Middle East family businesses delivering solid profits

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Middle East family businesses delivering solid profits
An impressive 83% of Middle Eastern family-owned businesses have seen sales increase over the past year — compared with 65% globally.

The results of the Family Business Survey 2012, conducted by PwC, were revealed this week by the Dubai Women Business Council (DBWC). According to the study, Middle East family businesses are thriving.

An impressive 83 percent of Middle East family businesses have seen sales increase over the past year, compared with 65 percent globally. Only 9 percent of respondents in the region say they saw their 2012 sales decline. Working towards ambitious growth targets, 23 percent said that they are aiming for aggressive growth over the next five years.

According to the report, the family business structure itself provides significant advantages. These include flexibility, continuity and the long-term perspective. Such aspects contribute to job creation within the economy, owing to their entrepreneurial nature. Some 74 percent of family businesses believe that culture and values tend to be stronger in family firms than in other businesses. A full 78 percent said they do all they can to retain staff — even in bad economic times, and on another poll question, 78 percent agree to have a strong commitment to employment and community initiatives.

“Our survey clearly shows that family businesses in the Middle East will continue growing significantly. Compared with the rest of the world, family businesses in the Middle East are less fazed by the general economic situation. This has created a strong framework for family businesses to continue targeting ambitious goals, bringing stability to a balanced economy.” — Amin Nasser, Partner/Entrepreneurial & Private Clients Leader, PwC Middle East

The survey revealed some important trends and major challenges faced by family businesses have taken shape over the past few years.

Over the last 20 years, there has been increased participation by women within family businesses. Their contributions to the businesses overall have been significant and can be attributed to increased standards of education, improved economic conditions and enhanced financial opportunities.

“There is no denying the fact that the role of women in Family Business has undergone a paradigm shift. Active participation by the female family members in the Family Business has been steadily increasing in the past two decades. With women proving to be excellent leaders with exceptional capabilities, governments and society both are actively looking at ways to promote Women Entrepreneurship.” — Raja Easa Al Gurg, President of Dubai Business Women Council

Family businesses have displayed commendable performance, especially in the retail, manufacturing and construction sectors. A confident 69 percent anticipate steady growth, while 23 percent expect quick and aggressive growth. Only a low 9 percent saw a reduction in sales over the last year, compared to the 19 percent recorded globally.

Key challenges currently hindering the full potential of Middle East family businesses include: recruitment of skilled staff, succession planning and family politics.

Recruitment and retention of skilled staff is a major concern among the local family businesses. More than half say attracting the right skills and talent will be a key challenge over the next five years, and 43 percent say they will struggle to retain key staff in the same time period. Another 48 percent found the main challenge to be price competition.

Family conflict within the business will be a challenge over the next five years, which is higher than the global average, as 1-in-5 family businesses in the Middle East expect to deal with such situations with in the future. The survey also revealed that 42 percent of family businesses have shareholder agreements in place, and almost a quarter have no procedures at all, to deal with internal conflict.

Family businesses in the Middle East also face external threats, such as government policy and market conditions. Government policy and regulation are identified as major issues in the Middle East with 46 percent proclaiming it a key external challenge, whereas 45 percent claim market conditions to be the key external challenge.

In order to facilitate the efficient performance of family businesses, the study recommends a number of measures that could be taken by the government. These include financial incentives for family business start-ups; facilitating the employment of skilled immigrant workers and improving education, training and vocational skills. Further attempts to reduce taxation were cited by respondents, as well as the government providing advice and information so that more informed financial decisions can be made.

Easing employment laws around hiring and advising, or facilitating the processes of succession, can help in the selection of a competent CEO for the company in the future. Lastly, providing -training and support aimed at family businesses (e.g. succession planning, international expansion, conflict resolution and professional management) can help overcome the multiple hurdles associated with being unable to hire skilled staff.

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