12 Apr 2016
FAMILY businesses play an integral role in many of Asia's economies. Singapore is no exception. Over 60 per cent of the companies listed on the Singapore Exchange are family businesses. They are represented in diverse industries ranging from commodity, construction and property, to finance, food and beverage, hotel, manufacturing and services.
What contributes to the sustainability of these family firms? There are three key factors: culture and values, professional management and business transformation
Culture and Values
A recent survey by the Business Families Institute @ Singapore Management University (BFI @ SMU) and Deloitte on Asian Business Families Governance: Crossing the Chasm for Inter-Generational Change found that culture and core family values are fundamental in shaping the identity and strengthening the foundation of the family and the business. The unwritten family norms and values serve as the beacon to keep conflict at bay and to maintain harmony. The survey results revealed that the family business is a great source of pride for the family and family members experience a great deal of loyalty and satisfaction from being linked to the business. About 85 per cent of family members surveyed affirmed that they care about the fate of the family business and 76 per cent feel loyal towards their family business.
In a separate BFI survey supported by United Overseas Bank (UOB) on Riding on Asia's Economic Transformation - Growth strategies of Asian business families, it was revealed that more than 80 per cent of Asian business families place great emphasis on the values of commitment, integrity and trust.
Take YCH Group for example, its corporate philosophy is to be Reliable without compromising on Integrity, to be Sincere in the caring of their staff and clients, and to be Enterprising in the business (also known as RISE). Founded in 1955 as a passenger transport company, YCH, which celebrated its 60th anniversary last year, is now the leading supply chain partner to some of the largest multinational corporations.
Pacific International Lines (PIL) is another case in point. PIL is a global shipping conglomerate incorporated in Singapore in 1967 and one of the largest ship-owners in South-east Asia. Each of the blue wave-lines on its striking red-and-blue logo represents a core value that stakeholders identify PIL with: Relationship-centric, Integrity, Flexibility, Result-oriented, Collective-vision and Entrepreneurship, while the red PIL acronym represents the shipping line from Asia.
As the underlying foundation of the culture of a family, values act as the moral compass to direct the actions of the family and the business. Eighty-four per cent of the respondents in our research on Asian Business Families Governance said that they are willing to put in more than the requisite effort to ensure family business success. They are proud of what their founding fathers have built and they aspire to continue their legacy. With new generations entering the family business, it is thus important to ensure that these values serve to bind the diverse interests of all family members.
Professional Management
The Riding on Asia's Economic Transformation research found that two-thirds of Asian business families are focused on attracting talent for long-term sustainability so that the business can transition successfully from one generation to the next. Business families recognise the need to attract external professional managers and outside talent, and to tap them, mainly in the areas of financial management, regional expansion, technology and human resource capabilities.
Asian business families appreciate the value that professional managers bring even as they focus on developing competent family members as successors. An example is healthcare provider Health Management International Ltd (HMI), established in 1998. It recently appointed a non-family professional, Boon San, to hold an important leadership position. Before joining the group, Boon San held key managerial positions in Sun Microsystems Asia South, Oracle APAC System Channels and Microsoft APAC Public Sector. The next-gen family members, Wei Jia and Wei Yao, are working closely with Boon San and other professional managers to drive HMI's growth strategy.
BP de Silva is another example. Founded by Balage Porolis de Silva in 1872 as a jewellery manufacturer and retailer, BP de Silva has since grown across a multitude of industries. The group comprises subsidiaries BP de Silva Jewellers, RISIS, Tea Tang Pvt Ltd and The 1872 Clipper Tea Company. Navin together with his two younger siblings, Rehan and Shanya, are involved in different businesses in the group and are currently being mentored by their father, Sunil Amarasuriya, to be the group's fifth generation of leaders who would eventually take up positions on the board. All subsidiaries under the group have been professionally run since the early 1990s.
The engagement of non-family professional managers not only helps to sustain the business, but also brings invaluable experience and expertise from outside the family structure.
Business Transformation
Our Asian Business Families Governance research reinforced that business families are adopting a long-term management approach as more than 80 per cent of respondents cited sustainability as a priority for their business growth strategy. In particular, business families in Singapore are the most focused on the long term, with 84 per cent placing the highest priority on maintaining the stability and continuity of their business.
Some 80 per cent of those surveyed reinvested the corporate earnings back into the business. Reinvestments allow for business improvements such as upgrading of equipment, improving customer support, enhancing market, product expansion and innovation - all of which help the family business expand and be better positioned for success and sustainability in the long term.
Take Sing Lun Holdings. Started in 1951 as an importer, exporter and wholesaler of textiles, Sing Lun has since transformed from an OEM apparel manufacturer into a full-service provider of apparels, including design, development, manufacturing and supply chain management of a diverse range of apparel products. Automation is the driver that continuously takes the company's operations to new levels. By employing the latest innovative garment manufacturing technologies, the company was able to attract new customers such as The North Face and Under Armour. With its headquarters in Singapore, Sing Lun today operates six manufacturing facilities in Vietnam, Cambodia, Indonesia, Sri Lanka, China, and Malaysia.
Similarly, Grandluxe Pte Ltd, which was founded as a small bindery workshop in 1945, now supplies premium diaries, gifts and accessories to major wholesalers and retailers worldwide. It has production plants and facilities in Singapore, Malaysia and sales/marketing offices in the UK and the USA. Its first transformation took place in 1980 when Grandluxe upgraded 60 per cent of its production processes through automation. Then in 2014, Grandluxe introduced its first B2C Concept Bynd Artisan - an experiential retail space that leverages its heritage and skilled craftsmen, and engages the young and trendy through the option of customisation in stationery products.
Preparing for succession early increases the odds for family business sustainability. Succession represents a critical turning point for most family businesses, and it may take 5-10 years before a successor can take over the reins. This can only be carried out through diligent planning with clear goals, and by tapping on the talents of both family members and non-family professionals. For all family businesses, hard work is needed not only to ensure that the business grows sustainably, but also to build harmony so that the family stays together even as the business transforms over time.
Annie Koh is the vice-president for business development and a professor of finance (practice) at the Singapore Management University (SMU). She is also the academic director of Business Families Institute@SMU. Esther Kong is the deputy director of Business Families Institute@SMU.