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Curtains Up on Investment

Curtains Up on Investment

Investment floodgates for GCC firms have been flung wide open after Coca-Cola and Carlyle Group entered the ring, but are family businesses ready to accept it?

April 4, 2012 3:13 by

The rise in the number of foreign part¬ners will surely improve the management style of the family businesses in the re¬gion. Al Omran said: “Family businesses have been improving in style. If you look at how companies and conglomerates’ family holdings have been managed 10 to 15 years ago versus today, it’s a complete¬ly different thing. You look at family busi¬ness, like Jarir Bookstores, and how well they have excelled as a business model, and many others you can think of, like the Al Othaim in the Kingdom of Saudi Ara¬bia… that is a good thing, especially when these companies go public. So, that is a very positive development in the region.”

Foreign investors are also excited about how the GCC is getting easier to do business. According to the Interna¬tional Finance Corporation and World Bank’s 2011 “Doing Business Survey”, Saudi Arabia was now the 12th easiest place on the planet to do business – one spot ahead of Canada. Moreover, it ranks first in ease of registering proper¬ty. Five other countries – the UAE, Qa¬tar, Bahrain, Oman and Tunisia – were in the top 50.

“With the exception of Saudi Arabia and the UAE, the others are not major oil pro¬ducers (combined they produce less than three percent of the world’s daily oil out¬put), and they are working hard to make it easier for companies to create jobs and grow economies,” said Bozer. “Saudi Arabia is the world’s second-largest oil exporter, but it’s clearly looking ahead to the day when oil is not the prime driver of growth and exports. In 2011 the UAE received more foreign di¬rect investment than Poland; Saudi Arabia got more than South Korea.”

Although growth figures look extreme¬ly positive, investing in family businesses in the region is not without challenges. Partner with Deloitte in Qatar, Midhat Salha, said: “Not all family-owned bus nesses are created equally, with striking differences as relates to industry, owner involvement, structure and, perhaps most importantly, success. On the one hand are world-class businesses competing with key market players, which not only benefit the family but the community as a whole, and on the other hand lay the remains of what once was a family-owned business. The wide spectrum between the two offers valuable lessons for those smart enough to learn from their experiences.”

Most successful businesses in the Middle East today are, or were started as, family groups. Over the past decade or so the Middle East has witnessed the profound effects of globalization and world trade arrangements, which created more competitive pressures on family and other businesses, said Salha, adding that such pressures – including reduced trade barriers, opening certain industries and economical activities to further competition and eliminating monopolies – have resulted in changing the landscape of doing business in the Middle East and made it essential for family businesses, in particular, to re-examine their business model and ad¬dress related challenges.

One of the key issues facing family businesses is structure and it relates to own¬ership and management, governance, struc¬ture and organization. “At the outset, it is important to point out that one of the main limitations of family entities is the lack of separation of ownership from management, said the Deloitte partner in Qatar. “In to¬day’s competitive marketplace, the old ap¬proach does not necessarily work as it used to in the past. On the one hand, organiza¬tions are increasingly facing more and more challenges requiring a new set of skills to run a successful business model, which are not totally available within the family.

“On the other hand, such limitations are compounded when the family affairs and business matters intermix, posing a significant threat to the success and sur¬vival of the organization. Along the same lines, and because such a practice has not been established by family entities in the past, we have seen lot of those entities now facing considerable difficulties in at¬tracting and retaining non-family talent to co-manage (or manage) specialized busi¬nesses and functions in general, an issue that is both, significant and detrimental,” said Salha, adding: “Another major issue is the lack of a proper governance frame¬work, which negatively affects the ability of the organization to control its actions, increase the likelihood of irregularities and result in inconsistencies in the way business is conducted.”
Summing up, Salha said: Today it is very encouraging to see an increasing awareness by owners and key personnel at family organizations, of the threats and risks facing their business. It is equally encouraging to see them taking action to¬wards addressing such risks and dealing with the challenges.

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