Connecting Family Business & Generations A Case of ...

International case studies conference on March 1, 2013 at Amity Business School, Gurgaon, Amity University Haryana

Connecting Family Business & Generations A Case of Hafizia Art & Crafts Pvt. Ltd.

Authors Prof. Manoj Joshi, FIE, Ph.D (Strategy)* Professor of Strategy, Entrepreneurship and Innovation, Amity Business School, Amity University, Lucknow Campus, INDIA Email: [email protected] Handy: (+91) 9415017498 Apoorva Srivastava**, Masters in Economics and Financial Econometrics, Lecturer, Amity Business School, Amity University, Lucknow Campus, INDIA Email: [email protected] Handy: (+91) 9621546781

BEST CASE AWARD

Prof. M Joshi: Represents Editorial Board of IJEI, JFBM, JSSBM, JCE, WREMSD, BSEVEM, Foundations and Trends in Entrepreneurship, ABJ etc that are leading International Peer Reviewed Journals. Case writing is his keen interest, besides, mentoring Entrepreneurs and consulting on Innovation and Family Business Strategy. Prior to academics, he has been Head in Business Development and Engineering Design, with leading International Screw Pump/Heat Exchanger Manufacturers.

Apoorva Srivastava: Is a Masters in Economics and Financial Econometrics. Research Interest areas include Energy Hedge funds, Game Theory and Mechanism design.

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Abstract Hafizia is the sixth generation business. A legacy was established by Haji Noor Mohammad, followed by his grandson, Haji Ilahi Baksh. Haji Noor migrated to Sitapur in 1968. The legacy was followed by grandfather, Mr. Haji Asghar Ali and further by Mr. Hafiz Mohammad Akram. Hafizia was set up in 1992 at Sitapur(U.P), India. It is a leading manufacturer and exporter of superior range of home furnishing products. Hafizia supplies floor covering products to many Indian retail stores. It gives direct employment to 450 – 500 people and indirectly supports more than 1000 families. The business of Hafizia is totally owned and operated by family members with the help of employees. As of now, most of the marketing activity is handled by Zubair Akram and Umair Akram, two sons of the founder Akram. Both are Directors in the business. Zubair Akram has been active in Sampling, Research and Development. The board has separated the areas of marketing -region wise to avoid conflict and miscommunication. Akram, Managing Director of Hafizia works as a mentor for marketing and daily operations. Hafizia emerged as the sole exports firm to some of the major destinations of the international markets. Most of the activities of the business from marketing, sampling, production, finance, day to day activity of the organization are handled and operated by family members. Strategy still, is undefined, the firm produces and sells world over but has not been able to create a brand name for itself. Diversification stands to be another issue. The imbroglio surrounds professionalization and internationalization of business. The firm also needs a Decision Making cell. Keywords: Professionalization, Internationalization, Strategy.

Entrepreneurial

Strategy,

Diversification,

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History Hafizia is a sixth generation family business. The legacy was established by Haji Noor Mohammad. He laid the foundations of manufacturing in the year 1870 in a small village named ‘Paintepur’ in the district of Sitapur. It was followed by his grandson Haji Ilahi Baksh, who along with manufacturing had begun ‘yarn trading’ business in the year 1915. Later, he built his business network in other states of India to supply the production done by the weavers of his village. During 1942 Quit Indian Movement, he set up schools to reduce illiteracy in the village. Today around 3500 students attend the school on a nominal fee. At the same time, he also set up foundations of a market place especially for weavers in Sitapur, with the help of his friends. It was done to facilitate interactions between the buyers and the weavers, weavers could sell their production directly and also buy yarn inputs from this market. Out of 25% share of market, he donated 50% of his earned income to the schools towards educating weaver’s children. Later, he migrated to Sitapur in 1968. His legacy was followed by grandfather Haji Asghar Ali and by Hafiz Mohammad Akram. Introduction Hafizia was set up in 1992 at Sitapur (U.P), India. It is a leading manufacturer and exporter of superior range of home furnishing products (mainly rugs, carpets, cushion & throws). It has state of the art infrastructure that is spread over 2,15,000 sq. ft. Hafizia is a centralized unit, having its own dyeing, weaving, and finishing units. It exports to more than 25 countries across the globe. Its main customers include Lone Teppich of Norway, Zara Home, Spain, Nitori, Japan,Ikea , den, Indoor Group, Finland, Anttila, Finland, Maison, France, Crate & Barrel, USA, Safavieh, USA, Freedom, Australia, Falabella, Argentina, Sodimac, Chile. Hafizia also supplied floor covering products to many Indian Retail Stores mainly Reliance Retail, Spencer’s and Home Town. It gives direct employment to 450 – 500 people and indirectly supported more than 1000 families. Milestones During 1993, Hafizia indirectly manufactured for IKEA and supported directly and indirectly around 500 families. During 1998, a new factory of about 2,15,000 sq. feet was established to meet high demand for Handwoven rugs. It was in 1999, that the first direct order was exported to France. During 2004, it participated, for the first time in International Exhibition, Carpet Expo organized by CEPC in New Delhi. In 2005, Hafizia Art & Crafts was incorporated into a Private Limited Company and henceforth known as ‘Hafizia Arts & Crafts Pvt. Ltd’. The firm also participated for the first time in Heimtextil India. In order to expand, the firm established a new unit with 110 looms for Jacquard Woven Rugs, in addition to existing 357 3


pit looms. In 2006, a new dyeing unit was established, having dyeing capacity of 3 MT per day. In 2007, it exhibited for the first time in Heimtextil - Frankfurt, Germany. During 2008, the firm endeavored to open up a new showroom in Gurgaon for customer convenience. It was in 2009, that the firm participated for the first time in Domotex - Hannover, Germany. Later during the year, it achieved ISO 9001:2008 Certification and BSCI Certification. In 2010, the firm attained ISO 14001 & Good Weave Certification. Of late, in 2012, Hafizia achieved SA 8000 certification. Opportunities Hafizia is selling more than 70% of its products to Europe mostly Scandinavian countries, and has to tap upon lot more opportunities for selling in other countries like U.S.A, Japan, Australia, Latin America and many more. Rugs is the main product of selling, the business could also include many other categories of floor covering like, Tufted, Carpets, bath mats and accessories like Cushions, Poufs etc. If the business increases their participation in other exhibitions, those are held at different locations of the world, business could secure even more exposure for its products. It could start its Domestic Brand in floor covering to tap the Indian market. Other objectives of the company ought to include, a joint venture with a foreign business to enter into the U.S.A, because it’s a huge market for carpets and rugs. In Sitapur district, hardly 6-7 companies export their products and rest manufacture who later, produce and supply to other companies at Bhadohi, Delhi, and Panipat. Professionalism The rug industry is very traditional, people are engaged in this business very long time and they put looms in their houses and start weaving. Professional education is not required to enter into the business. Most of the companies manufacture the product and sell it to the companies in Bhadohi, Delhi and Panipat, for further processing and exports. Professional education or attitude is not required. Hafizia started exporting since 1999, in earlier days, it had been difficult to teach professionalism. The top management or Board of Directors had been professional in Hafizia. They acted, planned and implemented duly. The departmental heads were less responsible. Hafizia is the first business in the region to implement Carpet ERP. International Market Zubair Akram, Executive Director and elder son of the Founder H.M. Akram joined the business. With lots of investigations and research based on his contacts, he could secure his first order from France in the year 1999. He dropped his last semester of BBA and joined the business full time. The first invoice was generated on a ‘Typewriter’. After having little experience, he started participating in various fairs of Textile in Delhi and Mumbai, where he 4


interacted with lots of buying houses, wholesalers, retailers, but the response is too slow and buyers did not order the bulk quantities. As a result the management decided to stop participating in India and utilize the resources of foreign market. In the year of 2007, Hafizia participated first time in Heimtextil, Frankfurt Germany with 3*3mts. stand, and got a good response from buyers. In the next year, the business participated in the World’s largest floor covering exhibition. Domotex, Hannover, Germany. At present Hafizia is exporting its products in around 25 nations across the globe, having very renowned customers like Zara Home, Ikea and Nitori. Diversification As of now business, the business is not diversified, though there are plans to move into the organic Farming and commodities business. Firm Performance A market based firm performance of the firm reveals that Nordic nations are the major buyers from Hafizia. The exports have gone as far as a Chile and Japan. While in France, the firm is still striving to keep up with the market requirements. A region wise business performance shall reveal that Europe has been the major buyer traditionally, though, its share in recent years has dwindled by the growing shares of nations in Australia and Oceania. A business performance based on domestic & international sale by firm reveals that the exports have been the mainstay of the firm’s performance, withering away every concern for a better coverage of international markets, but, at the same time, also keeping up with the prospects open to derive the same quality for the domestic units. A customer wise business performance reveals that Swedish firm Lone Teppich tops the chart in the year 2010-11 but has been overrun by the presence of some US firms mainly. Though, may be the total exports to such firms have not increased, the diversification in terms of sale focus has shifted towards other firms as well. This comes as a good sign for a firm which has been exporting into sixty nations around the world. Core Competencies An In-house Design & Development having 4 Designers and dedicated sampling unit having 11 looms has been the niche of the firm. A Collection Launch had been done twice a year. The firm has an In-house Dyeing having a capacity of 3 MT per day. 40% of the weaving is done in-house, with stitching having 25 latest machines, finishing and packaging is also done inwardly. The firm had been using the ERP software that has been customized and regulated from time to time. Hafizia had been a centralized unit having its own warehouse, dyeing, weaving, finishing, packing and dispatch facility. It boasts of being one of the most organized business in the Rug Industry. An ISO 9001, 14001, BSCI, Good Weave and SA 8000 Certified business with a state of art infrastructure spread over 150000 sq. ft. of huge collections of various designs. More innovative with modern tools and equipments. Investment on R&D 5


had been always more than any business in the industry. A dedicated team of 20 members had always been engaged in R&D throughout the year. Hafizia had been working with world’s largest and most renowned retailers like ZARA, IKEA, NITORI and many more. Hafizia has been continuously improving on its quality and delivery schedule. Family Business Issues Sometimes conflicts did arise on some minor issues like way of doing the work, investment issues, heavy investment on construction issues, conflict arises due to lack of proper planning and individuals working nature. However, resolution includes, Board Meetings in Head office at Sitapur where all the Directors, Managing Director and Business’s President cum CEO Mr. Ajey Sabarwal sit together and discuss all the issues one by one and arrived at solutions. If still all the members do not agree on solution the resolution is put to vote. Out of 5 Directors if 3 are agreed on option 1, it should assume as a final Decision. Influence of family members on firm performance The business of Hafizia is totally owned and operated by family members with the help of other team members. As of now, most of the marketing activity is handled by Zubair Akram and Umair Akram, two elder son of the founder H.M. Akram. Both are Directors in the business. Board has separated the areas of marketing, region wise, to avoid conflict and miscommunication. Mr. Ubaid Akram, Director and third son of the Founder are responsible for daily operations of the business, as well as responsible for all the order follow up. He is also the “Senior Management Representative” in the business. So most of the activities of the business from marketing, sampling, production, finance, to day to day activity of the organization is handled and operated by the family members. As our founder, H.M. Akram is the eldest in the Family, so all the major decision of either of family or business are taken by him with mutual understanding of other members. In every board meeting all the issues are discussed to find out the conclusion though last decision is made by H. M. Akram.

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Suggested Readings

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Bygrave, B. (1994), The Portable MBA in Entrepreneurship, John Wiley & Sons, New York.

Christensen, P.S., Madsen, O.O., and Peterson, R. (1989), Opportunity Identification: the Contribution of Entrepreneurship to Strategic Management, Aarhus University Institute of Management, Denmark.

Drazin, R. and Schoonhoven, C.B. (1996), ‘Community, population, and organization effects on innovation: a multilevel perspective’, Academy of Management Journal, Vol. 39, No. 5, pp.1065–1083.

Gartner, W.B. (1985), ‘A Conceptual Framework for Describing the Phenomenon of New Venture Creation’, Academy of Management Review, Vol. 10, No. 4, pp.696–706.

Gartner, W.B. (1990), ‘What are we Talking about when we Talk about Entrepreneurship?’, Journal of Business Venturing, Vol. 5, pp.15–28.

Gartner, W.B. (1989), ‘“Who is an Entrepreneur?” Is the Wrong Question’, Entrepreneurship Theory and Practice, Vol. 13, pp.47–64.

Hills, G.E., Lumpkin, G.T., and Singh, R. (1997), ‘Opportunity Recognition: Perceptions and Behaviours of Entrepreneurs’, Frontiers of Entrepreneurship Research, Vol. 17, pp.168–182.

Intihar, A. and Pollack, J.M. (2012), ‘Exploring Small Family-owned Firms’ Competitive Ability- Differentiation Through Trust, Value-orientation, and Market Specialization’, Journal of Family Business Management, Vol. 2, No. 1 7


Joshi, M. (2007), ‘Challenging Trauma’, The Innovation Journal: The Public Sector Innovation Journal, Volume Vol. 12, No. 2

Joshi, M. (2010a), ‘Seizing the Opportunity for Innovation: A Case Study from India’, International Journal of Technology Marketing, Vol. 5, No. 1

Joshi, M. (2010b), ‘Embracing Competitive Renaissance by Steering Innovation Velocity’, World Review of Entrepreneurship, Management and Sustainability Development, Vol. 6, No. ½

Joshi, M. (2010c), ‘Fostering Innovation: Transition from Chimps to Hyena and Lion type Innovative Enterprise’, World Review of Entrepreneurship, Management and Sustainability Development, Vol. 6, No. ½

Latukha, M., and Panibratov, A. (2011), ‘Entrepreneurial FDI in Emerging Economies: Russian SME Strategy for Brazil’, International Journal of Entrepreneurship and Innovation, Vol. 12, No. 3

Lumpkin, G.T., and Dess, G.G. (1996), ‘Clarifying the Entrepreneurial Orientation Construct and Linking it to Performance’, Academy of Management Review, Vol. 21, No. 1, pp.135– 172

Rogers, E.M. (1983), Diffusion of Innovations, 3rd ed., Free Press, New York.

Timmons, J.A. (1994) New Venture Creation: Entrepreneurship for the 21st Century, 4th ed., Irwin, Burr Ridge, IL. Anderson, R. C. & Reeb, D. M. (2003), “Founding-Family Ownership, Corporate Diversification, and Firm Leverage”, Journal of Law and Economics, 46: 653-684. Berle, A. A., and Means, G.C. (1932), “The Modern Corporation and Private Property”, New York: Macmillan. 8


Gallo, M. A., Tàpies, J., & Cappuyns, K. (2004), “Comparison of Family and Nonfamily Business: Financial Logic and Personal Preferences”, Family Business Review, 17 (4): 303318. Gersick K. E., Davis J. A., Hampton M. M., & Lansberg, I. (1997), “Generation to generation: Life cycles of the family business”, Boston, MA: Harvard Business School Press. Jaffe, D. T., & Lane, S. H. (2004), “Sustaining a Family Dynasty: Key Issues Facing Complex Multigenerational Business and Investment-Owning Families”, Family Business Review, 17 (1): 81-98. Lansberg, I. (1983), “Managing human resources in family firms: Problem of institutional overlap”, Organizational Dynamics, 12 (1): 39-46. Zellweger, T. (2007), “Time Horizon, Costs of Equity Capital, and Generic Investment Strategies of Firms”, Family Business Review, 20 (1): 1-15.

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International case studies conference on March 1, 2013 at Amity Business School, Gurgaon, Amity University Haryana Teaching Notes

Teaching Objectives: 1. Will Hafizia be able to emerge as a professionally organized business? 2. Will the firm have an Entrepreneurial Strategy surrounding creation of Hafizia as a reliable and internationally renowned brand? 3. Will Hafizia be able to utilize its full potential to diversify? To understand: 1. 2. 3. 4. 5.

The characteristics of an Entrepreneur How a family business is created and functions? The Ownership Mechanism in Family Business The Risks, Barriers, Uncertainties and challenges associated with Family Business! Growth mechanism for a trans-generational family business

Intended Courses /Theories 1. 2. 3. 4. 5.

Family Business Startup / New Venture Creation, Entrepreneurship/ Firm Evolution Risks, Uncertainties, barriers and Challenges during Venture Creation/ Expansion Dynamic Capability Strategy

Guidelines The case should be handed over to scholars a week in advance with a request to study and develop a deeper understanding on Family Business Strategy. (05 min): Instructor-: About Case (15 min): Synopsis (Pick Sample 2-3 from Group) (5 min): Instructor- Distribution of groups and Identifying Syndicate Rooms based on alternatives for business decision proposed (10 min): Comparing/ Learning objectives by individually attending each group (05 min): Instructor- intervention on Learning process (10 min): Case Chronology (Open Discussions based on group) (10 min): Learning outcome (find out from each group, then discuss in class) (30 min)- Instructor- Discussion on various family Business Issues (20min)- Responses by each group, slide 5-6 points; 3 minutes each with a query session (30min) - Instructor- Brief over view of responses by groups and relaying theory(ies) related to family business Suggested Thinking (Case Analysis): 1. Discuss the process by which the Founder Director steered his enterprise. 2. What were the ‘critical decisions’? 3. Strategic Issues related to the growth perspective! 4. How ought a family Businesses Operate? 5. Lessons and learning's from the case! 10


Discussion questions (Case application and Theory): 1. When to professionalize a closely held Family business and at what level? 2. Decision to diversify or spin-off by a closely held family business? 3. Governance mechanism and conflict resolution in a closely held Family Business Firms.

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Annexure Exhibit 1.

Country Name Norway Finland Spain Denmark Sweden USA Turkey Germany Chile Japan France

2010-11 % of Export 47.93 11.44 9.51 6.34 4.77 3.68 3.37 3.36 2.08 1.51 1.5

2011-12 % of Export 28.19 12.16 7.86 0 16.89 7.05 0.5 1.16 5.8 2.58 4.64

2010-11 % of Export 90.44 3.68 3.34 2.38 0.15

2011-12 % of Export 76.40 8.97 8.33 3.34 2.19

2010-11 % of sale 91.32 8.68

2011-12 % of Sale 91.44 8.56

2010-11 % of Export 33.53 11.61 8.32 4.8 3.82 3.22

2011-12 % of Export 14.22 10.04 7.81 2.53 4.97 0

Exhibit 2. Region Name Europe North America South America Asia Australia & Oceania Exhibit 3. Name Export Domestic Exhibit 4. Customer Name Lone Teppich Denina As Zara Home Indoor Group/Sotka AB ST Jerna English Home

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Dansk Supermarked FalaBella Hanen Indoor Group/Asko Parachi SRL Anttila Mattbolaget Sodimacc

2.73 2.59 2.59 2.57 2.31 0.89 0 0.66

0 0.73 0 2.53 0 10.85 8.96 5.22

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Exhibit 5. Business Model:-HAFIZIA ART & CRAFTS PVT.LTD

‐Order received from buyer ‐Review of order (capacity planning, production planning) ‐Order confirm to buyer ‐ Order sheet generated and issued to ERP department to start the process

Purchase of Raw Material

Receiving of raw material Inspection carried out for TPI, Count & Moisture

not ok

Return back to Supplier

O.K Material stored and issued To dye house

Quantity, colour shades, dyes & chemicals standard also issued to dye house

Critical to Quality Point Dyed Material Received A-Dyed yarn match with colour shades not ok B-Rubbing, moisture, quantity to be checked

Return back to dye house for re-work

O.K Store in go down& issued to weavers According to the order quantity with technical Detail & delivery time

Critical to Quality Point 14


Initial Inspection / Bazaar return back 100% inspection to be done on the information Basis of counter sample & technical detail

not ok

Red tagging on the rugs & to the weaver with detail NC

Repairing Put yellow sticker on rugs with repairing Information

O.K

HAFIZIA ART & CRAFTS PVT.LTD Inspection O.K Clipping, label stitching & Finishing (In-Line inspection) O.K Inspection

Not ok

Return for Re-work

O.K Packing

Final Inspection done by Quality Manager

Not ok

Block & return for Re-work

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