Changing your business clans

As the Middle Eastern economy expands at lightning pace, family businesses are being forced to evolve as they hurtle towards globalisation. CEO Middle East examines the trials and tribulations of family empires and how they are adapting to the corporate climate of the 21st century

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By  Andrew Mernin Published  March 13, 2006

Changing your business clans|~||~||~|According to regional experts, the majority of family businesses belong to the Gulf’s private sector economy and account for over 90% of all commercial activity in the GCC. In Dubai alone, they number 30 769 companies, or 54% of all businesses, absorbing 560 000 workers and contributed AED208 billion to the estimated total turnover of firms in 2004. From the emerging tourism market in Saudi Arabia, to the oil-rich dynasties of Kuwait, family businesses are the bedrock of the Middle Eastern economy. But now, as the age of international free trade is upon them and globalisation is no longer a buzzword, their very foundations are shifting. Leaning back in a swivel chair in his ultra-modern office, donned in the sharpest of suits and complemented with a fist full of jewels, Prakash Bhojwani hardly seems the traditional type but, as president and acting CEO of Time Machine Group (TMG), he is a man who believes in keeping family values at the heart of company structure. “The last two years have been a sensitive period of transition for us. We have adopted corporate policies but maintained a flat-floor family atmosphere. My door is always open and there are no barriers between me and my staff,” he says. Ever since his father, Jaikishin Bhojwani, came to Dubai from India in 1975, the luxury lifestyle business has grown into a sizeable enterprise with 402 staff in the UAE and other ventures in India and the UK. The company embraces all things extravagant with subsidiaries in areas such as high-grade interior décor, beauty spa and salon services and luxury property. For Bhojwani, one of the biggest irritations in developing from a family company into a corporation is the time it takes. “I would like to do things in as little time as possible but transition takes weeks, months, even years.” Running the business on equal terms with his brother Manoj, Bhojwani insists there was no inter-generational conflict when his semi-retired father passed down the mantle of power. “There are 30 years between father and son. We earned the responsibility from him.” When family companies expand, CEOs are confronted with the decision of whether or not to go public. While this can fund rapid growth, it also adds a new burden of responsibility to share holders – an area of corporate life that Bhojwani is well aware of. “There are three ways to expand – by using personal and private equity, by accumulating debt and by going public. With the first two ways, there is a ceiling that you reach in your growth, but if your dreams are larger than life, then the only route is a public listing,” he says. With Middle Eastern IPO activity in 2005 increasing by 100% on the previous year, and the advent of e-trading, which in January this year rose to 722 million shares in a month on the Dubai Financial Market, going public is an option that more and more local businesses are tapping into. However, Bhojwani still has his reservations. “By floating on the market you are taking more responsibility on your shoulders. If I use my own money, I can be careful or careless, but with floatation I have to be careful”, he says. TMG, which has a logistics and warehousing subsidiary and a business consultancy division, has hinted that it will be dipping its toes into the stock market with the news that “one of our subsidiaries” will soon go public. However, according to Firas Jamal, general manager of the business consulting division at TMG, in future, this will not be the fate of the company at holding level. CEOs of family businesses must tread carefully when selecting outsiders – be they consultants or staff – to work in harmony with the family and drive the company forward. “It is a challenge to bring in the right people. We have to make sure that they are right for us. They must display what they can do, show us the benefits and what advantages they can bring us. We did not know how the corporate world operated so we needed consultants,” says Bhojwani. Described as being ‘open to suggestions’, TMG has eight key consultants, including a vigilance and a strategy officer and a CFO, but the family makes all high-level strategic decisions with some delegation to senior managers for mid-level issues. As Bhojwani cites his motto as “success is a journey not a destination” and his company make-up as being “80% corporate, 20% family”, it remains to be seen how much of that 20% will remain at the journey’s end.||**||Changing your business clans|~||~||~|Established in Bahrain in 1890, the Kanoo group has overcome the many obstacles of being a family business with fervour, to become one of the largest independent firms in the Gulf. Operating largely in the UAE and Oman, the company CV includes travel, machinery, oil and gas, courier services, specialist chemicals, logistics and shipping. Experiencing record turnover in 2005, the groups’ trading profits in the UAE for 2005 increased by 48% on the previous year, and 82% on 2003. But the voyage from small shipping business to dynastic empire has not been plain sailing. “As the scope for work grows, it becomes harder to apply local ideas to the international scene”, says Mishal Kanoo, deputy chairman of Kanoo Group. “However the advantages of being a family business outweigh the disadvantages for the simple reason that you know who you are dealing with.” “There is a comfort for most international companies that they are dealing with a family, thus they figure that the family company will most likely be honest and caring for its name and reputation. This is a comfort that impersonal companies cannot provide.” Although the business has remained independent, Kanoo also accepts the importance of seeking expert advice from non-family consultants: “Basically they act as mirrors that allow us to see ourselves. However they go one step better by trying to share with their clients business practices that might best suit them.” As CEOs nurture their brainchild from taking baby steps to giant strides in the global marketplace, there still remains a reluctance to entrust a family business’s future to strangers. Delegating more and more power to a non-family workforce, or going public, can loosen the grip of control that the family has on the company. This is not, however, a school of thought that Kanoo subscribes to. “Control should never be the issue. Effectiveness should be the concern and effectiveness relies on the management and owners allowing their ‘assets’ – the employees – to be able to do their business,” he says. As he announced the details of the Family Business Forum to be held in Dubai in April, Abdul Rahman Al Muttaiwee, director general of the Dubai Chamber of Commerce, said: “Family owned businesses cannot remain isolated in a globalised economic environment and they should benefit from the opportunities created by globalisation, especially from the Free Trade Agreement and the World Trade Organisation regulations.” One family company that echoes this sentiment and has made a restructuring shift out of isolation is Ithmar Capital, a Dubai based private equity management firm (see page 32). The business is part of the Belhoul Group, which was set up in 1969 by Dr Juma Khalfan Belhoul. Born out of the launch of a medical equipment trading company, the group quickly branched out into other sectors such as construction, education, real estate and retail. In recent years the Belhoul family has had to make several changes, according to Dr Belhoul’s son, Faisal bin Juma Belhoul, founder and managing partner of the company. Recalling his early introduction to the family business, Belhoul says that as the eldest son he felt the responsibility but also saw the potential and started spending time in the managing director’s office. In the mid-nineties, the family implemented the development of its management strategy to best oversee their assets. “Our family office has restructured to become an investment office with a clear and defined investment strategy,” he says. The family members are now shareholders in a holding group consisting of relatives and external representatives. The office invests with institutional managers with a devised investment strategy at the level of the board that represents the family as a holding. The board designs investment strategies, outlining ‘asset classes’ and considers the geographical factors to allocate investment to each sector. The fact that the Belhoul group is, today, one of the most successful investment companies in the UAE, is indicative of a family business that has breached the domestic barrier and harnessed the global potential that GCC companies can unleash. If these rapidly expanding family companies can acclimatise to the rigours of modern business, through consultancy and calculated corporate drive, the rewards of globalisation will be slowly but surely reaped. ||**||

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