Family businesses tend to get insular

Family businesses tend to get insular

New Delhi: In 1981, Jack Trout co-authored the seminal marketing book, Positioning: The Battle for Your Mind, which talked about how companies can target customers in a crowded market by clever positioning of the product. Trout is now consulting with the Bajaj group of companies and was in India ahead of a round of meetings with them and to participate in an event organized by the Confederation of Indian Industry on “The end of family business". He spoke to Mint on the Indian experience of family businesses, including his ongoing work with the Bajaj family. Edited excerpts:

What brings you to India at this point of time?

The work I am doing for the Bajaj.

Indian industry has traditionally been dominated by family business. Is that a good thing?

I wouldn’t say it is a good thing and neither am I going to say it is a bad thing. But I would say family businesses tend to get insular; they tend to be inside thinking as opposed to outside thinking. And there is a lot of politicking involved. It is very difficult to maintain a family business over a long period of time. And what I have learnt is that you don’t have inheritance taxes here (in India) unlike in the US. Family businesses are very hard to find in the US, because if someone dies the kids have to sell the business to pay the taxes. So a family business does not survive due to our tax structure. And I guess that’s why family businesses in India are so powerful—they don’t pay inheritance taxes.

Family businesses probably worked well in an old India and may not do so in a rapidly growing economy.

That’s correct.

So then does it make sense that family business in India should transition to more corporate structures?

Yes. I think that with the world of competition arriving and things happening, family businesses have to become much more like ordinary businesses —much more corporate, using good strategy, and result-oriented. I think the family business becomes less important and the market place becomes more important.

But that involves huge structural change within.

And also change in egos, which is a big problem in family businesses. I can always speak about the US. The ensuing generations are less interested in the business than the generation who founded it. How do I keep the next generation involved? And the answer is: with great difficulty. Now there is a lot of money floating around and the next generation wants to go out and have fun. It’s a big problem. While the earlier generation have worked very hard, they discover their kids don’t want to work hard.

In your line of business you are obviously consulting with companies and in this case it is the Bajaj family. It has been a brand name for a long time in India. How is this playing out for them?

The next generation is very active. I mean in the auto part, especially motorcycles, the next generation, primarily Rajiv Bajaj (managing director, Bajaj Auto Ltd), has become very aggressive, has taken charge and is very much involved in the business. So they don’t have that problem of disinterest as you see in some families. And I am also aware of Fabindia, where the son (William Bissell) has taken the business to a whole new level after his father (John Bissell) died. I told him recently that you are lucky you don’t have your father looking over your shoulder; so you can make changes. That is the hardest part of a family business. The next generation wants to change things, do things a bit differently… this is a problem because the older generation very much wants to hang on to what made them successful.

But in the Bajaj family you have precisely this problem.

He (Rahul Bajaj) is there. But, I think the younger generation has been very active and making some decisions. I think the patriarch (Rahul) now recognizes that what his son is doing is working quite well. So I think that is the only way you can get around some of these conflicts: You have to say I am going to do this and what you have to do has to work. If it doesn’t you have a problem.

Rajiv Bajaj has been repositioning the brand. Do you agree with the strategy?

I would agree exactly with what he has done. I would say those he has made, even without me, are essentially good moves. All I am doing is enhance what he has done.

Is that why you are here now?

To help strengthen the strategy, to give it a little more momentum. And, I think that is very important.

Any other plans for the Bajaj brand?

Generally speaking, I would say they continue doing what they are doing. They are moving into a multi-brand world: They got to discover a brand for the commuter; they have a Pulsar brand for the sport bikes and they still want to maintain their dominance in the little three-wheeler taxis (auto rickshaws). So nothing dramatically different; it’s doing what they do better.

You had mentioned about the importance of nurturing the Bajaj brand and not diffuse it over multiple products.

Yes. There is a whole lot of discussion on this. I am working with the motorcycle piece of this. There are other companies in the group—insurance, finance, electrical. I am less enthusiastic about that. I would much rather see the non-motorcycle pieces of the company evolve into their own brand names. I think what you have to recognize is that all markets evolve. Sometimes you have disruptive technologies—the Sony Walkman disappeared when the iPod showed up. So there is always an evolutionary thing and hence you have to be careful about that.

This world in India is becoming much more competitive. And I guess my point is that the non-motorcycle pieces of the company (need) to be as competitive as they have to be in the other businesses. I think they have to look at their own brands: Will I do better with my own brand name and find a way to differentiate it against my competition? I am not here to force them to change anything. I am just saying that it may make more sense for the future as India develops.

You have always spoken about the need to have a stratified positioning of products. Does this fit the Indian context and are domestic companies willing to walk the distance?

I think India is essentially becoming like everyone else. Culturally they are very different from when I came here. I think it is changing very rapidly; the younger generation is coming more into play in these companies. India is dramatically joining the rest of the world. You still have your cultural differences, but I see dramatic changes driven by the younger generation.

The iPhone challenges this notion of segmentation?

No, it is a segment: a smartphone. This is a new segment which they have been pioneering at this point of time. The BlackBerry and the iPhone (form) a brand new segment that didn’t exist in the market place when people just used their phones to talk. Now they are computers. And they have apps like computers and can do all kinds of things. So in a way it is not one business, it is a new segment. Now Nokia is trying to figure out how to get back into the smartphone game.

Is the Internet tending to homogenize global markets?

I think it is making sort of everybody the same. In other words, everything used to be very distinct. I think communications, the global economy is homogenizing things. But the principles—who’s hot and who’s not—will play out. In many ways it will make it very easier. So in a way it is less complicated.

Does that mean it will be easier to have a universal product now?

Yes. If you think about Apple, it is becoming a universal product. At the Apple stores, people go in there and go crazy and play with the gadgets. They can do that because technology has become very universal.