50-50 Family Business Conference VictorZheng · PDF file50-50 Family Business Conference ......

50-50 Family Business ConferenceFrom 50 to 100: Steps towards Successful Generative Family EnterprisesFrom 50 to 100: Steps towards Successful Generative Family Enterprises
Network Capital and Li & Fung Group:Network Capital and Li & Fung Group: Four Generations of Leadership Competition
Dr. Victor ZhengCUHK Hong Kong Institute of Asia-Pacific Studies
CUHK, 10 December 2013

Introduction* Networking as consumption or investment?* Wedding banquet and birthday party are common
social gatherings but can achieve different results* Sabrina Fungs wedding vs a Dutch teenage girls g g g g
birthday party
CUHK Business School Center for Family Business 50-50 Family Business Conference CopyrightVictor Zheng 2013 2

Network Capital for Enterprise Building and ControlEnterprise Building and Control
* Different nature of capital: economic capital, human capital,Different nature of capital: economic capital, human capital, social capital, cultural capital and moral capital
* Can facilitate certain actions of individuals who are within theCan facilitate certain actions of individuals who are within the structure (Coleman, 1990: 302).
* Bourdieus idea: social capital and cultural capital are in equalBourdieu s idea: social capital and cultural capital are in equal importance to economic capital affect social relations, life chances, social class, and more importantly, social , , p y,reproduction.
* Colemans argument: social capital and cultural capital as Co e a s a gu e t soc a cap ta a d cu tu a cap ta asresource. The way to cultivate the resource varies and is enforced through repeated exchange. Social class
CUHK Business School Center for Family Business 50-50 Family Business Conference CopyrightVictor Zheng 2013
reproduces. 3

N k C i l fNetwork Capital for Enterprise Building and Control
* Granovetter further proves that when weak-ties become well-
Enterprise Building and Control
Granovetter further proves that when weak ties become wellestablished, the strength could be large.
* He also argues that rational choice is embedded within socialHe also argues that rational choice is embedded within social relation. Economic actions should be interpreted multi-dimensionally, i.e., including social factors.
* Other scholars such as O. Williamson, N. Lin and R. Putnam also come to a similar conclusion.
* Social capital brings far-reaching effect not only on daily life, social chances, but can be transmitted from generation to generationgeneration.

N k C i l fNetwork Capital for Enterprise Building and Control
* Social capital and cultural capital are generic ideas hi h t b d t di ti i h l f th
Enterprise Building and Control
which cannot be used to distinguish people from the same social group or with a similar background.
* T b th t f i l it l d lt l* To borrow the concept of social capital and cultural capital but with emphasis on personal network weaved by a particular person (family) the concept ofby a particular person (family) the concept of network capital, a kind of idiosyncratic investment (Williamson, 1979: 242), is suggested for analysis/discussion.
* Network capital is used to explain the growth, expansion, division and control of the Li & Fung Group, a globalised family-controlled firm based in Hong Kong
Hong Kong.5

Family and Business:Family and Business:Dynamic Forces for Development
* Every family/business/individual is organised like a universe or cosmosuniverse or cosmos .
* There is a saying that every individual is at the centre of its little universeof its little universe .
* In the Chinese philosophy, there are two forces ki i id i dworking inside: yin and yang
which can be seent if l das centrifugal and
centripetal forces.

Family and Business:Family and Business:Dynamic Forces for Development
* If centripetal force is more dominant, family members and/or business partners can work together or live harmoniously to achieve bus ess pa t e s ca o toget e o e a o ous y to ac e ecommon goal.
* If centrifugal force is more dominant, family members and/or business partners may find autonomy/interest hampered and mostly seek for splitting.
* Siu lun Wongs (1985) family business model emergent* Siu-lun Wong s (1985) family business model emergent, centralization, segmentation and disintegration is one of the key explanations which has absorbed these two forces into consideration.
* Li & Fungs story over one century clearly shows how the families solved these two forces without hampering business developmentsolved these two forces without hampering business development and continuity.

A Brief History of Li & Fung:A Brief History of Li & Fung:House United, House Divided
* The firm was founded by LiTo ming and Fung Pak liu inTo-ming and Fung Pak-liu in Guangzhou with equal share in 1906.in 1906.
* So they named it Li & Fung.* The major business was forThe major business was for
export trade, especially porcelain to the US market.
* Business grew well. * Established a branch in
Hong Kong in the late 1910s.

A B i f Hi t f Li & FA Brief History of Li & Fung:House United, House Divided
* In 1937, set up Li & Fung Limited in Hong Kong and
,
moved their families and their major business to HK when the Anti-Japanese War broke out. In 1944, Fung Pak-liu died on a short stay in his hometowndied on a short stay in his hometown.
* After the war, Li & Fungt t d it b ire-started its business
in Hong Kong.
* But in 1946, Li To-mingsold all the shares and
fleft.

A B i f Hi t f Li & FA Brief History of Li & Fung:House United, House Divided
* Li & Fung became solely-owned by the second generation of the
ouse U ted, ouse ded
Li & Fung became solely owned by the second generation of the Fungs.
* From the 1950s to 1970s, Li & Fung made an impressive growth.* In 1972, Li & Fung was listed as more third generation joined the
firm.* In 1989 the company announced privatisation and became solely-In 1989, the company announced privatisation and became solely
controlled by a single fang (a family branch).* In 1992, Li & Fung went public again after restructuring.* It grew at an astonishing pace through mergers and acquisitions.* In the turn of the new millennium, the four generation joined the
company; another succession process startedcompany; another succession process started.

Cultivation and Transmission of the First Generation Network CapitalFirst Generation Network Capital
* Wh Li & F lit d f ll i t th h d f th* Why Li & Fung split and fell into the hands of the Fungs in 1946?
* Given that Li To ming was the chairman one* Given that Li To-ming was the chairman, one generation more senior, not to mention wealthier at the beginning.the beginning.
* Network capital is one of the explanations.* Fung Pak-liu was an old boy of Queens College theFung Pak-liu was an old boy of Queen s College, the
cradle of elites in Hong Kong, who once got the Morrison Scholarship and had spent one year in the p p yUS for further study.
* Some hints to illustrate how network capital work.

Cultivation and Transmission of the First Generation Network Capital
* A porcelain plate presented
First Generation Network Capital
* A porcelain plate presented to Dr. G.H.B. Wright, by Fung Pak-liu g
* This plate was presented in the early 20th century.W i h h h d* Wright was the headmaster of Queens College from 1881 to 1906.1881 to 1906.
* It seemed to be an souvenir after a key event.

Cultivation and Transmission of the First Generation Network Capital
* Fung Pak-liu was asked to join the
First Generation Network Capitalg j
Panama-Pacific International Exposition in San Francisco in 19151915.
* Chan Kam-tao, an old boy of QC, then Minister of Finance of ROCthen Minister of Finance of ROC, was head of the Chinese delegation to liaise Chinas part on the fair.p
* After the event, Li & Fung got a big order and its trade expanded to Hong Kong. Thus, the business relied more on Pak-lius personal network
network.
13

Cultivation and Transmission of the Second Generation Network Capital
* Li & Fung became a business solely owned by the Fung family.
Second Generation Network Capital
family. * Under the sibl

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