It’s all in an Indian Business Family

 

Indian businesses have played a significant role in shaping up the economy and culture of our country.  Even during the time of Kings and kingdoms  businessmen held their own sway. They not only provided funds to the king in form of taxes and royalty to run their kingdoms but  also were an important cog in overall king’s administration. All progressive and rich kingdoms had a strong network of businessmen supporting them right from Mauryas to King Ashoka to Mughals.

In ancient India in the joint family system members of a family pooled their resources to maintain the family and invest in business ventures. The system ensured younger members were trained and employed in the family business and the older and disabled persons would be supported by the family. The system, by preventing the agricultural land from being split ensured higher yield because of the benefits of economies of scale. Such sanctions curbed the enmity among the family members.  The patriarch of the family had a very important role in binding the entire family and keeping the flock together.

Some ancient sources such as Laws of Manu VIII and Chanakya’s   Arthashastra have rules for lawsuits between two or more “shreni” (An association of Indian Traders, merchants and craftsmen) and some sources make reference to a government official (Bhandagarika) who worked as an arbitrator for disputes amongst shreni from at least the 6th century BCE onwards. There were between 18 and 150 “shreni” at various times in ancient India covering both trading and craft activities.

Vaishya community always has been viewed with much respect and always got favors from the king. Marwaris, Baniya from Gujrat (Ambanis, Ruias, Mittals, Guptas) and North, Jain and Sindhi business houses have dominated the Indian business space for so many years now. Punjabi Khatris, Patels, Tamilians have also done well but they are not in the same league as that of Marwari, Baniya and Jains.

In India all business houses operated in a primitive form with a patriarchal  mind set.But   a lot has changed since the early 1980s when doing business in India involved passing thru the labyrinth of laws and the nexus of corrupt bureaucrats and politicians.

In 1980s, a revolution which was brought into the country by one Mr. Narayan Murthy, he not only changed the landscape of Indian IT but also the way business was run in our in our country. He revolutionized the Indian business and brought about the changes of much larger and better scale.

Till then Public sector firms were at the centre of the economy. Economic policy came a full circle in 1991, as P V Narasimha Rao government unleashed reforms and liberalised the economy. Big businesses and foreign capital were now objects of desire, rather than derision.

All through this change, one feature of Indian economy, has remained unchanged – the dominance of family-owned enterprises. Fifteen of the top 20 business groups in 2016 are family-owned. Together, they controlled nearly Rs 26 lakh crore ($390 billion) of assets at the end of FY16, accounting for 84 per cent of the combined assets of the top 20 business groups.


An Indians business can be classified under the following categories:

Traditional Indian business houses

 

These came into existence in the late nineteenth century Birlas and Tatas dominating the Indian space. Modus operandi was clear older generation passed on the baton to the younger generation. They hobnobbed with the Government and got the policies  framed to maximize their profitability. There were very little checks and balances and their business flourished. There was very little or no professionalism. Son was the legal heir to his father’s businesses and there was no concept of an outsider managing the business. Daughters were not allowed to enter into the business as they were married off to other rich business families  with whole  lot of goodies. Patriarch was the one who ran the show. Board of Directors, independent directors were all a sham. Companies like Reliance also followed a somewhat similar kind of business model wherein patriarch of a family started the business and with right contacts and delivering value to stakeholders reached the pinnacle of profit making. Profit making and lack of corporate governance rules lead to growth of all these business in late 70s and 80s. But now some of these business houses have Harvard educated Children and are following the world class business practices. Also the regulatory environment in India has become more stringent with rules of corporate Governance and role of independent directors coming under scrutiny chances of growing by graft have diminished significantly. But still sons are considered to be natural heirs of their father’s business empires and there’s no changing that notion. Daughters are also brought on board for photo ops and showing their faces on cover pages of business magazines but still it is the sons who continue to rule the roost. Distribution of assets among the family members once the patriarch dies  is not easy in these business and  has  often resulted in bitter court cases and public spat.

Even though they have billions  of dollars in their coffers but  they spend very little money on philanthropy . Even their philanthropic ventures are profitable.


Professional Run Business:

 

These types of businesses started flourishing after Infosys era wherein a professionally educated service class man ventured into the business and made it successful, mind you doing business in India in 1980s and 90s was more troublesome than fighting in a war. Kudos to these people for their hard work and perseverance which helped us  setting up world class business houses under those trying circumstances of rampant corruption. They created value for their shareholders and  every employee was made the shareholder and as the share prices increased  so did the worth of all shareholders. They had a different approach to business, after running the business and steadying it they settled into the role of   non executive chairman  and hired a professional CEOs to run and manage the business. These businesses have given employment to millions and showed to the world that in India businesses can be set up without colluding with the politicians. Even women entrepreneurs like Kiran Mazumdar Shaw have come up during this time. These business have grown at the rate of more than 15-20% per anum and empowered the common Indian citizen. Their business practices are based on those of top US Corporates and they also have lot of philanthropic interests.


Small business Houses:

 

 

 

 These are small scale to medium scale business houses with turn over much lesser than the ones mentioned above but these small business are the largest employer of unorganized sector workers in the country. They neither have the inclination nor the turnover to employ a full time CEO to run their business, but these business men are experts in their fields and know their customers very well. Some of the Punjabi Khatri, Jain and Baniya business men  started from small scale and  reached the turnover of  hundreds of  crores in short span of time.

There operations are in a specific field and were setup by the family patriarch, businesses have grown up over the years. Sons are the legal heir to father’s business and even if the poor fellow wants to do something else he is not allowed to do so because it is deeply ingrained into his mind that he is meant for that business only. Over a period of time he also realizes that there is no point squabbling over the issue and accepts his fait accompli.. However some men are smart and study courses in area related to their sphere of business which  Daughters are mainly kept aside of the business and are given better education so that they can work in jobs if need so arises after marriage but there is no question of them getting into the family business that is a male bastion. Though they are shown as the director of the firms to avoid paying taxes. Some of these businessmen don’t want to grow their scale of business as it involves   getting into regulatory frame work and more hassles but off late even these businesses have started getting professional by paying minimum wages, depositing PFs and making online payments and getting a better structure of the business. Some have started exporting the products to other countries as well. These business families have the potential to scale up their business from small scale to large scale if they can be more professional as they are experts in their area of work. But at the same time support needs to come from Government and regulators to make these enterprises grow.


Small Shop owners Traders:

Many in  our country are employed or under employed in these kinds of businesses. They are small retailers and traders who take goods from the manufacturer and sell it to customers making a neat profit. Some people have done really well and have grown their businesses manifold.  As they are small time businessmen they don’t force their children into business .Children are free to do whatever they want to. They are in the business as they were not successful in any other  profession. But in our country these business have again played a very important role by providing employment to millions.

 

Startups:

 This  is the new kid on the block.  Owners are mostly from highly educated institutes like IITs, and  IIMS  who have set up their own venture and raised funds from financers and venture capitalists.Most are still under incubation and some have very high debts on their books.  This trend is catching  lot  of  attention from  youngsters and mid level employees in Private organizations who want to start on their own but chances of success or failure cannot be determined at this stage. There’s no past history but all youngsters want to ride this bandwagon.

 

 Looking at the overall perspective of Indian Business houses, Shadow of the patriarch still looms large on  the ways  things  are run in the business but this has to change they need to move towards more  professionalism and a board managed company, follow the rules of corporate governance  if they wish to continue to grow. At the same time GOI has to make efforts to increase our rankings in ease of doing business.  Factors like Red Tapism, maze of statutory and regulatory compliance, all these costs need to be brought to have a Competitive business atmosphere. 

 

 

If India is to be become a USD Five Trillion dollar economy by 2025 then it is these businessmen or the business families who shall hold the fort else this dream will be another pipe dream

16 Comments

  1. Brilliant effort to listout the changes in business approach in the changed economic scenario in a chronological order.Keep it up.

  2. Thanks sir for your encouragement. I am preparing an article on Why Indian CEOs never hang up their boots? After that I am surely going to write on sports.

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