Asia Pacific Journal of Management, 21, 263–285, 2004

c 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.

Facing Constraints to Growth? Overseas Chinese

Entrepreneurs and Traditional Business Practices
in East Asia
DAVID AHLSTROM∗ ahlstrom@baf.msmail.cuhk.edu.hk
MICHAEL N. YOUNG michaely@baf.msmail.cuhk.edu.hk
Associate Professor of Management, The Chinese University of Hong Kong, Shatin, NT Hong Kong

EUNICE S. CHAN eunice.chan@cgey.com

Senior Consultant, Cap Gemini Ernst & Young, 7/F., Devon House, Taikoo Place, 979 King’s Road,
Quarry Bay, Hong Kong

GARRY D. BRUTON G.Bruton@tcu.edu

Associate Professor of Management, Texas Christian University, M.J. Neeley School of Business,
Fort Worth, Texas, USA

Abstract. Overseas Chinese entrepreneurs in East Asia have achieved notable success in a number of traditional,
slow growth industries. This success has been ascribed to distinctive aspects of Chinese business culture that favor
alacrity, adaptability, networking, and close control of firm operations. Recently, some have suggested that the
same characteristics that have promoted these firms’ success in slower growth sectors may hinder firm success in
faster growth sectors of the economy. To explore this proposition, we conducted in-depth interviews with forty-one
entrepreneurs, venture capitalists, and government officials all working with fast growth entrepreneurial firms in
East Asia. The results suggest that, in general, Overseas Chinese entrepreneurial firms also follow many of the
traditional business practices associated with Overseas Chinese firms. Most venture capitalists and government
officials in the sample expressed concern that these practices are hindering the building of firms that can be taken
public and experience the high growth consistent with vibrant entrepreneurial firms. The results also showed
that the Overseas Chinese entrepreneurs sampled are aware that some of these characteristics may be creating
constraints to faster growth and, at the behest of venture capitalists and government officials, are sometimes making
the changes thought necessary to create faster growth firms.

Keywords: entrepreneurship, Overseas Chinese, Asia, culture

Introduction

Much economic activity in East Asia from Taiwan and Hong Kong to Singapore, Thailand
and Indonesia originates with the commercial activities of a single ethnic group living
outside of their ancestral homeland—the Overseas Chinese (Backman, 1995; Chua, 2003;
Weidenbaum and Hughes, 1996). Overseas Chinese entrepreneurs have created a number
of successful firms in several industries such as light manufacturing, real estate, trading, and

∗ To whom correspondence should be addressed.

264 AHLSTROM ET AL.

commodities (Yeung and Olds, 1999). Overseas Chinese firms typically are characterized
by family ownership and control, a simple organizational structure with centralized decision
making, internal financing, and little or no spending on research and development (R&D) or
advertising (Carney, 1998; Chen, 2001; Weidenbaum and Hughes, 1996; Yeung, 1999). In
the manufacturing sector, these firms’ production is often contract manufacturing, based on
the designs and brands of the contracting firm. Overseas Chinese manufacturers typically
focus on producing low cost inputs for others with simple value chains (Carney, 1998).
A number of legendary fortunes have been created by the founders of these firms, leading
some observers to declare that more firms should emulate Overseas Chinese businesspeople,
particularly in the developing world (Rowher, 1995; Weidenbaum and Hughes, 1996; Weiss,
1989).
There is little doubt that much wealth, as well as a fascinating commercial culture has
been created by these firms in the decades after World War II. Recently, however, researchers
and policy makers in East Asia have raised concerns over the region’s conservative firms and
heavy reliance on slow growth industries (e.g. Backman, 1999; Carney, 1998; Krugman,
1994). This is especially true in the light of increased emphasis on knowledge-based firms
in the global economy (Ang et al., 2000; Yeung, 1999). The Asian financial crisis of the late
1990s amplified the calls for East Asian economies to increase investment in indigenous
technology and human capital, and to encourage firms to enter faster cycle markets (The
Economist, 2000, 2001). In response, many countries in the region have attempted to develop
home grown, fast-growth companies by establishing government agencies to finance, work
with, and incubate entrepreneurial firms (Yeung and Olds, 1999). For example, Malaysia,
Singapore, Taiwan and Thailand have implemented major initiatives to spur high technol-
ogy. Even traditionally laissez-faire Hong Kong has promoted a Cyberport and Science
Park projects in conjunction with successful foreign entrepreneurial firms in an attempt to
seed new industrial clusters. Official policies in these economies now aim to support fast
growth entrepreneurial firms with the potential to become publicly listed and to compete
globally.
There are, however, uncertainties as to the eventual success of these initiatives. Major
changes taking place in the global economy and have created tensions between the traditional
commercial culture of Overseas Chinese firms and the new economic environment (Carney,
1998; Yeung, 1999; Young, Ahlstrom and Bruton, 2004). Globalization, the importance
of brand building, an increased reliance on R&D, and international investors demanding
more transparent corporate governance structures have created unprecedented demands
on the East Asian Overseas Chinese business community (Ang et al., 2000; Low, 2002;
Yeung and Olds, 1999; Young, Ahlstrom and Bruton, 2004). It may be the case that certain
characteristics of Overseas Chinese firms that were assets in the slower growth industries
may prove to be liabilities for firms that seek rapid growth (Carney, 1998), particularly
under the conditions of the new competitive landscape unfolding worldwide (Bettis and
Hitt, 1995; Peng, 2000).
Thus, this article examines the characteristics of Overseas Chinese firms and explores
the proposition that the characteristics of these firms that have reportedly promoted success
in slower growth sectors (Kao, 1993; Weidenbaum and Hughes, 1996) may actually limit
success in the faster growth sectors. Characteristics that can accommodate rapid growth are
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 265

factors such as decentralized organizational structures, transparent corporate governance,

and acceptance of outside capital that requires the ceding of ownership and control (Bettis
and Hitt, 1995; Chandler, 1990; Hamel, 2000). Yet it is unclear if Overseas Chinese en-
trepreneurial firms are willing to depart from traditional practices and adopt structures that
facilitate the fast growth expected by venture capitalists, outside investors, and government
officials (Carney, 1998; Scott, 2002; Timmons and Olin, 1999).
This article is structured as follows. We first review the factors seen as having promoted
the success of Overseas Chinese firms in East Asia. Academics, consultants and government
policymakers have developed extensive accounts of Chinese culture and its impact on firms
in East Asia (e.g. Backman, 1995; Carney, 1998; Chen, 2001; Redding, 1990; Weidenbaum
and Hughes, 1996). We synthesize these accounts into six key firm characteristics. Second,
we summarize the views of Overseas Chinese entrepreneurs on firm operations, structure,
growth and financing in East Asia. Third, we present information gathered from inter-
views with venture capitalists and government policymakers in Hong Kong, Singapore
and Taiwan. These interviews also examined their positions on the practices of Overseas
Chinese entrepreneurs and the resulting impact on creating fast growth, venture funded
firms. The findings are compared to the views held by the Overseas Chinese business
people and the predominant nature of Overseas Chinese business in East Asia. Finally we
discuss the implications of our results for entrepreneurs, policymakers, and outside firms and
investors.

Common characteristics of Overseas Chinese firms

The Overseas Chinese are individuals of Chinese ancestry, who live outside of the People’s
Republic of China. Historically, such individuals have played important, if not dominant
roles, in the economies of Indonesia, Malaysia, The Philippines, Singapore, Thailand, Hong
Kong, Macau, Taiwan, and Burma (Chua, 2003; Kao, 1993; Seagrave, 1995). There are
an estimated 50 million Overseas Chinese living in East Asia alone, and their economic
contribution is substantial. Excluding Taiwan, whose economy is the 13th largest in the
world, Overseas Chinese account for an annual economic output of about US$500 billion.
This is equal to about 40 percent of the gross domestic product (GDP) of the Peoples’
Republic of China (PRC), which has twenty-five times the population (Backman, 1999;
Zutshi, 1997). In Singapore, Taiwan and Hong Kong, Overseas Chinese form the majority
population, and their control of the economy would not be unexpected.1 However, in many
other East Asian countries, Overseas Chinese form a distinct minority and are still able
to exert significant if not dominant influence over these economies. To illustrate, in the
Philippines, ethnic Chinese are just 1% of the population, yet control 60% of its wealth
(Chua, 2003). In Thailand, ethnic Chinese make up about 10% of population, but control
about eighty percent of listed firms by market capitalization (Vatikiotis, 1998). The figures
are quite similar in Indonesia (Zutshi, 1997).
Two of the best-known analyses of Overseas Chinese firms were done by Murray
Weidenbaum (Weidenbaum, 1996; Weidenbaum and Hughes, 1996) and Michael Backman
(1995). Weidenbaum argued that five primary characteristics of Overseas Chinese busi-
nesses help to explain much of their success. Similarly, Backman listed eight characteristics,
266 AHLSTROM ET AL.

all of which but one overlapped with those of Weidenbaum and Hughes (1996). Backman
(1995) added more detail in the areas of branding, governance, which augmented similar
dimensions of advertising and information control discussed by Weidenbaum and Hughes
(1996). Backman (1995) also added the emphasis on internal financing. Closely related
characteristics such as branding and advertising, and governance and decision-making,
were combined in this list. The resulting six main characteristics of Overseas Chinese firms
are thus summarized:

1. Family control: Chinese businesses are typically family owned and operated. This is true
even in cases where the firm is publicly traded and quite large in size; family members
almost always maintain controlling interest in the firm. Thus, the board of directors is
typically weak as a control mechanism (c.f. Lang and Young, 2000). Also, it is often
the case that only close relatives fill strategic positions in the firm. Outsiders are not
commonly admitted to top management ranks.
2. Simple organizational structures, networks and information control: Because Overseas
Chinese businesses are typically centered around a family patriarch, the organizations
themselves tend to be simple structures designed to maximize the efficiency of a central
business unit, from which the patriarch can direct that (and other) divisions). The firm
may operate through a network of businesses that is difficult for outsiders to grasp but
is easy for the founding family to control. Information tends to remain inside the firm;
operations and finance are typically opaque to outsiders.
3. Centralized governance and decision-making: The family control means that the
decision-making in the firm is centralized—often through a patriarchal owner at the
top of the organization. In addition, there is little delegation of authority, as even minor
decisions often must be approved by top management. Many transactions are informal
and have little or no paper trail.
4. Internal financing: The reliance on family members and distrust of outsiders means
that often Asian firms rely on internal financing; they obtain only very limited amounts
of long term debt (if any). This is often a constraint on growth, as we will explore
further.
5. Lack of advertising and branding: Overseas Chinese firms rarely rely on branding to
market their products, thus they rarely interact directly with consumers. They eschew
advertising and modern promotion to maintain a low profile while typically acting as
suppliers to others. The value chain is simple and easy to maintain and control.
6. Little or no Research and Development (R&D): Overseas Chinese firms spend relatively
little on activities not directly related to the economic success of the business. Thus,
only limited resources are devoted to activities such as staff training and research and
development.

These six overall characteristics of successful Overseas Chinese firms are rooted in
Chinese culture and related institutions (Backman, 1995; Bond, 1996; Chen, 2001; Redding,
1990; Weidenbaum, 1996). For example, the stress on family business reflects the emphasis
on the role of the family within Chinese culture. Family is considered to be more important
than the state in the Confucian-based culture of the Chinese (Chen, 2001). The second
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 267

and third points raised above are consistent with the role of patriarchs in Confucian-based
cultures. Patriarchs often have a dominant role in the family and resulting business. Thus,
there is often an extension of paternalistic decision-making to the firm. Similarly, such
decision making is facilitated by a simple organization structure where all key decisions are
made by the patriarch who is located at the center of the structure. Point four highlights the
fact that most Overseas Chinese firms rely heavily on internal financing mechanisms. This
may have been encouraged by political instabilities that Overseas Chinese businesspeople
have long faced, as well as underdeveloped financial markets (Seagrave, 1995; Weidenbaum
and Hughes, 1996). But, such a reliance limits the ability of the firm to successfully conduct
more expensive long-term tasks such as R&D and brand building, as noted in points five
and six. These activities generally represent large, long term investments not essential to
the production of a given product or service in the short to medium term (Carney, 1998).
The context within which Overseas Chinese firms are embedded is by no means static;
recent years have seen intense changes occurring in East Asia with significant bearing on
entrepreneurial development in the region (Ang et al., 2000; Peng, 2000, 2001). The style of
doing business found in the successful, more traditional Overseas Chinese firms in East Asia
may not be as useful to the newer, indigenous entrepreneurial firms competing in the new
competitive landscape (Bettis and Hitt, 1995). Given the extent of change occurring, coupled
with the increasing emphasis on building fast growth firms, the question is are entrepreneurs
in East Asia responding to these changes and what is the view of key observers such as
venture capitalists and government officials charged with promoting entrepreneurship? The
next section details the methods utilized to explore these questions.

Methods

To examine the characteristics of Overseas Chinese firms and if they are responding to
the imperatives of faster growth, we conducted forty-one semi-structured interviews with
entrepreneurs, venture capitalists and government officials working with Overseas Chinese
start-up firms in the East Asian economies of Hong Kong, Singapore and Taiwan. Since we
were studying the very specific phenomenon of entrepreneurial constraints to growth, we
chose a purposive sampling method (Yin, 2003). Thus, we sought to identify leading venture
capitalists in East Asia active in new firm financing. With their help, we identified the gov-
ernment policymakers in the three economies responsible for promoting entrepreneurship.
Both of these groups then helped us to put together a sample of entrepreneurial firms. The
firms identified were validated by the government officials and venture capitalists as being
candidates for fast growth and possibly an initial public offering. An assumption was that
if the venture capitalists and government officials expressed concern about the behavior of
the entrepreneurs, this would threaten their financing and growth. We identified fourteen
entrepreneurial firms in the three economies and twenty individuals from those firms were
interviewed. All but one of those interviewed were founders or cofounders of their firms.
Twelve entrepreneurs were based in Hong Kong, four in Singapore and four in Taiwan.
Hong Kong, Taiwan and Singapore businesspeople are generally considered to be part of
the greater Overseas Chinese business community by researchers (Kao, 1993). All of the
privately held firms in the sample were at an early stage of the venture, on average three
268 AHLSTROM ET AL.

years old, ranging from two to seven years old. Annual revenues varied from US$120,000
to about US$5 million. All firms had the stated goal of seeking venture financing to grow
fast enough to go public within about five years.
Fourteen venture capitalists in twelve private firms were also interviewed, five in Hong
Kong, four in Taiwan, and five in Singapore. Venture capitalists were interviewed to explain
what they expected from their funded firms, and how the entrepreneurial characteristics
they encounter among East Asian firms may create problems in helping firms seek fast
growth and a public offering. To give a fuller picture of East Asian entrepreneurial firms,
four government officials responsible for promoting R&D and fast growth start-up firms
were interviewed; two were from Hong Kong, and one as from Singapore while the other
was from Taiwan. The venture capitalists interviewed had an average of US$ 300 million
under management in East Asia. Finally, three top managers in three large East Asian firms
were interviewed. These represent three of the most successful large, fast growth Overseas
Chinese firms in East Asia. The large firms in the sample have become leading competitors
in light electronics, healthcare, and microcomputers, all with revenues at over one billion
U.S. dollars per firm. All entrepreneurs interviewed were Overseas Chinese as were nearly
all of the other interview subjects. The patterns and key characteristics supplied by the
entrepreneurs were similar across the three locations, suggesting that the findings were
not idiosyncratic to any one economy. Table 1 summarizes the groups of organizations
interviewed and their characteristics.
The well-accepted procedure of gathering and analyzing interview data in a relatively
new research site was followed (Eisenhardt, 1989; Lee, 1999; Strauss and Corbin, 1990).
First, the data were gathered and organized using semi-structured interviews following a
funnel technique of inquiry (Frey and Oishi, 1995). Semi-structured interviews allow for
a structured interview protocol with room for amplification of key issues. Interviews were
taped and subsequently transcribed and checked for accuracy. For the three non-taped inter-
views, write-ups were based on the detailed notes taken by two interviewers. The interview
transcripts and company data were carefully studied with the focus on summarizing and
comparing the information collected with a baseline model of high technology entrepreneur-
ship and the characteristics of Overseas Chinese entrepreneurs. Basically, the respondents
were initially asked to describe their entrepreneurial experience and compare it to the six

Table 1. Characteristics of the interviews in Hong Kong, Taiwan, and Singapore.

Number Total number Size range

of organizations of interview subjects (U.S. dollars)

Small, privately-held 14 20 $120,000–$2,500,000

high technology firms in annual sales
Publicly-held 3 3 About one billion dollars
high-technology firms in annual revenue per firm
Venture capital firms 12 14 Average of about $300 million
based in East Asia under management
Government high technology 4 4 $40–100 million
and productivity agencies in annual budgets
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 269

dimensions of Overseas Chinese business above as well as the well-known characteristics

of high technology entrepreneurship in the West. The respondents were reasonably familiar
with fast growth entrepreneurship as promoted by venture capitalists and were willing to
provide insight as to how their experiences differed from this view.
Second, the interview data were coded according to categories associated with Overseas
Chinese firms and analyzed for consistent concepts as they emerged. This is known as
concept coding or conceptualizing the data (Lee, 1999; Strauss and Corbin, 1990). Two of
the authors conducted the data coding and analysis; reliability approached 90 percent in
terms of agreement of concepts. This process allowed comparisons and patterns to arise
from a large amount of (primarily) interview data. The overall aim was to firmly establish
if the entrepreneurs agreed with the traditional Overseas Chinese approach to business
and if any tensions were arising for the firms as they attempted to compete in fast growth
sectors and secure venture funding. The venture capitalists and government officials offered
additional views on entrepreneurial firms in East Asia and their feelings about their fitness
for funding and support.
During these interviews the cases and insights provided by each interview subject were
compared to what is known about the understood patterns of entrepreneurial conduct com-
mon to fast growth firms seeking IPOs. After each interview, the pattern of entrepreneurial
beliefs and actions was adapted as deemed necessary based on the new information pro-
vided and then presented to the next interviewee for validation. We reviewed our interview
to identify a set of mutually exclusive categories that represented and summarized the data.
This replication logic approach (Eisenhardt, 1989; Yin, 2003) to gathering the data assists
in taking multiple cases and the rich information they provide to build an understanding of
a new domain such as the one presented here (Daft and Lewin, 1990). There was a high
degree of consistency in the interview results as well as comparisons to the understood pat-
terns of entrepreneurial conduct was used as a reference point (Eisenhardt, 1989). Where
disagreements appeared these are highlighted and discussed.

Results

Family control

The first point addressed about Overseas Chinese companies concerns the ownership and
structure of the firm. From the evidence collected, all but one of the Overseas Chinese start
ups in our sample retained a family business structure. The propensity for strong family
control was consistent across all of the sampled firms but one, and this was irrespective of
the firm’s location in the region or industry. The entrepreneurs in our sample also stated
that they sought to place family members in positions of responsibility, even if it meant a
delay in filling key positions. In many firms, though not all, the founder made all of the vital
decisions; decision making was strictly top down with trusted lieutenants carrying out the
owner’s wishes, also consistent with common practice in Overseas Chinese firms.
Such characteristics are not uncommon in start-up firms generally. However, these char-
acteristics usually are shed as these firms seek fast growth and additional outside financing
options (Timmons and Olin, 1999). One of the principal means by which entrepreneurial
270 AHLSTROM ET AL.

firms in the West expand is through venture capital. Such funding normally is associated
with high value-added by venture capitalists, who often seek to play an active role working
with the management of the firms that they fund. All of the Overseas Chinese entrepreneurs
interviewed disliked giving up absolute control over their companies. A majority of the
entrepreneurs interviewed also specifically added that they would not seek venture capital
if it required them to relinquish significant ownership and control to outsiders.
The venture capitalists and government officials confirmed this attitude toward family
control among entrepreneurial firms in East Asia and the problems it engendered. They
stated that while Overseas Chinese entrepreneurs acknowledge they need additional funds
to finance more rapid growth and would like to go public at some stage, they did not easily
accept venture capitalists’ control or even participation in their businesses. One venture
capitalist from a major international bank specializing in technology-related venture capital
in East Asia presented this observation:

Venture capitalists such as myself normally expect to be included in board meetings and
other important meetings. That also means that venture capitalists require two weeks
notice for the board meeting and a written agenda to follow. I have found that many busi-
ness owners out here [in East Asia] do not like making even that simple commitment—it
is too intrusive for them. I was also a bit surprised to learn that the high-technology
entrepreneurs are no different. They sometimes purposely hold important meetings when
they know you will be out of town. It is difficult for these guys to give much control to
non-family members such as venture capitalists.

The continuing preference for family-controlled business was seen across all of our sample
of entrepreneurs, venture capitalists and government officials working with start-ups. Even
Taiwanese entrepreneurs, who are thought to be most comfortable with the freewheeling
Silicon Valley style management (Yeh et al., 1996) stated their reluctance to give up control
to outsiders. This reluctance to accept outside funding (and control) may continue to present
an obstacle to growth for entrepreneurs in East Asia for the foreseeable future.

Organizational structure

Another means by which Overseas Chinese founders have exercised tight control is through a
simple organizational structure. In particular, though a fairly flat organization staffed largely
with family members in key roles, managers can communicate their wishes directly and
monitor actions easily. Such communication can be perceived as a wheel with the strong
owner/manager at the hub deciding which information needs to be delivered and when, both
inside the firm and outside of it (Carney, 1998). Similar to what both Weidenbaum (1996)
and Backman (1995) pointed out, this preference also held true for the entrepreneurial firms
in our sample.
Several entrepreneurs in our sample reported difficulty in getting employees to share
information or skills with other members of the firm. One software entrepreneur from
Hong Kong complained that his computer service people insisted on making simple fixes
personally, and for each machine, rather than writing a memo to everyone explaining how to
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 271

fix routine problems themselves. Another entrepreneur who produces a variety of Internet
products stated:

We know information flow is crucial in our business, we simply cannot have secrets.
Our people need to share information, but they are reluctant to. For example, sometimes
there is a manager who will travel to a conference and learn something new there. He
typically resists sharing the knowledge gained there with others in our firm. Sometimes
employees will learn new programming techniques at a seminar. They are reluctant to
share this information with others in the company. This is a problem that we need to
address.

Both government officials and venture capitalists in our sample expressed concern with
information hoarding as well. One Hong Kong venture capitalist voiced frustration that due
to the secretive nature of East Asian firms, he had to spend a lot of extra time visiting both the
firm and its customers to get some needed answers about his investment. He pointed out that
so often he had to “piece together the truth [about client firms] from various sources.” Some
entrepreneurs also acknowledged this problem and pointed out potential solutions, such as
holding weekly meetings of all employees to increase communication, skill sharing, and
the codification of tacit knowledge so that everyone, including key investors, would have
easier access to these. Most of these efforts typically focused on interaction techniques such
as frequency and nature of meetings rather than motivational techniques such as incentives
to increase communication among employees. However, even firms pursuing such formal
communication efforts have noted the difficulty in getting employees to share information
regularly (Goa, Ting-Toomey and Gudykunst, 1996).

Decision-making and governance

The paternalistic nature of Chinese culture is thought to affect decision-making style both
internally and in terms of corporate governance (Chen, 2001; Weidenbaum and Hughes,
1996; Young et al., 2001). At the top of the typical Overseas Chinese family firm sits a
strong owner/manager directing the firm and making most decisions. This is true in general
for traditional Overseas Chinese firms (Chen, 2001), and it proved true for our sample of
entrepreneurial fast growth firms as well.
The firm owners in our sample stated that they often give instructions to workers and
managers without explanation, and that their declarations are generally not up for discussion,
even with investors. While this is adequate, and possibly even desirable for slow growing
firms in traditional industries where the owner-manager can oversee all parts of the business,
it can present problems for firms in turbulent, fast-growth industries where control needs
to be decentralized and openness maintained to improve employee creativity and initiative
(Arthur, 1996). If approval must be sought for routine matters this and can slow things down.
The venture capitalists pointed out that in some cases, even higher-level personnel can be
excluded from involvement in basic firm decision-making. Indeed this sense of exclusion
has been a source of complaint for non-family members in many Chinese-owned firms
(Backman, 1999; Redding, 1990).
272 AHLSTROM ET AL.

Most entrepreneurs were aware of the arguments for decentralized decision-making in

high technology firms, but remained unimpressed. Remarked one Singapore founder of an
engineering services firm:

We centralize decision-making at the top of the company. I make most of the decisions
from strategy to expenditures. It will be tough to continue this as our firm grows, but I
don’t feel comfortable in giving too much responsibility to non-family members. I know
the business better than anyone so I have to keep on top of things.

An overly centralized decision-making style can create problems for fast growth firms in
uncertain environments (Lawrence and Lorsch, 1967). Added one Taiwanese entrepreneur:

In this company, the founder makes the major decisions, which everyone understands,
though key managers may be consulted. I don’t think that decision-making can be easily
decentralized, and I don’t think I will give some control to outsiders either.

The Overseas Chinese entrepreneurs interviewed acknowledged that it would be difficult

for them to reduce their control over the firm, although as with information sharing, they
found it difficult to get employees to accept decision-making responsibility when the time
came. For example, one of the founders of a fast growing firm established by a team of
Hong Kong academics that produced security-monitoring equipment reflected on decision
making in his firm:

Decision making within the [founding] team is critical. Thus far, we have made all major
decisions as a team but we continue to have to work to assure that we share the needed
information among ourselves, which we possess equally, and not hoard it as a valuable
commodity.

Another Hong Kong entrepreneur engaged in Internet publishing had a somewhat differ-
ent opinion, stating that decentralization presents a “chicken and egg problem.” That is, the
employees themselves are may not be ready to take additional responsibility:

I make most of the decisions around here and certainly all the big ones. I would listen to
other people [employees] but they do not volunteer much information or make decisions
outside of their job description. Employees here [in Hong Kong] do not readily take
initiative on their own.

The venture capitalists maintained that this centralized, controlling decision making style
created major problems for them as well for the firms. One Singapore based venture capitalist
summarized the position of a majority of those interviewed:

It’s always a struggle to get entrepreneurs to listen to you out here [in East Asia]. The
firm owners tend to stonewall you. They script out the board meetings so no real work
gets done; sometimes its all done for show. You find the real strategic decisions were
made Sunday night at the [entrepreneur’s] dinner table, and you weren’t invited. Getting
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 273

entrepreneurs to listen to you is a challenge in any setting, but in the other countries
where I have financed firms—and I have worked in both the West and around the Pacific
Rim—there is a general feeling that the entrepreneur will finally listen to you. Here [with
Overseas Chinese firms], its more like you have to constantly negotiate for their attention.
It is something we have to get over as the entrepreneurs do need our advice, though they
still don’t seem to accept it without a struggle.

Thus, the Overseas Chinese entrepreneurs in our sample proved quite hesitant to decen-
tralize somewhat and open up decision-making. However, as noted, some of this unwilling-
ness could be due to reluctance among their employees to take on decision responsibility
as well as from the influence of business traditions in East Asia.

Organizational financing

Weidenbaum (1996) and Backman (1995) found that Overseas Chinese owners of large
firms historically have funded their firms internally and this was true for the entrepreneurial
firms in our sample. Such a funding orientation is consistent with the cultural orientation of
Overseas Chinese as decades of unrest and upheaval experienced by Chinese in Asia have
promoted a strong predilection toward savings and investment (Chen, 2001). This has led
Overseas Chinese to have some of the highest savings rates in the world.
Yet one of the principal causes of new firm failure in the West, particularly among high
technology firms, is a lack of financial resources (Bruno, Liedecker and Harder, 1986). The
propensity of Overseas Chinese to save money helps to ensure that enough capital will be
available during their cash-poor start-up phase and may facilitate their initial survival. One
entrepreneur whose firm produces software on geographic information databases recalled:

I worked as a consultant on other areas doing this [start-up] part-time until I got my first
big contract. All of the funding for the firm had to come from me so I did what I could
to fund the business till I got that break.

Consistent with the cultural predilection to continue to use internal, family funds, the
Overseas Chinese entrepreneurs were reluctant to rely on debt financing or outside investors
even during growth phases more associated with angel or venture financing (Timmons and
Olin, 1999). This avoidance of outside funding occurs despite the fact that there are venture
capital funds available for high technology firms that often go unused (Bruton, Ahlstrom
and Yeh, 2003). Increased globalization and investor demands would seem to suggest that
firms would be more aggressive in seeking venture capital. But there was resistance to this
idea among the Overseas Chinese entrepreneurs we interviewed; the resistance primarily
was due to the control that would have to be ceded to the venture capitalist. Even Taiwanese
entrepreneurs, who generally are most open to including outsiders on the board and top
management team were reluctant to seek venture financing if it meant ceding significant
control of their firm. One Hong Kong entrepreneur, who produces a variety of Internet
products such as security systems and connections for firms’ Intranets to the Worldwide
Web observed:
274 AHLSTROM ET AL.

We keep as much cash in the business as possible and try to use it for growth. We are very
frugal with our money. Although we use some outside sources of financing, these can
prove to be unreliable. If that means growing more slowly than other firms, then that’s
ok. . . I am not ready to give up control to outside investors.

The rapid change in fast growth sectors demands that firms act quickly when oppor-
tunities arise (Zahra, Nash and Bickford, 1995; Foster, 1986). Taking advantage of such
opportunities not only requires access to information and knowledge, but also access to out-
side financing. Entrepreneurial firms cannot deliberate long on an opportunity while slowly
raising funds from family and close associates and retained earnings (Baum and Wally,
2003). Thus, Overseas Chinese firms’ aversion to outside financing may hinder growth
prospects. One Singapore based venture capitalist provided a commonly held observation
among the venture capitalists:

There are a number of firms here [in East Asia] that we feel could benefit from significant
additional financing. But the founders are reluctant to give us the influence we need or
the equity we require. We could do many more deals if the business owners would give
up this fear of external financing. But many are unwilling to do so. The sons [of company
founders] are more open to it, however, so we are hopeful.

Thus, while the cultural tendency to rely on internally generated resources may be helpful
for Overseas Chinese firms in getting started, it can represent a barrier to fast growth later
in the firm’s life.

Advertising and branding

Most traditional Overseas Chinese firms do not build name brand products, rather they make
components or perform subassembly for others (Weidenbaum and Hughes, 1996). This is
partly due to the traditional inclination of Overseas Chinese as suppliers and middlemen.
Overseas Chinese business people may also prefer to maintain a low profile for cultural
reasons. For example, in one Hong Kong firm, an assistant to the founder recalled:

Our company always maintained a low-profile as the founder did not want to draw too
much attention to the company. Although we had a few outlets and a number of partners
overseas, he never wanted to build the business up beyond the few locations he felt
he could watch over. He would not even let us advertise in the phone book’s yellow
pages—that might draw too much attention to us. Thus advertising to build a brand name
was completely out of the question, people might learn that we were doing well. He came
from Mainland China and his attitudes were strongly shaped by the difficult times there,
and by Chinese traditions.

Added a top manager of a Taiwanese electronics firm:

We have become pretty successful as an OEM for the major electronics firms. We also
sell some under our brand name. But brand building is expensive and takes a lot of
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 275

time. I would rather put the money into other areas of the business for now such as
manufacturing.

Such a stance allows traditional firms to succeed with limited consumer marketing skills.
These firms focus on industrial marketing and direct selling. However, several Overseas
Chinese entrepreneurs noted they were having some difficulty in building a clear brand
identity. Sometimes they had trouble convincing others of the importance of brand equity.
In more than one case, the founding partners were divided over brand building. Commented
one venture capitalist in Hong Kong:

Chinese [-owned] firms seldom think of building brands. This is partly because they
change business quickly. Today it could be garments. Next, plastic housings and metal
casings. Finally, property development—anywhere there is an opportunity. In this situa-
tion, it is hard to convince them to spend money on a brand-building program.

A lack of branding does allow firms to move quickly from one industry to another. But this
can be a hindrance to brand building and creating higher value-added, fast growth firms.
Brand and advertising was one area where disagreement among the entrepreneurs
emerged. About one third of the entrepreneurs did not distrust the brand building activity as
is commonly associated with Overseas Chinese firms. They said that they were interested in
more than the quiet success of their traditional counterparts; they sought to develop products
with their own unique identity and build brand equity and even a global reputation. Thus,
the absence of branding identified by Weidenbaum and Hughes (1996) and Backman (1995)
was shared by some but by no means all of the East Asian entrepreneurs interviewed. For
example, one of the Hong Kong entrepreneurs commented:

To sell a simple box is low margin. Instead I sell an entire project with my full backup
support that is clearly identified with me. . . I want to build our firm’s reputation in this
industry.

Our sample also identified one additional stumbling block to investments in brand build-
ing and related promotion: the continuing appeal of real estate to Overseas Chinese en-
trepreneurs. This issue surfaced in several interviews with the venture capitalists and gov-
ernment officials as well as about one-third of the entrepreneurs interviewed. One Hong
Kong based venture capitalist commented:

Start-ups here like to get themselves reasonably established in one industry, and when they
feel comfortable with the firm’s performance, they often start looking to diversify into
property investments. Some firms that got listed on the GEM [Hong Kong’s NASDAQ-
style stock market] actually used their IPO proceeds to make property purchases. Some
entrepreneurs were a bit more subtle, but have been able to slowly transform their com-
panies from technology into property plays, in spite of protests by venture capitalists and
the institutional investor community. These investments are driven by both culture and
regulations—the culture or local tradition seems to encourage property diversification
while the local regulations can do nothing to stop this sort of maneuver.
276 AHLSTROM ET AL.

While the a number of entrepreneurs interviewed recognized the value of a

well-established brand, they had yet to pursue this policy in earnest. They expressed in-
terest in making property investments, which diverted efforts away from brand building
and investment in the core business. The venture capitalists and government officials artic-
ulated their concerns over this propensity to take investment capital and make real estate
investments, also arguing that this was distracting entrepreneurs from their businesses and
hampering firm growth. They saw no immediate resolution of this problem as property
investment remains quite popular in East Asia, even among fast growth entrepreneurial
firms.

Research and development

Backman (1995) argues that one of the defining characteristics of large Overseas Chinese
firms is the lack of R&D. This was evident for the firms in our sample, though many of
them referred to themselves as technology growth firms. While funds need to be conserved
in the start-up phase, the nature of technology is such that it never sits still and R&D is vital
for fast growth (Timmons and Olin, 1999). Overseas Chinese entrepreneurs emphasized
the conservative and internal financing of the firm. Outside equity or debt financing is not
aggressively pursued.
One result is that firms tend to focus on incremental change, sometimes simply copy-
ing products from other countries. For example, one entrepreneur who develops Internet
publishing products stated:

We do only the R&D needed to make incremental improvements to our products. We do

not bother with more basic research; we tend to follow what is developed overseas and
adapt it to local conditions.

The Hong Kong and Singapore government officials in our sample expressed concern that
firms in their economies did not conduct enough R&D. One Hong Kong government official
charged with assisting Hong Kong entrepreneurial firms toward fast growth commented:

The pattern of R&D here [in Hong Kong] is one of modifying designs and products from
overseas. You do not see much cutting edge work done here and little original product
development. There is a lot of reverse engineering all around this region and nothing
much else.

The entrepreneurs in our study commonly mentioned that they considered property in-
vestments as a hedge against downturns and failed R&D projects. When asked about how
they felt about the propensity of entrepreneurs to spend money on property, the venture
capitalists responded quite pungently. Commented one venture capitalist:

We have to watch our funded firms very carefully. Entrepreneurs here [in East Asia] have
a tendency to raise money and then look for quick property plays. They usually justify
it by saying they need their own office space or even their own building, but most of
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 277

us know these are disguised moves into property. Venture capitalists must be careful in
crafting their agreements with firms if they want to discourage these backdoor property
plays, which are still quite popular here.

While a property play may provide some hedge in a rising market, it can hurt firms in a
stagnant property market while pulling investment from R&D. Many of the entrepreneurs
admitted this, but pointed out that it was a commonly accepted practice in East Asia. The
venture capitalists and government officials took issue with the term “accepted practice”
but admitted that property speculation was common and was hurting firms’ ability to raise
additional funds and seek IPOs.

Discussion

The Overseas Chinese entrepreneurial firms studied here proved quite similar to their more
traditional East Asian counterparts on several key dimensions such as simple organizational
structure, family control and minimal outside financing or interference. This is hardly sur-
prising given the pervasiveness of Chinese commercial culture around the region and the fact
that Overseas Chinese firms have been quite successful in competing in a number of more
traditional, slow growth markets (Chen, 2001). The comments from the venture capitalists
and government officials charged with promoting entrepreneurship in the region suggest
that though these characteristics may be helpful in the slower growth industries, they are
likely to be a hindrance to firms’ efforts to raise venture capital or other (government) funds
and build faster growth enterprises (c.f. Carney, 1998). These observations are summarized
in Table 2.
A common characteristic shared by the entrepreneurs was that they would typically
choose to maintain their current size if outside funding meant yielding some control. The
issue of control remains a knotty problem for East Asian entrepreneurs and a barrier to
outside investment. Government officials interviewed corroborated the extant evidence sug-
gesting that tight control, limited information flow, centralization of decision-making and
limited employee freedom is inimical to the creativity and innovation that is critical to
entrepreneurial firms’ growth and success (Meizias and Mezias, 2000).
Failure to bring in and promote outside (non-family) management can also prove detri-
mental in a fast growth industry. The venture capitalists and government officials in our
study concurred that they would like to see East Asian entrepreneurial firms make changes
such as allowing more outsiders into top management and the board of directors. Yet
this represents another obstacle that East Asian entrepreneurs may find difficult to over-
come. Tight control of information proved to be a potential problem for the entrepreneurial
firms in our sample. Typically Chinese culture distinguishes between insiders and outsiders
and clearly specifies relationships between bosses and subordinates, facilitating tight con-
trol over the organization. This works well in the relatively stable environment of many
traditional industries. However, such a structure impedes the efficient dissemination of
information that is critical for firms in a high growth sector. Most of the entrepreneurs inter-
viewed acknowledged this problem but expressed little interest in changing to fit what ven-
ture capitalists and government policymakers wanted. Venture capitalists and government
278
Table 2. Views of Overseas Chinese entrepreneurial firms.
Attributes of
Overseas Chinese Characteristics of Overseas Chinese
firms entrepreneurial firms interviewed
Family business Although the entrepreneurs generally
emphasized recognized the importance of outside
financing, they generally proved
unwilling to dilute ownership/control
by admitting outside investors.
Showed strong preference for placing
family members in key positions.
Simple Top management exhibited an expected
organizational preference for tight control of
structure and information and a lack of transparency.
information Several firms also mentioned that their
control employees also exhibited a similar
predilection for lack of information
sharing.
Centralized Strict control of decisions and
decision making information flow by
and governance owner—seemingly strong and
continued preference for
Confucian-style father figure and
control at head of business.
Internal Relies on internal financing. Financing
organizational from numerous banks, allied firms and
financing relatives emphasized.
emphasized
Advertising and Propensity to change products and
brand building industries quickly. The traditional
not emphasized Overseas Chinese businessperson is
said to always have a suitcase packed
in order to move quickly. About a third
of the entrepreneurs did recognize the
need to build brand and were putting
resources there.
Conservative R&D Cultural bias against outside financing
spending limits resources of firm and forces
strict control of spending not directly
related to product. Entrepreneurs in
sample were looking for property
investments and expressed a desire to
diversity their firms in that direction.
AHLSTROM ET AL.
Venture capitalist and government
official responses to the
entrepreneurs’ views
Venture capitalists argued that this
attitude is problematic for fast growth
firms. The government officials added
that they were encouraging the start up
firms under their purview to bring
outsiders into the firm and form
international strategic alliances when
appropriate. Both groups said there is
continued resistance to this among
Overseas Chinese entrepreneurs.
Venture capitalists pointed out that they
were encouraging the entrepreneurs to
be less controlling with information
and less hierarchical. More
transparency in corporate governance
also needed, which they noted is a
barrier to increased venture financing.
Venture capitalists contended that
centralized decision making can reduce
employee creativity and be a problem
for firms in fast growth markets.
Government officials encouraged firms to
seek venture funds and conform more
closely with the disclosure and input
wanted by venture capitalists. They
reported strong resistance by
entrepreneurs toward the inclusion of
outsiders in top management decisions.
Venture capitalists encouraged
international alliances for seeking
global markets and building global
brands. They were encouraging the
entrepreneurs to stop fearing that
outsiders would discover their success.
Venture capitalists are concerned about
the continued emphasis on unrelated
diversification, particularly in property.
Venture capitalists reported that funded
firms had sometimes used money
earmarked for R&D to buy property.
Government officials also conceded
that entrepreneurial firms have
improperly used funds from public
offerings to buy property.
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 279

policymakers were resigned to the fact that entrepreneurs are only very slowly loosen-
ing their tight control over their firms and who can participate in the decision making
process.

Implications for firms

Some additional insight can be gained on this issue if the sample of entrepreneurial firms
is contrasted with successful fast growth firms founded by Overseas Chinese. VTech is
an example of a Hong Kong firm that established a global presence in branded, electronic
products. With a solid presence in educational toys and cordless telephones, VTech’s de-
signs are among most advanced in their markets. VTech began as a small entrepreneurial
venture in much the same manner as the entrepreneurial firms examined here. But as the
firm grew, decision-making by the owners was quickly dispersed throughout the organiza-
tion and family control de-emphasized. The firm accomplished this by employing highly
skilled non family professionals throughout the firm early on—some from outside of East
Asia. They also gave those individuals more information and decision-making power than
is typically given to outsiders in Overseas Chinese firms. Outside financing and advice
was actively sought and received. This diffusion of control led to a decentralized orga-
nization structure. VTech has also avoided the lure of the Hong Kong property markets.
VTech has now globalized, moving some R&D and marketing outside of Hong Kong, and
entrusting it to American and European engineers. Recalled one of VTech’s long-time top
managers:

We do not have family members throughout our ranks like many firms here [in Hong
Kong]. Our decision-making is in the hands of department heads and engineers. Most of
our financing has been external. This is definitely not a family firm . . . and we feel that
has increased our growth opportunities and has added to our success.

VTech’s outside financing, non-family structure and R&D spending are more consistent
with the “Western” model of the firm than with the traditional model of Overseas Chinese
firms (Chen, 2001). VTech has successfully responded to the recent environmental changes,
maintaining its policies toward information and decision making transparency, an emphasis
on R&D and brand building and minimal secrecy. Similar policies have been followed by
successful East Asian firms that underwent venture financing and rapid growth such as
Taiwan’s Acer and Singapore’s Creative Technology (Timmons and Olin, 1999).
A central issue for Overseas Chinese entrepreneurs—as with any entrepreneur—is that
they must determine the ultimate goal of their new venture. If it is to build what might
be described as a lifestyle firm, that is a firm that provides the entrepreneur with a good
personal income but does not grow to a significant size, they will likely seek to maintain the
more traditional Overseas Chinese management model. However, most entrepreneurs in-
terviewed ultimately wanted to attract venture financing, achieve significant growth and an
IPO. To achieve this, the entrepreneurs should be prepared to accept increased outside man-
agement and ownership, disperse information more freely, and delegate decision making.
Such delegation also ultimately means including outsiders on the board, hiring non-family
280 AHLSTROM ET AL.

members and promoting them to senior management positions. It also means sharing more
information with employees and investors, rather than stonewalling them. Venture capital-
ists and government policymakers are also encouraging entrepreneurs to stay out of the
property markets, unless they want to create a property development firm. These are actions
that the entrepreneurs in our sample acknowledged were probably good to do, but were
generally reluctant to undertake, with the possible exception of brand building. Most of the
entrepreneurs interviewed stated that they saw no need to keep their firms’ success secret
like their more traditional counterparts but wanted to build well-known global brands. Ul-
timately, dispersion of control and information should be built into the organization from
its beginning so that the structure, culture, staffing, employee compensation, appraisal, job
description and so on are consistent with these goals. Thus, Overseas Chinese entrepreneurs
should determine their goals and vision and establish the structure their firms accordingly.
The Western model of venture capital funded growth firms may prove appropriate for East
Asian entrepreneurial firms as well.
Entrepreneurs in Taiwan have had more success than those in other parts of East Asia
in securing venture capital and moving into fast growth industries. As our sample in-
cluded three Taiwanese firms and five Taiwan-based venture capitalists as well as one high
level government official, some tentative comments can be provided about the success
of Taiwanese entrepreneurs. The entrepreneurs interviewed in Taiwan generally agreed
that they would like to emulate the “Silicon Valley” model of fast growth; though they
acknowledged the continued tendency toward the more traditional Overseas Chinese ap-
proach of doing business, particularly concerning the participation of outside management
and investors in their firms. They pointed out that many Taiwanese entrepreneurs were
educated in North America, and were influenced by the business practices there. This
suggests that both resources and certain institutional factors play a role in modifying busi-
ness practices. Venture capitalists pointed out that entrepreneurs in Taiwan were typically
the most open to their suggestions. One longtime Taiwan venture capitalist commented
on the traditional Overseas Chinese business style and the venture capitalist’s influence
Taiwan:

This is what our requirements [for our funded firms] are. I can tell you very honestly that
when I funded [one Taiwanese] company, I just told the founder: ‘don’t try it again,’ that
is using the typical Chinese culture to do business. I wanted to be very straight forward.
I want the whole transaction transparent. I am concerned if the company is what I call
a one man show company. . . But for my funded companies, no way; we will not fund
those traditional [Overseas Chinese style] businesses. This is a common attitude toward
funded firms among my fellow venture capitalists here in Taiwan.

Thus, in Taiwan, firms may have norms more associated with fast growth entrepreneur-
ship while encouraged by venture capitalists, the government and by strategic alliance
partners in Silicon Valley. Future research could determine the extent to which factors
such as venture capital, strategic alliances with Silicon Valley firms and common train-
ing are able to influence entrepreneurs to dispense with traditional East Asian business
practices.
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 281

Implications for government policy makers

Governments interested in promoting more indigenous fast growth entrepreneurial firms

also need to consider possible constraints to growth caused by entrepreneurs’ resistance to
change. To date, most governmental efforts in East Asia have focused on the establishment
of start up firms. However, as demonstrated here, an equally important issue is how to
assist already founded firms in becoming world-class competitors and nudge them onto a
faster growth track. Inc. magazine, for example, has found that in spite of the difficulty in
making the transition from start-up to growth firm, in the U.S. a sizeable proportion of high
growth firms were able to survive that transition and prosper. In fact, after examining the
500 fastest growing firms of 1984, ten years later, Inc. found that 233 of those firms were
still in business (Mangelsdorf, 1996). Those 233 companies alone had achieved revenues
of $29 billion—nearly 4 times the $7.4 billion in revenues of the whole Inc. 500 list in
1984. They employed over 125,000 people, also significantly up from 1984, while several
of those firms had achieved Fortune 500 status including Microsoft, Oracle, and ATA.
Indeed, the governments of Singapore, Taiwan, Malaysia, and more recently Hong
Kong—all with large populations of Overseas Chinese entrepreneurs—have been discussing
various ways to encourage more indigenous fast growth entrepreneurship. These discus-
sions often emphasize the need to encourage more start-up firms. But the emphasis must not
stop at the founding of such businesses, but should also encourage the founders to overcome
certain traditional taboos to outside influence, the sharing of decision authority, information
flow, so they can raise money from venture capital, governmental sources, and even outside
investors and firms more readily.
The use of tax policy, education and training, encouragement of venture capital financing,
new financial markets and active encouragement from the bully pulpit of governmental
leaders can help to overcome the entrenched cultural constraints. Learning from successful
entrepreneurial Chinese-owned fast growth firms could also be of value. Firms such as
Hong Kong’s VTech and Singapore’s Creative Technology would make good role models.
Government policy makers, in addition to building the education, infrastructure and debt
and equity markets needed by these industries, should also aid in promoting a model of
successful entrepreneurial firms and providing the opportunity of entrepreneurs to learn
from their actions.

Conclusion

This article provided a summary of the characteristics of Overseas Chinese firms and asked
if entrepreneurial firms in East Asia have similar characteristics to their more traditional
counterparts. It then explored if these characteristics are creating constraints to growth for
Overseas Chinese entrepreneurial firms. In general, information gathered from forty-one
high technology entrepreneurs and senior managers, venture capitalists, and government
policymakers in East Asia suggested that the characteristics associated with traditional
Overseas Chinese business practices are also present in entrepreneurial firms in East Asia.
The firms interviewed generally continued to emphasize family business, tight control
of information, centralized decision-making, and lack of outside financing, all consistent
282 AHLSTROM ET AL.

with the practices of traditional Overseas Chinese firms. The one place they deviated
somewhat from the traditional characteristics was in their more positive view of brand
building.
Our study also suggests that these characteristics may prove antithetical to the creation
of fast growth ventures that can go public and effectively compete in global markets. Most
of the entrepreneurs interviewed were aware that this could hinder their ability to raise
additional funds from the venture and capital markets. Venture capitalists and government
officials came to similar conclusions, albeit more strongly. They felt that the entrepreneurial
firms should reform some of the traditional practices, such as excluding outsiders from
management and the board, maintaining secrecy and tight control of information, and
eschewing transparency. They were also concerned with the propensity of Overseas Chinese
firms to diversify into unrelated areas such as property, instead of investing in a core business
area or a brand name. Some of the interviews done in Taiwan suggested that Taiwanese
entrepreneurs are slowly making some of the recommended changes, often at the behest
of the venture capital community, and this may have helped them enjoy more success in
raising money and in competing in faster growth markets than their counterparts in other
parts of East Asia.
No one questions the value that the Overseas Chinese community places on fast growth
entrepreneurship. Rather, the acknowledgement of some potential cultural constraints on
fast growth entrepreneurship can start to help firms overcome these limitations. Over-
seas Chinese entrepreneurs, similar to their larger firm counterparts, demonstrate similar
propensity for secrecy, distrust of outsiders and close control. Indeed, the venture capi-
talists interviewed stated that one difficulty in creating more fast growth firms is not the
availability of funding but the absence of fundable new ventures that have recognized and
attempted to overcome these constraints to growth; particularly the participation of in-
vestors and managers outside of the entrepreneur’s family and inner circle. It should be
noted that most of the venture capitalists in our sample are also ethnic Chinese from East
Asia and they still argued that entrepreneurs needed to depart from the practices tradition-
ally associated with Overseas Chinese firms, at least for those wanting to enter fast growth
sectors.
Widespread interest exists for encouraging fast growth entrepreneurship across East Asia.
One limitation of this research is that the sample studied needs to be expanded beyond Hong
Kong, Taiwan, and Singapore. The culture of Overseas Chinese is not limited to one location
but found across East Asia in numerous ethnic and dynamic Overseas Chinese communities.
It can be expected that similar commercial practices are present across East Asia in nations
with large Chinese populations such as Thailand, Burma, Malaysia, the Philippines, and
Indonesia. Future research should continue to establish this in other settings.
This research is generally consistent with the findings of Backman (1995, 1999) and
Carney (1998) on Overseas Chinese business characteristics and their potential impact on
the development of entrepreneurial firms. While this research identified some new ventures
that have had success in departing from these traditional practices, particularly in Taiwan, on
the whole, the Overseas Chinese entrepreneurs interviewed continued to resist making some
changes, even when they recognized the imperative to change and were encouraged to do so
by key venture capitalists and government policymakers. Overseas Chinese businesspeople
OVERSEAS CHINESE ENTREPRENEURS IN EAST ASIA 283

are central to the economies of East Asia so these constraints to firm growth need be
addressed to encourage more entrepreneurship in the region. Hopefully this exploration
of possible constraints to growth facing Overseas Chinese entrepreneurs will encourage
further examination of the characteristics of entrepreneurial firms in East Asia and their
impact on firm growth.

Acknowledgments

Appreciation is expressed to Mike Peng, Greg Stephens, Justin Tan, Stuart Youngblood, Deb
Dougherty, Kenneth Wong of the Business Incubation Department, Hong Kong Technology
Centre, and the participants of the Academy of Management Review theory development
session at the Academy of Management Annual Meeting, for their helpful comments on
earlier versions of this paper.
The work in this paper was partially supported by a grant from the Research Grants
Council of the Hong Kong Special Administrative Region (Project no. CUHK4047/99H)
and by a grant from the Lee Hysan Foundation Research Grant and Endowment Fund
Research Grant for 2002/2003, United College, The Chinese University of Hong Kong.

Note

1. Hong Kong is a special administrative region within China; the PRC defines Hong Kong citizens as Overseas
Chinese and treats them as such in almost every manner. Taiwanese businesspeople are given similar legal
standing in most ways.

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