Unique Characteristics of Family Business - Essay Example

? Entrepreneurship and Small Business Management of Institute Entrepreneurship and Small Business Management Family Enterprise Over the years, the need to understand operations of family businesses have has emerged as a new phenomenon. Many scholars have argued that the effects of ownership on the nature of such firms, particularly authoritative decision making, has far reaching effects on such firms. On one side, a number of scholars argue that such characteristics may impact on them badly. On the other hand, they also observe that such decision-making may just be beneficial to the business operations. One good thing about them is that they play a critical role in global economy. Even so, one should understand that family businesses are managed in different styles especially as pertains to leadership. Their characteristics are largely similar although small variations exist. Such differences are what sum up the total picture that of what constitutes their unique features. Unique Characteristics of Family Business As mentioned above, family business has unique characteristics. According to Bassanini, Breda, Caroli and Reberioux (2013, p. 433), family business are characterized by low job insecurity. Bassanini et al. observe that unlike nonfamily firms, family businesses are not in the habit of laying out workers. Rather than downsize by dismissals, many of them tend to rely on not hiring. They respond to their business operations through this unique way. This does not imply that family businesses will never lay off workers. In the US, family businesses account for up to 28% in 2007 while Germany has the highest number at 56% (Boom, Van and Reenen 2007, in Bassanini et al. (2013, p. 433). Bassanini et al. observe that many family businesspeople see their firms as future assets for their descendants (p. 434). As a practice, any of them nurture their kids for eventual takeover and management. Some do not follow that path but entrench family members in critical decision-making organs. Probably this explains why many of them are reluctant to lay off their employees. Bassanini et al. also note that many family businesses pay comparatively low or average pay as compared to non-family firms. They offer that one may attribute such differences in wages to the fact that there are differences between family and nonfamily firms. Comparatively, the scholars point out that the wage gap between family and nonfamily gaps is approximately 2.4% (Bassanini et al., 2013, p. 443). Even so, one should understand that this rate is not fixed as it fluctuates. One can also deduce that the differences between wages in family firms and nonfamily firms vary largely from firms to firm, making the percentage difference a dynamic range. Other scholars observe that family firms tend to follow certain values held dear to them. They note that family businesses thrive on strong commitment to stewardship of the family’s assets amongst others (p. 39). The scholars also observe that as the family shareholder decide on formation of Family Entrepreneur Teams. They also assess the shared vision to be in business together (Cruz, Howorth and Eleanor, 2012, p. 39). This is despite the fact that they are first brought together by shared family values. From this observation, one may deduce that another characteristic of family business is that the success of family business lies on the continued goodwill on the shared values down the lineage. It appears that as much as family businesses are characterized by shared values, down along the generation lines, there may be deviations from the shared values. Another characteristic of family teams is that the level of flexibility is usually high (Schjoedt, Monsen, Pearson, and Chrisman, 2012, p. 7). Schjoedt et al. highlight that such a characteristic usually comes from the fact that many team members in family businesses tend to be couples. Being couples, Schjoedt et al. point out that the shared goals and strong relationships usually allow some form of flexibility as opposed to teams in nonfamily firms. Given that the above scholars do not assess the disadvantage of such decision-making, it would appear that if such flexibility is not considered out of merit, then flexibility in decision making in family businesses might jeopardize operations of the business. As such, there is a need for decision makers in family businesses to be very objective on matters affecting the business. Like many other firms, scholars have also observed that many family firms have unique financial attitudes. Korrop, Grichnik, Kellermanns (2013, p. 114) observe that financial decision making in family business is characterized in slightly varying models although there are some consistencies. For instance, Korrop et al observe that family business have a commitment geared towards proper management of debt suppliers as well as owner-managers’ attitudes in regard to debt. They observe that such debt management is characterized by some moderating effect usually geared towards the continued profitability of the business. Given the nature of many family businesses, one would expect that when it comes to taking over the control and management, there might be hitches. This is particularly so if the family member to be in-charge has not been groomed well for the job. Buang and Sidek (2013, p. 79) point out that it is a characteristics of many family businesses that entry-level position into a family business is not fixed or easy to determine. Different family firms allow their members to be involved in the management of the family firm. The authors also note that during such transition process in a family business, the entry-level position and the various interpersonal relationships are critical. Interpersonal relationships determine how smooth the management of the business will proceed with transition. Like any other business, the Buang and Sidek also observe that family businesses also need to make sure that transition is based on merit and is conducted professionally. This way, there is almost a guarantee that the future heirs will sustain the business in the market for a long time (Buang and Sidek, 2013, p. 87; McNeill and McNamara, 2009, p. 273). While seeking to find more about planning for growth in family firms, Eddleston, Kellermanns, Floyd, Crittenden and Crittenden observe some deviations from the norms of business operations. Eddleston et al. assert the level of growth of family firms and strategic planning may correlate negatively. While strategic planning and succession planning may be conducive for a family business, there is an observation that success is not a guarantee. Eddleston et al. claim that such factors depend on the generation that of owners currently managing the firms. This makes some sense as a characteristic of family businesses since various generations will approach their leaderships from various managerial perspectives. It is a characteristic of family businesses that strategic planning and succession planning are very conducive in the first generations firms and third generation firms. It is observable that the second-generation family firms do not tend to register significant growth in the second generation. In all the generations, strategic management may impact negatively with the level of growth of family businesses (Eddleston, 2013, p. 1192; Sudeepta and Ranajee, 2012, p. 37). It has also been noted that many family businesses are more vulnerable to catastrophic in the event of a crisis. For instance, many family businesses tend to be bias in their decision-making. Scholars have noted that in the face of crises, it is not sufficient to employ an economic analysis alone to mitigate a crisis. In many cases, crises arise from stakeholders’ various psychological processes. Unlike nonfamily businesses where such incidences are scarce, one cannot assume them in family businesses (Bodmer and Vaughan, 2009, p. 55). This may not be a unique characteristic but it tends to be associated with family businesses a lot. Most importantly, many family businesses are culture specif. this is to imply that their value, practices and organization culture tend to follow a system of beliefs of the predominant culture of the founders. Even so, most of them are currently adapting to the system of culture of the localities where they operate. For example, one would expect that Chinese family business start on a strong Chinese culture, values and beliefs. Their practices also reflect the same for a while. For the ones that operate in cosmopolitan areas, it is easy to fuse the predominant culture with that of the locality where they operate (Wah, 2001, p. 76). The Value of Family Enterprise on Global Economy Although many family businesses have been observed to operate with a lot of flexibility, most of them insist on professional management. By the fact that many of them do have centralized, some scholars have observe that this serves to benefit the business by reducing the risks at the initial stages. Studies indicate that at the initial stages of family businesses, many of which start as small business enterprises, management cost are usually an issue. It therefore acts to the advantage of the business to have centralized management. The bigger picture in the wider economy is that such businesses grow and expand with effective risk management procedures. Consequently, they are able to be operational for a long time (Wu and Lu, 2012, p. 165). This way, there is a reliable source of income and revenue for the economy. Many family businesses also train managers on building trust and strengthening social trust culture. This is usually in line with economic development. They promote market economy and build confidence needed in business management (Wu and Lu, 2012, p. 169). In a way, this usually acts as a training ground for continued investment where members are able to invest in other business. This is particularly so in the sense that the internal governance nurtures entrepreneurial skills of members. Although family conflicts may not be solved using an economic approach or model, such conflicts have also lent to emerging trends in conflict resolution on management issues. The aspect of culture has been found to be critical in management and decision-making. Many organizations have adopted a cultural approach to conflict resolution. Team dynamics have benefitted from this approach. The result is that a cohesive team is able to deliver on its mandate and play apart to the economy however little. By coming up with various models of handling relationships between professional management, family businesses have not only found unique ways for profitable management, that that management of business enterprises require unique approach in selected instances for the success of a firm (Wu and Lu, 2012, p. 168). Research by Middlesex University on “Young Women Ethnic Minority and Co-Entrepreneurs,” lend support to cultural role in business success. The research claims that cultural understanding has been a key factor in the overall success of both family and nonfamily enterprises (Middlesex University Report, 2000, p. 92). On the outside involvement with other stakeholders, family business tends to enter into broad-base relationships with external stakeholders. For instance, most of them like long-term tenures, a trend that guarantees business for their business partner. Brenton-Miller and Miller observe that this enables most of them to access valuable resources and are in a good position to develop and benefit from social capital (2006, p. 738). Research has also indicated that the value of family business in transitional economies is very critical. Other researches point out that family businesses in the United States actually account for 80% of business organizations. This statistics may fluctuate depending on the nature of businesses considered, but that is not very important. The critical thing is the contribution of family businesses to the economy. According to McCann et al., (2003), family enterprises’ contribution to the economy was 50% of the GDP (McCann et al., 2003 in Duh, Tominc and Rebernik, 2009, p. 23). In transition countries and former socialists states, research indicate that family businesses have come out as a force to reckon with as far as driving the economies are concerned. As one may observe, the value of family enterprise on global economy is as crucial as any other nonfamily business (Panjwani, Aggarwal and Dhameja, 2008, p. 272). In fact, family businesses play critical roles in the economy, just as much as other nonfamily businesses. They play by the same rules and are governed by the same professional ethics. Whether their decisions are centralized or decentralized, most of them have the same goal, which is profit maximization. A Case Study of a Family Enterprise: Joe’s Shanghai Restaurant in Chinatown New York Joe’s Shanghai is a small-scale family business in New York’s Chinatown. A Chinese family owns the business. The business adopted a family name and has operated as a small-scale enterprise since then. It is a coincidence that the business is a small-scale enterprise, and that a minority group owns it. The firsts business started its operations in New York back in 1995. The business had focused on offering Chinese cuisines. Even so, its first operations began with two favorite dishes that included soup dumplings as well as crab pork meat. Cultural issues played a role in the starting of the business. There was an understanding that the Chinese population in New York and indeed in the wider United States always stuck to their traditions. Having immigrated into the United States, Joe observed that many people preferred home cuisines. There was also an emerging culture among the contemporary Americans to sit down to foreign cuisines in the process of interaction and cultural fusion. It is from such background and other entrepreneurial considerations that Joe’s Shanghai was born (Joe’s Shanghai, 2013, p.1). Joes started the business as family enterprise although his workforce is not entirely family members. Given the nature of specialization of the business in home and Asian cuisines, the business operates with a workforce of predominantly Asians, particularly Chinese. There is a tradition amongst the Chinese that cooks held a prestigious position in the society. Zen’s Cook theory particularly emphasizes this. Owing to this, Joe’s Shanghai has been very particular with the choice of cooks in the restaurant. His employment of Chinese cooks in the business is a boost for him as they are able to relate well with customers. This is not to imply that the business is pure a Chinese culture affair, but that it is a fusion of culture versus modernity. It is observable that not all customers who visit Joe’s Shanghai are of Chinese origin. Many are culture tourists and culture lovers (Levine, 1999, p. 192). Management of the business is quite simple though delicate and sensitive. Joe’s Shanghai offers various spicy dishes and drinks. Some of the dishes that the business prepares are sliced beef prepared in traditional Chinese style, braised duck, Shanghai fried bean curd, crispy prawns served with lime sauce, and wine chicken amongst others. The management is keen on how to go about everyday activity. It understands the modern day concept of service delivery and motivation of employees. The chefs practically hand roll dumpling skins. They hand artwork on the specific dishes is an attraction of artisanship that is most rare (Sietsema, 1996, P. 6). Joe’s Shanghai Restaurant also maintains the concept of socialization that is most common in Chinese culture. Although the tables can be rearranged to suit customers’ needs, the management has set each table to accommodate between 8 and 10 guests. A family is also able to reserve a room for up to 15 people. Families that have kids usually prefer such arrangements occasionally. Although the restaurant makes every effort to be the best it can be, occasionally there is a customer who feels is not satisfied with the result. As Konstantine Kakaes notes (2013, p. 1), once in a while they services may not be consistent, but they are superb most of the time. This probably confirms but does not necessarily attribute to the case of Joe’s Shanghai that family enterprises may not maintain very high standards. The interesting thing is that there is interpersonal relationship between customers and the business. Kakaes, for instance, notes in his article about the business that he always go back to Joe’s Shanghai restaurant. In terms of service delivery, Joe’s Shanghai has maintained a predictable culture in its operations. It has fixed times for operations starting in mid-morning and closing at 9:00 PM in the evening. Owing to this trend of management, customers are able to plan their times and catch up at the restaurant with friends at their convenient times. This consistency has seen the business grow in terms of service delivery to the extent of being recognized. For instance, the New York Times Restaurant Guide recognized Joe’s Shanghai as the best restaurant at one time. Like any other business, this has been a motivation for the enterprise. Joe’s Shanghai started in the last decade of the 20th century and has not been in business for long as compared to other businesses in New York’s Chinatown. Other accolades have come from Gourmet Magazine, New York Magazine as well as Travel and Leisure (Rich. 2010, p.4). It is also important to note that the business has defied the myth of mismanagement of family business. Over time, the business has also explored emerging trends in the industry. For example, the enterprise also hires live bands in the evening to entertain guests to loud music (Salmon, 2007, p. 1). The report by Ben Salmon indicates that the management makes effort to offer contemporary services that would make people feel more at home in a micro-cultural setting amid busy city life. The management uses such bands include to spice up Saturday evenings when more people are inclined to rest. In terms of growth, it is not immediately clear the extent to which the business is growing. The Joe’s Shanghai website does not offer further information on financial statistics of the business. Probably this is because the business has not gone public consequently keeps such information to itself. In conclusion, one may note from the case study of Joe’s Shanghai restaurant in New York’s Chinatown that family enterprises operate in unique ways. Many of them endeavor to adopt modern styles of business management though with difficulty. The management and workforce tend to be people who are close or related to the owners in many cases. Besides, the aspect of culture is still very strong in most of them. In order to remain relevant and competitive, they are very flexible and easily adapt to meet what they deem is necessary at a particular moment. Even so, many of them have embraced the concept of good management. They try to be as professional as possible. Their priority, like in many non-family enterprises, is customer relations. Bibliography Bassanini et al., 2013, 'Working In Family Firms: Paid Less But More Secure? Evidence from French Matched Employer-Employee Data', Industrial & Labour Relations Review, 66, 2, pp. 433-466. Bodmer, U, & Vaughan, D 2009, 'Approaches to preventing crises in family controlled small enterprises', Journal Of Neuroscience, Psychology, And Economics, 2, 1, pp. 41-58. 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