Tag Archives: Asian Family Business

Rise, Fall and Rise of the EYS Family Business

Asian giant Eu Yan Sang (EYS) International is a traditional Chinese medicine (TCM) provider. The company was established in the late 1870s and has been in operation for 138 years. It is managed by a combination of fourth-generation descendants and professional managers.

This article highlights the complex nature of family businesses and the even more complex and often unwieldy interplay of preserving family values, managing sibling rivalries, personality differences, and reviving a century old business using modern management techniques.

Adding to the 100 year old drama that almost imperiled the business was the murder of Eu Tong Sen’s wife by his brothers, the sellout to an outside investor and the repurchase by the fourth generation members giving back control of the business to family.

Growing the Family Business

In an interview by NUS adjunct Prof Alison Eyring, she asked Richard Eu, the great grandson who led the buyout for his advice to leaders who want to grow a family business…

“Every generation, you’ve got to think what you want to do with the family business. Is your business the right business for the future? Is it more important to preserve the family or more important to preserve the business? That’s a discussion that you’ve got to have within the family and there’s many different parts to this. The family must have ongoing conversations about its future. This isn’t just about the patriarch or the founder – it’s got to include everybody.”

The entry of the fourth generation was a period of ups and downs but would end up as Eu San Sang’s defining moment.

Sell out due to 10 Uncles and 72 Cousins

In one newspaper account, Richard persuaded the board to make him general manager in 1989. But he ended up running  into a brick wall when the clan, comprising of mostly extended family members that included 10 uncles and aunts and 72 cousins, did not support him.

Instead, they sold their shares to the construction company Lum Chang. For the latter, it was a just an opportunistic investment in taking over the company.

Despite losing control, Richard navigated the company to steady growth, with the launch of a breakthrough product, American Ginseng Tea in 1991. The year after, the company listed in the Hong Kong Stock Exchange.

Four years later, Richard Eu and two of his cousins engineered a buy out of Lum Chang’s shares in EYS Holdings – making the firm a family business once again.

Back to Being a Family Business

Expansion went full-blast in Hong Kong, with its facility receiving ISO certification. In the coming years, the company achieved one milestone after another. The company would also end up becoming the majority stockholder of Australian health giant Healthzone.

With the company pursuing online automation for quality control, it aggressively expanded to more than 300 stores and clinics across four continents with $230 million in sales.

Growth and Expansion

Richard acknowledges that professionals are necessary in a huge enterprise, but he once told Asia Society that non-family managers tend to think short-term rather than long-term. For him, family is still paramount.

Since it was publicly listed in 2000, Eu Yan Sang has delivered double digit growth. In its core markets of Singapore, Malaysia and Hong Kong – the business enjoys the largest market share in its sector.

Many thanks to the participants of my Family Constitution seminar (Manila Series) last Saturday at the Tower Club in Makati as well as the participants who attended my talk in Jakarta the week before. These talks are extremely important for business owners in their quest to create a lasting legacy for their enterprises.

(esoriano@wongadvisory.com)

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138 years of murder, sellout, buyout, growth

THE Eu Yan Sang Group is one inspiring family enterprise and undoubtedly deserves to be in the top spot of my Family Business Longevity Series because of the resiliency and resolve of the fourth generation members to regain control, where they ended up owning the majority shares after engineering a buyout from an outsider/investor.

It is a classic “stalls to stars to almost stalls and back to stars” turnaround story!

According to an account by Rachel Cheung in the South China Post, “despite years of family strife, the murder of the founder’s wife by her brothers-in-law and a takeover by a Singapore investment group, traditional Chinese medicine maker Eu Yan Sang has survived and flourished as a Hong Kong icon.”

Founded in 1879, Eu Yan Sang is Asia’s leading brand in the healthcare industry, with a core focus on traditional Chinese medicine (TCM). They market quality Chinese herbs, Chinese Proprietary Medicines, as well as health foods and supplements, offering more than 900 products under the Eu Yan Sang brand and sub-brands plus over 1,000 different types of Chinese herbs and other medicinal products.

The company’s ability to control the total supply chain enabled it to expand across Singapore with more than 50 retail outlets in major shopping malls and residential estates.

Overcoming years of strife and betrayal, the Eu Yan Sang Group is celebrating its 138th anniversary this year. It is now being run by the fourth-generation family members headed by the savvy and daring Richard Eu, two cousins together with institutional shareholder Temasek Holdings & Tower Capital.

In the 1870s, founder Eu Kong Pai, better known as Eu Kong, left the village of Foshan in Guangdong, China and settled down in the small mining town of Gopeng, Perak (now Malaysia). After failed ventures in a bakery and a textile dyeing business, Eu joined thousands of Chinese miners on a tin rush and noticed that his fellow mine workers were heavily dependent on opium as the easiest method for immediate relief for their medical needs.

He decided to start selling traditional Chinese herbal medicine using the ancient recipes that had been passed down through Chinese culture. Eu Kong opened his first Chinese medicine shop in 1879 in Gopeng.

In a 2009 biography by Ilsa Sharp about his son, Eu Tong Sen, the father was pictured as a savvy entrepreneur, acquiring land that was rich in tin deposits. Eu Kong eventually became a prominent businessman, supported by his second wife Mun Woon Chang, a well-connected Nyonya (female Malacca Strait-born Chinese).

The book also recounted that Eu’s success was short-lived. A disease suspected as smallpox, claimed his life at the age of 37. All his possessions went to Mun, triggering the envy of his two gambling addict brothers, who murdered her by lacing the family dinner with poison during a visit to China.

Sixteen-year-old Eu Tong Sen, who inherited his father’s business, narrowly escaped death himself. Toughened by the traumas of his early life, he went on to become one of the richest men in Southeast Asia in the early 20th century, owning tin mines, rubber plantations, properties and even a bank.

To be continued…

(esoriano@wongadvisory.com)

Family Charter and Succession Planning

I will now continue my Family Business Longevity Series using Royal Selangor as a gold standard for Family and Business Governance. Family owned businesses reaching a milestone of more than 100 years are indeed extraordinary and Royal Selangor, a Malaysian company that started in the 1880’s and with Chinese descent has proven that with a well-crafted Family Charter (constitution) and a timely succession process, the family business can continue to survive and grow amidst a complex and competitive marketplace.

Allow me to continue Royal Selangor’s amazing 132-year story.

The Yong brothers started out as tinsmiths making everyday items catering to the growing mining community at that time. Gradually, they started a side business crafting pewter to make Chinese ancestral worship items.  In time, Yong Kong veered off and established Malayan Pewter Works. The company — jointly run by Yong Kong’s four sons — expanded into making cigarette boxes and tea sets in the 1900s, which got the attention of European clientele.

After World War II, family feuds tore the business apart and the brothers set up rival companies Tiger Pewter, Selangor Pewter and Lion Pewter. However, only  Selangor Pewter, which was renamed Royal Selangor in 1992, survived. Right after the Malayan independence, it began making souvenirs and corporate gifts.

What were the lessons learned that led to the break up?

“My father told me to beware of family feuds. If you have family members contesting over the pot, then nobody looks after enlarging the pot,”says Yong Poh Kon, the Managing director of Royal Selangor International and third-generation leader of the family business. Although in one interview he concedes that for this type of business to survive, product innovation is the key to stay in the game, however he also emphatically asserts that succession planning should be given utmost attention.

While he wouldn’t say whether his son or his nephew would eventually be chosen to lead the business, the third-generation patriarch stated criteria and gave advice for his successor.

“It will be based upon the track record of the person and the support he will be able to derive to bring his idea into action.  Maintain the family harmony so that everybody feels that they are part of the business… continue this, then you are able to have the passion to drive the business forward,” Yong said.

In the PwC Family Business Survey 2016 — the Malaysian chapter points out that although 69% of local family businesses have members of the next generation working in the company, but only 15% have a robust, documented and communicated succession plan. That survey reflects a looming universal trend among family businesses that tend to overlook the dire consequences when senior business leaders set aside or completely neglect succession planning.

Another source of major conflict and possibly one of the biggest dangers faced by family businesses today is the risk of the younger generation taking it as a free ride and feeling a sense of entitlement to a position in the company purely because of his or her surname. To avoid this, Royal Selangor employs a policy wherein every family member has to work in another company for a period of time before joining the business.

“The rationale behind working in another organization and the reason why that rule is in place is because you have to have something to contribute and bring to the table if you want to work for the company”.

(esoriano@wongadvisory.com)

Royal Selangor’s Amazing 132 Year Success Story

I am back in the country after a grueling 7 days of uninterrupted Family and Corporate Governance campaign covering major business groups in two of East Africa’s biggest economies, Kenya and Ethiopia.

This campaign is an initiative of the World Bank’s private sector arm, International Finance Corporation or IFC in making sure the investment they placed in these family owned enterprises adhere to Corporate governance protocols. 

Family-owned and controlled businesses loom large not only in Asia but also in Africa. Some are grappling with awkward succession battles, while others have shown innovation as younger members rise through the ranks. The issue is why do some family businesses go on for centuries. What is their secret?

To address this phenomenon, I have embarked on a new set of articles that will focus mainly on family business longevity series. The first two companies I shared  last month was that of the almost 500 year old/18th Generation Toraya Confectionery Group from Japan and the Hongkong based Lee Kum Kee Condiments Group. Toraya has been recognized as one of the world’s top 25 oldest family owned business.

Next in our longevity success stories is Royal Selangor, a 132-year old Malaysian pewter manufacturer and retailer and considered the largest of its type in the world. 

Founded in 1885 by Yong Chin Seong, Yong Wai Seong and Yong Koon, it is a successful family business that has weathered global recessions, survived two world wars as well as the boom and bust of the tin industry, including a bitter family feud.

The company started out making Chinese ancestral worship items in the 1880s and later expanded to cigarette boxes and vases that appealed to European colonials. In the 1950s it began making souvenirs and corporate gifts after the Malaysian independence sparked a tourism boom.

Royal Selangor opened its first store abroad in the 1970s and now has 50 stores around the world in countries including Singapore, Japan and Australia.  The brand is also found in stores such as Harrods and John Lewis in the UK.

For all these fame and fortune,  “Thanks to proper succession planning and a family charter in place,” notes Yoon Li, who runs the business with cousin Chen Tien Yue, making them the fourth generation to do so.  Apart from the two, the company is run by a team of professional managers. “We rely on the heads of various departments to come up with strategies and execution plans,” says Yoon Li.

For the fourth generation family members, formulating a Family Charter was the best thing that ever happened to Royal Selangor. And to prevent a repeat of a damaging family feud, a six-member family council along with a family charter, were established in 2002 with guidelines to handle potential disputes. 

Yoon Li says his family’s charter has gone through at least 30 iterations since it was implemented. It was put in place to ensure that the family business “was not considered a place of occupation for family members or an employer of last resort.”

This policy simply means that anyone interested in joining the family business is required to have worked outside the scope of the company for at least two years. The charter basically sets the ground rules and is the constitution for how the family engages with the business. For instance, things like who gets to have a physical office and who is allowed to use the resources of the business are specified in the charter. 

“It is this foundation that has kept the family run entity in business all these years,” he adds.

(esoriano@wongadvisory.com)

Only One Child Inherits (Last Part)

NAIROBI, KENYA. We have all heard about the 3rd generation curse and are familiar with the grim statistics that only 3% of all family-owned corporations make it into the fourth generation.

I am in Nairobi now for a week-long World Bank/IFC mission to promote corporate governance amongst East Africa’s aggressive family owned enterprises and I would frequently challenge business leaders to ponder on the unique Japanese approach to longevity especially for the Toraya Group.

Five hundred years later, Toraya continues to stand tall above other family owned enterprises with the current proprietor belonging to the 17th generation, ably supported by the next in line successor-son Kurokawa Mitsuharu.

How did the family business managed to navigate the business amidst an emotion-driven enterprise where family relationships always come first over business?

The “ie” concept, unique only to Japanese family business community immediately comes to life.

Non-existent to the western world, the concept in a patrilineal household, is at the core of the traditional Japanese family and is based on a forefather or primogenitor model.

In this ecosystem, only one child inherits. All of the other children in any generation are expected to eventually leave the family and go on to establish themselves in some other institution. The chosen successor, usually the eldest son, inherits the family and everything to do with the family, and the rest of the children have to find their own way in the world.

In theory, the “ie” should last forever and in principle never dies. Japanese culture plays down the role of the individual and places significance on the importance of conformity and the success of the group.

The primary objective of an “ie” is to preserve the clan. Therefore, it entails: (1) long-term planning, (2) priority to market share, rather than profit, (3) weak shareholder position, (4) resisting mergers and acquisitions, and (5) displaying, even more, strength in the face of adversity.

Since the company should last forever, a Japanese family business based on the “ie” principle will have very few disturbances from misalignment or possible frictions between the different family circles.

The Chairman/CEO and head of the “ie” is usually in full control and the family is programmed to support him in any possible way.

In case there are no children or the offspring of the owning family is not willing or capable to fill the position, the head of the “ie” can rope in an outsider via adoption.

This centuries-old adult adoption practice in Japan was developed as a mechanism for families to extend their family name, estate and ancestry without an unwieldy reliance on bloodlines.  The Chairman/ CEO of the “ie” can substitute his own bloodline with a competent person that he likes.

By choosing a “mini-me” he can ensure the survival of the business and bar incompetent heirs from ruining the family lineage. The effect is twofold: (1) his own children will be much more aligned to the overall business goals; (2) he signals to his employees or talent pool that they also have a theoretical chance to make it big.

It is the unwritten spirit of “ie” and truly lived unity that is powerful. Written agreements are important, but worthless if the core “ie” does not exist.

This addresses the question why Japan has 7 out of the 10 oldest companies on the planet and also has the highest concentration of old family businesses by any measure such as GDP, population, and land mass.

(esoriano@wongadvisory.com)

The Heart of a 500 Year Old Family Business (Part 2)

In Toraya’s English webpage, the first clearly documented reference to Toraya is an existing temple records from 1600. There are also records dated September 15, 1635 that provide a glimpse into the company’s business at the time of proprietor Enchu Kurokawa’s death. I will walk the reader and articulate each of Toraya’s longevity principles as manifested in their 500 years of existence.

No. 1 It Is Important to Focus on the Present

Toraya’s current president, Kurokawa Mitsuhiro, the seventeenth to take the helm, does not spend too much time dwelling on his company’s illustrious past.  Kurokawa believes focus on what needs to be done now, rather than simply following the ways of the past, is what has kept Toraya in business all these years and also allowed it to preserve many of its traditions.

According to him, “It’s mere hindsight for us to ponder why Toraya has been around for so long.  What’s important is not the past or even the future, but the present. It comes down to doing what needs to be done to create the sort of sweets that customers will like.”

This flexibility may have something to do with the fact that there are no set-in-stone Kurokawa “family precepts” to be passed down from father to son. When Kurokawa Mitsuhiro took over from his own father, back in 1991, he realized the freedom and responsibility that came with the position: “Since there were no precepts, it was basically: Do what you like—it’s all up to you now.”

Thus, Kurokawa asserts that choice, not circumstances, determines success.  As Geoffrey Gaberino, 1984 Olympic Gold Medalist says, “The real contest is always between what you’ve done and what you’re  capable of doing.  You measure yourself against yourself and nobody else.”

It might sound overly simplistic, but if you’re going to sell something successfully, it better be worth the price tag.  This is another longevity formula for success that the Toraya Company holds on to.

No. 2 The Goal is to Be Relevant And Authentic

Temple records dated September 15, 1635 showed a list of 20 types of confectionery that Toraya (literally, “tiger store”)  served to the Empress Meisho on the occasion of her visit to her father’s court of retirement.  In 2003, the company opened its first Toraya Café in the fashionable Roppongi Hills building in Tokyo, featuring a lineup of sweets that combine elements of wagashi and Western confectioneries to create a whole new taste category.

The company’s effort to cultivate a taste for wagashi is not limited to overseas; it is also doing its utmost to foster demand among Japan’s younger generation, which has become more familiar with European-style confectionaries than home-grown ones.

No. 3 Product Centric

Matsudaira Naritada, head of Toraya’s Public Relations Division, explains that the firm is always developing new namagashi and other sweets—a process that takes around three years for each item. But Toraya only introduces a sweet once it has complete confidence in the new creation—without relying on customer feedback along the way to make adjustments.

Because the namgashi lineup is always changing, including the appearance of brand-new items, each visit to a Toraya shop promises a novel encounter. And the items selected have a connection to the particular time of the year, both in their design and in the ingredients they contain.

To be continued…

(esoriano@wongadvisory.com)

Chinese values shunned by next generation leaders?

I AM back in the US for talks and family coaching sessions after only a month in Asia. Counting the many exchanges with colleagues at the University of San Francisco (USF), I finally delivered a lecture last Thursday related to Asian business strategy and growth as well as the impact of trading blocs like ASEAN and APEC.

Many thanks to those who attended my lecture most notably the department chairs, faculty members and the multi-racial business students comprising several classes belonging to USF’s School of Management.

Ateneo and USF are Jesuit Catholic universities.

USF is a top tier Jesuit Catholic university and the school’s main campus is located on a 22-hectare setting between the Golden Gate Bridge and Golden Gate Park. The hilly campus has a breathtaking view of downtown San Francisco. Belonging to the same order like Ateneo de Manila University, it’s Jesuit Catholic identity is rooted in the vision and work of St. Ignatius of Loyola, the founder of the Jesuit order.

Prof. Danny, a colleague at the Ateneo Graduate School of Business and a senior family business advisor for Chinese families at W+B Strategic Advisory Group is an MBA alumnus of USF.

Asian family business

I immensely enjoyed the interaction with students and I counted more than half of the participants of Asian origin. Most of the questions were trained at their desire to know more about the dramatic changes in Asia and validates their beliefs that there is indeed a plethora of business opportunities worth growing outside the US.

My lecture was an obvious eye opener and talks are under way to organize an even bigger event. If this major activity materializes, it will be a collaboration with the Chinese Business Studies Initiative of the University. That is another article in itself but briefly, the USF China Business Studies Initiative provides a platform for collaboration with the influential Chinese business community and bridges Chinese business leaders, public policy makers and academics. It will be an honor to be part of that initiative in the near future.

Why? I get to understand in a much deeper perspective why the present crop of Chinese leaders are deliberately asserting and re-introducing history and confucian values to overseas based Chinese. That concerted effort supported with funds from prominent Chinese businesses has gained considerable influence in practically all areas…business, academe and the political spectrum of a given community. Depending on how you look at it, my firsthand knowledge mentoring family businesses is a good starting point…I have noticed next generation Chinese family members’ waning interest in embracing Chinese values and practices.

Chinese influence has waned in family enterprises

For thousands of years Chinese rulers have wanted to build dynasties. And in Asia, family businesses remain a tradition. But something new is happening in Chinese family firms.

As the younger generation of Chinese business owners have been increasingly exposed to Western values, the gap between them and the older generation has become a source of conflict in the succession planning of family businesses.

Incidents of family court business disputes are increasing at an alarming rate, with poor succession planning as a root cause of the problem. The impact of poorly managed succession and family infighting can be significant, both for the family business and investors.

Some think the best path to future success is to ditch leadership by family members – and instead bring in the professionals.

But is this the right way forward? What lessons can we learn from the family approach to business?

Professor Joseph P.H. Fan, researcher and educator of family business governance at The Chinese University of Hong Kong wrote in his book “Critical Generations – Out of the Succession Dilemma of Chinese Family Businesses” that the market value of 250 listed family firms in Hong Kong, Taiwan and Singapore declined by almost 60 percent on average starting from five years before to the year the family patriarch handed over the business to his successor.

In other words, if an investor bought shares valued at $100 five years before the succession, the value of their shares would be reduced to an average of $40 three years after the succession. Hong Kong companies dropped the most, losing some 80 percent on average, with Taiwan and Singapore family-owned companies falling about 40 percent and 20 percent, respectively. Hence, if greater China entrepreneurs take Professor Fan’s advice, there should be a lot more public companies. He wrote that a stock market listing is a good way to distribute ownership to family members.

Chinese values are difficult to pass on

According to Prof. Fan, the reason behind the shocking succession decline is two-fold. First, intangible assets such as values, skills and networks, although commonly found among the first generation entrepreneurs, are difficult to be passed on to the next generation. Second, Chinese families also face various family, industrial, and institutional obstacles such as family brain drain, regulatory changes, and political uncertainty, which can destroy or ruin the families and their businesses.

To be continued.