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38% of MidEast family firms 'have no succession plan in place'

Despite economic uncertainty, almost two thirds of family businesses in the Middle East have grown over the past year, according to a new survey conducted by PwC.

The poll showed that 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.

Respondents to the PwC survey said that the three most significant challenges faced by their family firms are government policy, legislation and regulation (42 percent), skills shortages (35 percent), and market conditions (31 percent).

Only 14 percent of Middle East family firms have a plan for their succession process for all senior executives while 38 percent have none at all, said PwC.

Nearly half (48 percent) said keeping pace with digital and new technologies is one of their key challenges, yet only 35 percent believe their business is prepared for dealing with a data breach or cyber-attack.

Despite the relatively steady outlook, the report warns 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.

It said 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.

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 added.

The survey found 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.

While respondents in the Middle East agree with their global peers about the qualities that characterise a family firm, there are several other factors that have an added importance. For example, more respondents in the region believe that family businesses take a longer term approach to their decision-making (61 percent compared to 55 percent globally), and are prepared to take more risks (58 percent versus 40 percent).

However, they also recognise the challenges family businesses face: respondents in the region feel they struggle more to attract and keep talent (65 percent versus 48 percent globally) and find it harder to access capital (42 percent versus 32 percent).

Half the respondents in the Middle East, compared to 28 percent globally, attach a high value to leaving a positive legacy, with charitable contributions a big part of this.

The lower oil price and resulting economic slowdown, combined with reductions in government spending, changes in fiscal policy and more fragile business and consumer confidence, are all contributing to rapid change in the region, the survey also showed.

In 2014, 79 percent of Middle East respondents had seen an increase in revenues over the previous year, but that number is now slightly down to 74 percent, although it’s still ahead of the global average of 64 percent.

Firas Haddad, PwC Middle East partner and family business advisory services leader in the Middle East, said: “Both the survey results and our own experience lead us to conclude that greater emphasis on strategic and medium-term planning would allow family businesses to achieve greater success, and fulfill their true potential.

“A medium to long-term strategic plan is now unavoidable and to be successful, it needs to be clearly aligned to the family’s long-term goals, vision and values in order to result in effective decision-making and ultimately, results.” 

He added: “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.”

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