'Problem Is Not Family-Owned Businesses'

'Instead of one or two families controlling 10% to 15% of GDP, it has to be broad based. Then, the resilience of the economy also will be higher.'
'Then, if something happens to one business, it will not hurt the economy badly.'

As per the reports, out of the 594 million entrepreneurs in the world, India's contribution is 104 million, with China and the United States having 64 million and 54 million entrepreneurs respectively.

Reports also say that entrepreneurs, mainly in the MSME sector, contribute 30% of India's GDP while it is 43.5% to 50% in the US and 80% in China.

Dr Raj Krishnan Shankar is professor of entrepreneurship and strategy at the Great Lakes Institute of Management. Before joining Great Lakes, he was an associate professor of entrepreneurship at Nord University, Norway.

Dr Shankar, who was on the panel of experts on national entrepreneurship set up by the ministry of external affairs, recently published a study on Building Entrepreneurial Legacies: Understanding The Role Of Family Owned Businesses.

"If you look at some of the very big family-owned businesses, from Reliance to the Tatas to Birlas to the TVS group to the Murugappa group, they are very professionally managed and they have created lots of employment," the professor tells Rediff's Shobha Warrier.

The concluding segment of a two-part interview:

• Part 1 of the Interview: 'If Entrepreneurship Is A Marathon, Then...'

You recently did a study, Building Entrepreneurial Legacies: Understanding The Role Of Family Owned Businesses.
It says family-owned businesses contribute 75% of India's GDP. But family-owned businesses contribute only 50%-60% the GDP of the US, 60% of the GDP of China and 43% of the GDP of Germany.
Is it unique for India to have such a high contribution of family-owned businesses to the GDP of the country?

The number was quite a surprise to everybody.

Even in the US, the contribution of family-owned business to the GDP is very large.

Yes, it is more in India because family as a social unit is still a very strong entity in India.

If you look at the MSME businesses in India, almost all of them are family owned or family managed.

If you look at the large FMCG players like C K Ranganathan's CavinKare, Sri Krishna Sweets or Arun Ice cream, they were small players at one point. They scaled up their businesses and created employment even when they were managed largely by the family.

How did they manage to do that? They brought in the right balance of family ownership and professional management.

To scale up, you require education and support. There are many, many such family-owned businesses who need some support and inputs to professionalise and scale up which will have a huge impact on the economy.

Is it good for a country's economy to depend so much on family-owned businesses? You are talking about 75% of the GDP..

The impression that we have of family-owned businesses is that they are very conservative, closed, etc.

But if you look at some of the very big family-owned businesses, from Reliance to the Tatas to Birlas to the TVS group to the Murugappa group, they are very professionally managed and they have created lots of employment.

Except for the fact that they are family owned, you see tremendous amount of professionalism in the way these businesses are run.

They are also equally innovative, and are able to provide higher end job opportunities.

I feel that they are able to employ people in a better way.

In India, Ambani contributes 10% to 12% of GDP and close to that is Adani....

Yes, instead of one or two families controlling 10% to 15% of GDP, it has to be broad based. Then, the resilience of the economy also will be higher.

Then, if something happens to one business, it will not hurt the economy badly.

But the fact that they are family-owned may not make much difference as long as the governance, the processes and professionalism are at play.

Yes, if the contribution is a little bit more broad-based, it will be better for the economy.

The contribution of family-owned businesses to GDP is the highest in India.

What makes India different is its approach to growth. And India's contribution to the world is its approach to growth.

If you don't bring our value system into business, we will get into the transaction-oriented business which will lead us into a very big mess. In the hurry to grow, we shouldn't let go of those values.

Somewhere, those values are getting muddled in the creation of wealth and increasing the numbers.

I tell my students about ethical decision-making dilemma. I tell them that it is important to have values in businesses.

Is there a connection between developed economies and family-owned businesses? If you look at the economies of the developed countries, you see that the contribution of family-owned businesses to the GDP is much less.

It is an interesting area of research.

There are a lot of questions raised on ownership and economy because ownership brings some set of related action.

Like I said earlier, we have to broad base ownership. The more broad-based ownership is, the healthier it will be for the economy. When more people are involved, the stakes are shared.

What is problematic is few people controlling a large part of the economy especially when the economy is developing.

If you look at the strength of Germany's economy, it doesn't come from large players, it is from the Mittelstand which is the small and medium segment; the SME sector as we call it.

Mittelstand is the backbone of Germany's economy, and they are largely family-owed businesses and engineering focused. Values and ethics are given a lot of weightage there. These are some of the people who supply to the largest players globally especially in engineering.

Mittelstand has given a lot of value to the German economy in terms of stability.

IMAGE: Professor Raj Krishnan Shankar

It is said that India's target is family-owned businesses contributing 80% to 85% of the GDP by 2047. How do you see it? Is it dangerous?

Though the estimate is as high as 85%, I have a feeling it will settle around the current level of 75% or a little bit lower.

If you take the top 100 companies in India, the family-owned businesses are only 50%. It means, there are more and more family-owned companies.

The problem is not family-owned businesses. What matters is how professionally they are run.

As you become more and more developed, what you need is to bring in more professionalism in family-owned businesses especially in the small and medium sector.

Also, the dependence has to be more broad-based.

Feature Presentation: Aslam Hunani/Rediff