Ensuring the Survival of Family Firms in South Asia - Research Proposal Example

Family businesses are a common feature in the South-Asian economic context. More than 70% of all firms in Asia are family owned, ranging from 32% of all registered enterprises to larger portions of smaller businesses (Raharso 2013). Fifty seven percent of all listed company employees in South Asia also work in these companies, which makes their role in the Asian economy extremely important (Raharso, 2013). Nevertheless, the success or failure of these entities relies on some factors intrinsic and extrinsic to the firms. Issues such as succession planning, stewardship, and the use of outside management are crucial in the determination businesses’ survival beyond the third generation (Aronoff & Ward, 1995).

This study intends to analyse the factors that facilitate the prevalence of family owned businesses in South Asia. It will especially focus on Sri Lanka and India, countries where these practices are dominant.

The specific research questions include:

• What makes family-owned businesses so popular in countries in South Asia?
• Which factors underlie the approaches to the management of these businesses?
• What factors are behind, or could lead to, the failure of the family-owned businesses in South Asia?

Definition of Terms:

• Family business - an entity that is owned and mostly controlled by family members, especially when this has been the case for several generations
• South Asia- the Indian subcontinent consisting of India, Bangladesh, Pakistan, Brunei, Sri-Lanka, and Nepal
• Succession- transition in senior management within any entity
• Corporate Governance- Processes and relationships determining the directing of a corporate entity

Literature Review

The review of literature explores previous conceptions of the topic. It provides an overview of family business in a global context, and focuses on Asia’s prominent of family businesses. It also explores the viable alternatives for the success of the businesses in detail, giving special emphasis to the viability of these alternatives in Sri Lanka and India.

Theoretical Perspectives on Family Firm Survival

Agency theory offers a perspective from which the complexities of maintaining a family business inter-generations may occur. The theory recognizes that agency costs occur due to individual interests and preferences of the person in decision making (Nordqvist, et al., 2015). Nevertheless, the overlap of family and business issues makes these complexities more intense, posing the possibility of more or reduced agency costs (Nordqvist, et al., 2015). The theory postulates, on one hand, that the businesses may survive longer through ensuring alignment of the manager and owner interests; while also recognizing low differentiation of roles in these entities may lead to altruism and inefficient outcomes (Nordqvist, et al., 2015).

In the South-Asian context, the behavioural theory postulates that the leadership decisions in family-owned entities are largely inconsistent, and an outcome of social influences. This theory considers the role of socio-emotional wealth, which involves the interests of the family against strictly business processes (Nordqvist, et al., 2015). The theory suggests that keeping control of the family may exert pressure on the survival of the firm.

Family Business

A family firm is an entity that is owned and mostly controlled by family members, especially when this has been the case for several generations (Kellermanns & Eddleston, 2006). The heterogeneity of the family firms makes a constant definition difficult to accomplish, as each family has different approaches to its involvement (Poza, 2007).

Family Businesses in South Asia

According to Friedman and Jones (2015), family businesses dominate the private sector in South Asia as they do in most other parts of the world. India has the largest family owned entities in the Asia-Pacific region, including the Tata Group owned by the Tata family (Dieleman, et al., 2014). The dominance of family-owned businesses in South-Asia is a well-known feature, often attributed partially to the cultural inclinations of the people (Chaudhury, 2013). Further, the entities consistently out-perform their non-family peers on the market, suggesting a market of success in this form of ownership (Gupta & Levenburg, 2010).

The dominance of family businesses in South Asia is a point of keen interest, with some of the entities spanning over three centuries. Companies such as Tata and Bajaj in India can trace their history to 1868 and 1926 respectively (Lauban, 2014). In the Sri Lankan context, it is stipulated that the nature of business is largely influenced by 2500 years of tradition and Buddhist values (Chandrakumara & Budhwar, 2005). Nevertheless, colonial experiences in Sri Lanka have also shaped the face of business in this county (Krishna & Aryasri, 2014). The entities were largely crop based, and tended towards commerce, trade, and service provision (Witt & Redding, 2013). The businesses were also run primarily by family members, who were considered trustworthy and competent enough for the ventures. Accordingly, Sri-Lankan business is primarily family based and tends towards mercantilist trading activities (Masulis, et al., 2011).

India’s context displays more interest among scholars, primarily due to its dominance in the local and international context (Kontinen & Ojala, 2012). India’s family business take up between 85 and 90% of all corporate entities, which translates into 75% employment and 65% of the GDP (Yasser, 2011). The biggest families, or businesses, in India span several generations, with Tata based in the 19th century and Aditya Birla and Bajaj being founded in the early 1900s (Sharma & Rao, 2000). Nevertheless, there are some first generation entities in the countries that are rapidly becoming dominant, such as the Bhati Airtel (Shashtri, 2011).

Ensuring Intergenerational Survival of Family Firms in South Asia

Survival has been limited in the Asian context of family businesses. It is estimated that less than 10% of family businesses successfully transition to the third generation (Lodh, et al., 2014).

Benavides-Velasco, et al. (2013) suggest the position of succession in determining the possibility of survival for these firms. Family member successions often result in poorer performance than unrelated successions, especially in the Sri-Lankan context (Alwis, 2014). This outcome results mostly from conflicts during succession, and the possibility of poorly developed heirs taking over the strategy formulation processes of the entity (Stewart, 2003). Notably, 48% of families in the South Asian context have previously indicated the occurrence of family tensions due to the process of removing an inefficient member. This feature prompts scholarly speculation in the ownership structures of these firms changing in the future (Birchall, 2012).

South Asia characteristically demonstrates family feuds surrounding succession in business as the basis for under-performance. Samsung chairman was sued by his brother and sister in 2012 over company shares left by their father (Hunt, 2012). Similarly, Mukesh Ambani engaged in a five year feud with his brother over the management of Reliance, one of the biggest family owned global conglomerates (Hunt, 2012). The growth and development of these companies is often affected when the figurehead steps down or passes on, living the company to the next generation successors (Elstrodt & Poullet, 2014).

Entities that have survived the business field demonstrate the use of succession planning as a way to ensure the survival of such firms. Tata Group, for instance, relies on transition procedures set by Rajan Tata’s changes; enabling the involvement of the board and management in ensuring transitions (Mody, 2011). Internal development also features family members, ensuring future CEOs are adequately groomed. Nevertheless, modern emphasis has seen the combination of family management with outside professional managers. While there may be some reluctance in this area, companies like Toyota in the Japanese context have benefited from the approach (Sarbah & Xiao, 2015).

An alternative approach to ensuring the success of family firms in Asia is proposed by Ward (2000). The approach proposes the application of stewardship, building on trust between family members and expecting agency in the best interests of the family (Ward, 2000). Sarbah and Xiao (2015) elaborate the stewardship role of the family, and the implications of poor agency on these businesses. All family members influence the strategic decisions of the company, and poor representation often leads to dissatisfaction (Dissanayake & Sarath, 2011). As such, even in the presence of outside management, the family presence remains pronounced and largely affects decisions (Dieleman, et al., 2014). As such, with familial trust dominating operations, it is largely possible that the business will grow and survive possibly longer than non-family firms (Chaudhury, 2013).

Wilson, Wright, and Scholes (2013) elaborate possible roles that the choice of corporate governance would play in ensuring the success and survival of family businesses. Their study postulates that particular board characteristics, such as professionalism and non-familial attachment, are crucial in ensuring family businesses outperform non-family firms (Wilson, et al., 2013). Nevertheless, this approach is based on the analysis of similar firms in the West (UK and the USA) and it has yet to be proven effective in Asia (Winkeljohann, 2012). Even more critically, professional boards are regarded as having the possibility of creating better financial performance and enhanced commitment, or more animosity with owner managers (Stalk & Foley, 2012). Nevertheless, the tactic may conform to changes in general policies in South Asia, which have seen the efficiency of governance increase several points (Hay Group, 2013).

While some of the perspectives of literature on family firms in South Asia are based on experience from the west, their application in the Asian context may prove effective.

Hypothesis

Based on the literature, this study hypothesizes that:

“The survival of family firms in South Asia can only be ensured through transformations involving succession planning, professional board, and an emphasis on stewardship in these firms’ strategic processes.”

Methodology

Research Methods

The study will primarily apply qualitative approaches of data collection and analysis. As such, the dominant approaches remain a combination of interviews and secondary data collection. The study seeks to understand the factors behind the dominance of family owned entities, which are qualitative and eliminate the need for quantitative approaches.

Procedures and Rationale

The interviews will remain minimal, only featuring available respondents from entities in South Asia with the family owned model. The interviews will be recorded, allowing for transcription immediately they are complete and later use for analysis. The use of interviews as a data collection method is preferred in qualitative research due to its ability to acquire in depth data (Hair, 2015). Interviews allow for clarification, and also add a human perspective to data that would simply be statistics (Hair, 2015). The response rate of interviewing is also high, as compared to items like questionnaires. As such, the approach will be critical in acquiring first-hand information, as well as clarifying some of the data available in the secondary information.

As such, the study proposes to interview available participants. The targeted respondents include the Chairman of the Mackwoods Group from Sri Lanka, as well as the MAS Pvt Chairman in the same country. These respondents will offer data from the perspective of third generation and first generation of family firms. From India, interviewing will feature the chairman of the Modi Group, an entity in its second generation.

The study will also make use of case studies. Using specific entities such as Tata, Ambani, and the Modi Group in India; and the Mackwoods Group and MAS Pvt Ltd in Sri Lanka, the case studies will offer more insight into survival determinants. The studies will explore their beginning, systems of governance, and especially dwell on their succession planning as a determiner for their survival approaches. Tata Group boasts a 143-year old history, with five chairmen beginning from Jamsetji Tata. MAS Pvt is relatively new, with only 25 years of history but indicating the promise of survival. Reliance Industries, owned by the Ambani family, represent the loftiest businesses in India and exemplify family feuds. Mackwoods, on the other hand, has spanned 170 years with its having become a Sri-Lankan entity in the early 20th century. As such, the diversity of the nature of these firms justifies their analysis in determining the implicit factors that have ensured their survival.

The boundaries of the case study and the secondary data will be on the basis of definition and context. As such, the firms in question will have to be family firms, and located in South Asian countries. The secondary data will also have to retain the same components in order to be applied in the study. In order to advance the basis theory guiding the study, the case is intended to be a typical example of family firms. As such, the content of the study will seek to relate with the hypothesis on succession planning and stewardship being core to the survival of these firms, with the case representing all firms of the same nature.

The goal of this study compels the adoption of a multiple-case study. This approach will facilitate the development of comparisons, and consequently enable replicating similar outcomes in order to draw conclusions. The sourcing of data for the case study will take several perspectives, featuring interviews, documentation, and alternative research on the same entities, archival records, and indirect observation. The collection will require the development of a database to prevent getting lost in the data and simplify the analysis process.

The secondary information will form the basis for most of the analysis. Firms such as Price-Waterhouse-Cooper devote resources to analysing entities in this area, and they will offer adequate information on the trends of these entities. The firms also have distinct histories on their websites, as well as the coverage of their transitions from various areas of the media. The secondary data will combine with the primary data from the interviews to form a comprehensive framework.

Analysis

The study will make use of the grounded theory analysis. This approach features constantly comparing, requiring interweaving of the data analysis with the collection process (Corbin & Strauss, 1990). The grounded theory approach requires asking some questions, and using some data, such as the literature review, developing a theory from which further analysis is conducted (Corbin & Strauss, 1990). As such, the use of interviews will complement the secondary research, while iterating between the comparison of the data and additional secondary data to facilitate answering the core questions.

In order to support the analysis process, the application of qualitative coding will also be critical. The focus is on descriptive coding, which will enable recognizing similar themes in the content of the multiple cases. It will also enable supporting the grounded codes against operating with priori codes in order to advance new solutions for the research questions.

Ethics

Relying primarily on secondary resources minimizes the ethical concerns. Nevertheless, the study will address the issues, such as through making deliberate efforts to avoid biased responses from the interviewees. In order to control for this bias, the study will strive to keep the engagement conversational. The study will also ensure that the questions allow for third party projection, enabling the expression of answers that the respondent may not consider socially acceptable according to them and prevent habitual bias. Being based on secondary research, attributing all materials to their respective authors will enable preventing plagiarism. Specific information that may be disclosed in the study, or the research process, will be within the limitations of both local and international laws on business research.