Growth of family business in India

Caucasian businessman using digital tablet in cafeFamily businesses are the lifeline of any economy. It is estimated that globally family businesses contribute around 70%–90% of the global GDP. India is no exception. Family forms an integral part of Indian culture and businesses. Indians have generally preferred taking the risk of being self-employed rather than taking the safer path of employment with corporate organizations/ professional firms. This is evident from the fact that more than half of India’s workforce is self-employed. Family-run businesses account for more than 85% of businesses in India. Furthermore, 67% of total listed companies with market capitalization exceeding more than US$50 million each accounts for family businesses in India.

Family businesses are based on two ecosystems — “family” and “business” — both divergent in nature yet inter dependent. In initial phases it is the family, which runs the business, but as time passes and businesses become successful, it is the business which runs the family. There is a famous cliché — the first generation builds, the second generation consolidates, and the third generation destroys the family business. Breaking this myth are some renowned Indian family business groups, which have survived beyond the third generation such as the Tatas, Birlas, Bajaj, Murugappa, Godrej, Kirloskar, TVS group, Dandekar family of Camlin group…to name a few.

In addition, there are more recent Indian conglomerates, which are in the second generation, such as the Ambanis of the Reliance group, Ruias of the Essar Group, Piramal group, Khorakiwalas of the Wockhardt group, Hamieds of the Cipla group, the Reddy family of Dr. Reddy’s group. Several of these Indian family businesses also feature in the Fortune 500 list. Following them closely are first generation entrepreneurs who are fast catching up in the race such as Azim Premji of Wipro group, Kishore Biyani of Future group, Lakshmi Mittal of the Arcelor Mittal fame, Gautam Adani of Adani group, Sunil Bharti Mittal of Bharti Enterprises and so on.

Indian family businesses have a culture that is often considered as authoritative and patriarchal. Typically the eldest family member controls the rein of the business with all decision-making power vested with him, while the siblings offer a supportive role. The patriarch is burdened with a dual role. Not only is he responsible for the growth and success of the business but also for its survival beyond his generation. Smooth transition of leadership role and business ownership to the next generation, preventing splits, keeping the family united, providing for daughters and minors/ spouse of the family are various other matters, which needs his attention.

However, with passage of time and growing aspirations of other family members to play an active role in the business, one can see an evolving trend of inclusive leadership as compared to authoritarian control. Decision-making is gradually becoming participative with family members taking mutual decisions. For instance, in the Kirloskar group, although all members of the fourth generation are actively involved in managing group companies, they regularly consult each other.

One can also witness family run businesses moving toward professional style of managing affairs. The Dabur Group, one of the oldest family-run businesses in India, realised the importance of professionalism and took a collective decision some years back that the family will not be involved in executive management. They remain as Dabur’s founder family. The Wadia group is another example which inducted a totally new team of non-family professionals at the helm of affairs.

Gone is also the time when being born in the family gave the younger generation an undisputable right to inherit and run the business. The family-run businesses are now entrusting competent managers with key decision-making powers and making entry to the business competitive for family members. This indicates their transformation into a professionally run business. Cyrus Mistry succeeding Rata Tata as the Chairman of the US$100 billion conglomerate, the Tata group, instead of family name bearer Noel Tata, is a live example of merit over family loyalty. Another example is Dr. Vishal Sikka being chosen to become CEO of Infosys instead of any founder member.
The concept of “Family Offices”, which caters to financial and non-financial needs of the family is also picking up rapidly. India has a handful of family offices, including Azim Premji’s PremjiInvest, Ajit Khimji’s Khimji Family Office, N R Narayana Murthy’s Catamaran and the Ambani Family.

The Indian family businesses are also transforming their succession practices. With big business houses such as Ambanis and Birlas burning their fingers on matters related to succession the family leaders have started realizing the importance of putting in place a thought through, documented succession plan. The younger generation undergoes professional education, and is trained and groomed by the seniors of the family before the baton is passed on to them. The family values and business visions are clearly spelt out to them at the beginning of their career. For instance, in the Godrej group the young generation has to join at the lowest executive rings and be trained and found good before climbing up the hierarchy.
Another interesting trend, which is being noted among the Indian family businesses is involvement of female members. Indian family businesses were primarily male dominated and in fact to a large extent still are; however, one can see the role of women changing from supporting their husbands/fathers to working along with them and playing an active role in decision making.

Philanthropy has been a part of traditional values of many Indian family businesses. Facilitating philanthropic initiatives has also been one of the objectives of wealth succession planning which family businesses are undertaking through their charitable foundations.

The Indian business landscape is rapidly changing and expanding fast. The saying “Harmony in family, symphony in business“ if followed in spirit, will go a long way to ensure survival of family-run businesses.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s