DUBAI: Over 68% businesses show concern about regulations in the Middle East compared to 33% globally according to a report.
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: Professionalising the 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 more ambitious in the medium term, with 40% looking to achieve aggressive growth in the next five years – the second highest score in the whole survey – and 98% of those who are predicting growth saying they are confident they will achieve it. This resonates well with the Middle East results in our 17th Annual Global CEO Survey, in which 66% of CEOs in the region told us they were positive about their company’s growth prospects.
While Middle Eastern firms are clearly buoyant about their own prospects, market conditions remain a real anxiety, and businesses in our region are far more concerned about the impact of government regulation (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 professionalise both 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,” Amin Nasser, PwC Middle East Entrepreneurial & Private Clients Leader, said.
“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.
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.
“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,” one Middle East respondent said.
The number of respondents apprehensive about their ability to recruit skilled staff has gone up significantly since the 2010 survey, and it continues to be the biggest single internal issue for Middle Eastern family firms over the next twelve months: 34% cited this as a key concern in 2010; it rose to 45% in 2012, and it’s now as high as 64%. This is noticeably higher than the global 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.
Our region has tended to lag behind other developing markets in its take-up of digital technology, but there are now signs that this is changing, especially in sectors like retail, which was one of the first and fastest to be affected by internet technology, and remains an immensely important element of the regional economy.
Exploiting the full potential of digital includes everything from how the business is run internally, to how it reaches its customers externally. Doing this properly can demand quite significant capital investment, but Middle Eastern family firms are more fortunate than others elsewhere in the world in that the banking sector is liquid and ready to lend.
It’s the younger and more ambitious businesses who are more likely to cite professionalizing the business as a goal, and are more aware of the risks and opportunities of the move to digital technology. They’re more likely to be looking at a possible Private Equity exit strategy, and will know that these investors will look for a well-managed and disciplined operation. This applies equally to those looking to undertake an IPO.