MENA Family Businesses.Keeping it within the family....



In today’s modern corporate world, media promoted iconic companies have caused family businesses, a fundamental division’s contribution to the global economy to be undermined. 

Keeping it within the family....

In today’s modern corporate world, media promoted iconic companies have caused family businesses, a fundamental division’s contribution to the global economy to be undermined. 

The history of international success of the family business model is evident on a considerable scale.

Family businesses are out-performing non-family owned businesses in profit, sales and                     other growth measures, with between 70-90% of global GDP being accounted for by family-owned businesses. A family business can be defined as a company where the majority of governance is in the hands of the family members- usually including the founder(s)-who aim to pass on the business to their descendants. Similarly, it is these businesses which formed the backbone of the Middle East and North Africa region’s economy before the founding of oil; when the region was under-developed and deriving its economy mainly from fishing and a declining pearling industry.


To understand the family business model in the MENA region, we should first consider Trompenaar’s model of culture in explaining its relevance to business in these countries.

Family business is referred to as a power-orientated culture within this concept. The sentimental value of the business to the founder provides an incentive for them to take on overlapping responsibilities as family member owner, manager and director to thus establish a family based network. One particular division within the Trompenaar’s theory assesses human behaviour on a universalism versus particularism view: what’s more important, relationships or rules? Governance in family businesses is highly dependent on family relations and the rules are developed by the founder on a common familial ground and passed onto successive generations. 




 10 tips on Arab Culture for successful business in the Middle East

Although family businesses have shown a high rise globally there has been a particular dominance in the MENA region, averaging family net worth of USD4.5 billion in the list of top 65 families based on wealth. More than 80% of businesses in the Middle East are family-run or owned, with family businesses controlling over 90% of commercial activity in the region, as opposed to 65% to 80% in other parts of the world, due to the following reasons:  Firstly the importance of the concept of family in the Arab World culture; close family ties exist between cousins, in-laws and other familial relations regarded distant in Western countries. Arab culture is what Edward T. Hall termed “high context” (in comparison to the United States as a “low context” culture’). Thus, the way family-owned companies are run in the Arab countries differ significantly from those in Western society due to the history of tradition and culture preference which is incorporated into business. Michael Field made an observation in his book The Merchants that Arabs take a personal view on the world, relating rather to Arabians than institutions and form business through personal ties. Secondly, acquired political connections are needed in closed economies such as those in the MENA region to start a private business. This gives a competitive advantage to those family businesses with good political networks, providing an access to capital and advantaged information. 


The Kanoo family has shown continuous prosperity throughout successive generations. 


Their success is due to the centrally held conglomerate structure, held together by the strong family ethos developed by Yusuf who ensured these were instilled in his sons Jasiri and Ali who passed the message onto their own sons too. Yusuf told them; the family must always stick together, when disputes are the minority, it must respect the decisions of the majority. Khalid Kanoo further explains: ‘The continued success of the family must not be jeopardised by family ambition. If there is a conflict of interest, the company comes first.’ An enhanced sense of consensus runs in the family: members who work for the company is given an equal salary, those who do not, are given a smaller salary. Education, housing, food and travel are financed by the company. This helps to refrain from envy and prevent financial burden on the company. The Kanoo Group’s sustainability is most impressive. Mishal Kanoo noted ‘Statistically, the odds against family owned and controlled businesses continuing to thrive through successive generations are astronomical. Less than 1 percent reaches the 5th generation’. The House of Kanoo is on its sixth generation, showing no hesitation of continuing onto the seventh. 

Yusuf Bin Ahmed speaking about Kanoo Group’s Strategy 

Considering why some family businesses in the MENA region out-perform other family businesses is dependent on a number of factors.

The basics come down to the way individual family businesses utilise the family business model to their benefit; promoting its strengths, being aware of its weaknesses and planning on how to tackle them. In the Barclay’s wealth management research on family businesses, Mr Miller took note that the most successful family business were run by religious families, such as the MENA family businesses. ‘The family business edge’ suggests that the prosperity of a family owned business depends on how well they emulate the model’s strong points. On the basis of this, family companies will prevail because they usually take on a long-term view of decision-making due to their desire to build an enterprise for future generations. Also acquiring the ability to adopt unconventional strategies, unique to their business enables them to respond faster to the changing market situations and providing flexibility to take advantage of opportunities and address emerging risks.


Many Middle Eastern families, Al Muhaidib Group and others are now realising the need to reassess their business portfolios and rid themselves of firms which do not fit in with their long-term goals or are not performing well through streamlining operations. This need for change has occurred due to the increased competition as shown through a survey carried out by consultancy firm Booz & Co about family-owned companies. Due to the many rentier states in the MENA region undergoing a so-called “resource curse”- over-dependency of the economy on an abundant resource, many governments are taking on ambitious reform plans. This includes opening up to foreign investors to increase FDI as part of the World Trade Organisation (WTO) perspective plan. Unstable economical conditions and globalisation puts pressure on the current family businesses that previously benefited from closed economies, but now must change or face a detrimental impact on their business. 


The survey also showed that almost 90% of the large family-owned companies in the MENA region (Saudi Arabia having the maximum number of family businesses) show active interest in multiple sectors; of these, nearly half are in five or more sectors. The reports research into annual results between 2003 and 2007 demonstrated that global firms’ performance in one particular sector outperformed the others. However in such instances, if a particular sector is under-performing but is one which defines the company’s start-up or has sentimental value, family owners are hesitant to streamline.



The global financial crisis has presented other issues too.

The credit crunch has made banks reluctant to renew their credit facilities and lend to well-known industrial families, the way they use to. This situation was further instilled by the indebted case of Saad and Algosaibi groups- two Saudi Arabian conglomerates which raised the issue of transparency in MENA businesses.  This has changed previous simple loan lending into a more complex matter whereby banks require detailed documents as evidence of financial security and statement of earnings.  Family businesses will now find it harder to enhance their business unless they increase disclosure and transparency.



More general problems that family businesses are facing is strategic succession planning.

Sometimes, the founder may be unwilling to cede control or appoint someone else in to take over following their retirement/death. This also links with the growing concern of nepotism in family-owned enterprises, which means blood relations are favoured instead of an individual being judged based on merit or skill. In non-family businesses this does not occur. There is also more pressure to pay dividends as the number of family members involved in the business grow, rather than reinvesting the earnings to help promote the growth of the company

“There’s always pressure from family members who are not involved in the business to get more dividends,” says Raffi Amit, professor of entrepreneurship and management at Wharton. It’s a tough balance to keep.


Regarding the MENA region, the companies must additionally face the rather difficult local business challenges.


Unemployment in Saudi Arabia is as high as 35% amongst 16-24 year olds. In the last decade only half a million jobs were created, but McKinsey & Co consulting firm realise that the number of expatriates entering the labour market is increasing and predict from 2005-2015, more than three million jobs will need to be created.



Sustainability is the new approach family companies in this region need to undertake to survive in uncertain times.

 For instance, Al Muhaidib Group recently took on a restructuring plan. Within this they have made tactful merger and acquisition deals with Giant Stores in Saudi Arabia, Qatar and Kuwait with a chain of around 60 Panda supermarkets- a publicly listed foods firm. This has brought immense capital into the firm, freeing up assets and allowing the company to focus on their strength sector- retail.


Tackling management issues is also vital for these large industrial families; governance of the business and governance within the family; distinguishing between family institutions and senior management. Regionally or globally recognised firms that wish to continue to establish themselves must bring in professional help from outsiders early on. That also means introducing executive committees, independent audit committees and independent advisory boards- the latter reviewing management performance twice yearly. Governance standards amongst such firms more often match the standards seen in public companies. Providing a structure of family governance helps to articulate the relationship between family members and the business. MENA families tend to be larger than Western families, so drafting a family governance document, charter or constitution helps to lay out the families’ corporate values, ethics and views on patronage (staying loyal to the initial business as further familial relations join the company). For example, Al Muhaidib set up a charter for members of the family to sign on from 16 years old.

Emerging from the early merchant families into today’s large industrialised firms, deep rooted in culture and family values- these businesses must eliminate or curb the restless entrepreneur syndrome, let go of emotional attachments to core but less profitable businesses, and institute guidelines that provide clear lines of separation between family and business activities Implementing a strategic long-term plan to address the mentioned issues will ensure that the family businesses will remain sustainable and competitive amongst the evolving globalisation within the MENA region.

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1 Comments, add your own...
Syed Khadri  says:
11/7/2013 12:00:00 AM
Good one to understand the important concepts of regional business success. thank you

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