• Middle East family businesses remain dynamic and resilient, with 79% recording growth in sales last year and 40% looking to achieve aggressive growth in the next five years
• Succession is more hazardous than ever, with only 14% claiming to have a robust succession process, below the global average of 16%
• Middle East businesses are concerned about the impact of government regulation (68% in the Middle East compared to 33% globally)
Family businesses must adapt faster, innovate sooner and become more professional in the way they run their operations if they are to remain successful. These are just some of the findings of the second PwC survey of 44 family firms in the Middle East, titled The family factor: Professionalisingthe Middle Eastern family firm. The Middle East report is part of PwC's global family firms survey of almost 2,400 companies in more than 44 countries.
Overall, this year's survey indicates that - despite a tough economic environment, with pressures around skills shortages, innovation and governance - family firms remain dynamic and resilient. Indeed, family businesses in the Middle East have been markedly more successful than their global counterparts, with 79% recording growth in sales in the last year, compared to 65% globally.
Middle East family businesses are also moreambitious in the medium term, with40% looking to achieve aggressivegrowth in the next five years - thesecond highest score in the wholesurvey - and 98% of those who arepredicting growth saying they areconfident they will achieve it. This resonates well with the Middle East results inour 17th Annual Global CEO Survey, inwhich 66% of CEOs in the region toldus they were positive about theircompany's growth prospects.
While Middle Easternfirms are clearly buoyant about theirown prospects, market conditionsremain a real anxiety, and businessesin our region are far more concernedabout the impact of governmentregulation (68% in the Middle East compared to 33% globally). This represents a significant increase from last year's survey, which found that only 46% Middle East family businesses were concerned about regulation impact.
One eye-catching finding from this year's survey is that the need to professionaliseboth the business and the family is gaining ground as a key concern for family firms, driven by an almost perfect storm of competitive pressure, rising costs and global megatrends.
"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 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. All these factors will contribute to professionalizing the business and the family alike," Nasser added.
Professionalising the business
So what does 'professionalising the business' mean for the family firm? It's about giving structure and discipline to the vision and energy so often exhibited by the entrepreneurial family business. This helps them innovate better, diversify more effectively, export more and grow faster.
Professionalising the family
As one Middle East respondent said, "Family businesses generally fail for family reasons." Therefore, getting the business on a professional footing is not in itself enough; it has to be accompanied by an equally rigorous approach to professionalising the family. This means, for example, putting processes in place to govern how the family interacts with the business - including establishing an infrastructure for decision-making and formal channels for communication. These will be essential during times of tension or conflict. It's about protecting the family's interests, and safeguarding the firm's survival.
Making a success of succession
Nowhere is this professional approach more critical than when it comes to the all-important issue of succession. Far too many family businesses have still not fully grasped this potentially destructive issue. Only 14% ofMiddle Eastern family firms have asuccession plan that has been discussedand documented, which is even lowerthan the global average of 16%. The'passing of the baton' has always been apotentially perilous one for the familyfirm, and a number of factors are nowcoming together to make the successionprocess more hazardous than it has everbeen before.
More concerned about skilled staff than their global counterparts
The number ofrespondents apprehensive about theirability to recruit skilled staff has goneup significantly since the 2010 survey,and it continues to be the biggest singleinternal issue for Middle Easternfamily firms over the next twelvemonths: 34% cited this as a keyconcern in 2010; it rose to 45% in2012, and it's now as high as 64%.This is noticeably higher than theglobal average of 49% this year.
Skilled staff recruitment is a significant challenge, as 41% of Middle Eastern family businesses expect to need new recruits to help them achieve their growth strategies and implement organizational changes.
The digital imperative
Our regionhas tended to lag behind other developingmarkets in its take-up of digitaltechnology, but there are now signsthat this is changing, especially insectors like retail, which was one of thefirst and fastest to be affected byinternet technology, and remains animmensely important element of theregional economy.
Exploiting the full potential of digitalincludes everything from how thebusiness is run internally, to how itreaches its customers externally. Doingthis properly can demand quitesignificant capital investment, butMiddle Eastern family firms are morefortunate than others elsewhere in theworld in that the banking sector isliquid and ready to lend.
The younger ones are adapting the fastest
It's the younger and more ambitiousbusinesses who are more likely to citeprofessionalizing the business as a goal,and are more aware of the risks andopportunities of the move to digitaltechnology. They're more likely to belooking at a possible Private Equity exitstrategy, and will know that theseinvestors will look for a well-managedand disciplined operation. This appliesequally to those looking to undertakean IPO.
The 2014 PwC family business survey covers family companies with a sales turnover of >US$5m - >US$1bn in over 40countries. Interviews with top executives in 2,378 companies took place between 29th April and 29thAugust.
The report on the findings of the family business survey, Up close and professional: the family factor, can be downloaded at www.pwc.com/familybusinesssurvey.
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Established in the Middle East for 40 years, PwC has firms in Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, the Palestinian territories, Qatar, Saudi Arabia and the United Arab Emirates, with around 3000 people. (www.pwc.com/me).
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© Press Release 2015