Thursday, July 9, 2015

Who's In Charge Of Asia's Family Businesses?

By Parkland Chair Professor of Strategy Seung Ho Park, Shaomin Li, and Yung-Chih Lien

Many leading companies in East Asia, including Korea, Japan, Taiwan, and China, are family businesses that play a critical role in the rapid development of these economies.  Samsung, like many other leading companies in Korea, is a family-controlled conglomerate. It contributes to over 20% of the country’s GDP – that almost equals total government spending. McKinsey provides a bold projection that, by 2025, an impressive 40% of the world’s large enterprises will be family or founder-controlled businesses from emerging markets.  Studies have shown that family businesses in Asia tend to maintain stronger value, employee loyalty, entrepreneurship, and execution capability. This is mainly because in order to conduct and protect business transactions, private relationships are important in East Asian economies (as they are in other emerging markets).  With the absence of fair and effective rule of law, it is risky to form new businesses with outsiders beyond the family circle. Instead, family businesses take shape with the father as CEO, mother as chief accountant, and children (who often do not even have formal contracts) in charge of key functional areas. This helps them avoid the risk of dealing with outsiders and reduce transaction costs, which contributed to creating the East Asian miracle.

These family businesses are now at a crossroads . As they continue to grow through unrelated diversification and international expansion, they are forced to involve outside investors and face a broader group of stakeholders while they keep a firm grip on control of their companies. Should, or can, they keep the company family-owned or should they relinquish control? Read more on

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