Family-run businesses in the Gulf Cooperation Council (GCC) countries remain, by and large, highly resilient at the start of year 2018, proving once again that this important segment of the economy will continue to drive the regional growth.
A recent report released by KPMG revealed that despite the challenges brought about by low oil prices, family businesses across the GCC maintain the drive forward towards sustained economic growth.
The report titled “GCC Family Business Survey 2017” noted that over a third of the companies interviewed showed that their revenue had increased in the previous 12 months and 38 percent reported stable or improving year-on-year revenue. The said companies continue to form the backbone of the region’s economy, it added.
Fuad Chapra, head of deal advisory and family business at KPMG in Saudi Arabia, said family businesses across the GCC continue to witness continuous growth and positive performance. “Family businesses in the region have demonstrated strong resilience towards business challenges,” Fuad Chapra pointed out.
On the whole, the picture for family businesses seems relatively optimistic. This is owing to the fact that 33% of them registered revenue increase in the past 12 months, 38% managed to keep the revenue steady in the said period and only 29% suffered a drop. In terms of their overseas investment, the past year witnessed 38% of them posting an increase in overseas activity, 10% decreased activity and 33% remained steady.
Over half of respondents feel confident about their businesses’ prospects as they continue to adjust to the new norm of lower oil prices, the KPMG report said.
The family business leaders interviewed across the region reaffirmed the strengths and key attributes of such businesses, with 57% of them having long-term strategic perspective, 59% asserted that they had fast and flexible decision making processes and 54% demonstrated shared values and ethos.
“Family businesses in the region are known for having a long-term perspective, which ensures the sustainability of their business” Fuad Chapra, head of deal advisory and family business for KPMG in Saudi Arabia, remarked.
He explained that “in the GCC, family businesses continue to form the backbone of the economy. Fifty-seven percent of those surveyed suggested that they are confident about their business prospects in the coming 12 months and we can take this sentiment as a positive indicator for the region’s economic conditions”.
The survey identified that for many family businesses, growth is still high on the agenda, with 81 percent focusing on improving profitability and 55 percent on increasing revenue. As family businesses continue through the generations, it is essential that appropriate profit is generated to distribute to an increasing number of shareholders. Nearly half of respondents noted that increased competition was a major concern, and hence it is not surprising that 38 percent are planning to diversify into new products and services and 23 percent were looking to move into new markets.
Yet despite this positive outlook, smooth transition the family business to next generation remains a primary concern for family business owners as well as increased competition, the “war for talent’ and a decline in profitability, the KPMG survey found out.
“Smooth transition the family business on to the next generation is a top priority and a consistent concern for many family business owners “the survey pointed out.
A total of 88 percent of respondents believed that preparing and training the next generation is crucial for the business’ survival and success, and “that it is the responsibility of the senior generation to cascade to the next generation a solid and sustainable set of values and guiding beliefs, along with the family’s principles.”
The survey further said over 60% of respondents indicated that they have members of the next generation in management roles within the company and 25% have recruitment in process.
“Successful family businesses are investing an increasing level of resources, time and energy into building their leadership from within the family to ensure the long‑term continuity of the business,” the survey noticed.
Finding the right balance between the interests of the family and that of the business is a key concern for family businesses – and was reported as important or very important by 77 percent of respondents. Family businesses are increasingly establishing, procedures and processes to manage expectations of family members and avoid conflict.
Moreover, 30% of respondents said they are looking to become more innovative and 38% consider diversifying into new products and services, to manage on their family businesses.
A total of 84 percent of respondents noted that their strategic plan includes investments, both internally and externally. Even with a reasonable level of confidence and good business results, profitability will determine their ability to succeed and grow. And 38 percent are looking for ways to diversify into new areas and planning to invest in diversification.
“Family businesses in the GCC grow their business and pursue new opportunities by relying on increased profitability, revenue and diversification,” said Fuad Chapra, head of deal advisory and family business at KPMG in Saudi Arabia.
Ensuring a smooth transition to the next generation is crucial for the family businesses, the report noted. For this reason, family businesses continue to focus on hiring talent, with 95 percent of those surveyed stating that they see benefit in having non-family executives within the business.