Family businesses can cope better with crisis, report says

Dubai: Family businesses may prove more resilient to the global economic slowdown, according to the findings of a new study by Barclays Wealth and the Economist Intelligence Unit (EIU).

The unenviable aspects of family businesses like nepotism, infighting and bad organisation have long attracted close scrutiny, but the model is now seen as having certain traits that put it in good stead to weather the current downturn in the global economy and, in fact, to make the most of the opportunities it throws up.

In an era marked by a rather telling indictment of short-term speculative gains, the longer-term focus of the family business model is being increasingly seen as a sensible option.

"Family businesses and their long-term strategies need to be examined to explore their longevity and viability during these difficult economic times. Lessons learned from family businesses could prove to be very apt during this unprecedented time and non-family owned business could take some strategic insight from this most enduring model," said Soha Nashaat, CEO of Barclays Wealth Middle East.

Globally, some estimates state that family-owned businesses account for between 70 to 90 per cent of global GDP. Others point instead to a high failure rate, with only 6 per cent of family businesses surviving beyond the third generation.

The importance of the family business to the Gulf region is undeniable, with some of the UAE's most visible and long established brands in familiar hands. Although not immune to the impact of a slowing economy, the business model exemplified by diversification of business risks can insulate it against some of the consequences being felt elsewhere.

"Most of the families in the Middle East are under 40 years old, and family businesses in the region are very diversified," says Amin Nasser, partner and head of family business advisory at PricewaterHouseCoopers in Dubai. "This diversification can help families weather the downturn better," he continued.

According to Nasser, the current situation is giving family-owned businesses the opportunity to improve their corporate governance structures and to professionalise so as be in a position of more strength once the economy rebounds.

A key factor in the potential success of the family business is undoubtedly the flexibility such companies can benefit from, often without the need for burdensome bureaucracy.

"Family businesses could be more proactive towards changes," says Dr Khalid Maniar, managing director of business advisory firm Horwath Mak. "Family businesses always have a core competence in what they do which makes them successful. They do not require the same bureaucratic processes, and are ready to implement the necessary changes, which other companies may be slow to do," he continued.