Aligning with India’s growth story
Every two years, PwC carries out a Global Family Business Survey. This year, we spoke to 2,802 family leaders across 50 countries. In India, we spoke to 102 family business leaders. We also bring you some comments shared by business leaders—their stories, outlook and apprehensions.
Optimistic sentiment: 75% of Indian family businesses have grown in the last 12 months. This is higher than both the global average and the findings from our 2014 survey (Family businesses: The evolving Bharat story). Family businesses are also extremely optimistic about their growth, with 84% expecting to grow either steadily or quickly and aggressively over the next 5 years. This positive sentiment can be attributed to two broad factors—firstly, we have seen in the past that family businesses tend to remain relatively resilient and stable in adverse conditions; and secondly, the India growth story has been reinforced. About half of those we spoke to said that they would explore new territories and new sectors and also look at inorganic growth.
This short video presents the findings of our global survey
A snapshot of our survey
Prioritising right for challenges and digital? Family businesses are aware of the challenges they will face, now and over the next five years. Market conditions, government policy and regulation, innovation, digital disruption, technological changes, attracting and retaining talent, competition and professionalisation featured in most of the conversations we had with family business leaders. However, we found that the personal and business priorities of family business leaders were possibly not geared to meet some of these challenges. For instance, family businesses mentioned they understood the benefits of moving to digital, yet only 22% acknowledged the vulnerability of their business to digital. More than half do not discuss digital on the board.
The family, next gen, succession and professionalisation: Family businesses are entrepreneurial by nature and family dynamics play a significant role in defining the way the business is run. About 85% of family businesses said they had a mechanism in place to deal with conflict. However, only 15% had a robust, documented and communicated succession plan. A majority of Indian family businesses have involved the next gen in the business and at the same time are recognising the need to professionalise: Only one third plan to pass the business fully onto the next generation while half plan to pass on ownership of shares while bringing in professional management. Attracting talent, however, remains an uphill task as a number of professionals fear they will not have a clearly defined career path to the top.
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Over the next 5 years, Indian family businesses expect 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 operations. The positive sentiment in India can be attributed to two broad factors—first, we have seen in the past that family businesses tend to remain relatively resilient and stable in adverse conditions; and second, the India growth story has been reinforced.
Of the family businesses surveyed, 74% said that they understood the tangible benefits of moving to digital and had a realistic plan for measuring this. However only 22% of the survey respondents in India (25% globally) said they were fairly vulnerable or extremely vulnerable to digital disruption e, while 32% in India (28% globally) said they did not feel vulnerable at all. Further, 48% of those surveyed in India (54% globally) said that they had discussed digital disruption at the board level. Thus, alarmingly, 52% have not done so.
Succession planning for the business involves documenting a strategy for key personnel and key functions. When we spoke to family businesses in India, we realised this is an area that has not been given the due focus it deserves. Only 22% of the businesses have a succession plan for all their senior executives, 31% have a plan for most executives, while nearly half the people surveyed said there is either no succession plan or that it covers a small proportion of the key personnel. Even more alarming is the fact that only 15% of those surveyed have said that their succession plan is robust, documented and has been communicated.
There has been a shift in the thinking of family business owners when it comes to future plans for management of their companies. Only 35% of Indian family businesses plan to pass the business fully to the next generation, lower than 40% in 2014. Instead, nearly half of the respondents in the survey, up from 40% in 2014, plan to pass on ownership but bring in professional management. Family businesses have ambitious plans for growth and acknowledge that there is a business imperative to professionalise operations and in the next 5 years 72% plan to bring in non-family professionals to help run the business. It is also not surprising that 81% of family businesses have non family members on the board.
According to our survey, 96% of those anticipating growth of over 10% annually over the next 5 years said that the growth of core business in existing markets would enable them to reach their target. Over half of the family businesses surveyed said they were looking to expand into new sectors or new countries and would consider inorganic growth. Firms will look at a mix of own finance and external lending to achieve this growth.
N V Sivakumar
Partner & Leader - Private & Entrepreneurial Business, PwC India
Tel: +91 (80) 4079 7001 | +91 98 4503 0010