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1
Original Manuscript. Revised Manuscript Published in Business
History, DOI: 10.1080/00076791.2014.982106. Published online March 26,
2015.
THE INTERNATIONALIZATION OF FAMILY FIRMS: CASE
HISTORIES OF TWO CHINESE OVERSEAS FAMILY FIRMS
Kee-Cheok Cheong
Faculty of Economics and Administration, University of Malaya
Kuala Lumpur, Malaysia
Tel. 6012 3203950
Email: keecheok1@yahoo.com (corresponding author)
Poh-Ping Lee
Institute of China Studies, University of Malaya
Kuala Lumpur, Malaysia
Tel. 6013 3634837
Email: pohpinglee@yahoo.com
Kam-Hing Lee
Social and Behaviourial Science Research Cluster, University of Malaya
Kuala Lumpur, Malaysia
Tel. 6012 3666397
Email: cckhlee@gmail.com
Kee-Cheok Cheong is currently senior research fellow, and was formerly senior
economist at the World Bank, Washington DC, USA.
Poh-Ping Lee is currently senior research fellow, and was formerly professor and
chair in the Department of Political and Administrative Studies, Faculty of
Economics and Administration, University of Malaya.
Kam-Hing Lee is currently senior research fellow, and was formerly professor of
history in the Faculty of Arts and Social Sciences, University of Malaya.
2
THE INTERNATIONALIZATION OF FAMILY FIRMS: CASE
HISTORIES OF TWO CHINESE OVERSEAS FAMILY FIRMS
ABSTRACT: Internationalization is an important part of the business history of both
non-family and family firms. The discourse regarding both is based on the mainstream
microeconomic theories of the firm. This paper, through examining the case histories of
two successful Chinese overseas family firms, shows that explanations of
internationalization need often to venture beyond the confines of existing theories,
especially where contextual factors are influential in shaping decision-making. The
experiences of these firms point to the role of the state as a major contextual factor. The
case history approach is the most relevant in this and other instances where context
matters.
KEYWORDS: Internationalisation, business history, family business, Chinese overseas,
dialect group, the state, China, Malaysia
3
Introduction
In this age of globalization, the internationalization of firms has become a
major part of business history. Early work on this area has come from the
considerable research, theoretical and empirical, undertaken in the context of the
rise of multinational corporations.
1
While these firms, by virtue of their size and
reach, have been rightly the focus of attention, internationalization matters for all
firms as a strategy for expansion and diversification of risks. One group of firms
where not much has been written in this area is family firms. One reason for this
lack of attention may be that family businesses are more reluctant to
internationalize compared to non-family businesses.
2
However, there are also
examples of family firms that have successfully gone global.
3
This research lacuna exists not only with respect to studies on firm
internationalization but also with those of family firms. Of the existing research on
family business internationalization, almost all have been on firms in developed
economies in the West, with little having been written on non-Western family
business internationalization.
4
Existing theorization for family firms has also
largely been based on, although with some adaptation, mainstream microeconomic
theories of the firm. Yet family firms face circumstances, which while not
uniquely different from mainstream theories, render them only partially applicable.
These circumstances call for an in-depth analysis based on specific business
4
histories rather than examining large samples of firms using explanations framed
by existing theory.
Even of the literature on family business internationalization, family
businesses belonging to Chinese overseas
5
have largely been conspicuous by their
absence. This group, descendants of one of the largest cross-border migrations in
history, number about 40 to 50 million, 80 percent of whom are in Southeast Asia
(Table 1) and are estimated to control $1.5 to $2 trillion in assets (Fukuda, 1998).
Right from the beginning, family businesses of this group, much more than many
of their western counterparts, were forced by push factors and motivated by pull
factors unique to their circumstances to consider internationalization. The main
push factor arises from the uneasy relationship of this group with the host state
while China, the land of their ancestors, constitutes a major pull factor. Most of the
Chinese overseas in Southeast Asia constitute a minority that is resented for their
success in business. They thus face a state that, if not openly hostile to them, is
certainly unsympathetic to their business activities. With respect to the pull factor,
while Chinese overseas firms are joining Western businesses in the rush to take
advantage of greatly expanding opportunities in China, they differ from the
Western experience in that China is the home of their ancestors with whom they
share cultural affinities. China is always there even if their business dealings with
China could be influenced by patrimonial as much as profit considerations. These
5
features, together with their socio-cultural identity, have conditioned to varying
degrees their internationalization efforts.
Table 1: Estimated number and distribution of Chinese overseas, 2011
Region/ Country
Estimated Population
Number (mil) % share
Asia
Indonesia
Thailand
Malaysia
Singapore
Philippines
Other Southeast Asia
Other Asia
30.0 74.4
8.0
7.5
6.4
2.8
1.2
2.4
1.7
The Americas
7.5 18.6
Europe
1.6 4.0
Oceania
1.0 2.5
Africa
0.2 0.5
Total
40.3 100.0
Source: Overseas Chinese Affairs Council, Taiwan, at
http://www.ocac.gov.tw/english/public/public.asp?selno=8889&no=8889&level=B
In addressing this research gap this paper aims to demonstrate, through an
analytical narrative of the experience of two successful Chinese overseas family
firms, why the existing theoretical discourse on family business
internationalization needs to be extended. The specific objectives of this paper are
to (1) compare the contexts for the rise of two Malaysian Chinese family
businesses, and review the factors which aided or hindered their
6
internationalization, (2) analyze the relationship of both enterprises with the state
in which they are resident, (3) assess the relevance of the rise of China in these
businesses’ internationalization, and (4) bring the experiences of these studies to
bear on the adequacy of existing theories of internationalization.
In the next section, we offer a brief critical review of the theories behind
family firm internationalization. Given our focus on Chinese overseas family
businesses, it is important to understand the specific circumstances they are in and
how this context shapes their behavior. This is the task of the third section. The
fourth section takes up the experiences of two successful (Malaysian) Chinese
overseas family businesses which, while operating within a broadly similar
environment, have by deploying different strategies, internationalized. The paper
concludes by drawing implications of the Chinese overseas internationalization
experience for existing theory.
Theories of Firm Internationalization: A Brief Critical Review
Impetus towards research on the internationalization of firms came with the
emergence of Western multinational corporations. Vernon saw international
expansion as a way for firms producing mature products late in the product cycle
to extend the competitiveness of these products.
6
Johansson and Vahlne likewise
proposed a staged theory of internationalization, arguing that internationalization is
7
more gradual the higher the risks involved in doing so.
7
Dunning, through his
eclectic ownership, location and internationalization (OLI) paradigm saw firms
going international to take advantage of available resources, to seek new markets,
or to show-case new technology.
8
The last motive, technology, was also the focus
of Cantwell who argued that firms internationalize to leverage their competitive
edge in technology.
9
More recently, Lee cites economies of scale and access to
market niches as motives to accelerate internationalization.
10
Unlike non-family firms to which the above theories apply, the business
behavior of family firms reflects characteristics specific to families. These
characteristics include a natural conservatism and risk aversion, and the desire to
retain family control so as to preserve family longevity.
11
Family businesses
typically have limited resources resulting from being small. This effectively places
limits on their strategic capabilities, including the access to technology, finance,
and resources required for internationalization.
12
Models that describe their internationalization draw mainly from adaptations
of theories applied to non-family firms. Thus Johansson and Vahlne’s Uppsala
model, which sees internationalization as an incremental, evolving process is not
so different from Vernon’s product cycle theory. And adaptation consists mainly
of explanations why family firms are able to overcome resistance to
internationalization.
13
However, so far these extensions/modifications have not
8
taken into account the nature of Chinese overseas family businesses or the
particular circumstances facing them. These factors are discussed in the next
section.
The Nature of and Circumstances Facing Chinese Overseas Family Enterprises
The large Chinese overseas communities today in Southeast Asia are
descendants of migrants from China (Table 1). The large flow of migration from
China occurred in the second half of the 19th century, when a combination of
adverse events in China (famines and political turbulence associated with the
decline of the Qing dynasty) and the opening up of Southeast Asia sent streams of
migrants from the former to the latter. Two contextual factors facing the Chinese
overseas today emanate from this migratory history, while a third structural factor
arises from the identity of these migrants.
The first factor is the relationship between the community and its host
governments. The relationship between the state and business can be both
cooperative and confrontational, depending on the nature of the state regime and
on the challenge business poses to the state. Thus, of Johnson’s (1982)
classification of economic systems as laissez faire economy, the developmental
state economy and the command economy, the first two regimes are basically
cooperative (America being an example of a laissez faire economy and Japan of a
9
developmental state) with business while the third (the former USSR as an
example) is antagonistic.
14
In these three categories, race and/or ethnicity are not a consideration as both
the state and business are controlled by people of the same race or ethnicity. But in
situations where business is at their most entrepreneurial in one ethnic group and
the state controlled by another, as is mainly the case with Chinese overseas
businesses in Southeast Asia, an uneasy situation appears. The command economy
cannot accommodate them, and in some cases they were expelled or forced to
leave the country. This happened when Indonesia nationalized Dutch enterprises in
1957 and when North Vietnam took over South Vietnam in 1975. Even in laissez
faire states, Chinese overseas businesses, while not subject to forcible seizure or
expulsion, are also unable to integrate into the ruling class in the way that their
American and British counterparts, for instance, could. In a developmental state-
like situation as is Malaysia under the New Economic Policy, the state actively
promotes the business of the indigenous community by introducing affirmative
policies that seriously disadvantage the Malaysian Chinese entrepreneurs. Thus a
deeply uneasy relationship characterizes Chinese overseas businesses with the state
in Southeast Asia.
Hoselitz observed that marginal men are peculiarly suited to making
creative adjustments in situations of change.
15
As a consequence, Chinese
10
overseas businesses are more inclined and better able to adapt to the changing
situation such as internationalization involves.
Second, Chinese overseas businesses have always operated in an
environment where China, the place from where their ancestors came, looms large.
Economically, China had before the Second World War been a recipient of
remittances from Chinese overseas and to some extent investment for profit. These
substantial remittances have greatly helped China especially in periods when it was
running a trade deficit.
16
This means that from the beginning there was already
some experience of internationalization among Chinese overseas businesses in
Southeast Asia even if the motive was patrimonial rather than profit. But after the
Second World War, especially following the open door policy of 1978, China
became very attractive to global business. Chinese overseas businesses likewise
ventured into China, this time more for profit. Many Chinese overseas
businessmen were particularly attracted to China believing that because they have
a cultural affinity with China, they had better chances of success. This was one
basis of the internationalization of Chinese overseas business in China. China,
once a source of familial ties to which remittances to kin were sent, has become a
destination for investment and business for Chinese overseas.
17
This pull factor,
probably common among businesses of diasporic populations, has so far found no
place in the family business internationalization literature.
11
A third, but structural, factor relates to the sub-ethnic identity of the Chinese
overseas and their businesses. Migrants from China to Southeast Asia had
originated mainly from just two southern provinces – Guangdong and Fujian.
However, within each province, a number of dialects are spoken besides the main
provincial dialect (Cantonese for Guangdong and Hokkien for Fujian). Early
migrants sponsored relatives and friends from the same locality of origin. Hence,
dialect group, together with clanship commonalities were the social organizing
principles for most Chinese overseas communities in Southeast Asia.
18
This meant
that family businesses relied, if they could, on their identification with dialect
group-based social organizations. This dynamic within the community likely
exists also for Indian migrants, but has less significance for family businesses in
Western societies, the targets of the bulk of current research.
The above characteristics are showcased by two examples of successful
Chinese overseas family business internationalization – the Kuok Group, headed
by Robert Kuok (RK), the richest man in Southeast Asia, and Royal Selangor (RS),
the world’s largest pewter ware making company and an international brand. The
Kuok Group is today the world’s largest producer of palm oil. The two companies,
started by first generation Chinese immigrants to what was then Malaya
(Peninsular Malaysia), evolved through the era of colonial rule, the Japanese
Occupation, and the period of nation building. These two companies are chosen
12
because they are among the most successful examples of two kinds of family
business – those that are publicly listed (RK) and those that are privately held (RS).
It is important here to bring in privately held companies as they constitute still a
very big group among Chinese overseas family businesses as they face the
problem, as do all family businesses, of greater vulnerability to losing control if
they were to list publicly. This vulnerability is all the greater in Chinese overseas
businesses given a state that is anxious to restrict their operations if not take over
their business. While located in the same country, Malaysia, and hence sharing
similar political and economic contexts, they adopted sharply different approaches
to internationalization. In analyzing these approaches, we highlight the differences
in the structure of and circumstances facing these two families despite facing a
common domestic environment. In doing so, we identify gaps in the extant
theories of family business internationalization.
Robert Kuok and the Kuok Group
From the humble origins of a small trading company, Tong Seng, which his
father set up after arriving in Johor Bahru, Peninsular Malaysia, in 1908, Robert
Kuok now heads a diversified business empire engaged in the production and sale
of sugar, edible oils, and the hospitality and service industries (Figure 1). His
wealth, estimated by Bloomberg to be $17.3 billion, puts him as the 40th richest in
the world in 2012. The Kuok Group has three regional arms. Kuok Brothers in
13
Malaysia has stakes in Perlis Plantation Berhad, Jerneh Insurance, and Hexagon
Holdings. Perlis Plantation Berhad itself holds significant shares in Malaysian Bulk
Carriers, Wilmar International, and Transmile Air Services. Kuok Brothers
Singapore wholly owns Pacific Carriers. In Hong Kong, his Kerry Group has
stakes in Kerry Properties, Shangri-La Hotel, Allgreen Properties and the
newspaper South China Morning Post. Shangri-La Hotels has significant shares in
Shangri-La Hotels (Malaysia) Bhd while Kerry Properties has stakes in Edsa
Properties Holding Inc. and Kuok Philippines Holdings. Kuok has broadened his
interest and attention to China, Indonesia, the Philippines, and elsewhere.
14
Figure 1. The Kuok group of companies in 2009
Sources: Annual reports of the Kuok Group, various issues of Malaysian Business and the Star.
The growth of the Kuok Group has several distinctive features not typical of
Chinese overseas businesses. These include early diversification into different
areas of business, incorporation of extended family members, employment of non-
family members in the family enterprise, and close personal relations with the
ruling elite. This close nexus with the Malay ruling elite led to RK taking on a
major role in the government’s economic programs. That intergenerational
transition occurred smoothly, with the fourth generation now at the helm is also not
15
a common feature in Malaysian Chinese family business.
19
Here we examine this
growth from the perspective of the factors discussed in the earlier section.
Sub-ethnic Identity. The origins and evolution of the Kuok business empire owe
much (if not everything) to the three factors of sub-ethnic identity, the state, and
China discussed previously.
First, the activities he engaged early in can be traced to his family’s sub-
ethnic identity. Early Malaysian Chinese business had been structured on a dialect
group basis.
20
The major dialect groups were the Hokkien (from Fujian), the
Hakka, the Teochew, the Cantonese and Hakka (from Guangdong), and the
Hainanese (from Hainan) who together constituted well over 90 percent of the
Malaysian Chinese population. The Kuok family was from the very small Fuzhou
dialect group comprising of a fraction of the Malaysian Chinese population.
Consonant with Hoselitz’s “marginal man”, RK was unable to break into those
businesses, like the rice trade, which were then dominated by the big dialect
groups. So he geared his primary business outside the dialect group system, opting
to trade sugar which was not controlled by the major dialect groups. Sugar was
imported by a British agency house, Guthrie Malaya, from a sugar multinational,
Tate and Lyle. RK managed to secure sugar from alternative sources such as India
and Cuba, places not normally within the Chinese overseas business networks.
21
It
was a business requiring competency in the English language and in the fast pace
16
of world commodity trading. This sugar venture proved eminently successful
especially as British merchants houses began soon to leave the region amidst the
decolonization process so that RK soon became known as the sugar king of
Malaysia.
This Fuzhou identity was to prove helpful in two other ways. First, not
constrained by dialect group loyalties and obligations, RK took the first step
towards professionalization by recruiting non-family members in management
while Malaysian Chinese family businesses mostly relied on family members and
hence were unable to expand or to internationalize.
22
Having professionals in
management proved crucial as he diversified his business, eventually
internationally. Many of RK’s companies were headed by or involved non-family
members. Second, when the Malay political leadership sought investment from
local Malaysians to compensate for the departure of British businesses upon the
country’s independence, it felt it could rely on Kuok, whose membership of a
minor dialect group meant he represented no large interest groups such as those
from the major dialect groups which collectively might have posed an economic
threat.
The State. If sub-ethnic identity explained his start in business, the changing stance
of the state shaped the process of his business’ internationalization. RK’s
uniqueness was that he had a head-start, growing up in an environment more multi-
17
ethnic than that experienced by most Malaysian Chinese businessmen or political
leaders in Malaysia. Johor Bahru, where he grew up, was separated from
economically-vibrant Singapore by a narrow strait, and was more multi-ethnic than
other towns in Peninsular Malaysia.
23
Even more significantly, RK was schooled in
the multi-ethnic English College in Johor Bahru, where his classmates included
Hussein Onn, Malaysia’s third Prime Minister.
24
Thus, unlike many Malaysian
Chinese businessmen, RK had developed close personal relationships with Malay
leaders early in his life. This connection was to be extremely useful during the
early phase of the Kuok family business, which was during the time of Malaysia’s
political transition from the end of British rule to national independence. While
the former saw the end of British corporate dominance and gave him the break he
needed in his sugar business, the Malaysian leadership’s policies to offset the
impact of the British withdrawal provided the impetus for the growth of his
business. Many of his Malay friends had risen to powerful positions in the
government.
The state provided an early boost to RK’s business through the introduction
soon after independence of investment policies to encourage industrial
development as a means of economic diversification away from what was
considered excessive reliance on primary commodities.
25
This was when world
prices for tin and rubber, Malaysia’s main exports then, began to dip, with added
18
concern among the country’s leaders that with independence, long-established
British businesses were leaving the region.
26
Hence, the Pioneer Industries
Ordinance 1958 offered attractive incentives to local and foreign investment
through the granting of ‘pioneer status’ to companies entitling them to income tax
relief, including for capital investment. The government also created several Free
Trade Zones where foreign or local firms manufacturing for export could import
machinery and raw materials free of import duty. RK seized the incentives
offered, obtaining pioneer status for both his companies Malayan Sugar
Manufacturing (MSM), set up jointly with the Japanese in Prai, and Federal Flour
Mill (Soh, 1984; Lim, 1987). He further benefitted from official incentives when
the government designated the sugar and flour industries for promotion in efforts at
import-substitution.
But it was also the state which eventually led to RK’s decision to
internationalization. The environment for Malaysian Chinese businesses
deteriorated after 1971, when an affirmative action program, the New Economic
Policy (NEP), was imposed that gave preferences to the Bumiputera community in
education, employment and business.
27
Equity and employment quota for
Bumiputera were mandated upon and contracts favored Malay business groups.
Although not initially affected – he had significant Bumiputera representation on
the boards of his companies – Kuok must have sensed that the gradual passing
19
from the scene of his generation of power elite and the rising stridence of the
NEP’s implementation heralded a less hospitable environment for his businesses.
China. RK’s first step towards internationalization, the 1955 acquisition of
Rickwood and Company, a Singapore trading company renamed Kuok Brothers
Singapore in 1965, represented more a business opportunity than a response to the
Malaysian state.
28
Singapore was an obvious choice for his first venture abroad as
RK had grown up in Johor Bahru, close to Singapore, and had studied at
Singapore’s Raffles College. But the subsequent expansion of his business to
Southeast Asia and China reflected the desire to diversify risks posed by an
increasingly assertive Malaysian state as much as to take advantage of new
business opportunities elsewhere.
29
In 1977, RK took over Kerry Holdings in Hong Kong. RK, already
spending more time in Singapore, then re-located to Hong Kong.
30
Kerry Holdings
was restructured as Kerry Properties and became RK’s Hong Kong property
flagship, developing property in Hong Kong and later in China.
31
RK also took
over the influential South China Morning Post (SCMP) from Rupert Murdoch in
1983.
32
While he retained his Malaysian investment businesses such as sugar, palm
oil, hotels, and transport which made up a substantial part of his business and
wealth, he continued to broaden his interest and attention to China, Indonesia, the
Philippines, and elsewhere. His investments in China are very diversified and
20
more recently, he was given the Coca-Cola franchise for China and has also gained
half of China’s cooking oil market.
33
This move to Hong Kong was significant for two reasons. First, relocation
represents a much more drastic form of internationalization than expansion
overseas, and suggests much more than, to use RK’s analogy, merely seeking a
bigger pond in which to swim. Second, it shows the impact of the third factor
already alluded to above – the attraction of China. This pull factor emerged at an
opportune time. Just as Malaysian Chinese businessmen, RK included, had begun
to feel the restrictive effects of the NEP and were looking overseas to do business,
the chaos that enveloped China during the Cultural Revolution began to recede.
With Mao’s death and the arrest of the Gang of Four in 1976, Deng Xiaoping
gained ascendancy. From 1978, just a year after Kuok bought Kerry Holdings, a
number of reforms beginning with agriculture were put in place on an experimental
basis. In fact, RK’s acquaintance with the Chinese leadership predated China’s
liberalization. When China experienced serious sugar shortage in 1973, Mao
himself had asked RK for help.
34
RK obliged and soon developed good relations
with the Chinese leadership. These relations were built on his reputation as a
successful Chinese overseas businessman, as well as his ability to speak Chinese,
giving him direct access to China’s leaders.
21
RK’s internationalization reached another milestone in 2009 with his
divestiture of all his Malaysian holdings related to sugar, which had given him his
start in business. In October that year, RK’s Perlis Plantation Berhad announced
the sale of its wholly owned subsidiary Malaysian Sugar Manufacturing to FELDA
Global Ventures Holdings, a government-linked entity, its sugarcane farm in
Chuping, its 50% equity stake in sugarcane miller and raw sugar refiner Kilang
Gula FELDA, and its 20% equity in Tradewinds which controlled Central Sugar
Refinery.
35
Thus ended RK’s entire sugar business in Malaysia, a business that
spanned 45 years and at its peak controlled 60% of the country’s sugar supply.
What could have motivated this drastic move, possibly unheard of in the
literature on family business internationalization? Whether it was pure business or
disenchantment with the state is unclear so far. While Kuok’s sugar business
might have been the victim of the government’s acquisition drive for its and its
related companies, it is also clear that as a price-controlled item, sugar has little
profit upside for RK. Both factors likely had been at play; one move allows his
business to be free of Malaysia’s confining policies as well exit on good financial
terms, freeing resources for other potentially viable ventures.
36
Indeed, even as RK was withdrawing from the sugar business in Malaysia,
he was increasing his equity holding in Wilmar International, a Singapore-based
company with large tracts of oil palm plantations in Indonesia and the region. In
22
2007, Wilmar International merged with the Kuok Group of plantation companies
making it the largest producer of palm oil in the world. Wilmar International
headed by RK’s nephew Kuok Khoon Hong, and Indonesia’s Martua Sitorus
produces edible oil, oleochemicals, biodiesel, and specialty fat for India, China and
over 50 countries. It has refineries in Ukraine and is moving into sugar cultivation
in Myanmar and opening oil palm estates in South and East Africa.
Royal Selangor
Royal Selangor was founded by Yong Koon Seong, who arrived in Kuala
Lumpur in 1885. A native of Dapu village, Guangdong province, he learned his
trade in the province’s port city of Shantou (referred to then as Swatow), where he
apprenticed as a pewtersmith at age 11.
37
His arrival was opportune. Five years
before, the British colonial administration had moved the state capital from the port
town of Klang to Kuala Lumpur, where alluvial tin had been found.
38
It was a
period of bustling construction that included a railway line between Kuala Lumpur
and Klang and the installation of telegraph and telephone lines. The colonial
administration was itself building government offices as befitted a state capital.
These developments provided Yong Koon (his shortened name) both the raw
materials and opportunities to pry his trade. He was also not alone when he
arrived, joining two brothers who were already tinsmiths in Kuala Lumpur.
23
The transition from Yoon Koon’s early pewter business to RS was a painful
intergenerational journey that splintered the company and almost split the family
(Table 2). Yong Koon had four sons, Peng Pow, Peng Sin, Peng Kai and Peng
Seong, all of whom were drawn into the family business when young. In 1930,
Peng Pow, then 25, was put in charge of the factory, with all younger siblings
pitching in. From the late 1930s, family feuding over the business saw Peng Pow
leaving to produce pewter under the name Malayan Pewter, while the rest
established Tiger Pewter in 1940. The latter collapsed in 1941, but the three
brothers regrouped and started Selangor Pewter (SP) in 1942. It was under Peng
Kai that the family pewter business was rebuilt and SP turned into a successful
company.
Today, SP, renamed Royal Selangor (RS) in 1992, is the largest pewter
manufacturer and retailer in the world, with outlets in 20 countries
(www.royalselangor.com). The company is family-held and family-managed by
the third generation of the family with the fourth generation actively involved in its
running.
39
24
Table 2. Milestones in Royal Selangor’s growth and internationalization
Family
Business
1885: Yong Koon Seong arrived in Kuala
Lumpur. Changed name to Yong Koon
(YK)
Late 1930s: family feud among 4 children of
YK.
1942-45: Peng Pow kidnapped and killed by
gangsters
1952: Yong Koon passed away
1980: Peng Kai retired
1930: Eldest Son Peng Pow put in charge of factory
Late 1930s: Peng Pow left family business, set up
Malayan Pewter.
1940: Other 3 sons established Tiger Pewter from YK’s
business. But business folded in 1941.
1942: Three sons regrouped, formed Selangor Pewter
1942-45: Business restricted by Japanese occupying
forces. Second son Peng Shin left to start another
business, but gave up in 1947. 3rd and 4th sons
Peng Kai and Peng Seong ran SP.
1945: Return of British forces – clients for SP. Peng
Seong left to take over Malayan Pewter, leaving
Png Kai in sole charge of SP.
1957: SP benefited from government promotion of local
industry as diversification strategy.
1968: SP set up factory in Singapore, closed in 1990s.
1970s: SP expanded sales to Australia
1972: SP joint venture, created Selberan, a jewelry
company
1979: Sultan of Selangor conferred royal warrant to SP
1980: Peng Kai’s son Poh Kon took over reins of SP.
1987: SP acquired UK silver company Englefields
1992: SP changed name to ‘Royal Selangor’
1993: SP acquired UK silver company Comyns
Source: Chen, Pewter Dust/
Sub-ethnic Identity. Yong Koon was a Hakka, a group that settled in Guandong
province (and other provinces) but whose roots are said to be in northern China.
Thus in China itself, they were, as their name suggests (Hakka, pinyin ke jia,
means “guest people”), sojourners. Regarded as outsiders by residents of the host
provinces despite centuries of settlement, the Hakkas developed strong community
25
cohesion even before they migrated. Little wonder then that their sub-ethnic
identity was even stronger than other Chinese after they migrated.
In Malaysia, the Hakkas are one of the main groups of settlers, as earlier
indicated. This group’s importance in Malaysia was reflected by the fact that when
the British took over Kuala Lumpur it was controlled by Yap Ah Loy, a Hakka tin
miner who was made the town’s headman (Kapitan China). For Yong Koon,
being Hakka was helpful to his business in at least two ways. First, being part of a
dominant sub-ethnic group in Malaysia, Yong did not need to contend with the
problems of marginalization that RK had to face, and could concentrate on
developing his core business.
Second, there were specific occasions when the dialect group was relied
upon to help in the business. This occurred in the years of the Great Depression,
when the pewter business was unable to find workers, many having switched to
other jobs. The pewter business itself was badly affected by failing demand. Loh
Pat, Yong’s wife, had to travel up and down the Malay Peninsula, “tapping into the
Yong Clan, Hakka, and Dapu Village networks” to get workers. To improve sales,
Loh Pat and her third son organized the first pewter exhibition at the Chamber of
Mines in Ipoh, the state capital and heart of the tin mining industry. They urged
rich tin-miners, many of whom were Hakka and were hurt by the slump in world
26
tin prices, to purchase a few pewter items each so as to create a demand cycle for
pewter and, in turn, tin.
State. Unlike RK, whose early association with the Malay elite gave him an
advantage in doing business in Malaysia early in his career, Yong Koon and his
children had few dealings with the state, represented by the colonial administration
before World War 2 and the Malaysian government after. In the early postwar
years, the only form of interaction with the state was with members of the British
military whose number had increased in the country because of the communist
insurgency known as the Emergency. Members of the British forces became
frequent customers, buying pewter tankards, ashtrays and cigarette boxes for daily
use or as souvenirs when they left for home.
However, like RK, SP received some boost from the independent Malaysian
state in its early years. This came through the government’s desire to diversify
through promotion of local industry, as discussed earlier. Those industries
utilizing primary commodities produced in the country were given assistance. SP
met this requirement. Government support came in 1962 in the form of a loan
from the Malaysian Industrial Development Authority, as well as the services of 3
consultants from the International Labor Organization. That, however, was the
only occasion SP and the state intersected until the late 1970s, when an event was
to prove propitious for the development of the company.
27
According to Chen, the Sultan of Selangor State was traveling in Perth,
Australia, where he had a residence.
40
“He stepped into a large department store … and was respectfully asked by the sales
assistants where he was from… ‘Selangor’ the Sultan replied. ‘Ah, Selangor Pewter’ the
sales staff intoned. The Sultan was tickled that Australians had heard of Selangor Pewter
but not the state of Selangor nor of the Sultan… On his return, he decided that the pewter
company should have royal status. In 1979, the Sultan conferred a royal warrant on
Selangor Pewter.”
Royal patronage led to SP changing its name to ‘Royal Selangor’ in 1992.
The Sultan’s act was more important to RS than as just a marketing asset. It
accorded the company protection from the discriminatory policies of the state.
This protection must have also been a factor behind the family company’s decision
not to go public, which would have subjected it to all the quota requirements that
the New Economic Policy would have mandated. It may also explain why the
family never diversified beyond its core business to reduce risks associated with
new ventures, reliance on outsiders, and possibly interest from outside parties that
might compromise ownership and/or control.
Internationalization. The safeguard provided by membership of a major sub-
ethnic group as well as royal patronage bought RS space to internationalize at its
28
own pace. That the business remained under family control and that the family did
not venture beyond its core business helped too.
RS’s internationalization took place in stages. RS had, from the beginning,
foreign customers – British servicemen at the end of World War Two, expatriate
planters and executives in Malaysia, and American soldiers on Rest and Recreation
during the Vietnam War. Early marketing efforts to overseas markets were made
in the 1950s, and booming domestic sales prompted RS to set up a factory in
Singapore in 1968. As with RK, Singapore represented less of an
internationalization initiative, given the historical, cultural and geographical
affinities between the two territories. Singapore was seen as a market within easy
reach. But the factory closed in the 1990s when Singapore prospered, the value of
its currency and labor cost rose, and labor-intensive production there was no longer
viable.
The 1969 race riots and the NEP were however watershed years for RS’
internationalization. Although Chen referred euphemistically to the loss of tourist
customers as the cause of RS’s internationalization, the likely impact of the NEP
on business could not have escaped the family consciousness. The 1970s then saw
RS venture into Australia, its first truly international foray. Australia was the test
bed for RS to hone its products to Western tastes. It appears that a family member
had migrated to Melbourne and that helped prepare a way for RS to open a small
29
retail shop. The Melbourne shop benefited from the large number of Malaysian
students and visitors who bought RS souvenirs as gifts. Other markets, beginning
with Canada, followed. It took over half a century for the third phase of
internationalization – having retail outlets in RS’s markets – to materialize. In
1995, RS opened its first wholly-owned retail outlet in Melbourne, Australia.
Although not an early target of RS’ expansion, China’s rise and its growing
affluent population has become the focus of its most recent expansion plans. Yong
Poh Kon, CEO of RS, spoke of rapidly escalating the company’s presence beyond
Beijing and Shanghai.
41
RS’ internationalization move was also in search of new product ideas and
technology. Although RS did not face major competition from the few local rivals,
demand had plateaued. To maintain growth, there had to be new and more
innovative pewter products. New designs were needed and the products upgraded
in quality to attract younger and more sophisticated buyers as well as to reach out
to an expanding overseas market. Hence, the second phase included plans to
acquire foreign companies which would give RS access to the latest in western
design and technology. Indeed, RS was moving into the more value-added gem
and jewelry accessories with pewter as base. It began by first hiring one or two
foreign experts as designers. In 1972 it entered into joint venture with an Austrian
gem setter, Walter Angelmahr, and a Swiss master jeweler, Werner Eberhard, to
30
start a jewellery company called Selberan, RS’s jewelry business. In 1987, RS
acquired Englefields, a 300-year old UK pewter company. Another UK silver
company, Comyns, was acquired in 1993.
42
RS’s internationalization saw its share of production that was exported rise
from under 2% in 1970 to more than 50% by 2000.
43
But there had been business
disappointments along the way. It had to close offices in Switzerland and
Denmark.
The contrast between SP’s and RK’s internationalization experience could
not have been sharper. Whereas RK diversified both his businesses and their
location, RS remained true to its core interests, engaging only in geographical
diversification. And even so, China was not an early factor in RS’
internationalization, while it was a major component of RK’s strategy. It was only
in 2011 that RS opened a retail store in Shanghai and Beijing as well as operated in
department store concessions. The growing Chinese middle class is beginning to
appreciate luxury items as accessories and gifts but it is, nonetheless, a very
competitive market.
44
However, as noted, China now figures prominently in its
expansion plans. Thirdly, while RK engaged non-family members in his business
from the outset, internationalization was what brought non-family members into
the employ of RS.
45
31
Conclusion: Similarities, Contrasts and Implications for Theory
The two cases of Chinese overseas family businesses could not have been
more different on the surface. While achieving growth as well as
internationalization in their respective ventures, the routes they took to this success
differed substantially. RK began his business incorporating his extended family
but RS was much more closely held by the immediate family. While RK’s group
underwent intergenerational transitions very smoothly, RS, in its second
generation, was almost destroyed by disputes. And in the employment of non-
family members, RK took a very early lead over RS. When it came to
internationalization, RK embraced early diversification while RS did not stray
from its core business. Internationalization almost became an imperative for RK
but was cautiously plotted by RS. And China, the mother country loomed large in
RK’s calculations but figured very little in RS’ internationalization plans which
until recently were targeted at Western markets.
Beneath these differences, however, the similarities are no less striking.
First, both businesses approached internationalization taking into account their
sub-ethnic identity – RK as a member of a ‘marginalized’ minority and RS of one
of the major sub-ethnic groups. RS was able to use the large Hakka dialect
network for its business whereas RK decided that he could not. Second, both
businesses had to contend with the state and its ruling elites. RK found early
32
protection from his family’s close personal ties with the Johor royal family and
Malaysia’s first generation of leaders. RS, much smaller than RK and focused
primarily on the manufacturing of one product, had less of a need for the political
connections required to run successfully a conglomerate with a variety of
businesses.
46
Nevertheless, RS enjoyed the patronage of the Sultan of Selangor.
However, changes in the political landscape, specifically in the form of the NEP,
spurred both businesses’ internationalization efforts. The difference in their
response arose primarily because of the type of business they were engaged in –
while RS was in an activity where all raw materials and clients were local, RK had
to source his early product – sugar – from India and Cuba. The manner of their
early internationalization was similar – they began with Singapore. Until
separation in 1965, Singapore and Malaya, separated by a narrow strip of water,
were populated by the same peoples and ruled as a single territory. Finally, that
China was more important for RK than for RS can again be explained by the nature
of their businesses – sugar and oils highly in demand in China versus pewter which
was not. Even if China did not figure prominently in RS’ internationalization as
RK’s it was nevertheless a source of labor in the early years. The mother country
mattered.
One further similarity is crucial in the success of the two companies’ ability
to internationalize. The generation of RK as well as Yong Peng Kai had both
33
Chinese and English education. RK attended the premier English College in Johor
Bahru and for a term at the Raffles College in Singapore. All his children and
subsequent generations have tertiary education overseas. Likewise, Yong Poh Kon
and his family members are English educated and many have studied in the West.
It is their English education that distinguished them from many other Chinese
overseas family businesses in the vision and ability to take their business overseas.
What are the broader implications of these two cases? Certainly, RK and RS
are, in their business and organization, quite distinct. They may not be typical of
all Chinese overseas family businesses. However, they are important examples of
how Chinese overseas businesses overcame major challenges that are institutional
and contextual. Their experiences show that for family businesses of diasporic
populations, circumstances matter perhaps even more than structure (of the
families), whether for the way they conduct business or for their
internationalization efforts. While the characteristics of these families have much
in common with those of families that have been studied in the existing literature –
conservatism, risk aversion, limited resources – specific contextual factors shape
their response. The specific context that matters is the relationships between these
businesses and the government and citizenry of the host country as well as with the
country of origin. Sub-ethnic identity is also an important structural factor for
populations that had originated from large countries.
34
What are the implications of this discussion for existing theories of and
approaches to family business internationalization? Existing theories have been
based on the modification of internationalization theories of non-family firms by
taking into account the characteristics of family enterprises. In common with these
theories, they have viewed internationalization as opportunities that, given the right
circumstances, will be exploited, despite the many constraints family businesses
faced. However, family businesses of diasporic populations, particularly the
Chinese overseas, have to contend with the attitudes of host country governments.
For them internationalization becomes an imperative to reduce the risks of doing
business at home. RK’s internationalization through relocation of his business
outside his home country represents just an extreme example of this
internationalization. Policies of the countries of origin affect more the nature of
their internationalization – representing opportunities where these are welcoming,
as has occurred in post-1978 China. Although RK’s experience appears to fit the
Upsala model, responding to a discriminatory if not predatory state is as much a
factor as family conservatism in explaining the gradualism of the process. These
factors have not figured in a significant way, if they figured at all, in existing
theories.
It may be argued that diasporic populations represent special cases that
require no modification of mainstream theories. At the same time, the largest of
35
these groups, the Chinese overseas, Indian, and Jewish migrants, number in the
tens of millions and their collective economic prowess, built overwhelmingly upon
family business foundations, qualifies them for serious consideration even in the
theoretical literature. Indian and Jewish migrant communities share characteristics
with their Chinese overseas counterparts. Indian migrants are linked to India by
remittances, and faced host government hostility in places like Uganda and Kenya
in the 1970s. The Jews in Europe bear similarity to the Chinese overseas as far as
the ‘push’ factor is concerned. Both perform key economic functions that were
necessary to the economies of their host countries yet were not completely
accepted for a long time.
47
The final point highlighted here is the greater importance that needs to be
attached to context, in the form of the socio-political environment within which
family businesses function, than has been accorded by existing theories and the
models based on them. Given the close links between the survival of the business
and the family itself, family businesses are exposed to greater risks than corporate
entities in dealing with the environment they face. In better embedding this
context into internationalization theory, it needs also to be recognized, as shown by
the above cases, that the family as a business unit is both an asset and a liability.
This reality argues for the importance of adopting a case history approach that can
36
yield much greater insights into business history than can any discourse built
around efforts to generalize from large samples using existing theories.
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1
. See, for instance, Dunning, International Production; Hymer, International Operations;
Vernon, Sovereignty at Bay.
2
. Fuentes and Fernandez, “Why Internationalize?”; Gallo and Sveen , “Internationalizing the
Family Business”.
3
. Casillas et al, “Internationalization of Family Business” cited the examples of Heineken,
Samsung, SC Johnson, Cargill, Faber-Castell and Michelin as success stories in family business
internationalization.
4
. See, for instance, Belussi and Sammarra, “International Growth of Family Firms”; Dyer and
Mortensen, “Entrepreneurship and Family Business”; Sundramoorthy and Dean, “Family
Business Openness”.
5
. Although this group has often been referred to as “overseas Chinese”, we follow Wang,
“Greater China”in referring to this population as “Chinese overseas”. The former definition
arose from the fact that before the Second World War, this group counted many who were
transients, sojourners so to speak, who hoped eventually to return to China. This option was no
longer possible after this War with the establishment of the People’s Republic of China.
6
. Vernon, Sovereignty at Bay.
7
. Johansson and Vahlne, “Internationalization Process”.
8
. Dunning, International Production.
9
. Cantwell, Globalization of Technology.
10
. Lee, “Business Networks”.
11
. See Zahra, “International Expansion”; Fuentes and Fernandez, “Why Internationalize?”.
Price Waterhouse Coopers (PWC) in its Family Firm, 5, associates this desire for longevity with
family businesses taking a long-term view (“patient capital”).
12
. Gubitta, “Assettiorganizzativi”; Peng, “Resource-base View”; Friedman and Friedman, How
to Run; Johansson and Wahlne, “Internationalization Process”.
13
. See, for instance Bell et al, “Born-again Global Firms”; Gallo, Empresa familiar; Graves and
Thomas, “Venturing Beyond the Backyard”; Okoraofo, “Internationalization of Family
Businesses”; Oviatt and MCDougall, “International New Ventures”; Peng, “Resource-base
View”.
14
. Johnson, The Japanese Miracle.
15
. Hoselitz, “Sociological Approach”, 157.
16
. Cheong, et al, “Global Economic Crises”.
17
. The volume of these remittances was substantial, sufficient, in some years around the time of
the Great Depression, to substantially finance China’s trade deficit. (Cheong, et al, “Global
Economic Crisis”).
18
. Wong, “Globalization and Localization”, 292.
19
. A detailed account of the Group’s growth is contained in Lee et al, “Robert Kuok”.
44
20
. Since Malaysia only came into being in 1963, it is not strictly correct to refer to the
population of British Malaya (before 1957) and the Federation of Malaya (from 1957 to 1963) as
Malaysians. They were Malayans. We have used the term “Malaysian” to avoid having to
navigate between these terms.
21
. Chua, “Kuok Brothers”. The literature on the Chinese overseas contains considerable
references to their business networks. See, for instance, DFAT, Overseas Chinese. Much of it
deals with structures and relationships rather than their role in the process of internationalization.
22
. When he started his own company, Kuok Brothers Limited, two of his workers were non-
ethnic Chinese.
23
. As late as 1947, when the first census of Malaya was taken after the Second World War, half
the population was Malay unlike other major towns which were predominantly Chinese. See del
Tufo, Malaya.
24
. Cho, The Malaysian Economy, 44.
25
. Ibid, 44.
26
. White, “Crony Capitalism”.
27
. The term ‘Bumiputera’ refers to the local Malays and other races indigenous to Malaysia.
Although extensively referred to in official statements and documents, there is no uniform
definition and the term does not appear in the country’s Constitution.
28
. See the website of Kuok (Singapore) Limited:
http://www.pclsg.com/kuokgroup.com.sg/about-background.html
29
. “Robert Kuok”.
30
. Ibid.
31
. This was revealed in the Kerry Holdings website under “History”.
32
. Chan, “English Language Media”.
33
. Witchter and Ubels, “Malaysia’s Kuok”.
34
. RK .in a rare interview in CCTV (in Chinese) related how in 1973, two Chinese officials met
with him in secret in Hong Kong and told him about the dire shortage of sugar in China. See
Kuok, CCTV Interviw.
35
. Fong and Barrock, “Cover Story”.
36
. See, for instance, “Wilmar”.
37
. Chen, Pewter Dust.
38
. Tin was discovered in other parts of Peninsular Malaysia, most importantly in Perak, but also
in Negeri Sembilan and Melaka. Malaya was to become the largest producer of tin in the world
even before the end of the 19th century. (Chen, Born and Bred, 20).
39
. Among others, Yong Koon’s great grandchildren Christopher Yong is corporate graphics
manager, Andrew Yong is a retail manager in Singapore, and Sun May Foon is a merchandiser
and designer for Selberan (Chen, Born and Bred, 112-113). See also Koay, “All in the Family”.
45
Many details of the family business’ development in this paper are from Chen, Born and Bred.
Chen is a fourth-generation member of the Yong family.
40
. Chen, Born and Bred, 106. This account was also given by Chen Mun Kuen, sister of Yong
Poh Kon and a director of RS, in an interview with the authors on September 11, 2013.
41
. Interview with authors on September 11, 2013. See also Lee, “Royal Selangor”.
42
. Lee, “Comyns”.
43
. Lee, “Royal Selangor”.
44
. Wang, “Pewter Maker”.
45
. In 1975, RS hired Anders Quistgaard, a Danish designer to redesign its packaging for the
Australian market, and in 1978, he joined SP full-time. In 1986, designer Erik Magnussen was
commissioned to design a product line for Western markets in preparation for RS’ outreach to
global markets. Of course RS’ factory in Singapore had Singapore workers.
46
. Interview with Yong Poh Kon by authors on September 11, 2013.
47
. See Chirot and Reid, Essential Outsiders.