Over half of GCC family busineses are confident about prospects for 2018, thanks to focus on increasing profitability and revenue.
The GCC’s family businesses have shown confidence in their prospects for 2018, as they begin to adapt to the “new norm” of lower oil prices and the impact of geopolitical developments, according to KPMG’s recently published “GCC Family Business Survey 2017”. The report analyses the thoughts of over 40 senior members of family businesses from the six GCC countries, on trends and issues affecting the sector.
On the report, Harish Gopinath, Head of Family Business for KPMG in the Middle East and South Asia commented: “In the GCC, perhaps more than anywhere else world-wide, family businesses form the backbone of the economy. Fifty-seven percent of those surveyed suggesting that they are confident about their business’ prospects in the coming 12 months and we can take this sentiment as a positive indicator for the region’s economic conditions.”
The survey identified that for many family business, growth is still high on the agenda, with 81 percent focusing on improving profitability and 55 percent on increasing revenue. As family businesses expand through the generations, it is essential that enough profit is generated to distribute to an increasing number of members. Nearly half of respondents noted that increased competition (a potential blocker to growth), was a major concern, so it is therefore not surprising that 38 percent are planning to diversify into new products and services and 23 percent were looking to move into new markets.
Finding the right balance between the interests of the family and that of the business, is clearly a key concern for family businesses – and was reported as important or very important by 77 percent of respondents. Family businesses are increasingly establishing rules, procedures and processes to manage expectations of family members and avoid conflict. On this, Gopinath continued: “Good governance is a success factor for growing family businesses, and each organization requires a unique, fit-for-purpose governance structure that will carry the business into future generations, whilst managing the risks associated with succession and sustainable growth effectively. Family businesses appear to be acknowledging this by ensuring that they have the right mechanisms in place, including a formal board of directors (85 percent) and formal advisory boards (22 percent). Interestingly though, only 20 percent of respondents indicated that they have adopted a family council.”
Whilst the board of directors’ role is to manage the business, the family council resolves and regulates family issues by creating a common set of rules that define the conditions for entering into family ownership, governing bodies or operational positions in the company. Family councils are also responsible for outlining the training and development conditions, and ensuring that there are the required skills, motivations and experiences necessary for business success. They therefor play a pivotal role in ensuring the sustainability of the organization.
Succession is also at the top-of-mind for most family businesses with 88 percent of respondents noting that training and preparing a successor is crucial for the business’ survival and success. With 38 percent of respondents expecting to pass management over in the coming 12 months and 21 percent expecting to transfer ownership, Gopinath explained that “when there are family members willing to take over the reins, the challenge lies in ensuring a smooth transition for all involved. It is paramount that planning and preparing for a change in management or ownership happens early and in a transparent way to ensure that all affected parties not only understand the implications, but support the change.”
Overall, many family businesses within the GCC have enjoyed a strong year and many are taking positive steps to ensure growth and the family’s legacy. Good governance and succession planning will always be critical to family business’ success but it is also important that they continue to keep up to date with competition and advances in technology. On this, Gopinath stated: “technology is changing the way that business is done and operating models and service offerings must be reviewed and updated to ensure that they meet customer and staff needs. Similarly, upcoming changes to regulations and the implementation of VAT across the region, could require new or updated systems – and it is better for business to act on this sooner rather than later.”
KPMG’s GCC family business survey 2017 analyzed the responses of senior members of family businesses in the six GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) about how confident they are in the future of their organizations, the challenges they face and the mechanisms they have in place to support sustainable growth. From May to November 2017, 42 senior members of family businesses completed the survey (largely during face-to-face interviews with KPMG’s specialist family business professionals).
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