Role of Family Businesses in shaping India’s Economic Future

Let me start with a plain statement that family businesses have and will be the backbone of the Indian economy, contributing significantly to GDP, employment and wealth creation. When we speak of a family business, the general notion of mom-and-pop shops that emerge at the corner of our house street could be tea vendors, grocery shops, boutiques, local cuisine restaurants, etc. 

But, family businesses have ranged from as rightly thought small mom-and-pop shops to small enterprises to industry giants like Tata, Reliance, Bajaj, Godrej, Wipro, Infosys, etc, driving economic resilience and innovation. Over the decades, Indian family businesses have evolved, adapting to market liberalization, globalization, and digital transformation. 

Statistically, in the developed world, 30% of large companies are family-run, with the likes of Walmart, Samsung, Ford, Dell, LG, BMW, etc. in the emerging markets, 50–80% of large companies are family businesses. In India, family businesses account for 70% of its share, contributing significantly to its GDP, providing livelihood to millions, and having a strong presence in domestic and global markets.

However, to remain relevant in an increasingly competitive and technology-driven world, many family businesses today struggle to strike a balance between tradition and innovation and ensure long-term sustainability.  

Family businesses have evolved in India in two distinct phases. The first is pre-liberalization when business success was primarily determined by connections, license raj, and government policies, with less of a focus on innovation and competition. This was an era of regulatory barriers, restricted global trade, and limited expansion of family businesses. Very few handful companies had overseas market exposure. 

The second, which is the post-liberalization era, saw market liberalization ushered in competition, pushing businesses to focus on merit, efficiency, and innovation. International expansion became a priority, invested companies in overseas markets and formed global partnerships and, most importantly business started understanding the importance of running the company embracing professional management enabling them to be competing with international corporations.    

Over the years, family businesses have seen a vast transformation due to globalization and increasing competition. The next generation of business leaders from the family business are stepping into business with the mindset of running the firm in a truly professional setup, not the traditional Lala model, enabling them to bring fresh perspectives and global exposure. 

Before taking over the business, many new generation leaders have studied abroad and worked at various international firms to gain critical experience and expertise in modern business strategies. Today's next-generation leaders are driving innovation coupled with modernization in family businesses by investing in digital transformation and sustainability while prioritizing professionalization and talent acquisition. 

Unlike older generations, who rely on family networks to hire talent, they focus on hiring top talent, appointing external CEOs, and involving independent directors from top industry competitors to enhance overall governance. This strategic shift enables family businesses to expand globally, attract high-caliber professionals, and compete with multinational corporations.

Today, we see the rise of family offices and investment diversification. With growing wealth and complexity, many family-run businesses have established family offices that invest, manage, and protect family wealth. In addition, these offices invest significantly in startups, private equity, cryptocurrency, NFTs, ESG funds, and sustainability projects. It is expected that Indian family offices will contribute over $30 billion to startup investments by 2027, reflecting their growing interest in new-age businesses 

The next-gen leaders are driving these changes, bringing a more risk-taking, diverse approach to business expansion.  

Despite family businesses' significant contributions, businesses face challenges threatening long-term sustainability. First, succession Planning & Leadership Transition are key elements missing; we all know the Reliance or Hinduja brothers fiasco. Lack of proper succession planning leads to conflicts, inefficiencies and business stagnation. 

Second, balancing family control vs. professional management with many family firms resist hiring external CEOs and CXOs, leading to operational and business inefficiencies. Third, global companies setting up their shop in India are creating stiff competition, and ever-changing regulatory compliances and rapid technological advancements are forcing businesses to evolve at a faster pace; companies that fail to embrace digital transformation are at a high risk of falling behind competitors.   

To sum it up, Indian family businesses shall continue to be the bedrock of the nation's economy, evolving with time to meet global standards. Their ability to adapt, innovate and professionalize while retaining their core values will determine their long-term success and fuel the Indian economy from 3.5 trillion to 5, 8, or 10 trillion. 

Constant adaptation to technology changes to product innovation, efficient corporate governance, and strategic investments will propel the journey. With the right approach, Indian family businesses can lead India's economic transformation, shaping the future of industries and global trade.

-- Raghavendra Chandrasekar, Director of India Operations, Khoj Information Technology.