Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR
2.6 Family and Multi-Business Enterprises

2.6 Family and Multi-Business Enterprises

To understand the employment potential of micro/small enterprises in Laos we need to understand their characteristics, of which the principal are that most are family businesses and many are also multi-businesses.

2.6.1 Family Enterprises

A family business is defined as a business owned and managed by one or more family members. (Hollander, B.S., Elman, N.S. (1988), "Family-Owned Business: An Emerging Field of Inquiry". Family Business Review, 1 (2).) There has been no separate study undertaken of family businesses in Laos, but with Lao culture emphasizing the values of collective action, family-operated businesses often account for a large proportion of micro/small enterprises. In the 1996 MIH-GTZ survey, enterprise-owners and unpaid workers represented more than 90 per cent of the micro/small enterprise sector workforce. (Small and Medium Enterprises Survey in Lao PDR conducted by Lao-German Small Enterprise Development Project (SEDP), February, 1996; p.18.) From this it can be assumed that more than 90per cent of micro/small enterprises in Laos are family businesses.

The 1999 qualitative study on "Small Family Business in Lao PDR" by Steffen G.C. Ulrich was based on 10 case studies. Usually, a single entrepreneur started the family enterprise, but as it grew he/she would bring in brothers, sisters, sons, daughters and other relatives, offering them part-time jobs, then supervisory tasks, and eventually, management responsibilities.

Minority shares in the original business or majority shares of a son's or daughter's business might be distributed to family members based on their loyalty, family relationships, and seniority. An example of a family business model in Laos is illustrated in the case study and the "family role map" below. (Steffen G.C. Ulrich, Case study prepared for "Small Family Business in Lao PDR", 1999)

Against the background of Lao's collectivist culture, family businesses are seen as a product of "the marriage" of two different social systems: those of family, and business.

Family system decision-making is influenced by 'emotional judgements'. A person's status is determined by seniority and family relationships. Her/his rewards are determined by her/his honesty and loyalty. Being a member of the family means, of course, that she/he is a member of the business for life.

Business system decision-making on the other hand tends to exclude emotional bias and the employee's status is determined by a particular kind of contract or by shares held in the business, both of which may well be temporary.

A person's rewards are based on performance and before they become a member of the business, their qualifications must first be assessed.

The differences between the two systems are depicted as follows:

Problems within family micro/small enterprises often stem from:

• an inability to distinguish between the two different systems,
   
• unclear job descriptions for family members,
   
• miscommunication and conflicts among family members.

One common problem is the fear about succession within the business. This may touch on the parent's ability to convince a son or daughter to succeed her/him in the ownership and leadership of the business.

2.6.2 Multiple Business Enterprises

It is a characteristic of Lao entrepreneurs that they may own several businesses at once. There is however very limited information on the length of time that each business has been in operation. The 1997 Lao-German SEDP study examined the practice of managing several businesses at once. (Ed Canela analysed multiple businesses in Laos based on 25 participants who attended one of the first two training courses conducted by Lao-German SEDP, 1997.) It focused on 25 entrepreneurs participating in entrepreneurship training in Savannakhet province. (Savannakhet is one of five major provinces with good prospects for economic development.)

In total, the 25 entrepreneurs had started 65 enterprises. Each participant, with the exception of those in the youngest group of entrepreneurs, had already started two or three businesses and had closed at least one or two of them. Of the 25 entrepreneurs, three had started and managed seven businesses. Only three of the 25 had terminated one enterprise before starting another. The remaining 22 participants had managed several businesses at the one time.

The types of businesses varied widely, but most of the entrepreneurs had started their businesses without first studying their potential viability. They tended to copy from other entrepreneurs whose businesses seemed to be doing well.

The businesses generally did little value-adding, had high labour intensity, and required very little management know-how. As a result, they did not last long. Of 16 businesses, 11 closed down in the same year they started. Of 15 second businesses that were started, only 8 survived.

Over time, the number of start-ups declined. The first enterprises lasted on average for seven years. However the second enterprises had shorter life spans: an average of 1.8 years, while the third set of enterprises had an average of 4.8 years. The average life span for all such enterprises was about 3 years.

The main reasons cited for business closures in the 1996 MIH-GTZ survey were insufficient customers and a shortage of funds.

The SEDP SME survey also found that most enterprises did not expand internally. (The expansion of existing enterprises was measured by the number of people employed.) Only 37 per cent of small and medium enterprises increased in size over their lifetime. About 62 per cent of enterprises kept the same number of workers. This may suggest that:

• small fragmented markets limit the potential for business expansion,
   
• low economies of scale mean there is a low level of business diversification.

It would be useful therefore to develop improved diversification strategies for micro/small enterprises in Laos and to understand better this important aspect of Lao business life.

2.6 Family and Multi-Business Enterprises
Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR

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