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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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Impact Factor: 3.43
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.
Simran Kaur & Pramod Gupta (2017), “A RESEARCH ON TRENDS OF FAMILY BUSINESS AND THEIR FINANCIAL PLANNING IN INDIA”
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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.
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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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.
Simran Kaur & Pramod Gupta (2017), “A RESEARCH ON TRENDS OF FAMILY BUSINESS AND THEIR FINANCIAL PLANNING IN INDIA”
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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.
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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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
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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
N of Valid Cases 151
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.
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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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)
Pearson Chi-Square 38.914 16 .001
Likelihood Ratio 38.172 16 .001
Linear-by-Linear
20.343 1 .000
Association
N of Valid Cases 151
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.
A correlation analysis between nature of constitution of the Family Business organization and Chance of
Simran Kaur & Pramod Gupta (2017), “A RESEARCH ON TRENDS OF FAMILY BUSINESS AND THEIR FINANCIAL PLANNING IN INDIA”
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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.
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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)
Pearson Chi-Square 23.424 8 .003
Likelihood Ratio 22.754 8 .004
Linear-by-Linear
3.393 1 .065
Association
N of Valid Cases 151
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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
N of Valid Cases 151
The above results of Chi square test and Cramer’s V show that the null hypothesis framed and tested as H0 3
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).
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The above results of Chi square test and Cramer’s V show that the null hypothesis framed and tested as H0 4
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.
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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.
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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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