Ratan Tata has announced that Tata Sons – the preeminent family conglomerate (global sales of over $70 billion and 357,000 employees) that touches every Indian with products ranging from soap to hotels to cell phones – is looking for a new head when he steps down at the end of this year (http://in.reuters.com/article/idINIndia-50627620100804 ).

In most countries this would not be big news – but in India where family controlled businesses never let “outsiders” i.e. people from outside the family run “their” business – this is huge. The Tatas have always had a history of being pioneers in bringing change to the Indian business milieu. The appointment of a panel to consider suitable replacements for Mr. Tata is in itself a huge innovation, since they are going about their assignment of finding a replacement in a fairly transparent manner. The panel has indicated that they are looking not just beyond the family but that they are looking at individuals from beyond India.

As India rapidly integrates itself into the world economy this decision has ramifications for the country as well as other firms from emerging markets. The lesson that the Tatas seem to be putting out is that if you are going to compete in a global marketplace then your managers need to be equally competitive and simply hoping that family members will be able to take on the mantle of leadership is simply not going to hold.

It is going to be interesting to see how managers of family run businesses from other emerging markets, especially China, are going to react to this news. Leadership in a Chinese setting may be problematic since the state is a big player in the running of businesses even in the private sector; and this may be okay while the macro sentiment is great, however there could be concerns as China faces a more hostile business environment.