The history of family-owned businesses in the Gulf countries spans more than 100 years during which time the required entrepreneurial and managerial experiences have been passed on from one generation to another. These families contributed to the development of sectors such as trade, banking and construction, and resulting in the collection of taxes that helped stabilise financial conditions and support state budgets in the pre-oil era.
When oil revenues started flowing in, the Gulf nations encouraged family businesses to expand into many areas. They even contributed to the emergence of new business groups through the awarding of contracts to implement projects, especially infrastructure-related ones vital for development needs.
This approach contributed to a qualitative development of these companies, some of whom went on to enter partnerships with global players and gained in administrative and technical expertise to implement large projects and enter overseas markets.
However, most of the family businesses maintained a conservative management style, despite the enormous economic expansion in the Gulf which required a more modern management style characterised by flexibility and innovation.
Advanced approach
This is simply because decision-making was confined to a limited number of individuals, thus limiting the ability of these companies to keep pace with rapid growth and diversified economies.
As an example of the variation between the advanced approach of the state and the style of work adopted by these companies, it is vital to refer to the significant steps made by the GCC in the transformation to smart governments and knowledge-based economies.
According to data released by the GCC Family Business Council, 88 per cent of its activities are focused on five traditional sectors, namely trade, construction, real estate, manufacturing, travel and entertainment. The GCC countries have great potential to develop other sectors important to present day economies, such as technology, and innovation-based industries in the areas of health care and business management.
Although the way is already paved for a qualitative leap to be taken by family-owned business, there are difficulties related to the management style and financial capacity that do not allow most of them to bear the cost of such a move. However, this requires family-owned companies to overcome such obstacles by converting into joint stock companies where the current owners can keep a proportion of their shares.
This should lead to the desired qualitative transformation and can be done by bringing innovative managerial minds on-board on the one hand and securing substantial financial capacities through selling shares.
Investment channels
In fact, successful attempts have been made in recent years at some family-owned companies in the region through transitions into joint stock companies, and which then had a profound effect on their development and increasing profits significantly. In turn, such a move has contributed to the wealth of the promoters while allowing new investment channels for investors.
This will only encourage more family businesses to switch to public stock companies. However, the transformation is moving slowly in a manner that does not cope with the rapid growth of GCC economies. Maybe the state of the global financial markets, including in the GCC, has contributed to the slow down in IPOs and the reluctance of investors for higher exposures in stocks.
Despite the cyclical decline in oil prices, the GCC markets still have high cash liquidity and which requires owners of family — owned companies to seize the opportunities to transform. New joint stock companies can keep abreast with the official approach on transitioning into knowledge — based economies and smart transactions. This will only go to increase the private sector’s contribution in the development and creation of more employment opportunities.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.
