TVS group structure rejig makes good sense, but could throw up fresh challenges

G Balachandar Chennai | Updated on December 11, 2020

The inauguration of a TVS showroom in Visakhapatnam on November 29, 2003   -  The Hindu PHOTO Archives

While decisions are likely to be quicker, group may lose advantages of scale

The move of the 109-year-old TVS Group to revamp its ownership structure, though a progressive step in keeping with the times, could come with its own set of challenges, reckon family-business experts and industry consultants.

Under the original structure, a part of the TVS family would own and run a particular business, while the other family units would have cross-holdings across group companies. The legendary promoter, TV Sundaram Iyengar, had put this in place to ensure that the family members, while engaged in diverse businesses, remained connected with, and effectively ‘protected’, one another.

On Thursday, the group announced that the family had agreed to put in place a new structure under which, rather than a holding company, the family members would own and manage the various listed and unlisted businesses in the group.

“The holding company model typically slows down strategic decisions depending on the degree of freedom distributed between the holding and operating companies. This is particularly so if the holding company board is more change-resistant and bureaucratic. In a changing world, it is important to have more freedom at the group company level to respond to market dynamics,” Kavil Ramachandran, Professor and Executive Director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, told BusinessLine.

Echoing his views, Narayanan Ramaswamy, Partner, KPMG India, said that amid changing times and the opportunities that are unfolding — coupled with a highly qualified fourth generation of the family — the change makes eminent good sense.

Will the new structure drive faster business decisions? “Already each of the group companies has adequate operational freedom. Hence, I doubt the operational decisions will be any speedier,” said Ramachandran.

Areas of concern

Pointing to the areas of concern in the new structure, Ramachandran said: “One major area is their revised brand policy. The control the holding company has as the custodian of the TVS brand is gone.”

The family members may broadly agree on the guidelines for the use of the brand name, but there will be questions around implementation, such as expenses related to brand promotion and drawing benefits from brand equity. The same questions will also apply to other shared assets, tangible or not, he added.

There is also the question of availability of, and access to, shareable resources including capital and disappearance of scale economies, since most of the group is into engineering-related businesses. In short, the advantages of being part of a large group may soon disappear.

However, Ramachandran said the TVS family members have typically been wise and prudent, so they must have done enough homework ahead of the revamp. They must be geared to addresses differences that may crop up, and go the extra mile to avoid litigation, he added.

Published on December 11, 2020

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