The contribution of family-owned businesses (FOBs) to India’s GDP is expected to reach 80-85 percent by 2047, according to a McKinsey report on family offices. Currently, FOBs contribute over 75 percent to the national GDP, one of the highest percentages in the world.
The report analyzed 300 listed family businesses, each of which had annual revenues of more than Rs 20 billion at least once in the past five years.
From 2017 to 2022, FOBs outperformed non-family businesses, with revenue growth of approximately 2.3 percent.
Research has shown that FOB shareholder returns were twice as high as non-family businesses in the period 2012-2022.
According to the report, the best-performing FOBs (about 20 percent of the research base) have revenue growth that is 2.9 percentage points higher, economic dispersion that is 11 percentage points above average and operating margins that are 6.3 percentage points higher than other family businesses.
According to McKinsey estimates, a one-quintile improvement in performance could lead to an additional annual economic gain of about Rs 100 crore to Rs 300 crore for an average family business over a five-year period.
FOBs in India are facing the challenge of sustaining their higher growth rates and remaining relevant in the face of increasing disruptions.
Top performing companies exhibit characteristics such as operational excellence, effective generational transitions, diversified portfolios, strong talent management and robust governance structures that differentiate them from their competitors.
According to the report, priorities often change after the founding generation. The initial focus on achieving high growth, even at the expense of liquidity, changes to an emphasis on preserving wealth, which generally results in lower growth and performance.
Leadership styles also shift across generations. The report found that the percentage of top-performing family businesses (FOBs) remains relatively constant at 20 to 25 percent across generations. However, a growing number of FOBs tend to fall into the lowest-performing group as they move from the founding generation to the next.
The percentage of FOBs with the worst performance increases from about 33 percent in the first generation to about 43 percent in the second generation and 46 percent in the third generation and beyond.
First print: Aug 02, 2024 | 12:25 AM IST