Archive for April, 2011

By Professor Ernesto Poza, written from Hong Kong.

Family firms are complex enterprises. The superimposition of family and ownership on the management of a business gives rise to significant challenges. How family businesses manage these challenges equip many of them to be long-lasting engines of economic growth and true models of long-run sustainability. These firms represent the leading-edge of business management and not the economic dinosaurs that family business stereotypes would have us believe. Their financial results prove it.

Smucker’s, S C Johnson, News Corp.,Toyota, Grupo Modelo in Mexico, Reliance Industries in India and New World Development in Hong Kong, have all faced challenges successfully recently.  They are all family-led companies, companies that on a 5 and 10-year performance basis, are outperforming other forms of enterprise by between 6.65 and 16% annually on return-on-assets and return-on-equity. The returns vary by country. The research has been carried out in the US, Japan, Poland, Chile, the EU, and individual members of the EU like Germany, France and Spain. Recent studies also show that family businesses carry much lower debt levels (which helped them tremendously during the global financial crisis) are more responsible citizens in their own communities and remain patient investors for more than a generation versus the average share holding period on Wall Street of only 9 months. Oh yes, their CEOs lead for a longer period too, about 18 years, versus the 3 year average for S&P 500 companies these days; which could be a conservative estimate since a full 34% of the S&P 500 are family-controlled.

There may be some lessons here for management-controlled firms.  Shareholder trust, patient capital with a long-term horizon, longer-term CEO leadership, lower administrative cost structures and risk-management rooted in focus and deep knowledge of the industry rather than the more fashionable diversification, may all be part of a globally successful and quite sustainable business model; the family business- business model.  It creates jobs, generates wealth and is the darling of faster-growing emerging economies all over the world.

Professo Poza is one of the world’s leading experts in family business and a professor of family business and entrepreneurship the Walker Center for Global Entrepreneurship at Thunderbird School of Global Management.  Ernesto Poza is the author of Family Business 3rd edition.

Admiral Bill Owens former, CEO of AEA Holdings, former CEO of Nortel Networks and former Vice Chairman of the Joint Chiefs of Staff shared his thoughts on doing business in China at the 7^th Annual Global Private Equity Conference held on Thunderbird’s Glendale campus. 

Private Equity in China is changing fast, today is different than a year ago with the PE market becoming more sophisticated and more mature in rapid fashion.  More and more people – both inside and outside of China are starting to understand what private equity is in China. 

What is important is the interest from Chinese government in developing private equity.  The twelfth five year plan author Liu He, vice minister at the central government’s Office of the Central Leading Group on Financial and Economic Affairs, understands investing and private equity and intellectual property and the importance of investing.  The 12^th  five year plan will make China a viable play in the world of investing.  Outward bound M&A is the key in this new five year plan.  They are seeking the acquisition of technologies and management expertise, finding a way into multi-national businesses.  Currently Owens is seeing the proliferation of R & D funds developing in China.

Historically private equity monies invested would have to stay inside the province.  Now there is evidence that the funds are not as restricted in terms of geography.

China is keen on finding partners from the west to participate in private equity and private equity investors in R&D funds.  Deal flow is spectacular, but for the government a key to working within the Chinese systems is finding and building a relationship with the Assistant Party Secretary in the province. This Secretary will know about PE deals in the province.

R&D funds in China are looking for matching dollar funds.  The deal structures may look like 400 million RMB (Yuan) matched by 100 million Euros or US$ for example.  These funds would to support outward bound M&A. This matching structure fund is very popular now.

One of the keys in the enforceability is to recognize the importance of relationships in the Chinese system.  Links to authority are significant when it comes to enforceability of a deal. Owens believes understanding the interplay between authority and the law are essential to successful investment in China.

Admiral Bill Owens is the Chairman and CEO of AEA Holdings Asia overseeing all Private Equity, and Real Estate investments in Asia for the company.  Owens is also a chairman of privately held Intelius, an information commerce company based in Bellevue, Washington. Owens was an admiral in the United States Navy and later Vice Chairman of the Joint Chiefs of Staff.  Since leaving the military in 1996, he served as an executive or as a member of the board of directors of various companies, including Nortel Networks Corporation

 Dr. Amanda bullough

Since I’ve been at Thunderbird, numerous students have enquired about getting more involved in the women entrepreneurs programs, specifically in Afghanistan and Peru, and in social business.  In response to this, a new course was designed to be offered for the first time in the summer of 2011. This course also answers the ongoing question between faculty and the administration regarding how we can get the students on campus more involved with the various women’s entrepreneurship programs we have in various developing countries.  The idea for this course came to me at the Thunderbird Entrepreneurship Network Mentorfest in the fall of 2010.  At that event, students who self-selected to join the social entrepreneurship round table were again asking how they can get more involved with these programs on campus.  They also expressed interest in helping me with some consulting work on some of the Afghan women’s business plans that need further work in order to qualify for higher-level funding, like from USAID and other large funding sources.  This interest on behalf of the students sparked an idea of tying the students’ classroom knowledge and growing experiences while at Thunderbird with some badly needed mentoring and consulting for our women entrepreneurs’ business plans.

Thunderbird students will learn how to write and review business plans and work in multicultural student teams with the guidance of Prof. Bullough.  They will also learn the challenges that many of these women entrepreneurs face in their societies.  These business women face gender discrimination, war, threats of kidnapping targeted at themselves and their family members, work-family conflict, educational limitations, funding challenges, and limitations of physical and technological infrastructure and the supply of power.  It is important for Thunderbird students to understand these challenges and learn from those who operate in such areas in order to become global leaders capable of promoting sustainable prosperity worldwide.  Thunderbird students will also learn how to reach out to various sources of capital to help launch these businesses in developing countries.  Finally, the students will learn about program management and academic direction and how to operate such programs, from selection, to training, and to outcomes – in this case, the business plan.

Thunderbird students and Prof. Bullough will work closely together to select worthwhile and appropriate business plans from the Afghan, Peruvian, and Pakistani, when it launches, women entrepreneurs programs.  Business plans worthy of this consulting work will: 1) be in unique industries where businesswomen are not typically found, 2) show high growth potential, 3) need large amounts of funding, and most importantly 4) have the potential to have high societal and/or environmental impact. 

An example: Two Afghan women entrepreneurs, who participated in both the 10,000 Women program and Project Artemis (one of whom was invited to the State Department and met Hillary Clinton, Richard Holbrooke, and several other high-level diplomats and ambassadors), have business plans for two different types of garbage recycling companies, services badly needed in Afghanistan.  Both have since started other businesses and not launched the original dream because they felt they needed too much seed capital and shied away from pursuing the business. These types of businesses are exactly what Thunderbird wants to nurture and see launched in these societies in order to make the impact we hope to.  Students on campus have already expressed interest in working with Prof. Bullough on a volunteer basis to help consult on these businesses.  Offering a course where students could register for credit and learn in a more formal setting would be preferable.

 Amanda Bullough Ph.D. is the Academic Director for the Goldman Sachs 10,000 Women Initiative and an Assistant Professor in Entrepreneurship and Management and Organizational Behavior at the Walker Center for Global Entrepreneurship at Thunderbird School of Global Management.  Dr. Bullough’s research focus is on women and their potential to be economic producers and business leaders in the developing world.

Since 2008, more Americans have become entrepreneurs than at any time in the past 15 years. The economy and high unemployment rates may have pressed more people into entrepreneurial ventures, little employment has resulted.

Data from the “Kauffman Index of Entrepreneurial Activity” shows 0.34 percent of American adults created a business per month in 2010, or 565,000 new businesses, a rate that remained consistent with 2009 and represents the highest level of entrepreneurship over the past decade and a half. However, the quarterly employer firm rate has dropped from 0.13 percent in 2007 to 0.10 percent in 2010. Showing these entrepreneurs “going it alone” versus previous date trends showing entrepreneurs hiring.

Far too many founders are choosing jobless entrepreneurship, preferring to remain self-employed or to avoid assuming the economic responsibility of hiring employees. This trend, if it continues, could have both short- and long-term impacts on economic growth and job creation.” Stated Carl Schramm, president and CEO of the Kauffman Foundation.

Entrepreneurship growth was highest among 35- to 44-year-olds. The oldest age group in the study (55-64 years) also experienced a large increase in business-creation rates from 2008 to 2009. Among states, Nevada, Georgia, California, Louisiana, and Colorado had the highest entrepreneurial activity rates.