The Standard 31/May/2004
Traditional business merges with global reality
by Tim LeeMaster
Chinese businesses in Southeast and East Asia are becoming a blend of traditional practices and Western norms as they feel the pressures from globalisation or the need to go global themselves, academics say.

The changes may not necessarily totally converge with Anglo-American or European models of capitalism in the end, Henry Yeung, associate professor in economic geography at the National University of Singapore, said.

``But Chinese capitalism has been evolving in such a way that it embodies the past and brings in many elements of the new.''

Chinese companies outside of the mainland have traditionally been closely held, family-dominated concerns working within a narrow circle of suppliers, contractors and financial institutions bound by family ties or long-standing business relationships. ``In areas where the legal system was poor they needed an alternative method to contracting,'' TJ Wong, director of the centre for corporate governance at Hong Kong's University of Science and Technology, said.

But with more and more multinationals muscling their way into local markets where family-run firms operate or engage in joint ventures with these Chinese companies and Chinese corporations themselves going global, the rules of the game and the reality is changing.

Working with multinationals, Chinese companies throughout Asia have taken international norms back to their own organisations, says Yeung author of Chinese Capitalism in a Global Era.

``They're learning from and adapting to global standards just like they adapted to local conditions when they first moved to Southeast Asian and other places,'' Yeung said. Non-family and non-Chinese in top management positions is an example of this, he said.

Beyond competition and joint ventures, the need for international financing is also forging change. Deals are getting bigger and bigger, involving many more players and operating further away from home markets.

``When leading family firms need finance they are increasingly going beyond family networks,'' Yeung said, ``because the family bank just doesn't have enough money anymore.''

And it's not just banks. The international bond and institutional houses they are now approaching for financing on a global scale are forcing companies to work on more internationally accepted terms as well. ``There's a tremendous amount of learning going on,'' Yeung said. ``A company like PCCW is extremely concerned with its credit rating.''

This pressure has forced firms to make their basic operations professional.

``The more successful companies, Li & Fung, went through these changes,'' HKUST's Wong said. ``They got rid of non-performing businesses and reduced family holdings.''

The offspring of the tycoons that have built the Chinese diaspora's success story are another internal force for change, Yeung said. Educated overseas and with Western work experience, this next generation can bring new thinking to ossified corporate administrative networks. ``In almost all cases [of his research into Chinese firms] they're run by the second generation,'' Yeung said. ``You wouldn't find this 30 years ago.''

Wong still sees the second generation as a potential cause for traditional instability because of the succession issue. Power is often concentrated to one person and as he loses his momentum, the company may start to lose its competitive edge, he said, leading to an unnecessarily rough transition. ``Sending children overseas does bring new ideas to family firms and is a necessary condition for these firms to modernise but is not sufficient.''

He said organisational changes, like reducing family holdings and introducing professional management, are more important in deciding if a firm is ready to go global.

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