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International Journal of Marketing & Financial Management, Volume 5, Issue 6, Jun-2017, pp 16-28

ISSN: 2348 –3954 (Online) ISSN: 2349 –2546 (Print)

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DOI: 10.5281/zenodo.821842 DOIURL: http://doi.org/10.5281/zenodo.821842

Cite this paper as : Simran Kaur & Pramod Gupta (2017), “A RESEARCH ON TRENDS OF FAMILY BUSINESS AND THEIR

FINANCIAL PLANNING IN INDIA”, International Journal of Marketing & Financial Management, ISSN: 2348 –3954 (online) ISSN: 2349 –

2546 (print), Volume 5,(Issue 6,Jun-2017), pp 01-15, DOIURL: http://doi.org/10.5281/zenodo.821842

A RESEARCH ON TRENDS OF FAMILY BUSINESS AND THEIR

FINANCIAL PLANNING IN INDIA

Dr.Simran Kaur, Asst.Professor

Faculty of Commerce & Business Studies

Manav Rachna International University-Faridabad, India.

Dr. Pramod Gupta, Associate Professor

Department of Management Studies

IET Group of Institutions-Alwar, India.

ABSTRACT

75% of Indian family businesses have grown in the last 12 months; 84% expect to grow either steadily or

quickly and aggressively over the next 5 years.56% of Indian family businesses feel the need to innovate will

be a key challenge in the next 5 years.

A family-owned business may be defined as any business in which two or more family members are involved

and the majority of ownership or control lies within a family. Family-owned businesses may be the oldest form

of business organization. Farms were an early form of family business in which what we think of today as the

private life and work life were intertwined. In urban settings it was once normal for a shopkeeper or doctor to

live in the same building in which he or she worked and family members often helped with the business as

needed.

In India there is a huge emotional connect in addition to the business aspirations. Families have established and

running large businesses which are growing further. The commitment levels and the passion have been

astounding. What makes it special is the relentless participation of the next generation in the existing businesses

for further growth with a modern and a much matured professional outlook. Today the young leaders are on the

block from the families of Ambanis, Jindals, Mittals, Adanis, Godrej, and so many other illustrious families. All

this makes the Indian Family firms special. This pattern holds good for the SMEs and small partnership firms in

the country.

Key words: Inheritance Management, Unique management challenges, dominant institution, knowledge transfer

processes.

Introduction:

In India traditionally the family business is the norm. The trend continues. However, there are certain business

houses where the professional teams are taking over to run the empires. These cases are also multiplying as the

wealth is growing at different levels.

The recent cases are of Tata Group where a serious head hunting programme was done to find a successor to

Mr. Ratan Tata. Mr. Mistry was appointed to head the Tata Group. The famous IT Company Infosys has seen

the change at the top level when Mr. Narayan Murthy has been successful in appointing the well-known

professional personality Mr. Vishal Sikka to head the business founded by him.

Family business remains the norm for a large section of society in India and is not going to fade away. There are

obviously going to be exceptions depending upon the size and nature of business.

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If the family businesses are planned properly and the family plans professionally on their investment companies

and business operating companies the same shall continue to be a successful business model. In a growing

economy and in view of the global reach family businesses are undergoing changes and the element of

professional management and professional participation is increasing which is the key to a successful business

model. Today the young generation of each family is well educated, exposed to global standards and situations

and trained for professional management which all lays down a robust foundation for future stability and

growth.

Since the early 1980s the academic study of family business as a distinct and important category of commerce

has developed. Today family owned businesses are recognized as important and dynamic participants in the

world economy. According to the U.S. Bureau of the Census, about 90 percent of American businesses are

family-owned or controlled. Ranging in size from two-person partnerships to Fortune 500 firms, these

businesses account for half of the nation's employment and half of her Gross National Product. Family

businesses may have some advantages over other business entities in their focus on the long term, their

commitment to quality (which is often associated with the family name), and their care and concern for

employees. But family businesses also face a unique set of management challenges stemming from the overlap

of family and business issues.

The concept of family business is not new to India. Nearly 90% of Indian businesses and about 70% of our top

businesses - including 18 of the 30 Bombay Stock Exchange benchmark companies - are family-controlled.

According to a study done by a Swiss investment and banking firm Credit Suisse, India has the highest

percentage of family businesses in Asia, with as much as 67% in the10 Asian countries that were surveyed.

According to the Family Business Survey, 2012, carried out by Price Water Coopers (PWC, 2012) 74% of the

family businesses have grown in sales as compared to a 65% global average. The Indian industry is largely

dominated by family-owned enterprises.

India has a very high concentration of family-controlled business groups. The country has a rich history and

tradition of strong family ties and family businesses have long been a part of the Indian culture. About 50% of

the Nifty 50 firms (top 50 on the National Stock Exchange) are family-controlled and managed (Marisetty,

Ramachandran & Jha, 2008). They account for significant proportions in all spheres of the socio-economic and

political life of the country.

India’s share of world exports fell from 2.0% in 1950 to 0.56% by 1990 (Mohan, 1992). Whereas world over,

family business orientation was towards efficiency,

Indian family business was more outward oriented. The outward orientation was not however customer focused

but towards the government. Family business was headed by the eldest son of the family. The socio-religious

upbringing allowed the eldest son to enjoy the position of highest respect in both, the family as well as the

business.

Daughters were preferably married through arranged marriage into a family of equal economic stature and left

their family of origin. Daughters-in-law were expected to take on charity work of the business.

NEED FOR RESEARCH:

There is also a need for young leaders to understand the role of their businesses in the Indian and global economies,

and forums like the Conclave can help to facilitate this understanding.

According to the CII’s Family Business Network (India chapter), the gross output of these family-run businesses

accounts for 90% of India’s industrial output, 79% of organised private sector employment, and 27% of overall

employment, superseded only by the government and Public Sector Undertakings, companies in which the

government own the majority of the equity.






MAIN OBJECTIVE OF THE RESEARCH WORK:

The specific objectives of this study are:

India has a few very large business groups, which started four or five generations ago as small entrepreneurial

ventures. While the Tatas and the Birlas are often identified as the symbol of Indian Entrepreneurship, there are

several others who have not attained such visibility. This paper looks at five such families that have not had any

split, except in one. They are all diversified groups with a variety of businesses, with different strategies and

levels of performance.

In this exploratory research, we study how families grow their business beyond three generations, in highly

competitive environments. Hence, the focus is on the way family and business dynamics function in the fourth

generation and not how the families built the businesses over the generations.

We study the generic growth strategies followed and the influence of the family and professionals in it. Building

on the agency theory, we explain the nature of relationship existing between family and non-family

professionals active in business. We also examine the process of entry and succession planned in these families,

and the possible explanations for the emerging pattern.

REVIEW OF LITERATURE (PRESENT AND PAST STATUS)

Review of Literature: The Family-

There are prominent classes of definitions for “family” available in literature. The word “family” is derived

from the Latin word “familia” which implies household and includes the master of the household, his

descendants and servants. Murduck (1949) perceived the nuclear family as universal with four essential

functional objectives which it always fulfilled completely. These three functions were: (1) Socialization, (2)

Economic Cooperation and, (3) Reproduction. Structural definition of the family encompasses existence of at

least one adult and a dependant. According to the USA census bureau, “A family consists of two or more

people, one of whom is the householder, related by birth, marriage, or adoption and residing in the same housing

unit. A household consists of all people who occupy a housing unit regardless of the relationship. A household

may consist of a person living alone or multiple unrelated individuals or families living together”.

McDaniel et al. (2005) define family as any group of people related either biologically, emotionally, or legally.

That is, the group of people to which a person can look for his or her wellbeing. According to Srinivas &

Beteilla (1964), in spite of the socio-economic and political changes, family life and family structure have

remained an integral part of the Indian society with the 'spirit of family solidarity' as the sustaining power. Ross

(1961) found that types of family have undergone structural changes like large joint family, small joint family,

nuclear family, and nuclear family with dependants.

First group of thought defines family according to the family structure embedding the structure to include the

extended family those who have “biological or socio-legal legitimacy by virtue of shared genetics, marriage, or

adoption” and the nuclear family “those extended family members residing within the same home” (Fitzpatrick

& Wamboldt, 1990, p. 425).

Research Methodology and Design:

The research design will be use is a combination of exploratory and explanatory designs. Review of

literature will be used to understand the process and the factors that influence success of Inheritance in Family

Business. Most of the studies reported in literature were from countries other than India. They were mainly from

American and European settings. In order to check their relevance in Indian context focus group interviews

would conducted. The factors, relevant to the India context, which would identify and new ones that emerged in

discussions with experts were taken for pilot study questionnaire schedule preparation. A pilot survey would

conduct with 150 respondents.





Using inputs from the pilot study the questionnaire was modified and content validity tested using expert

opinion.

The Questionnaire schedule would then used to collect data from selected Family Business owners in India. It

would decide to collect at least one hundred samples of data using personal interview with the Family Business

owner. The important factors that could have bearing on the process of Inheritance Management were identified

in the focus group discussions as Religion, Size of Business, age of Owner, and education of owner. It would

decide to fix a quota of at least twenty five respondents from each level of these factors. The population being

finite but unknown, it would decide to go in for a judgmental cum snowball sampling method. The first

respondent for the sample would select on the convenience basis. Snow balling would used to gain contacts and

introductions to other Family Business owners known to the respondent, judgment was used to select from

among the contacts obtained keeping the sampling objectives of covering different levels of the factors under

investigation.

There are several levels to study when one attempts to study Family Business.

1. Individual Level

a. Founder level

b. Next generation level

c. Women

d. Non family employees

2. Inter personal group level

a. Nature and type of contractual agreements

b. Sources of conflicts

c. Management strategies d. Intergenerational transitions

3. Organizational level

a. Resources

b. Survivability

c. Governance structures

d. Patience

e. Trust

4. Societal/environmental level

a. Economic Importance b. Tax implications and fiscal impact

c. Population ecology

5. Inter generation level

a. Knowledge realization

b. Knowledge assimilation

c. Knowledge transfer

Source of Data collection

1. Primary Data: Primary data will be collected through observation, direct interview, Questionnaires

etc.

2. Secondary Data: Secondary data will be collected through annual economic survey report, economic

and political weekly, earlier studies in this field.

3. Evaluation technique: Different statistical method will be used for the evaluation of data and to draw

conclusion.






1. EFFECT OF SIZE OF ORGANIZATION:

H0 1: The size of Family Business organization has no effect on Chance of Success of Inheritance

Management in it.

The results of the cross tabulation and tests for hypothesis testing are shown in tables 1.1 a to c below.

Table 1.1 a

Cross Tabulation between Class of Organization and Chance of success

Chance of success in FB Inheritance

Class of Very

organization Very low Low Medium High high Total

Up to 100 12 24 23 37 19 115

101 to 500 0 4 0 5 8 17

Above 501 0 2 7 3 6 18

Total 12 30 30 45 33 150

Table 1.1 b

Chi-Square Tests for Class of Organization and Chance of Success

Test Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 39.321 12 .000

Likelihood Ratio 43.509 12 .000

Linear-by-Linear

9.749 1 .002

Association

N of Valid Cases 151





Table 1.1 c

Symmetric Measures for Class of Organization and Chance of Success

Value Approx. Sig.

Nominal by

Phi .510 .000

Nominal

Cramer's V .295 .000


The above results of Chi square test and Cramer’s V show that the null hypothesis framed and tested as H0 1

above has to be rejected and the alternate hypothesis that “The Size of the Family Business organization has

effect on Chance of Success of Inheritance Management in it”, has to be accepted.

A correlation analysis between Size of organization and Chance of success (Table 1.1d) shows a small (Pearson’s Correlation coefficient of 0.255) but positive correlation between the variables at 1 percent

significance level. So as the size of the organization increases the chance of success also increases. This can be

explained by the argument that as size of business increases there are more systems in place to make it less

dependent on owner and his abilities, so when inheritance has to happen it affects the business less.

Table 1.1 d

Correlation between Size of Organization and Chance of Success Chance of

success in

FB Type of

Inheritance Organization

Pearson

Chance of success in FB Inheritance Correlation 1 0.255(**)

Sig. (2-tailed) 0.002

N 151 151

** Correlation is significant at the 0.01 level

(2-tailed).

2. EFFECT OF NATURE OF CONSTITUTION OF THE ORGANIZATION

H0 2: The nature of constitution of the Family Business organization has no effect on Chance of

Success of Inheritance Management in it.\

The results of the cross tabulation and tests for hypothesis testing are shown in tables 2.2 a to 2.2 c below.






Table 2.2 a

Cross tabulation between Nature of Constitution of the Organizations and Chance of Success

Chance of success in FB Inheritance

Class of Very

organization Very low Low Medium High high Total

Proprietorship 8 9 8 9 6 40

Partnership 2 9 15 15 2 43

Private Ltd 2 9 7 20 12 50

Public Ltd 0 3 0 1 12 16

Charitable

Trust 0 0 0 0 1 1

Total 12 30 30 45 33 150

Table 2.2 b

Chi-Square Tests for nature of Constitution of the Organizations and Chance of Success

Test Value Df Asymp. Sig. (2-sided)



Linear-by-Linear

20.343 1 .000

Association



above has to be rejected and the alternate hypothesis that “The nature of constitution of the Family

Business organization has effect on Chance of Success of Inheritance Management in it”, is accepted.

A correlation analysis between nature of constitution of the Family Business organization and Chance of





success (Table 2.2d) shows a moderate (Pearson’s Correlation coefficient of 0.368) but positive correlation

between the variables at 99 percent significance level. So as the nature of constitution of the Family

Business organization changes the chance of success also increases. The organization classes from

proprietorship, partnership, private limited and public limited companies also indirectly represent size and

Professionalization in organization. This can be explained as in the previous case by the argument that as

size of business and Professionalization increases and there are more systems in place to make it less

dependent on owner and his abilities, so when inheritance has to happen it affects the business less,

increasing chance of success.

The above results of Chi square test and Cramer’s V show that the null hypothesis framed and tested as H0

2 above has to be rejected and the alternate hypothesis that “The nature of constitution of the Family

Business organization has effect on Chance of Success of Inheritance Management in it”, is accepted.

Table 2.2 c

Correlation between nature of constitution of the organizations and Chance of success Chance of

success in

FB Type of

Inheritance Organization

Pearson

Chance of success in FB Inheritance Correlation 1 .368(**)

Sig. (2-

tailed) .000

N 151 151

** Correlation is significant at the 0.01 level (2-

tailed).

A correlation analysis between nature of constitution of the Family Business organization and Chance of

success (Table 2.2d) shows a moderate (Pearson’s Correlation coefficient of 0.368) but positive correlation

between the variables at 99 percent significance level. So as the nature of constitution of the Family Business

organization changes the chance of success also increases. The organization classes from proprietorship,

partnership, private limited and public limited companies also indirectly represent size and

Professionalization in organization. This can be explained as in the previous case by the argument that as size

of business and Professionalization increases and there are more systems in place to make it less dependant

on owner and his abilities, so when inheritance has to happen it affects the business less, increasing chance of

success.

3. EFFECT OF GENERATION WHICH STARTED THE FAMILY BUSINESS:

H0 3: The Generation which started the Family Business has no effect on Chance of Success of Inheritance

Management in it.






The results of the cross tabulation and tests for hypothesis testing are shown in tables 3.3 a to c below.

Table 3.3 a

Cross tabulation between Generation which started the Family Business and Chance of success

Generation Chance of success in FB Inheritance

of Family Very

Business Very low Low Medium High high Total

I started 2 7 8 7 15 39

Parents

started 7 16 18 19 14 74

Grand

parents

orabove

started 3 7 4 19 4 37

Total 12 30 30 45 33 150

Table 3.3 b

Chi-Square Tests for Generation which started the Family Business and Chance of success

Test Value Df Asymp. Sig. (2-sided)



Linear-by-Linear

3.393 1 .065

Association






Table 3.3 c

Symmetric Measures for Generation which started the Family Business and Chance of success

Test Value Approx. Sig.

Nominal by

Nominal

Phi .394 .003

Cramer's V .278 .003



above has to be rejected and the alternate hypothesis that “The Generation which started the Family Business has effect on Chance of Success of Inheritance Management in it”, is accepted.

A correlation analysis between Generation which started the Family Business and Chance of success (Table

3.3d) shows a small negative (Pearson’s Correlation coefficient of -0.150) correlation between the variables

at 93.5 percent significance level. So as the Generation which started the Family Business changes the chance

of success also increases. The organization classes from I started, patents started and Grand parents or above

started shows increase in generation. With increase in generation there will be a decrease in Chance of

Success. This finding agrees with the reported findings by many researchers.

Table 3.3 d

Correlation between Generation which started the Family Business and Chance of success

Chance of

success in

Type of

FB Organizat

Inheritance ion

Pearson

Chance of success in FB Inheritance Correlation 1 -0.15

Sig. (2-tailed) 0.065

N 151 151

** Correlation is significant at the 0.01 level

(2-tailed).







above has to be rejected and the alternate hypothesis that “The religion of owner of the Family Business has

effect on Chance of Success of Inheritance Management in it”, is accepted.

7. TOOLS OF THE STUDY:

• An interview guide was utilized for each of the cluster families which had a clearly demarcated start up phase,

consolidation phase and growth phase.

The interview guide had 5 sections. Section I focused on the family, family values, family constitution, and

generational transition.

• Section 2 of the interview guide focused on the start up phase of the business; idea, resources, family support

setting up of operations and Management of revenue.

Section 3 largely focused on the transition of the business, scale, and the role and process of knowledge transfer,

and knowledge development.

• Section 4 dealt with sustainability of the business through generations, growth and vision for the future and the

knowledge requirements for the same.

• Section 5 focused on success factors for the sustainability of the business through generations.

• Secondary data analysis was undertaken to gather information, substantiate about the knowledge, knowledge

transfer processes, status of business verticals.

Conclusion:

The Different Types of Family Businesses:

Not all family businesses are the same. That’s why it would be misguided to lump them all together under one

heading when trying to understand the family business model.

Although most family businesses are probably started for similar reasons, they will all evolve differently,

depending on the ownership style of each family. The purpose of this article is to delve into some of the most

typical business models that family businesses tend to generate, while also looking at how increased outsider

influence can affect the success of a family business.

The Sole Practitioner

As the name suggests, this is a one-man-band kind of business, where the owner wears many hats within the

business. This is most family run businesses start out, with one entrepreneur, or couple, as the founder and

owner of the new business, and then it grows from there. The growth of family businesses from this sole

practitioner stage happens organically in most cases, as the founder’s family matures and more members take an

active interest in the company.

This can be a tricky stage to evolve from, as the founder has a strong attachment to the company, and might find

it hard to relinquish or share control of the business with another family member. The sole practitioner is used to

running every aspect of the business, and often feels irreplaceable.





Associated Partners

This is not necessarily a formal partnership in the legal form of the term, the union of the different entrepreneurs

could be in various different forms, such as a Limited Liability Company (LLC), a corporation or other

enterprise. This type of family business is founded by two or more entrepreneurs, in the case of family

businesses, normally siblings or cousins, who then take on ownership of different aspects of the business.

Family-controlled versus family-influenced businesses

This is also a fundamental area in which family businesses can differ greatly. Family-controlled businesses are

what most people think of when they refer to a family business. This is where a family member is not only the

owner of the business, but is active in the management and running of the business on a day-to-day basis.

Family-influenced businesses, on the other hand, find the namesake family taking a backseat in the actual

running of the business. Here the running of the business could be outsourced to key employees who may be

better suited for certain roles than family members. Family members could have varying degrees of control in

this business model, ranging from seats on the board, to the majority of the company shares.

The effect of internationalisation on family businesses

When a family business decides to expand internationally, it brings up more questions than other business

models have to answer. More often than not, expanding internationally means that the family-controlled

business will need to welcome external parties into the governance of the company in one shape or other.

Family-controlled businesses would have to decide how to bring in external parties, whether to give them full

control of international branches, or have them in more of a managerial role, or something in-between. Family-

influenced businesses should find this transition easier to take on, as the family is already used to allowing

external parties more control over the actual running of the business.

Unique management challenges:

While many family businesses in India are prosperous, they face a number of unique management challenges,

including lack of professionalism, nepotism, and mismanagement. According to the Kerala Business Conclave

website, these challenges are a result of:

“The differences in the attitude and aspirations of family members. As new generations join the family business,

it is an enormous challenge to keep the family and business together. Some sacrifice the business to keep the

families together, while others sacrifice the family to keep the business.”

With this background, only 13% of the family businesses survive until the third generation and only 4% (RC –

where are these stats from?) go beyond that, while one third of business families disintegrate because of

generational conflict. However, the close-knit structure of families, which helps to (RC) foster teamwork

combined with respect for shared values and family members, has been the key to the success of many family

businesses and it is this approach that the Conclave wishes to harness and share.

Fostering support for family business:

The theme for this year’s conclave was “From Family Business to Business Family” and Pai stressed that, while

Kerala’s family businesses benefit from their close-knit structures and are showing good results, many are still

going for strategic stake dilution. This sees many companies confined to the state going for a pan-India presence

and others creating strategic tie-ups with leading global players.






With the longevity and success of family businesses in mind, topics for discussion at this year’s conclave

included building legacies by learning from multigenerational business families, managing wealth through

professionalisation and corporate governance, and sustaining growth through understanding the importance of

innovation and entrepreneurship.

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