Proof that family businesses are an essential component of Vietnam's economy lies in the fact that the largest 100 contribute approximately 25 per cent to the country's GDP.
Start-ups normally begin small-scale so the “family business model” holds certain advantages, such as the natural trust in one another, no strict requirements on salaries and no hard-and-fast job descriptions, as everyone is focused on the task at hand. These advantages are invaluable, especially when a company is yet to possess the capacity to attract high-quality human resources. The model has proven itself successful over the last few decades in Vietnam. “Since 1986 there have been many family businesses that have made substantial contributions to the country’s development and become strong brands,” said Mr Le Quang Phuc, Chairman of BDSC Management Consulting.
According to recent estimates by Mr Pham Dinh Doan, Chairman of the Phu Thai Group, 80 per cent of businesses in the private sector are family businesses, and the largest 100 contribute around 25 per cent of total GDP. Globally, family businesses account for around 70 per cent of all companies. In the Top 500 most successful brands in the world, more than one-third are family businesses. In discussing the success of Toyota, Samsung and Hyundai, Mr Lawrence Chong, CEO and co-founder of Consulus, underlined that besides professionalism families can generate greater commitment to producing better products and services and, ultimately, prosperity for the family.
On the other hand, the term “family business” also comes with negative connotations, indicating a closed, conservative working environment not fully open to outsiders. The founders of family businesses normally have impressive professional skills but not necessarily good management skills. They generally handle tasks one by one and lack vision and overall direction. A typical issue family business leaders in Vietnam admit to experiencing relates to delegation. By focusing too much on every detail they can often fail to see their true role. They see the tree in front of them but the forest goes unnoticed. “I’m too busy and don’t have time to learn new things,” is a common sentiment.
Moreover, even when managers know when they should assign tasks to others they may end up assigning it to the wrong person, as positions are frequently based on relationships within the family rather than on personal abilities. The same thing happens when it comes to problem solving or conflict resolution; managers can be overly influenced by family relationships instead of making impartial judgements. For this reason, family members may rely on others while staff from outside of the family, if there are any, can feel discontented and will sooner or later give thought to leaving.
More critically, despite the low level of leadership and managerial skills, family business leaders can be extremely paternalistic and dictatorial, as the business is “theirs”. In some cases family business owners lean towards appointing staff they feel will follow directions over staff that have talent. The family management model can also result in a degree of backward thinking. As the business environment becomes more competitive every passing day, if changes are not made then the business will eventually crumble. According to a recent survey by the Vietnam Chamber of Commerce and Industry (VCCI), the “pure” family business model does not last for long. Only a modest 10 per cent manage to remain in business after three generations.
The strength of the family business model is that family members remain absolutely loyal to the company’s goals and are flexible and agile in management and administration while still being able to maintain tight cooperation among key members. Most family businesses operate at the sole direction of the owner, who is likely to assign tasks based on subjective beliefs such as the company’s money is only safe with members of the family.
Such management methods often strip employees of their dynamism and opportunities to develop, while putting them under greater pressure due to the overlapping interests of family members. These factors are why many talented people prefer not to work for a family business, regardless of any handsome remuneration packages. In order to attract and then retain the talent needed for the company to thrive, family businesses must change their management methods to one that is more “scientific”.
Looking a bit deeper, changes in vision and management methods may take place slowly through generational change, so the question of who to “pass the baton to” becomes a matter of great concern. This is not only important for the family but also for any shareholders in a more modern family business model. Passing the baton between generations requires the heirs to share the ownership of the company in a spirit of being partners, but most family businesses fail to resolve this governance issue. The decision on which person steps in is extremely tough.
Many family business leaders, when asked by VET, said they would not transfer governance to their sons or daughters if they had failed to gain their trust when the time comes. Nevertheless, in general, a majority of family businesses tend to pass on the baton along family lines. Many family business leaders that are the direct descendants of the company founder have successfully taken over but there are others who have encountered various difficulties and tasted failure. Against all odds, many still place hope that the family bloodline will produce the manager that can take the company forward.
Many businesspeople born in the 1980s or early 1990s have been well-educated in world-class education systems in the US, the UK, Australia, or Japan, and are ready to follow in the footsteps of their parents and grandparents. Mr Chong, however, emphasised that Vietnamese as well as Asian family businesses usually send their descendants abroad for higher education without realising that they are the ones who can provide the knowledge and experience needed to run the family business. Mr Doan has three children and he has been guiding them since they were young with a view to them taking over the Phu Thai Group.
The hand over at the Dai Dong Tien Corporation was a bit different, with the sudden ill health of owner Mr Trinh Dong in 2007. The global economic crisis was just beginning to make itself felt as well, and the corporation began to resemble a ship without a captain. Mr Dong’s eldest son, Mr Trinh Chi Cuong, was summoned back to Vietnam from Singapore to take over. Despite graduating with a management degree and having a few years experience under his belt, the second generation of Dai Dong Tien took up the reins under something of a cloud. But he had the right solutions in mind, and once adopted the company came out the other end unscathed.
When faced with difficulties most companies immediately look to cut costs on marketing and advertising, but Mr Cuong convinced the board of management to invest even more in such activities to reposition the Dai Dong Tien brand in the plastics industry and improve its export turnover. In 2011, he took the rather contentious step of selling products at a major discount to improve cash flows and relieve the company’s financial burden. In doing so the company cut its reliance on bank loans and was able to develop in a relatively stable manner.
While the Asia Commercial Bank (ACB) doesn’t fall into the category of family business, a handful of relatives hold key senior positions and account for about 10 per cent of the total ownership, making many people view it as a business of the Tran family. In 2012, after the downfall of Vice Chairman Nguyen Duc Kien, founder Mr Tran Mong Hung preferred not to return to the throne and instead abdicated to his son, Mr Tran Hung Huy, who stepped up to take charge at the age of 34.
Putting Mr Huy at the helm shocked many, but from adversity comes opportunity. He holds an MBA from Chapman University in the US and earned his doctorate at Golden Gate University. After his studies in the US he had spent his first two years at ACB as a market analyst, then four years as marketing manager and, finally, four years as Deputy General Director. With this background it took him just a year in the Chairman’s position to stabilise ACB and get it back on track.
Twenty-three-year old Ms Nguyen Ngoc My, meanwhile, co-founded the Alphanam Group’s SDesign with her aunt Ms Nguyen Hai Yen and Mr Salvador Perez Arroyo, a leading post-modern architect. The Quang Ninh Provincial Library and Museum Complex, designed by SDesign, won the “Construction of the Year 2013” award from the Vietnam Urban Planning and Development Association. She is also very much involved with her brother, Mr Nguyen Minh Nhat, in managing Alphanam Food, with its French restaurant chain and the Seventy Nine supermarket chain.
The new generation in giant family businesses in Vietnam are, in general, making their mark but time it still needed for them to gain actual working experience before they take over from their parents. Mr Doan Quoc Huy, son of the BIM Group’s Doan Quoc Viet, has chosen to continue his studies at Stanford after the difficulties the Group met with the Air Mekong venture, leaving behind Elite Fitness & Spa for his family to manage. Schooling at Stanford should not only help Mr Huy acquire precious knowledge for business at a later date but should also be rewarding in terms of future contacts and relationships.
Mr Cuong from Dai Dong Tien believes that the next generation need only follow the trail already blazed. During its difficult moments, struggling for capital, the corporation never changed its financial strategy to seek out investment funds. “Managing a company well is tough enough,” he said. “Inviting an investment fund to come in just makes it more stressful and it simply wasn’t necessary. My descendants will have to respect our existing business model, which has made us a professional family business.”
- Phu Thai Group