Understanding Indian Family Businesses & Their Problems

India is home to a large number of family-owned businesses, which have played a significant role in the country's economic growth.

According to a report by Credit Suisse, there are around 100 family-owned businesses in India with a net worth of over $1 billion.

The Indian family business sector contributes around 14% of India's GDP and employs over 100 million people, as per a report by the Confederation of Indian Industry (CII) and the Indian School of Business. If that doesn't make you learn more about Indian Family Businesses, then I'm not sure what will!

As per the CII report, family businesses account for 70% of all Indian businesses, and around 60% of these businesses are first-generation entrepreneurs, coming up in last 20 years!

This goes to show that Indian family businesses are growing and they're growing fast! However, these businesses also face several challenges that are unique to the Indian context.

In this article, we will explore some of the problems specific to Indian family businesses and provide solutions to overcome them.

Indian family businesses tend to be concentrated mainly in certain sectors such as textiles, pharmaceuticals, real-estate, manufacturing, and jewelry. However, there are many more industries they cater to.

1. Lack of succession planning:

One of the most significant problems that Indian family businesses face is the lack of proper succession planning.

Many business owners do not have a clear plan for passing on the reins of their business to the next generation. This can lead to family conflicts and even the eventual downfall of the business.

In India, there is a strong emphasis on passing the business down to the next generation of family members, even if they may not be the most qualified or experienced.

In contrast, western family businesses often prioritize finding the most qualified and competent successor, regardless of whether or not they are a family member.

Solution: Business owners need to develop a comprehensive succession plan that identifies potential successors, outlines their roles and responsibilities, and provides clear guidelines for the transition of power. It is also important to involve all family members in the planning process to ensure everyone is on the same page.

2. Inability to separate family and business

Another common problem in Indian family businesses is the inability to separate family and business matters. Family members may bring their personal issues into the workplace, which can lead to conflicts and affect business operations.

In India, there is a greater tendency for family members to control the business and make decisions without input from outside stakeholders or independent directors. In contrast, western family businesses often prioritize transparency, accountability, and independent oversight.

Solution: Business owners must establish clear boundaries between family and business matters. They should create policies and procedures that outline the appropriate behavior and conduct expected in the workplace. It is also essential to encourage open communication and conflict resolution to address any issues that arise.

3. Lack of professional management

Many Indian family businesses are run by family members, who may lack the necessary skills and expertise to manage the business effectively. This can lead to a lack of innovation, poor decision-making, and limited growth opportunities.

Solution: Business owners should consider hiring professional managers who have the expertise and experience to lead the business effectively. They should also invest in training and development programs to enhance the skills of family members who are involved in the business.

4. Limited access to capital

Access to capital is a major challenge for many Indian family businesses, particularly those that are small or medium-sized. Traditional sources of funding, such as banks and financial institutions, may be reluctant to lend to family businesses due to the perceived risk.

Solution: Business owners can explore alternative sources of funding, such as venture capital, private equity, and crowdfunding. They can also consider partnering with other businesses or forming strategic alliances to access capital.

5. Resistance to change

Indian family businesses may be resistant to change, particularly if they have been operating in the same way for many years. This can make it difficult to adapt to new market conditions, technologies, or business models.

Solution: Business owners must be open to change and willing to embrace new ideas and approaches. They should encourage innovation and creativity and be willing to invest in new technologies and systems to improve business operations.

6. Regulation and compliance:

Indian family businesses also face challenges related to regulation and compliance. The Indian business environment can be complex and bureaucratic, and complying with various laws and regulations can be time-consuming and expensive. Family businesses may also be more vulnerable to corruption or nepotism, which can create legal or ethical problems down the line.

7. Risk Appetite:

According to a survey by PwC India, Indian family businesses are more likely to prioritize long-term growth over short-term profits. This finding seems to be backed by a study by the Harvard Business Review as well, they found that Indian family businesses tend to be more conservative in their approach to risk-taking and are less likely to use external financing.

However, by implementing the solutions outlined above, business owners can overcome these challenges and build thriving, sustainable businesses that can be passed down to future generations. It is essential to develop a comprehensive succession plan, separate family and business matters, hire professional managers, access alternative sources of funding, and be open to change.

Apart from the above-mentioned practical problems, there are certain informal problems that harm Indian Family Businesses. One of them is reluctance to ask for help. Not depending on any 3rd party consultant or service provider until it is too late!

Here are several reasons why Indian family businesses may be reluctant to seek help, even when it is needed:

1. Pride & ego: Indian family businesses may take pride in their family heritage and the success they have achieved on their own. Asking for help may be seen as a sign of weakness or a lack of confidence in their own abilities.
   
   

2. Control & authority: Family businesses may also be reluctant to seek outside help because they want to maintain control over the business. Bringing in outside advisors or consultants may be seen as a threat to their autonomy.
   
   

3. Family dynamics: Family dynamics can also play a role in reluctance to seek help. In many Indian families, there is a strong sense of loyalty and obligation to family members, and admitting that outside help is needed may be seen as a betrayal of that loyalty.
   
   

4. Lack of awareness: Some Indian family businesses may not be aware of the benefits that outside help can provide. They may not understand how a consultant or advisor can help them improve their operations or achieve their goals.
   
   

5. Fear of change: Finally, Indian family businesses may be reluctant to seek outside help because they fear change. They may be comfortable with the way things have always been done and may not want to rock the boat or disrupt the family dynamics that have been in place for generations.

Overall, the reluctance of Indian family businesses to seek help may be due to a combination of factors, including pride, control, family dynamics, lack of awareness, and fear of change.

However, seeking outside help can be essential for family businesses to thrive and succeed in today's competitive business environment.

In conclusion, Indian family businesses face several unique challenges that can impact their success and longevity.