There is a new norm in which Middle East family businesses need to operate. Market dynamics are changing and are calling for new business models, digitalisation is disrupting whole industries with new related skillsets being required, trust in institutions and technology is more important than ever, and millennials are changing the way companies do business. These changing times are reflected in the results of the 2019 PwC Middle East Family Business Survey. Our past editions showed that family businesses in the Middle East outpaced their global peers in revenue growth, however this year presented a slightly different picture: Growth over the last 12 months decreased compared to 2016.
Middle East family businesses have succeeded so far thanks to an entrepreneurial founding generation that forged powerful political and financial alliances. Despite tough times in the past, they have remained resilient. But the economic environment is more challenging than ever with narrowing profit margins and an unpromising global economic outlook. The days of double-digit growth are – at least for the foreseeable future – a thing of the past.
The message is clear: Middle East family business leaders cannot afford to remain idle.
Interpreting our survey’s results, we realise that family businesses need to address four distinct areas that can serve as pillars for growth, and look inward, long-term, forward and outward to ultimately unlock value:
Setting the right foundation
The underlying challenges:
- Succession planning is a key issue for 53% of respondents
- 66% agree that assessing the right skills and capabilities is a top concern
- Professionalision of the business is a key goal for 72% of respondents
The way forward:
Internally, Middle East family businesses must professionalise the business, including processes, structures and systems. They must establish better family and corporate governance and organise succession planning for a smooth transition from one generation to the next. They also need to attract, train and retail skilled workforce as well as genuinely empower management.
Creating sustainable value
The underlying challenges:
- 88% of senior family business executives plan to improve profitability over the next two years to remain competitive
- Wider portfolio diversification: 50% operate a portfolio of businesses in multiple sectors and multiple countries compared to a quarter globally
The way forward:
For sustainable value family businesses need to examine with objectivity the efficiency and profitability of their business segments. The current economic environment dictates that streamlining assets and “cutting the tail” is a necessity. At the same time, they can’t afford to miss investing in the right future ventures. Mastering both bottom-line profitability and top-line growth is what will distinguish the winning family businesses.
Innovation and digitalisation
The underlying challenges:
- The need to innovate to keep ahead is ranked as a key challenge by 63% of Middle East respondents
- 34% expect to significantly change their business models over the next two years
- 66% plan to take significant steps in terms of enhancing digital capabilities
The way forward:
One does not need to look far to realise that the digital age is here and disruptive technological change is imminent. Family businesses need to embrace new business models and new ways of working that are compatible with a digital mindset and build the right innovation and digitalisation culture across the organisation. Business innovation and self-innovation are the ultimate competitive tools.
A fostering ecosystem
The underlying challenges:
- Changing regulations are identified by 63% as one of the top five challenges
- The prices of energy and raw materials affect 44% of respondents
- Family business leaders also emphasise on their social responsibility to ensure the continuity of their business as a key economic contributor and workforce employer
The way forward:
Externally, family businesses require a nurturing ecosystem with a business friendly environment and a level playing field. Supportive policy development and public-private collaboration that enables sector growth can shield family businesses in times of change. At the same time, it is clear that the responsible preservation of family businesses for generations to come is crucial for the socioeconomic growth of the region.
Contact us
Adnan Zaidi
UAE Risk Leader and Middle East Assurance Clients & Markets Leader, PwC Middle East
Tel: +971 56 682 0630
