Chinese networks in the UK and Malyasia

Edmund Terence Gomez is Associate Professor at the Faculty of Economics, University of Malaya, Malaysia. His published books include Chinese Business in Malaysia: Accumulation, Ascendance, Accommodation and Chinese Business in Southeast Asia: Contesting Essentialism, Understanding Entrepreneurship. He is currently co-authoring a book on the history of the Chinese in the UK.

Many Chinese immigrants have set up family businesses in the UK and Malaysia. Despite their common ethnicity, they share few other traits

A great deal of literature on Chinese migrants has served to create a link between identity and capitalism. The theory that ethnic Chinese of the diaspora share a strong collective identity, which influences their decision-making in business and the development of their enterprises, has spawned a prodigious literature that has come to be associated with the so-called 'culturalist perspective'.

According to this, ethnic Chinese share an essentially identical set of cultural traits, just as their businesses display an essentially uniform ethnic style, characterised by family firms and intra-ethnic business networks. The family firm and intra-ethnic national and transnational connections (or guanxi) play a crucial role in capital formation and accumulation. These two modes of business and social organisation are described as imbued with the 'Confucian ethic', a perennial theme of the culturalists, for whom it is the key to Chinese enterprise.

Most scholars agree that ties of family and kinship are key constituents of Chinese enterprise. Such arguments are acceptable in so far that kinship ties are an important consideration in hiring staff and acquiring funds to get enterprises started in the early days; at the point of its creation, control of the company remains in the hands of the founder and key family members, who play a crucial role in setting its style of management.

However, the concept of 'networks' is not so readily accepted. Few researchers would deny the existence of networks created by Chinese-owned enterprises. Rather, the main criticism concerns not networks as such but the problematic notion of 'Chineseness', which some believe plays only a minor role in determining how Chinese business people make decisions and develop their enterprises. In their view, culturalist analyses misrepresent the basis for and extent of business ties among Chinese firms.

Networks are not formed in a single dimension, but are primarily production chains or sub-contracting ties that undergo processes of change and operate at multiple levels. Co-ethnic cooperation for the benefit of the community – the basis on which such networks form, according to the culturalist analysis – fails to explain the creation of these business ties.

The Chinese abroad
In Malaysia and the UK, the government has played a key role in determining patterns of enterprise development by ethnic minorities and migrants. In the UK, the focus of government policies has been to promote small- and medium-sized enterprises (SMEs), while in Malaysia the creation of large-scale domestic firms is the primary objective. In both these national settings, most Chinese-owned companies are SMEs and are family-owned.

The UK
In the UK, Chinese migrants come from four main regions:

- Hong Kong Chinese from the rural New Territories, who arrived in large numbers in the 1960s (many moved into catering and food wholesaling and retailing).
- Southeast Asian Chinese, who also started arriving in the 1960s, and are mostly middle-class and usually professionally trained (some have gone into business, including catering, and are behind the largest British Chinese enterprises).
- Taiwan and urban Hong Kong Chinese, who as the newest group arrived in the 1980s (those in business are mainly in technology and manufacturing).
- British-born Chinese, who are usually well-qualified and work in hi-tech industries.

Those British Chinese interested in business are more inclined to establish enterprises with members of other ethnic communities. Although both Labour and Conservative-led governments have promoted SMEs, none of the Chinese groups has yet made an impact on the UK economy. This seems to be furthered by the fact that the lists of directors and shareholders of British Chinese-owned companies in the UK provide no evidence of interlocking stock ownership or directorships. Some were created and run as partnerships, but eventually came under the control of one individual or family. This evolution suggests that such partnerships are not sustainable.

Malaysia
In Malaysia, where the government favours developing large Malay-owned firms, SMEs – dominated by ethnic Chinese – have received little support. This lack of government backing has hindered their development: although they continue to thrive in the domestic economy, they do not contribute substantially in terms of value-added services, output or even employment.

In the manufacturing sector, SMEs account for more than 90% of domestic enterprises, but only 20.9% of the value-added services of all manufacturing establishments, 18.9% of manufacturing output and 29.7% of employment.

Big Chinese firms in Malaysia, most of which are still family-owned, have not attempted to cooperate in business, either domestically or abroad, in spite of the government's failure to support their interests. Rather, Chinese entrepreneurs have responded in a number of different ways to government intervention in the economy and affirmative action in favour of the Malays.

Their responses have a bearing on the way in which their enterprises develop. Some have refused to list their firms publicly on the stock exchange, while others have not increased the capitalisation of their enterprises or have incorporated large numbers of companies when expanding, for fear of otherwise attracting the unwelcome attention of powerful politicians. However, big Chinese businesses prefer to link up with influential Malay politicians and Chinese firms listed among the largest 20 quoted companies in Malaysia have all enjoyed government patronage.

Despite the actions of the Malay-dominated government, there is little evidence of intra-ethnic business cooperation by Chinese firms, even though Chinese entrepreneurs have a history of it, especially among migrants in the colonial period. As in the case of the UK, the list of directors and shareholders of Malaysian Chinese companies shows little evidence of interlocking stock ownership or interlocking directorships. Instead, most companies are still run by their founders, usually migrants, and are family-owned.

Investing
The UK and Malaysia have attracted investment from leading ethnic Chinese entrepreneurs from east Asia, but in neither country is there much evidence of corporate tie-ups between these investors. In the UK, the ways in which ethnic Chinese from China, Hong Kong, Taiwan, Malaysia and Singapore develop their enterprises differ sharply. While Taiwanese companies work primarily in the manufacture and distribution of computer products, most enterprises from mainland China are in international trade. The key areas of investment by ethnic Chinese companies from Singapore, Malaysia and Hong Kong are hotels, retailing and property.

A small group of firms from Malaysia and Hong Kong have invested in manufacturing, but on a much smaller scale than companies from Taiwan. Some leading Chinese capitalists from Hong Kong and Singapore have acquired publicly-listed companies, probably so that they can use the London Stock Exchange (LSE) to raise capital to fund corporate expansion. There is no evidence, however, of ethnic Chinese from Taiwan or mainland China acquiring interests in quoted companies; nor have any firms been listed on the LSE. In their home countries, Chinese from Hong Kong, Malaysia and Singapore are more likely to use the stock exchange as a source of funding, an option chosen less frequently by business people from Taiwan.

It appears that Chinese investors from Asia do not like to set up joint-ventures in the UK. They also aren't tied to one another by interlocking stock ownership or directorates. While the areas in which leading Chinese capitalists from Asia invest overlap greatly, only one interlocking stock ownership tie seems to be known: Indonesian Oei Hong Leong has a controlling stake in the publicly-listed Bolton Group through his holding company, China Strategic Holdings Ltd, although Oei seems to play no active part in managing the group.

There is also no evidence of Chinese investors from Asia seeking to establish intra-ethnic ties with British Chinese – the latter do not even act as subcontractors or suppliers to such investors. The ties do exist, though, in the case of professional services – some foreign Chinese have used the services of British Chinese lawyers, auditors, accountants and business consultants. These ties are important for securing advice on business opportunities and government policies, and for bypassing red tape to expedite investments but have no deeper significance.

These differences in business style suggest that ethnic Chinese investors from Asia find it difficult to agree on how to achieve corporate growth and are unlikely to engage in co-ethnic collaborative ventures. In any case, there is little reason for investors in different business areas to cooperate in corporate deals. Like entrepreneurs the world over, Chinese entrepreneurs identify potential business partners by gauging the contribution they can make to developing a new enterprise, not by their ethnicity.
   
Generational change
For Chinese migrants to Britain and Malaysia, enterprise has served as a means of achieving upward social mobility and coping with isolation and alienation. The children of Chinese immigrants excel at school and university, and are heavily represented in many professional fields and the hi-tech sector. Although their parents have worked hard to get them these advantages, few Chinese children want to take over their parents' businesses, especially the SMEs, which they associate with a life of drudgery. Perhaps not surprisingly, most parents feel the same way and want their children to become professionals.

Thus, generational change threatens the survival of family firms. Most descendants of the founders of SMEs resist joining the enterprise. As a result, the business eventually has to close down or be sold off. If, however, it is decided to keep the business going, the family usually recruits a professional manager – because such managers are better educated or equipped to develop the enterprise or better able to work with non-Chinese. The development of these inter-ethnic management and business ties eventually leads to big changes in ownership and control, a reflection of the companies' growing organisational complexity.

Although family businesses are the rule among ethnic Chinese, they have little or nothing to do with Chinese culture. They emerge because of the problems migrants face in securing start-up capital and hiring labour. The change from family management to professional
management happens in enterprises throughout the world. If this evolutionary pattern is not yet evident among Chinese enterprises, it is because most are still under the control of the founding or the second generation. In other words, they are still young.

Conclusion
The patterns of the formation and evolution of firms owned by ethnic Chinese in the UK and Malaysia provides no evidence for the existence – or prospect – of interlocking networks of domestic or transnational capital. In both countries, there is more inter-ethnic than intra-ethnic business ties. Transnational business ties are not cultivated on the basis of common ethnic and cultural identity. These findings do not support the view that business networks are tightly-knit and embedded in sets of interlocking ownership and interlocking directorships with strong ethnic, solidaristic and cultural dimensions.

Where intra-ethnic networks do form, they are based on a firm's capacity to contribute to the production of a particular merchandise. They exist in a state of flux, with little commitment on the part of members to help each other grow. There is no evidence of mergers even in the face of take-overs by big firms. The forming of such mutually beneficial cooperative networks is not new, nor is it unique to the Chinese. Similar subcontracting ties and production networks can be found among indigenous enterprises in Europe, especially in France.

Chinese enterprises in both countries are family-owned, a supposed hallmark of Chinese business. In the case of SMEs, most descendants of migrants show little apparent interest in maintaining these enterprises on a family basis, and this form of ownership rarely outlasts the migrant generation. Where they do take the firms over, business ties become increasingly inter-ethnic. Like production networks, they are established on the basis of mutual benefit.

In Malaysia, inter-ethnic business ties are cultivated to achieve access to resources as a result of the government's long-running promotion of affirmative action. Although this policy discriminates against Chinese enterprises, it has not generated intra-ethnic business cooperation. In both countries, the most evident trait is the desire of Chinese business people to develop their enterprises independently.

There is more evidence of competition than of cooperation, thus contradicting the widely held view that the dynamism of ethnic Chinese enterprises results from intra-ethnic business cooperation. Competition among ethnic Chinese firms is intense, especially given that resources are limited and the markets in both countries are small. This explains the growth of ethnic Chinese firms and their potential to emerge as a dynamic force, nationally and internationally. Even so, ethnic Chinese enterprise is rarely seen as innovative in terms of new brand products. Very few Chinese-owned companies in Malaysia are associated with a brand product of international repute.

No evidence exists that any Chinese-owned firm in Britain has created a national or international name for itself by producing a particular merchandise. One reason is that many of these enterprises diversify their ventures rather than focus on just one aspect. Another is that they function – especially in the UK – primarily as a means of social mobility. Although business migrants in Britain have the potential to develop productive enterprises, they rarely invest in research and development of the sort necessary to create new technology or produce quality goods.

These conclusions call into question the existence of a distinct type of 'Chinese capital' and 'ethnic enterprise'. Firms that function as ethnic enterprises are family-owned, deal in products that can be classified as ethnic and cater to an ethnic community. These traits define firms incorporated by migrants when they first arrive abroad. Entrepreneurs set up such companies because they are effective in the initial stages of migration, but all of them – even those that operate in Chinatown – aspire and endeavour to enlarge their clientele beyond the ethnic
community.

By the time the second generation takes over, few retain much of their original character in terms of market and organisational structure. The term 'ethnic enterprise' has little relevance to companies owned by ethnic communities long settled in a country, such as the Chinese in Southeast Asia. This thus suggests the need to challenge the idea that all Chinese businesses follow a common path of development or possess unique characteristics that facilitate their growth.