BOMBAY, 10 March 2003 — Family-run businesses are an integral part of the Indian corporate world. But over the past few years, the age-old tradition of handing down the business from one generation to the next is undergoing a sea change. Statistics reveal that only 4 percent of family businesses go beyond the third generation.
According to a survey of family firms compiled by Switzerland’s IMD Institute 40 percent of all family firms die within the first five years, 66 percent of the remainder die or leave the control of the founding family during the first generation and 17 percent of the remainder make it into the third generation of the founding family. This means that less than three out of 100 companies survive after 75 years. In fact, a study of the 100 top family-run companies in India showed that companies grew the fastest in the first twenty years of their lives.
Professionalism is the main reason why family businesses are undergoing a change. Each generation brings with it new aspirations and new attitudes. In recent years, the involvement of women — both daughters and daughters-in-law — in the family business has added yet another dimension to the challenges facing such businesses.
Problems arise from differences in perception and approach to running the business together with varying opinions on the capabilities of different members of the family in contributing to the business. The new generation go abroad for their studies and return with their own notions about management. Yet it is undeniable that many business families have stayed together and the businesses have prospered.
Some families take the view that the younger generation should be allowed to set up new businesses in which the family would have a stake rather than get involved in the original family businesses. Other families believe in keeping the family out of the day-to-day operations of the business and leave it entirely to professionals.
Birla’s is one of the oldest family-run businesses. Kumaramangalam Birla has modernized and restructured the business to suit the current climate.
The Tata’s are probably the only business house in India which was run professionally right since the time when JRD Tata ran the empire.
On the other end of the spectrum is the Reliance group, an example of a big empire solely run by core members of the Ambani family. They too employ professionals, but decision-making is still centralized and vested with the Ambani brothers.
Many family-run business empires are huge success stories. The most successful Indian pharma company, Ranbaxy, was started by the late Dr. Parvinder Singh is now run by his sons Malvinder and Shivinder, who are still in their twenties. The pharma company came into being in Amritsar when Ranjit Singh and Gurbux Singh, employees of Japanese pharma company A Shionogi, fused their names to form Ranbaxy. Some years later, Bhai Mohan Singh took charge of the company.
The Mittals have trailblazed into the world of cellular telephony and their brand, Airtel, operates in 16 circuits and has now started operations in basic telephony too.
There is also the Hero Honda group, which is today India’s largest two-wheeler company, run by the family patriarch B. M. Munjal. Dabur, the company which ushered in the “ayurvedic” rush in India, is run by one of the oldest business houses of Punjab, the Burmans. There are other family-run businesses like the Oberoi’s, Chennai’s Ramco group, Apollo Tires, Escorts Nanda’s, the Jindals, the Essars, the famed Thapars, the Max Group or MRF to name but a few.
Times have indeed changed, but along with this, it is wrong to say that businesses run by families always lose. Family businesses which change with the changing times and adapt to the new business environment and attitudes emerge winners.