What's next for GCC family businesses?

Dubai - Preparing and training the next generation is crucial for the business' survival and success

Family businesses in the GCC are perhaps like sunshine in the region: seen everywhere and all year round. From small and mid-sized enterprises (SMEs), to renowned multinational corporations - family owned and managed companies are the bedrock of the region's economy. These businesses have played a crucial role in securing the region's economic stability, accounting for a major share of businesses in most industries across the region for over a decade now.
Starting a family business is easy, but sustaining it over generations has proved to be tough. Family disputes due to miscommunication and generational gaps may impair business continuity and succession plans. But family businesses also have their strengths: they can be highly sustainable because of long-term commitment by family members who are deeply invested in the future of the company, and have a shared vision.
The last two years have proved to be particularly challenging for family businesses in the GCC, with significant policy changes, the introduction of new taxes and economic uncertainty. Despite this, family businesses in the region have demonstrated strong resilience and have largely witnessed sustained growth. KPMG's recently launched 2017 edition of the GCC Family Business Report found that over a third of the companies interviewed revealed their revenue had increased in the previous 12 months, while 40 per cent reported stable or improving year-on-year revenue.
In fact, a wave of economic diversification has created opportunities for them, particularly for those who recognise the importance of transition in leadership, governance and ownership - and who embrace innovation.
Passing the family business on to the next generation, however, remains a pressing concern for many family business owners. A total of 88 per cent 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 teach the younger incumbents a solid and sustainable set of guiding beliefs, along with the family's principles. Family businesses are therefore looking for ways to ensure they have the right governance mechanisms in place, with 85 per cent indicating they have appointed a formal board of directors, and 22 per cent saying they have appointed a formal advisory board.
The succession dilemma is common to all family businesses. What sets good businesses apart from the rest is having an established process to manage the transition and the complex ties between the business and the family, to ensure growth into the future.
A set of internal and external circumstances are also forcing owners to look outside for executives. This could vary from the existing management requiring a fresh perspective or future generations not looking to continue the legacy. In an encouraging trend, 95 per cent of those surveyed stating they see benefit in having non-family executives within the business.
Family businesses are, however, beginning to find it more difficult to attract the talent they need, possibly due to misconceptions about the way in which a certain business functions. Or they are losing the war for talent to other family businesses or multinational corporations. In a bid to attract suitable talent, family businesses are now more likely to clearly define and communicate their value proposition.
On the other hand, some family business owners point out that handing over control of the business to non-family members is an emotional decision and, no matter how apparent the benefit, the lack of control can take a while to grow accustomed to.
As well as succession issues, family businesses have to look for new ways to stand out in the face of increasing market competition, and can be faced with difficult choices in the wake of potentially declining profitability. The KPMG survey found that to be better equipped to battle competition, 30 per cent of respondents were looking to become more innovative and 38 per cent were looking to diversify into new products and services.
In this regard, a focus on creating a diversified portfolio, and new and innovative products and service offerings, can help to ensure the business has long-term sustainability. Similarly, exploring opportunities for local and overseas investment is seen as judicious.
To add to this, technology, in particular artificial intelligence and robotics, is emerging as a game changer to the way all business is done, and family businesses need to assess - and develop - their own operating models to ensure they are meeting customers' needs.
The future for family businesses will likely remain bright if they continue to implement appropriate strategies for growth, respond to evolving people and technology-related needs, and explore opportunities to expand into new markets. We believe their growth and legacy will be secured if they continue to invest in formal governance and make improvements to succession planning and inter-generational communication.
 The writer is partner and head of family business, KPMG in the Lower Gulf. Views expressed by him are his own and do not reflect the newspaper's policy.