CHINA: First Generation Business & Management Teams

People often ask me what trends I see in China.  It's a country where in modern times there has been only one generation of private business ownership.  A key  challenge facing many entrepreneurial businesses in China today is transferring the management of the business to the next generation, to an outside manager, or to their own "team."  Why do I put team in italics?  Many Chinese private (and some govt owned) businesses are flat organizations.  Someone once likened them to rakes, a long vertical line stretching from the owner / President down through one key manager and ending at a long horizontal line of supervisors for various functions.  A rake. This type of business structure is not just seen in China per se.  Its a phenomena in many countries where the owner grew the business in a developing market place.  The first generation of entrepreneurs developed (and were capable of) managing the different aspects of the business as it grew; sales, production, finance, etc.  They could grow the company solo, maybe they had advisors, but typically there was no shared management. 

Eventually as the owner matures and looks to transfer the business over to someone else it creates a new set of challenges.  The next generation of management didn't have the opportunity to gather experience as the company grew to its current size, and may not have the same entrepreneur skill set.  It's at this point that companies often begin to hire in experienced department managers, not just supervisors but someone who can manage a team, leading their department and acting independently as a department manager.  Decision makers.  Leaders.  CFO, COO, VP Engineering, etc.

Many foreign owned businesses set up their corporations with this mid-level management team in China. For one because they have this management structure in their own parent company (in their home country), but also because they are absentee owners of the China business and they want more checks and balances.  But for Chinese owned businesses, having a distributed management team is a new development. 

The challenges are many.  First you need to recognize it's necessary!  You need to adapt the day-to-day running of the organization to more distributed management / decision making.  You need to find employees who can come into a company in transition and help it move towards the new model. You need to train the child who is taking over the business to manage differently than the parent did.  You need the entrepreneur / President to make the adjustment to supporting multiple decision makers and giving up their own absolute authority.

These same challenges face startup or entrepreneur / family companies outside of China as well.  The difference being that many companies outside of China went through this transition at different periods of time as the various industries started and grew over a hundred years.  In China its happening en masse, thousands of companies in almost every industry are now going through this phase.  These companies were privatized and / or founded about 20-25 years ago across China.  There is not any staggered development curve. 

Therefore, in other countries the change happened over decades, and newer businesses could learn the lessons businesses in other industries had learned centuries ago.  There was also the opportunity for development of service companies, business literature and training classes to support the change.  CPA firms that specialize in family businesses.  Books that entrepreneur owners or their children could read that helped steer them through the challenges.  

In China, the support system and knowledge base is still developing, and yet the scale of the number of companies going through the transition over the next ten years is insane.   This phenomena is both a risk for customers / suppliers of these transitioning companies as it is an opportunity for those who could provide services to guide them.