The Current State of  Small and Medium Enterprises in India: Challenges and Opportunities

Abstract

This exploratory scope study examines research conducted in the domain of family-owned manufacturing businesses in India, particularly small and medium-sized enterprises (SMEs), which constitute more than 80% of the country’s business entities. Due to diverse constraints, SMEs face challenges and have opportunities that are not harnessed. Therefore, this study extracts the literature on SMEs and analyze it in terms of methodology, topics, publications and findings, aiming to develop an analyzed snapshot of the domain’s current state through a synthesized research corpus. The study’s objective is to identify gaps in the research repository due to both identified and unidentified limitations. Through the rigorous approach, our study’s outcome informs the agenda for future research and its rationale. As an exploratory study, this paper provides a snapshot for scholars to direct their studies to areas that are important to the domain and have been neglected, leaving not one but several gaps and directions. The key findings highlight the opportunities, such as working in trust-based networks, learning across generations to handle business, the use of resources and networks to have enough resilience during a crisis, and transitioning to green manufacturing practices despite having constraints. In terms of challenges, family-owned businesses often struggle with financial and governance risks. It is also observed that no SME-specific quality models are present in the literature. Resistance to innovation, managing family business interrelations and the choice between cost and sustainability are also found among common dilemmas. The outcome of this analysis offers clue for academics, policymakers and professionals working in family-owned businesses and SMEs in developing countries.

JEL Classifications: D13, L25, L26, G32

Keywords

Small and medium-sized enterprises India

Introduction

India is home to the largest number of business enterprises in a single economy, many of which are engaged in manufacturing within rural segments and are crucial to generating employment for millions of people. Small and medium-sized enterprises (SMEs) and micro, SMEs (MSMEs) sector of manufacturing are the second-highest contributor to the Indian economy (PIB, 2025). Typically, these businesses, owned by single or multiple families, carry forward social and regional traditions across generations through their enterprises, making them important economic and social entities that embody organizational and community cultures. It has therefore always been understood that family businesses must be viewed in a holistic and contextually driven manner. Literature highlights that Indian family businesses have received little attention in formal research (Laguir et al., 2016). In this study, we considered the SMEs that have more than 10-year of existence.

Research on family-owned manufacturing SMEs in India has focused mainly on management issues pertaining to resource constraints, specifically limited access to finance from both family and external sources. The availability of funds and capital is the key concern of SMEs, and studies have shown a significant negative correlation between financial risks and business performance (Vaid et al., 2025).

This is also coupled with concerns regarding the governance of family businesses, as ineffective decision-making and a lack of professional organization continue to pose significant challenges (Chahal & Sharma, 2022; Vaid et al., 2025). Indian manufacturing SMEs are known to demonstrate reluctance in adopting professional expertise, due to cost and trust issues, and lack in advanced management practices, such as total quality management (TQM) and Lean Six Sigma (LSS), thereby preferring to maintain a status quo of management and organizational practices so long as it remains satisfying to the owning family in behaviour and performance (Majumdar & Manohar, 2016; Sen et al., 2022; Toke & Kalpande, 2020).

Family-owned SMEs form the backbone of India’s manufacturing sector, as they thrive in regional clusters across India’s 28 states, each with unique social, political and economic characteristics. It is therefore apparent that a study of the domain is essential, particularly in the context of the world’s fourth-largest economy and most populous nation. This study aims to assess the extent to which research has gained traction, what it has discovered, what it has been unable to achieve, and, most importantly, why. In this study, we conducted a pragmatic compilation and analysis of research conducted in the title domain over the last 15 years, aiming to set the agenda for future studies. This is because we believe that, despite India being a significant focus for researchers for decades, challenges have been encountered in executing research; considerable gaps remain, which can be addressed by a pragmatic, context-driven approach. The methodology section will elaborate on this.

After identifying the gaps in the literature, we identified a range of opportunities and challenges that are of significance to both professionals and academics. There is no prescribed solution or hypothesis, but rather a simple summary of what has been achieved through existing research and where the pressing, immediate and future needs lie. The last such corpus was created by Pounder (2015) involving the wider domain of SMEs. Literature is silent on providing a focus on India’s family-owned SMEs and their unique challenges.

Methodology

This study provides a critical synthesis of the research corpus, rather than a focus on individual studies. It utilizes purely secondary data, specifically qualitative studies done in the field of SMEs that are engaged with manufacturing in India. It involved a simple title search, which already included the keywords relevant to the domain on Google Scholar and Scopus. This process was adopted to derive a comparative list of literature and ensure that common literature results were considered to maintain topic relevance in the selection of literature. The literature repository created from the search forms the research corpus for analysis. A series of searches was conducted to obtain the necessary literature, as India is not adequately covered in higher-quality resources. In fact, the first search for challenges faced by family-owned businesses in India generated only 490 relevant results on Google Scholar and 1851 in Scopus, with the rest of the results focusing broadly on other regions. Several search adjustments were made to include SMEs and those engaged in manufacturing, until a substantial number of relevant studies were identified, and after careful screening and exclusion, a total of 48 articles were included in the final analysis. This led to an emergent understanding that there were gaps due to unconsidered hurdles; hence, the study took the approach of synthesizing existing literature to derive a wider range of topics and themes covered. The study involved secondary data analyzes of literature adopting varied methods and conceptual frameworks. PRISMA seemed to be the obvious approach to take for the study. The approach of the PRISMA framework is presented in Figure 1. However, as the literature was extracted, it became apparent that not only is there too little literature to conduct a PRISMA (see Figure 1) analysis properly, but also that a critical synthesis would be more enriching in providing the scope of what should be the focus of future research, which is the study’s objective.

Figure 1.

PRISMA Framework.

Literature Corpus

A detailed analysis is adopted to provide a snapshot of all studies conducted in the relevant domain over the last 15 years, the context in which the studies were planned, conducted and reported.

The family businesses are known from its succession planning and the opportunities for transformation. The literature review highlights a mix of qualitative and quantitative papers. The succession planning in most of the family businesses is seldom. The founders and their family dynamics and cultural norms are key factors that impact the business most, and their desire to continue the business is also a key factor. It is observed that high-quality relationships often end up having multi-continuity and help in developing next-generation leaders in family-owned businesses (Tang & Hussin, 2020). Some of the studies indicate that board members, their responsibilities, structure and degree of involvement of independent directors also impact firm decisions and performance and ensuring family-owned businesses global presence (Chahal & Sharma, 2022). Another key aspect of importance is the transfer of knowledge and practices developed by generations at the workplace (Giovannoni et al., 2011; Visser & Chiloane-Tsoka, 2014). The organizational practices developed across generations highlight the risk appetite and maintenance of stakeholder relations in family-owned businesses (Pereira et al., 2024).

In family-owned businesses, it is also observed that innovation and technology adoption are slow due to their dilemma and legacy preferences of favouring the physical workforce over technology. Few papers highlight the barriers to the adoption of technology, keeping costs and top management commitment in mind (Karuppiah et al., 2020; Sharma & Kharub, 2015). The quality of processes and operational excellence needs to be aligned and overcome the resource-constrained environment in most of the family-owned businesses (Sahoo & Yadav, 2017).

Similarly, the internationalization strategy to de-risk potential risks and finance activities can be influenced by the philosophy of top management and their capital structure choices. Many small and medium enterprises have limited access to their finances and policies, which influences the transparency of the organization. This review covers qualitative, quantitative, interpretive modelling and systematic review articles. The next section indicates the trends, highlighting the major journals, year-wise publications and contribution of the subject area.

Key Trends

After careful selection of articles, it is found that a few journals are focused on highlighting the opportunities and challenges in family-owned and managed businesses in India. The top journals like Journal of Family Business Management, Journal of Business Research and Journal of Manufacturing Technology Management are leading outlets for related research. This trend is presented in Figure 2.

Figure 2.

Top Journals Highlighting the Opportunities and Challenges in Family-owned Businesses.

The publication trend indicates a rise from the year 2010 to 2020, and after 2024, the trend is again continuing (see Figure 3).

Figure 3.

Publication Trend.

Most of the contribution comes from the Business Management and Accounting domain, whereas the second-highest contribution comes from the domain of Economics, Econometrics and Finance, and Engineering, Arts and Humanities and Computer Science contribute equally (see Figure 4).

Figure 4.

Contribution of Subject Areas.

Key Findings

Several key revelations have been realized from the corpus, some of which were anticipated, while others were unexpected. However, they contribute to the development of emergent knowledge.

Conceptualization of Risks and Challenges in Family SMEs

Literature explores the risks that family-owned SMEs face, attempting to create typologies of the vulnerabilities. Vaid et al. (2025) identify 10 critical risk dimensions, comprising financial, governance, market, succession, technology, economic, regulatory, human resource, innovation and reputation risks. Literature argues that financial and governance risks have the most direct impact on sustainability. This attempt at comprehensiveness is valuable, but the abstraction of risks into broad categories risks flattening the distinctive realities of Indian SMEs. Babu (2019) conducts a phenomenological study of Surat’s family-run manufacturing enterprises, pointing to mediocrities, sub-standard practices and disoriented business procedures as barriers to growth. Unlike abstract typologies, such context-specific findings underscore the daily dysfunctions that limit SME performance. Together, these studies demonstrate the dual orientation of the field: one strand pursues holistic categorization, while another grounds risks in localized practices. The tension between breadth and depth remains unresolved.

SME Governance and Professionalization

Governance challenges dominate much of the research corpus. Vaid et al. (2025) emphasize that governance weaknesses reduce profitability and environmental, social and governance (ESG) performance, while board independence and stakeholder engagement predict positive outcomes. Similarly, Bhatt and Bhattacharya (2017) find that board structures often negatively affect family firm performance in India, contradicting Western governance literature. However, Nwuke and Adeola (2023) present a more comprehensive insight into the strategic survival element of governance through a multiple case study analysis, even in the context of Nigeria. The studies consistently call for greater professionalism, particularly through the appointment of independent directors and professional managers. Yet reluctance to cede control remains strong. Chahal and Sharma (2022) reveal that founder-managed firms outperform descendant- or professionally managed ones, suggesting that professionalism may not uniformly benefit family firms. This suggests an ambivalence: governance reforms may enhance the accountability of SMEs, but founder charisma and personal authority often yield improved results.

Succession in SMEs and Intergenerational Dynamics

Succession in SMEs is widely acknowledged as a defining challenge. Menezes et al. (2019) demonstrate that cultural norms, particularly male-only succession, hinder diversity and growth. Arambhan and Seetharaman (2022) emphasize the importance of inclusivity, linking non-family employee participation and gender egalitarianism to business survival. Kandade et al. (2021) emphasize the importance of high-quality relationships, trust, mentoring and mutual respect in facilitating intergenerational leadership development. Fang et al. (2016) also concur that the involvement of non-family members in management plays a positive role, which large-sized businesses tend to understand but SMEs generally ignore. Despite these insights, most studies treat succession in managerial or cultural terms without integrating the two. While Babu (2019) underscores succession conflicts in Surat enterprises, Joshi et al. (2018) document governance breakdowns during ownership transition in Excel Transporters. Together, the studies confirm the succession dilemma but vary in depth. What is missing is detailed longitudinal research that tracks transitions over time, capturing outcomes and the lived negotiations that define Indian family succession.

Finance and Capital Structure

Financial constraints are repeatedly flagged as core vulnerabilities. Vaid et al. (2025) find that financial risk is negatively correlated with performance. Mundi et al. (2022) demonstrate that overconfident finance managers tend to prefer cash holdings and short-term debt, which leads to suboptimal capital structures. This is a critical feature of the behavioural dimension of finance in family firms. Yet, a deep study of structural dimensions remains underexplored. Informal lending, reliance on community networks and aversion to equity markets are well-known characteristics of Indian SMEs; however, most studies tend to emphasize managerial bias over systemic constraints. The critique here is that while individual financial overconfidence can explain some inefficiencies. Institutional barriers in India’s monetary system play a larger role in shaping conservative financial strategies.

Innovation and Strategic Flexibility

Several studies critique Indian SMEs for their reluctance to adopt modern practices, as leaders undermine methods outside the tested and tried ones. Majumdar and Manohar (2016) examine resistance to TQM and LSS, while Sen et al. (2022) attribute reluctance to satisficing behaviours that undermine strategic flexibility. Thanki and Thakkar (2018) reveal challenges in implementing lean-green practices and emphasize the importance of government support. König et al. (2013) view family influence as both enabling and constraining technological adoption, producing a distinctive innovator’s dilemma. Hernández-Perlines et al. (2024) demonstrate the ability of family-owned businesses to create jobs in this regard by adopting innovative entrepreneurial approaches. Together, these works depict a consistent picture of conservatism in Indian family SMEs. Yet the studies rarely contextualize reluctance within survival-driven strategies. For MSMEs, risk aversion and incremental innovation may be rational adaptations to uncertain environments, not simply managerial failings.

Internationalization and Global Integration

Internationalization is another recurring theme. Ray et al. (2018) argue that family ownership often interferes with international expansion, whereas Mondal et al. (2022) demonstrate that family ownership reduces multinationalism in terms of both scale and scope. Koul et al. (2020) demonstrate that policy adaptation can enable family organizations to become compliance-ready suppliers to multinationals. Singla et al. (2014) highlight secondary agency issues arising from concentrated family control, which obstruct governance and internationalization. These studies reflect that ambivalence in family ownership provides stability but fosters inward orientation. Internationalization is possible, but often contingent upon external factors, such as professional management or foreign institutional ownership. The research provides valuable insights, but it risks overlooking the cultural rationale for local embeddedness, which often forms the preference of Indian SMEs for regional markets as compared to global expansion.

Sustainability and ESG

Recent studies have engaged with ESG and sustainability. Vaid et al. (2025) find that family ownership has a negative interaction with ESG performance, whereas board independence and stakeholder engagement tend to exhibit more predictable improvements. Pereira et al. (2024) stress customer engagement strategies that integrate reputation safeguarding and nonfinancial objectives. Mitra (2024) demonstrates that organizational values and family influence can strengthen sustainable practices, such as recycling, refurbishing and employee-related initiatives.

This produces an apparent contradiction. The quantitative studies identify family ownership as a barrier to ESG, qualitative insights reveal strong informal commitments to community and reputation. Table 1 highlights the challenges and opportunities for policymakers and professionals to address in the space of family-owned businesses in India. The analysis of the literature indicates that SMEs of Indian face financial challenges, where they prefer internal funds and suboptimal capital structure (Chahal & Sharma, 2022; Mundi et al., 2022; Vaid et al., 2025). SMEs also face governance and management challenges, having weak corporate governance and often lack board independence (Chahal & Sharma, 2022; Vaid et al., 2025). This sector also faces reluctance in adopting advanced management practices, lacking in strategic flexibility (Sen et al., 2022). Studies also indicate that SMEs face the absence of SME-specific TQM and LSS models and have limited knowledge of how to implement them with constraints (Toke & Kalpande, 2020). The smaller companies have reluctance in the integration of supply chain elements and do not have adequate and customized SCM strategies (Sen et al., 2022; Thakkar et al., 2012). Additionally, the companies in SME and family-owned businesses are facing challenges in technology integration, benchmarking the competition (Vaid et al., 2025), internationalization (Koul et al., 2020), adequate usage and retaining resources (Thakkar et al., 2012), behavioural and cognitive biases (Mundi et al., 2022), and sustainability and ESG integration in their day-to-day operations (Vaid et al., 2025).

Table 1.

Identified List of Challenges and Opportunities for Professionals to Address.

S. No.	Identified Challenges	Opportunities
1	Family firms face multiple risk dimensions, especially financial and governance risks, hurting sustainability.	Promote professional governance structures and diversified financial resources to strengthen resilience.
2	SMEs resist adopting TQM due to implementation difficulties.	Provide guidelines and frameworks to overcome barriers for successful TQM adoption.
3	SMEs avoid advanced management practices due to satisficing behaviour.	Achieve strategic flexibility via information quality and supply chain integration.
4	SMEs face complex supply chain challenges.	Find tailored strategies and case-based recommendations for SME supply chain management.
5	Family SMEs struggle to become ‘compliance-ready’ for MNCs.	Implement policy modifications and best practices for global integration.
6	Lack of SME-specific TQM models and large-scale studies.	Develop a TQM model tailored for SMEs.
7	Mixed evidence on how family ownership/management affects firm performance.	Show that family ownership helps, while founder-led firms perform best.
8	Overconfidence leads to suboptimal financing (preferring cash and short-term debt).	Recognize and mitigate behavioural biases in financial decision-making.
9	How to effectively engage customers in emerging markets.	Use social media, feedback, reputation management and third-party digital marketing.
10	Pandemic disruptions threatened the survival of food service family firms.	Adopt adaptive survival strategies to cope with financial and operational shocks.
11	Leadership transition threatens the survival of family SMEs.	Successor preparation, founder support, trust and clear vision as survival strategies.
12	Family-run enterprises are hindered by poor practices and governance.	Improve governance, succession planning and professional systems.
13	Cultural norms (male bias, tradition) limit competent leadership succession.	Promote diversity and competency-based leadership development.
14	Gender exclusivity and non-family exclusion harm survival.	Build inclusive, gender-egalitarian cultures for sustainability. This is already being experienced in listed companies.
15	SMEs struggle with policy, infrastructure and succession challenges.	Provide policy reforms to enable necessary management improvements.
16	Weak intergenerational relationships hinder smooth succession.	Foster high-quality relationships through mentoring, trust and early involvement.
17	Twenty-five barriers (R&D gaps, eco-design failures, lack of accreditation) block adoption.	Formulate strategies to overcome the barriers through subjective contexts, prioritizing core issues of the industry and organization.
18	Managing family-business interrelations remains challenging.	Use strong leadership and achange-oriented culture as success factors for improving interrelations. Here, too, subjective subtlety is needed.
19	Limited clarity on how EO, TQM and performance interrelate.	Show EO drives TQM adaptation, which boosts performance.
20	Tech family firms need successors with both business and technical skills.	Use the three-circle model and three-spiral theory for structured succession.
21	Family control discourages global expansion.	Professional managers and foreign institutional ownership support internationalization.
22	Family firms restrict multinational scale and scope.	Balance governance and strategy to broaden scope.
23	Next-gen reluctant to join businesses.	Inclusive succession model to ensure continuity.
24	Implementation barriers to lean-green practices.	Government support and green disposal initiatives as enablers.
25	Succession is hindered by regulations and external uncertainties.	Collective decision-making and new business ideas are needed.
26	Secondary agency issues in family-controlled firms.	Professionalization and governance reforms to mitigate conflicts.
27	Conflicts during multigenerational transfer of power.	Introducing corporate governance and professional management.
28	How to reach ninth-generation continuity.	Trust-building and careful succession planning.
29	Family values restrict the adoption of discontinuous technologies.	Balance non-economic values with innovation and adaptation.
30	MSMEs face multiple growth barriers.	Use a conceptual framework linking barriers to performance indicators.
31	Effectiveness of succession tied to selection method.	Founder-selected successors perform better.
32	Weak sustainability practices.	Embed values in waste disposal and HR practices, leveraging family influence.
33	Lack of an integrated explanation for  SME globalization.	Use strategy tripod synthesis (resources, institutions, industry factors).
34	Governance, succession and internationalization challenges.	Promote creativity and sustainable practices in family businesses.
35	Nonfamily manager hiring is limited by ownership and succession intentions.	Larger firm size increases the benefits of hiring outsiders.
36	Poor board structures harm performance in family firms.	Governance reform to optimize board effectiveness.
37	Knowledge loss across generations.	Use management accounting for professionalization and succession.
38	Multiple structural challenges (finance, HR, government, infra).	Policy support, skill upgrades, tech adoption.
39	Unique cultures of family SMEs are not well understood.	Align management style with cultural strengths.
40	MSMEs lag in technological innovation.	Structured TII implementation methodology.
41	Lack of empirical clarity on TQM impact.	Show direct and indirect benefits via organizational culture.
42	Whether family SMEs are more socially responsible.	Family SMEs are shown to have stronger CSR commitment.
43	No universal operational definition exists.	Suggest common criteria (ownership and management).
44	Lack of successor nurturing for entrepreneurship.	Create a theoretical framework with personal and governance-level strategies.
45	Tacit knowledge not codified in family SMEs.	Promote organizational reforms to codify and sustain knowledge.
46	Fragmented understanding of SME factors.	Adopt a systems approach with feedback loops linking inputs, processes and outputs.

Note: CSR: Corporate social responsibility; EO: Entrepreneurial orientation; HR: Human resources; MNCs: Multinational corporations; MSMEs: Micro, small and medium-sized enterprises; R&D: Research and development; SMEs: Small and medium-sized enterprises; TQM: Total quality management.

The divergence stems from measurement frameworks. ESG indices capture formal reporting, whereas family firms often engage in informal philanthropy and reputation building. Thus, family SMEs may underperform on ESG ratings but still contribute meaningfully to society and sustainability.

Agenda for Future Research

Future directions in understanding Indian family SMEs must address methodological issues and coherence. The literature corpus demonstrates significant methodological diversity in the qualitative studies conducted to date. Phenomenological approaches (Babu, 2019), qualitative case studies (Joshi, 2017), semi-structured interviews (Mundi et al., 2022) and large-scale panel analyzes (Chahal & Sharma, 2022) are just a few examples. While this pluralism is a strength, it almost entirely overlooks the significance of the contexts of our study.

Many of the qualitative studies suffer from small samples and subsequent limitations in generalizability because the research outcomes do not extract broader themes, such as strategy, leadership styles, stakeholder modelling and so on. The quantitative studies, on the other hand, often rely on listed companies for a data set, which is misaligned with the focus and attributes of SMEs. Mixed methods design claims to be integrated, but they reflect a lack of coherence between qualitative and quantitative strands due to the above contradiction. Transparency is another issue in most studies; perhaps the representation of regression coefficients, coding trees and illustrative excerpts is not presented, which undermines replicability. The overall picture is one of a highly fragmented field offering valuable insights but with minimal integration. Family SME research in India remains dispersed across themes without a unifying theoretical framework, largely due to limited access to meaningful grassroots data from firms involved in manufacturing. The synthesis above reveals the following five research gaps for future consideration:

Context-driven: Issues of succession, governance and innovation must be analyzed through the Indian sociocultural lenses of patriarchy, caste and kinship, reflecting the subjectivity of the study.

Holistic frameworks: Topics must be studied in interdependence with contexts rather than isolated themes. This requires focused studies of cases from a region or across the diverse regions of India.

Financial structures: The Indian institutional credit constraints deserve as much attention as the managerial biases of SMEs, many of which are not professional.

Longitudinal designs: Succession and innovation adoption are dynamic processes that require long-term observation in case study or ethnography formats. There is a lot of organizational data already available for future research questions on resilience and leader styles.

Comparative studies: Most importantly, regional variations across India’s 28 diverse industrial landscapes remain underexplored and must be addressed to develop refined SME frameworks. This could include a question of how and why the styles of leadership and family-owned businesses vary across India due to internal and external factors.

Conclusion

This research reveals a vibrant but fragmented field. Studies repeatedly identify governance, succession, finance, innovation and sustainability as core issues, but approach them in isolation and without contextual grounding and any specific policies around family-owned businesses. While some studies adopt holistic frameworks, others emphasize specific local dysfunctions or behavioural biases. The diverse approaches provide richness but also produce inconsistencies. The overarching observation from the literature review is that Indian family SMEs must be studied through frameworks that integrate managerial, legal, cultural and institutional dimensions.

Imported constructs, such as board independence or ESG scores, need to be recalibrated to Indian contexts, where kinship, community and informal practices remain central. Future research should move toward contextual depth, methodological transparency and theoretical integration. Only then will studies on Indian family SMEs evolve from descriptive enumeration to explanatory frameworks that capture the lived realities of family businesses in terms of societal, economic and political diversities. As the literature corpus reveals, large amounts of research do not make it to the top publications and policy outlets and therefore the quality of research must be addressed not only to overcome the identified gaps but also to explore them with the highest academic rigour.

Footnotes

Acknowledgements

The author would like to thank SP Jain School of Global Management and Saïd Business School, Oxford, for providing the resources to conduct this research.

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author received no financial support for the research, authorship and/or publication of this article.

ORCID iD

Sarif Hossain

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The Current State of Small and Medium Enterprises in India: Challenges and Opportunities