magazine vol.11

The Arabian Publication for Family Businesses Volume 11 Jul-Sep 2011

14 Profile: van Bommel Nine generations of shoe-making excellence and three young brothers in charge.

46 Interview with Essa Al Ghurair

Vice Chairman of Al Ghurair Investments and Chairman of Al Ghurair Foods, UAE.

30 Family Business Relationships

Solutions to toxic relationship patterns in family firms.

64 The Naji Family

Arabesque architecture and art preserved over generations by the Naji family based in the USA and Morocco.

Special Features

Family Business

Internationalisation Finding the key to successful internationalisation for family-owned firms

tharawat magazine

The Arabian Publication for Family Businesses

The ArAbiAn PublicATion for fAmily businesses Volume 11 Jul-Sep 2011

14 Profile: van Bommel Nine generations of shoe-making excellence and three young brothers in charge.

46 Interview with Essa Al Ghurair

Publisher and Founder Dr. Hischam El Agamy

Vice Chairman of Al Ghurair Investments and Chairman of Al Ghurair Foods, UAE.

30 Family Business Relationships

Solutions to toxic relationship patterns in family firms.

64 The Naji Family

Arabesque architecture and art preserved over generations by the Naji family based in the USA and Morocco.

Editor and Manager Ramia El Agamy editor@tharawat-magazine.com Special FeatureS

Assistant Editor Wafa Nasser Farhoud

Family Business

Internationalisation Finding the key to successful internationalisation for family-owned firms

wafa@tharawat-magazine.com

Editor-at-Large Farida El Agamy Creative Director Emad Khourfan emad@tharawat-magazine.com

Translation House Tarjomeh Localization Ltd., Dubai, UAE Printing House Al Ghurair Printing, Dubai, UAE Acknowledgements Many thanks go to The authors for their work and input.

The advertisers for their kind contribution.

The readers for their feedback on the previous issues and their continuous interest in Tharawat magazine.

Brownbook publishing and the bin Shabib family for their kind and relentless support.

The Al Ghurair’s printing facilities for their excellent work.

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To advertise in Tharawat Magazine please email us at: advertising@tharawat-magazine.com www.tharawat-magazine.com ISSN-2077-3714 Tharawat magazine is printed on recycled woodfree paper.

Disclaimer

Tharawat magazine is published four times a year by Tharawat Publishing FZ LLC, a company registered in Dubai Media City. Reproduction without permission is strictly prohibited. All content in this publication, including but not limited to all text, visual displays, images, and data (“Content”) is the property of Tharawat Publishing and its content suppliers or licensors and is protected by the United Arab Emirates and International copyright laws.

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Volume 11 Tharawat Magazine

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contents

VOL 11 | JULY - SEPTEMBER 2011

08

Contributors Abdullah Almajdouie President, Almajdouie Group, Saudi Arabia

Adil Naji President, Arabesque Inc., USA

Caroline Fattal Fakhoury Middle East Partner Praesta and Shareholder, Board Member and Senior Executive in the Fattal Holding, Lebanon

Daniella Williams Founder and Strategic Accountant, Williams Consultancy, UAE

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Dr. Denise Kenyon-Rouvinez Executive Vice President and Head of International Family Business & Philanthropy at RBS Coutts Bank Ltd, Switzerland

Dr. Hischam El Agamy Founder and Executive Director, Tharawat Family Business Forum and Tharawat Magazine, UAE and Switzerland

Dr. Raja M. Almarzoqi Albqami Chief Economist, Alkhabeer Capital, Saudi Arabia

Dr. Rania Labaki Associate Professor of Management Sciences, University of Bordeaux 4 and INSEEC Business Schools, France

Essa Al Ghurair Vice Chairman Al Ghurair Investments LLC and Chairman Al Ghurair Foods, UAE

Reynier van Bommel CEO, van Bommel, The Netherlands

Dr. Shaker A. Zahra Professor of Strategy and Organization, University of Minnesota, USA

Regulars 08 F amilyBusiness2FamilyBusiness A case study on new ventures and their outcomes in family businesses.

14 Profile: van Bommel

Nine generations of shoe-making excellence and three young brothers in charge.

74 R eviews

Facts and Figures, Books and Websites.

Sondos K. Abdel Gawad Ph.D. Candidate, ESADE Business School, Spain.

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70

24 30

64

Features 24 Financing Growth in the Family Business

Exploring the dimensions of strategy and finance in defining new approaches to growth for family businesses.

30 F amily Business Relationships

Solutions to toxic relationship patterns in family firms.

SMEs 64 The Naji Family

Arabesque architecture and art preserved over generations by the Naji family based in the USA and Morocco.

70 S trategic Accounting for SMEs

An interview with strategic accountant Daniella Williams on the do’s and dont’s of SME accounting and financial planning.

34 T he Global Economic Power Shift to Developing Countries

Describing a new economic world order, the role of the G20, and the need for solid institutional frameworks in emerging economies.

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42

44

Special Features 44 A l Ghurair

A family business profile and interview with Essa Al Ghurair, Vice Chairman of Al Ghurair Investments and Chairman of Al Ghurair Foods, UAE.

52 Learning to Compete in the New Global Marketplace

The strategic implications of taking the business across borders and the odds of internationalising family business operations in a sustainable manner.

58 I nternationalisation Mini Cases

A selection of facts and figures about four family businesses with successful internationalisation strategies.

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Publisher’s Note

Dear readers,

M

any family-owned enterprises in the Arab world are not only heavily diversified but more often than not also widely internationalised. Through strategic alliances, acquisitions, and other partnerships across the globe, Arab family businesses see their brands getting increasing global recognition. However, achieving international growth is a tricky business, and creating sustainable activities far away from home is a challenge that has deep strategic implications. In the 11th issue of Tharawat magazine, we dedicate a special feature to ‘Family Business Internationalisation’. Starting off with an in-depth profile of one of the most successful family businesses in the Middle East, the Al Ghurair family from the UAE, and an interview with Essa Al Ghurair, Vice-Chairman of Al Ghurair Investments and Chairman of Al Ghurair Foods, gives his views on the internationalisation of the business and a successful strategic approach towards remaining internationally sustainable. Our second contribution in this special feature section includes strategic recommendations for family businesses expanding across borders; Dr. Shaker Zahra, Sondos K. Abdel Gawad, and Rania Labaki describe what family businesses can do to sustain and increase their global presence. In our regular four mini cases we have a look at family businesses that have successfully internationalised and till date remain competitive in the markets they entered.

Dr. Hischam El Agamy Publisher and Founder Tharawat magazine Tharawat Publishing FZ-LLC

Preceded by a profile on the 9th generation shoe-making family business van Bommel from the Netherlands, our features section includes articles on strategic and financial growth for family businesses, an expert piece on relationship patterns between family business members, and a macro-economic analysis of the emergence of developing economies and its impact on investor’s decision-making.

Our SME section includes a profile of the Moroccan Naji family, the experts in Arabesque design, followed by an interview with the president of Arabesque, Adil Naji. In our last piece, strategic accountant, Daniella Williams, explains the dos and dont’s of SME accounting and highlights the importance of financial planning and transparency.

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Introduction FamilyBusiness2FamilyBusiness

In this issue’s FamilyBusiness2FamilyBusiness case study we tell the story of the fictional TNB family business that decided to establish and independent company for its finance and banking activities in spite of the concerns voiced by family members. Solutions and commentaries are given by real family business members that share their thoughts as to what went wrong in this story and who or what, if anyone or anything, is ultimately to blame.

What is the right strategy?

T

BN is a family business founded 80 years ago

largely benefited from the increasing movement of goods

with significant activities in the Arab world,

and products between Asia and the West.

Central Asia and East Africa. The TBN family is quite traditional and started its business

After taking over the business and running it for several

in trade. The group expanded into several

years, the third generation of the TBN business decided

representative offices in and outside the Arab world.

to professionalise the structure of the group and to work on increasing its efficiency. The group was at that point

In the late 70s and early 80s and when the third generation

managed by AbN, son of the eldest brother of the second

took over the business, the TBN group entered the field of

generation. In his management team were five of his cousins.

financial services. This move was not planned but it was

While AbN was the CEO and Chairman, each of the cousins

leveraging on the business’ activities at the time. TBN

was responsible for one of the three group divisions: trade,

incurred some losses, as the right procedures to manage

manufacturing and logistics. One of the three cousins, NbO,

risk linked to currency exchange and payment delays were

was the CFO of the group.

not established.

The revision of the group structure touched the areas

8

In the late 80s and early 90s, not only did the trading

of corporate and family governance, as well as human

activities see remarkable growth but TBN’s logistic division

resources. In view of reducing the risk exposure for the

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FamilyBusiness2FamilyBusiness Introduction

group the CFO of the group worked with his team on how

businesses. The company had in the past incurred some

to professionalise the financial services of TBN. After revising

losses due to this type of support. Another consequence

the strategy the conclusion was to remain in the financial

of professionalising these services that worried the family

service and banking sectors as an independent company

was that it also meant espansion and therefore increasing

named TBN Financing Services “TBNFS�.

the risk exposure of the whole group. Moreover, the new company would require changes in the organisation: In the

This raised some concern amongst members of the family.

past operations related to financing clients transactions

In line with the family values and history, they demanded

were part of the responsibility of the accounting and finance

that TBNFS should aim to service TBN’s most loyal clients

department of the head office; this would henceforth be part

to provide them with solutions that would help grow their

of TBNFS, which would be an independent legal identity.

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Introduction FamilyBusiness2FamilyBusiness

The group was also lacking the right people with the required

in payment. TBNFS became a very well respected financial

financial skills and, therefore, had to start recruiting.

services company with a different culture than the rest of the

Immediately family members raised the question of how the

group and was perceived to be efficient and fast in decision-

business would be able to manage more staff. Up to that point

making. Unfortunately the company did attract only few of the

the family had been active in fields, which were interrelated

fourth generation family members. The majority preferred to

and family members were very well prepared for their tasks

work in the other three divisions of the TBN group.

from a young age. Only NbO, the CFO of the group had the actual qualifications to run TBFNS, however, his team at the

AbN retired in the late 90s as CEO and Chairman leaving

time was a group of accountants and treasurers that had

the job to his cousin NbO who had occupied the post of

been with the family for decades and were not prepared to

CFO for the past 20 years. AbN became the Chairman of the

be part of a new company.

family council. Before retiring, AbN agreed with the TBNFS management to expand their services to other divisions in

Finally, the management team and other non-active family

the group and to provide leasing services for the logistics

members approved the establishment of the new company.

division helping them to expand their shipping capacities.

TBNFS was launched with a small, freshly-recruited team

But with the economic boom in the region and increasing

that came from international corporations. They brought

local investments, TBNFS saw opportunities beyond the

with them new ideas and a new business culture.

group activities and started expanding into financing investments in real estate and equity markets. Encouraged by the high return on investments, family members and

While other family businesses in the region succeeded to navigate through the storm of the financial crisis the TBN group losses were significant.

management team supported the expansion.

In 2007 the group started seeing some signs of financial difficulties with certain clients who had expanded rapidly in the last 10 years. Beginning of 2008 some of TBNFS’ management team resigned and moved to other companies.

Between 2008 and 2009 TBNFS suffered greatly of the financial crisis. Most of the clients wanted to restructure their debts and the other three group divisions had to help cover TBNFS losses.

Family members now were faced with the question of why this had happened. While other family businesses in the

10

During the first five years and until the late 90s, TBNFS did

region succeeded to navigate through the storm of the

rather well. The management established clear procedures

financial crisis TBN group losses were significant. AbN

to support TBN clients in trading and to remain in line with

started blaming himself and asking a lot of questions: Had

the family values in supporting their loyal customers. Clients

it been the right strategic move to establish TBNFS? The

appreciated the services and the group successfully attracted

financial crisis had been outside the management’s control

new business because of its structures and services. Also,

but had there been other signs of failure? Was it the different

TBNFS succeeded to reduce the risk exposure for the group by

culture of TBNFS? Was this a lesson for the family business

tracking bad debts and applying preventive measures to help

not to expand into new industries before having the right

the clients in respecting their agreements and avoid default

qualifications in the family?

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FamilyBusiness2FamilyBusiness Introduction

Solution 1 Talking to: Abdullah Al Majdouie, 2ND Generation, President of AlMajdouie Group, Saudi Arabia

F

irst of all, we have to understand that the financial crisis

NFS needs this expertise now to define its next steps and rate

of 2008 was a very exceptional and global one. The

its chances for survival.

negative effects of this crisis touched almost everybody in the world to varying degrees.

If TBN is to continue the business of TBNFS, they should build on the positive track record they have with their clients, get a

TBNFS had done well prior to 2008 with high efficiency and

highly professional team (not necessarily family members),

customer satisfaction track record. So I don’t see reason for

increase the number of members in their credit risk team and,

the management to blame itself but rather should absorb

finally, review thoroughly “what went wrong� to draw the

the lessons and move forward. It could be that TBNFS was

lessons from the recent down-turn.

focusing in supporting other sister business subsidiaries to grow their sales and overlooked the credit risk side. The loss figures are not clear and the amount of damage is not known. To assess the situation properly these details should be clarified and taken into account in future action.

The decision on whether to continue or liquidate the business is primarily dependent on how high these losses really are.

An additional question is for how many months/years the business will be affected by it.

With regards to having a family member running the business, in reality there is no guarantee that a family member will do better than an outsider. Actually in a lot of cases, outsider executives can come in with vast experience in the

With regards to having a family member running the business, in reality there is no guarantee that a family member will do better than an outsider. Actually in a lot of cases, outsider executives can come in with vast experience in the required industry.

required industry and to some extent, more committed. TB-

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Introduction FamilyBusiness2FamilyBusiness

Solution 2 Talking to: A Tunisian Family Business Member 3rd generation

I

t is difficult to establish when to be opportunistic and

prevented them from taking unnecessary risks, as I believe

when to let an opportunity pass by, especially when you

that the financial crisis though in many ways unexpected,

are part of a large family business. In my opinion it was

could have been anticipated by taking the right amount of

logical that TBN should set up TBNFS, as the opportunities

risk. Many family businesses have succeeded in hedging

were clearly there and the need to diversify is always on a

their risks and not incur such significant losses. Though

family business’ mind. However, I think that it is also always

undoubtedly the crisis has been hard on everyone, and not

a matter of how this is done. Maybe there could have been

only the financial sector.

a slower approach to setting up TBNFS considering more closely what kind of team was set up to run it. Even though

I also think that considering the losses made is important

the team seems to have had extensive financial knowledge,

since this should be the main argument determining wheth-

none of them came from a family business background and

er TBNFS should be continued or not. It is also significant

it might have been good to train them to understand the

to see how much the brand value is increased by this part of

family values and culture a little more. This might have

the business and how sustainably it can be run in the future.

Reproaches are not a positive thing to apply within a family business, or any business for that matter. It should not be

Reproaches are not a positive thing to apply within a family business, or any business for that matter. It should not be about who is to blame, but about what to do next.

about who is to blame, but about what to do next. I think that family businesses need to have strategies on how to get the greatest learning effects from such experiences by evaluating the whole process within the family council. This should be done in a constructive way that has real strategic meaning and is implemented in the follow up of the losses incurred by TBNFS. Personally, I believe that there is no reason to stop TBNFS as it could be restructured and run successfully once more, with an adjusted risk approach.

12

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Profiles

van Bommel

For nine generations the art of shoe-making has been transmitted in the Dutch van Bommel family. Succeeding centuries of high quality manufacturing, the three brothers Reynier, Floris, and Pepijn van Bommel are today running the business with no diminished success and with a few innovative brands added. In a Q&A Reynier van Bommel, CEO of the van Bommel business, talks about their family heritage and about the shoe industry.

Family Business Profile:

van Bommel The Netherlands

T

he start of the Dutch van Bommel shoemaking

Franciscus were registered as «shoe and boot makers»

history can be traced back to the move of the

in 1853. Around the year 1880, the business expanded

talented shoemaker Reynier van Bommel

including more than 60 shoemakers due to the huge demand

from his city of origin Dongen to the city

on military footwear during the Franco-Prussian war.

of Breda in 1706. The talent of Reynier van

Bommel was passed on to his sons Adrianus and Christianus

Johannes Peter, Johannes Fransiscus’ son passed away in 1887

who, 30 years later, became master shoemakers in Breda.

at the age of 51. His widow, Johanna van Dinter, who was left

Both his sons and grandsons became shoemakers and moved

behind with 7 children, continued her husband’s work with

to Moergestel. When Reynier van Bommel moved to Breda,

the help of her two sons Franciscus Johannes and Michaël

he got the citizenship of the city and his talent and profession

August. The inspiring team was behind turning the traditional

was protected by the craftsmen’s guild of the city from then

family business into a modern and mechanised shoe factory.

onwards. This gave him and his family the official permission to be part of the shoemaking trade.

The wave of mechanisation of the shoemaking industry in the first few years of the 20th century led to overproduction and

The official beginning of the family business as we know it today started when the grandson of Reynier van Bommel, Johannes Petrus Bommel together with his son Johannes

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Tharawat Magazine Volume 11

prices fell. During the war years (1914-1918), the van Bommel RIGHT: Van Bommel boutique in Antwerpen and Floris van Bommel boutique in Amsterdam

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van Bommel

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Profiles

Volume 11 Tharawat Magazine

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Profiles

van Bommel

ABOVE: Floris van Bommel Boutique in Amsterdam

by the government shortly after in order to stimulate domestic production during the years of the Great Depression.

exports dropped both domestically and abroad and the family was forced to stop making their traditional quality shoes and

The growth and expansion of the Van Bommel business

to start producing prescribed «government shoes» due to a

continued and the number of employees was estimated

government statutory regulation for production standard

at 60 people in 1930. In addition to that, the company

that came into effect in 1918. The government stepped in

had a manager, a modeler, a head representative and a

again but this time to decrease the unemployment in the

representative.

shoe industry in the Netherlands by issuing a «shoe act».

The act limited importing shoes to the Dutch market. As a

They were later replaced by the son of director Franciscus

result, the number of permanent staff in the van Bommel

Johannes van Bommel, J.P.J. (Jan); he became first a manager

factory increased from 37 people in 1920 to 58 people in

and later took over the position of head representative.

1929. The company introduced new brands using English

16

names following the trend that began after the invasion of

The company started applying innovative marketing ideas

American cheap brands that became very popular in the

such as participating in the travelling trade fair (the First

Netherlands. However, the English brand names were banned

Dutch Exhibition Train), which travelled across the country

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van Bommel

Profiles

and gave Dutch entrepreneurs the opportunity to promote

production resumed eight months after the big fire.

their company and products in the larger towns. Van

After the great success for the company in the sixties, the

Bommel’s expansion plans were disturbed by the German

Public Limited Company was changed to a Private Limited

invasion to the Netherlands and the establishment of the

Company and many changes were made to the company›s

rationing system in 1939, which forced van Bommel to cut

board of directors.

production by half and then to stop completely in 1941. Van Bommel found an opportunity in this bad time and they

The Van Bommel Company with its entrepreneurial spirit

started making rush ladies shoes.

solved the problem of the shortage of staff in the eighties by giving the opportunity to young people to learn the

Shortly after the Van Bommel factory survived this four-

shoemaking trade in practice. In the 80s, the company had

year stagnation, a dramatic event took place in March 1951,

a strong presence in Europe with 60 retail outlets in Belgium

when a fire brought down the family factory entirely. The Van

and Germany. They also decided to move part of the ladies’

Bommels, never loosing courage, did not stop the journey

shoes production to Italy. The van Bommel brand kept growing

there and made the best out of the incident. They decided

and expanding in Europe with increase in the number of retail

to build a new factory with the most up-to-date machines

outlets in Germany to 70. Moreover, the company opened its

and equipment. The new factory was built in no time and the

permanent stand at the Trade Mart in Brussels, where all the

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Profiles

van Bommel

The business is run today by the three brothers of the 9th

ABOVE: Floris van Bommel Boutique in Amsterdam

generation of the van Bommel family; Reynier van Bommel shoe purchases are made by the Belgian retailers. Van Bommel

is the CEO, Floris van Bommel is the Creative Director

was the first factory in the Benelux to receive the “Oscar Alta

and Pepijn van Bommel is the Commercial Director. With

Moda 1982”. This Oscar is a high Italian distinction, awarded

ambitious plans for the family business the siblings commit

annually by the Chamber of Commerce of Turin, Italy. In 1993,

to the Van Bommels rich history of making ‹Superior shoes›.

the institute for Applied Shopping/Retail Research revealed

The Van Bommel shoes are made from Italian and French

that the van Bommel factory is the second most famous brand

leather in the family factory in the Netherlands. The family

of shoes in the Netherlands. In 1996, the ‹Floris Van Bommel›

also have production located in Tunisia, Serbia, India and

fashion brand was launched.

Portugal.

1706 1880 1939 1996 2011 The Dutch van Bommel shoemaking history starts with the talented shoemaker Reynier van Bommel in the city of Breda in the early 18th century.

18

The business expanded to over 60 shoemakers due to the huge demand for military footwear during the FrancoPrussian war.

Tharawat Magazine Volume 11

The German invasion to the Netherlands and the establishment of the rationing system in 1939, forced van Bommel to cut production by half.

In 1996, the ‘Floris Van Bommel’ fashion brand was launched targeting a young and urban demographic.

The business is run by the 3 van Bommel brothers of the 9th generation; Reynier, CEO, Floris, Creative Director, and Pepijn, Commercial Director.

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van Bommel

Profiles

Interview with...

member, would you change anything in shoemaking

Reynier van Bommel

In our factory in the Netherlands we have the highest standards

CEO, van Bommel, The Netherlands

methods today?

regarding safety and health regulations. Even in countries in Europe a lot of the rules and regulations that have effect in the Netherlands don’t apply. I believe it would be good for our industry if we were all to apply the same rules regarding safety

The van Bommel family has always been loyal to its

and health. Our workers are our greatest asset.

handcraftsmanship and high quality products. What is the secret behind keeping the highest standards in

The presence of women in the company has been very

the shoemaking industry?

strong over the years, Johanna van Dinter, the widow of Johannes Peter played a big role in mechanising

Making the right decisions at the right moment. In the past my

the family factory with the help of her two sons. How

forefathers have faced many crises and time after time they

much are the women of the family involved in the

chose the path that was harder to take, the path of sticking to

business today?

quality instead of benefiting from fast profits and high sales.

At present the ‘Van Bommel’ women are not involved. This is Mechanising some stages of shoemaking in the 20th century had both negative and positive effects on the industry. As a ninth generation family business

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top: From left to right: Pepijn, Reynier, and Floris van Bommel, the 9th family business generation

Volume 11 Tharawat Magazine

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Profiles

van Bommel

more a coincidence than that it was planned. My parents just

How long have you and your brothers been working

had three sons, and no daughters. If they would have had three

together and how were the roles you hold allocated?

daughters instead I am sure we would have three ‘Van Bommel’ women in the business right now.

Floris and me have been working together for 12 years now.

Pepijn started working in the company 1,5 years ago. At the

After establishing the Floris van Bommel brand for a

moment Floris is the Creative Director, Pepijn is the Commercial

younger demographic what was the response of your

Director, and I am the CEO.

customers?

Van Bommel has always fought its way through difficult At first they started buying the shoes immediately. The

times by adapting to change. What is your motto?

new name and the somewhat younger shoes hit off very well with our customers. Some time later, after my brother

Always have quality as a first priority, not sales.

and me came into the company and we started giving the brand its face and own signature we had some comments

Does the van Bommel brand have plans for expansion

from our clients. They did not understand the way we were

to new markets?

communicating the brand initially. Now they just trust us as a company to do well, they have seen that the ‘strange’

At this moment we are occupied with the German market. We

things we do actually work.

are doing very well there. In a few seasons from now we will be expanding to new markets.

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FEATURES 24

30

38

Financing Growth in the Family Business

Family Business Relationships

Exploring the dimensions of strategy and finance in defining new approaches to growth for family businesses.

Defining the relationship part of governance and the toxic communication patterns working against family business success.

The Global Economic Power Shift to Developing Countries

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Describing a new economic world order, the role of the G20, and the need for solid institutional frameworks in emerging economies.

Volume 11 Tharawat Magazine

23

FEATURE

Growth in Family Businesses

Some Strategic Considerations around Growth and

Financing Growth in Family Businesses As we move past the financial crisis, the global economy has become thirsty for growth. While the BRIC countries escaped relatively unscathed and have been enjoying buoyant growth, the economic picture in Eastern Europe and the Middle East has become polarised: businesses are either flourishing or continuing to suffer. Western Europe and North America have felt the economic pain much more deeply and remain fragile. However, wherever they are, entrepreneurs around the world are all working hard to spark the economic revival and the next stage of business growth, hoping to instil optimism and a breath of fresh air into what remains a convalescent economy. Dr. Denise Kenyon-Rouvinez, Executive Vice President and Head of International Family Business & Philanthropy at RBS Coutts Bank Ltd, Switzerland, explains the various strategies of financing and growth applied by family businesses and makes recommendations on how to think out of the box.

W

hile everyone is ready to

their boards would be well advised to spend ample

turn the page and move

time debating the issues, taking multiple options

forward,

question

into consideration as well as determining the risks

of growth is particularly

of each, the resources needed and the long-term

tricky for family businesses

impact on the owners.

the

and needs to be planned for carefully. Families need to consider two essential points:

To grow or not to grow

1. Strategy: growing or not growing – is there a

Not growing is always an option. Interestingly, when

choice? And if growth is the choice – at what pace?

investigating long-lasting businesses, indications

2. Financials: what resources are needed to finance

are that most family businesses around the world

growth, and how much control over the business

survive through the generations precisely because

does the family want to retain?

they don’t grow. Instead, they re-invest a large part of their profits to adapt, modernise and revamp

24

1. Strategy: growing or not growing, and the

their business in order to protect the company, their

pace of growth

income and their client base over time. This is true

The question might sound futile but it is actually

for long-lasting family business in sheltered niche

rather serious, as a decision either way can have

markets be they boutique hotels, jewellers, wine

major consequences for the business. Families and

makers, restaurants or local craftsmen. And it also

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Growth in Family Businesses

holds true for estates that are usually handed down

office structure that receives the profits from the

to one family member to avoid the land being split

main business and re-invests them in a variety of

or to protect the entirety of family owners’ assets.

others that should provide growth alternatives for

FEATURE

the next generation.

Equally, not growing is the favoured option of quite a number of rather large family businesses that

In most other cases seizing market growth

have reached a stage where securing their market

opportunities makes sense and becomes a question

position and preserving what they have becomes

of long-term survival. Opportunities missed by a

more important than growth. Families who are at

family will inevitably be taken by other players. In

this stage often focus on image and quality, as well

addition, for a large number of families, growing

as building family cohesion.

is a way to provide more dividends and more job opportunities for family members as well as to

Growth, but at what cost?

attract or retain talent within the family business.

Also, seeking growth in mature markets can be difficult and very costly. In such cases, families

Ultimately, however, families need to assess

may consider not growing the main business but

carefully each growth opportunity, and decide

use the profits it generates to venture into new

which they want to pursue considering the

grounds – this is often achieved through a family

resources they have and the degree of control they

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25

FEATURE

Growth in Family Businesses

While self-financing brings freedom over decision-making, it may impose a heavy burden on family shareholders as the more that is re-invested in the business, the less dividends are distributed; and the longer it lasts, the more it will impact upon their individual ventures and standard of living.

understand the reasons behind the decision, and if today’s strictures lead to an eventual increase in business value. It should be noted, however, that in such cases families would be wise to set up a distribution plan that will allow owners to benefit from the appreciation over time, for example, if a family decides on an extraordinary payout every five or 10 years, or on an ad hoc basis when the business is performing particularly well or part of the company is sold.

External investors and seeking finance There are, however, many more options to consider for financing growth: a family could invite outside

want to retain over the business.

investors to enter their capital; potentially find an equity partner, a venture capital company or

2. Finances: the tricky balance between

a private equity fund; identify a merger or joint-

opportunity and control

venture partner; and go public or sell part of their

In general, when families consider financing growth

business. All have pros and cons, and for each

they naturally think of two options: self-financing

option the family needs to evaluate carefully the

by re-investing profits or borrowing money. And as

degree of control they will lose over the business,

relying on others is not their forte, self-financing

and determine just how many internal problems

is usually the preferred option, which, if done

each financing solution might generate.

consistently and systematically, can lead to a high level of growth. Such is the case of Miele, the

There are also issues surrounding control versus

German electrical appliance company, where the

liquidity: the more that is kept internally usually

owners decided not to resort to increasing their

means that less new money is needed. The reverse

debt burden, but grow at their own pace. Today

– in terms of external financing – might certainly

the company is present in 96 countries around the

provide more funds but it can also lead to a loss of

world, employs more than 16,000 people and shows

control over strategic decisions.

an annual turnover of €2.8bn.

Control and financing growth Source: François M. de Visscher, Craig E. Aronoff, John L. Ward, Financing Transitions: Managing Capital and Liquidity in the Family Business, Palgrave Macmillan

26

Self-financing

There are three main factors that families should

While self-financing brings tremendous freedom

concentrate on. First, is this central issue of

over decision-making, it may impose a heavy

control. For many family businesses control

burden on family shareholders as the more that

over their financial affairs is paramount: total

is re-invested in the business, the less dividends

ownership means complete freedom of choice in

are distributed; and the longer it lasts, the more

the decision-making process. Any attempt to dilute

it will impact upon their own individual ventures

that structure will lead to an ancillary loss of control

and standard of living. This is a sacrifice family

– something that many family business members

members are ready to make only if they fully

may be unwilling to countenance.

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FEATURE

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27

FEATURE

Growth in Family Businesses

Second, is liquidity and how that directly relates to

a medium-term boost to their investment, while

the family itself, rather than the actual business.

other external partners – who have perhaps steered

For many family members the dividends, bonuses

the business to an IPO – will only be in it for the

or payouts might be their only source of income.

short term. Each tranche of interests has to be

In this instance, liquidity also can come to mean

fully reflected in the business’s overall vision and

family needs – as opposed to internal capital – and

strategy.

is essential for ensuring family balance: a happy shareholder is one who receives a regular dividend.

Therefore, when seeking external sources of capital, it is vital that families try to understand how much

Third, it is important to look at capital needs. Every

their own long-term vision may conflict with other

business – family-owned or otherwise – needs

investors, and anticipate the tensions it will create.

funds in order to survive and grow. And as capital

Ultimately, growing the business may mean taking

is a scarce resource, the business capital need in

it to a different level with tougher competitors and

periods of growth with inevitably compete with

involve players family members may not know.

family needs for liquidity.

Some, at that stage, may prefer to sell the business altogether to an investor who has the financial

These issues are all interconnected, and there are

strength and the knowledge to take the company

inherent tensions between the needs of liquidity

to the next level and attain its potential.

and capital. Finding external sources of capital to finance growth will mean diluting control, which

More than ever: the focus is on governance

is a situation that could impact quite emphatically

The board and senior management of the business

on many families for several reasons.

need to spend time analysing the risks and benefits of each growth opportunity, estimate the resources

First, because they don’t like to share control;

needed (whether it is in terms of finances, staff,

but, second – and mainly – because one of the key

equipment, facilities, etc.) and evaluate the impact

success factors of family businesses is their long-

each opportunity may have on the family’s overall

term vision and that vision will be challenged

control. The family owners will then select the

depending who finances the growth.

opportunities they feel most comfortable with.

However, it should be noted that these issues –

The vision dimension

raising capital, diluting control and monitoring

Determining the family business’s vision is

cash-flow and discussing finances – are all elements

paramount. What sort of time frame is being

that might take a family way beyond its comfort

applied? Does the family have short-, medium- or

zone.

long-terms needs? And does the strategy have to alter accordingly?

Reducing anxiety First, it is important to make sure everyone in the

28

Most family shareholders are there for the long

business – and the family – is aware of the reasons

term: what has been passed on to them will be

behind raising capital in order to fund growth.

passed in turn to the next generation – hopefully

Educating the family is paramount – without them

intact and boosted by years of steady growth.

on board and behind the decisions then any move

Equity partners, however, will only be looking for

towards boosting growth will quickly founder.

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Growth in Family Businesses

They need to understand the different strategic options, feel comfortable with the growth strategy chosen, and fully understand how the finances work – particularly those concerning the debt-toequity split.

Second, if there is not one already in place, the business needs an effective and clued-in chief financial officer. They will not only help to steer the family’s finances to safer shores, but also oversee the third element, which is the analysis of the cashflow as well as being able to monitor and report

FEATURE

The family owners will then select the opportunities they feel most comfortable with.However, it should be noted that these issues – raising capital, diluting control, monitoring cash-flow and discussing finances – are all elements that might take a family way beyond its comfort zone.

back how much progress has been made. Regular updates for family members will ensure that the first point – educating the family – is also covered.

Thinking out of the box

Or even more daring: is it time to rethink your business in order to grow without capital? For

This part is crucial – and will determine the success

example, the Marriott hotel chain moved from

– or otherwise – of the family business. Key to

owning all its hotels to entering a “franchise-like”

the overall strategy is ensuring that all staff and

partnership for certain hotels that are owned

family members are stakeholders in the company’s

by others who use and pay for their brand and

future as their motivation and commitment will be

expertise. A strategy that allows fast growth

essential to successful growth.

without adding capital needs.

As an alternative source of capital, employees and

Growth is a choice

non-family directors could be invited to invest in the

Ultimately, most family-owned businesses will want

growth of the business. They share the same vision

to increase their options – and this might mean

and values as the family and could bring a very

the final decision could be not to grow (to sustain

stable capital base. It would also provide strong

the business at its current size). In the pursuit of

incentives for the promotion of non-family-member

growth though, families must realise there are

staff, stimulate loyalty and commitment. Ultimately

pitfalls as well as benefits. Growth can come at a

this may also solve the succession issue – if there are

price – but it is for the family to decide whether it

no obvious candidates within the family.

is worth paying – and a well thought and mastered growth plan will help them fully enjoy the journey

Another alternative is to free up capital by transforming the company into a less capitalintensive business. Offices and equipment can be leased – rather than owned outright. This will not only free up cash needed to finance growth, but it will also do so without having to cede control to external investors.

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of growth if such is the direction they opted to go.

Author Dr. Denise Kenyon-Rouvinez, Executive Vice President and Head of International Family Business & Philanthropy, RBS Coutts Bank Ltd, Switzerland

Volume 11 Tharawat Magazine

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FEATURE

FAMILY BUSINESS RELATIONSHIPS

Family Business Relationships In order to run a successful family business, having a proper governance structure, high profits, and global brand recognition is not enough; none of these things matter once relationships between family members turn sour and conflict rears its ugly head. This article is based on Caroline Fakhoury’s research and work, coaching and advising family businesses in the region as well as on coaching and research done within Praesta firm over many years. Caroline is also a shareholder and board member of a centenary old family business conglomerate: Fattal Holding, Lebanon. Sharing deep knowledge of toxic communication patterns as well as perpetual issues, her article concludes that ultimately there is but one thing that will keep a family business from failing: love.

The 2 Pillars of Governance

of focusing entirely on structural issues and

The one thing that needs to be remembered

theoretical best practices- they must also master the

from this article is that family businesses stand

art of relationships and finding workable solutions

on 2 pillars: a structural one involving rules and

for each unique family situation.

formalities and a relational one involving feelings and behaviour. Both are the concern of what is

The focus of this article is on the relationship part

called “governance.�

of governance.

Because family businesses rely on relationships as

Communication, openness, the bonds of love and

well as structures, it is only when the principles of

family duty; these dimensions can combine in a

good governance become a living thing between

powerful way and can give family businesses a

people that they do add value and help create

competitive advantage. However, the same forces

sustainability.

can result in an unbalanced and problematic atmosphere within the family and the business.

Family businesses should not make the mistake

30

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This is when people get hurt and value is destroyed.

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FEATURE

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31

FEATURE

FAMILY BUSINESS RELATIONSHIPS

FIG. 1: The two pillars of governance

governance

many relationships in family businesses deteriorate under their influence.

The First Poison: Criticism Criticism tends to be applied in too general a manner and often seems like an attack on one’s

6 Dimensions of Corporate Governance

Toxic Patterns

behaviour or problems.

For example, when a father says to his son, “You’re

Commitment to Corporate Governance Board Effectiveness Shareholder Relation

whole personality and character instead of specific

always late. You never call. You don’t care.” Often

Perpetual Issues

Management Control Environment

the pattern is that when complaints are ignored, dismissed and/or not voiced odds are high that criticism will infect the family and the business relationship.

Family Governance Disclosure & Transparency

Structure

These personal critical attacks of “You always...”,

Role Strata

Relationship

“You never...”, “You should...” and “You don’t care” put people immediately on the defensive.

The Second Poison: Contempt Contempt is even more destructive to relationships than

criticism.

What

separates

contempt

from criticism is the intention to insult and There are 3 main dimensions contributing to the

psychologically abuse the other person. With

dysfunction of family business relationships: Toxic

words and body language, the insult does not

communication patterns, perpetual issues, and the

fail and goes straight to the heart of the other

complexity of role strata (see Figure 1).

person’s sense of self”. Contempt can take many forms such as name calling, mean teasing, hostile

Toxic Communication Patterns

humour, insults, mocking, ridicule, eye-rolling,

The chief threat for relationships are the four damaging

shunning, looking away, sneering and so forth. All

patterns of communication that can poison the way

of these undermine the other person. For example,

family businesses operate. John M. Gottman, calls

a statement of contempt could be, “You are such

them the ‘Four Horsemen of the Apocalypse’. He states

an idiot. I am really worried about seeing you

that these “…four disastrous ways of interacting…

managing this company one day.” As issues are left

sabotage your attempts to communicate ... In order of

unresolved, anger escalates and contempt leads to

least to most dangerous, they are criticism, contempt,

more negativity and blame.

defensiveness, and stonewalling”.

The Third Poison: Defensiveness

32

The Four Horsemen are often referred to as poisons

Naturally, family members tend to get defensive

or toxic to highlight their destructive nature. Far too

when insults are hurled at them and when they

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FAMILY BUSINESS RELATIONSHIPS

are being treated with contempt. So there is often a reaction to return anger for anger, blame for

FEATURE

FIG. 2: Toxic communication patterns

blame. Excuses are made or responsibilities denied.

ticism Cri

listening to the other. They play the victim and

communication that drives away from developing solutions to problems. The fact that defensiveness is an understandable reaction to feeling besieged is one reason it is so destructive—the ‘victim’ doesn’t

walling

defensiveness is ineffective as it leads to even poorer

o ne St

through a rigid stance or by turning away. Such

m pt nte Co

complain, and show it in their body language

see anything wrong with being defensive. By being

siveness fen

defensive family members are adding to the family’s troubles.

De

People reiterate their stance repeatedly instead of

The Fourth Poison: Stonewalling Family members tend to get so overwhelmed and eventually exhausted by such incessant criticism, contempt and defensiveness that they begin to shut down and stop responding.

Stonewalling often happens while two people are talking. The ‘stonewaller’ secludes himself by turning into a stone wall. The message to the other party is the same: “I am withdrawing, disengaging

The fact that defensiveness is an understandable reaction to feeling besieged is one reason it is so destructive—the ‘victim’ doesn’t see anything wrong with being defensive.

from any meaningful interaction with you”. When listening and interactions cease, conflicts become silent and hostile withdrawals. If this develops into a predictable pattern then the relationship

are “perpetual” and are due to our on-going

is nearing its end. Once stonewalling becomes a

differences. No two individuals always think or act

regular resident, it takes a good deal of hard work

alike, family members have different preferences,

and soul searching to save the relationship.

ideas, perspectives, interests, and so on. These differences are normal, even in the healthiest and

Perpetual Issues

happiest relationships. The trick is to accept these

The second challenge to family-owned business

differences, work with temporary compromises,

relationships is that conflicts fall into only two

and realise they probably will never disappear from

categories: the solvable and the perpetual.

the relationship as they come from fundamental differences in personality. They can be managed

Perpetual conflicts resurface over and over again.

through dialogue and humour but cannot be

According to research, 69% of relationship issues

“cured” or resolved.

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FEATURE

FAMILY BUSINESS RELATIONSHIPS

FIG. 3: Roles & Complex Relationship Strata

Outer Roles

inherent in family dynamics: we usually use the metaphor of geological strata. These roles can work in one’s favour or disadvantage.

Effective roles are critical to the smooth functioning

Inner Roles

of relationships. They create clarity about who is doing what. Roles become problematic when they become rigid or burdensome. Example: A family

Hidden Roles

board member was perceived as occupying the “challenger” role in the board and frequently questioned the founder and the management’s

Ghost Roles

decisions. Later, when this board member wanted to play the “peacemaker” role within the family system, he was locked in the “challenger” role and the expectations attached to it as Board members

Effective roles are critical to the smooth functioning of relationships. They create clarity about who is doing what. Roles become problematic when they become rigid or burdensome.

could not change their perception of him.

There are 4 different sets of roles constantly and continuously active within relationships. The 4 sets are what create the relationship strata.

Outer roles The outer roles have to do with the external function. In organisations outer roles are often job descriptions: CEO, CFO, etc. Organisations depend on the quality of outer roles for successful operation. In family businesses outer roles include

In family businesses, this situation typically

the founder, the heir or heiress, etc.

happens in times of generational transition and

34

conflicts. The founder’s successor may not be as

Inner roles

“perfect” and knowledgeable as he/she is, or see

The inner roles have to do with the internal

things in the same way. However, the heirs are

function and the emotional function. We are often

most probably thinking the exact the same thing

unconscious of them: initiator, devil’s advocate,

about the business founder. Since many issues are

disturber, peacemaker, etc.. Inner roles may not have

perpetual, the way forward is to solve “solvable

anything to do with the actual job description of the

problems” through “workable” rather than “perfect”

individual but can be inherent to the character and

solutions.

the personality and can impact relationships deeply.

Roles & Relationship Strata

Example: A mother can play a peacemaker role in

The third challenge in the complex fabric of family

a fight between brothers over the family business

business relations is the layering of different roles

inheritance.

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Hidden roles Individuals are not a single entity; they are many

FEATURE

FIG. 4: Types of Role Issues

selves. The next strata down from Inner Roles are Secret or Hidden Roles. Secret roles are deep aspects

Need for New Role

of self. Secret selves are secondary identities, which live inside us. Examples are the wounded child, the

Poorly Occupied Roles

playful daughter, the fearful son, the angry parent, the victim, the jealous wife, the ambitious cousin, etc. Secret selves can show up when people are triggered: suddenly our usual adult coping skills

Role Confusion

are gone, replaced by the hidden self who comes rushing up.

Role Fatigue Example in a family business context, instead of a CFO and a CEO having a discussion, you have 5-year old and 12-year brothers having a fight.

Role confusion Ghost roles

Role confusion occurs when people are unclear

Ghost roles are invisible third party presences

about what roles they are meant to play. Example:

that come and go and impact the emotional

when job descriptions are not clear between the

environment. In a family business context, a “ghost”

founder and the newly appointed CEO.

could be the memory of a late founder who is still remembered and whose presence is still felt in

Poorly occupied roles

the organisation. It could also be a son that has

Poorly occupied roles occur when the person

resigned from the business out of frustration but

occupying a role is bad at it. Example: An erratic

whose absence (“ghost”) is still felt in the board.

and incapable brother occupying a leadership position in the family business.

These roles can be constructive or destructive and sometimes they need to be changed when

Need for new role

symptoms occur; it is important to catch the signals

The need for new roles occurs when developmental

that outer and inner roles have become outdated or

changes in families or organisations require the

problematic. There are several kinds of role issues.

need for new roles not yet present. In family businesses, it is typically the case in succession

Role fatigue

times when new roles emerge. For leadership to

Role fatigue occurs when someone becomes sick

transition from one generation to another, roles

or tired of playing the same role. Being forced to

have to change-and this isn’t easy.

hold the same role for long periods of time becomes claustrophobic.

Surviving Generational Transitions 95% of family businesses do not survive the third

Example: A son waiting for years for the founder to

generation of ownership. This usually happens

let go and pass the baton.

when the 2 pillars of governance are neglected.

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FEATURE

FAMILY BUSINESS RELATIONSHIPS

FIG. 5: Traditional & Systemic Approach

the whole system must be considered, rather than breaking the system down into its parts.

Individuals in the team It is similar to the experience on a sports team, with a choral group or on a project team where individual egos are melted into something much greater and true. As a system, the family exists in paradox. It needs stability so that family members know their roles and can carry them out with the security that they are «doing it right.» Stability provides continuity over time. At the same time, the system needs to be able to adapt to the changes in and among family members. The result is a balancing act. If there is

Leader

Leader relates to the team as a system

too much change, the system breaks down; if too much stability the system atrophies and dies away.

Looking at the family from this perspective, it is

Poor or no corporate governance is in place and

fundamental to build powerful dialogue and to

the family and the company are faced with: difficult

avoid toxic communications styles. Family members

generational transitions, the complex web of

and professionals can use their ability to move from

relationships and roles, poisonous communication,

seeing a group of individuals to seeing the system

and perpetual issues.

itself as a living breathing entity:

When your shareholder is your father and your

Family business Chairmen must see the conflict

employee is your nephew you cannot avoid emotions.

not as a problem but as a signal that change is needed in the system. It is not about “who is

Adopt a Traditional & Systemic Approach

doing what to whom; it is about what is trying

Two antidotes to the poisons and complexities

to happen”.

mentioned above are the systemic approach and

Family Business CEOs must have the ability to

the constructive communication ratio.

read the “emotional field” of the system and accurately identify the emotional climate in a

36

The first antidote is adopting a “systems approach”.

given situation. Once the system is revealed to

It is often used to raise awareness among all the

itself it can begin to self-correct.

players about how they are relating to each other

All the voices in the relationship system have to

and how it impacts the business. A system is an

be heard, including unpopular ones, as they are

ordered composition of elements in a unified whole

part of the knowledge pool of the system.

and the whole is more than the sum of its parts.

Everyone is a voice of the system. The ability to

Members of a family system interact in reciprocal

shift from a personal perspective (“it’s Malek’s

relationships, responding to one another in the

opinion”) to a systems perspective is key (“Malek

context of roles. The central thesis of systems theory

is expressing something that lives in the system

is that, in order to understand the family system,

and it’s not personal”).

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FAMILY BUSINESS RELATIONSHIPS

The Constructive Communication Ratio The second antidote to dysfunctional relationships

FEATURE

FIG. 6: The 5:1 Rule

is to abide by the constructive communication ratio.

Whilst the first antidote might be difficult to implement without help, this one can be easily applied.

It all comes back to what is a balanced ratio of constructive interactions during conflict (asking questions, being kind, being empathetic) versus challenging interactions (criticism, hostility, anger, hurt feelings)? Research has shown that the ratio of encouraging-to-challenging, in relationships that last, turns out to be 5:1. It is an interesting equation!

If a family member gives 1 negative comment, he/ she has to make up for it 5 times with positive comments.

It is not a balanced equation: The negative or threatening has more ability to inflict pain and damage than positive/affirming things have to heal.

Finally This article has provided some tools to creating long term and sustainable family business relationships.

However, if things are tangled and this seems like the time to ask for help to get there, then make a commitment now to look for the kind of practical,

5

1

5:1 Ratio of Positive-to-Negative Interactions

Research has shown that the ratio of encouraging-to-challenging, in relationships that last, turns out to be 5:1. It is an interesting equation! If a family member gives 1 negative comment, he/ she has to make up for it 5 times with positive comments.

professional advice that will benefit your family and your family business and yourself for years to come.

It is important to remember, it is a truism — and

council, and out of the leadership team.

it is well known that: “There is often more conflict within business families than is ever seen from

That way, family members can relax and enjoy

outside.” But it is also true that: “There is often more

Friday lunch together. That way they can enjoy

love within business families than they themselves

the opportunities, and the profits, and the security

remember when they are focused on the work at

together!

hand.” In summary, it is of absolute importance to remember that love, and to use that love to keep the toxicity out of the family relationships. Keep blame, defensiveness, contempt, and stonewalling out of the boardroom, out of the bedroom, out the family

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Author Caroline Fattal Fakhoury, Middle East Managing Partner of Praesta and Board Member of Fattal Holding, Lebanon

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FEATURE

Global economic power shift

A notable shift in global economic power has taken place over the last decade, seen by many as a transition from West to East, by others as one from developed to emerging economies.

Dr. Raja M. Almarzoqi, Chief Economist at Alkhabeer Capital, Saudi Arabia, analyses the real implications that may be expected from a new economic world order, the role of the G20, and the need for solid institutional frameworks in emerging economies.

The implications of global economic power shifting to developing countries Our View

sustain the new growth, thus, there is a required

The global economic power is shifting to developing

partnership between the public and private sector

nations and has major effects on the distribution of

to build and launch such infrastructure.

wealth and the future of power. This shift has three major impacts and they are as follows:

Background The financial crisis that spread worldwide in 2008

38

1. Increasing purchasing power in developing

proved to be the most severe economic downturn

nations, which will lead to an increase in demand.

since the Great Depression of 1929, causing a major

2. New investments will be introduced by wealthy

turn for the global economy. Its impact will be long-

nations into developing countries in a quest

lasting and marked by a tilt in influence from West

to identify new investment opportunities and

to East with an accelerated shift of power that has

depending on the growth rate of each country.

been noticed since early 2000.

3. Existing economic infrastructure does not

After 2001, the economic growth in emerging and

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Global economic power shift

FEATURE

developing economies (EDE) has surpassed the

3. EDE started attracting capital and FDI, whereby

economic growth in major advanced economies

high economic growth gave rise to opportunities

(G-7) resulting in 4 significant implications:

for higher rates of return with respect to investment opportunities.

1. The high growth of EDE enables them to cumulate reserves and government surpluses compared to

4. The shift in economic growth has promoted

deficits in most of the G-7 countries.

the importance of EDE in the decision making process of global issues signaling the need for EDE

2. EDE contribution to the global economy increased

to support G-7 in the management of the global

from 35% in 1990 to 49% in 2010, which in turn

economy and the resolution of financial crisis.

increased the influence of EDE on the growth of the global economy.

Thus, the financial crisis in 2008 was the cornerstone from which the G-7 recognised the need to address

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FEATURE

Global economic power shift

FIG. 1: Regional economic growth 14 12 10 8 6 4 2 0 -2

World

Emerging and developing economies

global reform issues (Figure 1 and Figure 2).

Major advanced economies (G7)

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

-6

1990

-4

Developing Asia

existing international institutions concerned with international financial regulation.

The Group of 7 (G-7) was not capable of resolving the global crises alone and needed the cooperation

2. The formation of the Group of 20 brought

of emerging markets. In the last decade, the

together finance ministers and central bank

global economy has been hit by many economic

governors from the G-7 nations, and from twelve

and financial crises that lead the G-7 to realise

non-G-7 emerging market countries. The objective

that its influence over the global economy had

was to tackle the financial and economic crisis that

started declining while the influence of developing

spread across the globe in 2008. Thus, the G-20

countries started to increase.

members were called upon to further strengthen international cooperation. The meeting was at the

Prior to the launch of the Group of 20 (G-20),

level of the heads of states. It has since become the

there have been several initiatives to form similar

global forum to discuss global economic issues.

formations with the objective to involve non-G-7

40

countries in the resolution of global aspects of

The Way Forward

the financial crisis. Two subsequent meetings

The evolution of the G-20 into a forum addressing

comprising a larger group of participants (G-33)

complex global issues will help promote balanced

held in March and April 1999 discussed reforms of

growth and sustainable development only if G-20

the global economy and the international financial

developing countries actively participate. Further

system. Such regular dialogue with a constant set

research is needed on the interplay between global

of partners was institutionalised by the creation of

and local issues, as well as the future roles of

the Financial Stability Forum (FSF) and the G-20:

developing countries.

1. The Financial Stability Forum brought together

Experts are needed with specialised knowledge

representatives from G-7 countries and from

to assist global leaders in understanding local

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Global economic power shift

FIG. 2: Regional contribution to global economy

FEATURE

The main finding here is that “Developed countries in Europe and North America may be severely affected by the downsizing of TNCs´ investment

Major advanced economies (G7)

plans and by their increasing preferences for

Emerging and developing economies

environment, thus remaining among the top

53% 35%

emerging economies. However, they still enjoy major advantages in terms of market size and business priority countries for investors. And the “decrease-

39% 49%

then-rebound” pattern in TNCs´ investment plans for 2009-2011 seems similar across all regions.

However, companies from emerging economies appear to be slightly more optimistic than those

1990

2010

from developed countries, especially the European countries.” (World Investment Prospects Survey 2009 - 2011). FDI data shows that while FDI to developed economies declined by 29% in 2008, it

issues, and supporting local leaders in perceiving

increased in developing economies by 12%. In 2009,

the broader picture. Without such studies being

the decline of FDI to developed economies reached

supported by government bodies, think tanks, and

44%, while FDI to developing countries has declined

research institutions in developing countries, the

by 24%. This implies there is a shift in investors

only beneficiaries will be advanced economies. This

risk preference after the financial crisis of 2008.

will occur at the expense of developing countries,

If the developing countries focus their attention

and will not support sustainability in the global

on improving their institutional framework and

economy. Therefore, the G-20 reflects a significant

infrastructure then this shift toward developing

step in the global political economy. Whether such

countries could be lasting.

development produces a balanced benefit for both, developed and developing economies will depend

The shift in global economies’ power and the

on whether its members will rely more on research-

change of the size of the economy of countries will

backed material, and clear objectives.

affect the distribution of wealth among nations.

Currency values will be affected, whereby the

Such a shift will have a positive impact and will

currency of growing economies will appreciate

be recognised by business communities. As the

and the currencies of economies decreasing in size

balance of benefits of a global economy improve,

will depreciated. Businesses will have to reconsider

EDE economies will expand and businesses will

the way they allocate their wealth, concluding in

have the opportunity to play in a fair-game global

the need to diversify their investments towards the

environment.

growing regions.

UNCTAD surveyed a sample of 240 company executives from the largest non-financial TNCs about the effect of the crisis on their international investment strategies during the next three years.

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Author Dr. Raja M. Almarzoqi Albqami Chief Economist, Alkhabeer Capital, KSA

Volume 11 Tharawat Magazine

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SPECIAL FEATUREs

Special Features

Family Business

Internationalisation

Finding the key to successful internationalisation for family-owned firms

42

Tharawat Magazine Volume 11

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SPECIAL FEATUREs

44 Al Ghurair A family business profile and interview with Essa Al Ghurair, Vice Chairman of Al Ghurair Investment and Chairman of Al Ghurair Foods, UAE.

52 Family-owned enterprises in the Arab world are often not only heavily diversified but more often than not also widely internationalised. Through strategic alliances, acquisitions, and other partnerships across the globe, Arab family businesses see their brands getting increasing global recognition. However, achieving international growth is a tricky business, and creating sustainable activities far away from home is a challenge that has deep strategic implications.

In the 11th issue of Tharawat magazine, we dedicate a special feature to ‘Family Business Internationalisation’ including profiles and cases of family businesses that have successfully internationalised their activities and strategic recommendations for those who want to.

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Learning to Compete in the New Global Marketplace The strategic implications of taking the business across borders and the odds of internationalising family business operations in a sustainable manner.

58 Internationalisation Mini Cases A selection of facts and figures about four family businesses with successful internationalisation strategies.

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SPECIAL FEATUREs

Al GHURAIR

Al Ghurair

1976

1978 1981

Al Ghurair is one of the most prominent family business names in the Middle East. Diversified into many activities ranging from heavy industry to financial services and employing thousands of people, Al Ghurair has successfully expanded its activities all over the world. Tharawat magazine speaks to Essa Al Ghurair, Vice Chairman of Al Ghurair Investments, and Chairman of Al Ghurair Foods, about the family’s regional and international achievements over the past decades.

1978

Al Ghurair Printing & Publishing was established in Dubai. It is considered one of the largest printing houses in the Middle East, serving a wide range of customers world-wide.

2003

1981

1985

Al Ghurair Properties was established in 1981 leasing serviced and unserviced, furnished and unfurnished apartments and villas to corporate and private entities in the UAE.

Al Ghurair Giga Gold Refinery was established in 2003 as a joint venture between the Al Ghurair Group and the Giga Group of Pakistan. The USD 30 million-refinery is located at the Dubai Multi Commodities Centre (DMCC) with annual production capacity of 100 metric tons of gold.

2004 1999 1985

Al Ghurair Construction - Readymix started producing ready-mix concrete supplying some big projects in Dubai such as Dubai Metro, restoration of the Clock Tower and Dubai Police Academy.

Al Ghurair University was founded in 1999. It offers bachelor programs in four colleges. It also offers Graduate Professional Certificates and higher degrees (Master´s and Doctoral) through The Graduate Studies and Research (GSR).

Al Ghurair Giga Pakistan (Pvt.) Limited was established in Islamabad as a property development joint venture between the Giga Group and the Al Ghurair Group. The company has undertaken projects with a total cost of around US$ 330 million which are in different stages of development.

Al Ghurair Giga is building the World Trade Center Islamabad.

2001

Established in 2001, the Dubai oilseeds processing unit is one of the largest and most sophisticated in the Middle East.

44

Tharawat Magazine Volume 11

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Al GHURAIR

1967

1967

1976

Al Ghurair entered the foods industry through the creation of National Flour MIlls and the establishment of Al Ghurair Foods. Over the years, it developed from a small flour mill to a sophisticated manufacturing enterprise.

Al Ghurair Foods exports to 50 countries and has plants in the UAE, Algeria, Sudan, Lebanon and Sri Lanka, a rice mill in Pakistan as well as silos in Algeria.

1967

Mashreq Bank was founded as the Bank of Oman in 1967.

Mashreq was the first UAE bank to install ATM cash dispensers, the first to issue debit and credit cards and the first to introduce consumer loans. Mashreq Bank was also the first UAE bank to offer chip-based credit cards and digital point-of-sale readers, alongside innovations such as an investment funds.

Mashreq is present in 12 countries outside the UAE with representative offices and branches in major business centers in Europe, North America, Asia and Africa.

2011

2009

2008

Today, the Al Ghurair name is linked to a diversified portfolio with focus on foods, resources, construction and properties as its core businesses.

Other areas of expertise include energy, printing, retail and education.

2008

Al Ghurair Properties expanded its activities from leasing office spaces, warehouse and factory facilities to the hospitality sector by establishing Nojoum Hotel Apartments.

1999

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2001

2011

An agreement to start Taweelah Aluminium Extrusion Company in Abu Dhabi -a joint venture between Gulf Extrusions, an Al Ghurair Group company, and the Abu Dhabi Basic Industries Corporation (ADBIC) - was signed in May 2011.

In March 2009, a Joint Venture deal was signed between the National Oil Corporation (NOC) of Libya and TRASTA Energy Limited to with share ownership of 220,000 bpd at the Ras Lanuff Refinery in Libya.

2004

Al Ghurair Construction expanded to piling and special geo-technical works for residential and commercial developments, hotels and resorts.

Al Ghurair Construction was founded to become a leading company in designing, manufacturing and installing architectural aluminum and glass elements for residential and commercial buildings and hotels. Key projects to date include Burj Khalifa, Fairmont Hotel, Emirates Towers, Burjuman Centre, Dubai Metro, Etisalat, Kempinski Hotel, The Palm Jumeirah Marina Apartments and Dubai Creek Towers.

2009

2003

2004

SPECIAL FEATUREs

2008

Dar Al Marefa School was founded in 2008 in Dubai as an initiative of Al Ghurair Investment. It caters for students from KG1 to Grade 9.

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SPECIAL FEATUREs

INTERVIEW WITH ESSA AL GHURAIR

Interview with

Essa Al Ghurair Vice Chairman Al Ghurair Investments Chairman Al Ghurair Foods, UAE Al Ghurair was founded in 1960 by your late grandfather Ahmed Al Ghurair. What do you think were the ingredients that made his vision so very successful and turned his business into the multinational conglomerate it is today?

The most important ingredients were and still are trust and commitment. At the time of my grandfather a handshake used to mean more than anything else. These values were instilled in all the following Al Ghurair generations. None of us would ever dishonour a commitment. Even if it is at times difficult, our forefathers have taught us to value the trust that

has to be sound because only then will it stick in their minds.

people put in us above anything else. Always delivering on

You give them examples of actions and consequences and

our promises has built our family reputation and, therefore,

how they can learn from them. This hopefully is a wake-up

our brand.

call. In the beginning the young generation can be a little hasty in their decisions but we can put on the breaks by

I always tell my children that trust is like a glass, which they

reminding them of our values.

must try to protect with all their might. Sometimes this means that they have to fall and hurt themselves in the process, but it

Even before the official foundation of the company,

is paramount not to break the glass because once it is broken

the Al Ghurair family has had a history of doing

it is very difficult to mend it. When I say ‘hurt themselves’ this

business in the region for more than a century. What

could mean for instance loosing some money, but ‘breaking

was the main reason for the group to internationalise

the glass’ would mean that the family reputation is tarnished,

its activities?

which can signify damage beyond repair.

In the past and before the company was formally established, Is it difficult to transmit such values from one

communication was difficult. I remember that is used to take

generation to the next?

my grandfather 20 days to travel from Dubai to Karachi!

Imagine, today, how much business you can do in that same

46

The younger generation needs a certain amount of repetition.

time. Doing business was complicated in those days and yet

Of course, when you want to transmit values your reasoning

they were trading with Iraq and Iran. My uncle even used to

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SPECIAL FEATUREs

sail from the UAE to East Africa. We have always been traders and travellers. Founding a real commercial organisation was only possible after the UAE formation. The bank and financial services started even a little before that point; my grandfather and the family established the bank in 1967.

Later on, they slowly started to build branches for the bank outside of the UAE to enable connections with the whole world. They were opportunity oriented and understood that they had to go abroad to grow the business.

In fact, it all happened because of the collapse of the pearling industry and the deep depression that followed for Dubai.

The pearl industry at that time was much like the oil industry is today. When it all broke down what used to be sold at a100 was now sold at 10. With the climate being such, our family felt it was time to assure growth in other countries. So at the time we internationalised out of necessity but it brought us many opportunities. With the UAE uniting we started to establish our banking activities and then branched out into other industries. We used to run agencies for international brands but we soon focused on developing our own brands and entered further into industry and manufacturing. Trade is one thing, when you have to deal with other people’s products, but trading with your own products is a different experience. We wanted to specialise and we wanted to manufacture products that were locally required.

From your experience, what are the main challenges and opportunities that a family business faces in expanding outside its country of origin?

I think the biggest challenges are rules and regulations and finding the right partners. In any new place, initially, you don’t know what to do and where to go, so having a good partner is crucial.

I think the biggest challenges are rules and regulations of the country you enter and finding the right partners. In any new place, initially, you don’t know what to do and where

of people and the way they do business varies. Actually, it

to go, so having a good partner is crucial. It enables you to

even varies within one country, from city to city and now

bridge some of the difficulties that are inevitably part of

that I think about it, sometimes from one part of a city to

entering a new market.

another as well.

A business partner has to be chosen according to his local

For example, we have a supermarket here in this part of

access to consumers and his understanding of the products.

the city and we end up having very different demands on

However, it is different from country to country. The attitude

products than in the same supermarket a few kilometres

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SPECIAL FEATUREs

INTERVIEW WITH ESSA AL GHURAIR

further away. You have to understand the specificities of a locality, be it a country or a city, and adapt your strategy to that, whilst of course respecting rules and regulations.

Do you feel that there are certain industries that are harder to internationalise than others?

I feel the bigger the industry the easier it is to replicate it elsewhere. The reason is that there will be fewer competitors.

If you transfer a smaller industry anybody can copy it and compete with you. Ideally, you have a niche product that no one else provides. You always have to maintain that edge; for instance, if as a bank you enter a new country, you will be quite alone and not many people will be given a banking license. Therefore you will have a competitive advantage.

Now imagine you have an office for IT solutions; it is a fact that in most markets you will have many competitors. In order to compete under such circumstances you have to be up-todate and have the latest information and minimise your cost.

If, on the other hand you are in a big industry, for example if you own a cement factory or are part of the petrochemical industry, there are not many people competing with you.

The number of new businesses established in that area will be very low and easily detectable.

Al Ghurair Investments includes many different industries. For example the renowned Mashreq Bank is the UAE’s fourth largest bank by assets and it has branches in New York, London, Bahrain, Qatar, Egypt, India and Hong Kong. How do you communicate family values across borders and make sure that the people who work for you still have the sense of belonging to the family business?

Our family felt it was time to assure growth in other countries. At the time we internationalised out of necessity but it brought us many opportunities.

My father and my brother, Abdulaziz, are in charge of the

48

bank and they visit the international offices where they talk

style. By having family members do this personally we

to employees. This way they transmit the vision personally

transmit a much more credible image to our employees.

and see if the vision and values of the offices still align with

They can see that we live according to these values and are

the family business. Actually, most family members do this;

not just asking them to do it. Personally, I often travel to Sri

we travel to places and supervise that all operations are

Lanka and Lebanon and I will be travelling to Sudan shortly

conducted according to our value system and management

for exactly this purpose.

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SPECIAL FEATUREs

Recently, we have also established something, which I call

to come from Australia in jute bags all the way to the UAE, so

‘open communication’ whereby anybody within the company

it took a lot of time and the quality suffered as well. We came

can ask us (the family) questions and discuss work-related

up with an innovative idea, which was fresh flour from our

topics. I always tell our employees that during those open

own mills. There was resistance in the beginning because

communication sessions they are immune and can ask

the traders didn’t like that we were competing with them.

anything they like.

Eventually, people saw the difference and then they started trusting us. We kept on expanding and expanding and then

Under your leadership, Al Ghurair Foods, established

we went into animal feeding, oil, and maize milling, which

in 1976, has grown into a high-tech food enterprise

were not available easily in our part of the world. We moved to

with operations in the UAE and overseas. What do

crushing plants, which we do now on a large scale. We always

you believe were the milestones that have led to this

try to come up with innovative and creative solutions to the

success?

gaps that we see in the markets.

We have grown out of a necessity. We wanted to close a gap

Similarly, when we started the cement factory, there was no

in the market. In 1976, we started our first flour mill. Our

one else in the industry. Another example is the Al Ghurair

production rate was 100 ton/year. Before that the flour used

Center that was built in 1978; we started this shopping centre

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SPECIAL FEATUREs

INTERVIEW WITH ESSA AL GHURAIR

and it was the first one in the whole Middle East. Now it is called Al Ghurair City. Of course you have the Al Hamidiyye Bazar in Syria or the covered bazar in Istanbul but these were not shopping centres, as we know them today.

In the food section we have been building on our innovation and are now making burgul, oats, canola oil, and crush soy beans to produce oil, which no one used to do in the Gulf before.

It is important for people that the top management makes clear statements on how the company is doing so that everyone can calmly focus on their work.

How do you foster this innovation and how do you keep employees informed? then take questions and listen to statements. I like this concept

50

We have an internal magazine and we are frequent in meeting

of open communication and we are trying now to do it twice

with employees, so we try to communicate with them as much as

a year. Like this, family members are directly interacting with

and as closely as possible. I prefer to speak directly to employees;

employees. Sometimes it is difficult to answer the questions.

face-to-face is much more interactive. We allocate two hours to

At the end of the session, all the questions and answers are

our open communication sessions to make announcements and

written down and then circulated to everybody. If there is a

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INTERVIEW WITH ESSA AL GHURAIR

question that we cannot answer on the spot we circulate it

SPECIAL FEATUREs

someone to encourage people.

until someone finds the answer and we send it round again. I believe that this type of transparent communication can avoid

Al Ghurair is renowned for its charitable activities.

a lot of misunderstanding. I remember one time, when we

What is the importance of such philanthropic activities

went through some organisational change rumours started

in the family businesses?

circulating immediately. But once you sit down, talk to your staff and explain everything, rumours disappear on their own.

What we tend to do is to accumulate revenues in one place,

It is important for people that the top management makes clear

at our headquarters, and then give not only locally but also

statements on how the company is doing so that everyone can

internationally to charitable goals. We reach causes from

calmly focus on their work.

Bangladesh to Kenya. I myself go to Albania and Spain and my father focuses on Kazakhstan and central Asia. So

Innovative ideas from employees used to be compensated

we go around and help people wherever we can. But it is

with money here at Al Ghurair. We used to put out small

independent of where the business has its units and factories.

sums as an incentive for people to come up with new

Our philanthropic activities are directed to where the needs

suggestions for improvement. It is good for everyone to be

occur. We do not want to limit it only to the communities that

stimulated this way and to think out of the box. This is still

we are active in, because there are many more places in the

going on but it has slowed down, and we sometimes need

world that need our help.

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SPECIAL FEATUREs

COMPETE IN THE NEW GLOBAL MARKETPLACE

The dynamism of the global economy has created bountiful opportunities for Middle Eastern (ME) family firms. Eager to enter new growth fields, learn new skills, build new capabilities, and keep their members involved, many ME family firms have joined other companies in forming alliances, established joint ventures, and increased their exports. Despite the huge investments many of these companies have made, some have found it difficult to sustain their global presence. This leads us to ask: What can family firms do to improve the odds of succeeding in internationalising their operations? In this article Dr. Shaker A. Zahra, University of Minnesota, USA, Sondos K. Abdel Gawad, ESADE, Spain, and Dr. Rania Labaki, University of Bordeaux 4 and INSEEC Business Schools, France, address this important question.

Learning to Compete in the New Global

Marketplace

M

E family firms can capitalise on their

operations should be guided foremost by their vision.

assets, both tangible (e.g., financial resources) and intangibles (culture,

Start with a vision. Family firms usually pursue financial

values, etc.) as they expand beyond

and non-financial goals that interest their members and keep

their national borders. In Figure 1,

them engaged. This often creates tensions in these companies’

we highlight several actions that can improve the odds of

missions. This expansion does not cause the loss of control on

successful international expansion.

the part of the owner family, thus reducing a major source of friction within the company and owner family. Indeed,

52

Consider the Strategic Consequences of Different International Moves

success in international markets can significantly improve

With many companies building their international

firm. This has led many ME family firms to join a number

operations and pursuing foreign markets, pressures mount

of acquisitions and joint ventures within the MENA region

on ME family firm owners and leaders to do the same.

and developed countries. They have also pursued their

However, as we suggest in Figure 1, this could be a fatal

internationalisation in other world regions and/or industries

mistake. The decision to internationalise these firms’

by exploiting their connections with immigrant/ expatriate

Tharawat Magazine Volume 11

the domestic market position and reputation of the family

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COMPETE IN THE NEW GLOBAL MARKETPLACE

SPECIAL FEATUREs

FIG. 1: Successful Strategies for ME Family Firms’ International Expansion

Build and exploit entrepreneurial capabilities

Consider the strategic consequences of different international moves

Culture and structure matter.

Build and empower your intellectual capital.

Engage non-family members (outsiders).

Start with a vision.

Take time to learn.

Diffuse what has been learned.

Harness their relationships and networks to create value

Link businesses across global markets: Adopt portfolio thinking

uild and nurture different types of B connections.

Invest in sustaining these connections.

Be selective in using different connections: Some are more useful than others in particular situations.

uild and cultivate B positive synergies.

Avoid negative synergies and lock-ins.

family members and branches. Some of these transactions

fall prey to international moves that dilute their value

allow these firms to hedge against business risks in a volatile

and stretch them too thinly. Gaining advantage from

global economy.

international activities requires understanding the unique organisational, financial and technological challenges that

Success requires clarity about the strategic reasons that drive

must be addressed.

family firms to internationalise their operations. What do the company and owner family aspire to achieve? What

As we indicate in Figure 1, having a clear and well articulated

does the family firm have to offer in international markets?

mission can allow ME family firms to make wise decisions

What is the effect of internationalisation on the company’s

about potential international partners. Family firms have a

operations, values and hybrid identity? These are simple but

disposition to deal with other family firms, especially those

important questions that management should address before

that have similar goals, values and investment horizons.

pursuing international opportunities. Without considering

Strategic clarity about what the company wants to achieve

the strategic implications of these transactions for building

can help in assessing potential partners and their capabilities

a global presence and developing new capabilities and

as well as their credibility. These evaluations require going

sustaining the business over generations, family firm may

beyond numbers and figures to probe intangibles such as

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Volume 11 Tharawat Magazine

53

SPECIAL FEATUREs

COMPETE IN THE NEW GLOBAL MARKETPLACE

the quality of management, strength of the organisation,

from markets and customers. This causes some family firm

the motivation and skill of its intellectual capital, and the

managers to overlook the opportunity to learn from their

compatibility of its values with those of the organisation.

international experiences. Managers need to reflect on

When conducting these analyses, numbers alone do not tell

and analyse their decisions as they engage in social (what

the whole story.

drives customers and competitors to behave the way they do) and technological (how they build their capabilities as

54

Take time to learn. Internationalisation takes time and

they create products and systems) learning. Managers need

dedication of resources. Fortunately, many family firms

also to learn how to organise their operations, sequence the

are long-term oriented in making their decisions as they

various activities they undertake, and build linkages among

focus on the viability of the business for future generations.

these activities. Learning is a key source of new knowledge

Yet, managing “attention” is a strategic imperative when it

that fuels the family firm’s growth. Analysis of successful and

comes to internationalisation. As international expansion

unsuccessful transactions could be a great source of learning

ensues, managers become busy--focusing on the feedback

that serves as a foundation for success.

Tharawat Magazine Volume 11

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COMPETE IN THE NEW GLOBAL MARKETPLACE

SPECIAL FEATUREs

Diffuse what has been learned. Learning (i.e., gaining

products, building distribution channels and finally locating

new knowledge) is not sufficient for success in international

their operations overseas. They frequently join alliances

markets, however. As indicated in Figure 1, managers need

and establish joint ventures to gain access to markets and

to create the systems and processes that capture and diffuse

technology, and improve their learning. In undertaking

their learning throughout the organisation. Diffusing

these activities, it is easy to fall victim to the simple logic

best practices learned is essential in order to benefit from

that managing each of these activities is crucial. While some

internationalisation. Lessons learned from successes and

transactions can make or break the firm, as indicated in

failures are also important. “Intelligent failures”, those

Figure 1, it is imperative to think of linking these transactions

episodes where a company learns from its misfortunes,

and cultivating synergy among them. This synergy is the

also provide important occasions to learn and then capture

premium to be gained from connecting and coordinating

and diffuse that learning. Failure is commonplace in the

the firm’s international operations. This glue could be in the

internationalisation process especially for those ME family

form of a coherent strategic direction that is approved by the

firms that do not have a lot of experience in international

business and the family (Where are we going?), operational

markets. Managers know they need to understand the

efficiencies, as well as the complementarities that create

reasons of how to reduce the odds of future failures and

financial and non-financial (family members’ happiness and

how to weave lessons learned into thinking throughout the

well being) value.

organisation. Intelligent learning occurs when members of the firm; i.e., the owner family and employees, learn

Managing the international business portfolio, however, is

from disappointments and successes and apply what they

not only about money and financing. For family firms, it is

have learned when they make decisions. In family firms,

often about creating a new set of opportunities, developing

organisational memory is traditionally perpetuated over

capabilities that could be used in different business fields,

generations. This is distinct feature that these companies

and introducing business models that have the potential to

should exploit in their organisational learning about

change the fabric of the industry and its competition. This

internationalisation.

places a heavy burden on family firm owners and managers who need to have the foresight to see the future before it

Diffusion of what has been learned is essential to create

is born, the creativity to mold resources into capabilities,

value. However, managers are often reluctant to share what

and cleverly target capabilities in pursuit of particular

they have learned with employees believing that this is the

opportunities.

prerogative of management. Family owned businesses are especially unwilling to share what they have learned with

It is also important for family firms to avoid negative

employees that are not members of the owning family. This

synergies and lock-ins that can destroy value, as stated in

isolates the employees while depriving the company of their

Figure 1. Negative synergies become evident when two or

talents and insights. In contrast, sharing provides an important

more activities work counter to each other, depressing the

means for clarifying issues, developing causal explanations of

value of the overall international operations. For example, a

what happened, and crafting strategies for effective change.

family firm might seek to maximise the flexibility of different units by giving them autonomy in making key decisions about

Link and Build Synergies: Adopt Portfolio Thinking

their respective markets. Extreme autonomy handicaps agile

Like many other companies, family firms typically follow a

company’s gains from internationalisation. “Lock-ins”

sequence of activities to build their international operations.

usually occur when one strategic move keeps the firm from

They often start as exporters: licensing their technologies and

pursuing other options. For example, having an exclusive

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decision making and responsiveness, thereby reducing a

Volume 11 Tharawat Magazine

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SPECIAL FEATUREs

COMPETE IN THE NEW GLOBAL MARKETPLACE

operations requires attention to the internal processes, management, and governance systems already in place. As these operations grow there is a need for new structures, systems and processes that ensure synchronisation, the timely gathering and dissemination of information as well as agile decision making. This makes investments in information technologies and systems along with having effective governance structures worthwhile. Equally important, having different members of the owner family involved in particular areas is essential to develop their talent and ensure that they understand how internationalizing is progressing.

Build and Exploit Entrepreneurial Capabilities Family firms with a strong entrepreneurial orientation are well positioned to uncover lucrative opportunities and pursuing them in innovative ways that others cannot imitate.

To turn this orientation into a reality, these companies build entrepreneurial capabilities that allow them to collectively sense and select opportunities in the light of their unique

Family firms with a strong entrepreneurial orientation are well positioned to uncover lucrative opportunities and pursuing them in innovative ways that others cannot imitate.

internal resources, cultures, histories and other idiosyncrasies.

By developing a set of entrepreneurial capabilities, family firms can develop their own rules, instead of following the recipe that other companies use, as stated in Figure 1.

Building and sustaining this entrepreneurial capability requires the infusion of variety and diversity into these companies. To ensure success, the owner family has to be careful in exercising its power and control. This could prove to be a major challenge for many ME family firms, where authority is usually centralised in the hands of the founder and a selected few family members. These companies need

foreign distribution contract with a well known company

also to build their intellectual capital by hiring people with

might be worth it, but it can also limit the company’s ability

different outlooks and skills, recruiting skilled managers and

to make other choices as the market changes. Some ME

employees worldwide, training them in creativity techniques,

family firms are likely to encounter this situation because

allowing them to express their views with openness, and

of their limited experience, few connections, nepotism, and

encouraging them to look well beyond the company’s

absence of alternatives.

comfort zone. As the presence of outsiders (non-family members) increases, ME family firms need to re-examine

Managing the portfolio of a family firm’s international

56

Tharawat Magazine Volume 11

their compensation systems and existing organisational

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COMPETE IN THE NEW GLOBAL MARKETPLACE

SPECIAL FEATUREs

structures. They need also to empower these employees,

meetings, and speaking to local business people and research

thus giving them some discretion in locating and pursuing

universities are important ways of connecting and building

lucrative business opportunities.

beneficial relationships. Information technology (e.g., video and teleconferencing) can also keep family business owners

ME family firms need two key ingredients to benefit from the

and managers well informed. Still, there is no substitute for

diverse and varied skills of the firm when internationalizing.

personal contact.

The first is to develop an ability to create an organisational culture and system that fosters learning. Frequently,

Competition in international markets is no longer between

companies spend more time and energy tracking their

a company and another company--it is between a network

competitors and customers in an effort to learn. However,

and another network. A family firm cannot rely solely on

they do not spend as much time or devote as much effort

its own skills and resources; they need to leverage the

to encourage “collective learning”, where employees and

skills, connections and resources of other companies in

managers share their experiences and reflect on the strategic

their networks. ME family firms, therefore, need not “go

value of those lessons learned. Learning is rarely automatic

it alone”; instead they collaborate and win in international

and usually requires careful thought and analysis in order to

markets. Further, these firms need to be selective in using

successfully expand internationally. The second requirement

their connections; different connections are valuable in

is having an environment where people genuinely participate.

different situations and for different reasons. Appreciating

Intelligent and capable employees thrive on putting their

and capitalising on these differences is crucial for success.

ideas to the rigorous tests of the marketplace. Companies,

Family firm managers need also to understand the unique

therefore, need to give these employees (especially non-

challenges and capabilities of their partners.

family members) a forum where they can influence the decisions being made.

In conclusion, for many Middle Eastern family firms, internationalisation is an important but risky approach

Harness Relationships and Networks to Create Value

to learning, acquiring resources, building capabilities,

To sustain their entrepreneurial capability, ME family firms

companies improve the odds of success in today’s dynamic

need to take advantage of the relationships they develop in

markets by: considering the strategic consequences

international markets, as noted in Figure 1. Family firms thrive

of different international moves; linking businesses

on building enduring relationships with bankers, suppliers,

across global markets and gaining synergies by adopting

customers, local communities, universities and research

portfolio thinking; building and exploiting entrepreneurial

institutions, charitable organisations, other companies,

capabilities; and harnessing their relationships and networks

and government bodies, which can be critical in giving the

to create value for their owners and shareholders. By

company important clues about pending technological,

appreciating and creatively exploiting their unique missions,

market or policy changes. These relationships offer important

values and cultures, Middle Eastern family firms can build a

signals of changing competitive conditions. They also help in

strong international market presence.

assembling the resources required for internationalisation, analysing opportunities, and appraising progress. Family firm managers and owners devote considerable time and energy to networking, which is important for gaining access to and nurturing these relationships. Company and site visits, attendance of important conferences and trade association

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and creating value. As we have stated in Figure 1, these

AuthorS Dr. Shaker A. Zahra, University of Minnesota, USA Sondos K. Abdel Gawad, ESADE, Spain Dr. Rania Labaki, University of Bordeaux 4 and INSEEC Business Schools, France

Volume 11 Tharawat Magazine

57

SPECIAL FEATUREs

Mini cases

Internationalisation

Mini cases Four family businesses with activities around the globe

1960

M1 Group was co-founded

by Taha A. Mikati and his brother Najib A. Mikati

Lebanon

M1 Group – Mikati Family

T

he M1 Group was co-founded by Taha A.

Throughout the years, M1 Group made a great deal of

Mikati and his brother Najib A. Mikati in the

acquisitions around the world to strengthen its international

1960s building the firm’s foundations in the

presence. M1 Includes Geneva-based Baboo airline,

construction industry. It is today a holding

French fashion brand Faconnable, Luxembourg-based

company for a number of international

Avante Petroleum with corporate offices in Luxembourg

brands from retail to travel, real estate to oil & energy. The

and Switzerland, technical office in the United States and

family-owned, Beirut-based company has an extremely

representative offices in Colombia and Mexico where its

diversified portfolio and is internationally present through

operations are located. The company also has a stake in

its successful business ventures and investments worldwide.

Lebanon’s largest lender by assets; Bank Audi SAL-Audi Saradar Group. M1 is also the major shareholder of Royal

During Lebanon’s civil war in 1982, Najib and Taha founded

Jordanian Airlines.

Investcom, a telecommunications company operating in

58

emerging markets. The company was bought by MTN Group

Besides running the M1, the multibillion-dollar holding

Ltd., Africa’s largest mobile-phone operator, in 2006 which

company, the Mikati family are committed to a number

makes M1 Group today the second largest shareholder of

of charitable associations in Lebanon and beyond. Their

MTN. MTN is present in 21 countries and serves 120 million

philanthropic activities include social, medical, academic

people through a world class communication networks.

and sport programs.

Tharawat Magazine Volume 11

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Mini cases

Samsung has 16 products that have dominated the world’s market share with 27 production bases in 13 countries and 152,000 employees worldwide.

1938

27

SPECIAL FEATUREs

Lee Byung-chull started a trade company in the South Korean city of Daegu exporting fish, vegetables, and fruit to China.

Samsung has 27 production bases in 13 countries and 152,000 employees worldwide.

South Korea

Samsung Group-Lee Family

T

he Samsung Group is South Korea’s largest

industry. It is best known for manufacturing the world’s best

company and exporter and the 5th largest

memory chips and flat screen televisions. It is also the second

multinational corporation in the world. It

largest producer of mobile phones in the world after Nokia.

was established by the Lee family who has been running it ever since.

In the 1990’s Samsung began to expand globally building factories in the US, Britain, Germany, Thailand, Mexico, Spain

The Samsung Group’s beginnings go back to the year 1938

and China. Currently, Samsung has 16 products that have

when Lee Byung-chull started a trade company with forty

dominated the world’s market share with 27 production bases

employees in the South Korean city of Daegu exporting

in 13 countries and 152,000 employees worldwide.

fish, vegetables, and fruit to China. The company kept on growing to eventually become one of the largest companies

The conglomerate also includes Samsung Heavy Industries,

in Seoul by 1949.

the world’s number three shipbuilder, and Samsung Engineering & Construction, a major global construction

From 1958 onwards Samsung started to diversify its activities

company that built Burj Khalifa in Dubai, the tallest

into other industries such as finance, media, chemicals and

structure in the world after an 11-month bidding process.

ship building. In 1969, Samsung Electronics was established.

Samsung Group is also the leader in several other industries

Today, Samsung Electronics is the world’s largest electronics

domestically, such as finance, chemicals, retail, and

company and a major player in the world’s electronics

entertainment.

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Volume 11 Tharawat Magazine

59

SPECIAL FEATUREs

Mini cases

The Switzerland-based Group employs more than 25 000 persons in over 50 countries. It also operates its own worldwide network of distribution organisations.

1

The Swatch Group Ltd. is the number one manufacturer of finished watches, jewelry, watch movements and components in the world.

50

The Switzerland-based Group employs more than 25 000 persons in over 50 countries.

Switzerland

The Swatch Group - Hayek Family

I

n the early 1980s, Lebanese-born Nicolas G. Hayek was

Today, The Swatch Group Ltd. is the number one

appointed to develop a strategy for the future of Swiss

manufacturer of finished watches, jewelry, watch

watchmakers ASUAG (Allgemeine Schweizerische

movements and components in the world. It is a strong,

Uhrenindustrie AG) and SSIH (Société Suisse pour

diversified industrial company that engages in significant

l’Industrie Horlogère) that held a number of well-

development activities in microelectronics, micromechanics

established Swiss watch brands. The two companies were

and telecommunication as well as in the automobile and

facing severe competition from Japanese mass producers of

service sectors.

cheap new electronic watches who flooded the market and affected the whole Swiss watch industry.

The Switzerland-based Group employs more than 25 000 persons in over 50 countries. It also operates its own worldwide

Mr. Hayek, who was the Chief Executive Officer of Hayek

network of distribution organisations.

Engineering, at the time recommended a number of critical

60

steps to enable the recovery of the two companies. Under his

After the sudden death of Mr. Nicolas G. Hayek, Chairman

leadership, many drastic changes were made and he played

and Delegate of the Board of Directors of The Swatch

a key role in the revival of the Swiss watchmaking industry.

Group Ltd. on 28 June 2010, his daughter Dr. Nayla Hayek,

He merged ASUAG and SSIH into SMH retaining the majority

became Chair of the Board of Directors of Swatch Group. Her

of the shares for the Hayek family and was then nominated

brother Nick Hayek is the President of the Executive Group

to be the CEO of the company. Launching a low-cost, high-

Management Board since 2003 and member of the Board

tech, and artistic «second watch» – the Swatch- was the idea

of Directors since 2010. They are continuing the journey

that paved the way for The Swatch Group to become one of

of Swatch Group started by her father and its valuable

the most reputed watchmaker in the world.

contributions to the Swiss watch industry.

Tharawat Magazine Volume 11

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Mini cases

Toyota’s vehicles are sold in more than 170 countries and regions.

TMC employs more than 300,000 people, 70,000 of them in Japan.

1926

51

SPECIAL FEATUREs

Since Sakichi Toyoda established it i the company has always been a family-run company and has remained largely insular.

Toyota is a major player with 51 overseas manufacturing companies in 26 countries and regions

Japan

Toyota Group- Toyoda Family

T

oyota Group is a multinational conglomerate

Toyota Motors Corporation (TMC), founded by Kiichiro

company headquartered in Japan. Since

Toyoda in 1937 as the Automobile Department, remains

Sakichi Toyoda established it in 1926, the

the core business of the company with 8 million units of

company has always been a family-run

automobiles’ production in 2010. Toyota’s vehicles are sold

company and has remained largely insular

in more than 170 countries and regions. TMC employs more

with a board of directors that includes exclusively Japanese

than 300,000 people, 70,000 of them in Japan.

members.

Internationalisation was accompained by diversification, and The company started as an automatic looms manufacturer

today, Toyota is a major player in 13 business areas including

and seller that revolutionised the Japanese textile industry.

housing, financial services, communications, marine and

The company then expanded the scope of its business

biotechnology with 51 overseas manufacturing companies

field to include textile machinery, automobiles, materials’

in 26 countries and regions.

handling equipment, electronics, and logistics solutions. It has production bases in North America, Europe, and Asia as well as a worldwide sales network. The 1990’s marked the geographic expansion of the company by the very successful acquisitions and joint ventures that it undertook involving companies in the US, France, Switzerland, Sweden, Germany and others countries. This internationalization happened in addition to the joint ventures Toyota undertook with Japanese companies such as Sony Corporation.

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14 Profile: van Bommel Nine generations of shoe-making excellence and three young brothers in charge.

2-Year Subscription

46 Interview with Essa Al Ghurair

Vice Chairman of Al Ghurair Investments and Chairman of Al Ghurair Foods, UAE.

30 Family Business Relationships

Solutions to toxic relationship patterns in family firms.

64 The Naji Family

Arabesque architecture and art preserved over generations by the Naji family based in the USA and Morocco.

I am also interested in the newsletter: Yes No I got to know about Tharawat magazine through: A friend

Special FeatureS

Family Business

Internationalisation Finding the key to successful internationalisation for family-owned firms

the website (www.tharawat-magazine.com) an advertisement www.tharawat-magazine.com

SMEs

Family Business

SMEs 64

70

The Naji Family

Strategic Accounting for SMEs

Arabesque architecture and art preserved over generations by the Naji family based in the USA and Morocco.

www.tharawat-magazine.com

An interview with strategic accountant Daniella Williams on the do’s and dont’s of SME accounting and financial planning.

Volume 11 Tharawat Magazine

63

SMEs

THE Naji Family

The Naji family has its origins in the great city of Fez - the former capital of the Kingdom of Morocco and one of the country’s four “imperial cities.” For seven generations, the family has dedicated itself to preserving, protecting, and promoting the Moroccan Andalusian architectural heritage.

Arabesque & Moresque The Naji Family

O

wned and managed by the Naji

the family trade and to pass it on to his children.

family, the family business, known as Moresque Salr and

In 1928, along with his oldest son Abdelhadi, a

Arabesque Inc. specialises in

half dozen skilled artisans and a few apprentices,

traditional Moroccan styles of

Mhammed started working on large projects, mainly

interiors and furnishings. The Najis have gained a

the King’s palace in Fez and many residences of the

worldwide reputation of mastering a wide variety

elite of influential businessmen and politicians.

of activities such as carving on plaster, wood, and brass, and producing and installing Moroccan hand-

Abdelkader and Mohammed joined their father

cut tiles (Zellij). The family has been recognised

and oldest brother in 1940 to bring new blood and

internationally for its craftsmanship and authentic,

a fresh sprit to a business that now stood for a family

timeless masterpieces.

tradition and a living art carried from one generation to another. In the mid- 1950’s, the Eissaoui

64

Moresque was established informally in 1928 by

Tlemassani family became a well-known brand and

Maalem (Master artisan) Mhammed Telmsani

one of the most prominent families in Morocco to

Eissaoui in Fez starting out with only 10 employees.

work in the handcraft industry. Acknowledging

With no assets, workshops or capital except the

the Tlesmasai Eissaoui contribution in the field of

skills he acquired from working with his father and

craftsmanship and Moroccan interior architectural

his uncles, Mhammed was determined to carry on

design and decoration, the Moroccan government

Tharawat Magazine Volume 11

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THE Naji Family

SMEs

named the street where the business was located

in 1964 and the renovation of the Grand Mosque in

after their craft ‘Derb El Gebbas’.

Paris in 1966 as well as several mosques in Algeria and Tunisia. In 1967, Mhammed Naji and Mhammed

In 1960, Maalem Abdelkhader Tlemssani (the

Telmsani, Aissawi’s grandson, took over the family

middle son of Mhammed Tlemssani and one of

business and formed a sole proprietorship called

the most talented craftsmen in ornamental plaster

Naji Plaster. Leading 50 talented craftsmen and

in Fez) took over the family business then known

interior designers, Maalem Mhammed Naji

only by the family name Tlemssani. At the time,

undertook several projects that were recognised

all business was still conducted based solely

in Morocco, the Middle East, Europe, Africa, and

onreputation and trust.

the Americas.

The new team consisted of the three Tlemssani

In the 1990’s, many young family members joined

brothers and their two nephews Mhammed and

the family business. They were not only present in the

Mohammed Naji (children of Kenza Tlemssani,

managerial level but also in the design and execution

the only daughter of Mhammed Tlemssani), all

stages of the business under their father’s supervision.

of whom developed their skills at an early age.

After gaining his academic degrees from Morocco,

Abedelkader Tlemssani and his skillful team of

France, and the United Kingdom as an Ornamental

twenty artisans accomplished sizeable projects,

Master Designer in 1992, Mohammed Naji, Jr. joined

such as the refurbishment of the royal palace in Fez

the family business. He is well-known for creating and

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Volume 11 Tharawat Magazine

65

SMEs

THE Naji Family

developing new ornamental designs of carved stucco

businesses, create a worldwide brand for the family.

plaster. These new designs can be seen in some of the

66

projects that he designed and supervised, such as the

Constantly seeking to preserve the Moroccan and

restoration of the Old Religious Schools Foundouk

Andalusian artistic tradition and its place in modern

Nejjereen and Madrassa Bouanania in Fez. Following

art and design, the Naji family established the

their brother Mohammed’s footsteps, Hicham, Reda

Moresque Research Center (ARC) in 2001. The goal

and Adil Naji joined the business later. They currently

of the centre is to incorporate and develop the latest

work under the supervision of their Father Maalem

design information and technology in conjunction

Mhammed Naji.

with Moroccan architectural decoration.

Arabesque, the second Naji family company, was

With headquarters in Morocco and several branches

founded in 1996, and in 2000 its operations were

in the United States, Moresque and Arabesque have

incorporated in the U.S. and Morocco. The family

more than 200 senior craftsmen, interior designers,

dissolved Naji Plaster and Moresque Sarl was

and project managers in different projects around

incorporated in Fez as a private limited liability

the world. The family owns several workshops for

company. In order for the family business to

the different stages of production and specialties

continue being competitive, a new management

where small teams of 10 or 15 handicraftsmen are

style was required to reach the next level:

supervised by one Maalem.

After Adil Naji completed his degree in business

For seven generations, the Naji family has kept its

management and administration in Washington, DC,

promise to preserve Andalusian art and to represent

he took over the newly formed companies and became

it in its best form. Today, its worldwide projects

the President of Arabesque, Inc. in the U.S., while

vary from royal palaces, mosques, villas, hotels,

his father assumed the same position in Moresque,

museums, and Madrassas to restaurants, and

Sarl in Morocco. Both companies are managed with a

exemplify the artistic expertise of the Naji family

parallel vision intended to expand and strengthen the

developed through the generations.

Tharawat Magazine Volume 11

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THE Naji Family

SMEs

Interview with

Adil Naji President of Arabesque, Inc., USA Your family has been in the Arabesque business for nearly a century, how did the craft change over the years?

Until the late 1980’s, there were no critical changes in the Arabesque craft. Hand was the major driving force of creation, fabrication and final installation.

For instance, Moroccan Zellij (hand cut tiles) is made out of clay that is baked in a traditional oven after it is

increasingly replacing wood and brass carver artisans

glazed using a traditional method that has been used

in workshops in Morocco, Egypt, Syria, and India

for generations. The tiles are then cut into different

and casting resin and silicon making rubber factories

shapes and sizes by a master tile cutter using a

are opening from Morocco to China to dominate the

wide hammer with sharp ends. All these phases of

carve architectural ornamental plaster market. At

fabrication constitute the true authenticity of the

Arabesque and Moresque, we use technology to

craft; however, with the transfers of technology

enhance and promote our craft, yet preserve and

from a country to another, entrepreneurs saw the

encourage the artistic traditions art, which have been

opportunity to enter this field and take advantage of

carried from one generation to another.

the market. Now the Moresque craft has a different scale, ranging from authentic to synthetic.

What are the main projects that the Naji families have accomplished over the years in

The introduction of technology into Moresque craft is

the business of traditional Moroccan interior

a double-edged sword. From one standpoint, it allows

designs and furnishers?

us to benefit from the use of computers, software and databases to create and design architectural

The Naji family has accomplished many projects

ornaments using complicated patterns and design

in Morocco and all around the world spreading

concepts with accuracy and efficiency. In the past,

from Morocco to Brunei and from North America

those methods took weeks and sometimes months to

to Kazakhstan. Just in the past 10 years, the Naji

produce. Now technology is helping our craft reduce

family is proud to be an integral part in the making

the time of creation and improve design processes

of the following projects:

while presenting clients with 3D or visual rendering of their final product. From another perspective,

1. The restoration of many historical monuments

some businesses saw technology as a way to replace

in Morocco dating back to the 14th century such as

craftsmen and therefore introduced machines

Madrassa Bou Inania, the Nejjarine Musuem and

and advanced chemicals into their businesses.

Madrassa Charateen. All are considered landmarks

Today CNC (Computer Numerical Controlled) is

of Moroccan Andalusian Islamic architecture.

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THE Naji Family

2. Mazagan Beach resorts In Al Jadida in Morocco, a truly magical place. The resort has been adorned with warm tiles on both walls and floors, exquisite brass light fixtures, and breathtaking furniture all fabricated and installed by Moresque.

3. Sahaba Mosque in Créteil, France, a unique mosque with sophisticated architectural design.

Since its opening in December 2008, the mosque became a vital source of information and exploration about Islam and Islamic architecture.

4. Al Farouk Mosque the tallest building in Anaheim city less than a mile from Disneyland. The Mosque has a tall minaret, which tells California residents about the history of Islamic civilization.

5. Al Hambra Restaurant, Royal Villa Jumeirah,

ornamental design and decoration to facilitate the

Theater at Souq Madinat Jumeirah and Al Qasr Hotel

communication between us and our clients and to

in Dubai all have a Moorish flavour of Arabesque

ensure the continuity of the craft. In 2007, the ARC

and Moresque artistic touch and area a result of a

was restructured under the Moresque Media Lab, Sarl

partnership with Morawwah trading.

(M-LAB) to take on a bigger role. In addition to its

ABOVE LEFT: Hicham and Mohammed Naji working at the Metropolitan Museum of Art in New York.

primary goal, the Arabesque Research Center (ARC) 6. The Moroccan Court at The Metropolitan Museum

is the driving force behind Arabesque and Moresque

of Art in New York City is considered the greatest

marketing strategies, engineering artistic projects

achievement of the Naji family. The Met has contracted

solutions and management of Arabesque digital

Arabesque to create a 14th century Maghribi

library of Islamic art and architecture.

Andalusian courtyard. The Moroccan Court will serve as a bridge for intercultural dialogue between East

Most of the Naji family members have

and West and a constant reminder of the true face of

been involved in the business throughout

the history of Islamic civilisation, which was based on

the generations. How do you explain this

contribution, knowledge and advancement.

continuous interest of family members in every level of the business and do you believe

What are the goals and activities of the

that future generations will follow suit?

Moresque Research Center (ARC) that was established by Moresque in 2001?

Business is an integral part of our family’s daily life and a true image of our heritage and culture. We

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In 2001, we established a center within our firm

were brought up in an environment where most

Moresque called (ARC). The primary goal and activities

of my father’s immediate family members were

of ARC are to incorporate and develop the latest

artisans working in the same trade, and at an early

technology available in the market with Moroccan

age, we developed the basic understanding of the

Tharawat Magazine Volume 11

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THE Naji Family

SMEs

craft of Moroccan Islamic ornamentals and the

What are the challenges and the opportunities

secret behind the traditional mathematic equation of

that you see for Arabesque and Moresque in

geometry that are the floral designs. Every summer,

the future?

all of my brothers and I had to spend at least a month in one of our workshops or at a jobsite to learn the

Keeping the Moroccan craft as a tradition and living

craft in detail before we enjoyed the remaining

art in Morocco as it passed on from family to family

summer vacation. We were encouraged by our

and generation to generation is one of the major

father to study and choose our future by ourselves;

challenges. Moroccan artisans are indispensable

however, I must admit that the environment we

for the future of Moresque and Arabesque. Today,

lived in was a major contributing factor in joining

the business environment is driven by lowering cost,

the family business. Moreover, we witnessed and

increasing profit, and reducing the production time.

felt the hardship that my father endured by running

As a result, this threatens to misuse the technology

the business alone; and when my two brothers,

in our field and may lead to a division between the

Mhammed and Hicham Naji, joined the family

craft and the business side.

business in the early 1990s, I realised that what we needed is to combine our artistic work with

The opportunities I see for Moresque and Arabesque

knowledge and research to maintain the continuity

are enormous and can be summarised as follows:

of our family business. Now all of us are involved in

1. To become the source of reference and world

day-to-day business operations and decisions. We

leader in Islamic architectural design, decoration,

run our organisation as a global corporation but

ornamental installation and Moroccan Andalusian

with respect for hierarchy. Sometimes the family

furniture fabrication.

side overtakes the business side and decision-

2. To create a development linkage program with

making can be challenging at times.

universities and technical institutions all around the major Eastern and Western cities to continue

We cannot guarantee that our future generations

to promote Moroccan Andalusian Islamic art and

will have the same passion and desire to carry on

architecture and adapt it as a concept of art and living.

our business as we did for generations, but we can

3. To forge an alliance with craftsmen from

help set up the foundation and the environment

within and outside the Muslim world to exchange

to make an easy transition for our children. To do

techniques and expertise and create a 21st century

that, over the past six years, the Naji family has

craft and art based on beauty, peace, acceptance

invested one third of its profits in creating and

and respect.

building a showroom and Museum which contains

4. To increase investments in technology and

18 pavilions of different Islamic ornamental designs

innovation to continue to create more designs and

and architecture ranging from the golden ages of

themes inspired from Islamic art and architecture

Andalusia to the 21st century of the Kingdom of

to market globally.

Morocco.

Finally, we want to reinstate and clarify the image We believe this is a family treasure and

of Islam and its civilisation in the Western world

accomplishment to preserve for our future

through building monuments and dwellings that

generations, and the only way for this to happen

attest to the beauty of Islamic architecture and its

is if others join the family business.

peacefulness.

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SMEs

STRATEGIC ACCOUNTING

Strategic Accounting for SMEs Accounting and financial planning are often neglected aspects in SMEs. Reasons for this are sometimes a lack of time, a lack of skilled people, or simply a lack of understanding of how important it is to get the numbers right. Daniella Williams, Strategic Accountant and founder of Williams Accounting & Consultancy, UAE, speaks to Tharawat magazine about the most common mistakes SMEs make in accounting, about the importance of researching and understanding the competition, and about how communication lies at the very heart of successful financial planning.

Interview with Daniella Williams, Williams Accounting and Consultancy, UAE

What are the most common mistakes that

Another common mistake not purchasing proper

you see SMEs make in accounting?

accounting software and instead, just using spreadsheets. Failing to keep any records is another

I think the most crucial mistake is not hiring

error; people might keep invoices but what small

a qualified accountant in the first place; many

business owners often forget is that their incidental

business owners try to either do it themselves or

expenses such as coffees and mobile phone bills

end up not preparing or managing their accounts

are also part of the business and these are often

at all. Secondly, if you hire an accountant, you

dismissed as insignificant.

should hire them because of their qualifications,

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experience and their ability to communicate, and

Ignoring petty cash is another mistake I often observe;

not because they are cheaper than all the others.

a lot of business owners do not keep any records and

It’s not about cost, it’s about value.

just borrow money from the business when needed

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Williams Accounting & Consultancy

for personal use. However, business finances should

SMEs

Do you see a lot of debt in regional SMEs?

be monitored just like a bank account.

I see a lot of people making payments using their On a number of occasions, business owners do not

private funds. A lot of their personal wealth is wasted

take an active role in the finances of the business.

on their business because they are not spending it

Many just want to focus on what they do best

wisely. Debt is seen more often with the medium

which is often sales, marketing, or generally the

and larger businesses. In micro businesses, the very

strategy, and they neglect the financial aspects.

small ones with 2 to 5 people, it is the owner who

Often this leads businesses to spending more than

takes the biggest hits. Mostly people are just not

they can afford. This is fine as long as they consider

careful with how they choose to spend their business

outsourcing the accounting function to a reputable

cash reserves. For example, some lease large office

and experienced accountant.

spaces without there being a need in the hope that

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SMEs

Williams Accounting & Consultancy

their business will grow into it. This can be a costly

Also it is important for the strategic accountant to

mistake if the business does not grow as planned.

read widely and to be up to date on latest literature.

One great strategy for small businesses is to grow

With micro and small businesses, I really believe in

organically: only spend what you can afford and

the whole hand holding concept, which means that

start small. Don’t be afraid to tell your clients that

the strategic accountant should take the client by

you are a one-man operation. A lot of people have

the hand and guide him/her through the various

a problem with that and they try to make their

steps that the business requires.

business look bigger than it is. In the end credibility

Another challenge is to encourage the owner to

is what matters the most.

develop a plan, to think about the future and about whether their products and services will last over

We have seen recently that pressures

time. This is very important because most businesses

are increasing on the region in terms of

just think in about the present and fail to look ahead.

transparency and accountability. Are you

Just because you have a niche product that will be

witnessing SMEs striving for this?

successful today, it doesn’t mean that you are safe from competition and that others can’t duplicate

Regulations are not yet developed enough for the

you product and dilute the market. Staying ahead

SME market. Governments tend to allow SMEs to

of competitors is important even if you think you are

have a degree of flexibility with how they operate

the only one doing what you are doing.

their businesses provided they are within the labour and trade license regulations. So transparency ends

Small business owners also tend to have a positive

up being more of a corporate issue whereas small

and highly opportunistic attitude, which while

businesses will mostly address this when they are

necessary, can also be detrimental to their focus

looking for investors or asking for a loan. However,

on their business strategy. Opportunities may seem

with tighter lending conditions imposed by financial

very attractive the moment they come along but if

institutions, clear and transparent financial records

business owners start responding to all of them they

are becoming increasingly necessary to borrow funds.

lose focus on their core businesses. The strategic

This is also the case when applying for credit cards

accountant should advise business owners to think

where transparent accounts are required and on some

long-term rather than opportunistically.

occasions, banks even ask for audited accounts.

I think that another thing that needs to be promoted From your point of view what is the greatest

with SMEs is that they should have a more thorough

challenge for a strategic accountant working

risk assessment and financial analysis backing up

with an SME?

their decision-making. They need to consider the downside risk as well as the upside rewards of

For me it is to encourage business owners to listen

implementing any major decision for the business.

and acknowledge the advice given to them. Working

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with SMEs often means working with business

As a strategic accountant you consider not

owners who feel like they know best when it comes

only company internal but also external

to their business and it is difficult to give them

factors such as industry-wide performance

advice. It is helpful to use analogies and examples.

and upcoming trends. Is it difficult to access

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SMEs

a particular industry as it provides an overview on competitors and what initiatives they are adopting in the market. Understanding the competition is the most important thing of all.

I think social media provides a good research tool as well. Groups on LinkedIn and Facebook are often good indicators of the trends in industries.

Nowadays, if you have a question or a problem you can post it on the net and it is very likely that someone will provide you with an answer.

What kind of a mind-set does an SME have to have in order to benefit from the collaboration with a strategic accountant? What are the

Opportunities may seem attractive the moment they come along but if business owners start responding to all of them they lose focus on their core businesses. The strategic accountant should advise business owners to think long-term rather than opportunistically.

ingredients to make that kind of collaboration successful?

Communication, is the most important ingredient; plenty of communication. In fact my most successful clients are the ones that I meet and communicate with regularly and follow a structured business plan. We discuss their problems and issues that they are experiencing with their business and then I listen, analyse and provide guidance on how to manage the problem. Clients tend to call me an “Ideas Accountant�, which is just another way of putting the services that a strategic accountant should offer a business.

industry information in the region?

Ideally, small businesses should invest in a strategic It is generally very difficult to source relevant

accountant even before starting the venture.

information here when compared to other

Sometimes, strategic accountants have to be

regions. In the US, for example, everything is

brutally honest with their clients. It is hard to tell

more transparent and they generally tend to be a

someone that their idea is not feasible but it is better

society where sharing problems and successes is

to do it at an early stage before things deteriorate

very common through blogs and websites. In the

further down the line. Your own business idea

region, Google can be a great source of information

is something very personal. Being a strategic

as well as the main news sites on the web. Attending

accountant is highly rewarding as you work with

trade shows and conferences is another good way to

people who are passionate about what they do, and

find information, especially, if they are focused on

share in their business successes.

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reviews

Facts and Figures

Facts and Figures

A risky business…

A review of the Ernst & Young Business Risk Report 2010

R

isk – a word that makes economists frantically check the numbers over and over again and that causes managers sleepless nights pondering over one scenario after another.

Should you look up the word “risk” in any business dictionary, you most probably would find something along the lines of „Risk: A probability or threat of a damage, injury, liability, loss, or other negative occurrence that is caused by external or internal vulnerabilities, and that may be neutralised through preemptive action.”

Whilst the concept of risk stays the same, for business leaders from different sectors the sources of and reasons for risk vary greatly. It is rather obvious that a car factory does not face the same risks as a web design company - yet, depending on the scale of external factors, like the global economic crisis or an environmental catastrophe, both may end up facing the same challenges.

How was the data collected?

Interviews with 70 industry executives and analysts from 14 industry sectors.

Each interviewee was asked to identify and rank - top business risks for 2010 - risks “below the radar” that could rise into the top 10 in the near future The risks that were rated as having the greatest impact across the largest number of sectors were identified as the top 10 risks for global business in 2010.

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14

core sectors

and their top risks in

2010

Tharawat Magazine Volume 11

To get a better insight into overall and sector-specific risks Ernst & Young started to publish the yearly Business Risk Report across fourteen industry sectors a few years ago.

In 2010, which risks did global leaders and analysts perceive? How did they compare to previous years? What were the top risks in the main industry sectors?

In 2010 the top three risks, “regulation and compliance”, “access to credit” and “slow recovery”, were the same as in 2009, albeit differently ranked. The “newcomers” to the top risk list: “emerging markets” and “social acceptance risk and CSR” had not been seen as a significant risk factors in 2009, whereas 2010 showed them both ranked amongst the top ten.

Technology

• Slow recovery/ double-dip recession • Emerging markets

Telecoms

• Regulation and Compliance • Non-traditional entrants

Real estate

• Regulation and Compliance • Access to Credit • Slow recovery/ double-dip recession

Media and entertainment • Slow recovery/ double-dip recession

Power and utilities

• Regulation and Compliance • Access to Credit

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Facts and Figures

reviews

Top 10 risks of 2010 Risk Regulation and compliance Access to credit Slow recovery or double-dip recession Managing talent Emerging markets Cost cutting Non-traditional entrants Radical greening Social acceptance risk and CSR Executing alliances and transactions

Rank 2010 Rank 2009 1 2 2 1 3 3 4 7 5 12 6 6 7 5 8 4 9 New 10 8

15 risks that could potentially become a top ten risk in the next 5 years

Inability to innovate 1 Maintaining infrastructure 2 Emerging technologies 3 Taxation risk 4 Pricing pressures 5 Resource scarcity 6 Consumer demand shifts 7 top

8 Global (re)alignment 9 Reputation risks 10 Energy shocks 11 Supply chain and “extraprise” 12 Managing new business models 13 Capital allocation 14 Intermediary power risks 15 Shifting demographics in the next 5 years

15

Oil and gas

• Regulation and Compliance • Cost-Cutting • Non-traditional entrants

Life sciences

(No risks considered having „critical“ impact)

Consumer products

(No risks considered having „critical“ impact)

Automotive

• Access to credit • Cost-cutting • Executing alliances and transactions

www.tharawat-magazine.com

Insurance

• Regulation and Compliance • Access to Credit • Emerging markets • Non-traditional entrants

Banking

• Regulation and Compliance • Access to Credit • Slow recovery/ double-dip recession

Asset management

• Regulation and Compliance • Access to Credit • Slow recovery/double-dip recession

Mining

Government and public sector

• Managing Talent • Cost-Cutting • Non-traditional entrants

• Regulation and Compliance • Access to Credit • Slow recovery/ double-dip recession

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reviews WEBSITE

A tool towards sustainability

Carboun.com

T

he element “Carbon” stands at the very core of our lives as an organic source of energy, and at the same time it is the main driving factor behind our planet’s climate change.

It is therefore an obvious choice for an environmental website to call itself www.carboun.com. Carboun.com is an initiative aiming at reinforcing the concept of sustainability, environmental preservationt, and spreading awareness on how to minimise environmental impact of current developments in the Middle East. It also advocates the importance of conserving the natural resources and local ecologies of the Middle East. developmental issues in the region.

The site is composed of posts and contributions by environmental volunteers and is a member of Global Alliance (a non-profit organisation for public relations and communication management, based in the UK).

Carboun.com is a site rich in scientific resources, including a variety of articles related to energy, environment-friendly designs, as well as lists of the most important specialised literature. It is an interactive platform for contributions, discussions and comments on the most important environmental and

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Tharawat Magazine Volume 11

It is easy for anyone browsing Carboun. com to access information and statistics on the various energy sources in Arab countries. Interested visitors can participate in discussions by visiting Facebook and commenting on the current topics and articles.

The most significant feature is undoubtedly the “News” category, which contains news and articles about sustainability from all Middle Eastern countries. In a smart cross-reference system, each piece of news displays

a drop down list with key words that in turn will take the reader to other related articles. Carboun.com also provides an excellent feature for its visitors by announcing the most important events, conferences, and competitions related to environmental issues. The one downside of the site is that the unavailability of the site’s material in Arabic deprives the non-English speaking visitors from the abundant information it has to offer.

Overall, however, Carboun.com is a great platform and a reliable source of information for a Middle East that aims to become greener.

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