7 minute read 9 Sep 2022
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How do entrepreneurs in the Greater Bay Area achieve sustainable development for their families and businesses?

Authors
Ivy Sun

Partner, EY Private Tax, Ernst & Young (Shanghai) Certified Tax Agency Company Limited

Enjoy reading, traveling, exercising and making new friends. Like challenging and innovative work and look forward to growing with entrepreneurs and their family businesses. Love dogs.

Elaine Liu

Partner, People Advisory Service, Ernst & Young (China) Advisory Limited

Passionate about serving fast-growing private enterprises and has extensive experience in organization transformation, strategy implementation and change management.

7 minute read 9 Sep 2022
Related topics Greater Bay Area Growth Family enterprise Sustainability
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The unique characteristics of entrepreneurs bring forth different challenges in achieving sustainable development of family enterprises.

In brief:

  • The Greater Bay Area (GBA) demonstrated the importance of its economic status, accounting for 10.73% of the national GDP of China in 2021.
  • There are three types of GBA entrepreneurs, including wealth creators, elites with high education background and the next generation leaders.
  • The four key success factors in achieving family and business development are values, assets, family and business.

The Guangdong-Hong Kong-Macau Greater Bay Area is located along coastal areas in China with a leading edge in market opening-up. For centuries there have been convenient transportation and frequent business trading activities with the world. The favorable environment and business tradition nurture the most influential group of entrepreneurs in China who are known as the “Cantonese Merchants”. The culture of the Cantonese Merchants features strong market sensitivity, pragmatism and robustness, acceptance and inclusiveness, and emphasis on amiability in business. Among the Cantonese Merchants, there is a group of ethnic entrepreneurs with ambition, empathy, and a strong sense of responsibility, that pioneers the industrial and commercial development in modern China.

After China’s reform and market opening-up, relying on the geographical advantages and the preferential policies for special economic zones, the GBA achieved a giant leap in economy. Since the release of the Outline Development Plan for the Guangdong-Hong Kong-Macau Greater Bay Area in February 2019, the GBA has witnessed more fruitful development and a well-established industrial system. A series of innovation policies facilitates the interconnection within the industrial system in full range, including technology, finance, health care, logistics and commercial services. It is observed that the GBA industrial system has a distinctive cluster advantage that promotes the complementarity and integration among GBA cities. Hong Kong and Macau are designated to take on their role as proficient service providers, while nine GBA cities in the Mainland including Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing are to expedite their transformation into a capital of advanced manufacturing and modern services with strategic emerging sectors as their pilot programs.1

The favorable business environment, development potential and the overall economic strength of the GBA attract numerous large-scale enterprises to invest and expand in the area. According to the public GDP figures in year 2021, the GDP of the GBA “9+2” cities (nine GBA cities in the Mainland and the Special Administrative Regions (SARs) of Hong Kong and Macau) was around RMB12,534.60 billion2,which accounted for 10.73% of China GDP. In addition, GBA cities have fostered an in-depth integration. The actual foreign investment attracted by Guangdong Province in year 2020 amounted to RMB162.03 billion, 81.75% of which (around RMB132.45 billion) came from Hong Kong and Macau3. Therefore, Hong Kong and Macau are still the priority channels for foreign investors to invest in Mainland China.

Chart 1: GDP of 11 cities in the GBA in year 2021 (in RMB100 million)

Chart 2: Breakdown of foreign investments from Hong Kong and Macau utilized by Guangdong Province in year 2020

A good timing with a right opportunity is important. Well-known entrepreneurs with commercial and social impact are emerging in the GBA. According to Fortune Global 500 ranking in 2021, 143 Fortune Global 500 enterprises are in the Greater China region and 25 of them are in the GBA4, accounting for 17.48% of the listed Chinese enterprises mentioned above. In addition, according to JDYD LIQUOR - Hurun Global Rich List 2022 announced by Hurun Research Institute5, China ranked the first for the second consecutive year with 1,133 entrepreneurs whose total wealth was at USD1 billion or above, 300 of them are from the GBA, including a total of 276 entrepreneurs from Hong Kong, Shenzhen, Guangzhou and Foshan. Entrepreneurs from these four cities took up over 80% of the ones from GBA on the list. With further industrial integration in the GBA, it is believed that increasingly more entrepreneurs will accumulate wealth and create value in this vibrant city cluster.

Chart 3: Breakdown of cities of Chinese enterprises listed in Fortune Global 500 ranking in 2021

Chart 4: Breakdown of cities of Chinese enterprises listed in JDYD LIQUOR - Hurun Global Rich List 2022

Recently EY PCS team visited a group of GBA entrepreneurs and had a better understanding of their concerns during their business life cycle, including the challenges they faced since the outbreak of the pandemic. We understand that the vast majority of these entrepreneurs operate family businesses, with family members across generations working in the same enterprises and/or holding shares of the enterprises. Their main concern is on how to achieve sustainable development in their family and business performances under an environment with constant emerging disruptions. 

Portraits of the GBA entrepreneurs

According to our observations, the GBA entrepreneurs may mainly be classified into the following three categories, each with their unique characteristics and challenges:

  • Wealth creators

    Characteristics
    • Aged over 60
    • First-generation entrepreneurs in traditional industries
    • Higher integration with Hong Kong and Macau
    • Already accumulated basic wealth and the enterprises are facing succession challenges
    Challenges
    • Traditional enterprises face challenges in digital transformation and development
    • Business succession and continuation 
    • Selection of professional managers

  • Elites with high education background

    Characteristics
    • Aged between 35 - 59
    • With relatively higher education background and global vision
    • Mainly in new economy sectors, such as TMT, biotechnology and finance
    • Enterprises are in the development stage
    • Focus on risk isolation
    Challenges
    • Arrangements relating to future restructuring and business expansion
    • Segregation of personal and company assets 
    • Selection of future successors to take over the business

  • Next generation leaders

    Characteristics
    • Aged between 25 and 35
    • Received more systematic, diversified and international education, with an open mind
    • With global vision and higher interest in emerging industries
    • Less willing to work in traditional industries
    • Higher creativity, willing to face challenges and greater desire to develop own businesses
    • More interested in environmental, social and governance (ESG)
    Challenges
    • Low desire to succeed
    • Lack systematic and theoretical knowledge and practical experience regarding corporate management and legacy planning
    • Limited knowledge and practical experience regarding corporate governance, wealth management and handling family relationships

The development and legacy of family enterprises in the GBA

Unlike other types of enterprises, family enterprises have unique needs as they pursue development in their family and the enterprise respectively. Therefore, entrepreneurs need to balance their personal and business performance agendas. The following diagram shows the EY Family Enterprise DNA Model concluded based on our experience and knowledge of family enterprises who have successfully passed on their wealth to the third generation. We can see from the diagram that the key is to pursue collaborative development in family and business performance by embedding the four key success factors into their DNA: shared values, family succession and legacy, wealth management and growth and innovation.

Family enterprises in the GBA enjoy advantages of business environment, geographical location, industrial infrastructure, supporting government policies and talent mobility. Therefore, to achieve the success of legacy and development of family enterprises, entrepreneurs in the GBA should make the best use of the development trends and government policies in the GBA along with the consideration of the family background, family values and family enterprise’s future development plan to design a governance framework that enables the most suitable decisions to support a sustainable future of the family enterprise. 

Concerning the above, EY will release a series of articles on the sustainable growth of GBA enterprises by analyzing the challenges they are facing and sorting key factors that facilitate family enterprises operation and succession. With these articles, we hope to inspire entrepreneurs in the GBA and assist them to build a prosperous future for the GBA.

  • Show article references#Hide article references

    1. Synergizing GBA — Doing business and investing in the Greater Bay Area
    2. Source: GDP of municipalities for the full year, 2021, stats.gd.gov.cn,Census and Statistics Department, the Government of the Hong Kong Special Administrative Region, and Statistics and Census Service, Government of Macao Special Administrative Region
    3. Source: Guangdong Statistical Yearbook 2021
    4. Source: Fortune Global 500 2021 | Full list of rankings
    5. Source: JDYD LIQUOR - Hurun Global Rich List 2022

Summary

In spite of the challenges from digital transformation, risks, strategies and tax management, family enterprises in the GBA would need to establish their value and vision, and plan for family succession for sustainability and prosperity of the enterprise and the family.

About this article

Authors
Ivy Sun

Partner, EY Private Tax, Ernst & Young (Shanghai) Certified Tax Agency Company Limited

Enjoy reading, traveling, exercising and making new friends. Like challenging and innovative work and look forward to growing with entrepreneurs and their family businesses. Love dogs.

Elaine Liu

Partner, People Advisory Service, Ernst & Young (China) Advisory Limited

Passionate about serving fast-growing private enterprises and has extensive experience in organization transformation, strategy implementation and change management.

Related topics Greater Bay Area Growth Family enterprise Sustainability
Upvote