What India 2.0 shouldn’t disrupt: Your dad’s stodgy business ideas

All in the family.
All in the family.
Image: Reuters/Danish Siddiqui
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E-commerce startups, taxi aggregators and mobile app firms find themselves on the front pages of India’s business newspapers nearly every day. Much of the reportage is gushing and celebratory with figures of record sales and valuations that keep climbing steeply.

The spotlight on this cadre of technology and internet entrepreneurs is well-deserved. But the frenzied reporting doesn’t adequately represent the companies that really keep the Indian economy buzzing: the not-so-fashionable family businesses.

According to the Confederation of Indian Industry’s Family Business Network, the gross output of family-run businesses accounts for 60% of India’s industrial output, 79% of organised private sector employment and 27% of overall employment.

A Credit Suisse report in 2011 found that 67% of all listed companies in India were family-controlled, the largest percentage across Asian economies. This, experts say, speaks well of India. There are fewer dominant family businesses in China because industrial development there has been catalysed by the government, not private entrepreneurship.

“Other than the PSUs (public sector undertakings) and government agencies, at the genesis of any homegrown entity in India, even the largest listed companies, has been a family,” said Debabrat Mishra, director, Hay Group India, a global consulting firm.

Yes, some might be low on risk, innovation, professionalism and governance standards, but family businesses generally score better than non-family firms on long-term corporate health. PricewaterhouseCoopers’ family business survey 2014 found two-thirds of Indian family businesses grew in the last financial year in line with the global average. And these businesses have strong growth ambitions for the next five years with 40% targeting quick and aggressive growth.

“They are more prudent and do better on returns of investment. They have a vigilant eye on performance and profitability,” Mishra added.

India isn’t alone when it comes to the primacy of family businesses. In emerging markets, they are especially important, says McKinsey & Co. Nearly 60% of private sector companies with revenues of $1 billion or more in such economies are family-run. What’s more? About 80% of the 7,000 large companies expected to form in emerging markets between 2010 and 2025 are likely to be family firms. One in three of all companies in the S&P 500 index and 40% of the 250 largest companies in France and Germany are family businesses, McKinsey says.

In Germany, for example, estimates suggest that family businesses make up 92% of all private companies, employ 60% of the workforce and account for 51% of all companies’ sales. Germany enjoys admiration (and envy) for these businesses, and for their contribution to its stable, sustained economic growth. Mittelstand, a collective used to describe Germany’s mid-size, family-run and high-engineering firms, is a model many countries want to follow.

So, even as we track and profile the dynamism of India’s young startups, let’s also keep an eye out for our family businesses—many of India’s new $1 billion, homegrown multinationals will emerge from here.

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