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Family businesses in the Middle East have charted plans of growth, but that’s not without challenges.
Majority of family businesses in the Middle East are targeting growth over the next two years while more than 75 percent of family businesses are concerned about the tough economic environment, according to the 2019 PwC Middle East Family Business Survey.
Around 88 percent of family businesses in the region plan to improve profitability, and close to 66 percent target raising their digital and innovative competencies, while 34 percent anticipate a significant change in their business models, according to the PwC survey.
In the Middle East, family businesses sector contribute 60 percent of region’s GDP as well as 80 percent of workforce, according to PwC, with $1 trillion estimated to flow from one generation to the next within ten years.
“Family businesses in the Middle East have long spearheaded economic growth with significant GDP and employment contributions. Today, they are expected to operate in an environment that is changing more rapidly than ever. Changing times, however, require adaptability and action; transforming challenges into opportunities.” Hani Ashkar, PwC Middle East Territory Senior Partner said.
Despite the tough market conditions, more than half of the businesses surveyed (53 percent) saw growth over the last 12 months, with 28 percent of these even hitting double-digit growth.
The survey covered regional family businesses from a wide range of sectors that included construction, education, health, manufacturing, and food and beverages with a total turnover of over $10 billion.
Generation next
While succession planning remains amongst top challenges according to 53 percent of respondents, 31 percent of businesses surveyed have already formalized and communicated succession plans.
“Internally, Middle East family businesses must professionalise the business, including processes, structures and systems. They must establish better family and corporate governance and organise succession planning for a smooth transition from one generation to the next,” the report noted.
For 66 percent of respondents, attracting the right talent and skills to their businesses is seen as a top concern.
Middle East family business leaders also reported concerns of the need to innovate and to stay ahead amid disruption, and regulation as well.
“They also reported they are worried about changing business models driven by digitalisation, increasing competition, and the problems associated with transitioning from one generation to the next while preserving family wealth,” the report said.
Growth pillars
The report highlighted several key drivers to ensure sustainable growth for Middle East family businesses.
“First, and from an internal perspective, they need to professionalise their business, establish better corporate governance and organise a succession plan to ensure a smooth generational transition,” Adnan Zaidi, PwC Partner and Middle East Entrepreneurial & Private Business Leader said.
The second pillar of growth is objective and efficient examination of the business segments’ profitability, through mastering bottom-line profitability and top-line growth. Among the underlying challenges for this pillar is a wider portfolio diversification, with 50 percent of regional family businesses operating a portfolio of entities in several sectors and countries.
The third pillar is the need to look forward and to adopt new business models with a digital mindset that is a highly competitive tool in the digital age.
The fourth driver of growth is an ecosystem with business friendly environment. Changing regulations are seen among the top challenges by 63 percent of respondents. For instance, the prices of raw materials and energy impact 44% of businesses surveyed, and the introduction of value-added-tax created a lot of compliance overhead for these businesses.
“Finally, a collaborative mindset is essential: Embracing peer-to-peer and public-private collaboration as well as policies that support growth and ensure accountability and transparency on governance can enable sustainability for family businesses.” PwC’s Zaidi said.
(Reporting by Nada Rifai, editing by Seban Scaria)
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© ZAWYA 2019
