Outperforming businesses that are not family-owned, the family-owned businesses (FOBs) are set to drive around 80 to 85 per cent of India’s gross domestic product (GDP) by 2047, according to a report on family offices by McKinsey. FOBs reported higher growth in revenue and nearly double returns to the shareholders as compared to the business not owned by family from 2021 to 2022, according to the report.
The McKinsey report is based on an analysis of over 300 publicly listed FOBs with each having over Rs 2,000 crore annual revenue, atleast once, over the last five years. The FOBs contribute more than 75 per cent of the nation’s GDP as of now.
The report stated that the revenue growth of FOBs was reported around 2.3 per cent higher than their counterparts from 2017 to 2022. The period from 2021 to 2022 saw FOBs providing nearly double returns to their shareholders as compared to businesses that are not family-owned.
The top-performing FOBs not only have 2.9 per cent higher revenue growth, but they also have operating margins which outperform their counterparts by 6.3 percentage points, as per the report.
As far as the challenges for FOBs in India are concerned, the McKinsey report highlighted two such challenges. Indian FOBs have to put in extra effort to not only maintain their higher growth rates but also to stay relevant in the current scenario.
If FOBs want to stay on the growth path going ahead, they need to be bold and their owners must understand what drives standard performance, the report noted.
Highlighting the top qualities and focus of FOBs, the report stated that the top-performing FOBs tend to focus more on core operational distinctiveness, the effectiveness of transition to the next generation along the level of diversification of their portfolios.
McKinsey estimates points that improvement in performance of one quintile could lead to about Rs 100 to Rs 300 crore additional economic gain for an average FOB over five years.
