The Asia Report 2017

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The Asia Report 2017 THE ASIA REPORT 2017 A COLLECTION OF THE LATEST INSIGHTS, OBSERVATIONS AND TRENDS IMPACTING THE ASIAN BUSINESS AND ECONOMIC LANDSCAPE Forward Main Contents WELCOME 2017 has certainly been a momentous year with unpredictable and turbulent events shaping the global economy and the course of history. These outcomes have undoubtedly altered our norm and as such, businesses across the globe are entering uncharted territory. To assist businesses dealing with these challenging times, we would like to wrap up 2017 sharing the top insights from our colleagues across Asia. What you will find in this report is a collection of our hottest reads revolving around insights, observations and trends which are impacting Asian businesses and economic landscapes. The articles are written by our leading experts across FTI Consulting, and are intended to inform and help our clients. Organisations looking to protect value and capture opportunities in this dynamic environment can look to these articles for practical, workable solutions, and to assist in gaining an understanding on the range of complexities facing businesses today. As a collective firm of experts, FTI Consulting offers a comprehensive suite of services designed to assist clients across the business cycle. From managing change, mitigating risk and resolving disputes, we help organisations across the globe transform the way they anticipate and respond to events, both at critical moments and for the long haul. Providing expertise on financial, operational, political & regulatory, reputational and transactional matters, individually, each practice is a leader in its specific field, staffed with professionals recognised for the depth of their knowledge and a track record of making an impact. We hope you find these articles useful and are always keen to hear your thoughts and observations. Enjoy! John Batchelor & Jon Rowell Co-Leads, Asia FTI Consulting Back Forward Main Contents CONTENTS China n China’s Second Generation: Will the “Fuerdai” Continue to Run the Family Business? n Doing Business in Xi’s New Era Japan n Dealing with Bribery: A Perspective from Japan n 4 Things Japan Needs to Do to Improve its Business Climate India n India and the UAE: Ancient Alliance, New Opportunities n India Disclosure Index 2017 Back Forward Main Contents China n China’s Second Generation: Will the “Fuerdai” Continue to Run the Family Business? n Doing Business in Xi’s New Era Back Forward Main Contents CHINA’S SECOND GENERATION Will the ‘Fuerdai’ Continue to Run the Family Business? Family-run businesses in China constitute an incredibly important part of the national economy. Private enterprises accounted for about 86 percent of the Chinese market in 2015,1 with most of these firms being classified as family-run businesses, this group dominates the country’s corporate landscape, playing a huge role in employment, job creation and the generation of gross domestic product. Economic liberalisation in the late-1970s provided the catalyst In a recent address to his company, Wang was quoted saying: for China’s entrepreneurs to grasp new opportunities. Many “I have asked my son about the succession plan, and he said he leveraged this era of market reforms and rapid growth in the does not want to live a life like mine,” He then went on to say: Chinese market to start-up and grow their own businesses. “Perhaps young people have their own quests and priorities. However, as China’s first-generation of entrepreneurs now Probably it will be better to hand over to professional managers hit their 50s and 60s and look to retire, questions around and have us sit on the board and see them run the company.”2 leadership transition and succession have raised many new While this statement from Wang is quite out of the ordinary challenges. and does not conform to the traditionalists’ Chinese view that Succession planning for Chinese family businesses has always the family business shall remain within the family, it could be a been a contentious matter. Having worked incredibly hard to sign of things to come as we expect to see many more Chinese build their own business, first-generation entrepreneurs in families breaking tradition and relinquishing control of their China express an overwhelming desire to maintain control businesses to let outsiders or professional management firms within the family — even as concerns on whether their run their company. successors have the willingness and experience to manage the Over the next 10 years, a number of self-made Chinese business begin to dominate the conversation. This reluctance billionaires such as Wang are expected to address questions to hand over management to outside professional managers around succession. Family-run businesses across China saw a high-profile turn after Wang Jianlin, founder and chairman will be entering into a new phase marked with a number of of Dalian Wanda Group (and currently China’s wealthiest leadership transitions from founders to their children. As a individual), declared his intentions to pass over the reins of his result, succession planning (or lack thereof) has visibly become business empire to an external professional manager. Dalian a concern. Wanda Group is China’s most prominent real estate developer as well as the world’s largest movie theatre operator. 1 State Administration for Industry & Commerce (SAIC), http://www.scmp.com/business/companies/article/1982179/accurately-pricingfamily-business-succession-plan 2 http://www.scmp.com/news/china/money-wealth/article/2053915/chinaswealthiest-man-considers-picking-successor-his-only Back Forward Section Contents Main Contents CHINA’S SECOND GENERATION: WILL THE ‘FUERDAI’ CONTINUE TO RUN THE FAMILY BUSINESS? While times of leadership transition always bring about resulted in the elder brother launching legal action against his uncertainty, this is much more pronounced in family younger brother in order to either buy his shares out or wind-up businesses where the changeover can result in the loss of the entire business. personal business connections and insider knowledge. In line One may argue that it was traditional thinking of equally with this, the track record for generational transitions has not dividing shares that then became the catalyst for the ensuing been very favourable with one study (conducted by Professor family feud. In the past, disputes were settled internally Joseph Fan of the Chinese University of Hong Kong) showing within the family and this was successful because the sole that companies lose nearly 60 percent of their value during the founder was always the dominant decision maker. As soon transition from one generation to another.3 as you have multiple stakeholders in the fold, the rules of The challenges of succession planning tend to be more engagement must be clearly documented. Otherwise the room acute in Asia where cultural sensitivities around the matter for disputes remains large and the chance of business value of retirement make it difficult to then broach the subject being destroyed is greater. This can be a foreign concept for of transition. As a result, many families do not spend time Chinese families thoroughly embedded in their traditions who carefully planning the transfer of management from one strongly feel that this is “not how we do things.” Accordingly, generation to another and consequently expose their professional advisors are often called in too late, and are left to businesses to more risk. clean up the mess or manage the crisis, as opposed to assisting the family in preparing for the inevitable. Traditional Barriers Traditionally, the Chinese family philosophy is to divide Reluctant Leaders ownership of its business equally amongst its family members China’s wave of successful entrepreneurs has created a unique when the founder moves on or retires. Unwritten rules phenomenon in the country: the second-generation rich, pertaining to governance and control of the family business commonly known as “fuerdai.” Known for their exorbitant are based on intimate histories, complex cultures and family spending, expensive cars, brand name clothing and swanky values. Very often nothing is formally documented. gadgets, the fuerdai are also perceived by society to only know how to show-off their wealth, and lack the ability to create When a business is primarily under sole ownership and then wealth like their parents. divided and transferred to several owners, the likelihood of conflict is high. The goals and interests of one family member Like Wang’s son, the children of first-generation entrepreneurs may not align with the others, making it very difficult for family often show a lack of interest in taking over the family business. members to work in harmony for the family name, particularly A recent survey of 182 Chinese family companies, conducted when interfamily clashes take place or if certain family by the Shanghai Jiao Tong University, found that 82 percent members take advantage of the situation in order to reap more of surveyed heirs said they were reluctant to take over the benefits than others. The scenario often results in disputes family business. Aside from not wanting to live like their amongst family members that end up spilling into complex, parents as Wang’s son had purported to him, a majority of the drawn out and expensive legal proceedings. One does not need founders’ children who were tertiary educated overseas have to look any further than the highly-publicised Yung Kee feud shown more interest in pursuing other careers and interests. which unfolded in Hong Kong. Globalisation of the modern world has provided some of these The founder of the Yung Kee business created his wealth Chinese children exposure to more diverse cultures and ways of and empire by selling BBQ goose. When he passed away, he thinking. As a result, a considerable proportion of the fuerdai, at amassed a fortune valued in excess of HK$1 billion. least two out of every ten, chose to start their own businesses, mostly in different areas to ‘prove themselves.’4 The founder had perceived that Yung Kee would be managed by his two eldest sons.
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