Rebuilding family business strategies in the GCC
By Atique Naqvi
The Arabian Gulf’s family-owned companies must shun traditional business practices and embrace the sophistication of the new-age corporate world. The traditional business model in the GCC has come a long way in the past four decades, and have adapted to the changing economic and financial environment.
In the near future, however, the GCC family businesses have to rethink their strategies and streamline and control their activities.
AT Kearney, one of the leading global research and consulting firm, released a study on GCC family businesses saying that during the recent economic crisis, the region’s family-owned enterprises have been less resilient than the rest of the economy despite a pre-downturn history of rapid growth and market dominance.
Speaking with TRENDS, AME Info’s sister print publication, AT Kearney’s partner for Middle East Cyril Garbois and co-author of the study “GCC Family Businesses: Unlocking Potential Through Active Portfolio Management” stresses that family businesses continue to benefit from market knowledge, effective positioning and entrepreneurial spirit.
But it looks like a case of over diversification. “Over the years, some of these businesses have turned into large conglomerates and have diversified to an extent that they are not able to fully control their operations or capture the value of their business,” says Garbois, adding: “Most of the family business groups are present in five to 10 industries, and they are less equipped to monitor performance – even incapable of improving results when the performance is going down or enhance the value of business when the performance is good.”
It is time to take some hard decisions. “Family businesses are in dire need to implement more thorough review of enterprises so as to create value and focus on few entities or move away from certain industries and create core business activities.”
Garbois tells TRENDS: “The man sitting on top of the group has a huge span of control over business. There are 30-40 people reporting to him. There is a need to focus as one cannot be a champion of 100 industries.”
The report says GCC family businesses are seeing performance recover more slowly than the market for several reasons. One is the way they’re managing their wide-ranging portfolio of businesses and investments.
Most GCC family businesses have a highly diversified, fragmented portfolio, says the partner at AT Kearney Middle East. “This contrasts with family businesses in the more mature European and North American markets, where portfolios tend to be more focused and have clear business platforms. While GCC family businesses have been extremely successful diversifying, few have implemented systematic, active portfolio management.”
Historically, many GCC family businesses started and developed as commercial agents to international companies or as contractors to government projects. As competition increases, they need to rethink their value proposition, says ATK report.
As the region’s markets become competitive, family businesses must be able to see the true value of their contribution from the perspectives of the market and also external partners, particularly international leaders that bring the core expertise and intellectual property to any partnership. This will enable them to reap the full rewards of their positioning and lay the foundation for long-term success.
The process must be systematic, consistent, and integrated with portfolio management, with an objective of being proactive about future portfolio-building opportunities. This also helps mitigate risk and set the stage for organizational changes that might have to be made, concludes the AT Kearney report on GCC family businesses.