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Banking industry

Indian Family Businesses Face Challenges Amidst Inflation and Rising Costs

Strategic Insights

— 2 min read

The Reserve Bank of India will need to consider policy interventions to support family businesses, which are facing growing competition, rising costs, and difficulties in digital transformation. A survey report by SP Jain Institute of Management & Research found that micro and small family businesses in India continue to dominate the landscape, with 55.7% citing growing competition as the top challenge. Rising costs of raw materials and labor are also significant concerns, particularly for micro enterprises. Despite awareness of digital transformation, only a small proportion of family businesses have adopted e-commerce and digital sales, highlighting a need for policy incentives to encourage technology adoption.

Key Takeaways:

  • The survey report "India: State of Family Business 2023" covered 357 family businesses across 17 cities in India, with 137 micro enterprises, 136 small businesses, and 66 medium enterprises.
  • Growing competition was the top challenge for 55.7% of family businesses surveyed, followed by 53.2% citing rising costs of raw materials and 50% citing increasing costs of labor.
  • Among MSME family businesses, growing competition was the top challenge for 57.3% of micro enterprises, 55.4% of small enterprises, and 51.5% of medium enterprises.
  • The high cost of raw materials, rising labor costs, and shrinking markets were equally significant challenges for micro enterprises, with 55% of family businesses facing these issues.
  • Despite awareness of digital transformation, only 37.5% of family businesses surveyed had no digital sales, while 57% had less than 20% of digital sales.
  • The report emphasized the need for policy incentives to encourage technology adoption and digital solutions for operational enhancement, customer outreach, and competitive positioning.
  • Founder dependence and the reluctance of senior-generation members to relinquish control were significant concerns, with first-generation involvement continuing in more than 50% of businesses surveyed.
  • The report stressed the importance of supporting next-generation family business leaders, with 70% of businesses being second-generation businesses.

Statistics:

  • 55.7% of family businesses surveyed reported growing competition as the top challenge in business.
  • 53.2% of family businesses reported business challenges due to the rising cost of raw materials.
  • 50% of family businesses reported increasing costs of labor as a hindrance to business.
  • 57.3% of micro MSME family businesses reported growing competition as a top challenge.
  • 55.4% of small MSME family businesses reported growing competition as a top challenge.
  • 51.5% of medium MSME family businesses reported growing competition as a top challenge.
  • 37.5% of family businesses surveyed had no digital sales.
  • 57% of family businesses had less than 20% of digital sales.
  • 4.7% of family businesses reported online sales above 50% of total sales.
  • 70% of family businesses were second-generation businesses.

Sources:

  • "India: State of Family Business 2023" survey report by SP Jain Institute of Management & Research.

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