Around 5,000 medium to large family firms exist in the Middle East, with net assets totalling $600 billion and constituting 75 per cent of the private sector economy, said a report.

These firms also employ 70 per cent of the labour force in the GCC region, said the research study by Al Masah Capital, a leading asset management company based in Dubai.

Examples of such success stories include the Al Rajhi family (Saudi Arabia), the Al Ghurair and Al Futtaim families (UAE), the Al Kharafi family (Kuwait), the Kanoo family (Bahrain) and the Sawiris family (Egypt), the report said.

The average worth of such family businesses in the Mena region is now about $600 million, according to the report.

While these firms did enjoy the positive fallout of the boom years they are now in need of revamping their priorities and facing the challenges of globalisation and the competition from the monolithic multinational corporations.

Also, the closed door approach that worked well in the past is now in need of different skill sets that are only available on the open market and family businesses have to invest in them.

As a result of this growing awareness to change the paradigm almost three-quarters of family-owned businesses in the Middle East are likely to move from the second generation to the third, according to the Al Masah Capital report.

Surveys conducted in the past indicate that just one of ten family-owned businesses survive to the third generation. In addition, families in the Mena region are large by global standards; the average family size is almost double that of comparable enterprises in the US and the UK.

In the new context a large family base could lead to conflicts or disputes that, in turn, could adversely impact the family business or even threaten to split it. Such fragmentation weakens the base.

By that token, credit defaults have also raised the issue of transparency or the lack of it for several family-owned businesses in the region. As a result, business houses are finding it far more difficult to avail easy credit, the report said.

“There was a time where only the family name was sufficient to open doors but that is not a guarantee anymore,” said Shailesh Dash, founder and chief executive of Al Masah Capital.

“To stay in the race and hold their position the decision-makers in these very powerful commercial houses have to bring on board a more 21st century approach. This includes modernization, the need to put in place proper compliance, risk management and accounting platforms and factor in talent with authority even if it is not from within the family. Those who can blend the past with the future are the ones that will weather the changing pattern,” he added. – TradeArabia News Service