Impact of Family Business On The Overall Growth of India and The World

Download as docx, pdf, or txt
Download as docx, pdf, or txt
You are on page 1of 9

A PROJECT REPORT ON

IMPACT OF FAMILY BUSINESS ON THE OVERALL GROWTH

OF INDIA AND THE WORLD

By

KIRAN ATTAL

DIV –A

ROLL NO : 2011A55
TABLE OF CONTENTS

Introduction 3
History of Family Business in India 3
Contribution to Indian Economy 4
Overall Growth 5
Advntages of Family Business in SME’s and Large Enterprise 5
Scenarios of Family Business 6
Challenges in Family Business 7
World Scenario 8
Introduction

Families are ruling the world of business. Family businesses range in size from small,
medium (SME’s) or large businesses (LE) in terms of employees and turnover and can be
put in two different categories: first, businesses having only the family members as its
stakeholders. These are the owners of the business and the scope of business is generally
small.

Secondly, businesses where family has a majority stake and control the company. Examples
are: Tata, Hero Group, Reliance, Wipro, Havells etc. Some 35% of Fortune 500 companies
are family controlled. In India, family business groups like Tata, Birla Thapar, and Singhania
, etc. have dominated the private sector business even in British regime. As a result, many
affiliated firms were established under these groups, headed by a family member.

Entrepreneurship is a critical element of a growing economy like India. Families create


necessary supportive environments for entrepreneurial behavior. Entrepreneurship
researches have also revealed that family support and the presence of self-employed
parents are important influences in venture initiation and business ownership.
Entrepreneurship started most family businesses. Entrepreneurial families extend the efforts
of its members. In fact, entrepreneurship is seen as the initial business efforts of one or
more family members grow and expand over time. Indian entrepreneurs are creating
impression all over the world. Indian business firms are too making acquisitions abroad and
spreading the business in various parts of the world.

History of Family Business in India:

The right of possession of private property and its inheritance has been a major factor in
encouraging the family business sector in India. The origin of family business firm coincides
with the evolution of entrepreneurial firms. In the beginning, a few families were engaged in
moneylending which led them to accumulate handsome capital. These families slowly moved
into commercial activities and craft industries in order to profitably channelise their
resources.

In the early nineteenth century, the industrial revolution called for speedy industrial
development with greater emphasis on the modernisation of the production unit. This event
came as major breakthrough for a large number of families. They promoted, built and
expanded all types of industries which the British Government of India encouraged. It is in
this context, that family businesses are considered the sine qua non of industrial
development in the early days of industrialisation of the country.

The industrial enterprises were the result of joint family effort (capital) and therefore family
control continued in the form of ownership and management. The family, therefore, became
a unit of ownership, control and management of the firm. To exercise this, in the beginning
they adopted the managing agency system which was started by British. The system was in
line with the need of joint family and became a prominent feature of the Indian social
structure. Several commercial and industrial enterprises were run by the managing agency
system as a body of decision-making. The managing agency system continued till 1970 as
an instrument of maintaining family control over business enterprises. The family business
continues to occupy a significant place in Indian industry.

Contribution to Indian Economy :

More than half of the population of India works in family owned businesses. They contribute 60-70
percent of GDP of India. Given the importance of family-run businesses in the Indian
economy, such news is, to say the least, worrying. Sixty-six of Business India’s Super 100
companies are family-run. According to Business Today, family-run businesses account for
25% of India Ink's sales, 32% of profits after tax (pat), almost 18% of assets and over 37%
of reserves.

Family businesses make numerous, critical contributions to the economy and to family well-
being both in terms of money income and such intangibles as time, flexibility, control, and
personal expertise. Family businesses add the complexities of family life to business
challenges, expanding the range of issues, personalities, needs and potential solutions for
every decision. Knowing something about family types, communication patterns, managerial
styles and the amount of support members can expect from their families may be as
important to beginning entrepreneurs as knowing how to reach a market or managing cash
flow.

India¶s richest business families were: Azim Premji (Wipro); Ambani (Mukesh andAnil)
(Reliance Industries); Sunil Mittal (Bharti); Shiv Nadar (HCL); Dilip Sanghvi(Sun Pharma);
Birla KM (Hindalco, Grasim...); Bajaj Rahul (Bajaj Auto); Hamied YK (Cipla); Munjal B (Hero
Honda). On October 29, 2007 billionaire Mukesh Ambani became the richest person in the
world.

The contribution of family business was also high in India in terms of employment and
income generation and wealth creation. Several visionaries had established their business
ventures at different places of the country and also abroad. Some of them were: Ajim
Premji, Ratan Tata, KM Birla, Brij Mohanlal Mnryal, Parvinder Singh,Dirubhai Ambani, Sunil
Mittal, Ramalinga Raju, Mallikharjun Rao, Sashi Ruai, AnjiReddy, etc. In India, family
businesses account for about 70% of the total sales and net profits of the biggest 250
private sector companies. The role of business in the society has witnessed a dramatic
change in the recent times.
Overall Growth :

Although big, public companies tend to attract the most attention, especially in terms of
share offerings, stock values and speculation, family businesses will undoubtedly endure as
the backbone of enterprise. The desire for autonomy to be ones own bossand for family
independence appears to be a basic and unchanging human trait. This motivator accounts
for many career-switching entrepreneurs.

SME’s (organized and unorganized): Family businesses are the ones giving back
to their community. They are often less concerned about short term profits and more
concerned about significance and leaving a legacy for their family and the community.

These businesses invest what is often referred to as “patient capital.” Most big businesses
are looking for an immediate return on any investment, while a family business usually has
a longer horizon (sometimes a generation) when evaluating a Return on Investment.

Advantages of Family Business :

Family, which is considered obstructive to the business performance is also considered a


major source of strength and support in many respects. Some of the advantages of family
business are as following:

i) The basic premise on which family business rests is its stability and continuity which is
linked from one generation to another. The long-term interest of family members in the
business often provides the sentiments of family solidarity and natural loyalty. Family
members work with each other with greater team spirit to attain a common goal. They
make personal sacrifices by taking minimum dividends from the firm and bringing in
personal financial resources in the time of financial crises. Many times, business gets
greater priorities under their personal needs. Loyalty and dedication of family members
have been responsible for continued operation during the hardship period.
ii) The image and social reputation of the family becomes the goodwill of the firm. It helps
in establishing trust and credibility in the market. Bankers and suppliers feel comfortable
in dealing with such family owned enterprises because of their good image and
reputation.
iii) Since stockholders and managers of the firm work unitedly, managers are less sensitive
to the criticism based on the short-term performance. They enjoy a great amount of
freedom and flexibility in concentrating on long-term objectives of the firm. This is
possible only in family business as both stockholders and managers have mutual
understanding and trust.
v) During the transition period, the founder needs trustworthy people to take care of
sensitive operations as he or she finds it difficult to manage the business alone. One
looks for family members and relatives as a source of strength to fill the transitional
gap. Small firms cannot afford to hire professionals and therefore they start taking
family members and relatives to provide support in the growing business. The legislative
environment has also been indirectly a binding force on the founder to adopt family
business to enjoy certain benefits.
So, for SME’s and Large Enterprise’s we can conclude advantages of Family
Business is :

A. Small Ventures into Family Business (Small and Medium Level Enterprises
SME’s) :

1. Self-Employment.
2. Loyalty
3. Social Reputation of family creating goodwill

B. Large Enterprises into Family Business contribute to GDP of India


significantly

1. Generation of Employment , thereby lifting the standards of living of people and


stability in society.
2. Creation of wealth.
3. Creation of trust and goodwill in society and amongst business partners.
4. India seen as a power where appreciation of family values exist and still money is
generated successfully.
5. Creating Impression of India all over the world.

Scenarios :

A. Success Story Family Business

Mr.Arvind is the fourth generation in the TVS group is the son of TK Balaji, MD of Lucas-
TVS and associated companies. He worked with few MNCs before joining the family
business in 2004. Mr.Arun Alagappan, son of M.A.Alagappan is also a fourth generation
family businessman, he worked with GE capital before joining the business in 1999.
Ms.Gayathri Sriram daughter of C.V.Karthik Narayanan hailed from the family which had
promoted ventures like Standard Motors Product, Union Motor and Ucal Fuel Systems.
She joined family business in 2003.

B. Conflict in Family Leading Into Split of Huge Empire.

Reliance split is a burning case presenting the biggest challenge for any family indulged
in business. Just after the split the company slipped in Forbes list. Even if the reliance do
not suffer severely, it certainly devalues the status of the family in the society and trust
of the customers and the shareholders.

Only if Mr. Dhirubhai Ambani had planned a business envisioning the inherent conflict it
could have been another story altogether, where both the siblings would have
complemented each other with their unique skills and have consolidated the empire
created by their father into a well established and cared family business not just another
business.
Challenges in Family Business:

Despite all these facts about how impactful family business is to our community and our
national economy, only about 33% ever survive to the second generation and less than
20% survive to the third generation. One of the big reasons for this is obviously the
economic challenges of keeping a business relevant and competitive. But often a family
business has a few other challenges. Things like:

Entitlement: Family business members believe that no matter how they act, the business
is there to serve them.

Nepotism: Hiring or advancing of personnel based solely on family relationships.

Founderitis: A founder believes that he/she is the business’s only capable manager,
leading to a lack of appreciation for the second generation.

Succession: There’s no plan for transferring leadership and/or ownership of the business
from one generation to the next.

Lack of Strategic Planning, Structure and Governance: Family businesses often start
small and stay small because they do not organize themselves for growth.

There should be a change process that adds value to the business when change is
inevitable for growth. Indian Family Businesses forms the ‘backbone’ of the Indian economy
and hence there is a need to extend the life span of the family businesses so that the
economy can continue to derive benefit from their contribution.
Impact of Family Business on Overall Growth of World:

“Before the multinational corporation, there was family business. Before the Industrial
Revolution, there was family business. Before the enlightenment of Greece and the empire
of Rome, there was family business.” - William O’Hara

Majority (65 - 80 %) of all businesses worldwide are owned or controlled by families,


including 40 percent of the Fortune 500 corporations. In the United States, family
businesses employ more than half of the workforce and generate more than half of the
gross domestic product (GDP). Indeed, family-controlled businesses are the dominant form
of business throughout much of the world.
Germany, Japan and the US were quick to adopt the corporate form of organisation as they
industrialised in the late 19th and early 20th centuries, and today their economies are hosts
to giant, professionally managed corporations like Siemens, Toyota, Ford, and Motorola. On
the other hand, the private sectors of France, Italy, and capitalist Chinese societies like
Hong Kong, Taiwan are dominated by smaller, family-owned and managed businesses.
Family business management is one of the oldest forms of management. The family owned
businesses in the world were basically hailed from Japan (Kongo Gumi family in
Construction business in the year 578 & Ho Shi family in Hotel business) , followed by family
owned businesses in Austria , France and Italy ( All connected with food items - restaurant,
wine, foundry) .

Some of the top Industry Founded Revenue Employees


conglomerates which belongs
to the Family Business
Management category are :
Name

Wal-Mart Stores Retail chain 1962 $244.5 billion 1.4 million

Ford Motor Auto 1903 $163.4 billion 350,321


manufacturer

Samsung Conglomerate 1938 $98.7 billion 175,000

LG Group Conglomerate - $81 billion 130,000

Carrefour Group Retailing - $72.035 396,662


billion

In the top “Global 250” family business houses, U.S. companies account for the lion’s share
i.e. 130 out of the 250, far ahead of runner-up France with 17 and Germany with 16. But
only seven U.S. companies made the top 25. Korea, where power is concentrated among
family-run industrial groups, placed only three companies on the “Global 250”—but all three
ranked in the top 11, and two of those placed among the top four. Clearly, family economic
power remains much more concentrated in some countries than in others.

You might also like