Ahmedabad: Family businesses are set to fade out in India over the next 50 years, if not sooner, according to Dwijendra Tripathi, eminent business historian and a former professor at the Indian Institute of Management, Ahmedabad. He spoke in an interview about how the term “family business” is increasingly becoming a misnomer with professionals taking over the running of such companies. Tripathi, the author of TheOxford History of Indian Business, is currently working on a new book tentatively titled History of Indian Business After Independence.
The 80-year-old historian recalls how colonialism and the lack of opportunities allowed Indian family-run businesses to thrive until the 1990s, although the domination of such concerns had begun waning almost a hundred years before that in the West. Edited excerpts:
How did family businesses evolve in India? Why has this concept survived in India even after it lost ground in the West?
The existence of family businesses is not unique to India. The world over, businesses have evolved from families, be it Ford, Mitsubishi, Mitsui or Unilever. And by family business I mean the ones that are owned and run by the family. In the West, the pressure on family businesses to bring professionals at the helm of affairs began building in the early 1990s. Indian businesses could not grow in terms of size or complexity; (for) that they would require outside assistance. And this did not happen till the 1990s. While in the West, where there was a unitary family, the concept of a joint family was very strong in India till recently. In the case of Ford, his brothers chose not to join him. Ford was running the show, although he had very able managers in 1900. It was not Henry Ford’s joint business, but it was his business. After his death, his company was run by professionals.
In countries like India, which were under the grip of colonialism, the market source was limited, and this limited the size of the organization. Finance from banks was a problem till independence. All the funds were managed by the family members.
The first family business, that is if we are talking about modern business, it was the setting up of the first textile mill by a Parsee family called the Davar family in 1854.
In terms of trading, it can be traced back to the sixth, or the seventh century, when traders from Gujarat went all the way to Java. There is a well-known saying in Gujarati which means that once you go to Java, you may never return. And if you do (return), you will have acquired enough wealth for generations to come.
What has led to the decline of family businesses in India?
As the famous historian Alfred D. Chandler said: “No family or family institution was large enough to staff the managerial hierarchies required to administer modern multi-unit enterprises. Because the salaried manager developed specialized knowledge, and because their enterprises were able to generate funds necessary for expansion, they ultimately took over the top level decision making from owners, financiers or their financiers. Family members, as a result, came to view their enterprises as rentors…” This holds true for Indian businesses as well.
Finance was no longer a constraint post-independence, and we have seen the emergence of LIC (Life Insurance Corp. of India), ICICI (Bank Ltd), etc. Some forces were taking shapes which were visible from a distance. The coming of the third generation was an important factor. Family solidarity was under stress post-independence. The emotional bond was not as strong as older generations. If Kasturbhai Lalbhai set up Arvind with his brothers, it did not continue with their children.
Research has proven that the third generation is the point when a family begins to break (up). Between 1970 and 1990, at least 30 big family businesses have been divided. After economic liberalization, the opportunity to do business became manifold. In the case of the Sarabhai family, except Ambalal Sarabhai, nobody seemed to be really into business. His two sons, including Vikram Sarabhai who called businessmen bores, were little interested in business while his third son died at a tender age. Indian family businesses maintained their hold till liberalization in 1991, not growing in size or complexity; that would require professionals. Had liberalization taken place earlier, the control would have gone earlier.
The first major shake-up was of the Ramkrishna Dalmia family in 1954. Dalmia and his son-in-law had a united business. They were among the top four business houses with the Tatas and Birlas holding the first two positions. Nobody then could have imagined that it would happen. Till today, nobody knows the real reason for the break-up.
Source:- http://www.livemint.com/sectionpages/family-business.aspx?NavId=160
Thanks & Regards,
Ankit Wani
Summer Intern @ DENIP Consultants PVT LTD.
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