ISB study shows fleet-footed family firms adapted to the changing landscape

Family firms are playing a catalytic role in reshaping the Indian economy and are charting a new vibrant businesses portfolio. Family entrepreneurs have proactively restructured and diversified their businesses, thanks to which new opportunities have arisen, a study by the Indian School of Business (ISB) says.

The Thomas Schmidheiny Centre for Family Enterprise at the ISB in its report has also offered insights into how these family firms have they have adapted to the changing environment.

While many studies have traced India’s movement from an agrarian economy to a services-focused nation, the report is the first to study the evolution of Indian family firms in terms of their areas of operation in the post-liberalisation period.

The paper titled ‘Family businesses and India’s transition to a service led economy (1991 – 2018)’ was released on Monday in the presence of BVR Mohan Reddy, Executive Chairman, Cyient and former Chairman, Nasscom; Sonu Bhasin, Family Business Historian and Founder and Editor-in-Chief, The FAB Magazine; authors of the report Nupur Pavan Bang, Nandil Bhatia and Professor Kavil Ramachandran of the Thomas Schmidheiny Centre for Family Enterprise at the ISB; and Professor Sougata Ray of IIM Calcutta; and industry stakeholders.

Using the data on companies listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), the study analysed industry-wise affiliation of 4,589 companies over a period of 28 years.

Ramachandran, Clinical Professor, Entrepreneurship and Executive Director, Thomas Schmidheiny Centre for Family Enterprise,said ‘family firms’’ willingness to adapt to rapidly growing trends such as digitisation showed their agility and hunger to succeed. Overall, the study reinforces the importance of family firms and dispels any doubts that Indian family firms have failed to catch up with the evolving trends in the economy.

Nupur Pavan Bang said: “We found that Indian family firms rapidly moved from manufacturing to services post-liberalisation and then from traditional to modern services as the millennium ended.”

Successful transition

Family firms witnessed a significant shift towards services from a prior bias towards manufacturing with the onset of liberalisation, unlike non-family firms. A number of standalone family firms were incorporated in the late 1980s and the first half of the 1990s which took advantage of the newfound demand from both global and domestic fronts for services. Fast forward to 2018 and family firms are leading in the manufacturing sector and most of the services sectors (excluding financial services).

After IT and digitisation gathered pace in the early 2000s, financial services, IT & technology-enabled services and telecommunications become some of the strongest and vibrant sectors. For family firms as well, these have been some of the strongest sectors in the past 25 years.

While there has been a significant upsurge in family firms embracing newer sectors, traditional sectors including trade, construction, warehousing and logistics have continued to generate consistent profits for Indian family firms.

From 1991 to 2018, business group firms maintained this dominance across manufacturing and services. New regulations post the financial crisis of 2008-09 and the sharp rise in NPAs between 2009 and 2016 have meant that growth in total debt of the family firms in the manufacturing sector has slowed down considerably.

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