Family Businesses in India | Group Business in India
Family owned and run businesses are the oldest and most prevalent form of business owners anywhere in the world. Family businesses form the backbone of any country’s capital and thrift. In India, keeping business ownership within a family is a deeply rooted practice for ages. India enjoys a rich and magnificent history of family businesses in India. Initially, family businesses in India started in the form of trading and money lending concerning the hustle and bustle of the bazaar. It was also confined to certain communities, notably the Gujarati and Marwari, especially in western and northern India. Today, family business almost contributes around 80 per cent of the national GDP annually. According to various estimations, more than 80% of the companies in India are family-owned.
Advantages of Family Businesses in India
Family businesses are still thriving in today’s competitive thrift. The following are some of the advantages of a family business in India:
1. Stability
Family businesses in India are ideal in nature as they are loyal to the principles of the founder and top leadership, which results in overall stability within the organization. Leaders usually stay in the position for many years, until a life event such as illness, retirement, or death results in a change.
2. Commitment
There is a greater sense of commitment and accountability among all family members due to the involvement of the reputation stake of the entire family. This level of commitment is almost impossible in non-family businesses. It is innate that all family members demonstrate and share a level of commitment to the business since the core of any family business is a shared business vision and identity.
3. Leadership
In a family-run business, most of the time leadership is central to the senior-most people in the family. So each family members show faith and loyalty to the top leadership.
4. Trust
Since all family members know each other and are related by blood relations, there is a feeling of trust in each other.
5. Flexibility
In a family-run business, all family members can take any role which the business needs. You won’t listen, “Sorry, this is not my job” in a family business. They can take on several different tasks outside of their formal role in order to ensure the success of the company.
6. Decreased Cost
All family members contributing land, labour, capital and entrepreneurship means there will be less cost of running and managing a business. In hard times just like COVID-19, family members even can take a pay cut or work without any pay.
Disadvantages of Family Owned Business
Every coin has two sides. Same as with family businesses. In spite of its several advantages, it has the following disadvantages:
1. Family Conflict
As and when new generations come into the family business, conflict is bound to happen due to the generation gap. There are many cases of conflict in the family business in India like the famous case of Reliance when two brothers Mukesh and Anil divided India’s biggest corporate group in 2005.
2. Unstructured Governance
There is no formal governance structure in many small family businesses in India because of the level of trust inherent in family firms. Unfortunately, this can be gravely detrimental.
3. Nepotism
Some family businesses in India are reluctant to let outsiders come and seat in the top management and as a result, good talent may find it uncomfortable to work at lower levels. This, apparently, has a far-reaching effect on the success of the company.
4. Succession Planning
If there is no proper succession planning for the family businesses, there are chances of family disputes and sometimes it leads to the collapse of the entire business. Succession planning and implementation is one of the biggest challenges in family-run and managed firms. Most family businesses fail to remain family business after the first one or two generations because of a lack of effective succession plans.
5. Succession Planning is a key to success for family businesses in India
Succession planning is a strategy for passing on ownership and management of a company—to the next generation in case of a family business or to an employee or group of employees in case of a non-family business. The main object of succession planning is to ensure that businesses continue to run smoothly after a company’s most important people move on to new opportunities, retire, or pass away.
6. Need for Succession Planning
Succession Planning is an ongoing process, which needs careful planning and preparation for a smooth transition of ownership, leadership and management of the family business and family assets to the future successive generations. Strong succession planning is required due to following reasons:
to achieve the objects of businesses
to ensure the continuity of business, in the long run
to create wealth for future generations
to avoid the conflicts in business
to give stability to the business
to hand over the business from one generation to another
Every family business in India must have a solid succession planning for the smooth transition of management and ownership of the family business so that the fruits of the business can be enjoyed by the upcoming generations of the family.