Post liberalisation, family firms bet big on services: ISB

Hyderabad: Post liberalisation of the Indian economy in 1991, Indian family firms underwent a sea change and rapidly moved from manufacturing to services sectors, a study titled – ‘Family businesses and India’s transition to a service led economy (1991 – 2018)’ by the Thomas Schmidheiny Centre for Family Enterprise at ISB has revealed.
The findings of the study, which were shared on Monday, were based on the data of companies listed on the NSE and BSE.The study analysed industry-wise affiliation of 4,589 companies over a period of 28 years. “We found that Indian family firms rapidly moved from manufacturing to services post-liberalization and then from traditional to modern services as the millennium ended. While the entry of standalone family firms in the second half of the 1980s decade kick-started the movement of family firms into the services sector, family business group firms continue to dominate SFFs today on measures of both size and profitability across the services sector,” said Nupur Pavan Bang, associate director, Thomas Schmidheiny Centre for Family Enterprise.
A number of standalone family firms were incorporated in the late 1980s and the first half of the 1990s which took advantage of the newfound demand from both global and domestic fronts for services. As per the study, barring a few years, family firms have consistently been valued more by investors when compared to non-family firms and the family firms in the services sector have been valued much higher by investors than firms in the manufacturing sector. The study notes that post 2000, when digitization took off, family firms asserted their dominance in the modern services sectors such as telecom and software, outshining MNCs and state-owned enterprises. The family firms continued to maintain a strong presence in traditional services such as trade and construction, which continue to generate sizeable profits. Industries where family firms have performed their best in terms of return on assets are a mix of traditional service sectors such as trade, construction, modern and hybrid services like IT services.
“In the past three decades, while modern services have taken up the mantle in terms of economic growth, older and traditional sectors remain prolific profit churners for family firms and their investors,” it said.