Dubai: Fast increasing population growth, more competition, changes in social behaviour, advanced telecommunications, improved transportation and logistics and the ever-changing regulatory environment have forced the next generation family business leaders to approach business differently.

The old days of “hand shake” contracts and little or no regulation are long behind them now. Doing business today is faster, tougher, and with little room for mistakes. Today, family businesses have to differentiate themselves from their many competitors compared to their fathers before them. Those differentiators are sometimes small but make big differences when trying to simply “keep up” with a sustainable market share. So what specifically has changed?


Refocus of Family Business activity

Founders of family businesses in the Middle East have, for the most part, built their business empires opportunistically, not focusing on one particular activity but capitalising on the many needs the region had to cover. Today, we are seeing a trend whereby the next generation is willing to spin off those different activities to concentrate and focus resources on businesses in which they have been particularly successful. At the same time, they have been able to monetise some of those smaller and less successful business activities by selling them off. Easier access to capital markets has also been very helpful to make those transactions happen. Similarly, and unlike the previous generations, family businesses today are much more careful before entering into a new business sector, product or service.


More competition

Unlike the generations before, when demand was high and suppliers were few and far between, the next generation is facing increasing competition from other family businesses providing same products and services, but better. The effect of high oil prices and government spending to promote internal growth in the region has led to reforms that make it easier to start a business, resulting in an increase of number of family business start-ups.


More focus on Marketing

Past generations did not have to use much marketing to communicate their products and services as choices of products and services were limited and held by a small number of family businesses. In the Middle East today, the choice of products and services is similar to that found in Europe and North America, and making sure the right product is communicated to the right target market has become extremely important.


Corporate governance

Generally speaking, corporate governance has been a foreign concept for the first generation, and the only corporate governance issue they have had to deal with is succession to the next generation. Today, second and third generations are relying more and more on a formal corporate governance structure due to the increased number of stakeholders involved and greater accountability. The introduction of corporate governance in family businesses dealing with succession, responsibilities, strategy, and family involvement is becoming a key focus in family businesses today. The positive consequence of all of this is an increase in the number of professionally managed family businesses similar to how publicly traded companies are managed. An increasing number of family businesses are now involving second- and third-generation family members based on education, qualifications, and previous experience instead of simply bringing them in because of their relation to the founders. 


Control & decision-making

Unlike their fathers, who initially started the family business, next generation families have to cope with power struggles between each other, which influences some of the business decisions they make. The implementation and periodic reviews of their corporate governance structure dealing with management and control will be instrumental to ensure the survival of these family businesses in the future. 


Regulatory environment

Second- and third-generation family businesses are now facing an exponential increase in regulation of their businesses. Although this regulatory environment has a negative impact to their P&L due to increased administrative labour costs of non-producing employees, it has the positive impact of enabling businesses to potentially increase sales in a global economy that requires most products and services to be regulated. 


Information Technology

The second and third generations are now working with faster computers and mobile communication devices, and are able to take business decisions much faster than the preceding generations. It’s no longer a question of being at the right place at the right time; it’s now a question of being there first with the right product.

All in all, managing a family business is neither harder nor easier than it was before. It’s just very different. Second- and third-generation family businesses are creating blueprints and paving the way for next generations’ entrepreneurs to build better sustainable businesses and taking lessons from mistakes made in the past.

— The writer is the Head of Wealth Advisory for the Middle East at J.P. Morgan Private Bank