|Navigating challenges and embracing succession: Insights for Vietnamese family businesses |
Dr. Peter Bartels, Global Entrepreneurial and Private Business leader, PwC Germany, and Siew Quan Ng, Asia Pacific Entrepreneurial and Private Business Leader, PwC Singapore, spoke with VIR’s Luu Huong about the major challenges faced by family businesses in Vietnam, including internal conflicts and the trust gap, while providing strategies for smooth transitions and sustainable growth through collaboration and transparent communication.
|Siew Quan Ng (left) and Dr. Peter Bartels |
What are the major challenges family businesses face in general?
Dr. Peter Bartels: Globally, only 20 per cent of all family businesses make it to the third generation. Often, the failure can be attributed to mismanagement of family dynamics, internal conflicts, and a lack of strategic planning for succession.
In general, family businesses face two main categories of challenges; business-related and family-related. Business-related challenges are similar to those faced by all businesses, such as digitalisation, workforce development, supply chain management, and environmental, social, and governance (ESG) issues. But family businesses often grapple with a lack of resources and knowledge for proper market research and planning.
Family-related challenges stem from the overlapping areas of family, business, and wealth – a mix of love, power, and money. Many family businesses fail because they do not properly manage these dynamics.
Is there a conflict between the current and next generations in family businesses, and how does it impact these businesses?
Siew Quan Ng: Yes, conflicts between generations in a family business can be problematic. In Vietnam, this conflict is often more pronounced due to the relatively recent rise of family businesses. The first-generation owners may not have experienced such a transition, leading to suspicion and misunderstanding. However, learning from other Asian markets like Taiwan, Hong Kong, and Singapore can help Vietnamese family businesses navigate these transitions more effectively.
What are the strategies employed by family businesses to prepare the next generation for succession?
Siew Quan Ng: A common strategy involves having the next generation spend some time outside the family business, gaining experience and perspective. When they return, they're often given meaningful work within the family business, often overseeing a unit under the guidance of a non-family executive. This helps them understand the business, industry, customers, and employees, and also gain acceptance as a leader within the family business. Typically, this process takes around 5 to 10 years before they ascend to a senior leadership role.
How can businesses ensure a smooth transition between generations and resolve conflicts?
Siew Quan Ng: Going through a structured succession planning process is crucial to ensure a smooth transition between generations in family businesses. This process helps address conflicts that may arise between the current and next generations. By actively engaging in open communication, understanding each other's perspectives, and seeking external assistance if needed, family businesses can successfully navigate this transition.
In addition, it is also essential to prepare the current generation for life after retirement. This involves encouraging them to develop hobbies, interests, and a life outside the business. By doing so, they can gradually detach themselves and allow the next generation to step into leadership roles. Additionally, the next generation should gain meaningful work experience outside the family business to gain a broader perspective and develop their skills before assuming senior leadership positions.
How can family businesses in Vietnam improve communication, overcome the trust gap, and embrace transparency? Dr. Peter Bartels: Family businesses in Vietnam often struggle to effectively communicate their vision, mission, and values to employees and stakeholders. To address this challenge, it is crucial for private companies to embrace transparency and develop a new formula of trust. By clearly articulating their purpose, values, and long-term objectives, family businesses can build trust among customers, attract talented employees, and differentiate themselves from competitors. This shift towards transparency is particularly important for younger customers, who expect businesses to communicate their values and purpose.
Overcoming the trust gap and embracing transparency is a significant challenge for many private companies in Vietnam. To address this issue, businesses should consider adopting a more open and transparent approach in their operations. By communicating their mission and vision, as well as being more accessible to customers and stakeholders, family businesses can bridge the trust gap. Additionally, seeking guidance from industry experts and leveraging the power of digital platforms can aid in effectively conveying their message to a wider audience.
What unique factors should Vietnamese family businesses consider in their succession planning?
Dr. Peter Bartels: Vietnamese family businesses face some unique factors in their succession planning due to the relatively young age of their families. Unlike family businesses in the West, which may have the luxury of two to three generations to build a strong foundation, Vietnamese family businesses must navigate this process more swiftly. With a higher proportion of young and better-educated individuals in Vietnam, family businesses need to focus on building transparency, trust, and purpose to attract and retain customers and talented employees. Embracing technology and adapting to changing market expectations will also be crucial for their long-term success.
How can families ensure unity and prioritise personal growth before addressing larger societal issues?
Siew Quan Ng: The key lies in prioritising personal growth and fostering family unity as the bedrock before tackling broader societal issues. By placing emphasis on self-improvement and cultivating strong familial bonds, individuals can expand their influence to bring about positive change in their communities and potentially even in the nation as a whole. This incremental approach allows for a more effective strategy, preventing the overwhelming burden of numerous challenges. In essence, there is truth to the old Chinese saying “as the family goes, so goes the nation,” which encompasses the enduring Confucian values of self-cultivation, harmonious family life, effective governance, and the attainment of peace and stability within society.
What are the potential benefits of collaboration between the next generation and the current generation in family businesses?
Siew Quan Ng: Collaboration between the next generation and the current generation in family businesses can bring several benefits. Firstly, the next generation can contribute fresh perspectives and tech-savvy skills, aiding in areas such as market expansion and digitalisation efforts. Secondly, the next generation can familiarise themselves with different markets and cultures by taking active roles in business ventures, thus strengthening the family business's global presence. Lastly, the focus on ESG practices can be enhanced through the involvement of the next generation, who often prioritise sustainability and social impact.
What challenges can arise when involving in-laws in family businesses?
Dr. Peter Bartels: Involving in-laws in family businesses can present various hurdles. One potential obstacle is defining the role and responsibilities of in-laws within the business structure. Clear communication and expectations are crucial to avoid misunderstandings and conflicts.
Additionally, the transition from being a family member to becoming part of the business can be complex, requiring adjustments and alignment with the family's values and objectives. Balancing familial dynamics with business decisions can also be a delicate task that requires open dialogue and effective conflict resolution strategies.
How can family businesses in Vietnam establish and benefit from a family office?
Siew Quan Ng: Establishing a family office can be a valuable resource for wealthy families in Vietnam. A family office serves as a wealth management entity that oversees financial matters, investments, and the long-term sustainability of family wealth. The decision to establish a family office depends on the family's readiness to professionalise their wealth management practices.
Families can choose to either build an internal family office with a team of professionals, or utilise external platforms and services. The family office provides structure, processes, and expertise to optimise wealth management and ensure the preservation of family assets across generations.
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