According to a Credit Suisse report, India has 108 publicly listed family owned businesses, which is the third highest in the world. China tops the tally with 167 companies followed by the US which has 121. As per the report, India ranks 5th with an average market cap of $6.5 billion in terms of average m-cap. This is excluding Japan and India ranks 22nd globally. Besides China, India and the US, the other top 10 countries in terms of number of family owned companies include France at the 4th place, Hong Kong at the 5th place, Korea at the 6th place, Malaysia at the 7th place, Thailand at the 8th place, Indonesia at the 9th place and Mexico at the 10th place.
If considered in terms of average size, the ranking will change in favor of the developed markets. The average market cap for the family owned business is greatest in Spain, which is at $30 billion, Netherlands is also at $30 billion followed by Japan at $24 billion and Switzerland at $22 billion. The report by Credit Suisse covered about 1000 family owned companies based on region, size and sector. The report further mentioned that companies surveyed in India were more mature with 60% of the family business in their third generation as compared to 30% of the Chinese companies.
The report mentioned that the financial performance of family owned companies is also superior to that of non-family owned peers. The family businesses also appear to focus more on the long term growth and they have outperformed peers in terms of their share price returns. At the country level, Chinese, Indonesian and Indian family owned companies appear to be the most expensive, they are trading at high absolute multiples with a 12 month price to earnings ratio of 15-16 times as compared to 10-13 times P/E of companies in Hong Kong, Korea and Singapore.
For the database of family owned companies, the definition used is a minimum shareholding of 20% or minimum voting rights of 20%. In terms of challenges, Chinese family owned companies rank succession planning as a least important issue. However, they worry much more about the threat of technological disruption which could be driven by the country’s greater exposure to disruptive technologies globally. Challenges seen as most prominent in India include succession planning followed by greater competition and the retention of talent.
Overall, the findings show that the Indian family owned businesses appear to be much more optimistic about the future revenue growth and also have a more conservative approach to fund the growth. Many of the Indian and Chinese companies surveyed generate revenues in excess of $500 million, and majority of these businesses are located across sectors of industrials, financials and IT. India is slightly behind China in social issues and the adoption of environment related issues. 65% companies adopt policies in relation to this as compared to 35% in India. The research shows that investors are not concerned about the level of ownership but rather how involved the owners are in the daily business operations.