Publications
Executive Summary
Overseas Chinese business entrepreneurs are at the very heart of East
Asia's economic boom. Though relatively few in number, they are economically
pre-eminent, and are one of the main forces driving the dynamic growth that
characterises the region as a whole, and many of the economies in it.
The 50 million or so ethnic Chinese resident in East Asia outside China
generate an estimated GDP equivalent of about US$450 billion. This is almost
on a par with China's GDP of approximately US$500 billion, which is generated
by more than twenty times the number of people.
Although they are fewer than ten per cent of the population of South-East
Asia, ethnic Chinese make up 86 per cent of its billionaires. They control
much of the region's non-land capital and its retail trade, and are major
stakeholders in most of the region's economies.
In broad terms, this information indicates the importance of understanding
the role and modus operandi of the ethnic Chinese business community in the
economies of East Asia. For Australian companies, such an understanding brings
with it the prospect of linking up with the extensive business networks
controlled by the community, which stitch together the economies of the
region, and link them to the burgeoning China market.
Australia's links through the networks to East Asia, including China, are
set to increase in importance - and value - as Australia's community of
Chinese entrepreneurs engages more fully in a bridging role.
MIGRATION AND SETTLEMENT
Migration from China to other parts of East Asia has a long history. By the
early fifteenth century, there were permanent ethnic Chinese settlements at a
number of locations in Asia. The most important waves of migration, in terms
of the effect on the current socio-economic landscape of the region, occurred
during the nineteenth and early twentieth centuries, normally in conjunction
with periods of famine or political upheaval in China.
Almost all of those who left China during this period were from southern
coastal provinces, principally Guangdong, Fujian and Hainan. They represented
a wide spectrum of dialects of spoken Chinese, the main ones being Hokkien,
Teochiu, Cantonese, Hakka and Hainanese. These remain the main dialects spoken
by the ethnic Chinese of East Asia outside China.
Migration was not random, but usually occurred in `chains', with relatives
and neighbours tending to follow each other to particular locations throughout
the region. This phenomenon explains the relative concentration of one or more
dialect groups in different parts of East Asia today.
An important phenomenon accompanying the waves of migration from China was
the formation of mutual help societies in each place of settlement. These were
based on either kinship (clan), place of origin in China, dialect or
sub-dialect, craft, or a combination of these factors. Mutual help societies
assisted new arrivals to settle and lent money to members for specific
purposes. Many Chinese entrepreneurs were given their start in business in
this manner. Other organisations regulated the different aspects of ethnic
Chinese life in the new settlements.
In this manner, the ethnic Chinese created a cohesive web of interlocking
organisations and relationships that provided a firm and stable framework
within which traditional society could be recreated, maintained and developed
and whose individual members could prosper far from home. This characteristic
of Chinese settlement in East Asia significantly underpinned the ethnic
Chinese business community's later commercial ascendancy.
THE IMPORTANCE OF DIALECT
Like other immigrant communities, the overseas community of ethnic Chinese
is not homogeneous. Even today, ethnic Chinese may differentiate among
themselves according to dialect, sub-dialect, clan and family, all of which
are linked to their place of ancestral origin in China, as well as by country
of birth, or of current residence, outside China. The degree to which these
differentiators are considered important varies from individual to individual,
but ethnic Chinese networks, whether they are for purely social or for
business purposes, always comprise individuals who share one or more of these
characteristics.
Understanding the importance of dialects and their distribution across East
Asia is central to an understanding of how ethnic Chinese business networks
operated in the past, and operate in the present. Who did business with whom
and what was traded often could be explained, at least in part, by the dialect
and sub-dialect spoken by those involved. Today, many sectors of South-East
Asia's food trade, for example, are still largely in the hands of Teochiu
speakers. Similarly, it is more than coincidence that two of the region's most
successful and prominent ethnic Chinese entrepreneurs, Malaysia's Robert Kuok
and Indonesia's Liem Sioe Liong, who share an enduring corporate partnership,
both speak the Fuzhou/Hokchia sub-dialect, reflecting a common ancestral
origin in the north of China's Fujian Province.
A growing trend is to form international clan associations based on
dialect. An impetus has been the economic transformation of China. Among other
things, international clan associations can provide an excellent basis for
borderless commercial networking.
TRADITIONAL BUSINESS PROFILE
The vast majority of ethnic Chinese businesses in East Asia today are small
to medium sized, and these, typically, are family owned. Even the large,
ethnic Chinese-controlled conglomerates of the region are often groupings of
sometimes hundreds of much smaller companies. Other common characteristics of
traditionally-run ethnic Chinese businesses, large and small, appear to be :
- highly centralised decision making low margin and high volume as a means
of penetrating markets - rigorous control of inventory to achieve low capital investment and high
rates of stock turnover - reduction of `transaction costs' (ie the costs of doing business)
through a preference for doing business within ethnic Chinese networks - preference for internal financing tendency to undervalue services and
other intangibles, such as legal and other advice and R&D(and a
preference to internalise these costs, where possible).
MODERNISATION OF ETHNIC CHINESE BUSINESSES
Management and organisational structures that were efficient and effective
in smaller ethnic Chinese firms become increasingly inefficient as these firms
grow. In recent years, many larger ethnic Chinese enterprises in the region
have modernised, shedding many of their more traditional characteristics. This
process is continuing. With the economies of the region becoming increasingly
integrated, and with Asian companies facing increasing competition from
outside the region, many larger firms and groups have had little choice but to
bring their management structures more in line with those of other large
international companies. Operating responsibility, for example, which in the
past was concentrated at the top of the management structure, now is delegated
more and more to lower levels.
Nevertheless, today many of these businesses, even the largest of the
regional conglomerates, continue to reflect a family-oriented structure,
including an essentially patriarchal style of top-level management in which
individual members of the controlling family still play a key role. A number
of large enterprises, for example, manage the transition from a traditional to
a relatively modern business structure by installing the MBA-educated sons and
daughters of the controlling family at the head of separate divisions. In this
way, the family retains ultimate control but applies modern Western management
techniques to improve the company.
Over time, as ethnic Chinese enterprises continue to expand, such
enterprises will evolve increasingly to Western patterns of management. On the
other hand, most `modernising' ethnic Chinese businesses have been careful not
to become over-bureaucratised. Despite their size, the major ethnic Chinese
enterprises in the region remain, for the most part, entrepreneurial and
agile, with the ultimate head, no matter how large the enterprise, staying
close to the market, and remaining sensitive to shifts in market conditions.
As financial markets across Asia develop, the traditional reliance by
ethnic Chinese firms on retained earnings, or relatives or business
associates, as sources of either start-up or expansion capital is waning. The
largest ethnic Chinese enterprises increasingly resort to formal methods of
raising capital, including share issues in the case of publicly-listed
companies, although normally in ways that retain ultimate family control. The
clan, however, has remained in some communities an important source of
start-up capital, especially for the smaller firms, and retained earnings
remain the preferred source of funding for larger firms seeking to expand
their operations. Ethnic Chinese businesses are expanding outside their
traditional fields of trading, manufacturing and property development.
THE CONGLOMERATES
Many ethnic Chinese family businesses in East Asia expand by acquiring an
ever-increasing number of companies, rather than enlarging existing companies.
The resulting business group may be large, but its individual component
companies may be relatively small. In most of the economies of the region,
ethnic Chinese entrepreneurs control large, diversified conglomerates. Some of
these conglomerates, like Indonesia's Salim Group, encompass hundreds of
separate companies spread across a wide range of markets in many countries.
These conglomerates imitate the `footloose' character of other multinationals,
operating across economies, identifying niches and drawing together markets.
Almost all of the region's ethnic Chinese conglomerates remain, however,
`family firms' in that they are owned by the members of a single family.
Typically, sons and daughters will each be given a division of the
conglomerate to manage. Most of the top conglomerates are highly diversified
and not centred in a single sector.
Almost all either own or are closely associated with one or more private
banks, from which they can tap expansion funds. They usually also have links
to foreign capital - either through joint ventures with foreign companies or
loans from foreign banks. Most have offshore representation, particularly in
Singapore and Hong Kong.
As with other ethnic Chinese enterprises in the region, many of the more
successful conglomerates are modernised. Typically, their companies are formed
into a squat pyramid structure, with a family holding company at the apex, a
second tier holding the group's most prized assets (which are usually
privately held) and a third tier at the base comprising the group's
publicly-listed companies.
In several countries in the region, ethnic Chinese conglomerates are
responding to opportunities, as well as spreading political risk, by
diversifying outside their home markets. Domestically, the conglomerates also
increase interlinkages through cross-shareholdings, cross-directorships and
inter-family connections such as marriage. The interlinking of the top Chinese
conglomerates not only strengthens the economic position of the ethnic Chinese
business community throughout the region, but also its political leverage in
the region's individual economies.
SUCCESS FACTORS
All too often, the very high representation of ethnic Chinese business
entrepreneurs among the region's economic elite is ascribed to a single
factor, even by the entrepreneurs themselves. This is an oversimplification.
The reasons for the economic pre-eminence of ethnic Chinese business in the
region are many and varied. The study identifies a number of connected
elements, varying in their relative significance according to time and place,
that in one combination or another partly help explain the ethnic Chinese
business community's success.
An important element underpinning their success is that ethnic Chinese
immigrant communities establish their own `order' by creating a range of
informal organisations, the mutual help societies, for example, and networks
that support and develop their interests. This ability has made ethnic Chinese
business entrepreneurs especially competitive in environments where the legal
and administrative infrastructure, the externally imposed `order', is
relatively underdeveloped.
Through their extensive networks, which often span several countries in the
region, ethnic Chinese entrepreneurs tap the latest market intelligence to
mobilise capital at short notice and to occupy market niches where the highest
profits can be made. Operating to a significant degree within their own
networks also enables these entrepreneurs to minimise transactions costs. In
such circumstances, the element of `trust' develops naturally, although it is
also underpinned by a powerful enforcement mechanism, the potential loss of
business reputation, that is available to, and binds, every member of the
network (though not necessarily outsiders).
The study identifies a number of other elements, but the success of the
ethnic Chinese business community in the region has not been all of its own
making. Governments have also played an important role in creating a suitable
environment for the commercial flair of ethnic Chinese entrepreneurs, backed
by their extensive networks of mutual support, to show itself to best
advantage. In some cases, their advantage is enhanced through developing
symbiotic relations with local indigenous elites. This is natural, given the
commercial power wielded by ethnic Chinese business in most of the region's
economies and the tendency of ethnic Chinese entrepreneurs to eschew a direct
political role for themselves.
INVESTMENT ROLE IN EAST ASIA
The networks that serve ethnic Chinese business entrepreneurs so well in
domestic markets are borderless. They link most of East Asia's economies
together in a seamless web of connections.
The region's ethnic Chinese business entrepreneurs have created investment
flows within East Asia that may exceed flows from the Japanese, normally
thought of as the region's largest foreign investors. In particular, the
ethnic Chinese-dominated economies of Hong Kong, Taiwan and Singapore are
significant net exporters of capital to the region, particularly to the
economies of China, Thailand, Indonesia, the Philippines, Vietnam, Cambodia
and Myanmar. In this manner, the ethnic Chinese business community of East
Asia appears to have taken on a role akin to that of the Japanese in the 1970s
and early 1980s, as underwriters of the earlier stages of the region's
economic transformation.
INVESTMENT ROLE IN CHINA
Ethnic Chinese entrepreneurs also are the largest source of foreign direct
investment in China, and in this way are making a major contribution to
China's continuing economic transformation. Their investment role has been
critical to the transformation of south-eastern China into an export-oriented
economic dynamo.
Conversely, China's opening up to foreign investment has helped to develop
the ethnic Chinese business community of the region into an international
commercial force. Economic reform in China since 1985 has provided ethnic
Chinese entrepreneurs with highly profitable outlets for surplus capital, a
means of industrial restructuring and a basis, therefore, for exponential
industrial growth.
In 1994 alone, new foreign direct investment in China amounted to US$33.8
billion, of which some 70 per cent, according to official PRC records, came
from Hong Kong and Macau, and a further eight per cent from Taiwan . By the
end of 1993, ethnic Chinese investment in China employed an estimated 14
million people. On current trends, this may have increased to 18-20 million in
1995.
Ethnic Chinese entrepreneurs enjoy a considerable comparative advantage
over non-Chinese competitors. Their language, cultural and paramount skills in
making connections and networking give them ready access to market information
and an ability to negotiate their way through `the system' to apply their
market knowledge to best advantage. Their investment in China continues to be
largely concentrated in the coastal regions, but is beginning to shift inland
as labour and land costs rise. Ethnic Chinese entrepreneurs normally expand
their investment by increasing the number of enterprises they control, rather
than by making large investments in new enterprises. This is done to ensure
that new investments remain below the threshold of direct central government
regulation, and within the purview of local governments, with whom good
working relations are more easily established.
A new trend is investment in China by holding companies belonging to
South-East Asian ethnic Chinese clan associations. Much of the investment is
going into the regions of ancestral origin of clan members, using personal
connections and cultural empathies. This phenomenon, incidentally, is
providing renewed vigour to many clan associations, as the members' old links
to China become commercially valuable.
Singapore Chinese entrepreneurs, on the other hand, tend to focus away from
those provinces in which most Singapore Chinese have their ancestral origins.
Singaporean investment in China, which is significant, appears to be based
more on government-to-government ties than traditional network links. While
Singapore is a potential `gateway to China' for Australian companies, the
means of access will not usually be network-based.
INVESTMENT BEYOND THE REGION
The region's ethnic Chinese businesses are significant investors beyond
East Asia, but to date their efforts have met with mixed success. This may be
explained in part by the more limited opportunities and very different
operating conditions in the mature, low-growth economies of Europe, compared
with those applying in the high-growth East Asian economies where the ethnic
Chinese business community is successful. Ethnic Chinese businesses
established in the maturing economies of Hong Kong, Singapore and Taiwan
maintained their high growth by diversifying towards the high-growth
developing economies of Malaysia, Vietnam, the Philippines, China, and
Indonesia. There they are among the leading investors.
Investment by ethnic Chinese entrepreneurs from East Asia in the Australian
property market has been enormous in recent years. Much of this appears to be
network-based. Australia appears to be favoured for its safe and politically
stable investment environment, which complements the higher risks but higher
returns of the East Asian market.
While most ethnic Chinese investment in Australia from the region is in
hotels and office buildings, the retail and manufacturing sectors are also
beginning to attract attention. Much of this investment is from, for example,
Singapore Chinese, who are used to doing business in a highly structured
environment like Australia's, or others who have become so acculturated in
their countries of residence that they are no longer well linked into
international ethnic Chinese business networks. This group's interest in
investing in Australia may be attributed partly to a lack of special advantage
in investing elsewhere in the region. Investment in Australia by the region's
ethnic Chinese is also of course linked in many cases to migration plans.
THE NETWORKS AND 'OUTSIDERS'
The pre-eminence of East Asia's ethnic Chinese entrepreneurs in specific
markets, as well as entire economies and to a significant degree in the
aggregated economies of the region as a whole, renders them highly valuable as
business partners. Not only can they provide preferred entree to their own
domestic markets, but their ability to treat the entire region as a single
market, and their pre-eminent role in the transformation of south-eastern
China, where they have a paramount advantage, make them an appropriate partner
for Australian companies seeking joint venture access to third country
markets.
For their part, and despite a preference for doing business within the
networks they control, ethnic Chinese entrepreneurs in the region are willing
to link up with non-Chinese partners. Since the end of World War II, Japanese
manufacturers have made a concerted and highly successful effort to join
forces with ethnic Chinese entrepreneurs in South-East Asia, who have taken on
the role of distributors and local partners in manufacturing. Today, partners
from outside the region provide access to new technology, marketing and
organisational expertise, as well as entry to their domestic markets.
Increasingly, Western firms are recognising the benefits of establishing
joint ventures with ethnic Chinese entrepreneurs in East Asia, either to
develop their business interests in the region, or, more specifically, to gain
preferred entree to the China market. One recent example of such a pairing is
an agreement between the large US Walmart retail chain and Thailand's Charoen
Phokphand Group to open a chain of discount stores in China.
An increasing number of Australian companies, large and small, also are
recognising the benefits of forming strategic partnerships with well-connected
ethnic Chinese entrepreneurs from the region to gain access either to their
home markets, or other regional markets including China. In addition,
Australian companies have begun to tap the potential bound up in the
Australian Chinese community, many of whose members possess valuable
entrepreneurial skills and links with the regional economies, particularly
China.
Linking up with the Networks: Selecting a partner
SELECTING THE RIGHT PARTNER IS THE KEY
Given the degree of heterogeneity in the ethnic Chinese community, or
perhaps more accurately communities, of East Asia and Australia, Australian
companies will need to take care ensuring that their choice of partner is
appropriate to the market or markets they seek to enter. Dialect, country of
origin and current residence, and the extent of family or other networks in
targeted markets are all issues that bear on appropriateness.
In many cases, the choice may be a matter of commonsense, for example the
selection of an ethnic Chinese from Taiwan as a partner in the Taiwan market.
Where Singapore is to be used as the `gateway to China', on the other hand,
the choice may be considerably more difficult. Moreover, many ethnic Chinese
living outside China, Hong Kong or Taiwan do not speak, read or write any
Chinese dialect at all.
AUSTRALIAN CHINESE AS PARTNERS
The best choice of partner often will be a local one in the targeted
market. Alternatively, Australian companies may need to look no further than
Australia's own ethnic Chinese community to select a business partner for East
Asia.
Australia's ethnic Chinese community is one of the most diverse in the
world, with links to every country in the region. An attempt in 1992 to list
Australia's ethnic organisations identified 80 of ethnic Chinese origin,
although today, 200 is probably closer to the mark. Community organisations
include Chinese chambers of commerce, mutual help societies and various
vocational, professional and informal business organisations.
Many of these organisations have an international trade and investment
orientation, and are a useful starting point, therefore, in the search for an
appropriate partner. The great diversity of Australia's ethnic Chinese
community means that the chances of locating a potential partner for
practically any East Asian market are high. The Sino-Vietnamese community, for
example, would be well placed to supply partners for operations in Ho Chi Minh
City and other parts of southern Vietnam. Similarly, the large community of
relatively recent immigrants from China is being tapped by Australian
companies seeking to enter China's market.
THIRD COUNTRY MARKETS
Connections in third markets in the region also may be prospective.
Indonesia will be the best place to link up with Sino-Indonesian business
entrepreneurs, but for an Australian company already operating there, Hong
Kong also may be a good place to locate Sino-Indonesians to target the
Indonesian market, or to seek partners for ventures in south-eastern China.
Similarly Taiwan, with its linguistic and cultural ties to China's Fujian
Province, is a good place to link up with partners for investment in Fujian.
The presence in Singapore of large numbers of Sino-Burmese, who are leading
Singapore's business drive into their former homeland, and the Singapore
Government's concurrent investment push into China and Vietnam, make that
country a source of possible partners for those and other regional markets.
This is recognised implicitly in the strategic business linkages initiative
that both the Australian and Singapore Governments are pursuing. The
initiative aims to bring businesses of the two countries together to explore
jointly opportunities in third country markets in the region. China,
Indonesia, India and Vietnam have been identified as offering the best
prospects.
At the same time, and as has been noted above, the choice of a Singapore
Chinese partner in China is complicated by the fact that most of Singapore's
investment there has not been in the geographical areas where the overwhelming
majority of Singapore Chinese have their ancestral origins.
ETHNIC CHINESE ORGANISATIONS AS SOURCE OF PARTNERS
The Chinese chambers of commerce and other ethnic Chinese business
organisations in the region are a worthwhile first stop in the search for an
appropriate partner, particularly a local one. Many compile directories of
local ethnic Chinese businesses.
GOVERNMENTS AS FACILITATORS
This study aims to provide an educative rather than a prescriptive tool for
Australian business. Federal, state and territory governments can help to
intensify Australia's links with the region's ethnic Chinese networks chiefly
by facilitating a greater international business role for Australia's own
ethnic Chinese entrepreneurs. Its very diversity is perhaps the Australian
Chinese business community's greatest strength, and the community as a result
is well placed to tap into a wide range of networks and markets.
Federal, state and territory governments, and indeed the private sector,
have each recognised this potential in a number of initiatives aimed at
forging closercooperation between the mainstream and the various ethnic
business communities in Australia. The private sector-sponsored East Meets
West functions, Austrade's pilot Export Development through Ethnic Communities
Program, and the Productive Diversity programs of the Office of Multicultural
Affairs within the Department of the Prime Minister and Cabinet are examples.
Governments should give continuing support to initiatives of this sort,
with a view to encouraging a more integrated approach to offshore business by
mainstream and ethnic Chinese business organisations. The facilitating role of
governments is, however, necessarily limited. Ultimately, it is up to the
business organisations themselves to formalise their relations, create and
maintain databases and to carry out a `matchmaking' function between their
respective members.
The role of the Australian Government may be greater, on the other hand, in
the forging of overseas `strategic business alliances' along the lines of the
Singapore-Australia Strategic Linkages Initiative. Depending on the success of
this venture, the Government should give consideration to extending the
initiative to link up with other major concentrations of ethnic Chinese
business entrepreneurs in the region, for example Thailand, for third country
business. In this same connection, Australia's trade promotion bodies should
seek closer ties with individual Chinese chambers of commerce in the region as
a means of facilitating the formation of business pairings and consortia.
Governments should encourage the Australian Chinese community's endeavours
to host in Australia a forthcoming World Chinese Entrepreneurs' Convention, an
annual event bringing together more than one thousand of the world's most
successful ethnic Chinese business people.