Being one of the most primitive forms of business organisations, Family-held businesses have become a crucial aspect of the Indian economy, contributing almost 79% to the GDP of India with 108 publicly-listed family-owned businesses. This dependency on family business isn't uncommon, emerging economies like China and developed countries like the USA both have a good share of family businesses adding to their GDP. Such dependence is the reason why Family businesses are often referred to as the backbone of any country.
Today, India boasts a rich and illustrious list of family owned businesses but family businesses didn’t surfaced in India till after 1900 once the British had initiated their move out of India. Till 1991, when India was still an inward looking economy, family businesses flourished as there was limited competition and the government supported these organisations as they were dependent on these companies for generating employment for people, earning revenue in terms of taxes, and providing goods and services for the local customers. Once the Indian economy was liberalised, many multinationals rushed in to capture the untapped market India had to offer which increased the competition existing amongst all the market players. Family Businesses, which were limited in size and capabilities faced extremely hostile situations but soon started competing with the multinationals head on. Thus, Family businesses in India have demonstrated the ability to grow rapidly from small beginnings, achieve scale and to make a significant contribution to national and global economies while focusing on relationship building.
During the initial stages of a family business, the organisation can choose to focus their efforts on a smaller customer base and use their existing resources to fully satisfy this niche. Since the market segment is smaller, the family business can cultivate high personal engagement with their clients and be more flexible which results in better services, easier grievance redressal systems and personalised solutions for the clients which their corporate counterparts could fail to provide. Hence, they gain an advantage over the bigger corporations. That’s why we can observe this stark difference between family businesses and other forms of business in the way they manage relationships. While larger organisations rely on economies of scale and transfer pricing, family businesses rely on maintaining strong relationships with their vendors, customers, partners and employees as a way of assuring success.
While the family business is smaller in size, it manages to retain its competitive advantage but with the increase in customer base, geographical locations or product portfolios, the various enablers of growth that led to the growth of the system might suffer. There might be loss of personal touch and flexibility that could affect the performance of the business.
When the family businesses grow in size, they start competing with larger corporates at par. While operating in the ever-evolving marketplace of today, it isn’t eccentric to find companies that often don’t keep up with these trends. Organisations like family businesses that have for long stuck to the status quo might be resistant in adopting these new practises and processes which can make them uncompetitive in the larger marketspace.
Also since a lot of family businesses run like a one man show instead of a professional managed team, often the absence of some people have a large impact on the functioning of these businesses. These challenges can be exacerbated when younger, second generation business owners join the business and propose new ideas and practices.
As we delve into family business deeper, we’ll discuss more on all these individual points and discuss ways in which family businesses can scale up and sustain.
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