In India, for time immemorial, the outlook for businesses has always been long term. If you look at some big family-owned corporate houses like the Tatas, Birlas, Godrejs, and Khaitans, they have all been for many decades. It is not difficult to understand the reasoning for the same. Since most of these businesses have large stakes owned by the founding families, the management baton gets passed on from generation to generation. Now, this also extends to other micro, small, and medium enterprises. In India, you will find many of these units that are more than 40–50 years old.
When businesses are family owned, they are concerned about long-term wealth creation. It is an Indian trait that families would like to leave wealth for the next generations. The objective is to be successful now and for the next few generations. Not just that, families are also concerned about their social status, family reputation, and goodwill. This inherent need ensures that businesses are managed with a sense of responsibility and financial acumen. Therefore, decisions are made with a long-term view rather than a short-term approach for shoring up profits on a quarter-by-quarter basis or propping up short-term valuations. There is a sense of self-discipline, control, and close monitoring, particularly of issues related to cash flow. This ensures that businesses are run on the back of solid foundations.
This is in total contrast to American companies, where decisions are based on quarterly results. American CEOs are often under tremendous pressure to demonstrate some visible action just for the short term, even if it has an unfavourable long-term impact on the business. The impact of having a long-term perspective on business is manifold:
Indian companies do not shy away from making substantial capital investments in research and development or technology where the payback period is longer. A quick scan of the landscape of Indian-owned companies would reveal that many of the successful Indian companies have ventured into areas like Automobiles (Bajaj, Mahindra), Steel (Tata, Jindal), Engineering (Godrej), Infrastructure (Adani, L&T), Cement (Birla), and so on where the capital investments are high and payback periods long.
Customers also build a long-term association with such companies because of the trust they have. They feel confident and assured that the companies will not fold up in the short term, leaving them high and dry for support later on. On the other hand, I have seen customers quite wary of buying products from foreign companies as they are unsure about the long-term availability of support.
Companies with a long-term perspective are positioned to attract and retain the best talent in the industry. This is quite obvious, as companies that have been successful for an extended period are perceived as not short-sighted in their approach and, hence, a better place to work.
Companies that have a long standing tend to earn a lot of goodwill from the government of the day. This aspect comes in handy in countries like India, where the role of government in the smooth running of the business is still critical. The government often takes the views of such businesses with a long legacy and success, while formulating policies. Therefore, most Indian companies put a lot of effort into sustaining their business in the long term by even taking short-term hits.
Lastly, Indian-owned companies have a sense of responsibility to their employees because of the family values they cherish. This sense of responsibility prevents them from making short-term decisions that may impact their employees’ lives. They may prefer to endure short-term losses or shocks instead of making tough decisions that may affect their employees’ lives.
I want to add here that all the above points are valid and applicable to all traditional Indian family-owned businesses. The Indian entrepreneurs of today have a different outlook toward business. Here, I can see a convergence of the American way of doing business and the new Indian way of doing business. But unlike Americans who believe that in the long term, we are dead, for Indians, in the long term, we may be dead, but our atma (soul) is eternal!
Excerpted with permission from What They Don't Teach You About Indian Management Style, published by Notion Press. You can buy the book here.