A Case Study Of The Hereditary Succession In Zhejiang Sanhua Intelligent Controls And Its Performance Change

According to statistics,the number of private enterprises in China has reached about 5 million,while the vast majority of them are family firms,and the proportion is as high as 85.4%.At the same time,this form of business organization has a long history in China,and now it is also a main part of China’s private economy,so its important position in the national economy is self-evident.However,in the 40 years of the Reform and Opening Up,with the aging of the founders of the first batch of family businesses,the average age has come to be about 55-75 years old.The founders’ exhaustion and health problems are the hidden concerns or constraints faced by family firms.The founder had to think about the issue of corporate handover or succession.Nowadays,in this context,China has already ushered in the peak period of family business handover classes,and about three-quarters of family firms will face handover problems.Whether the family business can be successfully handed over not only affects the sustainable development of the family business itself,but also has an important impact on China’s private economy.However,it is not easy to solve the problem of intergenerational inheritance of family business.How to ensure the effective succession of family firm is always a problem in the world.Joseph P.H.Fan(2014)conducted a study on Chinese family firms in Hong Kong,Singapore,and Taiwan.The results of this study are embarrassing,which suggest that these family businesses’ wealth,after only three years of inheritance,has dissipated by nearly 60%.In other words,the assets that worth 100 yuan created by the father’s hard work for a lifetime,when passed to the second generation,shrink to only 40 yuan left in very short time.From this point of view,if the inheritance problem is not effectively solved,a large number of family enterprises will face wealth dissipation,and may even go bankrupt,which will directly affect the sustainable development of China’s national economy and the stability of the job market.So,exploring the solution of the problem of family business inheritance is imminent.At the same time,due to the imperfect market of professional managers in China,the agency problem is widespread,which aggravates the distrust of the founders and their families to external managers.The founders of family businesses tend to prefer members of the family or directly choose their children as successors,influenced by the traditional Chinese Confucian “home culture” and the subjective cognition of founders themselves.Under the dual effects of the two factors,China’s family firms adopt the "succeeding to father’s chairmanship"(STFCH)mode under most circumstances or prefer this mode.However,not all family businesses are suitable to adopt the inheritance mode of STFCH.Even family enterprises that are suitable for adopting the STFCH inheritance mode will fail or get poor results in inheritance,because of the neglect and non-understanding of the family assets(or specialized assets)and various roadblocks.Therefore,it is necessary to explore the applicable situation of the inheritance mode of STFCH,further research on how the inheritance of family assets and the removal of roadblocks affect the effect of family business inheritance or the performance of the enterprise after inheritance when firms adopt the STFCH mode,and finally find the feasible approach to obtain a good inheritance effect under the inheritance mode of STFCH.Zhejiang Sanhua Intelligent Controls Co.,Ltd.is a typical representative family enterprise in China.It is also a typical family enterprise adopting the inheritance mode of STFCH.After inheriting,this company not only maintains stable operation,but also has made progress,and corporate performance has improved significantly.This is rare in China’s family business,and the whole process of inheritance is very complete and clear.The inheritance process involves not only the arrangement of management rights,but also the successful transfer of ownership,which is of great value for researching on the family assets and roadblocks.This paper takes Sanhua as the case study object to analyze the family assets and roadblocks in the family business,explore how the family assets can affect the performance of the enterprise in the process of inheritance,and analyze the reasons for achieving good inheritance performance.At the same time,it analyzes the guarantee effect of Sanhua’s clearing of roadblocks on its successful inheritance.This paper proposes a universal appraisal method for the STFCH model based on the family assets and roadblocks for family businesses.Finally,it proposes a viable approach to achieving good performance for the family business inheritance from the perspective of family assets inheritance and roadblocks removal.