Name : Rahil charania

Submitted to : Dr. chivukula ramana

Module - family business management

The growth, which was seen in the Indian economy between 2014 and 2016, is reflected in
the growth of the family business enterprises, stated PricewaterhouseCoopers (PWC) in its
latest report- ‘PwC India Family Business Survey 2016’. It further stated that Indian family
businesses feel confident in the existing market and there is openness with respect to growth
strategy in terms of market, sectors and acquisitions.

Notably, 96 per cent of those anticipating growth of over 10 per cent annually over the next 5
years said that the growth of core business in existing markets would enable them to reach
their targets. The report was based on the output received by 2,802 family leaders across 50
countries and in India. It also spoke to 102 family business leaders for this year’s report.
These interviewees also revealed that they were looking to expand into new sectors or new
countries and would consider inorganic growth.

PwC India Family Business Survey 2016: Aligning with India’s growth story

Based on an analysis of the interviews done and the in-depth discussions:

• 75% of Indian family businesses have grown in the last 12 months;84% expect to grow
either steadily or quickly and aggressively over the next 5 years.

• 56% of family businesses feel the need to innovate will be a key challenge in the next 5
years.

• Only 15% of family businesses have a robust, documented and communicated succession
plan in place.

• 35% of family businesses plan to pass on management to the next generation while 48%
plan to pass on ownership but will bring in professional management.
Over last 12 months, these family business enterprises have seen growth. Around 75 per cent
of interviewees agree to this growth which is better than global standards. It also stated that
firms in India are more likely to use external finance than their global counterparts. Those
planning to grow at 10 per cent or more annually will rely on banks as well as different equity
and debt financing options. Eighty-nine per cent of Indian respondents said they would
explore these options. However, this did not hugely impact the reliance on own capital, with
80 per cent still sticking to this option.

These family businesses are expecting the market conditions to pose as the biggest challenge
in the next one year—customers and clients, price fluctuations, availability of cheaper
substitutes and cheap imports, heavy discounting (including through online discounts),
demand supply mismatch, etc. One of the biggest challenges that family businesses face is the
one around succession. About 40 per cent of family businesses across the globe will be
passing on the business to the next generation in the next five years. “Succession of the
business and putting a plan in place are instrumental to ensuring business continuity and
keeping the family legacy alive,” PWC added.

While three-quarters of Indian family businesses have grown in the past one year,
barely 15% of them have a robust, documented and communicated succession
plan, according to PwC’s 2016 India Family Business Survey Report. This ongoing
ugly spat between Indian conglomerate Tata Sons and its sacked chairman, Cyrus
P. Mistry, is one such example that shows how family-run businesses struggle to
try to find a balanced solution to succession issues.
PwC spoke to 2,802 family business leaders across 50 countries and in India with
102 family business leaders.
According to the report, 84% of Indian family businesses expect to grow either
steadily or quickly and aggressively over the next five years.
Of those looking at an annual growth of over 10% over the next five years, about
96% said that the growth of core business in existing markets will enable them to
reach their targets. Over half of the family businesses surveyed said they were
looking to expand into new sectors or new countries and will consider inorganic
growth. The positive sentiment can be attributed to two broad factors.
One: family businesses tend to remain relatively resilient and stable in adverse
conditions. And two: the India growth story has been reinforced.
The participants in the survey feel that key challenges their business will face in
the next five years are: the need to innovate, keeping pace with digital and
technology, attracting and retaining talent, competition, need to professionalise the
business and regulatory compliances.
Performance, prospects and challenges
Growth in the Indian economy between 2014 (gross domestic product or GDP
growth of 7.3%) and 2016 (GDP growth of 7.6%) is reflected in the growth of
family business enterprises. 75% of those interviewed said that their business had
grown over the last 12 months. This is an improvement from the findings in 2014
(65%) and also compares favourably against the global average of 64%.
Macroeconomic focus continues to be “India positive". India is the fastest growing
major economy in the world and a large number of economists and policymakers
expect the country’s economy to grow by around 7.5% in the financial year ending
March 2017.
It is no wonder then that over the next five years, Indian family businesses are
expected to grow steadily (49%) or quickly and aggressively (35%). Global
numbers are more conservative: 70% expect to grow steadily and 15%, quickly and
aggressively; moreover, 1% anticipate shrinkage in [Link] optimistic
sentiment in India is reaffirmed across all businesses—family and non-family
enterprises.
So how will businesses achieve this growth?

Indian family business feel confident in the existing market and there is openness
with respect to growth strategy in terms of market, sectors and acquisitions.
Notably, 96% of those anticipating growth of over 10% annually over the next five
years said that the growth of core business in existing markets would enable them
to reach their targets. Over half of the family businesses surveyed said they were
looking to expand into new sectors or new countries and would consider inorganic
growth.
Challenges in the next 12 months
Family businesses expect market conditions to pose the biggest challenge in the
next one year—customers and clients, price fluctuations, availability of cheaper
substitutes and cheap imports, heavy discounting (including through online
discounts), demand supply mismatch, etc. Not surprisingly, as companies gear up
for goods and services tax (GST) implementation and deal with infrastructure
concerns, government policy, regulation, legislation and public spending constitute
the next big concern.
Another interesting finding is that only 10% of those interviewed in India felt that
technology was an area of concern. One interpretation is that the surveyed sample
did not consider technology to be a concern; rather, they saw it as an opportunity
that will reshape the future. The other interpretation is this mega trend has probably
not been given adequate importance. In our experience, digital and technology are
redefining the way businesses are carried out and will lead to significant business
model changes.
Going global
Geopolitical challenges, Brexit, the US elections, conflict dominated states—
despite all these issues—Indian companies continue to look favourably at
expanding their global footprint, though there has been a slight dip in the number
of companies exporting overseas vis-à-vis PwC’s survey in 2014. At present, four-
fifths of family businesses export their products/services and this contributes, on an
average, to 25% of the total turnover. In the next five years, the numbers are
expected to jump to 86% of family businesses looking to export, contributing on an
average 33% of total turnover. Global numbers also indicate a similar upward
trend, though in moderation. This is a heartening sign for the future of global trade
and the economy, which are struggling, given that there is a huge amount of
discussion around protectionism.

Alignment of business and family strategy

Family dynamics play a crucial role in defining the direction of a family enterprise.
The survey revealed that 76% of Indian family businesses, as against 69%
globally, claim that the family and business strategy are completely aligned. Only
6% in India and 10% globally admitted to misalignment.
The business alignment is also impacted by innovation and reinvention, family
disagreements and differing voices, role of in-laws and new members, succession,
role of the next generation and future planning. For the business to succeed, it is
imperative that family expectations and objectives are discussed and concerns
handled.

Great expectations: The next generation of family leaders

78% of family businesses in India have next-generation family members working
in the business, which is higher than the global average of 69% and also marginally
higher (66%) than the last [Link], 73% of the next generation working for
the business are in senior executive roles, about 34% are in junior or middle
management, while 56% do not work for the company but own shares, up from
35% in 2014.
Role of non-family members
With Indian family businesses looking to become more professional, it is not
surprising that 81% of the respondents have non-family members on their boards,
higher than 65% globally.
The report concludes by saying that today Indian family businesses are very
optimistic about their future, which is clearly demonstrated by the heightened
entrepreneurial activity being witnessed in the country. However, strategic
planning in both dimensions of a family business—the family and the business—
will go a long way in enabling family business leaders to achieve their goals.