Mubasher: Family businesses in the GCC region are facing serious challenges in today’s highly competitive business environment, according to report released by Orient Planet Research on Tuesday.
Some of the region’s largest publicly listed international companies are family-owned, including one-third of Fortune 500 companies. In the GCC, around 70% to 80% of private sector companies are family-run businesses, making this category “the backbone of regional economies,” according to the report.
“As the second largest shareholder after the government, family-controlled businesses substantially drive the national economy of GCC countries and collectively represent a significant variable in the development equation of the region”, the report added.
In the list of top 65 families based on wealth, net worth for the average family in Saudi Arabia was $6 billion, followed by the UAE and Kuwait. Meanwhile, the entire MENA region average stood at $4.5 billion.
Most of family-owned business operate within five main sectors with real estate at the top, according to Orient Planet.
The report further found that “a structured governance process and succession planning are crucial especially since these businesses are expected to undergo a generational change over the next five to 10 years.”
At present, more than half of these businesses are transitioning from their second to their third generation, with many being unprepared for the succession.
“Only 15% of these businesses in transition are likely to survive,” a study by McKinsey & Company showed, adding that only 17% of GCC family businesses have “an efficient assessment method” that can be used to identify positions and responsibility for the next generation.
That is why many regional businesses have already begun taking and implementing measures to partially address the two key issues; “[to] secure long-term success and growth; enhance transparency, efficiency, and access to capital and talent; formalise management structures; and improve rules and processes,” according to the report.
While advancements in these areas will “foster” professionalism and boost family-run businesses’ global competitiveness, the report stressed the need “to employ a holistic approach to manage the change, both in perception and action.”
To solve such issues, the report recommends “going public to raise immediate cash flow, which can be later utilised for growing the business.”
