High technology and globalization challenges facing overseas Chinese entrepreneurs.
From the end of World War II until the Asian financial crisis of 1997-98, the economies of East Asia East Asia
A region of Asia coextensive with the Far East.
East Asian adj. & n. , from Vietnam to Taiwan, grew rapidly (Aggarwal, 1999). As the financial crisis ended, the region settled back into steady, albeit slower growth. Much of that economic activity is traceable to the commercial activities of a single ethnic group--the Overseas Chinese A list of famous people with Chinese ancestry living outside of the Republic of China and the People's Republic of China. Leaders and politicians
The financing of asset purchases with funds generated in the usual course of operations rather than funds that are borrowed or raised from the issuance of stock. , little research and development, and limited advertising and promotion (Carney, 1998; Chen, 2001; Weidenbaum and Hughes, 1996; Yeung, 1999a). These characteristics have proven particularly appropriate for success in slow-growth, generally low-technology manufacturing, real estate, trading, and commodity-based industries where contract manufacturing based on outside designs is emphasized (Arthur, 1996; Carney, 1998).
The Asian financial crisis encouraged policy makers (and investors) to question the region's heavy reliance on low value-added commodity and support industries, especially in light of rapid changes in the economy that reward global, faster-growth firms (Ang, Lee, Lim, Singh and Tan 2000; Bettis and Hitt, 1995; Yeung, 1999a). While this led to an increased emphasis on the development of more indigenous technology firms by governments and other East Asian institutions (The Economist, 2000a, 2001), questions were raised about the ability of Overseas Chinese firms to compete in a more global, high-technology environment (Carney, 1998). This environment is much different from the more stable postwar period in which Overseas Chinese firms flourished. This led to concerns that the characteristics of these firms, which may have been assets in decades after World War II, could become liabilities in an increasingly global, knowledge-based economy (Backman, 1999; Bettis and Hitt, 1995). Carney (1998) has cogently co·gent
Appealing to the intellect or powers of reasoning; convincing: a cogent argument. See Synonyms at valid.
[Latin c added that the more traditional approaches to doing business in East Asia, such as not bringing outside management into the firm, may place certain managerial constraints on large Overseas Chinese firms and hinder them from creating globally competitive products and brands. Overseas Chinese firms are, therefore, feeling increased pressure to adhere to adhere to
verb 1. follow, keep, maintain, respect, observe, be true, fulfil, obey, heed, keep to, abide by, be loyal, mind, be constant, be faithful
2. the norms encouraged by (often Anglo-American) consultants, business schools, alliance partners, and international investors to grow faster and compete (and raise money) globally--norms they may find difficult to follow (Young, Ahlstrom and Bruton, 2003; Young, Ahlstrom, Bruton and Chan, 2001).
Building on the work of Carney (1998), who identified managerial constraints present in large, family-dominated Hong Kong finns, we examine a related issue in the context of Overseas Chinese entrepreneurial firms. To do this, we first review the success of the larger, more traditional Overseas Chinese firms in East Asia (e.g., Backman, 1995; Carney, 1998; Chen, 2001; Redding Redding, city (1990 pop. 66,462), seat of Shasta co., N central Calif., on the Sacramento River; inc. 1872. A principal tourist center for a mountain and lake region, it also has lumbering, food-processing, and diverse manufacturing. , 1990; Weidenbaum and Hughes, 1996) so as to provide a concise synthesis of Overseas Chinese commercial culture. Second, we discuss the major changes in East Asia after the Asian financial crisis. Third, through interviews with high-technology entrepreneurs, venture capitalists, and government policymakers in Hong Kong, Singapore, and Taiwan, we examine the impact of these changes on entrepreneurial firms and assess these firms' responses. Finally, we discuss the implications of our results for Overseas Chinese entrepreneurs, government policymakers, as well as firms and investors outside of East Asia. The results suggest that even high-tech Overseas Chinese entrepreneurs are building firms that seem similar to the more typical East Asian firms. Moreover, while the entrepreneurs did recognize some constraints to growth associated with their adherence to traditional ways of doing business, they still insist on this course in spite of cajoling from venture capitalists and government policymakers to make some changes and accept more contribution from outsiders. This article represents one of the first studies of Overseas Chinese entrepreneurs that also includes an assessment from those outside of the firms studied (East Asia venture capitalists and government policymakers). Thus, the results also contribute to the nascent nascent /nas·cent/ (nas´ent) (na´sent)
1. being born; just coming into existence.
2. just liberated from a chemical combination, and hence more reactive because uncombined. literature on indigenous firms in emerging economies (Tsui and Lau, 2002).
Theoretical Background: Overseas Chinese Firms in East Asia
There are roughly 50 million Overseas Chinese in East Asia. Excluding Taiwan, whose economy is the 13th largest in the world, the Overseas Chinese in this region generate annual output of over US$500 billion, nearly half the output of Mainland China (Backman, 1999; Zutshi, 1997). In many East Asian economies, Overseas Chinese form a distinct minority while exerting a significant influence. In Indonesia, where less than 4% of the population is of Chinese heritage, Chinese-owned firms recently accounted for 73% of stock market capitalization Market Capitalization
A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. (Senkow, 1995). In Thailand, ethnic Chinese make up about 10% of the population but control 81% of listed firms by market capitalization (Vatikiotis, 1998). Ethnic Chinese compose just 1% of the Philippine population, yet control 60% of its wealth (Chua, 2003).
Both budding entrepreneurs as well as established firms have begun to move into technology-related, faster-growth arenas. Yet questions remain as to whether fast-growth entrepreneurship can thrive in East Asia, given the traditional commercial practices of Overseas Chinese firms (Carney, 1998). Government investment and regulation, the general business environment, and property rights all have important roles to play in fostering high-tech industries (Peng, 2000). Other less formal institutional factors, like culture, also affect the development of firms and industries (Peng and Heath, 1996).
The success of Overseas Chinese firms in low-tech, commodity-type businesses is well established (Weidenbaum and Hughes, 1996). In two well-known analyses of Overseas Chinese firms by Murray Weidenbaum Murray Lew Weidenbaum (born 1927), United States is an American economist. He is currently the Edward Mallinckrodt Distinguished University Professor and Honorary Chairman of the Murray Weidenbaum Center on the Economy, Government, and Public Policy at Washington University in St. (Weidenbaum, 1996; Weidenbaum and Hughes, 1996) and Australian government analyst Michael Backman (1995, 1999), Weidenbaum argues that five characteristics of Overseas Chinese businesses are largely responsible for their success, while Backman discusses eight characteristics. These authors, along with business scholar Ming-Jer Chen (2001), developed similar assessments of what promoted the success in Overseas Chinese-owned firms in East Asia.
This article integrates these ideas in seven overall characteristics to summarize this body of work on Overseas Chinese firms. The first characteristic is family control. Chinese businesses are typically family owned and operated. This is true even in cases where the firm is publicly traded and relatively large; family members usually maintain controlling interest controlling interest
The ownership of a quantity of outstanding corporate stock sufficient to control the actions of the firm. Controlling interest often involves ownership of significantly less than 51% of a firm's outstanding stock because many owners fail in the firm. Therefore, the board of directors is less effective and minority shareholders have little, if any, say in firm affairs (Faccio, Lang and Young, 2001; The Economist, 2001). Close relatives fill key posts and outsiders are rarely admitted to the ranks of top management. The second of these characteristics is the highly centralized nature of decision-making in these firms. Tight family control also tends to centralize cen·tral·ize
v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es
1. To draw into or toward a center; consolidate.
2. decision-making through a patriarchal owner, who delegates little authority (Young et al., 2003). This is related to the third characteristic of simple organizational structures. Because Overseas Chinese businesses are typically centered around the family patriarch, the organization requires a simple structure for the owner-manager to direct the firm. Organizational structures tend to be unsophisticated, and information tends to flow slowly, if at all, from the center.
The fourth characteristic is that of internal financing. Overseas Chinese firms rely heavily on internal financing and loans from trusted banks. They rarely issue bonds and obtain limited amounts of outside equity. While aiding control, this is a constraint on growth, as will be explored further. Fifth, these firms typically do little research and development, spending little on activities not directly related to immediate production. Thus, minimal resources are devoted to activities such as staff training. The sixth and seventh characteristics are minimal use of advertising and branding and limited interaction with customers. These firms seek a low corporate profile, typically preferring to act as a supplier of private-label products or as a supplier to firms that will brand themselves.
These seven characteristics of successful Overseas Chinese firms are rooted in Chinese culture (Backman, 1995; Redding, 1990) and are broadly characterized by tight control of the firm, decision-making at the top, and a general distrust of outsiders (Backman, 1999; Redding, 1990). In Confucian-based cultures, family is considered more important than the nation/state, and outsiders are distrusted (Moore, 1967). The second and third characteristics concern the role of the head of the family in Confucian-based cultures. This role is typically dominant in the family businesses (Chen, 2001). The culture is further mirrored in a simple organizational structure where all key decisions are made by a patriarch at the center. The fourth characteristic highlights the heavy reliance of most Overseas Chinese firms on internal financing, which may reflect the political instability of this region in the 20th century (Weidenbaum and Hughes, 1996). However, this structure may also limit the ability of the firm to conduct complex tasks such as R&D, advertising and (global) brand building, as noted in points five through seven (c.f. Carney, 1998).
Major Changes Affecting Overseas Chinese Firms in East Asia
That these characteristics have served Overseas Chinese businesses well is demonstrated by their dominance of commerce in East Asia and the growth of the economy there since World War II (Chen, 2001; Rohwer, 2001). Yet, firms and managers all around East Asia are facing mounting pressures to change some of the old ways (Ang et al., 2000; Wong, Maher, Jenner, Appell & Hebert, 1999). The characteristics of Overseas Chinese commercial culture that facilitated past success may not be as helpful in light of the new competitive landscape (Bettis and Hitt, 1995; Carney, 1998).
* Globalization globalization
Process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world. Factors that have contributed to globalization include increasingly sophisticated communications and transportation and increased international competition
One major facet of the new competitive landscape is globalization, which has created unprecedented opportunities for East Asian firms to tap into the emerging global and regional product and investment markets (Yeung and Olds, 1999). China's opening in the 1980s reinforced and will continue to expand the Chinese commonwealth and the development of Overseas Chinese businesses across borders (Kao, 1993). In addition, the formation of both the North American North American
named after North America.
North American blastomycosis
see North American blastomycosis.
North American cattle tick
see boophilusannulatus. Free Trade Area (NAFTA NAFTA
in full North American Free Trade Agreement
Trade pact signed by Canada, the U.S., and Mexico in 1992, which took effect in 1994. Inspired by the success of the European Community in reducing trade barriers among its members, NAFTA created the world's ) and the single European market Single European Market n the Single European Market → el Mercado Único Europeo
Single European Market n the Single European Market → le marché unique européen in the early 1990s created new challenges and opportunities for Overseas Chinese businesses (Yeung, 1999b). In the increasingly interdependent global economy, relying on exports may be insufficient as domestic customers become more demanding. In retailing, for example, firms such as Wal-Mart and Carrefour have been forcing Asian retailers to improve their efficiency, spend on advertising and promotion, and introduce their own private labels.
As domestic markets are increasingly open to foreign investment monopolies and oligopolies are crumbling in the face of deregulation Deregulation
The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry.
Traditional areas that have been deregulated are the telephone and airline industries. and the World Trade Organization (WTO See World Trade Organization. ), there is pressure on Overseas Chinese firms to move into overseas operations and build a more global presence. This is welcomed by successors in many Overseas Chinese firms that are more outward-looking and receptive to different types of environments and management practices (The Economist, 2000b).
* Changes in corporate governance Corporate Governance
The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. practices
Another major trend affecting East Asia is the more vigilant corporate governance of recent years (Young et al., 2003). Fewer owner-managers in East Asia can afford to ignore demands for clearer corporate governance and transparency. Most public firms and many start-ups are coming under pressure to adopt a governance structure more compatible with global practices and the demand of foreign investors (Allen, 2000; The Economist, 2000b; Young et al., 2003). This is a marked change for Asian firms, which traditionally have preferred raising capital from their family network and were less influenced by the wishes of commercial banks, venture capitalists, or financial markets (Backman, 1995; Kao, 1993). However, reliance on internal funding also limits opportunities and can greatly slow expansion. As a result, Overseas Chinese firms are now exploring additional financial avenues, such as corporate bonds and equity listings. However, firm founders have exhibited reluctance to accept more disclosure, give influence to outside board members, or allot al·lot
tr.v. al·lot·ted, al·lot·ting, al·lots
1. To parcel out; distribute or apportion: allotting land to homesteaders; allot blame.
2. a greater say to minority shareholders in the running of the business (Young et al., 2001).
There is increasing pressure from investors and outside firms for more accountability and fewer financial shenanigans shenanigans
1. mischief or nonsense
2. trickery or deception [origin unknown] and asset shifting. (3) In particular, firms from the West would prefer to partner with Asian firms that have less debt and steady profit performance (Hitt, Dacin, Levitas, Arregle and Borza, 2000). These forces, coupled with financial and regulatory reforms and young Western-educated managers, are encouraging corporate governance reforms (Young et al., 2003). The continuing globalization of product and financial markets is also increasing the pressure for corporations in the region to adopt performance standards that will be acceptable to venture capitalists and foreign shareholders (Phan, 2000). These changes are impelling im·pel
tr.v. im·pelled, im·pel·ling, im·pels
1. To urge to action through moral pressure; drive: I was impelled by events to take a stand.
2. To drive forward; propel. changes in the way that these firms are managed (Young et al., 2001). For example, investors, creditors and allied foreign firms are urging Overseas Chinese firms to invest more in core businesses and less in peripheral ones, such as property (Rohwer, 2001). They have discouraged firms from taking on too much debt and encouraged more transparency for stock listings--all key elements for firms entering fast-growth, technology-related areas (Clifford and Engardio, 2000).
In general, the Asian financial crisis of 1997-98 made Asian businesses more reliant on Western equity capital--some for the first time--and therefore more attuned at·tune
tr.v. at·tuned, at·tun·ing, at·tunes
1. To bring into a harmonious or responsive relationship: an industry that is not attuned to market demands.
2. to Western notions of shareholder value (Rohwer, 2001). This is particularly true for high-tech entrepreneurs seeking fast growth and global markets and relying on business incubators and venture capitalists to provide capital or sometimes even subsistence for their ventures. These outside investors demand seats on the board, a greater say in the planning and operations, and more transparency in decision-making within the firm, in return for funds (Young et al., 2001). The Asian financial crisis also initiated new efforts to clean up the financial and regulatory regimes that thwarted foreign shareholders and investors, (The Economist, 2000b). This is especially true in Singapore, where the government is among the most aggressive in promoting corporate governance reform along the Western lines (Allen, 2000); other East Asian countries are expected to follow suit.
* Increasing emphasis on fast-growth high technology
Shortly after the Asian financial crisis, East Asia began to place greater emphasis on the development of high-tech firms, due to both governmental and private sector efforts. Hong Kong is illustrative. An over-reliance on property markets, coupled with slow export growth and cyclical downturns in many local industries, was seen as a key cause of the Asian financial crisis (Clifford and Engardio, 2000). Yet Taiwan reportedly fared better through the crisis because of its technology-related firms (Clifford and Engardio, 2000). Therefore, government policymakers, investors, and interested firms saw a need to promote sustainable productive activities in East Asia, such as indigenous technology development. While the unofficial capital markets of family and connections still exist, the opportunities from other sources are more readily available. Fast-growth, high-tech firms rely to a greater extent on equity funding Equity funding
An investment consisting of a life insurance policy and a mutual fund. The insurance policy is paid by the collateral value of fund shares, giving the investor the advantages of insurance protection with the growth potential of a mutual fund. by venture capitalists or market investors, as well as stock options, to attract talent, all of which demands more transparency (The Economist, 2000b). This emphasis also makes brand-building and corporate reputation more important than ever (Arthur, 1996).
To examine how Overseas Chinese entrepreneurs are responding to the pressures in the changing competitive landscape, 15 professionals in the region were interviewed. These included entrepreneurs, venture capitalists, and government officials, all based in East Asia. The eight entrepreneurs interviewed were either founders or top managers of their firms. All of the firms, except one large, established technology firm, were in the early stages of development, ranging from one to six years old. Annual revenues of the smaller firms varied from US$120,000 to about US$30 million while the large firm's revenues were approximately US$1 billion. All firms were involved in technology-related products and were either public or planning a public offering.
Four venture capitalists headquartered in Hong Kong, Taiwan, and Singapore that fund entrepreneurs throughout East Asia were also interviewed. The venture capitalists had an average of US$150 million of invested funds targeted at high-tech ventures in Asia. Three government officials based in each of the three regions and responsible for promoting R&D and high-tech entrepreneurship were also interviewed. All but one of those interviewed were ethnic Chinese.
The well-accepted procedure of gathering and analyzing interview data in a relatively new research site was followed (see Eisenhardt, 1989; Glaser and Strauss, 1967; Strauss and Corbin, 1990; Yin, 2003). First, data were collected using semi-structured interviews following a funnel technique of inquiry (Frey and Oishi, 1995). Interviews were taped and subsequently transcribed and checked for accuracy. The focus was on summarizing and comparing the information with the model of high-tech entrepreneurship and the characteristics of Overseas Chinese entrepreneurs. Company respondents who were familiar with high technology development in the West were asked to describe their initial entrepreneurial experience and compare it with the common characteristics of Overseas Chinese business to see how their experiences differed from their perceptions of Western high-tech entrepreneurship. Second, the data were conceptualized (Lee, 1999; Strauss and Corbin, 1990) to allow comparisons and to permit any conceptual patterns to arise. The overall idea was to firmly establish how the entrepreneurs viewed the traditional approaches in the Overseas Chinese community to entrepreneurship and how they were responding to the changes in the environment as described in the interview.
After each interview, the pattern of entrepreneurial beliefs and actions was compared with the existing model of Overseas Chinese firm characteristics, modified as necessary based on the new information and then presented to the next interviewee for validation. The interviews were summarized, and a set of mutually exclusive Adj. 1. mutually exclusive - unable to be both true at the same time
incompatible - not compatible; "incompatible personalities"; "incompatible colors" categories that represented the interviews were identified by the researchers. This replication logic approach assists in taking multiple cases and the rich information they provide to build an understanding of a new domain, such as the one presented here (Eisenhardt, 1989; Yin, 2003). There was consistency in the interview results as well as in the comparisons to the understood patterns of entrepreneurial conduct in high-tech that was a reference point (Eisenhardt, 1989). The results are summarized and supplied in narrative fashion. Any disagreements among the subjects are highlighted and discussed.
Given the extent of changes in East Asia coupled with the recognized importance of fast-growth, high-tech firms, the question is: Are the entrepreneurs able to move into faster-growth sectors? The interviews revealed a number of challenges in this regard. In particular, tensions are emerging between the traditional Chinese commercial practices in some Overseas Chinese entrepreneurial firms and the demands of the increasingly global economy. (Table 1 summarizes these issues).
The interview subjects generally agreed that they had adopted most of the traditional conventions and practices of Overseas Chinese businesses, even while recognizing that these may keep them from achieving the growth needed to go public and compete globally. They generally felt this was an acceptable trade-off for keeping control over their firm. Even Taiwanese entrepreneurs, who are generally thought of as more open to "Silicon Valley style" entrepreneurship, sought to maintain tight control of their firms.
Summarizing that point of view, one Taiwanese electronics entrepreneur stated: "We do not and will not include non-family members in top management team." The interviews with venture capitalists similarly suggested that the traditional and continued orientation of Overseas Chinese firms toward family control and strong preference for insiders (often family members) may limit their potential growth.
Branding and corporate reputation have also become more important. Given the worldwide nature of news and communications, firms need to actively manage the corporate image and a public relations public relations, activities and policies used to create public interest in a person, idea, product, institution, or business establishment. By its nature, public relations is devoted to serving particular interests by presenting them to the public in the most strategy to handle bad news quickly. This is not an area in which Overseas Chinese firms have typically excelled; indeed it is common for top managers to stonewall stone·wall
v. stone·walled, stone·wall·ing, stone·walls
a. reporters and outsiders and generally eschew es·chew
tr.v. es·chewed, es·chew·ing, es·chews
To avoid; shun. See Synonyms at escape.
[Middle English escheuen, from Old French eschivir, of Germanic origin a public relations strategy.
Corporate governance reform in East Asia is also creating tension by compelling many firms to make changes to traditional methods of tight control and opaque operations and public relations. Regulatory reform Regulatory Reform concerns improvements to the quality of government regulation.
At the international level, the "OECD Regulatory Reform Programme is aimed at helping governments improve regulatory quality -- that is, reforming regulations that raise unnecessary obstacles to directed toward corporate governance and intervention by institutional investors and minority shareholders rights activists all exert pressure on the imperial mode of Overseas Chinese business. The family-dominated nature of business and the centralized organizational structure hampers smooth assimilation of outsiders (Kao, 1993; Young et al., 2001). Top-down decision-making resists outsider scrutiny. The entrepreneurs interviewed indicated little intention of encouraging the open communication that outside investors desire and value. Commented one Singapore venture capitalist Venture Capitalist
An investor who provides capital to either start-up ventures or support small companies who wish to expand but do not have access to public funding.
Venture capitalists usually expect higher returns for the additional risks taken. :
Local [Overseas Chinese-owned] firms sometimes like to hold important meetings on Sunday night or when they know you will be out of town. It is a big mindset change for them to give much control to non-family members and other outsiders such as venture capitalists; its not part of their practice.
Other venture capitalists added that board meetings are often ceremonial and simply serve to distribute information that is not sufficiently detailed or is already known. Sometimes outside board members and investors must piece together important information about the firm from different sources (Young et al., 2001). Due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. can be difficult and more time consuming in East Asia. While the entrepreneurs interviewed would not admit directly that they stonewalled investors, they admitted that they tightly controlled information and would rarely bring in those outside of their immediate circle to key positions. (4) Added another Taiwanese entrepreneur in the cable business:
The CEO/founder makes the major decision, though might consult some key managers. No, I don't think that decisionmaking can be easily decentralized, and I don't think I will give some control to outsiders.
The capital investment required by fast-growth firms often cannot be met by internal financing. The injection of capital from outsiders can complicate governance if the managers attempt to govern in the traditional manner. Outside and institutional investors often ask for board seats and a greater say in the decisionmaking and operations of the business. They also want an exit from the investment such as a public listing or a strategic sale, so they have more concern over transparency issues. They prefer investment directly in the business instead of in real estate, a minimal amount of debt, and respect for the rights of minority shareholders (Young et al., 2002). Our interviews identified a number of potential clashes along these lines between controlling families and external investors, particularly minority shareholders. One Hong Kong electronics entrepreneur summarized the entrepreneurs' viewpoint:
Although I know I need more financing to grow faster, the venture capitalists seem to want more control [of my firm] than I am willing to give. They want about forty percent of my shares and two board seats. I am not willing to give up that much control to outsiders, even if it means growing slowly and postponing my IPO, perhaps for several years.
The venture capitalists and government officials also concurred that this attitude was common. One Hong Kong government official said:
The problem with some of the local entrepreneurs is that they want to leave the door open for quick moves into other businesses, especially property. We try to discourage that both legally-speaking and with our [incubator] rules. Still, Chinese business people are well known for their ability to spot emerging opportunities, whether inside or outside of their core business, and they like to keep open the option to move into different areas, such as property, quickly.
The entrepreneurs interviewed generally agreed that given the choice of yielding some control in order to expand versus maintaining their current size with full control, most would opt for the latter. Overly tight control, sluggish information flow, and centralized decisionmaking are inimical inimical,
n a homeopathic remedy whose actions hinder, but do not counteract those of another. Also called
incompatible. to the creativity and innovation necessary for high-tech firms.
It is rare for one family to have enough talent to supply the management needed to compete in fast-growth markets (Chen, 2001). In addition, outsiders may spot disruptive technologies that form the basis for the creation of new technology markets (Christensen, 1997). The capacity to selectively cede control to raise money, facilitate R&D, and bring in outside managerial talent has proven difficult for entrepreneurs steeped in the traditional practices of the Overseas Chinese business (cf. Backman, 1999; Chen, 2001). One Singapore entrepreneur summarized the entrepreneurs' concerning outside control:
One key issue for us concerns control. If we want to hold a board meeting, we can do so on very short notice and keep a check on our decision-making and what information gets out. With a venture capitalist on board, you cannot always do that. Thus, we are quite concerned about giving too much control to the venture capitalists ... we keep a strict lid on information in general here. I make the decisions about our strategies and the technologies we pursue.
Some changes may be occurring in faster-growth segments in East Asia. The Taiwanese cable entrepreneur said that in his firm, as in many high-tech start-ups he was familiar with, family members were becoming less important, except for husband and wife teams that were fairly common in Taiwan.
The East Asian Overseas Chinese entrepreneurs studied generally had adopted the traditional conventions and practices of their larger counterparts. While they recognize that some of these practices may prevent them from achieving the growth needed to go public and compete globally, most felt this was an acceptable trade-off for control over their firms, which was a high priority. The tight control of information, decision-making, and ownership may be a hindrance hin·drance
a. The act of hindering.
b. The condition of being hindered.
2. One that hinders; an impediment. See Synonyms at obstacle. for many Overseas Chinese entrepreneurs, particularly those seeking venture capital or strategic alliances with Western firms. In that respect, East Asian entrepreneurial firms may more closely resemble what entrepreneurial research refers to as lifestyle firms--firms organized to support the personal goals of the entrepreneur rather than to maximize profits (Timmons and Spinelli, 2003). More specifically, this research suggests that East Asian entrepreneurs may not choose this path willingly, but may be forced to do so by perceived cultural constraints (Young et al., 2003).
Yet some Overseas Chinese firms have managed to grow and compete in technology-related, global markets while departing from the Chinese business model. For example Hong Kong-based, VTech is highly competitive in global markets for electronic educational toys What is an educational toy?
''' Toys, and educational toys, are typically built for and used by children. One could make the argument that an educational toy is actually any toy. Most children are constantly interacting with and learning about the world. and cordless telephones. This finn began as a small entrepreneurial venture in much the same manner as the other entrepreneurial finns examined here. But as it grew, decision-making by the owners was dispersed throughout the organization and family control de-emphasized. The firm also empowered individuals with a higher level of information and decision-making power than is typically given to outsiders in Overseas Chinese firms. Outside financing and advice was aggressively sought. This diffusion of control led to a decentralized de·cen·tral·ize
v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es
1. To distribute the administrative functions or powers of (a central authority) among several local authorities. organization structure, aggressive use of R&D, and few family members in the firm. This approach was more consistent with an Anglo-American model of management (Fallows, 1995).
Other examples of large, successful high-tech firms in Asia include Taiwan's Acer and Singapore's Creative Technology, both of which have pursued similar courses in terms of strategy, financing, and structure. Acer Group is exemplary in its decentralization de·cen·tral·ize
v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es
1. To distribute the administrative functions or powers of (a central authority) among several local authorities. , spending on R&D, and branding and marketing in more than 70 countries. Certain values associated with Overseas Chinese commercial culture, such as the loyalty and stability of senior management, have helped Acer in the global PC industry.
A key issue for Overseas Chinese businesses is the ultimate goal of their new ventures. If the goal is to build a lifestyle firm, they will likely seek tight control and grow slowly (Young, Peng, Ahlstrom and Bruton, 2002). However, most entrepreneurs interviewed ultimately wanted to grow their firms to sizes similar to VTech. Therefore, the Overseas Chinese entrepreneurs should be prepared to reform information control and decision-making while making corporate governance more transparent (Young et al., 2003). This requires hiring non-family members at some point and promoting them to senior management positions. It also involves empowering those individuals to make decisions and sharing more information with employees, venture capitalists, investors, and potential strategic alliance partners, something that Overseas Chinese businesses have been reluctant to do. Such dispersion of control and information should be built into the organization from its beginning so that the structure, culture, human resource management, and financing are consistent with these goals.
This article started by questioning whether entrepreneurial firms in East Asia have the willingness and_ability to make the changes needed for faster growth in a global environment. The willingness seems to be coming, but continued emphasis on family business, centralized decision-making and overly tight control of ownership can limit the ability of these firms to raise venture capital and attain more rapid growth. The governments of Singapore, Taiwan, Malaysia, and Hong Kong have been discussing various ways to encourage more indigenous high-tech entrepreneurship. However, the emphasis should not only be on the founding of such businesses but also on the encouragement of the founders to overcome traditional cultural boundaries.
The use of tax policy, education and training, encouragement of venture capital financing To start an own company or to bring a new product to the market, the venture may need to attract financial funding. There are several categories of financing possibilities. If it is a small venture, then perhaps the venture can rely on family funding, loans from friends , IPOs, and the creation of new financial markets as well as active encouragement from government are needed. Future research may wish to examine growing firms in East Asia to determine if Overseas Chinese firms are implementing these changes and, if so, how they have affected the growth of these entrepreneurial firms. Future research could also examine how successful Overseas Chinese firms are faring in establishing fast-growth, high-technology divisions. Such research should assess how these firms are adapting Chinese commercial culture to the new environment.
(1) For the purpose of this paper, East Asia includes Taiwan, Hong Kong, and Southeast Asia, but excludes Japan, Korea, China, and India.
(2) Although Hong Kong is now part of China, it is often associated with the Overseas Chinese diaspora (Kao, 1993; Backman, 1999).
(3) Asset shifting, which would likely generate shareholder lawsuits in most Western countries, is a relatively common practice in East Asia. A typical approach is for a private firm to buy out the more profitable part of a (related) public firm, usually at a discount, rather than making a general offer to buy the whole company. This allows the private firm to initiate a complex transaction leaving the listed firm with less profitable operations or even reducing it to a shell of its former self. Minority shareholders are the losers in these transactions (Bae, Kang and Kim, 2002).
(4) For example, the patriarchal business orientation of Overseas Chinese firms requires one to respect the patriarch founder, but "this respect kills creativity," notes James Yen, president of Advanced Microelectronic Products in Taiwan (Kao, 1933: 27). This point is particularly valid for high-technology firms where success is highly dependent upon the nurturing of individual and group creativity (Arthur, 1996).
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David Ahlstrom, The Chinese University of Hong Kong The motto of the university is "博文約禮" in Chinese, meaning "to broaden one's intellectual horizon and keep within the bounds of propriety".
Michael N. Young, The Chinese University of Hong Kong
Frankie M. C. Ng, The Hong Kong Polytechnic University The Hong Kong Polytechnic University (Abbreviated:PolyU or HKPU Traditional Chinese: 香港理工大學 Institute of Textiles & Clothing
Christine M. Chan, The University of Hong Kong The University of Hong Kong (commonly abbreviated as HKU, pronounced as "Hong Kong U") is the oldest tertiary institution in Hong Kong. Its motto is "Sapientia et Virtus" in Latin, and "
Dr. Ahlstrom has published over 35 journal and book articles; his research interests include technology management and entrepreneurship, management in Greater China, and management in history. Dr. Young has published numerous articles and focuses his research on corporate governance, management of East Asian firms, state-owned enterprise reform in China, and financial and organizational economics. Dr. Ng, who has published in several textile-related journals, has shown his own works in several exhibitions and museums. His research interests include the interrelationship in·ter·re·late
tr. & intr.v. in·ter·re·lat·ed, in·ter·re·lat·ing, in·ter·re·lates
To place in or come into mutual relationship.
in between design and technology, fashion and psychology, and image projection, perception, and leadership in China. Dr. Chan, whose dissertation on Japanese multinational corporations and paper titled "Institutional Perspective of Foreign Direct Investment Strategy" both won awards from the Academy of Management in 2003, focuses her research on foreign market entry, market entry mode, and international strategic alliance survival.