India's family firms modernise to stay in business
- 16 February 2014
- From the section Business
Tucked away on a narrow street in Mumbai, Chandu Halwai sells traditional Indian sweets. It is a small shop with a modern look, but the recipes here are over a century old.
The shop was first set up in Karachi in 1896, and moved to Mumbai after the partition of India and Pakistan in 1947. The photographs of its founders hang on one of the walls.
Bharat Bhushan Bahl, 71, currently heads the business. His grandfather founded it, and his sons Sachin and Nitin now help manage it.
The family is integral to Indian culture and business. Nearly 85% of all companies in the country are family businesses - and these include big conglomerates such as Tata, Reliance and the Wadia Group.
"In other businesses, what is important is competence and profit. That is the measure of success. But in family businesses it's different," says Mr Bahl.
"What is important is that you are together, that you're working together and living together.
"You care for the reputation, you care for the principles of your forefathers and success or profit or that kind of yardstick is not paramount."
'He's your son!'
Although Sachin and Nitin are both engineering graduates, they decided to go back to the family business rather than pursue independent careers.
"We wanted to keep our options open, so we chose to study something else," says Sachin.
"But the business is something we discussed over meals, what we've seen ever since we were children, so in the end we both wanted to help grow it."
Currently the two are focusing on increasing exports and bringing new varieties of sweets to the shop. When there is a big decision to be taken though, it is to their father they turn.
He admits there are difficulties running a family firm.
"In the corporate world there is hire and fire. In this business the question doesn't arise. You are born into the business, you live in it and you die in it," says Mr Bahl.
"There are times when the question of efficiency is raised, even [with a] lower performance you can't replace your son with another executive who might perform better.
"He's your son! He's not replaceable by an executive."
Surviving the generations
But as more and more multinationals enter the country, family firms have had to adopt a more corporate culture to keep up with the competition.
Over the past two decades, many of India's business families have parted ways.
One of the most high-profile splits was that of Reliance, India's largest private company with interests in chemicals, telecoms, retail, oil and gas among others.
Dhirubhai Ambani, the company's founder, died in 2002, and a few years later his sons Mukesh and Anil divided the business.
Global surveys have shown that only about a third of family-run companies survive in the second generation, and even fewer in the third.
This is a trend also seen in India, but some have managed to stay together.
Videocon is one of the country's most famous consumer brands. It started with manufacturing home appliances and electronic goods, but is now also involved in oil exploration and telecoms.
It is run by three brothers of the Dhoot family and their sons.
Akshay Dhoot, 22, has only recently joined the business formally but has interned with its various companies since he was 15.
"We live together, we take vacations together, and since we also work together, we end up discussing the business a lot," he says.
"All this makes it easier to communicate our ideas."
"There are debates sometimes and some views do differ," says his older cousin Anirudh Dhoot.
"If we can't reach a consensus, we go to the head of the family, as is done in the Indian system."
However, faced with fierce competition from foreign companies, Videocon has moved away from functioning like a traditional family business and towards a more corporate set-up.
"We have to keep the CEO, COO and board of directors [happy]," says Venugopal Dhoot, chairman of Videocon.
"So sometimes you have to be very tactful to address the family member and to run the show also.
"Nowadays most of the firms are going to the stock exchange and regulation has become very strict - so the family also has to behave as a company."
'I needed proper guidance'
In fact, many of India's business families - big and small - have realised the need to get professional help. Catering to this demand, business schools around the country offer MBA programmes designed for family firms.
The Welingkar Institute of Management in Mumbai runs an 18-month course for those who own companies.
"Initially I faced that friction where people did not have confidence in me. I could feel it. So to gain that confidence I needed proper guidance," says Amogh Desai, a student at the school who runs his family's photography training business.
"When I joined this course I got to learn a lot of things regarding management, finance and people management."
Another student, Rajesh Sorap, who makes water heaters, says: "My company's got great potential because we've got great products, so I want to take it global. That was the main reason I felt I need to gear up."
He is not alone - many Indian companies harbour global aspirations.
Family values and hierarchies though are deep-rooted in society here. How they are managed could determine whether they act as catalysts to success or hurdles in the path of growth.