Liberalisation led to the rise of Standalone Family Firms (SFFs) in India and they were the primary drivers of accelerating the growth of the services sector in the country, reveals a study.
Conducted by the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business (ISB), the study chronicles the evolution of family businesses in India since the initiation of liberalisation in the country.
The study was authored by Nupur Pavan Bang and Professor Kavil Ramachandran of the Thomas Schmidheiny Centre for Family Enterprise at ISB and Professor Sougata Ray of IIM Calcutta.
It traces the progress of Indian family businesses over a 26 year period from 1990 to 2015. The authors studied 4,809 firms listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India.
The study finds that not only did the family firms withstand the new rush of competitive forces in the economy, but also adapted to the changing business environment. Based on their shareholding and management control, the companies were classified into two categories: Family Businesses (FBs) and Non-Family Businesses (NFBs).
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Family businesses were further classified into Family business group affiliated firms (FBGFs) and Standalone family firms (SFFs).
Close to 73 per cent of the listed standalone family firms were incorporated in the period 1981 to 1995. In comparison, only 49 per cent of the business group affiliated family firms were incorporated in the same period.
As the pace of reforms picked up with liberalisation, more and more standalone family firms started to leverage the changing business landscape. While the family business group firms did take advantage of the reforms in the early stages, it was the standalone family firms that emerged as the single largest ownership category in terms of number of firms.
The growth in the number of standalone family firms was driven primarily by the new firms in the services sector. Wholesale trade, financial services and Information Technology were the most favoured industries for the listed standalone family firms. This was reminiscent of the rising contribution of the services sector to the GDP.
According to the study, the financial year 1990, services sector accounted for about 45 per cent of India's GDP while its contribution was close to 60 per cent in 2015. Traditionally, family businesses were strong in manufacturing but they showed an equal penchant for the services sector, when the opportunities arose.
But, standalone family firms were the fastest growing category in the services. It was because of their entrepreneurial acumen that India's services sector has grown so well in recent years, the study found.
While manufacturing and services contributed almost equally to the total assets for family firms, in the case of non-family businesses, the services sector accounted for more than 90 percent of their total assets.
Amongst the non-family firms, the state-owned enterprises dominate the services sector with large assets in the banking sector, whereas, the sector accounted for just 18 percent of the total assets of multinational companies.
Family businesses grew faster and contributed more to the GDP and exchequer: The study shows that the representation of family businesses grew at a much faster rate than the non-family businesses.
In fact, evidence suggests that removal of restrictions and controls in the liberalised era actually unleashed their entrepreneurial spirit.
In 1990, family firms represented 15.7 per cent of the GDP in terms of their total income, whereas by 2015, they represented 25.5 per cent of the GDP. In comparison, non-family firms formed 20.5 per cent of the GDP in 1990 and 26.6 per cent in 2015.
--IANS
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