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Transgenerational succession of family business in an indian culture.- an investigation

CHAPTER I

INTRODUCTION

1.1. Background and Motivation

Family businesses play a very important role in the economic development of all countries (Urassa, 2009).The contribution of family businesses to the global GDP is reported as ranging from 70 percent to 90 percent(Family Firm Institute,2012).According to the European Commission(2009) statistics, 60 percent of the European businesses is constituted by the family  businesses.

 

One important issue that has becometopic of research regarding the family business is the transgenerational ownership transfer or succession of the family businesses (Maaluetal,2013).This issue has become one of significant relevance due to the high failure rates in thetrans generational succession of family businesses (PriceWaterCoopers, 2009). Studies showed many family businesses selling off or getting terminated after the death of the founder in many countries (Master and Leavens, 2010). Moreover, the decisions regarding the succession in the family run businesses in many countries were dependent on the family relations and the values rather than the needs for the businesses as well as the capabilities of the successor (Frishkoff, 1994). This in turn could have resulted inthe high failure rates of the transgenerational succession in the family businesses, which becomes an issue of considerable interest among the researchers. Thus, the survival of the family business in the long term had been a major concern among the researchers in this field. The successful handling of thetrans generational succession of ownership is considered a significant factor determining the successful performance of the family businesses in the long term (Maaluetal, 2013). Hence, the factors contributing to its success needs to be examined in detail, which has important policy implications, given the role played by the family businesses in the economic development of countries.

 Theoretically, there had been many attempts to explain the success factors for the transgenerational succession of family businesses based on agency theory, resource and capacities theory, stewardship theory etc. However, no single theory was able to explain this alone (Molina and Rutterford, 2011). The empirical studies in this regard show mixed results in this regard and there are variations in the results depending on the cultural regions where the family businesses are located (Gupta and Levinberg, 2010).Thus cultural variations play a major role in explaining the reasons behind the success or failure of the transgenerational succession of the family businesses.

1.2. Research Context

In India, 90 percent of the total output is accounted for by family run business. Moreover, 79 percent of the organized private sector employment and 27 percent of the overall employment   is accounted for by the family run business (Bernard, 2013). One primary issue faced by the Indian family businesses is reported as the transgenerational succession failures due to improper succession planning (Margaret, 2014). Moreover majority(52%) of the CEOS in the family run businesses in India were reported to be in power till their deaths , higher than the trend found in even developed nations like America, as show by studies(Margaret,2014). Studies also show that the survival rate of the family businesses until the third generation is only 13 percent and after that the rate is only 4 percent(Bernard,2013). Moreover, the studies also show the disintegration of many family businesses in India due to generational conflicts (Bernard, 2013). This shows the problems with transgenerational succession as one major issue in the family run businesses in India that can affect its performance. Since the studies show the role of the cultural contexts within which the family businesses are run in determining the nature of the businesses and related issues as explained earlier, there can be differences in this regard based on cultural variations. Thus, the transgenerational succession issues and the factors needed for the success  of the transgenerational succession in the family run businesses needs to be examined in detail based on the cultural contexts of different  family businesses,  given the significant contribution  of the family businesses  to the Indian economy. There is a lack of  detailed studies in this regard in the Indian context. This study tries to fill this gap.

The next section discusses the research question, aim and objective of the study.

1.3. Problem Statement

  Given the high failure rates of transgenerational successions in the family businesses in India, it becomes relevant to examine why these rates are high .Moreover, the different factors required for the success of transgenerational succession in these family businesses also need to be identified, in the context of cultural variations among these family businesses. Thus, how to make them survive in the long run needs to be examined in the Indian context.

1.4. Research Questions, Aim and Objectives

  Given the above background, the research questions of the study are the following

(1)What are the main transgenerational succession issues in the family run businesses in Indian culture?

(2)Which factors are needed for the success of transgenerational succession in the family businesses in India?

The aim of the study is to examine the transgenerational succession issues in the family run businesses in India and to examine the required  factors needed for the success of the transgenertaional succession in the family run businesses in India

The objectives of the study are the following

(1)To examine the main transgenerational succession issues in the family run businesses in India

(2)To examine the reasons for the transgenerational succession issues in the  family run businesses in India

(3)To suggest recommendations for the success of the transgenerational succession in family businesses in India

1.5. Structure of the Study

The study is organized as follows. There are five chapters for this study. In this chapter, the relevance of the study is clearly pointed out along with the aim and objectives. In the next chapter, the existing theoretical and empirical studies related to the objectives are critically examined .Based on this review, the research gaps and the theoretical framework for this study is identified. In the third chapter, the research methodology for the study is discussed. The choice of methodology based on the review of existing methodologies, data collection, sample selection methods, analysis procedure and limitations of the research are discussed in this chapter. In the fourth chapter, the findings of the study based on the analysis are discussed and interpreted. The fifth chapter concludes the study providing summary of the study, conclusions, recommendations and scope for future research.

The next chapter critically reviews the existing theoretical and empirical studies related to the aim and objectives of the study.

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You are here: Home Resources Samples Transgenerational succession of family business in an indian culture.- an investigation