The GCC’s numerous family-owned businesses are facing a new generation of challenges
Since the 1970s oil boom, family businesses have formed the bulk of the region’s economic landscape. Roughly 5,000 medium-to-large family firms exist in the Middle East, with net assets totaling $600 billion. These companies constitute 75 per cent of the private sector economy and employ 70 per cent of the labour force in the GCC, according to Dubai-based investment bank Al Masah Capital.
Through a fortuitous combination of limited international competition, high liquidity and easy access to capital and labour, many of these trading businesses have grown into conglomerates, with nine per cent of these serving more than 20 countries, said a report from wealth magazine CampdenFB.
Traditionally, GCC legislation has been extremely supportive of family businesses, offering low tax schemes and supporting initiatives.
In an effort to support family businesses, but also offer a modern international platform for growth, the Dubai International Financial Centre (DIFC) has drafted special regulations for Single Family Offices (SFO) addressing the needs of family-run institutions, creating a platform for wealthy families to set up holding companies at DIFC.
DIFC SFOs have the added benefit of a confidential yet transparent regulatory framework that excludes them from many of the regulatory constraints placed on conventional organisations in the centre, as well as access to corporate governance experts.
Today’s regional family businesses are facing an increasingly diverse range of challenges. One of the most pressing issues at hand is globalisation.
As Saptarshi Bhattacharyya, director of business development, family groups, MENA at Frost & Sullivan, points out: “Governments of many countries have so far been able to shield their domestic corporations from foreign competition, but if history is any indication, this level of government protection is going to be increasingly untenable in the coming years.
“As a result, being world-class in every aspect of conducting business is going to be vital to the successes of most companies going forward – family-owned companies in the UAE are no exception.”
According to a report from management consultants Strategy& (formerly Booz & Company), the current global economic slowdown, coupled with increased competition from both regional and worldwide firms across industry sectors, and the “democratisation” of business development in the Middle East, will force family businesses to focus on scaling businesses, improving performance, and attracting new talent.
“Many family conglomerates are likely to find themselves cash- constrained over the next few years, as their businesses demand management attention and capital to survive and prosper in a more competitive environment,” the report added.
“Managing the transition through changing economic climates and across generations requires that family businesses overcome the restless entrepreneur syndrome, let go of emotional attachments to businesses that are no longer viable, and focus on building a more scalable and sustainable organisation.”
Official succession planning, stringent corporate governance policies and transparency are all necessary policies that family firms must embrace if they are to prosper in the long-term.
According to Bhattacharyya, family-owned companies in the UAE need to “look beyond the borders of their country, develop a robust growth strategy and create a nimble, transparent and professional organisation.”
Phil Gandier, MENA head of transaction advisory services, Ernst & Young (EY), said that a range of factors are impelling GCC family businesses to look at the IPO process.
“Family businesses are being driven [to IPO] by the demands of generation shifts, inheritance planning, business continuity and the need to create visibility for the value of their wealth, which impacts their leverage with banks and access to financing. Going public also helps the companies generate currency to fund their commercial and expansion plans.”