Asian Business Systems- A Perspective

The Premise: What Intrigues Me

Succession is a key issue in family-owned corporations is a fact that is established. What fascinates me is how we can get insight about succession planning from fields that might not be perceived as corporates, or conglomerates, in succession dynamics.

On the one hand, in Asia, typically family values, patriarchal societies and socio-cultural dynamics shape the choosing and appointment of the next head of family conglomerates. I will however, ignore this aspect and will attempt to look at succession, by trying to draw parallels between two universes in succession planning, one that of business conglomerates, and farming.

A Parallel: Farming

To draw a parallel I would like to explore, one of the oldest forms of succession planning in practice. Asian Economies are influenced a great deal by farming, and it is one of the oldest forms of businesses still driving growth in the region. Therefore, I look at farms.

Factors Affecting Succession Planning in Farms: Initial Research

Education

A study of Israeli Family Farms[1], suggests that level of education influence succession decisions. The study found a strong positive correlation between levels of education and succession planning in farms. Here, too the objective of farms is to maximize the value of the asset, from generation to generation as in businesses.

Ownership

A study by ARMS[2] reveals that the probability of a successful succession plan increases approximately 4.4% if the business is organized as a sole-proprietorship.

Detailed Agreements, Communication and Finding the “One”

What I found particularly interesting was a study by NCFTN[3] that suggests farm-owners should deliberate and agree upon things such as “machinery sharing arrangements and leases, or partnership arrangements”. What amazed me was the similarity between farm successions and business succession as evident from this checklist provided by the Ontario Ministry of Agriculture and Food[4].

The detailed plan outlines the importance of identifying an heir apparent, laying out a comprehensive plan with vision, mission, strategic objectives of the farm, financial position, the roles and responsibilities of all stakeholders, the division of land labor, assets, and diversification plans (if any), and then testing if the chosen-one will be able to carry out the responsibilities that the current farm owner(s) has (have) outlined for the coming years. It also highlights the importance of communication between all the stakeholders that elaborates on the reasons for succession and the strategic objectives of pursuing a succession deliberation. The studies reveal that at the core of all successful succession strategies is effective and seamless communication.

The study by ANZ[5] reveals that in most family run businesses, agro- included, a measly 10% are considering succession or have a plan in place. This survey also includes family owned businesses where one would expect a more realistic succession plan for the future. This brings me to the importance of a “Charismatic Entrepreneur”[6], the able, effective communicator, who can establish himself/herself as the next successor early on for the founder or the owning generation in the conglomerate. This person clearly establishes his/her presence in farms/ businesses and therefore makes the identification of the “one” easier. However, not all farms/ businesses have such an individual.

Key Influencer

The other key insight into succession planning that I came across was the presence of the key-influencer, or key-advisor. This person sits in on the deliberations, the key business decisions such as: asset assessment, liabilities, debt planning and other key factors that affect succession planning.

Tying it all Together: My Hypothesis

            The similarities between farming and businesses are staggering. Three key success factors for businesses, Commitment, Knowledge Continuity and Pride[7], which affect businesses, also affect farming. Farming goes through similar stages of growth as businesses do. Therefore, I feel that studying farming may help us identify more such factors that affect succession planning.

            It would be interesting is to find correlations between: socio-cultural set-ups, colonial influences, farming practices, and crop/ livestock objectives of farms and succession strategies. This can then help us look at equivalent businesses in terms of scale, size, earnings, gestation periods and market capitalization of businesses and predict succession strategies that can be adopted. This however, is only my wild hypothesis.

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[1] Intergenerational Succession in Israeli Family Farms, Ayal Kimhi and Noga Nachlieli, May 1998, http://ageconsearch.umn.edu/bitstream/20811/1/spkimh01.pdf

[2] Factors Affecting Succession Decisions in Family Farm Businesses: Evidence from a National Survey, A.K. Mishra, H.S. El-Osta, 2007 Journal of ASFMRA http://naldc.nal.usda.gov/download/36666/PDF

[3] Farm Succession Planning, Andrew Branan, JD http://www.cefs.ncsu.edu/publications/dairyconferenceproceedings/07managingfarmtransitionsbranan.pdf

[4] Farm Succession and Planning Steps and Checklist, March 2010, Peter Coughler, Christine Wenger http://www.omafra.gov.on.ca/english/busdev/facts/10-025.htm

[5] Passing the Baton: Strategies for building a sustained family business across generations, ANZ New Zealand http://www.anz.co.nz/resources/9/0/903b5162-1d0a-480d-bcab-1322294f5200/passing_baton.pdf?MOD=AJPERES

[6] Family Business Succession in Hong Kong: The Case of Yung Kee by Fu-Lai Tony Yu (HKSYU) and Diana S. Kwan (CUHK)

[7] Three Key Dimensions for Doing Business in Asia: Family Corporations, The Diaspora, and the Informal Economy, 2012, by R.V.L. Uy and Prof. F.L. Roman, AIM, 2012.