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As compared to other communities, the entrepreneurial activity amongst the Muslims in India is highest. Surveys have revealed that 50 per cent of Indian Muslims are self-employed implying a high-level of business/ entrepreneurial activity within the community.
Indeed, the gamut of this entrepreneurial activity by Indian Muslims spans from small traditional craftsmanship, retail vending to large national and even global trade, manufacturing and technology businesses that are benefiting from the boom in the Indian economy.
Various challenges are faced by many Muslim entrepreneurs in India which include low profits, margins being squeezed by middlemen / traders, and lack of technological innovation and financial support.
When we look at the Indian Muslim entrepreneurs only few names have made it to the big league, such as Azim Premji’s Wipro Technologies, Habil Khorakiwala’s Wockhardt, Ansaris’, Mid-day multimedia group, Yusuf Hamieds’ Cipla, Yusuf Noorani’s Zodiac, Himalaya Drugs of Meraj Manal, Shahnaz Herbals, Lokhandwala Construction led by Mr. Siraj Lokhandwala, Allana Group, Mirza Tanners, Patel Roadways, and a few others.
Except for a couple of these Muslim owned companies, rest of these are stagnating or seeing decline. The next 10 years will see most Muslim family-owned businesses coming under threat due to lack of investment in technology upgradation and deficient tapping of the global markets.
A family’s ownership of a business, according to Grant Thornton International divisional director (Asia Pacific) Gabriel R. Azedo, invariably comes in the way of the business’ growth.
“There is a limit to which the family can invest. If a business wants to grow, it has to get investments from other shareholders,” he said adding: “We have seen a reduced reluctance to give away control among families in the Asia Pacific region in the last few years. The desire to retain control is more pronounced in situations where capital is either scarce or expensive.”
“A publicly-listed company dominated by a single family is perceived to favour the family’s interest by the investors,” he said.
Grant Thornton had recently conducted a global study on family businesses which said that while businessmen the world over are handing over the reins to professionals, retaining control over the business and passing it on to the next generation is still the driving passion for most Indian businessmen.
Several “first-generation” Muslim entrepreneurs executives and traders-turned- entrepreneurs, who opportunistically set up sub-economic manufacturing plants have vanished because they could not infuse more funds and were not willing to delegate powers to professional managers..
However, second-and third-generation Muslim family businesses, led by young managers, have undertaken painful restructuring, transformed business models, redesigned organisations and would rather fight battles in the market place than in the corridors of power.
But complex “ownership” and “family” circle issues are typically resolved in a slipshod manner — by fragmenting businesses into as many parts as the number of siblings and creating a web of cross-holdings. Successful European businesses used core “family values” as an ethical guiding star. Formal family constitution laid down rules and codes of conduct, modified as and when required.
It’s another wake-up call for Muslim family-owned businesses in India. A study by McKinsey has concluded that the future of a majority of such companies is under threat, owing to a clash of interests between families and their businesses. A classical example is Ahmed Oomer Mills, the maker of the once famous ‘Postman’ brand groundnut oil. Family dispute was the reason for the closure of one of the highest selling cooking oil in India.
Personal ambitions and jealousy within families have also led frequently to the splitting of groups, with families frequently being unable to allocate business responsibilities on the basis of proven ability and track record. With family issues thus staying in focus, business logic has often tended to take a back seat, with the inevitable consequences.
The other important reason for the decline of the Muslim owned business in India is that the rules of the game have changed. From the days of the licence-permit raj, where family-run businesses may have had a comparative advantage, we have moved to a market reality where the defining characteristic is customer focus.
In a recent paper, Andersen Consulting identified four forces as key drivers of today’s business strategy, irrespective of the ownership profile of the organization. Successful companies cater to customer demand for higher quality and service, have the ability to attract and retain the best people, show quick response to international competition and manage the fast adoption of new and rapidly changing technologies.
With a few exceptions, most of the Muslim owned business in India invests in research to innovate for better quality products or higher quality service. Most of the Muslim owned businesses in India are also yet to realize the importance of technology upgradation and infusion of funds. Also Empowerment and decentralized decision-making are now the norm, whereas most Muslim owned businesses still believe in passing the baton from, and father to son as though competence and experience are at a discount.
A major factor for the stagnation of Muslim owned businesses in India is the non-availability of suitable financing for entrepreneurs. The probable solution is the venture capital.
Though the United States is not an “Islamic” country by conventional definition, in spirit and in real terms, its financing institutions offer more Shariah compliant financing and investment than the one provided by all the Islamic banks combined.
American venture capital firms provide in excess of $25 billion per year in equity financing to help finance the development and growth of thousands of new startups in health care, information technology, and other promising industries.
For Muslim owned businesses in India venture capital is one of the alternatives. If they are truly interested in growing and expanding their business, they must encourage original discovery, research and invention to attract venture capital.
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