LIFE CYCLE OF INDONESIAN FAMILY BUSINESS

The research main purpose is to explain the life cycle of Indonesian family businesses and how to develop their ability transforming them into professional ones. Generally, Indonesian family businesses are started by close family circle or immediate family. Almost one-third of family businesses were started individually, while the rest were started by two or more people.

Only 3% of family businesses which still exist up until now were built in 1932 to 1943, 2% were built in 1944-1955, 10% were built in 1956-1967, 24% were built in 1968 – 1979, 24% were built in 1980 – 1991 and 37% were built in 1992 – 2003. The phenomena shows how difficult it is to maintain and transform start-up family businesses into corporate family businesses.

Business ideas may come as easy as within dinner interactions, discussion with family members or business communication among relatives. Many entrepreneurs come to realize the difficulties of realizing the ideas alone, thus they start to find confidence modalities from the other family members. This supportive partnership attitude is mainly bonded with trust and attached by the same business vision that usually happened within spouses.

The founder of family business focuses on the hard work of building and growing the company, dealing with variety of start-up business obstacles. When family businesses have become bigger and own much stronger power as a company, the second generation/extended family will heritage and therefore joint the business, their arrival influences the business’s nature. Moreover, when more generations join the business, these changes makes the business becomes a dynasty family business.

Family and business values contradictions are likely to occur when new generations arrive and within each business stages. Moreover, some dilemmas also appear such as: whether to give job opportunity to unemployed family members regardless their abilities and skills or employing competent individuals. Several problems identical to family business are: (1) unfocused strategic planning, decision making and resources allocation processes (2) informal and unsystematic procedures on solving the problems related to succession (3) tends to react reluctantly towards changes without obvious short-term needs, although they realize maintaining a sustainable business and continuously conducting innovative and creative improvements to increase the company’s service quality for its customers and business partners are critical. To become successful family businesses, the combination of three main aspects (business management, family management, ownership management) is essential.

Foreword

An interesting myth within family business that is known not only in Indonesia: “the first generation builds the business; the second enjoys, while the third destroys it.” The saying explains that the action of maintaining the business and handing it over to the second generation, is not an easy thing to be done, thus it gets even harder transferring it to further generations. Family business is mainly characterized by the significant ownership and contributions from family members within the business management. Therefore, automatically they anticipate that leadership and supervisory roles will be given to and conducted by successors. The life cycle model shows that companies’ growing and development stages are similar to human although every company might go through varies experiences which differ one to another. A survey in Australia proves that 71% family businesses owned by first generation, 20% of them owned by the first successor and no more than 9% owned by the next successor (Astrachan, 2003). As survey in America demonstrates that 90 % family businesses owned by first generation, 13% by the first successor and only 10% owned by the next successor (Paisner, 1999).

In Indonesia, Only 3% of family businesses which still exist up until now were built in 1932 to 1943, 2% were built in 1944-1955, 10% were built in 1956-1967, 24% were built in 1968 – 1979, 24% were built in 1980 – 1991 and 37% were built in 1992 – 2003, within these establishment periods, we may observe that its composition is dominated by companies which ages are relatively new (no more than 3 decades). On the positive side the data shows us that there has been good progress in Indonesian family businesses development, especially within the last decade. These new companies’ existences are within the middle up level. Thus, the data also demonstrates there has been improvement within the business management that allows them to grow faster.

The research analyzes the steps within Indonesian family businesses life cycle for small scale companies so they will be able to enhance their transformation ability and growing into professional ones. Moreover, businesses could also learn from the failure and success of others.

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