By R.Sridharan

The quintessence of some of south India's oldest family-managed businesses can be found in the 'Exchange Building' on the congested Second Line Beach Road in Chennai's historic Georgetown. The unremarkable, soot-covered building houses the 136-year-old Madras Stock Exchange (MSE). Few come here; least of all investors. In a largely unambitious society that is almost scared of coming upon good fortune, Mammon is not the reigning deity. Indeed, the exchange seems to vegetate in the quiet confidence that none of the 1,800 companies that are listed with it will ever demand a marketplace for wealth-creation. The daily transaction volume of less than Rs 2 crore is just fine by it. Sure, many of the top Chennai-based companies trade on Dalal Street, but their valuations are abysmal. Yet, as one MSE member avers, not one of these groups has ever called an investor or analyst conference to hard-sell itself: ''None of the groups here is losing sleep over its poor valuations.''

They should be. Especially, the TVS, Amalgamations, MRF, and Murugappa groups. Years of conservatism have kept their largely commodity businesses small, regional, and woefully inadequate to take on global competition. A pre-occupation with manufacture-related issues has meant great products and quality, but virtual absence of marketing muscle. And since, by design, external stakeholder participation is low, the onus of funding growth is on the fractious families, most of whom are into their third or fourth generation.

Take TVS, for instance. The group runs some of the best auto-component companies in India. But compared to the Delphis, Visteons and Densos of the world, they are insignificant in terms of both size and technology. Similarly, MRF may be the largest Indian tyre manufacturer, but in terms of economies of scale and know-how, it is not a patch on global competitors such as Michelin and Bridgestone. Murugappa is stuck with commodity businesses like sugar, fertiliser, and bicycles, where there is little scope for value-addition. And Amalgamations may have 37 companies in its fold, but take out tractor company TAFE, India Pistons, Amco and Bimetal Bearings, and there's nothing much to the group. Notes R. Seshasayee, 52, managing director, Ashok Leyland: ''What's proving difficult today is how to remain competitive and yet profitable.''

The business challenges that each of these groups faces may not be unique. Across the country, hordes of companies -family-managed or otherwise-are having to rethink their survival strategies. But what makes the four of them unique is that their strategic responses are inextricably tied to the issue of family ownership. The family is it. For these groups, management truly begins at home; and balancing the dynamics of their extended families, or simply getting them to let go, poses the stiffest challenge.

If they can overcome internal hurdles, they will probably be the only south-based businesses that will be around 20 years hence. Agrees M.K. Raju, 76, a Chennai-based management consultant and one of the first professional Indian CEOs in south: ''If there is anything that matches their problems today it is the promise of what each of these groups can be.'' Will they deliver?

TVS: time to come together

Later this month, members of the extended T.V. Sundaram Iyengar family will come under one roof to listen to James Ward, a US-based consultant, who's been hired by the group to help it with the softer issues of family management. By all accounts, it will be a meeting worth having a seat in. Three generations of the family will convene to figure out the group's future. At one end of the age spectrum will be T.S. Santhanam, the frail octogenarian son of T.V. Sundaram Iyengar, and at the other end will be a new inductee, Krishna Mahesh, the 28-year-old son of K. Mahesh, who is expected to quit his job with McKinsey & Co. in the US and join his father's company, Sundaram Brake Linings.

To seasoned TVS watchers, the meeting signals the group's first serious attempt to rein in the family's two factions, with T.S. Santhanam, his sons, and the Madurai-based scions of the T.S. Rajam family on the one side, and his nephews Venu and Gopal (sons of T.S. Srinivasan) and Suresh, Mahesh and Ramesh (sons of T.S. Krishna) on the other.

Ward has been hired with the explicit brief of helping the families resolve a range of issues, including the setting up of a family counsel system; a process of induction and career planning for the younger scions; developing a means of exiting the family business, and compensation of family members who do not have or want a role in the group.

The move is significant, if belated. Ever since the passing away of second-generation scions (See The TVS Family), the inheritors have run their companies independently. Because of historic reasons, these companies had cross-holdings, shared the manufacturing facility at Padi (on the outskirts of Chennai), and also supplied and bought parts to and from each other. Like in any family, they had their share of sibling rivalry. And twice in the last two decades-1984 and 1992-the group tried to formally split. Both times, the tax implications of such a carve-up aborted the move.

Difference within the families may not have been completely buried, but today, the heads of individual businesses feel the need to come together. Technology will be a serious constraint for most TVS companies. Like Honda Motors, Suzuki Motor Company, the technology and equity collaborator in the group's two-wheeler manufacturing company, TVS Suzuki, nurses ambitions independent of the Indian joint venture. Already, TVS gets no help from Suzuki in the scooters business. In the case of Lucas TVS, an auto electricals joint venture, the group's partner Lucas Verity has been acquired by TRW, which wishes to exit automobile electricals business. Even if the Indian promoters acquire Lucas' stake, access to technology is likely to prove a problem.

Other TVS companies like Sundram Fasteners (SF), Brakes India and Sundaram Brake Linings (SBL) have managed without foreign partners. Indeed, SF and SBL also sell in foreign markets. But in the absence of deep pockets and world-class technology, they run the risk of being elbowed out in the global arena. Says a former Lucas TVS executive: ''These companies are good at implementing quality systems, but weak when it comes to the question of technological innovations.''

The larger TVS companies have grown up supplying components to Ashok Leyland, TELCO, Hindustan Motors, Premier Auto and, of late, Maruti Udyog. All these vehicle manufacturers are now facing tremendous market pressure. Some TVS companies do supply to the new crop of vehicle manufacturers, but most of them have brought in tow their own global vendors.

That said, it is a fact that TVS is probably the only Indian vendor group which can aspire to become a Tier-I supplier. Here's why: Sundaram Clayton makes forgings; Wheels India makes wheels; Brakes India supplies braking systems, and SBL provides brake linings (they even have a tyre company, TVS Srichakra, but it makes two-wheeler tyres). And since all these companies are located at Padi, they are ideally placed to manufacture and supply complete systems.

The TVS scions are aware of this potential. And while Ward's recommendations will not impact business alignments, they may help create the environment for such a move. Agrees N.S. Narasimhan, 65, a TVS veteran and now a productivity consultant: ''The reason why the group had such a meteoric rise was because the second generation worked like a synergistic team. The family members need to share their strengths again.'' If not love, at least the sheer logic of it should be motive enough.

Amalgamations: moving, but not fast enough

It isn't the shoes of A. Sivasailam, the 66-year-old chairman of Amalgamations, most managers in the group's companies wish they could be in; it's his 41-year-old daughter, Mallika Srinivasan's. That desire isn't totally inexplicable. In a slow-moving group where control is all, the Wharton grad symbolises the kind of dynamism and freedom other manager scions can only wish for. Not incidentally, she has the biggest piece of the Amalgamations pie-tractor major TAFE.

Mallika, who's married to Venu Srinivasan of TVS Suzuki, has been doing such a good job of cranking up a low-torque TAFE that many see her as a successor to Sivasailam, although A. Krishnamoorthy (Sivasailam's younger brother) and N. Venkataramani (husband of Sivasailam's sister, Sita) could rightfully stake their claim ahead of her.

Yet, one Mallika is simply not enough to shake up a group that has chosen to do little more than make do with what was given to it by its dynamic founder, S. Anantharamakrishnan. Plus or minus a couple, the group to date has only as many companies (37, to be precise) as it had begun with in the newly-liberated India. Says a senior group executive: ''There is no ambition to expand; the objective is to retain and manage whatever is there.''

There's just one hitch with that credo: it won't take Amalgamations far. In fact, it already has paid a heavy price for its complacency. One group company India Pistons was the first Indian auto components company; and another, Higginbothams, was India's first book-store chain. But the group's insularity has lost it the first-mover advantage. The result: It's not a leader in any of its 13 businesses, although three-fourths of the group's total sales are derived from tractors and auto components.

Not long ago, TAFE's Massey Ferguson tractors used to be the most popular brand in India. Today, TAFE is number three in the industry. And India Pistons, the company that introduced terms like management trainee and executive assistant (C.K. Prahalad started his career as ea to then Managing Director M.K. Raju, in India Pistons in the late 1960s), now rakes in Rs 160 crore in sales versus the Rs 180-crore notched up by rival Goetze (India).

To make matters worse, Amalgamations is going through a period of internal strife. The family has four branches: Sivasailam, and daughters Mallika and Jayashree; Krishnamoorthy, who has no children; Venkatramani and his sons Anantharamakrishnan and Gautam; and Sivasailam's other brother-in-law, K.S. Sundaram, his son Shankar Sundaram, and daughter Lakshmi.

The Sundarams consider themselves the most sinned against. Their grudge: unequal distribution of shareholding, and their exclusion from management of any of the big companies. When the group founder Anantharamakrishnan died in-estate, shares in group holding company Amalgamations, were divided equally among his four children and wife. When the wife died, her 20 per cent was transferred to a trust controlled by Sivasailam and Krishnamoorthy. The Sundarams now claim a quarter of it as their rightful share. Says a person close to the Sundaram family: ''None of those who run Amalgamations today have had any role in its founding. So, why should they alone be entitled to the management?''

Sivasailam's defenders claim he is unwilling to give the Sundarams a larger say because of their poor track record in managing companies. They cite the example of Riechold Chemicals and Madras Hi-tech Circuits which they claim Shankar Sundaram ran to the ground.

Shankar Sundaram is open to the idea of selling his stake, but there are few takers with 80 per cent being locked up with other promoters. And Sundaram's asking price for the 10 per cent stake is reported to be around Rs 400 crore. Sivasailam is said to be open to buying him out-but at the 'right price', which, understandably, is much lower.

Twice, the Company Law Board (CLB) has advised the family to reach an out-of-court settlement. But it is precisely their inability to sort out the issue between themselves that drove them to CLB. ''It is messier than it looks,'' says a family friend.

Things will probably come to a head when Sivasailam and Krishnamoorthy are no more. Since the latter has no children, it remains to be seen who inherits his stake. People familiar with the matter say that the likely heir could be S. Narayanan, a professional engineer and son of Sivasailam's cousin N. Sivasailam, who works as a general manager in the Krishnamoorthy-managed Bimetal Bearings. The fact that it was Krishnamoorthy who brought Narayanan to Bimetal, lends credence to the speculation.

Group executives claim Mallika and Venkataramani are aware of the necessary changes. At TAFE, Mallika is cracking the whip. Her focus areas: technology, human resources, and marketing. Consultants are busy helping her modernise the company's old facilities. A company that for long put loyalty over competence is changing tack and demanding that its professionals deliver. Firing slackers is not a sacrilege any more. Mallika isn't winning many friends among the old-timers, but she isn't worried. As she's been heard saying: ''The market isn't being kind to TAFE, so why should it be kind to non-performers?'' Similarly, India Pistons has been modernising its old plants and expanding capacity.

Long-time Amalgamations watchers predict that the group will eventually focus on a few core areas such as tractors, auto components, plantations, and distribution. As for funding future growth, Mallika has been heard saying that the group will sell stake as and when the need arises. But the question is: will competition wait for Amalgamations to put its house in order? The answer is no.

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