Jakarta. While family businesses have a large role in the Indonesian and world economy, only a few managed to survive past the third generation.
Hadi Cahyadi, an independent commissioner of Lippo Cikarang, highlighted these facts during a presentation in the webinar titled Large Family Businesses and Beyond on Sep 2, 2021
Hadi said family businesses play a significant part in the economy and social welfare as a whole. Based on the McKenzie study, family businesses make up about 60 percent of the private sector and contribute to 80 percent of the world's gross domestic product (GDP). These businesses generate approximately $1 billion in revenue on average.
On top of this, research shows that family businesses have significantly aided the government in tackling social and economic issues. “Family businesses greatly reduce unemployment, as well as crime rates,” Hadi said.
According to a 2015 World Bank report, the top 10 percent of Indonesians control 77 percent of the country's wealth. Amongst them, as many as 10 percent are family businesses. Still, a succession of a family business is rarely ever successful.
“Only 13 percent of family businesses in Indonesia can survive into the third generation," Hadi said, citing a 2019 Deloitte report.
The trend among Indonesian family businesses reflects the succession phenomenon that happened around the world.
Citing a 2012 Harvard Business School report, Hadi explained that as many as 70 percent of family companies failed to be passed on to the second generation.
“Most of them fail to continue beyond the second and third generations… Only 30 percent of family businesses are successfully passed on to the second generation, while only 13 percent can pass the third generation. The percentage drops to 3 percent beyond the third generation.”
“Of course, all family businesses want to get past the 13 and 3 percentages. Because past 3 percent, the company will definitely grow large like Pak Ciputra's company, like Lippo, like Pak Darmadi's company, Pak Darmono's company," Hadi said.
He referred to property developer Ciputra Development founded by Ciputra, its rival Lippo Group, which Mochtar Riyadi founded, and the industrial complex developer Jababeka, founded by SD Darmono.
"By then, they can maintain the strong leadership needed within a family business," he said.
In fact, when Hadi interviewed heads of various family businesses for his Ph.D. thesis, he found that many leaders believe in what is known as the ‘third-generation curse.’
According to Hadi, this belief does not only exist in Indonesia. There is a saying "fu bu guo san dai" in China, which means that wealth and prosperity do not pass three generations. Apparently, many empires and dynasties did not pass down to the third generation, fueling the superstition of the curse.