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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VOL 11 | Jul - Sep 2011 Any other use, including but not limited to, the publication, reproduction, modification, distribution, transmission, republication, display, creation of derivative works, or performance of the content, or any other use of the Content for commercial reasons, is strictly prohibited without the express written consent of Tharawat Publishing FZ LLC. If you wish to use content or artwork from Tharawat magazine please e-mail: info@tharawat-magazine.com for permission. 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. The compilation of all content in this magazine, including but not limited to the collection, arrangement, assembly, and coordination of content, is the exclusive property of Tharawat Publishing and is protected by United Arab Emirates and International copyright laws. The content in this magazine may be viewed as information gathering resource. Tharawat Publishing FZ LLC cannot be held responsible for any unsolicited material.
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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VOL 11 | JULY - SEPTEMBER 2011 contents
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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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VOL 11 | JULY - SEPTEMBER 2011
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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.
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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
14
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.
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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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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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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
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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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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
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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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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
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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.
Volume 11 Tharawat Magazine
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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
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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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INTERVIEW WITH ESSA AL GHURAIR
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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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.
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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
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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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SMEs
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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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
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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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