Global Family Business

During the last century, the combination of new technologies, economic development and increasing market opportunities have contributed to the increase of family business.

Family business implies ownership control (more than 15 per cent) by two or more members of one family or a partnership of families, strategic influence on the firm management by family members, concern for family relationships, and the possibility of continuity across generations. A family-owned and family-run business is notable for the presence of the family, and business continuity from generation to generation. The interaction of family ownership and management, combined with high unity of the family, results in the unique source of competitive advantage of the business.

Family businesses are essential to the economic well-being of countries all over the globe. Currently, family business controls the largest portion of businesses in the Middle East, the US, Asia, Spain and Italy. In India, more than 95% of business remains family-controlled and family-run. The United Kingdom has rather a low percentage of family-owned companies in Europe (75% of British businesses), compared to Italian with 99% and Swedish with its 90%. Family enterprises are run and controlled by both men and women. Therefore, in UK female entrepreneurship is higher than the G8 average.

Advantages and Disadvantages of Family Business

Family involvement generates better internal coordination, external relationships, monitoring of agents and long-term commitment. Family members are concerned about the family reputation, wealth and the business owned by the family. Conflicts can be resolved with fewer negative outcomes due to the personal motive to guarantee that the firm is successful. The close integration of the firm and the family produces a strong social and emotional endowment and commitments to the business. In addition, there is no need for external sources of investment; family capital is available and reliable. Thus, the firm may be able to display greater strategic persistence and take actions, such as long-term investments that may allow introducing new highly competitive products into the market.

However, the coin has two sides. The other side of the coin represents the disadvantages of the family business, such as agency conflicts between controlling and minority owners, less flexible and less entrepreneurial management, high levels of conflict. In addition, weaker governance allows mediocre management and tolerates limitation in the mobilization of non-family talent. Moreover, parental altruism and indulgence may lead to poor preparation of successors.

Four Points of Success of Family Business

Family-run and family-controlled organisations are successful in managing risk and maintaining personal wealth from generation to generation due to strategic planning combined with appropriate business performance, corporate and social governance, corporate social responsibility, and philanthropy. The capability to control and manage business performance is a significant factor of the firm`s competitiveness. The business performance involves a set of analytic and management processes that enables the management of the company to achieve the company`s goals.

Business performance of family-run business enhances agency cost, leadership, and stakeholder efficiencies. Improved leadership is justified by centralised decision-making, lower transaction costs and greater flexibility. In addition, decisions relating to growth and investment are long-term oriented. At the same time, family business performance is characterised by slow adaptation and low innovation pressures due to maintaining traditional business practices. The desire to secure family success may also lead to inefficient management. Priority differentiation of family enterprise is characterised by the orientation of family members on different non-financial goals, succession and stability.

The 21st century has put one of the stresses of successful business on corporate governance. Corporate governance is a set of rules and practices by which the company’s board of directors ensures transparency, accountability, and fairness in a company's relationship with its stakeholders. Such code of principles is aimed at running and controlling a modern corporation or enterprise. Corporate and social governance involves market and regulatory mechanisms, and the relationships between the corporation’s management, its shareholders and other stakeholders, its board of directors, employees, customers, government, and the community.

An important point of corporate governance is the extent of accountability of people involved in the business. Corporate governance involves implicit and explicit contracts between the company and the stakeholders for distribution of their rights, responsibilities, and rewards. It promotes procedures for regulating stakeholders` conflicts of interest in accordance with their duties, privileges, and roles, and procedures for proper control and supervision.

Corporate social responsibility initiates the measurable payoff to the firm and its shareholders. Performing the policy of social responsibility, a company develops and ensures that business is consistent with international law, international norms and ethical standards. Social responsibility has a significant positive impact on the environment, communities, consumers, employees, and all other members of the public who may also be considered as stakeholders.

In addition, social responsibility has its benefits for the company, such as gaining competitive advantage, reducing costs and risks, developing and maintaining reputational and legitimacy capital, and achieving win-win results through synergistic value creation. Reduction of costs and risks can be attained by employing such social responsibilities, as energy-saving and environmental protection practices, equal employment opportunities, and community relations manager. Initiation of such practices may lead to tax advantages offered by city or government, reduction of the firm`s operating costs and low employee turnover through improved morale. Competitive advantage is attained by promoting customer relations programmes, corporate philanthropy and equal employment opportunity policies. Promotion of corporate disclosure and transparency results in creating and sustaining legitimacy and reputation.

The long-term vision of family entrepreneurs is concluded in the ambition to create wealth and values for their heirs and society. Thus, philanthropy becomes an expression of both spiritual and natural values. It is concluded in support of the communities in which they manage supply chains and offer employment opportunities. Philanthropic support and donations can be interpreted as a desire to leave a strong family legacy and share their success with the community. However, the desire to give back to the community unites family members.

Philanthropic activities may include designating a particular charity of the year, employee volunteering, employee fundraising, gifts or cash to charity, running different charitable activities, work experience or internships within the business, etc. During the last decade, the number of corporate foundations has increased. For example, in the UK, a corporate foundation can be established as a trust, a charitable company, or, as a charitable incorporated organisation. As a distinct charitable entity, the corporate foundation has its own reporting and compliance obligations. In addition, tax reliefs are available in respect of donations from the business, individual family members or employees to the corporate foundation.

In a rapidly changing social, cultural and economic context, sharing common family goals and projects can help in overcoming generation gaps. Philanthropy may be a tool for parents to teach their children not only to make their money but also to understand their value. During the discussions, dialogues, conversations over the project children can be taught to defend their point of view. Thus, the next generations of the family business can find their modus operandi of shaping their personality through philanthropy.

Tata Group`s Keys of Success

Tata Group due to its adherence to business ethics and strong values has been respected in India for more than a century. Currently, Tata Group controls more than 100 operating companies in different business spheres, such as materials, energy, chemicals, consumer products, engineering, communications and information technology. According to official data, in 2011-2012, the joint revenue of the Tata group companies was $100.09 billion.

Focused on innovations and new technologies, Tata develops its business both in India and internationally. This international conglomerate has its companies in 80 countries and employs over 450,000 people all over the globe. Tata Group integrates such giants as Tata Steel, Tata Power, Tata Motors, Tata Consultancy Services, Indian Hotels, Tata Global Beverages, Tata Chemicals, Tata Teleservices, Titan, and Tata Communications. Tata Steel belongs to the ten major steel producers, and Tata Motors is one of the five largest commercial vehicle manufacturers worldwide. Tata Consultancy Services is a leader of software companies all over the globe. Tata Chemicals is the second-largest producer of soda and Tata Global Beverages is the second-largest tea company in the world.

The philosophy of Tata`s business is based on giving back to the society they serve. More than half of the equity capital of the Tata promoter holding company (Tata Sons) is held by philanthropic foundations established by members of the Tata family.

The above-mentioned philanthropic trusts have founded national institutions for medical research, social studies, science and technology, and the performing arts. In addition, the trusts provide help and assistance to non-governmental organisations in the spheres of health care, education, and livelihoods. In 2011, around 3 per cent of the group's total profit was spent on development-related programmes of the trusts. Tata companies also provide people around their industrial units with social welfare activities.

From the beginning of Tata Group, the Tata`s idea of nation-building has been included in the establishment and support of institutions of research, learning, knowledge and intellectual capital. Indian Institute of Science, the Tata Institute of Social Sciences Institute of Fundamental Research have been established and got the financial assistance of Tata`s companies. In 1941, Tata Group set up a cancer centre, the Tata Memorial Centre.

The centre has nearly 25,000 patients each year from all over India and neighbouring countries. In addition, about 60 per cent of patients are treated free of cost.

The JRD Tata Ecotechnology Centre administers literacy programmes for the poor educating them on how to use computers and high technology. It assists in interaction and advocacy with the government. The centre creates village knowledge centres, where poor people can seek information on health, government programmes, agriculture, horticulture, animal husbandry, subsidies, etc.

Tata`s trusts initiatives are also focused on the sanitation, drinking water, and agriculture problems of different regions. Central India Initiative administers plenty of livelihood projects and programmes across central India. Himmothan Pariyojana is the initiative related to the main rural development issues of the inhabitants of the Himalayas. Kharash Vistarotthan Yojana`s initiatives address the seawater ingress in the Gujarat coastline. Drought-proofing in the desert regions of Rajasthan also draw trusts` attention. In South India, the Tata`s foundations support a vast community-based microfinance programme by reducing vulnerabilities and strengthening livelihoods. Series of interventions with the purpose of encouraging crop diversification are led in Tamil and Punjab. The Tata`s Mission Swach Jal promotes awareness among people across India about the importance of safe drinking water.

Moreover, Tata`s philanthropic foundations make financial contributions and assistance to more than 600 non-governmental organisations in different social development sectors (civil society, governance and human rights, education, health, etc.). Trusts` grants address reforming of elementary school and adoption of nurturing education at school. Financial assistance in the health sector is aimed at rural health problems, children with special needs, mental health diagnoses and treatment. Contributions are made to health systems development, clinical establishment, and human resources. Tata`s individual grants include means- and merit-based educational as well as medical grants. The trusts also provide financial support for relief and rehabilitation to the victims of natural catastrophes and man-made disasters.

Cultural sphere and spiritual values of the communities in India are also supported by Tata Group. Tata`s trust provides people with crafts based and sustaining livelihoods in performing arts. Although digitisation is inevitable in contemporary art, conservation and traditions are highly valued and financially supported by Tata companies.

Social responsibility of Tata Group is noticeable through the Tata Affirmative Action Programme. Since Tata believes in social equity, Tata companies employ people from socially and economically disadvantaged communities and engage them as business partners, without sacrificing quality or merit. Tata Group creates an opportunity for such candidates to be employed by such a respectful corporation through the policy of 4E (employment, employability, entrepreneurship, and education). The emphasis is based on long-term scholarship projects among governmental schools with engagement by non-governmental organisations and company volunteers. Enhancing the employability and entrepreneurial abilities of people from disadvantaged communities, Tata companies create and promote access to quality education, skills, and competencies. A variety of training programmes are administered by Tata companies in order to enhance young employees` skills and knowledge. In addition, the Tata Affirmative Action Programme involves different entrepreneurship development programmes.

Following the globalisation strategy and enhancing social responsibility, an international internship programme was initiated by Tata Group. The programme aims at giving an opportunity to students from across the globe to gain the Tata work experience. Group HR department is now developing its international internship programme in the UK. An intern is paid subsistence money and provided with local transportation, boarding, medical support, etc. Tata companies have established a number of towns as symbols of a close relationship with their employees that incorporate home, family and workplace in a single sphere.

The Tata Management Training Centre is associated with a cradle for Tata executives. Tata`s training programmes are focused on facilitation of attitudinal and behavioural changes of employees, facilitation of solutions for organisational issues, development of learning organisations, improvement of organisational performance among practising managers. Participants are highly involved in the discussion of various issues, plans, and problems concerning their organisations. They also have the privilege to listen to senior Tata group leaders. Moreover, Tata companies help professional women who have taken a career break to return to the job market by offering business projects with flexible schedules and employment.

Thus, members of the family, stakeholders, executives, employees are concerned about the strategy, business ethics, social responsibility and the reputation of Tata Group in the marketplace. Social responsibility and philanthropy have been the core of the family business running since the foundation of the Tata Group. While setting up manufactures, Tata companies always think of workers’ welfare, requirements of the country and needs of the community. Tata's development programmes and pieces of training multiply the intellectual capital of the conglomeration by valuing and empowering employees. Tata Group`s stakeholders attributed to the brand trust and integrity, responsibility and fairness, innovation and entrepreneurship, service to the community, global aspiration, reliability of the brand, and perception of "goodness".

Being one of the main characters of India`s globalisation and internationalisation, the conglomeration remains the leader of nation-builders and the supporter of traditions. Held together by the culture, members of the family produce strong social and emotional endowment and commitments to the business. Strong unity of family results in increasing profits of Tata Group, its outstanding reputation, global influence and significance. More samples of business stories check on https://writingleader.com/journal-article-critique.