How family-owned businesses drive India’s economic growth, job creation, and business sustainability
Family-owned businesses have continued to be a pillar of the Indian economy, contributing substantially to GDP, employment, and wealth creation. However, the common perception regarding family-owned businesses includes mom-and-pop shops that emerge on the corner of one’s street. It consists of tea vendors, grocery shops, boutiques, and even local cuisine restaurants. But then again, family-owned businesses have ranged from mom-and-pop shops, small enterprises, to industry giants such as Tata, Reliance, Bajaj, Godrej, Wipro, and Infosys, driving economic resilience and innovation. Thus far, they have advanced by adapting to market liberalisation, globalisation, and digital transformation.
The Crucial Phases of Evolution
Family businesses have transitioned in two separate phases. The first was during pre-liberalisation when business success was largely steered by connections, licence raj and government policies, with lesser emphasis on innovation and competition. It was an age of regulatory restrictions, limited global trade, where just a handful of companies had an overseas market exposure. The second phase was post-liberalisation, which pushed businesses to focus on merit, efficiency, and innovation. At that time, companies invested in international markets and formed global partnerships. More importantly, businesses began to understand the need to embrace professional management and compete with international corporations.
In the developed world, family-run businesses contribute to 30% of the large companies, inclusive of names like Walmart, Samsung, Ford, Dell, LG, BMW etc. Equally, in the emerging markets, 50-80% of big companies are family-owned. India has roughly 70% family-owned businesses, driving its GDP and offering livelihood to millions, in addition to having a strong presence in domestic and global markets. Yet, to remain relevant in a competitive and tech-driven world, many of these businesses continue to struggle with striking a balance amid tradition and innovation to ensure long-term sustainability.
Going from Tradition to Transformation
Family-owned businesses underwent immense transformation owing to globalisation and growing competition. Subsequently, as the next generation of business minds began stepping into the industry, they adopted an approach of running their firms in a completely professional way, in place of its earlier Lala model. This change brought forth innovative standpoints and global exposure. In the same vein, before taking over their businesses, many young leaders studied abroad and worked at international firms to attain experience and expertise in modern-day business strategies.
Henceforth, these leaders are spearheading innovation combined with modernisation in family businesses by uncovering digital transformation and sustainability while also prioritising professionalisation and talent acquisition. Unlike their predecessors, who relied on family connections to hire talent, they are laying more emphasis on employing bright minds, appointing external CEOs, and involving independent directors from the industry to enhance overall governance. Such a strategic change has enabled numerous family-owned businesses to expand globally, attract professionals with high-calibre, and compete with multi-national corporations.
There has been a surge in family-owned businesses, besides diversification in investments. The growing wealth and complexity have led these businesses to establish family offices to invest, manage, and protect family wealth. Additionally, the offices have started investing in start-ups, private equity, cryptocurrency, NFTs, ESG funds, and sustainability-driven projects. It is projected that Indian family offices will contribute more than $30 billion to start-up investments by 2027, demonstrating their increasing interest in new-age businesses. Undeniably, the next-generation leaders are driving this move, bringing in risk-taking and diverse approaches to business expansion.
Key Challenges Deterring Sustainability
Irrespective of the substantial contributions of family-run businesses, they face trials that threaten their sustainability. First, succession planning and leadership transition continue to remain missing for them, resulting in conflicts, inefficiencies and business stagnation. Second, balancing family control with professional management is difficult, as many family-run firms resist hiring external CEOs and CXOs, leading to operational and business inefficiencies. Third, global companies are establishing their branches in India and thus creating stiff competition. Added to this, the ever-changing regulatory compliance and steady technological advancements are forcing businesses to move at a faster pace; companies that fail to embrace digital transformation are at risk of lagging behind their competitors.
In a nutshell, family-run businesses in India will continue to be a cornerstone of the country’s economy, evolving with time to meet global standards. Their capacity to adapt, innovate and professionalise while retaining their core values will shape their long-term success and fuel the economy from the current $3.5 trillion to perhaps $5, $8, or $10 trillion. In attaining this, steady adaption to technical changes, product innovation, efficient corporate governance and strategic investments are the need of the hour. Armed with the right approach, Indian family-owned businesses can chart the course for economic transformation and shape the future of industries and global trade.