Over the past 30 years, globalization transformed sleepy, agrarian economies like Malaysia, Bangladesh and Vietnam into specialized industrial economies, and in the process birthed powerful family-run conglomerates. Today these industrialists face multiple challenges: succession to the next generation, domestic and international competitors, consolidation in their industries, and, potentially most devastating, technological disruption. What will it take for these families to survive?

 

  • Mashruf Habib, a 3rd generation leader of Chittagong's Habib Group, is investing in startups and expanding into new industries.
  • Raima Chowdhury, center, a 2nd generation executive at Karnaphuli in Bangladesh, exemplifies the rise of Millenial leaders at Asian industrial groups.

They’re now transitioning from family businesses to multi-national corporations.

Visit powerful family businesses across the “Tiger Cub” economies and one sees a common theme: everyone is trying to get their act together. Companies founded by quick-witted entrepreneurs now need to corporatize. Where charisma, smarts and toughness powered the first round of growth, surviving today requires a whole new set of skills: managing foreign currency risk, building ERP systems, forming HR policies, and building lasting brands.

What’s missing from most companies is a true commitment to innovation. To most industrialists, innovation means using old money for new industries. There’s little appetite for long-term research and development, let alone funding startups that might one day disrupt their own industries.

Today’s industrialists are focused on operational efficiency. But to survive technological disruption, they’ve got to start innovating.

Here’s where the industrialists need to take a page from the Americans. With our fruitful blend of paranoia and optimism, American companies actively invest in disruptors.

For example, in the late 1990s, large newspaper publishers saw the potential threat of the internet. Classified ads selling cars have long been the bread and butter of the news business, and publishers were about to lose this to online classifieds like Craigslist. To survive, Five top publishers pooled resources to buy cars.com, which today is valued at $3 billion and is a major player in online lead generation for the auto industry.

Industrialists should cultivate innovation as a core competency.

For Asian industrialists, a hail Mary won’t work; most startups fail, so what’s needed is a systematic way to place small bets. They also need the patience to see many of those bets fail. Importantly, the cultivation of these startups can be de-risked when they leverage proprietary gifts. Garment companies have relationships with buyers and deep knowledge into what it takes to manufacture at scale; any startup in the space would have a huge head start if they could build on those strengths.

There’s hope. Western-trained, world-traveled, second generation leaders, many of whom are millennials, get it. If given the resources and time to experiment, they will move beyond making their own personal investments into startups, and will begin baking innovation into their family businesses.

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