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Table of Contents
Chapter – I INTRODUCTION
1.1 BACKGROUND
1.2 DEVELOPMENT OF FAMILY BUSINESSES RESEARCH
1.3 DEVELOPMENT OF INDIAN FAMILY BUSINESSES
1.4 CHARACTERISTICS OF FAMILY BUSINESS 1.5 SUCCESSION IN FAMILY BUSINESS
1.6 RESEARCH PROBLEM
1.7 PURPOSE OF THE STUDY
1.8 SIGNIFICANCE OF THE STUDY
1.9 ORGANIZATION OF THE THESIS
Chapter-II REVIEW OF THE LITERATURE, PROBLEM DEFINITION AND RESEARCH DESIGN
2.1 INTRODUCTION
2.2 THE DUAL IDENTITY OF FAMILY BUSINESSES
2.3 RESEARCH ON SUCCESSION IN FAMILY BUSINESS
2.4 THE SUCCESSION PROCESS
2.5 INDIAN FAMILY OWNED BUSINESSES IN INDIA
2.6 OPERATIONAL DEFINITION OF FAMILY BUSINESS
2.7 PROBLEM
2.8 OBJECTIVES OF THE STUDY
2.9 METHODOLOGY OF THE STUDY
Chapter- IIIDESCRIPTIVE STATISTICS AND HYPOTHESIS TESTING 3.1 DESCRIPTIVE STATISTICS
3.2 HYPOTHESIS TESTING FOR IMPACT ON THE CHANCE OF SUCCESS 3.3 A REGRESSION MODEL BETWEEN CHANCE OF SUCCESS AND THE ABOVE
SIGNIFICANT VARIABLES 3.4 CONCLUSION
Chapter - IV
DEVELOPMENT OF A MODEL FOR CHANCE OF SUCCESS 4.1 MEASURING THE FACTORS
4.2 THE REGRESSION MODEL BETWEEN THE SIX FACTORS AND CHANCE OF SUCCESS
4.3 THE CFA MODEL BETWEEN THE SIX FACTORS AND CHANCE OF SUCCESS
Chapter - V SUMMARY, LIMITATIONS OF THE STUDY, CONCLUSION AND SCOPE FOR FUTURE WORK 5.1 SUMMARY OF FINDINGS
5.2 LIMITATIONS OF THE STUDY
5.3 CONCLUSION
5.4 SCOPE FOR FUTURE WORK
Chapter – I
Introduction
Chapter-II
Review of the Literature, Problem Definition and Research Design
Chapter- III
Descriptive Statistics and
Hypothesis Testing
Chapter – IV
Development of A Model for
Chance of Succes s
Chapter – V
Summary, Limitations of the study,
Conclusion and Scope FOR FUTURE
WORK
References
Appendix - 1Questionnaire
1.1 BACKGROUND
Family businesses are among the most important contributors to
wealth and employment creation in virtually every country of the world
(Venter et al, 2005). Family businesses not only represent the most prevalent
type of business in India, but also play an important role in the country’s
economy. Over 90% of all the businesses in India are family firms. These
family businesses come in all sizes and shapes, from the typical ‘pan shops’ or
'pettikada' to the large multinationals. Some family business have grown to
become large corporations that have are influential in particular industries;
for example, Tata Steel, Reliance Petroleum, TELCO, MRF Tyre, WIPRO,
United Breweries, and others. Most people think, family businesses are just
small closely held private firms. On the contrary, it is estimated that about
one-third of fortune 500 companies are considered family businesses (Ibrahim
and Ellis, 2004).
Family as a social institution is one of the oldest surviving (Goode,
1982), but only in recent years family business, an important arm of it, started
receiving academic attention. After a detailed review of the existing literature,
Zahra and Sharma (2004) concluded that family business research has a long
way to go from the present fragmented and descriptive state. There are
conceptual differences between family and business (Ward 1987, 2004),
though opinions on treating them as conflicting systems vary. Despite the
importance of the family businesses in nation’s economy, relatively little
attention has been devoted in management research to the family firms
unique and complex issues [Litz, 1997; Hoy and Veser, 1994; Brockhaus,
1994]. According to family business expert, Leon Danco (1993):
The family owned business is so much more than a business. It’s a boiling
pot of human concerns, a stew of family relationships, both of love and resentment, of
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opportunity and entitlement- all masked by the more obvious ingredients of jobs,
money, taxes, products, markets and benefits. No wonder it has a tendency to boil
over.
1.2 DEVELOPMENT OF FAMILY BUSINESSES RESEARCH
Family business research is an emerging academic field (Astrachan,
2003), early research focused on the identity of a family business and its
characteristics vis-a-vis non-family businesses. However recent trends point
towards conceptual frame works and theory building not only with in the
family business field, but also in relation to other fields [Ibrahim and Elis,
2004: Zahra and Sharma, 2004; Chrisman, Chua and Litz, 2003; Wortman,
1994]. Dyer (1986) has said that during the 1990’s researchers focused on the
following topics: interpersonal family dynamics, succession, business
performance, and consulting to family firms. The other topics studied then
were gender and ethnicity studies, legal and fiscal issues, estate issues,
organizational change, as well as issues of governance. Aronoff (1998)
stressed on the importance of studying the succession process from a multi-
generational point of view, rather than just focusing on the succession
planning event. Aronoff also highlighted leadership and ownership issues
that can help in understanding family businesses.
Bird et. al. (2003) noted that major topics on family business issues
that have been covered by researchers are: succession, distinctiveness of
family business, conflict management strategy, helping family business, and
macro issues (economics, policy). Sharma (2004) noted in her review of the
literature that the field is still in a pre-paradigmatic stage where research has
been undertaken at four levels of analysis: individual (founders, next-
generation, women, and/or non family employees); interpersonal/group
(agency theory, stewardship theory, interpersonal conflicts, and/or inter-
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generation transition); organizational (governance, strategic management,
strategic decision making, performance, and/or resource based view); and
societal (macro-economic and/or environmental). Zahra and Sharma (2004)
concluded that family business research has a long way to go from the present
fragmented and descriptive state.
It is observed that, there has been an increased interest in learning
more about family businesses, not just from a social point of view, but also
from a scholarly perspective. Litz (1997) addressed the issue of the lack of
research on family business in business school and pointed out the
opportunities that exist in exploring this new field. It is seen that more work
in this area is being done by consultants rather than academicians. The use of
qualitative studies (such as case studies) can be used to build further
understanding of family firms [Bird et. al 2003; Ibrahim and Elis, 2004;]. Litz
(1997) also recommended the use of methodologies that “nurture long-term,
mutually beneficial linkages with family firms that might facilitate in-depth
longitudinal analysis. Murray (2003) used this longitudinal case method
analysis to describe the succession transition process as a journey that may be
categorized as evolutionary or revolutionary, depending on the business
structure and ownership in place in the family business. Goffe (1996)
recommended the use of longitudinal case method analysis to explore and
study in greater depth the complex relationships between ownership and
managerial control in family businesses.
For historical, evolutionary reasons, most countries have family
businesses constituting the largest category in terms of ownership; estimates
do vary, but is above 75 percent in all cases [Duman 1992, Paisner 1999; Watts
and Tucker 2004]. About a third of the companies listed in Fortune 500 are
family businesses (Lee 2004). Since they normally do not have short term
orientation but are interested in growing the family wealth with necessary 3
precautions and have a different set of strategic goals compared to non-family
owned private companies [Ward, 1987; Sharma et al 1997], their long term
contribution to economy is significant. This is true with the Family Businesses
in the Indian economy too.
Researchers in the field of family business agree that succession is
the most important issue that most family firms face. Succession is so central
to the firm's existence that Ward (1987) chooses to define family firms in
terms of the potential for succession: "we define a family business as one that
will be passed on for the family's next generation to manage and control".
Long term sustenance of family business depends on its smooth survival
across generations. Families that successfully survive three or four
generations have a complex web of structures, agreements, councils and
forms of accountability to manage their wealth (Jaffe and Lane 2004). This
seems to be much more evident in the west compared to emerging economies
such as India. Reflecting the complexity of the process involved, succession
planning has been an area of keen interest for researchers. This could be for a
variety of reasons. One, organizational transition from an entrepreneurial
stage to a system driven, professionally managed firm is not easy (Churchill,
1983), and involves evolutions, revolutions and crisis (Greiner, 1998). Two,
there is often a simultaneous process of transformation taking place in the
family and business with the size of activities of both growing [Kepner 1991;
Morris et al 1997; Sharma et al 2003].
Family businesses are found to split up like amoeba as they grow,
and very few of them survive beyond three generations, supporting the age
old saying, “shirt sleeve to shirt sleeve in three generations” [Carlock and
Ward 2001, McCulloch 2004]. According to Ramachandran (2012), most
discussions in this area are based on research in advanced countries. In most
developing countries, including India, it still remains a black box; academics 4
and industry observers were puzzled to witness the recent break up in the
second generation of the Ambani family, the largest private sector group
worth over US $ 20 billion. Even anecdotal evidence is limited to a few
biographical sketches [Tripathi 2004; Piramal 1998] and consultant
impressions [Dutta 1997; Sampath 2001]. Sharma and Manikutty’s (2005)
study of diversified family groups is one of the few notable research pieces
from India in this area. In essence, not much is known either about the
survival rate or the factors contributing to the successful survival of family
businesses in India. Taking the survival bar as three generations, it will be
interesting and instructive to know how family businesses perform in the
fourth generation. Since the implicit assumption here is that the family has
survived as a single entity, it is important to know how the family’s
involvement in business is and also how the family and outside professionals
manage the business.
1.3 DEVELOPMENT OF INDIAN FAMILY BUSINESSES
The beginning of the present Indian family business dates back to
the latter half of the 19th century. It is not surprising then that family-run
businesses currently account for nearly a whopping 95 per cent of all Indian
companies. The Indian economy, currently is in a state of rapid development,
is burgeoning with innumerable small and medium-sized family-run
enterprises. Family businesses in India initially started in the 1890's as a
means to promote import substitution and attain economic freedom from the
British. These enterprises were an integral part of India’s freedom struggle,
and as part of the Swadeshi movement, got special treatment and subsidies
from the government. Many such businesses consolidated their positions as
near monopolies under the protective environment of the license raj and their
inefficiencies did not get exposed to market realities. Some of the prominent
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business families during the 1970s were the Tatas, Modis, Thapars, Shrirams,
Singhanias, Birlas, Wadias and Godrej.
The Indian family business has been merely tolerated by
government, not much has been done for their development. Yet it has
managed to remain the main employer and the user and creator of economic
resources. It has been the primary supplier of goods and services to Indian
society. Indian society has not allowed the traders and Industrialist to
dominate the national political agenda. For long it has created bureaucratic,
legislative and political obstacles to keep the Indian Family Business from
growing too powerful. Just as in most developed and developing countries
Family Business contributes 60-70 percent of GDP in India also.
1.4 CHARACTERISTICS OF FAMILY BUSINESS
For the family members, one of the obvious advantages of working
for a family firm is the sense of being in control of their destiny. Running
something in which one has a personal stake certainly creates a greater feeling
of independence. Advantages of Family Business are its long term orientation,
greater independence of action with less pressure from the stock market and
less takeover risk. Because of the family culture being a source of pride, there
is stability, strong identification, commitment and motivation. Less
bureaucracy, continuity in leadership, greater resilience in hard times with
willingness to plow back profits, are some often observed positive features of
Family Businesses.
Even though there are numerous advantages, some of the
disadvantages of Family Businesses are, confusing organization with messy
structure and less clear division of tasks. There is nepotism and tolerance of
inept family members as managers. Inequitable reward systems lead to
greater difficulties in attracting professional management. They also have less 6
access to capital markets which may curtail growth. The culture tends in
family businesses tend to be paternalistic with autocratic rule; there is
resistance to change and secrecy. Turbulent succession dramas are also their
salient feature.
1.5 SUCCESSION IN FAMILY BUSINESS
Succession has been and still is one of the most important events
and process in a family business. It is topic that is widely reported in the
popular media, as well as researched in the field, as noted by the attention it
receives. Family business succession is expected to become a major issue over
the next 20years. It is estimated that over US $ 15 trillion in assets will pass
from one generation to the next, as baby boomers who own family businesses
reach retirement age (Zaudtke and Ammerman, 1997). Research also shows
that only 30% of these family businesses will be successfully transferred to the
next generation, 12% will be successfully transferred to the third generation,
and only 3% survive to the fourth generation and beyond [Astrachan and
Shanker, 2003; Kets de Vries, 1993; Ward, 1987; Birely, 1986; Dyer, 1986;
Beckhard and Dyer, 1983 a & b]. Ibrahim and Elis (1994) noted that the
transference of leadership from one generation to the next represents one of
the most critical issues facing large family firms; and that the failure of family
businesses can result in loss of assets, jobs and family relationships.
Most of the Business families face unique management challenges
because of the differences in the attitude & aspirations of family members. As
new generations join the family business, it is an enormous challenge to keep
the family & business together. Some sacrifice the business to keep the
families together, while others sacrifice the family to keep the business.
However, the close-knit structure of families, which fosters teamwork
combined with respect to family values and family elders, has been the key to
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success of many family businesses. Indian Family Businesses forms the
‘backbone’ of the Indian economy and hence there is a need to extend the life
span of Family Businesses so that the economy can continue to derive benefit
from their contribution.
1.6 RESEARCH PROBLEM
There has been growth in Family Businesses in India since
independence and entrepreneurs from non-business families have also
ventured into business. Many such businesses are facing the daunting task of
handing over inheritance to the next generation with no previous experience
or tradition in doing so. Inheritance phase is the time when many Family
Businesses and Business families get destroyed. Therefore it is crucial that
inheritance in family businesses be managed well. Research shows that there
are many factors related to religion, culture and tradition that impact success
of inheritance process in family businesses. India has religions, culture and
tradition which very different from that of the west, therefore separate studies
are required for understanding problems related to inheritance management
in the Indian context. There is lack of such studies in Indian context.
1.7 PURPOSE OF THE STUDY
The purpose of this study is to explore and study inheritance
management in family businesses in Kerala. The first goal of the research is to
examine the characteristics of the family business that have impact on chance
of success of inheritance management in family business in Kerala. The
second goal is to identify the key factors in the inheritance management
process, that impact chance of success of inheritance management in family
business in Kerala, and develop models for it.
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1.8 SIGNIFICANCE OF THE STUDY
Succession in family firms is an emerging area of study within the
field of family business research, because of demographic and social trends,
combined with the high probability of succession failure. Moreover, research
in family business is challenging because of the overlap between two distinct
fields, the business side characterized by objectivity and the family side
characterized by emotions. Succession is affected by culture and traditions to
a great extent. Kerala can be taken as a state with a common culture and
tradition (with religion forming the sub-groups). A survey based study to
identify the characteristics of the family business and process factors that
have impact on chance of success of inheritance management in family
business in Kerala, will greatly add to the understanding of this important
process and contribute to measures for its improvement. The models
developed from this research will further augment the understanding of
succession in family firms and provide a basis for further research on
generational transitions in family businesses. The outcomes of this research
will be useful for consultants engaged in helping Family Businesses in Kerala
manage the inheritance process.
1.9 ORGANIZATION OF THE THESIS
This first chapter gave an introduction to Family businesses, the
areas covered with special emphasis on research in inheritance management.
The research problem was introduced and its significance discussed.
The second chapter on literature review, research problem
formulation and methodology starts with a general board picture of the
emerging field of family business research, by discussion of selected works in
this area. This is followed by a review of the literature of succession in family
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business. The chapter then goes on to present the research problem,
objectives set for the study and methodology used in this research work.
In chapter three we first present a descriptive analysis of the key
variables of the study to show that they have been adequately covered in the
sample. The organization and person related variables and their impact on
‘chance of success’ is then discussed.
Chapter four is used to present the measurement of the six factors
of Management of Inheritance in Family Business that impact ‘chance of
success’. The chapter then goes on to present models connecting the factors
and ‘chance of success’.
The last chapter of the thesis is devoted to the presentation of a
summary of findings, followed by limitations of the work, conclusion and
scope for future work. The references used in the thesis are given next,
followed by the appendix which contains a copy of the schedule used for data
collection.
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