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How can family-owned small ventures become
major global enterprises?
By Suresh Sharma
Most Indian family-owned business ventures plateau pretty quickly. Many in fact, fizzle out within one or two generations. Although founded on the courage of a passionate entrepreneur, combined with a lot of tenacity, ingenuity and creativity, very few of these ventures really make the mark on global scene. Even fewer are a sustainable global enterprise. I saw similar trends in China too where a large number of private enterprises are still family-owned.
What stops the growth and sustainability of family-owned enterprises? In my experience, comparing the business DNA, structure, and operations of many of such enterprises told some very telling underlying drivers.
The success lies in making the right bridges between people, process and tools. Good people will always create good companies. But, if you give good people – good processes – then they make great companies! Further, if good people with good processes are equipped with good tools – it makes them unbeatable!! Simple as it may sound – in practice – it is a challenging step change to achieve. To be able to graduate from a people-centric to a process-centric venture makes a world of difference to the scalability of your business.
Most of the family-owned enterprises get started with tremendous energy, a drive to fulfil ones own and family needs, and the willingness to make sacrifices to achieve them in their own life time. But, during that arduous and expeditious journey they typically miss to put robust processes in their venture. More often than not, it is the tools that take priority over process, e.g., If in a half hour meeting with someone , if your cell phone rings 10 times – it does not mean that you have the latest technology “iPhone” – it only means you have very poor processes in organization.
Lack of processes may seem like making the business very efficient in the short run, but it also makes the venture very brittle and not scalable in long run. Fundamental mistake most entrepreneurs make is - to confuse between Process and Bureaucracy. One needs to put robust processes in place not bureaucracy.
Sometimes, many entrepreneurs do land up installing a family hierarchy as a substitute for a process. That may achieve control but could be worse than governmental bureaucracy from a growth stand-point. They need to retain their entrepreneurial spirit but inject the right balance of healthy processes to scale their business growth. Even most of the very large Indian family-owned enterprises are still poor in good business processes – their long-term sustainability will be worth watching if things are not corrected in time.
Very quickly, here are a few of my benchmarks I find useful that can be leveraged to make the transitional step changes for global growth:
• Are you a “Kitchen-cabinet” or “Bed-room Boardroom” Company? Try and Keep about 20% outsiders in your family-owned decision making process. Exercising control while sharing information is more powerful than managing through denial of information.
• While ingenious “trading” was a core competency in 20th century – owning and running a global enterprise is going to be in 21st century. Otherwise, the family-owned venture will soon get commoditized.
• Succession planning and grooming must be done carefully – it does not happen automatically. Baby-boomers in U.S. are a classic example how and why so many family-owned enterprises are now up for sale.
• Figure out a way to keep your own family-structure and the value-system while letting every one in the family have their own space and professional pursuits. Force-fitting a unified ‘under-one-roof’ model may not be the best.
A former GE executive, Suresh Sharma is an internationally acknowledged business leader known for his thought-leadership, pragmatic vision, operational excellence, and entrepreneurial success.
In 2005, Suresh founded JS3 Global, LLC – a global “investment and operating company” – the company that helps growth of Medium & Small Enterprises by infusion of capital resources, leveraging emerging global markets, and injecting outstanding management DNA from their vast network of world-renowned associates (www.js3global.com) as necessary. Currently, he also is President and CEO of one of its new growth portfolio companies – Innovolt, Inc in the Energy Sector that has significant design, engineering, and manufacturing operations in India and Asia (www.innovoltinc.com).
A well-known international speaker, and co-author of the best-selling book (www.amazon.com) - “Global Outsourcing: Executing an Onshore, Nearshore and Offshore Strategy” (www.mivarpress.com), Suresh - played leading roles in setting up GE’s Global Outsourcing Centers in R&D, Engineering Services, IT, Retail, BPO, Manufacturing and Healthcare in India, Mexico, China, Canada, EU and Asia.
Further, he is especially recognized for his outstanding hands-on experience, and unique insights into doing Business Integration of many Cross-border Mergers and Acquisitions – thus translating inorganic into organic business growth.
His past work experience includes working with NASA at Langley in Hampton VA, British Aerospace plc and Rolls-Royce in England, and MATRA in France.
A native of Rajasthan, India, he hails from Jodhpur. An alumnus of BITS, Pilani, Suresh started his early career as a Naval Officer in India. Later, he did his Executive Management of Technology Programs in England, and has an M.S. in Aerospace from Univ. of Florida, U.S.A.
How Developing Countries Can Adapt
to Free Trade and Globalization
By Matt Welsh
The prevailing theory of free trade is based on comparative advantage. It states that free trade among nations will enable the most efficient allocation and production of goods and services, which assure high quality, low cost goods for all people in developing countries. Countries trade with other countries to increase their exports, which will lead to a higher GDP. An increase in exports leads to more jobs, money, foreign direct investment, and thus overall growth in a country’s GDP. Free trade and economic integration generates wealth, potentially making everyone better off.
However, some critics argue that developing countries do not benefit from economic integration because the prevailing theory of comparative advantage is agnostic about where the surplus of money goes. For example, the winners win and the losers lose. They believe that the surplus primarily goes to industrialized countries. In the short term, free trade has had a negative impact on the people in the manufacturing and agricultural sector within some developing countries.
Critics of free trade have valid reasons to be concerned about the people of developing countries. The lack of a perfectly competitive market exacerbates the problems associated with free trade. For example, developed countries such as the United States often provide subsidies for their agricultural sectors making it difficult for the developing countries to compete within the agricultural sector.
Consequently, countries tend to impose barriers to international trade to protect domestic industries with the goal to raise GDP. The public barriers to trade may include fiscal and non-fiscal barriers to make trade quantitatively less or qualitatively different. Fiscal barriers include discriminatory taxes, tariffs, and export subsidies. Non-fiscal barriers include quotas, discriminatory laws and regulations, and other non-tariff barriers. Private barriers to trade include consumer boycotts, dumping, and collusion, or a voluntary export restraint.
In order to alleviate some of the negative impacts of free trade on the people of developing countries it is important to focus on finding solutions to the problems and for developing countries to adapt to the flattening of the world.
Developing countries can not stop the forces of globalization and the flattening of the world. Protectionist policies and trying to prevent economic integration at best will result in spinning of their wheels and at worst will lead to financial crises. Developing countries must engage in some brutally honest introspection to face the challenges of economic integration by asking, “To what extent is my country advancing or being left behind by the flattening of the world, and to what extent is it adapting to and taking advantage of all the new platforms for collaboration.” (Thomas Friedman, The World is Flat).
The developing countries assess its strengths and weaknesses to determine how to best face the challenges and adapt to economic integration. For example, Brazil improved its economy by adopting more market-friendly macroeconomic policies. It adopted more export-oriented, free-market strategies-based on privatization of state companies, deregulation of financial markets, currency adjustments, foreign direct investment, shrinking subsidies, lowering of protectionist barriers, and introduction of more flexible labor laws. Developing countries such as China, Brazil and India who have also seen their economies grow as result of economic integration recognize the following irrefutable fact:
that more open and competitive markets are the only sustainable vehicle for growing a nation out of poverty, because they are the only guarantee that new ideas, technologies, and best practices will easily flow into your country and that private enterprises, and even government, will have the competitive incentive and flexibility to adopt those new ideas and turn them into jobs and products. (Thomas Friedman, The World is Flat).
For example, in 1990 the World Bank reported that there were roughly 375 million people in China living in extreme poverty, on less than $1 per day. By 2001, 212 million Chinese lived in extreme poverty and by 2015, economists predict there will only by 16 million living on less than $1.
John Chambers, CEO of Cisco System, which uses a global supply chain to build routers that run the Internet and is constantly looking for opportunities to invest in countries across the world, explained, “The jobs are going to go where the best-educated workforce is with the most competitive infrastructure and environment for creativity and supportive government. It is inevitable. And by definition those people will have the best standard of living.” In order for countries to attract the jobs, foreign direct investment and rise to the opportunities that economic integration presents to them, they must adopt the necessary legal regulations, economic policies and infrastructure.
Economic integration and adapting to globalization does not happen instantaneously. Changes in infrastructure, economic policies and laws should be implemented and adopted at a rate that is compatible for each country. As these changes are made, countries may experience short term losses in various industries such as uncompetitive industries losing jobs. These losses should not be discounted. For example if a person is unemployed, the unemployment rate for him or her is one hundred percent.
Possible solutions to mitigate these short term losses may include using non governmental organizations and international organizations like the WHO, WTO, IMF, UN, and World Bank to provide assistance to the people who are suffering from free trade while still allowing each nation to maintaining their national sovereignty. Additionally job training programs and increased educational opportunities will help those who lost their jobs to free trade in the developing countries attain the necessary skills to find a job again. If these issues are appropriately addressed and the necessary changes are made, then the people of the developing countries will also enjoy the benefits of free trade in the long run and the prevailing economic theory of free trade will prove not to be agnostic.
During Matt Welsh’s junior year of college at the University of Notre Dame, Matt reached a point of virtual self-destruction that
stirred within him the need to seek out an easier and more fulfilling way of life. This awakening sparked him to study the practices of today’s greatest spiritual teachers. His debut novel, The Bottom Line, tells the story about how their practices forever changed the way he lived his life. Matt also speaks to high school and college students about how they can turn their passions into their career path. Presently, he is a law student at Indiana University – Indianapolis. After he graduates from law school, Matt will work for the William Morris Agency.
You can read the first two chapters of The Bottom Line at Matt Welsh’s website, http://www.followyourpassiontoday.com
Disclaimer: The views and opinions expressed in these columns are solely those of the writers/interviewees and do not necessarily represent those of the editor/publisher.
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