Expanding and diversifying a family business

A large proportion of family firms, however, come under the category of small and medium- sized enterprises (SMEs). In this sector, firms tend to be characterized by the dominance of the founder or leader and a shortage of specialist managers, with decision-making often highly centralized and driven by the intuition of the founder or the leader.

One consequence of this is that the decisions are not questioned or vetted through a rigorous process, hence we often see family businesses taking on growth strategies that are risky in their own right or are unrelated to their core competence, possibly leading to even greater risk.

In May, for example, a relatively small Singaporean travel agency had to abruptly shut down because of a S$2-million loss on properties, a sector completely unrelated to its core business. It was a cautionary case for many small businesses.

So how can small, growth-oriented family firms successfully venture into new fields?

Recently, I met SMCFood21, a Singapore-based family business that has enjoyed considerable success in its growth and diversification strategies. Liang Chye Cheng, the firm’s founder and managing director (MD), came from a family business producing and distributing sugar products.

The company had been a manufacturer of sugar cubes but found itself presented with an expansion opportunity in the 1990s when it took over the production plant of a bankrupt supplier that had owed SMC a significant amount of money.

The plant was used to make blends of sugar, milk and cocoa, and SMC quickly realized that the bankrupt company had built good relationships with its customers, something it in turn was able to capitalize on.

From this accidental entry into the production of blends, SMC has made the process the core of its business. But while SMC deserves credit for identifying the