Why Many Chinese Family Businesses Disappear in the Third Generation

 By Prof. Enrique Soriano

Over the past 15 years, I’ve witnessed a remarkable resurgence of interest in governance among overseas family-owned businesses of Chinese descent. This trend, spanning regions such as the Philippines, Malaysia, Vietnam, Cambodia, Thailand, Indonesia, and even as far away as Australia and North America, has caught my attention.

The compelling reason behind this resurgence can be attributed to a combination of internal and external factors. Globalization, family conflict, succession planning concerns, regulatory requirements, investor expectations, and a desire to learn from past mistakes have all played a role in driving this newfound interest in governance.

In this article series, I delve into the most compelling reasons behind this shift and share insights on how Chinese family businesses overseas are embracing governance to ensure their long-term success and sustainability.

From Rice Bowls to Rice Bowls In Three Generations

The Chinese proverb “rice bowls to rice bowls in three generations” encapsulates the common observation that family wealth tends to be lost by the third generation. In other words, the saying implies that a family’s fortune, often built by the first generation, is typically squandered or lost by the time it reaches the third generation, leaving descendants back at the starting point, symbolized by the rice bowl, a basic necessity of life.

This proverb reflects the cyclical nature of family wealth and the challenges that arise in passing down prosperity from one generation to the next. The first generation typically works hard to build wealth and create a better life for their descendants. However, without injecting proper values, vision planning, governance, alignment of expectations, shareholder and financial education and enforcement, subsequent generations may fail to manage and preserve this wealth, leading to its eventual depletion.

The saying serves as a cautionary tale, reminding families of the importance of prudent financial management, succession planning, and the passing down of values and principles across generations. It emphasizes the need for foresight, discipline, and long-term thinking to ensure that family wealth endures beyond three generations.

Intergenerational Conflict: A Volatile Brew

The economic landscape of many countries has undergone a remarkable transformation in recent decades. Asia, home to numerous enterprises owned by families of Chinese descent, has experienced rapid economic growth and development. There has been significant expansion in their economies, driven by factors such as industrialization, urbanization, and globalization. This economic transformation has created both opportunities and challenges for family businesses. On one hand, it has opened up new markets, expanded business opportunities, and increased wealth and prosperity. On the other hand, it has also led to greater competition, changing consumer preferences, and evolving regulatory environments. Family businesses that fail to adapt to these changes risk being left behind, as new competitors emerge and market dynamics shift.

The rapid economic and social changes have not only reshaped the business landscape but have also had a profound impact on family dynamics and interpersonal relationships. Traditional family values and structures have been disrupted by urbanization, globalization, and modernization. As societies become more urbanized and interconnected, younger generations are exposed to new ideas, lifestyles, and opportunities.

This shift in societal norms and values has led to changes in family dynamics, as younger generations may have different priorities, lifestyles, and career aspirations compared to their predecessors. While traditional Chinese family businesses were often characterized by hierarchical structures and patriarchal leadership, younger family members may seek greater autonomy, independence, and self-expression. In my coaching work in Asia, I have seen an alarming rate of family business disputes, highlighting the urgent need for effective governance structures and strategies to navigate these challenges.

To be continued…

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No more slots left! The ongoing W+B Family Governance Leadership Series: Structure, Culture, and Succession” is full. Much as we want to accommodate dozens of inquiries, we have reached full capacity. If you want to attend and learn the tools and strategies to navigate the complexities of family business dynamics with clarity and purpose, please let us know so we can line you up in the next masterclass. Don’t let unresolved conflicts hold your business back—seize this opportunity to secure a lasting legacy. Secure your future spot now: https://bit.ly/GovernanceLeadershipSeries.

For inquiries, please contact Christine at wb@wbadvisoryasia.com