Emergence of Chinese Family Businesses in South East Asia - Essay Example

Emergence of Chinese family Businesses in South East Asia It is known that early overseas Chinese settlers to South East Asia were chiefly merchants.The economic and social chaos rooted on the invasion of the Manchu near the beginning of Qing dynasty make a large number of Chinese to flee to South East Asian countries. It is also noted that in the 30's and 40's, social instability also caused great migration waves. Philippines, as one of the close neighboring countries of China was affected by this migration waves although; as early as 7th century historical documents confirm that the peoples of China and The Philippines have benefited from wide-ranging economic binds. Over the centuries, these socio-economic affiliations helped ties the Chinese and Filipino in a strong spirit of affinity. In the 21st century, mutual trade and investments provide a solid pillar in the long-standing, friendly relations between the two nations (Philippine Embassy Beijing 2004). In Singapore, there was a phenomenal influx of Chinese migrants during the nineteenth century. Multitudes of Chinese migrants filled the island for commerce and work with the institution of Singapore as a colony of Britain in 1819 (Ee 1961). During this time, secret societies emerged that Chinese migrants became associated with. These secret societies contributed to the development of Chinese businesses in Singapore in early days. Defining characteristics of Chinese Businesses Chen (2001) narrated that around 60 million Chinese people have built communities in countries other than China. They cover a range of ethnic and linguistic subdivisions bound by their common origin, and are collectively known as the Overseas Chinese (Weidenbaum 1996). Although rather small in terms of the entire population of their host countries, they play a vital role in the economic setting of South East Asia, where they dominate a majority of the firms' wealth in the region (Yeung, 1996). According to Tsang (2002 p. 23), these firms are inclined to family businesses, wherein the family holds the majority of higher management positions and also owns control over the firms. The Chinese in the Philippines for example are typically business proprietors and their life evolves significantly in the family business. Most of them are into small and medium enterprises; however, play a significant role in the economy of the Philippines. Some of these entrepreneurs hold large companies and are valued as some of the most well-known Philippine' business tycoons. According to Wong (1985), the traditional Chinese family business (CFB) is "a small-scale, domestically oriented, form of business organization that originated in China several hundred years ago and was dispersed throughout South East Asia by emigrating Chinese minorities in the 19th and 20th centuries". Shapiro and Erdener (2003) modernly called them as the Chinese family enterprise (CFE) in which they defined as "the larger, internationally active, family-owned Overseas Chinese enterprise that evolved from the traditional CFF outside China". Yeung (1999, pp.106-11) narrated that some of CFB turned into CFE that have become famous international conglomerates are Fortune Tobacco under Lucio Tan in the Philippines and the Far East Organization under Ng Teng Fong in Singapore. "Among the Overseas Chinese, family business was evolving in new directions that deviated from tradition and paved the way for international expansion". As they internationally expand, CFEs typically created powers and capabilities in their host markets as the basis for competitive advantages in the foreign country environment. In some South East Asian countries where ethnic discrimination is at large by the dominant cultural group, the CFB expanded their business network beyond the family. This led them to form unions with national governments. The main advantages of the CFE based on characteristics over other form of business structures are listed below. According to Chen (1995), the main lead of the CFE is its capacity to grab commercial portals of opportunity by effective and efficient action solidifying the ability to make deals. This entails recognizing favorable opportunities as they occur, then starting and closing deals very fast. Another important advantage of the Chinese family business is its ability to do business through networks, negotiation and personal relationships (Chen, 1995). Fock and Woo (1998) and Luo (1997) recognized such ability as essential for the success of the Chinese market. The idiosyncratic relational contracting ability of CFE originated from the institutional logic of the CFB system. The relationships through trust required to succeed in uncertain environments are built on maintaining firm control on operations all the time. The CFB system excels in controlling its members. Control runs from numerous bases through which the organization can concurrently raise a variety of equally reinforcing control mechanisms to achieve its objectives. These take in personal, family, cultural, social, and economic controls, in addition to the customary bureaucratic and organizational controls. In the CFB system, organizational volume is normally limited by the size of the family and the accessibility of talent among family members. This is necessary to retain managerial control by the family. As a result, CFB forming CFEs are apt to be smaller than Western MNEs. This can be a cause of competitive advantage on conditions that need centralized control. For example, small size is advantageous in industries in which it is strategically important to maintain tight control over operations, such as when companies must respond very quickly to sudden changes in the market, or where very efficient cost structures are required. However, small size can also be a disadvantage. This can be seen clearly with regard to the problem of succession, which is generally more difficult in a small family business than in a large, non-family firm, because the pool of available talent among family members is itself small. The importance of Chinese family businesses for the economies of South East Asian countries particularly Philippines and Singapore The saga of Chinese businesses continues and is debated to be major contributors for the economies of South East Asia. With the approximated 60 million overseas Chinese scattered almost everywhere in the world and over 50 million of them live in South-East Asia, the figure is not remarkable compared to the entire population in China (Lynn Pan 1999).Although, between 200 billion and 300 billion US dollars in assets is estimated that overseas Chinese hold. Their economic power when calculated together is huge than that of China (Clark 2008). In South-East Asia, the overseas Chinese rule the trading and service industry, and are also key persons in banking and property. The Chinese organized their business and financial networks as family oriented businesses or well known as Chinese family businesses in which Yeung (2004) argued that until now holds the constant significance and practicability of the family firm as the core organizing unit of South East Asian Chinese capitalism. The effects of such organization are seen through the overpowering control of overseas Chinese on the South-East Asian assets that can be seen as listed below: Table 1: Overseas Chinese Population and Economy in South East Asia Table 2: Overseas Chinese Companies' percent of listed companies in the following countries: (SOURCE: The Question of Diaspora in International Relations: A case study of Chinese Diaspora in Malaysia and South-East Asia, Sek Pei LIM (Dissertation, MA In International Relations, University of Sussex)) In Table 1 you can see that few percentages (3%) of Chinese Population in the Philippines controlled the local economy relatively high. Evidently, the population of Chinese in Singapore is quite high which could explain the 90% control over the local economy. Both in Singapore and the Philippines, Chinese traders, entrepreneurs, financiers and their affiliated networks of family members and friends came to lead the economic field of their host countries. These Chinese business-oriented people adapted the political and economical conditions of the South East Asian hosts; yet, still keep their cultural and social norms. This adaptation makes them a dominant key player in what is now called South East Asian Chinese Capitalism. Chinese capitalism has been a leading approach of economic organization in South East Asia because of not only its economic implication in the host countries, but also its multifaceted yet complex authority systems and social organization . The optimum diversity and expertise on economic activities as coordinated and controlled by these ethnic Chinese has led them to become vital foundations of the economies in which they primarily reside and operate (Brown, 1994; Gomez and Hsiao, 2001; Hodder, 1996; Jomo and Folk, 2003; McVey, 1992;). As shown in Table 3, a lot of pioneer ethnic Chinese businessmen are known as Diaspora immigrants or what Wong (1988) described as emigrant entrepreneurs. They serve as key persons of South East Asian Chinese Capitalism. Table 3: Major Ethnic Chinese and their Transnational Corporations from East and South East Asia, 1997-2003 Source: https://www.forbes.com , accessed on April 3, 2008 In Singapore, Kwek Leng Beng and Khoo Tek Puat had established an average net worth of US$4 Billion assets combined from 1997 until 2003. And, in the Philippines, Lucio Tan, a well-known Taipan in his host country estimated an average net worth of US$2 Billion assets from 2000 to 2003. These figures show huge capitals that move around the host countries and help sustain economic growth for very long years now. The ethnic Chinese entrepreneurs as they do business in their host countries bring with them financial capital as well as business knowledge. They also hold on distinctive traits of economic and social organization. These traits have been merged and endured in decades now for the growth and development of their host South East Asia countries. Some scholars studying economic development like Whitley (1992) and Redding (1990) considered these distinctive traits as vital factors of Chinese business system. Chinese Family Businesses evolving structures for global competition In late 1997, the Asian experienced an economic catastrophe that led to a primary restructuring of the Chinese business system and organization through which the CFB need to implement to cope and compete in global competition. Some of the major changes that led the reconfiguration and reshaping of South East Asian Chinese capitalism in recent years are the implementation of globalization processes; the varying political-economic alliances in South East Asia; and the ascending of mainland China as a key player in the economy of the world. The kind of structural transformations of contexts in South East Asian Chinese family Businesses had proven to be more constructive during the post-crisis era. These changes entailing the dynamic evolution of Chinese capitalism are discussed below. The successful internationalization of South East Asian CFE requires them to be less organized on the notions of nepotism according to Silin (1976) and Redding (2000). Their expanding business realm implies that succession based on nepotism is becoming too difficult due to a lack of competent family member to take charge on corporate responsibilities and decision making. These led CFE in hiring more experts to manage their international operations. Also, based on empirical evidences studied and handed down by scholars like Yeung and Soh (2000) their financial systems are also more and more moving away from 'ethnic-centrism' from their organization, so well explained in the early studies of Chinese capitalism. The need for securing global funding provides a vital force to bring dynamic revolutions in Chinese capitalism. The thriving enrolment of ethnic Chinese actors into these global financial actor networks is very important, in this time of more intensified competition, better financial requirements for growth and investments and higher perils connected with extreme reliance on family finance. Harmes (1998) stated that this search for global finance furthermore requires key persons in Chinese capitalism to be in terms with key persons in international business. This is due to the presence of broader arrays of people further than just bankers and financiers on today's global financial system (Old and Yeung 1999). What more, the rise of mainland China as a major economic source of power in the global economy signifies an important challenge and opportunity for the continuation of international growth of Chinese capitalism in South East Asian. Wu and Puah (2002) argued that the emergence of mainland China as the world's largest recipient of foreign direct investment (FDI) in 2002 has redirected some of the foreign investment flows that might have gone to South East Asia. Though you can see that the mainland China's foreign direct investment remains stable from 1988-2000 as shown in Table 4, it is understood that all five South East Asian countries: Singapore, Philippines, Indonesia Malaysia, and Thailand have experienced weakening inward foreign direct performance indexes and comparative rankings during the same period. Furthermore, the foreign direct performance relative shares in gross direct performance (GDP) in all listed South East Asian countries have decreased quite significantly between 1988-90 and 1998-2000, an indication of both the rapid gross direct performance growth of some countries like Singapore. On the contrary, Mainland China has experienced an increasing share from 1 percent during the 1988-90 periods to 1.3 percent during the 1998-2000 period of foreign direct performance in gross direct performance. This raise in relative share occurs in spite of its striking economic growth during the 1990s. This promising diversion effect of mainland China as a major destination for worldwide foreign direct performance has given vital challenges for South East Asian economies as well as in Chinese capitalism. Table 4: The inward FDI performance index, 1988-90 and 1998-2000 for selected Asian countries and the US Source: Wu and Puah (2002: Table 1, 47) These series of changes have undoubtedly inflicted major pressures for restructuring South East Asian Chinese capitalism. Their impact as a whole does not essentially lead to the termination of a type of economic organization that has taken more than a decade to develop. With all these to consider, we may conclude that South East Asian Chinese capitalism is not a static structure of organizing economic activities as it evolves from Chinese family businesses to Chinese Family Enterprise to Multinational Enterprises. Although it is a comparatively lasting and institutionalized structure, it is subject to change and transformations for better competition. This claim may appear to be a debatable point, but its implication really lies with the fact that much of the studies on the supposed success of overseas Chinese in South East Asia that itself growing tremendously tends to focus on its internal and often over socialized set of cultural norms in explaining empirical outcomes. This focus of the first wave of scholar understandings on Chinese capitalism was on hypothetical constructs and experiential evidence available during the early 70s and early 80s. What the scholars had predicted then remain valid on today's era of globalization; but it must be noted that the context at large in which South East Asian Chinese capitalism is entrenched has transformed very dramatically. The rapid interpenetration of globalization processes and the rise of mainland China during much of the 1980s and the 1990s have prompted both new theoretical insights and empirical work. Specifically, there is now an increasing context of literature on Chinese capitalism that focuses on its external dimension (Yeung, 2004). Opposing to the earlier views of Chinese capitalism as a form of cultural relic that are lasting blueprints for South East Asian economies, this new scholarly contexts seeks to recognize the changing aspects of Chinese capitalism, and to evaluate its dynamic transformations within these contexts. Taking an institutional and/or actor-network approach, these renewed studies of Chinese capitalism have pointed to its growing hybridization in terms of both economic organization around ethnic Chinese and multiple ethnic identities and mobilization strategies. They have collectively shown that, as a form of hybrid capitalism, Chinese capitalism does not have an essential core 'centre' that can be easily recognized and understood. Instead, Chinese capitalism holds within itself an inquisitive combination of what previously were 'deemed' idiosyncratically Chinese elements, and a whole selection of non-Chinese organizing principles and capitalist practices. The ongoing changes in Chinese capitalism in South East Asian countries do not completely counteract all of its idiosyncratic characteristics. There are still vital features in South East Asian Chinese capitalism that adequately distinguish it from other forms of capitalism like that of Anglo-American capitalism. In particular, the supranational society of Chinese capitalism, and the much more selective role of family and personal relationships, persists to highlight the uniqueness of such a regional form of capitalism. Whether it will live on the convergence and competitive pressures of economic globalization is a debatable issue. But there is no doubt that, as Chinese capitalism is increasingly engaging with globalizing forces, its core features will be changed and reshaped and its viability depends very much on the usefulness of this mode of economic organization, both to its host South East Asian countries and to the global economy. As Lim (2000) concluded: "Recent crisis and future development of South East Asian Chinese business, whether South East Asian Chinese businesses will survive as independent entities in the long run will depend on their continued ability to be multi-cultural managers of and for others, providing sufficient value that multinationals will continue to see partnerships with them as necessary assets. South East Asian Chinese companies will need to develop firm-specific competitive advantages that extend beyond their location-specific market knowledge, network assets and political connections to survive and prosper in the increasingly globally integrated regional economy." There is no doubt that this conclusion carries the usual picture of Chinese capitalism in the South East Asian host as comprador capitalists. This is very similar to Yoshihara's (1988) notion of 'ersatz capitalism'. However, it also brings us a critical meaning for future research into and understanding of South East Asian Chinese capitalism. We need to pay as much attention to its internal embedded-ness in South East Asian countries as to its rising articulation in the global economy that is both extremely vague and transformative. These two basics of uncertainty and transformation are at present perhaps the best way to illustrate and distinguish South East Asian Chinese capitalism. The evolution of the Chinese businesses as needed to compete globally indeed is a benchmark of global change to its host South East Asian countries. As economists predicted, the impact of these variations to its host brings positive result if capital and assets of the Chinese entrepreneurs will flow on the market of the host countries. References Brown, Rajeswary Ampalavana (1994), Capital and Entrepreneurship in South-EastAsia, London: Macmillan. Chen, M. (1995). 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