Wealthy second generation receive lessons in how to keep the family firm vibrant

Whether they were born with silver chopsticks in their mouths is moot, but we can be sure that they have led very comfortable lives, received the best education and wanted for nothing materially.

These are the children of the first batch of China's private entrepreneurs who have grown immensely rich since reform and opening up began in the late 1970s. As these business people have approached, reached and passed retiring age, their children, many born in the 1980s, have been groomed to take over the family business.

Because private businesses did not exist in China during the planned-economy era, from 1949 when the People's Republic of China was founded to the late 1970s, private businesses that have appeared since 1980s are totally new.

Most of the rich private entrepreneurs in China are pioneers of their family businesses, meaning their wealth has been in the hands of two generations at most.

As Chinese entrepreneurs prepare to pass their wealth to their offspring, questions often surface about what form the family business will continue in and the risks that it will face after the reins change hands.

Beijing Huashang Institute of Management, a training body mainly for private enterprises, says that over the next five to 10 years, 3 million Chinese businesses will come under new leadership and that as many as 90 percent of bosses of private companies hope to pass them to their children.

The methods of grooming successors include sending them to top-notch schools and universities and throwing them in at the management deep end and trusting that they will swim. One group of 13 young business people, all in their 20s or 30s, chose another path recently, traveling to Britain to see how its family firms run their businesses and handle the matter of succession.

"Visiting and learning from British family firms was a good way to give us more practical experience," says Ling Chao, 35, vice-president of Orient Holdings Group of Shanghai. Ling has been involved in the family business since he was 23, when he chose to work in the financial department after graduating from university in Xi'an, capital of Shaanxi province. Now the business includes investment, asset management, trade and infrastructure construction.

"Most British family firms have a long history and their own business culture, playing important roles in the British economy in stability, creating jobs and the entrepreneurial spirit," he says.

The trip was organized by the China-Britain Business Council and the Relay China Youth Elite Association, an NGO that gives young entrepreneurs and successors in private business a platform to exchange business ideas, improve themselves and network.

Chen Hao, founder of the Relay China Youth Elite Association, says: "The young generation of Chinese entrepreneurs has an extensive international education and broad horizons and easily adapts to new ideas, so learning management experience from their foreign counterparts is highly useful."

At Berry Bros & Rudd, Britain's oldest wine and spirit merchant, the Chinese businessmen learned that the family firm has traded from the same shop for more than 315 years. They also learned that Berrys first supplied wine to the British royal family during King George III's reign and has continued to do so until now.

"It is particularly interesting that Berry Bros & Rudd successfully switched from supplying fashionable coffee to wines and spirits," says Han Nianshi, chairman of Suzhou Parsun Power Machine Co Ltd, an outboard engine manufacturer in Suzhou, Jiangsu province that exports to Asia and Africa.

Han, 27, studied in Canada and took the reins of the company when he was 22. Last year Forbes China ranked him as the second youngest on its list of China's richest men under 30.

"The management of this company certainly knows how to run a business and develop it in step with the times," he says. "It's very professional."

At Fleming Family & Partners, Matthew Fleming, the fifth-generation of the Fleming family, told the Chinese businessmen the story of his family. Matthew Fleming is now a director of FF&P Private Equity, FF&P Wealth Planning and works across the group developing business and relationships.

Ling says the tenacity of the Flemings and their ability to reinvent the business is impressive. In 1873, Robert Fleming, a Dundee merchant, started a bank after spotting an opportunity to invest in the nascent railways of the United States. In the 1970s the family, advised by a veteran financier, decided to sell the bank to Chase Manhattan bank for 4.9 billion pounds ($7.7 billion; 5.8 billion euros), at what proved to be the top of the market.

It was a controversial decision, Ling says, but "the Fleming family's most important requirements for every generation are the strong interests and sense of family business, sense of historical mission, sense of honor of the family".

"They have formed a well-developed family inheritance mechanism," Ling says.

British family firms have perfected methods for selecting successors and succession teams, and benefit from modern business management, he says, all of these promoting continuation of family businesses and the development and innovation of technology.

When it comes to Chinese young rich second-generation entrepreneurs, Ling says, "we should remember that honor and responsibility are very important".

"Honor is created and built up by our fathers' generation of entrepreneurs by overcoming difficulties, and responsibility will help us carry forward the spirit of entrepreneurship and further develop business."

Han echoes Ling. "The visit broadened our horizons and gave us a lot of experience. One truth has dawned on me: As the successor of a family firm, you need to think clearly and be farsighted, doing your best to pave the road for future successors."

Martin Hang, 28, publisher of the magazine Fortune Generation, which focuses on the stories of rich second-generation entrepreneurs, says: "Persistence is very important for the second-generation entrepreneurs," says Hang, the product of a rich media family.

Opportunities can sometimes open by switching from one industry to another, even if pitfalls lie in store, he says.

"In a well-developed market like Britain we saw that family businesses are enduring entities that score great successes."

Pedro Nueno, president of the China Europe International Business School, told a forum in June: "The current primary goals for these second-generation family enterprises are business transformation and upgrades, sustainability, accumulation, preservation and the inheritance of family wealth."

Hurun Wealth Report 2013 says the number of Chinese millionaires - those with a personal wealth of 10 million yuan ($1.63 million) or more - has increased to 1.05 million this year, 30,000 more than a year earlier.

The number of the super-rich, those with personal assets worth more than 100 million yuan, has risen by 1,000 to 64,500.

Experts say it is essential that both generations prepare for the transition gradually. Business techniques, including management skills, leadership principles, financial management and a management philosophy, should be passed from one generation to the next, they say.

Looking at the experience overseas will also help teach China's rich second generation how to understand the differences between themselves and their parents, they say.

The rich second generation have their own views on their fathers' careers. They say the sound environment created by reform and opening-up, opportunities and proper management were among the three most important factors that contributed to their fathers' success. And they attribute their fathers' success to their hard work and hardship endurance.

Roger King, director of the Tanoto Foundation Center for Asian Family Business and Entrepreneurship Studies at Hong Kong University of Science and Technology, says: "Convincing the older generation to change has always been a challenge for the second generation, who need to find an appropriate way of communicating with their parents to help them understand modern business concepts."

As long as the younger and older generations have the same goal of preserving "wealth, legacy and harmony", they will be able to find a balanced way to create a smooth line of succession for the family businesses, King says.

In China, the rich second generation's life experience, which is unlike that of hundreds of millions of their peers, and family background inevitably make them the focus of attention.

Unlike their parents, who built their wealth from scratch, those of the second generation are often criticized for inheriting huge assets and are labeled as a generation with less responsibility and an inclination to hedonism.

But Chen says members of the Relay China Youth Elite Association do not sit idly by and enjoy the fruits of their parents' work. "Young successors are under more pressure because they have high beginnings," he says.

"We want to prove that the generation of the young rich can do family business well, contribute to society according to their abilities, and help with continued robust economic growth for China."

Yu Ran contributed to this story.

Contact the writers through zhangchunyan@chinadaily.com.cn

Young Chinese entrepreneurs who traveled to Britain recently on a tour conducted by Fleming Family & Partners of London. Provided to China Daily

( China Daily European Weekly 09/13/2013 page14)