RCEP: Will Family Businesses Change?

26/07/2021 09:07 AM
Opinions on topical issues from thought leaders, columnists and editors.

By Dr Eric Balan

In the land mass of the Regional Comprehensive Economic Partnership (RCEP), one form of dominance stands out, family-owned businesses. To put things into perspective, the RCEP participating countries subscribe and contribute to 30% of the global GDP. The world’s GDP (as of 2020 data) stood at US$84 trillion. This means that the region of the RCEP injected US$25 trillion to the world economy. About 70% of that amount comes directly from family businesses. They also provide 60% of employment.

Family businesses dominate the RCEP region and form an integral part of the economy. The Asian economies were built on the foundation of family businesses. It is a dynamic entrepreneurial force that has shaped and reshaped the region and has improved livelihoods. They were founded during the post-war era, and till this day these family businesses are still thriving. They were the cause of the Asian boom and are largely responsible for the region’s fastest growing and expanding economies.

Two leading characteristics of family businesses

Of the many characteristics that helped family businesses to flourish, two set the pace. One, they take the long-term view of the need and desire to create sustainable legacies. They are agile and less bureaucratic, allowing for decisions to be made swiftly. When they fall, climbing back is fast because of the entrepreneurial spirit that catapults them to utilise innovative mechanisms to bounce back. Their thoughts and vision are on a different tangent than to be answering quarterly performance reviews.

Two, family businesses are people-oriented first. Family businesses gain a competitive and trust advantage by making themselves known in the inner and outer circle of the entrepreneurship ecosystem. They establish themselves early on in building long-lasting friendships in their supply chain that naturally boost the overall value of the chain. The business processes that these family businesses adopt and adapt quicken the process and shorten the steps in establishing these long-lasting relationships.

Many of these family-owned businesses were once operating under and within a protective economy and they gradually evolved into a more rapid liberalised economy. And because of the advancement of technology that had caused them to evolve (some by force), the learning and growth spurt was intense and immense. This has then moulded them into being adaptive in their thinking and they are always on a lookout for changes, making the leadership in family businesses to be prudent.

Now with the next wind of change being the RCEP, family businesses are once again put to the test, but this time, it is a welcoming one - an opportunity that was made for family businesses. The RCEP is a new global force that will alter the landscape of businesses. Because of the RCEP, the region will expand and shift from a production-oriented region to a consumer-oriented region. Instead of just making and selling, this time its buying and using too. This is a challenge and a shift that the first generation of family businesses are not familiar with, but the second and third are very well immersed into it.

It is assumed that the changing expectations will confuse and challenge the foundation of family businesses, but it will not. It will not simply because, in a data-driven ecosystem, transparency matters, and the newer generations of family run businesses are consumer first that care about their data and the privacy of it. Having the mindset of a consumer-first approach will allow the structure of the family business to envelop itself deeper into the trust factor. The live vein of family businesses is trust and this is a virtue that is far rooted into the soul of the family and of the business.

Consumers’ trust

There is no doubt that these new challenges that the RCEP brings will rock the foundation of the family businesses and its structures, but to have a successful adaptation to these changing headwinds would mean to balance production outputs together with consumers’ trust in managing their privacy and public trust in ethical operations and transparency. Behind the veneer of success (or failures), family unity combines elements of traditional wisdom with progressive principles and practical tools.

Adherence to a family principle or a “family code” offers a bulwark against the forces of disintegration and a framework for the creation of a strong, healthy, and a unified family force. A family is seen as both the bedrock of the individual’s spiritual development and the foundation for society’s stability, and in business, it is the bedrock of a nation’s economy. Family businesses shoulder the depth and the breath of a country and, with strong moral consciousness, thought leadership, and an acute sense of environmental awareness, there is no doubt that family businesses will remain as the cornerstone of Asian economies and are indispensable to the society and the nation they serve.

The preparedness of family businesses puts them in a better position to wean off disruptive forces. These preparations include but are not limited to entry and exit strategies, transition and succession pathways, and also the agility in the governance structure. Recognition of diverging perspectives between the generations serves as an advantageous piece to the governance structure in taking on new challenges. When all these are put in their proper places, what is there to stop family businesses from dominating in the RCEP’s trade offerings?

The RCEP is the next-generation business, and it is for the next generation of family business owners. The new generation understands wealth and value, and they are able to distinguish and state the differences clearly. With historical anecdotes to fall back to in terms of family values coupled with the dynamism of ambition of the present, and the hopes for a sustainable legacy, these new generation owners are expected to build, expand, and consolidate on business connectivity and opportunities to create a sustainable and a better family business to pass on.

RCEP and national transformation agendas

The RCEP goes hand-in-hand with national transformation agendas of every country. For Malaysia, it is the Putrajaya 2040 national plan, for Brunei it is the 2035 goals, for Indonesia it is the 2045 vision, and the same for all other countries in the region. For China it is the 2049 aspiration. The long periods of time and the extended visions that countries are aspiring to is already a clear sign that family businesses are to shoulder it forward. This is a generational vision that has been set forth, and in the next two decades to come, family businesses will see third and fourth, and some fifth generations of owners taking the helm and sailing through.

New family businesses are being created on the opportunities that the RCEP brings, and the first generation of these new businesses are already embracing transformations, are indeed business savvy, highly educated, well resourced, well networked, and are in spaces where access to capital is imminent. They may not come from backgrounds of family-owned businesses, but the RCEP is giving these new owners an equal level field to compete and collaborate.

It is no doubt that non-family businesses or those owned by shareholders will also capitalise on the RCEP’s offerings. These listed businesses are also well equipped and, in some case, better off than the families to be ahead of the competitions. Both of these entities, the family and non-family are in for a long haul of business continuum and challenges. The stark difference that sets these entities apart is the time, speed, and agility taken to respond to these challenges and the willingness to take on the risks that the RCEP brings.

At this juncture of time, the region of the RCEP is witnessing big transfers of business ownerships. As the RCEP is the largest trade bloc in the world, these family business handovers are too the largest seen by the world. It is a critical point of time, that while the RCEP is in the process of being ratified, family businesses should be redefining the positions they want to be in. The business positions of the past are becoming irrelevant quickly. The core of the business and the core of the families will need to be steady and firm with good practices underpinned with good family values and ethos.

Family businesses are poised to reinvest and reinvent themselves in building businesses for the greater good into the long horizon. The success of the RCEP and of the national economies of the region depends on these family businesses in doing it right and doing it fast. It cannot be exaggerated that those livelihoods of the future also depend on family businesses of the present. So, will the RCEP change family businesses and their structures, yes! But to what magnitude? It is still unknown.

On behalf of BinaPavo, Universiti Malaysia Kelantan, sponsors and event partners, I invite you to the inaugural virtual Asia Pacific Family Business Summit 2021 on Aug 20-21 with the theme “NextGen Leaders: Innovating the Family Business for Continuity into the Next Century”:


Dr Eric Balan is Consultant and Research Fellow at BinaPavo @ kCommerce (M) Sdn Bhd.

(The views expressed in this article are those of the author(s) and do not reflect the official policy or position of BERNAMA)