The Impact and Countermeasure Study of the World Economic Crisis on Chinese Family Business
Abstract: At the end of 2007, subprime mortgage crisis broke out in America, and then it gradually evolved into global economic crisis and spread to other countries. The international financial situation has been deteriorating sharply and has rapidly evolved into the most serious international economic crisis since the "Great Depression" of last century. Export trade, as the important support of China's economy, was affected inevitably and greatly, among which small and medium enterprises suffered most. Since most of the small and medium-sized enterprises in our country are family enterprises, some related theories are given in this paper to analyze how the global economic crisis influences the small and medium-sized family enterprises, and it also analyzes how, in the situation of economic crisis, we can solve problems for the further development of family enterprises and some suggestions will be given at last.
Keyword: economic crisis, family enterprises, opportunity, development
I.INTRODUCTION
Economic crisis refers to the situation that the economy of one or more countries or the entire world constantly shrinks (negative economic growth) during a long time. It is the outbreak of the crisis of overproduction in capitalist economic development cycle, becoming a decisive phase of the economic cycle[4].Three world-wide economic crises during 1957 ~ 1958, 1973 ~1975 and 1980 ~ 1982, without exception, lead to almost fatal strike to the world economy at that time[5]. Global economic recession, a decline in production and the total volume of trade, a growth of the unemployment rate, and sharpening conflicts and so on are all disastrous impact it brings about.
On the whole, the influence of economic crisis in China is mainly embodied in a sharp contraction in exports, as well as the shrinking of consumer demand which it causes. Although the financial markets of our country haven’t fully opened yet, our country's degree of economic dependence on the outside is up to 60% currently, while the main import countries of our domestic products are some developed countries, such as euro zone and the United States[7]. Moreover, one great characteristic of China's economy is export-led domestic investment, which promotes the growth of domestic GDP. If there are problems with the export, the domestic investment in capital assets will be affected inevitably. There is no doubt that the domestic economy will drop a lot[9].
The greatest asset that 30 years’ reform and opening up brings to china’s economy is the creative and vital release of mass small and medium-sized private enterprises which are predominant in family businesses. Unfortunately, the global economic crisis makes small and medium enterprises face many difficulties. Sharp drop in overseas orders, combined with the downturn in domestic consumption, directly leads to our country’s sustained losses or even bankruptcy to many small and medium enterprises which are export-oriented or have a high degree of dependence upon foreign trade[3].
Faced with this hard economic environment, we conduct an objective analysis on economic crisis in this paper, combining with the characteristics of family businesses at this stage in our country, demonstrate the common problem during their development, and analyze the difficulties brought about by the economic crisis and its countermeasures and the ways
Hu Shaolong
Management department
Wuhan University of Science and Engineering
WuHan, China
e-mail: 20349498@https://www.doczj.com/doc/6910099887.html,
Jiang Jun
Management department
Wuhan University of Science and Engineering
WuHan, China
e-mail: 75268896@https://www.doczj.com/doc/6910099887.html,
2010 International Conference on E-Business and E-Government
to grasp opportunities, so as to search for a way of sustainable development.
II.ANALYSIS OF CURRENT ECONOMIC CRISIS A.The reasons of the formation for the economic crisis
In traditional economic theory, the outbreak of economic crisis is decided by the basic contradictions of capitalism, namely, contradiction between the production’s socialization and the private ownership in capitalism. Economic crisis of the new era means that oligopoly in the various industries or monopoly capitalists use policy loopholes or monopoly position to exploit the whole community, which have caused inflated values in the industry and let the society pay the bill[6]. In other words, the modern economic crisis is not overproduction but excess of false wealth and surplus of the bubble economy.
B.The characteristics of current economic crisis
Compared with other subprime mortgage crisis in history, this economic crisis has something in common with the previous ones, but many more features of the new era: This economic crisis is world wide. Since the degree of integration of the world economy keeps increasing, dependence of major economies on each other keeps penetrating; therefore, the spread of the economic crisis is also bound to be much quicker.
The current economic crisis has a considerable degree of harmfulness. The United States is the world's economic engine determined by the Bretton Woods system, in addition to the status of the US dollar in the international trade, which make this economic crisis cause great damage to the world economy. The damage is embodied in these facts: decline in the volume of international trade materials and global investment capability, rise of wide spread business failures. The current economic crisis happened during an extremely sensitive period. This economy crisis happened in the stage where United States and the world economy are in adjustment and instability. The world economy is on a downturn channel originally. What’s more, the occurrence of the subprime mortgage crisis accelerated the United States and the world economy to enter the adjustment and recession cycle.
The cause of current economic crisis is more harmful. The economic crisis originates in the subprime mortgage crisis, which lead to a worldwide shortage of funds, so it will be impossible to be solved with single solution in a short time.
III.IMPACT OF ECONOMIC CRISIS ON CHINESE
FAMILY BUSINESS
A.Chinese family business
Family businesses are the earliest enterprises form in commodity production, and also are a business form which has the most enormous quantity, the most distinguished features in internal relations and the greatest difference in scale among today’s Enterprise groups[2]. The Chinese family business has become an important part of the national economy after twenty years of development. The production value offered by family enterprises which are the main parts of the private enterprise has reached more than 20% of national product value, and the number of the employment has reached 10% of the whole society.
Recently a sample survey of 1947 small and medium-sized private enterprises from 250 counties and districts of 21 provinces and autonomous regions conducted by Academy of Social Sciences of China, Institute of Sociology, and the Research Office of the National association of industry and commerce, shows that Chinese medium and small companies commonly adopt the form of family ownership at present. Business ownership and management work closely, decision-making power and management are highly concentrated in the hands of business owners, and family members are in important position in enterprise.
So researching on Chinese family business under the situation of economic crisis, and analyzing the difficult environment, the opportunities and how to hold it are the questions which should be faced in the progress of social development. They are the keys to solve the world economic crisis and world economic integration, and to promote the nurture of ecological diversity in the enterprises with Chinese characteristics and the development of national industry.
B.Negative impact
Since the past three decades, China’s economy has rapidly been involved into the world economic system, and the export trade has become the engine of the national economy. Especially after joining in the WTO, China’s
economy becomes a part of the world economy inevitably. The degree of market interdependence on Europe and the United States and other developed countries becomes higher and higher. Therefore, the global economic crisis is bound to affect China's economy. The most important thing reflected in China's exports and consumption can be broadly summarized as follows:
Demand: because of the economic crisis, national wealth of the United States has shrunk substantially, the scale of credit reduced dramatically, which have made Americans reduce consumption. But also because of pessimism on the expected income, the Americans begin to cut down credit consumption, making Chinese exports to the United States reduce significantly. As lots of merchandise exports to the United States are commodities, the large reduction in exports is unable to use stimulation in domestic demand to replace for China.
Exchange rate: the economic crisis accelerates the weakening of the status of the dollar and makes a further depreciation of U.S. dollars. Besides, American government has been exerting pressure on China and asking for the appreciation of RMB, therefore, the appreciation of RMB on the erosion of the competitive price advantage of China's export products is extremely dangerous. At the same time, it further increases the difficulty for Chinese family businesses to develop overseas.
Trade Policy: because of the economic crisis, lots of American companies dropped in production and collapsed. Consequently, the unemployment rate rose. For domestic political needs, the new United States government is bound to intensify pressure on China to force the Chinese government to allow further appreciation of RMB, or to introduce more restrictive policies. And the United States will make full use of such methods as anti-dumping, technology, standards, green products and so on to limit China's commodities. Because many Chinese small and medium-sized family enterprises used to simply rely on price advantage to win, which will let most Chinese products shut in China.
C.Opportunities and Challenges
Global economic crisis has brought a lot of obvious negative impacts. But in fact everything has two sides. Market‘s low point is the period of industry’s reconstruction. Survival of the fittest is the eternal rule of the market, which making more companies of having mismanagement bankrupt. But it means more opportunities to the enterprises which can survive and run on.
Internal adjustment time: at the prospect of a good economic situation, a lot of small and medium-sized family businesses tend to pay more attention to expansion, but not to control the operating costs of enterprises. In this difficult period of economic crisis, cutting the budgets to survive is important for each enterprise. And driven by the macro environment, business managers should precisely regard the reduction of the operating costs of enterprises and the downsizing of enterprises as the most important business strategy.
M & A opportunities: The winter of economy is not necessarily a bad thing for enterprises. In the turbulent environment, those enterprises which have the strength to survive, in order to achieve the rise of market share, may use resource integration and human resources integration to carry out the opposite merger strategy. For the enterprises which want to make themselves bigger and stronger, this is a very good opportunities for development.
Cost reduction: Under the global economic crisis, the vast majority of the raw materials have substantially cut down their prices, which have reduced the production costs of small and medium enterprises; on the other hand, a large number of talented people swarm into the market, therefore the enterprises can easily find suitable competent people.
Increased domestic opportunities: currently, international market is shrinking, whereas China is implementing the tactic of expanding domestic demand which is encouraged by central authorities, so it can be expected that the domestic market has great potential to be dug out. Additionally, expanding domestic demand is also a good opportunity for those enterprises that previously relied on export to adjust the challenge. In other words, the implementation of policies and measures of the central decision-making and expansion of domestic demand will give small and medium enterprises enormous development opportunities in the domestic market.
IV.THE STUDIES OF COUNTER MEASURE IN CRISIS Most Chinese family enterprises are medium and small sized ones, most of them are engaged in manufacturing,
retailing and exporting[1]. Small-scale and highly centralized decision-making right are the chief features of this kind of enterprises. Basically, for a family enterprise with good independent management, drive of capital in the pursuit of profit totally embodied in the positivity of operator[8]. Because of the quick reaction of the operator to the changeable market and the combination of proprietary rights and management rights, managerial authority can not only economize the cost but also are good for the enterprises to make decision timely. In view of the analysis on economic crisis and the acquaintance of the feature of medium and small sized enterprises, we can make a summary about the counter measure to this economic crisis:
Pay attention to the change of international and domestic economic crisis; making use of the policy of our country. Enterprises should get into the habit of watching the change of economic crisis in the world and in our country. Our country should carry out some policy to reply to the economic crisis, e.g. the policy about interest rate, adjusting the export rebate, etc. can be used by enterprises and provide them with favorable help for the formulation of development strategy.
Adjust merchandise structure. Enterprises should analyze the feature of the market of their products and vigorously develop alternative type of low-cost goods and merchandise and timely adjust the level of merchandise (products) catalogues according to the degree of the effect of the economic crisis on each market.
Adjust the market and develop the emerging markets. Because the degree of different countries’ internationalization is different, although the economic crisis is global, some of the markets suffer smaller influence, and some even regard the crisis as a blessing in disguise, especially for many export-oriented enterprises. For many export-oriented enterprises, considering transferring the market of these places will be a better choice.
Adjust trading ways. Changes of the external environment force enterprises to make specific development strategies. Focusing on the corporation strategy, cultivating corporation core competencies and integrating the corresponding industry resources are the best ways to achieve and create a new profit model for enterprises.
Reduce costs. Economic crisis is a very good opportunity to make some adjustment. The enterprises can, during the economic crisis period, take full advantage of the chance that many raw materials decrease their prices and a large number of outstanding talents are pouring into the market, to reduce production and workforce costs. On the other hand, enterprises can reconstruct their internal management in this special period.
Try to trade in domestic. Due to the professional foreign trade companies have focused on the international market over a long period of time, they lack domestic market experience and resources. For the present, international market is shrinking whereas the tactic of expanding domestic demands encouraged by the central authorities is implementing in China, so we can expect that the domestic market will possess great potential, and it is entirely possible for some merchandise to develop the domestic market.
We are undergoing the global economic crisis and this is not only a challenge to most of our country enterprises, but also gives us a rare opportunity. So as to establish a good solid foundation for enterprises in China before world economy in the near future starts recovering and redeveloping, China's enterprises should make full use of this opportunity to adjust export strategies, thoughts, practices, merchandise structure and traditional export market.
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