, how diverse the business tends to be, and even the family’s values that are reflected in the company.
The older, the wiser?
Hospitality company Hoshi Ryokan, founded in 718, is the third oldest family firm in the world. The company started out as an inn-keeping business and remains the same today. The inn is currently run by the Zengoro Hoshi, the 46th generation, and he is preparing to hand the business down to the 48th generation, his grandson. The family focuses on “providing hospitality and preparing succession for future generations”.
For potential employees, working with a family-owned business can also signal security, especially in less developed economies. In the McKinsey Quarterly article “The family-business factor in emerging markets,” authors Åsa Björnberg, Heinz-Peter Elstrodt, and Vivek Pandit write,
“where the conventions of commercial law and corporate identity are less developed, doing business on behalf of a family can signal greater accountability—the family’s reputation is at stake, after all—and a stronger commitment.”
A family-owned company’s track record with its customers and in its community can represent staying power and showing that they understand the economy within which they operate.
Two examples in Southeast Asia
In 1921, Charoen Pokphand Group (CP Group) was founded in Thailand. What began as a seed trading store for farmers in Thailand, is nowadays one of the world’s largest producers of animal feed and livestock. Furthermore, CP Group’s portfolio also includes food, retail & distribution, telecommunications, e-commerce, property, automotive, pharmaceutical, and financial services.
CP Group is still family run—the founder’s son, Dhanin Chearavanont, serves as Senior Chairman and his two sons, Soopakij Chearavanont and Suphachai Chearavanont serve as Chairman and CEO, respectively.
CP Group also contributes to their community in helping to further the economy in Thailand. One example is how CP Group gained and shared knowledge about shrimp farming in the 1980s. In Archanun Kohpaiboon’s article, “MNEs (Multinational Enterprises) and the Global Integration of Thailand’s Processed Food Exports: A Firm-Level Study,” insight is shared into how CP Group uses its research and development (R&D) findings to help farmers. Though shrimp farming is a controversial practice, CP Group partnered with Mitsubishi Corporation in the 1980s to gain the technology needed to farm shrimp. By entering the partnership, CP Group “maintained international competitiveness while also educating other farmers.” CP Group has also previously practised this by educating farmers on how to process chicken[iii].
Another example of a successful family-owned business is the Ayala Corporation in the Philippines. Their portfolio includes real estate, banking, telecommunications, water, power, infrastructure, healthcare and education, and the group is still family run, with Jaime Augusto Zóbel de Ayala serving as CEO.
The Ayala Corporation helped pave the way—literally— in Manila. They worked with the city on its infrastructure after the Second World War, including assisting with electricity and phone lines, sewage and city planning. In CNBC’s article “Family Businesses Play a Big Role in Development of Asian Emerging Markets,” author Nyshka Chandran also notes, “Several of Ayala’s companies also invest in ‘skilling’ their middle managers in order to address the country’s weak human capital development.[iv]"
The challenges ahead
While family-owned businesses often beget feelings of stability and trust, there may be a limit to how much they can further the economies they are in. Part of this challenge lies within the survival of the company, including successful succession planning and professionalisation.
FOBs will need to balance their threshold for risk in a sometimes volatile market. According to Riding on Asia’s Economic Transformation: Growth Strategies of Asian Business Families, FOBs in Asia tend to have conservative risk appetites[v].
At times, this may cause friction because growth in emerging markets is sporadic and uncertain.
The study also found that family businesses in Asia prefer to innovate through reducing costs, improving product quality and by introducing new products. In emerging markets, innovations are sometimes born out of need. A well-known example is the electrocardiogram backpack developed by GE Healthcare so that doctors could use it to test patients in rural India. While some innovations in emerging markets do reduce cost, this is not always the case and FOBs will need to find a balance.
If they resolve these challenges, FOBs are not only helping their families and their business, but the society that they are embedded in. This is a critical responsibility!