(MENAFN- Gulf Times) The Middle East family businesses need to grow in double digits every year to sustain the familys' intergenerational wealth for which succession, governance and strategic planning hold the key, according to PricewaterhouseCoopers (PwC).
Despite economic uncertainty, almost two thirds (64%) of family businesses have grown over the past year, said PwC in a new global survey.
While the region's family businesses continue to be active and successful, the changing political and economic environment is affecting both their current performance and their growth expectations, said PwC Middle East's latest Family Business Survey for 2016 titled: 'Keeping it in the family: Family firms in the Middle East.
Respondents to the PwC Middle East Survey said that the three most significant challenges faced by their family firms are: government policy, legislation and regulation (42%), skills shortages (35%), and market conditions (31%).
Despite the relatively steady outlook, the report cautions that family businesses' growth outlook could be curtailed by the organisation's own lack of strategic planning rather than economic factors or other external concerns.
'In fact, many issues now facing family businesses in the region come back to a lack of strategic planning the ‘missing middle' namely having a strategic plan that links where the business is now to the long-term and where it could be, resulting in many families not being able to turn early promise into sustainable success, it said.
While some family firms are managing strategic planning well, many are caught between the deluge of everyday issues and the weight of inter-generational expectations, PwC said, finding that areas such as succession, diversification, digital, cyber security, and innovation are not being tackled by family firms in the Middle East but also globally.
'Overall, Middle East family businesses' performance and outlook for growth remain strong with notable progress on professionalisation, but less so on strategic planning. Having an ambition to grow, without a strategic plan of how to get there, is just an aspiration. Not only is it limiting their ambition to expand and grow, it could also expose them to additional risks that they have not effectively planned for, according to Firas Haddad, PwC Middle East Partner and Family Business Advisory Services Leader in the Middle East.
More respondents in the region believe that family businesses take a longer term approach to their decision-making (61% compared to 55% globally), and are prepared to take more risks (58% versus 40%). However, they also recognise the challenges family businesses face: respondents in the region feel they struggle more to attract and keep talent (65% versus 48% globally) and find it harder to access capital (42% versus 32%).
'An overwhelming 91% (compared with 86% globally) of Middle Eastern family businesses have no formally documented succession plans in place, the survey found. More worryingly, the Middle East figure is higher than the 86% recorded in 2014, indicating little to no progress on this issue across family firms in the region, the report said.
'Middle Eastern family businesses need to grow in double digits every year, if they were to sustain their family's wealth from one generation to the next. Growth of this magnitude can only be achieved if family businesses expand aggressively, and one way to do this is to either borrow from the debt and equity markets, which is not always palatable for family businesses, or alternatively, to extract value internally by freeing up working capital and disposing unprofitable legacy businesses, according to Antoine Abou Mansour, PwC Middle East Partner and Deals Channel Market Leader in the Middle East.
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