Middle East family firms demonstrate durability

However, better succession planning, more robust governance structures and a better attitude towards innovation, says PwC.

Family-owned businesses in the Middle East have weathered the continuing global financial uncertainties better than their global peers and are confident of growth in the coming year, according to a survey published by Pricewaterhouse Coopers.

But the survey by the consulting company also highlighted several potential obstacles that such businesses need to overcome to remain successful, including better succession planning, more robust governance structures and a better attitude towards innovation.

PwC’s “The family factor: Professionalising the Middle Eastern family firm”, released on Sunday, found that 79 per cent of Middle Eastern family firms surveyed had experienced sales growth in the past year, compared with a global average of 65 per cent.

Furthermore, 40 per cent of those surveyed said they were looking to achieve aggressive growth in the next five years, more than the global average, with 98 per cent of those predicting growth confident that they would achieve it.

But the survey, involving 44 businesses in the UAE, Oman, Palestinian Territories, Jordan, Lebanon, Saudi Arabia and Kuwait, found that despite recent improvements, governance and particularly succession planning remained a key challenge facing family firms in the region, especially as control of such firms passed from one generation to another.

PwC noted that a recent report issued by the ratings agency Fitch identified poor governance and a lack of adequate transparency and disclosure as factors which are constraining the ratings of many private firms in the Middle East, which in turn hampered their ability to attract international investors or enter capital markets. The survey found that just 14 per cent of regional family firms surveyed have a succession plan that has been discussed and documented, compared with global average of 16 per cent.

“A plan that is not written down is not a plan, it’s just an idea,” the survey noted.

“This is an issue family firms must address with the same commitment and energy as they are devoting to professionalising other aspects of the business. Because without it, the entire enterprise is at stake.”

“Family businesses in the Middle East, much like their global counterparts, need to adapt faster, innovate sooner and become more professional in the way they run their operations if they are to remain successful,” said Amin Nasser, PwC’s Middle East entrepreneurial & private clients leader.

“In particular, they must address challenges related to innovation, succession plans and governance with the same commitment and energy they allocate to sales and growth plans and running their businesses on a day-to-day basis.

The survey also noted that just 41 per cent of respondents saw the need to continually innovate as a key priority for the coming five years, compared to a global average of 64 per cent. The comparatively low importance of innovation for many regional firms is partly explained by the nature of their businesses, with large-scale trading companies with de facto market monopolies having less imperative to continually reinvent themselves.

“In this new and more disruptive environment the winners will be those companies with the agility to adapt, and the flexibility to change,” the survey noted.

jeverington@thenational.ae

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Published: March 22, 2015 04:00 AM

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