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The contribution of family-owned businesses (FOBs) to India’s GDP is projected to reach 80 to 85 per cent by 2047, according to a McKinsey report on family offices. Currently, FOBs contribute more than 75 per cent of national GDP, one of the highest percentages in the world.
The report analysed 300 publicly listed family-owned businesses with each having annual revenues of over Rs 2,000 crore at least once in the past five years.
From 2017 to 2022, FOBs outperformed non-family-owned businesses, reporting approximately 2.3 per cent higher revenue growth.
Returns to shareholders for FOBs were found to be twice as high compared to their non-family counterparts from 2012 to 2022.
Top-performing FOBs (around 20 per cent of the research base) have 2.9 percentage points higher revenue growth, an economic spread 11 percentage points above the average, and operating margins that are 6.3 percentage points greater than other family businesses, according to the report.
McKinsey estimates indicate that a performance improvement of one quintile could lead to an additional annual economic profit of about Rs 100 crore to Rs 300 crore for an average family business over a five-year period.
FOBs in India face the challenge of maintaining their higher growth rates and remaining relevant in the face of increasing disruptions.
Top-performing businesses exhibit characteristics that include core operational excellence, effective generational transitions, diversified portfolios, strong talent management, and robust governance structures that set them apart from their peers.
According to the report, priorities often change following the founding generation. The initial focus on achieving high growth, even at the expense of liquidity, transitions to an emphasis on preserving wealth, which generally results in lower growth and performance.
Leadership styles also shift from the founder’s generation to the next. The report states that the proportion of top-performing family-owned businesses (FOBs) remains relatively constant at 20 per cent to 25 per cent across generations. However, a growing number of FOBs tend to fall into the bottom performers as they move from the founding generation to subsequent ones.
The percentage of bottom-performing FOBs rises from approximately 33 per cent in the first generation to around 43 per cent in the second generation and 46 per cent in the third generation and beyond.
First Published: Aug 02 2024 | 12:25 AM IS
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