c




  



By,









 !"

Dept. of Business Management,

Osmania University

#  

3.20 %, 2.00 %, 1.10% ----- GDP Growth Rates of the United States in ͛07- ͛09 resp.

9.20 %, 9.00 %, 7.40% ----- GDP Growth Rates Of India in ͛07 ʹ ͛09 resp.

The above numbers clearly indicates how the recession has impacted the United States and India. While, the US
was down in the shambles, India comfortably beat the estimates and outperformed most of the countries
around the world. Though Lion͛s share of this growth can be attributed to the timely intervention of Govt. of
India in the form of monetary and fiscal policies, the management practices implemented by the Indian
Companies can not be ignored.

Family-based conglomerates dominated Indian business in the pre-liberalization era. Their way of doing business
differs from the western way. The traits such as single ownership, personal relation with employees are unheard
of in the present world. Most Indian companies, post liberalization, successfully transformed into the western
way but the reminiscences of the old ways can still be seen. In fact, the contemporary businesses principles
followed the top business houses in India bear heavy resemblance to that of the family owned businesses of pre
liberalization era.

This paper attempts to highlight the contemporary business practices in India. It is these practices that saved
India from the wrath of the global recession. A comparative study of the Western and Indian business practices
is done. This paper sheds some light on how Indian companies have maintained impressive growth rates even in
recession.
 
$ 


India is the second fastest growing economy during recession. According to a recent survey, India
stood third in the list of least effected economies during recession. In 2009 alone, Indian equity
markets rallied over 81 percent, when other economies are reeling under the recessionary pressures.
According to Govt. estimates, India will regain the 9% growth rate by 2011, which is several times that
of the United States. So, why is that Indian companies are doing so well and their American
counterparts are failing to catch up? The answer lies in the management practices followed by the
Indian Companies.

India is increasingly being portrayed as a chief economy in the world business. Companies like ICICI,
Reliance, Infosys are moving onto the world stage to compete with the western MNCs. Indian
companies are have delivered growth rates that would be the envy of any western MNC.

Many believe that it was American style of capitalism, which was popular around the world until the
recent recession, was behind the rapid growth of Indian Companies and that Indian companies
adapted the ͚American Lessons͛ and leadership tactics of Steve Jobs or Jack Welch. One cannot be
more wrong! Though well aware of the western method, Indian companies have their own way of
creating ͚paths͛ and managing ͚issues͛.

The economists around the world believe that, India has attained a stage where ͚Indian Way͛ of doing
things can be adapted by the different parts of world. Much like ͚Toyota Way͛ which was followed and
practiced beyond boundaries, India has mastered the business practices which, if adapted, could be
beneficial to other economies.

The time is right for the world to understand India and the factors that are powering India͛s growth.



#$ 
  

%


 &

From the post liberalization era of 1991, Indian companies have followed a path less travelled. Though,
the ͚influence͛ of the ͚developed͛ world cannot be ruled out, Indian organizations have tried to etch
out a more ͚Indianised͛ way of doing things. Though some practices are in stark contrast with the
popular methods, Indian companies followed them and achieved success.

Of all the practices, the following stand out:

'
'


 ':

Modern capitalism can be broken down into three major eras. The first, managerial capitalism began in
1932 and was defined by the then radical notion that firms ought to have professional
management. The second, shareholder value capitalism, began in 1976. Its governing premise is that
the purpose of every corporation should be to maximize shareholders͛ wealth. If firms pursue this
goal, the thinking goes, both shareholders and society will benefit. This is a tragically flawed premise,
and it is time we abandoned it and made the shift to a third era customer-driven capitalism

Indian CEOs, on the other hand give unequivocal priority to another stakeholder Ͷ the employee.
Maybe it͛s the lack of leadership band-width, maybe its part of a patriarchal culture in transition, but
the CEOs interviewed in this project all tended to give the highest priority to developing and
empowering their people. In fact, after business strategy formulation, the Indian CEOs next highest
priority is building organizational culture, followed by acting as role model and teaching employees. In
a survey done by a team of Wharton Professors who interviewed top CEOs of top 100 companies in
India, the majority responses were ͚employee retention͛, ͚recruitment and developing talent.͛ This sum
up the importance an Indian CEO gives to his employees. ͚Employees͛ are viewed as an ͚asset͛ in India
compared to ͚cost͛ in the western world.

HCL has been a pioneer in employee centric approach. Its motto of ͚Employee first, Customer Second͛
has been a great asset to the company. Fortune Magazine in 2006 dubbed HCL team as the ͚world͛s
most modern management͛. Reliance͛s Mukesh Ambani believes that the real strength of India is the
depth of the talent she has. Companies like Tata, M&M give high priority to their Human Resources.

One argument here has been that the in US most operations are ͚outsourced͛ so, the need to maintain
such employee relation is unnecessary. Contrary to the popular belief, India has been on par with US in
terms of outsourcing. A third of Indian business is outsourced and yet India companies maintain HR
relationships a lot better than US. The important advantage of this approach is reciprocity with
employees. If a company takes care of its employee needs, a bond is formed between company and its
employee and he/she tries to fulfill his end of deal- serve the best interests of company (Think offering
citizenship to an alien).

%%
#(

)


Affordable Innovation (A.I) is an innovation which is: a) Relevant b) Viable and c) Accessible.

Affordable innovation has a lot to do with the process innovation. It is always more useful in tweaking
the existing processes to attain the desired output rather than inventing a whole new product.

The following are the main advantages of A.I:

u„ Advantage of Being First.

u„ Protect the IP and perform licensing/Franchise which can incur profits.
u„ Competitors cannot easily reverse engineer as these are high on technology.

Companies that continue to invest in sustainable innovation practices and deliver affordable products
are the companies that will win the greatest market share. It is these companies that will lead us out of
today͛s global recession.

Narayana Hrudayalaya could be the best example for Affordable innovation. Based in Bangalore, this
cardiac specialty hospital is going great guns. Cardiac surgeries in the United States can cost up to
US$50,000. In India, they typically cost around US$5,000-US$7,000. Depending on the complexities of
the procedure and the length of the patient's stay at the hospital, the price tag increases. At Narayana
Hrudayalaya, however, surgeries cost less than US$3,000, irrespective of the complexity of the
procedure or the length of hospitalization.

PepsiCo India has been planning to bring out a micro nutrient supplier for just Rs.2. In fact, the
portfolio of PepsiCo India has always been 70% fun and 30% good for customers. This micro nutrient
has the essential nutrients like Vitamin A and Iron, which the rural India is always deficient of.

Aravind Eye Care is an exemplar in Affordable Innovation. It is fueled by a self-funding model: roughly
40% of its patients, those ͞paying͟ for its services, provide the profit margins to deliver a high-quality
service for the rest of the 60%, ͞non-paying͟ poor patients. Today, with 3,500 beds in five hospitals, it
is one of the largest eye care systems in the world. In the most recent fiscal year, Aravind screened 2.3
million outpatients and performed 270,000 surgeries. Over the last 30 years since its founding Aravind
has screened 22.37 million outpatients and performed 2.8 million surgeries. One of the truly
astounding aspects of this high-performance model has been the self-sustaining fiscal engine that has
driven Aravind͛s impressive growth. Because Aravind was set up as a charitable trust (i.e., as a
nonprofit) the surplus has been constantly fed back into the system for improvements and expansion.
Of the 270,000 surgeries performed, about 60% of fell into the ͞free section͟. Paying patients made up
approximately 40% of the total pool. These are patients who walk into one of the five hospitals seeking
the high-quality services they would seek in a private clinic. Such customers are provided a
differentiated service in both the outpatient and inpatient clinics. Thus, Aravind Eye Care successfully
established a model of affordable innovation and is serving the nation.

MART RURAL, a specialist in rural marketing, has always been an advocate of affordable innovation.
Global giant DuPont took the assistance of Mart Rural in identifying the needs of the rural India, so that
they can launch the products which are affordable and accessible to the target population.

c*
+,*,"
-,.-"*
+
*.,.
.



,
,

,.
!
!""
"*/
*,

""
,

0


*,+.*
1*"*+
,
,,
%"
#,**&

After World War II, Corporate model of ownership and organization, in contrast to family owned and
small scale operations were predominantly in vogue. By encouraging family owned business model,
India has challenged, what has been the dominant model for business in many parts of the world.

The Indian family business dates back to the latter half of the 19th century, which also marks the
beginning of business in India. It is not surprising then that family-run businesses currently account for
a whopping 95 per cent of all Indian companies. Considering that one-third of the companies listed in
]
 fall under this category, including the currently second Wal-Mart, family businesses have
indubitably cemented their place in the world economy.
The Indian economy, currently in a state of rapid development, is burgeoning with innumerable small
and medium-sized family-run enterprises. Family businesses in India initially started in the 1890s as a
means to promote import substitution and attain economic freedom from the British. These
enterprises were an integral part of India͛s freedom struggle, and as part of the ÷

 movement,
got special treatment and subsidies from the government.

Interest in family business is recent and it has got the western academicians curious.

Since they normally do not have short term orientation but are interested in growing the family wealth
with necessary precautions and have a different set of strategic goals compared to non-family owned
private companies (Ward, 1987; Sharma, Chrisman and Chua, 1997), their long term contribution to
economy is significant. This is true with the Indian economy too.

%*!
.*"*&

*
 --
-

This is the case of a family that has built a successful business empire over four generations. Started in
the early 1900s by Dewan Bahadur Murugappa Chettiar as money lender and trader, the family-
governed Murugappa Group is the one of the largest business groups in India, with over Rs 35 billion in
sales and over 23,000 employees as of 2004. The third and fourth generations of the family are
successfully managing the loose confederation of several companies and a number of SBUs that form
the Group. The family believes that business is a means to serve the society and have contributed
immensely to the society.

Each of the seven flag-ship companies of the group was headed by a family member as CEO, with no
formal interaction among the companies as a Group, but only informal consultations among family
members. Male family members (women do not join business) start their career as junior executives,
and depending on their performance, move up in the organisation. They are mentored by senior
family members, both on business and family values.

1
-

Dabur was started in 1884 by Dr Burman to manufacture and sell traditional; Indian medicine called
ayurveda. However, it was only in 1986, almost a century later, that it became a public limited
company. Retaining its core values and traditions around healthcare products, the group has grown in
the past two decades. The turnover in 2004 stood at Rs.16 billion compared to Rs.11 billion in 1999.
Its networth also has grown substantially during this periodOne of the oldest business groups in India,

Corporate governance and transparency in action is high priority for Dabur. It has not only followed all
the legal and regulatory requirements, but also developed corporate governance guidelines for itself.
For instance, it constantly looks for efforts to introduce professional approaches to management.
Dabur believes that the family has a trusteeship role to follow both in terms of perpetuating the family
business and in preserving and growing the business. For Dabur, the family and the business are
institutions to preserve.

ß
-

Started in 1879 is a textile company by Nowrosjee Wadia, this diversified group has registered a
turnover of Rs.26.31 billion in 2004. It was in 1954 that they entered inorganic chemicals business and
in the mid-80s further diversified into engineering products. The business activities of the group cover
plantations, trading, foods, laminates, healthcare and real estate too. However, Bombay Dyeing, in the
textiles business, continued to be the major brand and revenue source. The group͛s acquisition of
Britannia Industries, one of the market leaders in biscuits manufacturing and marketing, in 1993
marked a major growth push for the group. It was able to move into a higher growth orbit clocking a
turnover of over Rs. 20 billion in 1994-95, up from Rs.12 billion in 1992-93

*
-

Into the fourth generation, the Godrej group is over a century old, having started by Ardeshir Godrej to
make locks. The three generations that built the group added several products to the portfolio. From
locks in 1887, to soaps in 1918 and refrigerators in 1958, the group has steadily grown over the years.

It is highly diversified group, present in industries ranging from food, soaps and detergents, consumer
durables, electronics, insecticide, veterinary products and engineering. The group has acquired brands
such as Fiskars, Jet and Banish and has forged alliances with several transnationals such as GE, P&G,
Pillsbury, and Sara Lee. The group turnover grew from Rs 28 billion in 1999 to Rs.33 billion in 2004

The Godrej was awarded the Citizen of the Year in 2003 by the Economic Times for its contribution to
social development. The family strongly believes in the trusteeship role of each member in
perpetuating the family and the business. In its 100-year old history, the group has never experienced
a single split. Although the group͛s titular head is still the patriarch, S P Godrej, all the group͛s
businesses are managed by the third generation.

*
.,1,

They repeatedly remind themselves of the need to preserve the wealth for the future generations, as is
basically the Indian family tradition, disregarding religious affinity. Research has shown that the
financial logic that drives family businesses is found to be different from non-family businesses. The
driving forces for family businesses are related to growth, risk and ownership control (Gallo, Tapies and
Cappuyns 2004). The presence of a large team consisting of older generation with tempered (balanced)
views and reduced risk taking propensity because of age, and adventurous younger generation leads to
the creation of an interesting balance that facilitates family business to perpetuate over generations.
Business moves ahead, but with the long term sustainability objectives in mind. In family businesses
where family members are competent managers, professionals find the environment very conducive to
work, and draw synergies.
 
*
,.*,
+
%"
#,*&

Families in India are in some ways microcosmic socio-economic systems, strongly embedded in their
local communities, and have a long tradition of giving to the poor, needy and destitute. Business
families, for instance, do not focus only on achieving sustainable financial growth, but also on
contributing a part of their income for social good. As the charitable impulses of family businesses
slowly transformed into sustainable organized philanthropic initiatives, companies started setting up
Corporate Social Responsibility (CSR) wings.

During the independence movement, several industrial thought leaders extended their financial
support to leaders of the freedom struggle. G.D. Birla's financial contributions to the movement and
Ardeshir Godrej's generous donation to the Tilak Fund for the upliftment of Harijans were notable
among these. The Tatas and the Murugappas pioneered charitable contributions to hospitals and
schools. Currently, on average, Tata Sons contributes between 8 to 14 percent of its net profit every
year for philanthropic activities through the various Tata Trusts.

What we call family-corporate jugalbandi is the most common model of philanthropy in India. One
such example is the Krishi Gram Vikas Kendra (KGVK), an NGO set up by Usha Martin Limited, which
receives a fixed annual grant from the company. GMR Varalakshmi Foundation, GMR group's family
foundation, is another example of family-corporate jugalbandi where the family business contributes a
fixed percentage of its surplus to the foundation annually. Contemporary business philanthropy strives
to create awareness about environmental issues such as afforestation, water harvesting, global
warming; about issues like foeticide, discrimination against girl child, and about the spread of diseases
like HIV-AIDS. ,
*2**
.*
+
*
*,*
+"
,
*
 ,,
*"+
1*,
*.*


*"+"*
*.*

*
.*
+
,
*
'-"

*!,
*
"*
.,&
3***

., 4

Some companies simply specialize in a limited part of the value chain and outsource the rest. That is
how Bharti Airtel has built up the largest mobile-services operation in India ʹ and the fastest growing
one in the world, in terms of subscribers ʹ by specializing in a small part of the value chain i.e.,
customer care and regulatory interface, despite initially trailing better funded competitors. Its recipe:
radical outsourcing of IT services to IBM and of the development and management of its telecom
network to Ericsson, Nokia, and Siemens. These changes freed up Bharti͛s capital, and allowed the
company to target pricing levels of 1.5-2 cents per minute, as against 20 cents per minute in advanced
markets, all of which fuelled rapid growth and penetration.

The logic in all these cases is two-fold: either to cut costs (if there is a substantial wage difference) or
induct diverse skill sets into their fold. This indeed is the logic behind US outsourcing to India. Infosys,
incidentally is not alone in championing this drive for acquiring global talent. Tata Consultancy Service
maintains a head count of nearly 5,000 workers in Brazil, Chile and Uruguay. Cognizant Technology
Solutions, another Indian company runs two back offices in Phoenix and Shanghai, while Wipro,
another Indian technology services company, has offshore centres in Canada, China, Portugal, Romania
and Saudi Arabia, among other ͞low cost͟ locations.

,0*
++
,, &

Skilled talent is hard to find, and difficult to retain in emerging markets. Recognizing that India͛s
medical education infrastructure is growing, Apollo hospital established a foundation in 1998 to
finance new teaching institutes, including one that offers a post graduate degree in hospital
management and a nursing school. It has also introduced programs to train physiotherapists, medical
technicians, and laboratory technicians. It provides nurses with medical training as well as
communication and customer-service skills. Without all these investments in training, Apollo hospitals
would not have been able to sustain its growth.

%  :

India Way: How India's Top Business Leaders Are Revolutionizing Management

http://www.thehindubusinessline.com/

http://outsourceportfolio.com/reverse-outsourcing/

http://business.in.com/article/isb/family-and-corporate-philanthropy-emerging-trends-in-india/

͞Indian Family Businesses: Their survival beyond three generations͟ by Prof. Ram, ISB