Family small and medium enterprises (smes) management how toapply effectively to phu cuong coffe export company

I

HCMC UNIVERSITY

OF FOREIGN LANGUAGES
TECHNOLOGY

& INFOR1\1ATION

(HUFLIT)
SCHOOL OF FOREIGN LANGUAGES

GRADUATION PAPER
FAMILY SMALL AND MEDlUM
ENTERPRISES (SMEs) MANAGEJ\'IENTHOW TO APPL Y EFFECTIVELY TO PHD
cudNG

COFFEE EXPORT CO~v.IPANY

•

ADVISOR
STUDENT
STUDENT NUMBER
CLASS
ACADEMIC YEAR

: DR.-lNG,
DANG
l'flNH TRANG
1: PHAN NGUYEN HO~ MI

: 0071427
: KA 0001
: 2000-2004

TV Dgi H9C Huflit

11111111111111111111111 II III

101000507

JULY, 2004.


HCMC UNIVERSITY

OF FOREIGN LANGUAGES & lNFORMA nON

TECHNOLOGi

T

(HUFLIT)
SCHOOL OF FOREIGN LANGUAGES

GP.....
t\DUATION PLt\PER
FAMILY SMALL AND MEDIUM
ENTERPRISES (SMEs) MANAGEMENTHOW TO APPLY EFFECTIVELY TO PHU
cudNG

COFFEE EXPORT CO]VIPANY

•

ADVISOR
STUDENT
STUDENT NUMBER
CLASS
ACADEMIC YE~Ai'

: DR.-lNG.
D~NG MINH TRANG
: PHAN NGUYEN HO~ MI
: 0071427
: KA 0001

}lJo;~

~~~~

,C~JF~~r-.
~~}v~7

f

11.;;;;i/

JULY, 2004.

•


EVALUATOR'S ASSESSME~iT

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ACKNOWLEDGEMENTS

I would like to thanks Mr. D?ng Minh Trang, who is my supervisor, for
all his instructions on this graduation report.

I many thanks to the generous support of Mr. Phan Van D&u, Director of
PM Cuemg Company, who had provided all necessary information about

the company to fullfil this research.

I especially thanks my family members and friends who have given me

.

the encouragement and confident to continuing and finish this graduate
research paper.

July, 2004.
Phan Nguy~nHQa Mi

K~lvtirtt-[hJ

~ilClU

tiuPU'j

r.J JOe, c1::;-. ;] - "uv 4-

;r.~


PREFACE

With the policy of encouraging the development of the private section of the State,
a large number of small and medium enterprises (SME), especially

family

businesses, are increasing day by day, giving more contribution to the country's
economy and society.

It is undeniable the important role of SME to the development of our country. But
this business is now facing many difficulties such as lacking capital, limited
managerial

ability,

competitiveness

under-qualified

technical

conditions

and

limited

that prevent them from running the company effectively and

integrating into the international market. There are limited for SME to expanding

,

to an Incorporation or bigger joint Corporation due to lack of basic management
skills. Solving those problems would thus serve to strengthen this important sector
of the economy.

The aim of this research is to bring theory into reality. However, I am aware that
there is always room for improvement in this research, so I am very happy to
receive any comments in order to make this research better. Many thanks.

July, 2004.


PURPOSE OF THE RESEARCH

The study focuses on the advantages and disadvantages of family
SME. From this, some suggestions have been made to run the
family

SME

effectively

such

as

good

managers,

team

construction and successful successor planning. The next section
of the research is to focuses to the real situation of PM CUOng

coffee export company. The strengths and weaknesses

of the

company will be analyzed by SWOT analysis method in order to
set planning

for business growing. Therefore, this study may

serve as a manual for the managers of family SME.


TABLE OF CONTENT
Chapter

1: An overview on family small and medium enterprises

Vi et Nam ..

IO ••••••••••••••••••••••••••••

10 •••••••••••••••••••••••

1. The development

(SME) in

10 •••••••••••••••••••••••••••••••••••••••••••••••••••••

and real state ofSME in Viet Nam

2. Definition of family SME

1

10

2
3

2.1 Definition of family business

3

2.2 Definitio n of SME

4

2.3 Definition of family SME in Viet Nam

5

3. Characteristic

of family SME

6

3.1 Establish men t

6

3.2 Ownership and management

6

3.3 Human resou rces

6

3.4 Inter-relation

7

4. Advantages

between family and business

and disadvantages

4.1 Advantages

of family SME

of family SME .........................................•......................

;. 8
8

4.1.1 Freedom

8

4.1.2 Finan cia I ben efit

9

4.1.3 Prestige and pride

9

4.1.4 Tightening the family relationships

10

4.1.5 Good relationship

10

between employer and employees

4.1.6 Flexibility in management
4.2 Disadvantages

of family SME

11
;.. 11

4.2.1 Lack of capital

11

4.2.2 Inter-related

12

between family and business

4.2.3 Unclear role definition

12

4.2.4 Unskillful staff

13

4.2.5 Lack of managerial

skills

13

4.2.6 Lack of su ccesso r

Chapter 2: Effective management
1. Competencies

13

of a family company

14

of a good manager ...........................................••...............

1.1 The important
1.2 Competencies

of great boss ...............•.............................................
of a good manager

15
15
16

1.2.1 Lead ership

17

1.2.2 Flexi bility .........................•................................•.......................

17

1.2.3 Creativity ..............................................................................•...

18

1.2.4 Decision making-seizing

19

of opportunities

1.2.5 Self-motivation

20

1.2.6 Risk assessm en t

20

2. B uildin g family team
2.1 The importance

22
of teamwork in an organizational

setting

22

2.2 Behavioral science principle supporting team building ..;••............. 22
2.3 Six characteristics
2.4 Team-building

of an effective work team

guidelines for leaders

2.4.1 C on sid era tion
2.4.2 Stru ctu re ..............................................•.............

24
;

25
25

"...................... 26


2.5 Conflict solving for family team
2.5.1 Ca uses of conflict
2.5.1.1 Poor communication

28
28

skills ...•................................................

28

2.5.1.2 Val ue clash es

29

2.5.1.3 Work policies and practices ......................................•...........

29

2.5.1.4 Adversarial

29

management ..................................................•...

2.5.1.5 No ncomplian ce ....................................................................•.
2.5.1.6 Inter-relations

29

between family and business ....••.................. 30

2.5.2 Key element of conflict resolution

30

2.5.2.1 Attitude adj ustmen t

30

2.5.2.2 An effective leader

31

2.5.2.3 A formal conflict resolution plan ............................•.............

32

3. The succession of a family SME

33

3.1 Family problem in the succession process

33

3.2 The entrepreneurs

of the first generation

34

3.3 The inheritors and successors ....................................................•.....

35

3.4 Factors for a successful succession

36

3.5 How to start dealing with succession

37

3.6 Planning of a successful succession

37

Chapter 3: Phu CU'Ollg coffee export company

39

1. Establish and development process

40

2. Managing structure

41

and working staff of Phu CU'Ollgcompany

2.1 Infrastru cture an d eq uip men t .............................................•............

41


2.1.1

Floor-space ..........................•.........................................................

41

2.1.2

Eq uipmen t ..............................•....................................................

41

2.1.3

Fixed-assets

41

2.2 Working staff and management

42

2.2.1

Organization

42

2.2.2

The analysis of the organization

diagram .............................••..................................
diagram ............•.....................

43

2.2.2.1 Directo r ..•.....................................................•...............................

43

2.2.2.2 Vice-d irecto r .......................•..........................................•.............

43

2.2.2.3 A cco untin g depa rtnl ent...............................................................

44

2.2.2.4 Prod uction departmen t

44

3. State of labor and productivity

45

3.1 The total number of workers of the company

45

3.2 The regulations concerning labor of the company ..............•........... 46
3.3 The state of prod uction .......................................................••............
4. The regulation concerning wages

46
47

4.1 Lead ers

47

4.2 Employees ...................................................................•.....................

47

5. Prod u ctio n process .............................................................................•...

47

5.1 G radin g
5.2 D ryin g..................................................................

49
............•.................

5.3 Packaging and storage
6. The real state of PhD Crrimg company ........•.........................................

49
49
50

6.1 Advantages

50

6.2 Disa dva ntag es

50

6.2.1 Lack of managerial skill

50

6.2.2 Unskillful staff

51

6.2.3 Lack of proper organizational structure

52

6.2.4 Unclear role definition

52

6.2.5 Lack of business strategies

53

6.2.6 Lack of unity of command

;

6.2.7 Lack of successor .....................................................•...................

53
53

Chapter 4: Suggestion to overcome the difficulties and potential for expansion
of Ph tl CU'rrng company
1. SWOT analysis

54
55

1.1 Strengths ..............................................................••........................•..

55

1.2 W eakn esses........................................................................................

55

1.3 Op portu nities

55

1.4 Th rea ts

56

2. Effective planning .......................................•..........................................

56

3. Following th e plan

57

4. Keys to success for Ph" CU'()'ng

59

4.1 Good relationship with suppliers and customers

59

4.2 Com petitive prod uct

59

4.3 In creasing Sales

60

4.4 Tech n 0 logy

60

5. Several suggestions to the manager and family members
5.1 Suggestions to the manager

61
61


5.1.1

Reorganizing

the chart

5.1.2

Effective development of business plan

64

5.1.3

Effective financial management

65

5.1.4

Team construction

66

5.1.5

Policies for family employees

66

5.2 Suggestions to build harmony atmosphere

61

in the business as well as

in the company

67

5.2.1

Building trust

67

5.2.2

Self-disclosu re

68

5.3 Disci plin e

',

69

Ge n era I co nclusi 0 n

7.1

APpen d ix .....•.......................................................................................................

72

P ref ere n ces

]

4


Advisor : D~ng Minh Trang

Chapter 1

CHAPTER ONE

AN OVERVIEW ON FAMILY
SMALL AND MEDIUl'tI
ENTERPRISES (SME) IN VIETNAM

1. The development and real state of SME in Viet Nam
2. Definition of family SME
3. Characteristic

of family SME

4. Advantages and disadvantages

Student:

Phan Nguv~n Roa Mi

of family SME


Chapter 1
However,

Advisor: £)~ng Minh Trang
these enterprises were facing such difficulties as lacking capital,

limited managerial
competitiveness
integrating

ability, under-qualified

technical conditions

and limited

that prevent them from running the company effectively and

into the international

market.

There are limited for SME to

expanding to an Incorporation or bigger joint Corporation due to lack of basic
management

skills. Therefore, the SME will ever stand as where they are on

the business trey and can not be a stock-shares holder.

2. Definition of family SME

To understand the conception of family SME, there are two more concept must
be clarified:
•

What is family business?

•

What is SME?

2.1 Definition of family business
Families can be involved in the business in different ways, and there are many
kinds of family businesses. It is not possible to define clearly just one group of
enterprises that could be labeled as family firms. In order to be called a family
business, a firm needs to fulfill certain conditions: the family needs to retain the
ownership control in the firm, the family needs to be involved in the firm and
the owner-manager

needs to perceive the firm as a family business. The family

can be present - committed to - in the firm.

Generally, a business is considered family-owned

if the family owns 50% or

more of the equity and more than one family member works in the business
(Shanker & Astrachan, 1995). However, some researchers also refer to family
businesses when a member of a founder's family manages the business, after a
succession has taken place, and the family still owns a controlling

interest

(Ibrahim & Ellis, 1994). For purposes of this paper, family businesses will be
defined as those businesses that have two or more family members working in
Student: Phan Nguy6n

HQa Mi

3


Chapter 1

Advisor: £)~ng Minh Trang

the business,

who have financial and managerial

control, and/or an inter-

generational transfer has taken place.

2.2 Definition of SME
There are many definitions of SME that different from countries to countries.
The definition in use depends on the purposes these definitions are required
serve and the policies which govern the SME sector. The three parameters
generally applied by most countries, singly or in combination are:
.:. Capital investment in plant and machinery
.:. Number of workers employed
.:. Volume of production or turnover of business

Now let's take into consideration the definitions of an SME of some countries
in the world and in Viet Nam:

>-

American definition:

One of the early definitions
Department

still widely used is that outlined by the US

of Commerce in 1941. According to this standard, the following

types of firms were considered small business:
Manufacturing

>-

250 employees or fewer

European Commission definition:

Student: Phan Nguy~n

H9a Mi

4


Chapter 1

Advisor: f)~ng Minh Trang

~ Japanese definition:

Sector

Number of employees/Capitalization

Manufacturing,Mining

and others

Not more than 300 employees or Y 100 million

Wholesale

Not more than 100 employees or Y 30 million

Retail and Services

Not more than 50 employees or Y 10 million

»-

Vietnamese definition:

•

Commercial Bank

An SME was an enterprise which had 50 employees or fewer, and a working
capital ofVND 8 billion and anpual revenue ofVND 10 million.

•

Financial Ministry

A business was considered as an SME when it has 100 workers or fewer,
annual revenue of VND 10 billion and VND 1 billion for a registered capital.

•

Economic Experts

An enterprise

was considered

a medium

enterprise

when it has over 50

employees and an investment capital of VND 300 million

•

On 20 June 1998, the government issued a circulation stipulating that "a
business which has a registered capital of VND 5 billion or fewer and
200 contracted workers or fewer is considered as an SME."

In conclusion,

the above conditions to identitY what an SIVIE is should be

widely issued and accepted by Vietnamese businesspersons.

2.3 Definition of Familv SME in Viet Nam:
The Family SME in Viet Nam can be defined as a SME that belonging to one
family which is running by the family members, and usually head of all
operations is the husband and financial in chief is by the wife.
Student: Phan Nguy~n

H9a Mi

5


Chapter 1

Advisor: f)~ng Minh Trang

3. Characteristics of a family SME
3.1 Establishment
The creation of an enterprise in most cases is related to the previous labor
activity of the owner or is a traditional activity of the family.
The creation

phase is characterized

by great expectancies,

by a lot of

administration

procedures and by the necessity to know how to build and how

to assess a business plan. The most crucial period for the survival of the SME,
is the first 2-3 years, because in that period a great effort to get on its foot, to
establish a name and position in the market and to secure internal and external
systems is done. If the above attempt is not handled in a methodical way, the
effort will faIl down and the company is very likely to face obstacle, difficult to
surmount. That's why the mortality rate in new SME is very high.

3.2 Ownership and management
In most case, the managers in family smaIl and medium sized companies are
manager-owners.

This situation

derives

from the fact that one man (the

establisher) undertook the initiative to establish the enterprise, undertaking also
the responsibility and the risk. The qualifications required for managers even in
a smaIl enterprise with limited range of activities are various. An important
factor is also that SME employ a limited number of employees and due to this
managers and employees have to be multi-skilled.
3.3 Human resources
Family firms usuaIly have a low level of qualified staff for two reasons. In the
first place, they prefer to employ family members for managerial positions, and
these members may not be sufficiently

qualified or not have international

experience (GaIlo and Garcia-Pont, 1996). Secondly, family firms usuaIly find
it more difficult to attract professional

managers. The unstructured nature of

these firms, together with the difficulty of fuIly developing

Student: Phan Nguyen

HQa Mi

a professional

6


Chapter 1

Advisor: D~ng Minh Trang

career. in competition

with family members, diminishes the appeal of these

firms to qualified professionals. Existing incentives and promotion systems are
heavily biased toward family members (Lansberg, 1983; James, 1999)
3.4 Inter-relation between familv and business
The main characteristic

of a family SME is the interrelation between family

and business as far as objectives and roie are concerned. The main challenge of
a family SME is to distinguish the roles and do not transfer the conflicts and
problems from the family to the enterprise and vice-versa.

~

The Family System

Families are inward looking; they seek to protect their own. They are emotion
based, i.e. love and that love are unconditional. If a report is not produced in
time by a family member in the business, this does not affect how much the
family loves them. Families share with each other and there is lifetime
membership. Families do not like change and do not respond well to it.

~

The Business System

The business

system on the other hand has different characteristics.

It is

outward looking and task based. It has to be unemotional in its dealings and
rewards performance
Businesses

~

also

based on results. Employees
embrace

and

must perform or leave.

thrive

on

change.

Family Values in the Business

Where the systems overlap, that is, where there is close involvement

of the

family in the management and ownership of the business, there is potential for
conflict.

Student: Phan Nguy~n

HQa Mi

7


Chapter I

Advisor: £)~ng Minh Trang

4.1.2 Financial benefit
Another

advantage

family business

of family business which is not necessarily

is financial benefit. This advantage

limited to

might not be present

initially but usually comes about after a few years when all the loans are paid
off (Rosenblatt 200). Also by paying family members, the money is kept within
the family and is not spread out. Yet, another financial benefit is the profit can
be spread amongst the family members and that reduce the amount of income
tax that is paid.

4.1.3 Prestige and pride
This extra financial leverage brings with it, prestige and pride to some family
business owners. The fact that a person or a family has its own business brings
prestige to them in the community and also pride in the family members. Many
respondents in a survey indicated that they valued intergenerational

continuity

in ownership of a business (Rosenblatt 204). However this might also cause
tension in a family when none of the children want to carry on in the family
business.

Says Heather Leach, associate director of the Family Business Center: "They
are in business for the long haul and they have a vision of what that is," she
says. "They have pride in their products and services and can react to changes
much quicker because there are fewer people and they don't have to go through
levels of red tape."

Some people argue that by having younger members of the family involved in
the family business, they are able to instill good working habits in them at a
young age. It is also a character building activity in the family. This, however,
all depends on how the young family member is treated and coached during his
working presence in the family business.

Student: Phan Nguyen.

HQa Mi

9


Chapter 1

Advisor: D~ng Minh Trang

4.1.4 Tightening the family relationships
There has been some studies show that family relationships between the father
and the son are improved by having a family business and by having younger
members involved in the family business. Imagine a situation when a father
works from morning till night and only gets to see his child at night after a long
day at work. The time they spend together is not the best quality as the father is

really tired a frustrated and the child takes this in a negative manner. But if the
child see his or her father working hard and is by his or her father side, he or
she realizes how much the father cares about them to work hard for the child'
future. Also a mutual respect is created between the child and parent, whether
the child is young or old. The family relationship also improves due to the
better financial standing and by the reduction of stress in the parents' life due to
less pressure from work.

Family members often have a really strong commitment to the family business.
They really want it to succeed. It's not like these employees who say, "Oh, it's 5
o'clock and I'm leaving." They're committed, and they'll be there all night if
need be.

Another real advantage is they put a strong emphasis on relationships. Usually
the family feels the business is an extension of their family, and that means
they want to stand behind what the business does. If we go to an impersonal
company, they'll say, "Sorry, that's business. You should have checked it out
better." But a family will often say it's our reputation and we want to make it
work. So there's often a lot of good will.

4.1.5 Good relationship between employer and employees
The relationship

between the owner-manager

and the employees

in family

company is less formal than that in a large organization. Very often, we see the

boss of a small company and his employees eating and working together. It is
not unusual

for some employees

Student: Phan NguyGn

H9a Mi

to tum to the employer

for advice or

10


Chapter I

Advisor: f)~ng Minh Trang

counseling on their personal or family problems. The employer has to play the
additional role of a friend, a family or marriage counselor, and sometimes and
arbitrator. In some small companies, the owner-manager and the workers know
one another

so well that they are more like friends than employer

and

employees.

4.1.6 Flexibility in Management
Another

fundamental

advantage

of small firms is that they are not so

formalized. They have fewer procedures and less internal paperwork and are
less restrictive in moving from job to job or trying new strategies. Big business
is characterized by its inability to make decisions rapidly or to implement them
quickly once they are made.

The small entrepreneur is relatively free to enter or leave a business, to grow or
contract,

and to succeed

flexibility

to meet

or declare

changing

market,

bankruptcy.

Management's

production,

and

overall

relative
business

conditions allows the firm to adapt quickly to the ever-changing environment
of which it is a part.

4.2 Disadvantages

of a family SME

4.2.1 Lack of capital
Most family company started their business with personal savings or loans
from friends and relatives. They have limited financial resources. It is rather
difficult for them to borrow from tinancial institutions, since most of the time
they are unable to comply with normal loan requirements which commercial
banker insist on. Shortage of capital is one of the main problems faced by small
businessmen.

It is a critical problem for the small companies, especially when

they are buying new equipment or planning an expansion.

Student: Phan Nguy~n

HQa Mi

11


Chapter 1

Advisor: Di:ing Minh Trang

4.2.2 Inter-related between family and business
Many problems arise in the family and business when a clear boundary is not
drawn between the family system and the business system. Problems at home
are at times brought over to the business and the tensions from business
decision are also brought over vice versa to the family. Connict raising within
the organization

may ruin the business for it causes undermine

employee

morale, divert energy from important tasks, decrease productivity by disrupting
cooperation,

create

suspicion

and

distrust

overemphasize

the differences between individuals.

among

employees,

and

4.2.3 Unclear role definition
In many cases there is no clear definition

of operations,

described

in an

organization chart so it is created an organization problem, which reflects to
delay in some works because there is not a responsible person for each task.

Another problem that arises in the business is when the roles in the family cross
over to the roles in the business. When a mother joins the business, she
sometimes automatically wants the children to report to her and to ask her for

advice when problems arise. She gets upset when she realizes that the children
don't value her business decision as they do when it comes to family decisions.
Another side to this problem is when the husband joins the business which the
wife had started and takes control as he does in the family. This usually ends
with the wife giving the control away most of the time. But there have been
rare cases with the husband leaving the business.

If the description of a family member's

roles and responsibility is not clearly

defined then this causes the above problem and adds tension in the family
relationship.

This sometimes causes the tension to be taken back home and

hurts the family relationship.

Student: Phan Nguy€n

H9a Mi

12


Chapter 1

Advisor: 8~ng Minh Trang

4.2.4 Unskillful staff

Family firms usually have a low level of qualified staff for two reasons. In the
first place, they prefer to employ family members for managerial positions, and
these members may not be sufficiently qualified. Just because someone is your
flesh and blood doesn't mean they have the right skills for the business. They
may be really talented in another business or industry, but not necessarily in
your specific family's business. So sometimes you'll get a mismatch of skills,
and it's really not fair for that person or on the business.

Secondly, family

firms usually find it more difficult to attract professional
unstructured
developing

nature of these firms, together
a professional

career

managers.

with the difficulty

in competition

with

family

The

of fully
members,

diminishes the appeal of these firms to qualified professionals.

4.2.5 Lack of managerial skill
Another common problem among small businesses is the lack of managerial
and marketing skills. As most small entrepreneurs are self-made men who have
not been exposed to modem management techniques, they tend to operate their
businesses in the traditional way. Quite often, their successes depend on good
fOliune. Many of these people plunge into business without much careful
planning. Manpower is another critical problem of small businesses; they find
it difficult to recmit skilful workers. Even if they do get these workers, they
may later on lose them to bigger companies which offer better pay and benefits.

4.2.6 Lack of successor
Succession

is a serious problem for small businesses. The children of the

founding entrepreneurs may not want to take over the business. As it is a hard
way to earn a living, the entrepreneurs may prefer the children to be gainfully
employed in an established company or government department. Sometimes,
the children do not possess the skills of the trade and are unable to carry on the
business when the parent retires.

Student: Phan Nguy~n

HQa Mi

13


Chapter 2

Advisor: £)~ng Minh Trang

An effective family SME must be run by good managers. The family's mission
is to choose great managers
flexibility,
managers

creativity,

decision-making,

then organize

organization's

according

people

some criteria such as leadership,
and risk-assessment

into groups

ability.

Those

or teams to accomplish

the

goals and objective. Finally, choosing appropriate successor will

make the company immortalize.

1. Competencies of a good manager
1.1 The important of great boss
The great boss stirs the people. The great boss elevates, applauds, and lauds the
employees. The great boss makes people believe in themselves and feel special,
selected, anointed. The great boss makes people feel good.
Great bosses are memorable. In sixty seconds, this boss created a memory to
last over sixty years.

People take their cues from the boss. The boss sets the tone and the standards.
The boss sets the example. Over time, the department, the office, the store, the
workshop, the factory, the company begins to do what the boss does. If the
boss is always late, punctuality

becomes a minor obligation. If the boss is

always in meetings, everybody is always in meetings. If the boss calls on
customers,

customers

become

important.

If the boss blows off customer

appointments, the sales-force makes fewer sales calls. If the boss is polite, rude
people don't last. If the boss accepts mediocrity, mediocrity is what she gets. If
the boss is innovative and inventive, the company looks for opportunities. If the
boss does everyone's job, the employees will let him. If the boss gives everyone
in the organization a World Series ring, then everyone wants to win the World
Series. If the boss leads a charge, the good and able employees will be a step
behind.

Student: Phan Nguy~n

HQa Mi

15