Latest news with #SmartlinkCommunications
Forbes
4 days ago
- Business
- Forbes
Superclans And The Shift To An Asian-Centered Global Economy
Radu Magdin is CEO of Smartlink Communications. Global analyst, consultant, passionate about leadership, communications and competition. In preparation for one of my upcoming reports on "Asian century superclans," I had the opportunity to speak with several prominent Asian business families and would like to share some useful insights from these conversations and my research. Reframing The 'Asian Century' First, it should be noted that, as with most terms that gain currency in academic, business and policy circles, "the Asian century" contains both elements of insight and overstatement. Its insights center on the growing gap in gross domestic product (GDP)—whether measured by purchasing power parity (PPP) or current market exchange rates—between Asia and the rest of the world, particularly Europe and North America. In terms of wealth, technology and culture, it is not difficult to see why the century can be seen to look increasingly Asian; it is predicted that by 2075, up to seven of the world's largest 14 economies will be Asian. A lot of the growth is expected to be intra-Asian, and already, 60% of Asian trade is intra-regional. The exaggerated aspect of "the Asian century" comes from uncritical repetition. I am certain that the United States will remain richer by almost any financial measure that takes into account population. What are currently emerging markets will not account for a majority of global capital for quite some time, meaning that it is likely a lot of that Asian growth will continue to pay dividends to the U.S. That growth is best understood as a convergence in per capita productivity across regions. To illustrate, Asia produced (paywall) about 61% of global output in 1820, 20% in 1950 and 48% in 2018. The American dollar standard, while wobbly, is mainly under potential threat within the U.S. itself. The Evolution Of Asia's Business Elite With that, we can understand how a specific class of businesspeople grew and may come to dominate global business. They came about during what may be one of the largest, and possibly last in our lifetimes, great expansions of the middle class as per capita incomes in East Asia began converging with the West, first with Japan, then the East Asian tigers phenomenon and, finally, with the sheer mass of China. While 80% of the population growth in the world is expected to occur in Sub-Saharan Africa and South Asia, it's becoming increasingly evident that the middle-class boom may have been unique to East Asia—driven in large part by manufacturing jobs, which moved roughly 30% of the labor force into the middle-income bracket. That means many rose and came of age, manufacturing stuff that the middle class wants. Further, many of the business classes trace their roots to a particular mix of nationalism and capital scarcity. Many received bank loans with the informal agreement that part of their task as industrialists was more than business, but the goal of national modernity through technological and economic convergence with a West that has been the benchmark in the room for most of the past century. That means capital structures tend to be heavily tilted towards debt capital, contemporaneously about as much as in the 1990s. Furthermore, while corporate governance is generally regarded as improved, conglomerates remain the standard rather than the exception; According to McKinsey, conglomerates account for 80% of the largest companies by revenue in South Korea, with figures of 90% in India and 40% in China. Family Ties Finally, as I have touched on in past articles, it cannot be emphasized enough that these are families running a family business in a manner reminiscent of European aristocratic families running their age's business: agriculture-based fiefdoms and import-export value chains. About 70% of the alluded to conglomerates are family businesses, and there is little to indicate this will change significantly in the future. Furthermore, while in the West, the common definition of a family-owned company is as little as a family holding 5% of ordinary shares, Asian conglomerates such as Reliance or Samsung tend to be almost wholly family-controlled. Furthermore, new entrants in the category, such as VinGroup, tend to follow the same model. Personally, my belief is that this business model will continue well into the future and end up controlling a significant proportion of the global GDP, with the current crop of "superclans" serving as the first draft of what may become some of the richest families in history. Takeaway While the term "Asian century" is often overused and sometimes misunderstood, it does reflect a meaningful and lasting shift in economic influence toward the continent. One of the effects of this is the advancement of a particular sort of business from the periphery of the business world to its center stage: the family-owned conglomerate. Business leaders will have to learn to navigate and interoperate with this type of business as effectively as they do with the equity-financed Western corporation. Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?
Forbes
21-05-2025
- Business
- Forbes
Learning From Global Family Business Splits
Radu Magdin is CEO of Smartlink Communications. Global analyst, consultant, passionate about leadership, communications and competition. getty Large businesses often aim to expand, seeking either the benefits of scale in sales, production, purchasing power or development or the efficiencies that come with vertical or horizontal integration. BYD, which remains, in many respects, a battery manufacturer with an automobile division, found success through vertical integration. Alphabet's sprawling conglomerate, which remains mostly about putting ads in front of people as far as revenue is concerned, nevertheless benefits from the streams of data coming from sources like Gmail. Amazon's operating income in the fourth quarter of 2024 from Amazon Web Services is higher than its operating income from North American sales. Then, there are businesses that choose to split. Some successful family businesses make a conscious choice to separate into multiple entities controlled by different family members or multiple entities under a diversified conglomerate of ownership structures. These are an otherwise overlooked and often quite idiosyncratic category of businesses in themselves, and I've had the opportunity to speak with some of their leaders in my capacity as a risk consultant. These are my thoughts on what I've learned. Most of the companies I've spoken to in these situations are from Germany, Japan and South Korea. Many developed in a fairly particular set of circumstances, namely that of a previously agricultural, communitarian country that aimed to copy the Anglo-American model of industrialization despite not having what may be called functional equity markets. The Anglo-American model of shareholder capitalism focuses on public equities as the primary mechanism for raising capital in terms of large companies. In this system, companies rely heavily on public equity financing—issuing shares to a broad base of often public investors. In contrast, Germany, South Korea and Japan developed debt-focused models, sometimes referred to as bank-led capitalism. In these systems, long-term relationships with banks are central to a firm's financial stability and growth. Rather than issuing equity widely, companies primarily fund operations and expansion through bank loans. These banks often hold equity stakes in the companies they lend to—as is the case with hausbanks in Germany and their counterparts in Japan—and often participate directly in governance by having board seats. This environment meant that the older model of the family-owned, debt-financed business was on a more or less even keel with the equity-financed corporations that came to dominate mid-century America and, as their respective economies grew, diversified and developed, so did they. The downsides to the businesses themselves, as well as their domestic economies, can be self-evident. From an economic standpoint, what might once have looked like smart, patient investing based on long-term relationships can turn into a problem like unfair insider dealing and poor money management. For example, in 1990s Japan, banks were writing off 7.5 trillion yen of bad loans per year, just as 7.9 trillion yen were being added to balance sheets simultaneously. From a management perspective, managing a large company as a single entity may be the stuff of 1980s action movies but can be bleakly complex in practice. It may also be inefficient: Often, individual divisions allow for a mutually beneficial specialization that recreates the German ecosystem at smaller scales in the form of chaebols and zaibatsus, which are discrete but acting in unison. Furthermore, since actual ownership often remains within the same family, the financing advantage of conglomerates in the context of declining credit availability or market downturns may be maintained. I think the most famous example is the split between the Albrecht brothers of the Aldi retail chain into Aldi Nord and Aldi Süd. The split itself is, ultimately, a personal family matter, but it suffices to say that each manages its own supply chains under the same brand and does that quite successfully. Likewise, in the same sector, Kaufland and Lidl, two supermarket chains, are owned by the same family under the tutelage of the Schwarz Group, each specializing in specific market segments. All of the above have made their respective splits into commercial successes, representing a natural experiment in optimization. Others have split due to the sheer difficulty of managing as a single company. Samsung, a family conglomerate that together amounts to about 20% of South Korean GDP, has split into many distinct subsidiaries while maintaining family ownership of heterogeneously managed entities. In the case of Reliance Industries, the ownership structure extends to over 300 companies of various sizes and over a multitude of industries and countries, to an extent representing a whole world unto itself while remaining very much a family business—a feat of financial and legal ingenuity over and above the businesses themselves. It is rare for a single family to control a large, global business, but a few economic and social environments have given rise to a very particular breed of family businesses that stand shoulder-to-shoulder with the largest public companies of the Anglo-American world. By splitting into conglomerates, these companies often maintain the defensive financing advantages of relying on internal capital while allowing for corporate speciation of their divisions. The corporate structures thus created can often come across as overly complex, but these are also multi-generational companies that have often been the spearhead of their respective economies on the global stage and, in many respects, represent their domestic economies' success, making them worth studying. At a minimum, I think it showcases the power of ownership structures, particularly the usage of overlapping general partnerships to maintain controlling interests without the need for majority ownership, which in turn allows both for the splits as well as maintaining control of what is often a family legacy. Furthermore, it brings to focus the importance of internal capital in the financing of companies, both as a way of maintaining control as well as harnessing lower costs of capital during adverse market conditions—two lessons to inform any business leader. Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?
