Pangarkar,

initial opportunity, its subsequent moves are even more interesting.

SMC has sought to actively deepen its customer relationships — for example, making some exclusive blends for some of the large Japanese trading houses. It also supplies directly to some smaller retail customers, thus eliminating the markups charged by middlemen. Over time, it has also shifted the bulk of business to supplying Japanese customers.

On the supply side, SMC has tried to enhance its competitive advantage. It has established plants in Thailand and Malaysia because it recognized that it could save on transportation and possibly procurement costs by being close to sources of supply.

It has continuously increased overall capacity as well as the capacity of each plant. While the former allows it to serve customers and participate in their growth, the latter allows it to benefit from economies of scale.

A common problem facing small, growth- oriented family businesses is the absence of specialized executives. The flip-side of this, however, is that it is easier to maintain an informal and familial culture.

Mr. Cheng, the MD of SMC fully recognizes this, making it a point to know every employee by name and actively nurturing the familial and close- knit culture.

For example, the company has a flat corporate structure consisting of just three levels and takes every employee for an annual holiday. It also invests actively in training and development by sending production workers on training programs and backs selected employees to attend MBA programs.

At some point in the future, Mr. Cheng also hopes to list the company, allowing him to give all employees an ownership stake in the company.

SMC is not resting on its laurels, with ambitious plans to enter new areas such as milk powder manufacturing, aiming to develop and market its own brand milk powder — a first for the company which has been in the business-to-business space so far.

The example of SMC's evolution offers several worthwhile pointers for family businesses:

1. The company has mostly stayed within the domain of making blends, supporting the viewpoint that many family businesses do best by ‘sticking to the knitting' — in other words, doing what they know and do well.

2. Family businesses have to continuously think of enhancing their competitive advantage, as SMC did by deepening customer relationships, increasing volumes and implementing rigorous quality control at its plants.

3. Family businesses can strive for a balance between different types of diversification — for instance, based on product, geography or customer. SMC has balanced narrow product focus ( low degree of product diversification) with a broader geographic focus, especially in terms of establishment of plants in Malaysia and Thailand, taking it closer to sources of supply. If family businesses achieve this balance, they may be able to reduce risk.

4. Finally, SMC also demonstrates how a firm can leverage on its strengths. Family businesses are well- served by building strong commitment from their employees, helping compensate for lack of quantity of staff or even specialized staff. Their familial culture which is facilitated by their small size can be a very important asset.

Growth-oriented family businesses, especially small family businesses, might do well to consider emulating these.

This piece is the first in a series of five insights from the school for Asian family businesses looking to grow without losing control.