100 Family Businesses Seek “Succession Formula” for Next Generation

11:10:57 AM | 6/28/2019

On the Vietnam Family Day (June 28) in Hanoi, the Vietnam Family Business Council together with the Vietnam Chamber of Commerce and Industry (VCCI) and the Business Forum Newspaper held the third annual event themed “Reality and Solutions for Successful Transfer to Next Generation Career”.

100 largest family businesses contribute 25% of the country's GDP

Speaking at the event, Dr. Vu Tien Loc, VCCI President, said that the family-run business or, more widely, the family economy, is the nucleus of the economy in any country. According to many surveys, 10 largest family-owned businesses in the world today have a total capital of over US$3,000 billion. This means that the family business of the world is bigger than the size of Vietnam's economy. So it is understandable that they are an economy.

Family businesses make up about 40% of the world’s gross domestic product (GDP), including very popular brands like Hermès, Ford, Toyota, Samsung, Hyundai and Estée Lauder, he said.

In Vietnam, 95% of Vietnamese enterprises are family businesses and 100 largest family-run enterprises account for about 25% of the country's GDP. In the list of the 50 best listed companies in Vietnam, many are family-owned and many are classified blue-chip stocks such as Vietjet Aviation Joint Stock Company, Thanh Cong Group and KIDO Group.

Successful experience of family-run corporations in the world also shows assigning managerial positions to family members must be professional. Even if a family member does not guarantee an administrative capacity, it is possible to recruit an outsider for the management position. However, family members will be much more advantageous than outsiders because besides they have family bonds in addition to managerial capacity.

Mr. David Tay, Business Development Director of PwC Malaysia and Vietnam, said that the most fragile time for a family business is when the founding generation hands over its business to the next generation. However, PwC's 2018 family business survey joined by 2,953 respondents in 53 countries showed that only 15% of family businesses have well-planned fortune transfer plans, while the remaining 85% do this with their feelings.

“According to the PwC survey, only 30% of family businesses have been successfully transferred to the second generation, 12% to the third generation and only 3% to the fourth generation and the next. At the same time, when PWC conducted a survey on business transfer plans of Vietnamese family-run enterprises in the coming time, only 57% of respondents will have transfer plans in the next 10 years,” he said.

The successor generation needs to be trusted and empowered

As creators and developers of their businesses, many first-generation entrepreneurs shared their experiences and raised their concerns when they handed over their fortune to F2 generation.

Mr. Pham Van The, General Director of Hoang Ha Group Joint Stock Company, said, although most entrepreneurs direct career path and train their offspring very early, even send them to countries with advanced education, most family businesses still face many hardships in transferring their property to F2 generations and beyond. There are many objective and subjective factors.

“Both my son and daughter are studying finance and marketing abroad. But when they work for my company, my son is very good at financial affairs but he is not good at administration because what he learns abroad is differently applied in Vietnam. Currently, Hoang Ha Group still faces difficulty in transferring its business fortune to the next generation. Previously, I planned to retire at the age of 60 but the transfer is still not successful although I am already 60,” The added.

Sharing the same view with Mr. The, Ms. Ninh Thi Ty, Chairwoman of Ho Guom Garment Group, also said that successors themselves are also under considerable pressure when they take on the fortune from their parents, but the latter sometimes don't understand and sympathize. “I think that our children are under much heavier pressure when they take on a huge fortune which is many, many times bigger than the asset the first generation starts a business. Therefore, parents must trust them and always listen to them. Don't just think they are all favorable,” she noted.

Mr. Pham Dinh Doan, Chairman of the Vietnam Family Business Council, said, for Vietnamese family enterprises to develop professionally and transfer the fortune to the next generation, successors need mentors from their parents and they need authority and confidence to feel that they can do better. In addition to guidance from parents, the attitude of the successor generation will also determine the successful transfer.

Luong Tuan