Academic journal article Indian Journal of Industrial Relations

Family Business: Yesterday, Today, Tomorrow

Academic journal article Indian Journal of Industrial Relations

Family Business: Yesterday, Today, Tomorrow

Article excerpt

The Context

Family businesses are the engines that drive socio-economic development and wealth creation around the world. Family businesses have throughout been highly pervasive from small to very large, and in every era have contributed towards significant wealth creation and nation building. Their overall global impact is significant in that today they contribute more than half of the GDP, employment, and account for a sizeable proportion of market capitalization. It is estimated that 85 percent of businesses in the European Union and 90 percent of US businesses are family controlled (Pistrui 2005). Some of the large family controlled enterprises include: Ford (now in fourth generation) which controls 40% of the Ford Motor Co and the second and third generation Walton family controls 39% of Wal-Mart. In Holland, small family businesses represent 75% of all companies; in the US, they generate 60% of all employment; while fifteen family businesses account for more than 55% of market value on Santiago stock exchange. Examples of family owned enterprises in India include, Tatas, Birlas, Ambanis, Singhanias, Chidambrams, Bangurs, Chbarias, Goenkas and Kirloskars.

During the last two decades of the twentieth century, family business has often been at the centre-stage in debates surrounding organisational change. The focus of research on family business has shifted progressively to the dynamics of shaping its internal organization, its strategies and competitive strength. The emphasis has been on leadership succession or insider succession.

The present study, besides defining family business, attempts to assess how far the contribution of family businesses to economic development has changed over the years. The study presents the distinctive features and challenges of family businesses and analyses the stages of transformation and restructuring over the years in India and abroad. How far the characteristics of family businesses in different economies have been influenced by the sociological and political factors are also discussed.

Family Business: The Definition

Entrepreneurs create family-based business networks in response to economic and social needs. One may ask what a family business is. There is no single definition of family business. One way to define a family business is as a company owned, controlled and operated by members of one family whose non-family members may also be employed. Another definition is as a firm or a company in which the family has a strong influence in the day to day running of the business (Dutta 1997:13). It may take the form as a sole proprietorship, a partnership firm, or a company with limited liability. Further, the family control over the business may be largely informal rather than legal. Family business can also be defined as an "owner-managed enterprise with family members exercising considerable financial and/or managerial control" (Pistrui 2005: 460). A study at the Stockholm School of Economics (Rouvinez & Ward 2005: 1-2) defines family business as one that is controlled by a family and has at least one of the following three characteristics:

i) Three or more family members all active in the business.

ii). Two or more generations of family control.

iii) Current family owners intend to pass on control to another generation of the family.

According to Desai (2007), who carried out a study on the succession planning in family businesses in the US small family business is a firm with 200 or less employees that has: a) the majority of voting shares owned by one family, or b) one family exerting management control over the business.

In short, family business in trade, manufacture or service, is one where a family participation in a business involves control or influence on its operations which is likely to extend over generations. The family participation may consist of three parameters: a) employment of family members full time, or b) family members employed part-time, or c) investment of funds by the family members. …

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