• Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 10/25/2013

Family-owned businesses – the backbone of India’s economy 

Family-owned businesses
Speaking at the inauguration of this year’s Kerala Family Business Conclave in August 2013, Chairman and Managing Director of Kurlon Ltd, Kurlon Sudhakar Pai said that family-owned businesses form the backbone of the Indian economy.

Explaining that these business account for almost two-thirds of India’s GDP, he noted that many of the companies in the country are run by families and that these organisations employ approximately half of the country’s work force, making them key players in the country’s economic growth.

Organised by the Confederation of Indian Industry (CII), the Kerala Business Conclave has been established as a platform to discuss the challenges and prospects of family-run businesses. With the Kerala Government aiming to provide impetus to home-grown industry and promote sustained entrepreneurial growth in the region, family business has gained an increased focus and importance.

The role of family business in the economy

There is also a need for young leaders to understand the role of their businesses in the Indian and global economies, and forums like the Conclave can help to facilitate this understanding.

According to the CII’s Family Business Network (India chapter), the gross output of these family-run businesses accounts for 90% of India’s industrial output, 79% of organised private sector employment, and 27% of overall employment, superseded only by the government and Public Sector Undertakings, companies in which the government own the majority of the equity.

Unique management challenges

While many family businesses in India are prosperous, they face a number of unique management challenges, including lack of professionalism, nepotism, and mismanagement. According to the Kerala Business Conclave website, these challenges are a result of:

“The differences in the attitude and aspirations of family members. As new generations join the family business, it is an enormous challenge to keep the family and business together. Some sacrifice the business to keep the families together, while others sacrifice the family to keep the business.”

With this background, only 13% of the family businesses survive until the third generation and only 4% (RC – where are these stats from?) go beyond that, while one third of business families disintegrate because of generational conflict. However, the close-knit structure of families, which helps to (RC) foster teamwork combined with respect for shared values and family members, has been the key to the success of many family businesses and it is this approach that the Conclave wishes to harness and share.

Fostering support for family business

The theme for this year’s conclave was “From Family Business to Business Family” and Pai stressed that, while Kerala’s family businesses benefit from their close-knit structures and are showing good results, many are still going for strategic stake dilution. This sees many companies confined to the state going for a pan-India presence and others creating strategic tie-ups with leading global players.

With the longevity and success of family businesses in mind, topics for discussion at this year’s conclave included building legacies by learning from multigenerational business families, managing wealth through professionalisation and corporate governance, and sustaining growth through understanding the importance of innovation and entrepreneurship.

During his keynote address, Deputy Chairman of CII Southern Region, Navas Meeran announced that the CII would be offering business mentoring services to 10 select companies at this year’s conclave to help propel them to the next stage of growth.

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.

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