Family companies facing difficulties in transferring business

The differences in the thoughts and viewpoints of different generations have caused difficulties for family companies to transfer business to successors.

Small and medium companies in Vietnam mostly operate as family businesses, where husbands act as general directors, while wives work as deputy directors and secretaries. Since 1986, family companies have made considerable contribution to the national economy. A lot of family companies have built up strong brands.

The problems

Director of a handicrafts company in HCM City said that after 10 years of operation, his company has got troubles. Due to the bad management, the products do not have equal quality, while the productivity of workers has been decreasing.

“The troubles have appeared for the last two years, after I transferred the business to my son,” he said.

The director said that the son has been trained in business overseas and that he absolutely trusts in the son’s corporate management skills. However, he has to admit that the business has been downgrading.

“Importers ask to tighten the quality of import products. They cancel new products and ask to do the old products which we once made many years ago,” he said.

“At first, I was so surprised when hearing the complaints from the importers, but later I realized that this was really a worrying problem,” he said.

The director decided to thoroughly consider business plans and the company’s development strategies, but the business could not be improved.

Finally, he has found out why the business has been going downhill rapidly. It is because the loyal partners do not want to cooperate with his son, because the partners and the young boy do not belong to the same generation. The transparent business decisions made by his son have displeased the partners.

The young boy now does not offer immoderate commissions for the material supply contracts with no clear origins and does not recruit relatives if they are not really capable. Especially, the cutting down of unnecessary expenses has led to the fact that non-salary incomes of workers have been decreasing. This has discouraged the workers of the company.

And finally, the director has decided to return to pilot the company through the current difficulties.

“It is not easy to transfer business when we have been operating under the mode of family companies for a long time already,” he said.

Le Quang Phuc, Chair of BDSC, a business strategy consultancy firm, said that big family companies have been developing well, but the founders have complained they face difficulties in transferring business to successors.

Phuc went on to say that family businesses always lack long term vision in drawing up business development strategies. They do not follow a professional working method, and just do business by feelings. This explains why family businesses cannot recruit capable personnel for high ranking management posts.

“The business culture which bases on the loyalty and close relations are obviously the biggest hindrances in transferring business in family companies,” Phuc said.

Good decentralization is the key to success

Despite the shortcomings, experts still believe that in the current difficult circumstances, family companies still can operate well if they can fix the problems and take full advantage of their strong points.

The high loyalty of family members proves to be the biggest advantage of family companies. Besides, the flexibility, dynamism and the money saving are also the good points.

According to To Hong Trang, Deputy General Director of Digiworld Corporation DGW, the most important factor in managing business is a good decentralization mechanism. A good mechanism will allow companies to make timely decisions with the high consensus level. – TBKTSG

Tags: Family companies, Vietnam companies, Vietnam enterprises