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Wednesday, January 18, 2012

BUILDING BUSINESS EMPIRES: LESSONS FROM INDIA


  It was the American approach to business management that spearheaded the current global obsession with MBA, as the main pre-qualification for any one who want to make a deeper inroad into today global business environment. An MBA from Harvard, Chicago, London Wharton, Stanford, or INSEAD is all that an aspiring youngster needs to secure a good white collar job that pays around $110,879 and prospect of making it to the top. Today, business schools around the world that run MBA programs are in thousands spreading from Western coast of United States to Japan, making billions of Dollars in the process. Even here in Nigeria we have good business schools such as the Lagos Business School that are doing well in that area. Though many academic studies have found little in the way of correlation between producing a business guru and possession of an MBA, recruiters still value applicants with the degree because it is a positive signal to its holder knowledge of management. Prominent individuals in the business world from Jack Welch, Bill Gate, to Steve Jobs got to where they are today without having any MBA, likewise thousands of other Gurus around the globe. While cases abound where big corporations, despite their policy of recruiting those at the top among the MBA holders, collapsed. In what many sees as problem of valuing qualifications over experience, which reach it climax with the collapsed of energy giant Enron in the US. The Enron collapsed and that of other giants like long-term capital management have sent a strong signal to corporate world.


     One place to look at that provide interesting case studies of it own is India (that provides the best of the two world) the obsession with qualifications that is prominent in the West and the conservative business tradition that emphasizes family connection and local knowledge of a typical developing country. As one of the fastest growing economies in the world India has provide ample opportunities for young entrepreneurs to put their skills into practice. This has provided old businesses such as Tata group, Reliance industries, and Mahindra group with space to continue consolidating without muscling air out of new comers and start ups.  One unique feature of Indian business that continue to baffle Western management Gurus is the growth of conglomerates business model instead of Western styled special businesses that focus on one line of business. Most of the giant of Indian business that are making global headline today are conglomerates, examples here include Tata groups, Reliance industries, Mahindra group, Bharti, and Essar. While the only prominent Western corporation type of business is Infosys, which specialize in IT software business. Companies such as Infosys are the exception rather than the rule in India murky business environment. But family control business is not only unique with India, as is feature common to all developing countries and emerging markets., Examples are Chaebol in South Korea, Dantatas here in Nigeria, Sawiris in Egypt to mention just a few. Though a lot of changes are taking place in the way family businesses are run with the coming of young generation mangers who received their education in the West to positions previously occupied by their parents and grandfathers. According to some estimates, family businesses account for some 70% of total sales of India 250 biggest private companies.  


      Business executives such as Jack Welch are rarer among the old guard of Indian business builders. Somebody with firmed belief in the capitalist mode of production and it emphasis on shareholders over other stakeholders management style. India executives, due to their linkage to socialist and central command system of the old Indian economy, are skeptical towards embracing capitalist model of governance. A turning point in the India business environment was the liberalization of the economy in 1991 that open the economy to competition. As a result of the liberalization many Western style business corporations evolves, threatening to take away a large market share from family control businesses. Despite the success of companies such as Infosys, American style businesses have a long way to go in order to take away market share from the traditional conglomerates that dominate Indian business environment. One feature common to family businesses in India is that they are very cautious in their investment undertakings; sometimes they like to test waters with small investments to be followed later by large investments. This in some ways has prevented them from riskier investments, but at the same time prohibited them from the windfalls that come with such investments when its succeeded. Riskier investment tends to be undertaking by new generation investors who cut their teeth in the western world. In Nigeria people like Dangote provide a good example of successful business individuals who come from wealthier business family but excelled because of adaptation of modern conduct of business. Though Dangote is educated to Masters of business level, his business empire like that of Tata of India is conglomerate rather than specialized type of business such as American technology giant Apple. 


    Despite resorting to family ways of running business, some of the most successful family businesses in India are run by family members with MBAs. A good example here is Ambani brothers who manage the split Reliance group. Both Anil and Mukesh Ambani hold MBAs from Wharton Business School of University of Pennsylvania. Even in the western world there are large number of businesses that are still being run by families, Rupert Murdoch business empire is a classic example here. There are hundreds of family businesses in Germany and France that are being run as successful as professional businesses, some even better. Thus, having family run businesses dominating the commercial environment in a country is not a bad thing. But, the most important things for these business is to ensure they conform to modern business and adapt to changes as they happen. In Nigeria we cannot say the same thing when its comes to family businesses dominating the top 100 businesses. Many of Nigeria top corporations are own by diverse shareholders, but there are still large number of family business in the country. Some of the biggest business firms in South Korea such as Samsung, Hyundai, and Daewoo are own by family groups, Nigeria has a lot to learn from these giants. Even Western management Guru are learning lessons from these companies. I can recall the time Obasanjo's government tried to push private sector players into creating business behemoth like Korea’s Chaebol. but, that attempt later failed because of agendas of the people behind the project. In conclusion, Indian business environment has reached the level it is today because of the roles played by family businesses such as Tata. I am very sure burden entrepreneurs in Nigeria can learn one or two things from them.



REFERENCE:

Ramachandran, K., "Indian Family Businesses: Their survival Beyond Three Generations",   Indian School of Business, Working paper series 
The Economist, October 22, 2011
Wikipedia Encyclopedia 
Menon, V., "Indian Business Families: Redefining the Roles", V. L. B Janakiammal College of Arts & Science
www.forbes.com