Entrepreneurs and family owned businesses account for 60 percent of India's top firms
Proven to be a major cause of India's stellar growth
Lakshmi Mittal's son is already CFO
In the West entrepreneurs love to cash out. In India the culture is different. Entrepreneurs stay with their firms until retirement – or death – and pass the firm through the family.
Just look at Lakshmi Mittal, the son of a steelmaker, now grooming his son Aditya to take over the family business.It is why India is able to produce so many super-rich entrepreneurial dynasties such as the Ambanis of Reliance, the Premjis of Wipro and the Tatas.
Now a study proves that this image is not merely a cliché, but an accurate reflection of the truth.
Entrepreneur and family owned firms account for 60 per centof the market value of the top 500 firms in India. This is up from 51 percent ten years ago.
The study, by ASK Investment Managers of Mumbai, shows that the five and ten-year compound annual growth of the top Indian entrepreneur-led firms was more than double the best multinationals corporations (MNC) and state-owned corporations (PSUs).
The 346 family-owned firms in the Top 500 sustained growth of 27 per cent CAGR.
Family-owned businesses showed consistently higher profit margins than state owned enterprises, and massively outstripped multinationals in creating wealth
ASK Investment manager chief executive Sameer Kamdar commented: “Entrepreneur firms, as against PSUs and MNCs are speedy in decision making. PSUs tend to be rigid as they are over regulated, bureaucratic and could often lack speed, while MNCs are usually driven by parent company priorities and hence slow in spotting the opportunities in local markets. Family owned businesses on the other hand align the investor-promoter interest, where the skin of the promoter is in the game allowing them to take a long term view on their ventures.”
The dominance and superior performance of entrepreneurial and family-owned firms in India also in part explains the economy’s formidable growth.
Last week Goldman Sachs downgraded its growth forecast for the Indian economy from 8.7 per cent to 7.8 per cent for 2012, although the Indian government stressed the nation was on course to hit 9 per cent growth as forecast this fiscal year.