Keep­ing it in the fam­ily

The role of fam­ily busi­nesses and their in­no­va­tive ca­pac­i­ties in the hoped-for up­swing of the Le­banese econ­omy

Executive Magazine - - Last Word -

The Le­banese econ­omy reached its peak dur­ing the first half of the 1970s, af­ter which it was dev­as­tated by the Le­banese Civil War. At the end of the war in 1990, hopes and ef­forts for the rein­car­na­tion of the econ­omy in­creased. Th­ese ef­forts have failed re­peat­edly, with the fail­ure mainly caused by the cor­rup­tion that dom­i­nated the sys­tems of the gov­er­nance in the post-war era. In more re­cent years, po­lit­i­cal in­sta­bil­ity and the war in Syria has also had a neg­a­tive im­pact on ef­forts to im­prove the Le­banese econ­omy. Ac­cord­ing to Trans­parency In­ter­na­tional, the per­ceived cor­rup­tion in­dex in Le­banon reached a peak in 2016. Le­banon ranked 136 out of 176 coun­tries, with a cor­rup­tion in­dex score of 28/100 on a scale from zero (highly cor­rupt) to 100 (very clean). The new pres­i­den­tial era of Pres­i­dent Michel Aoun was based on com­mon agree­ments among most Le­banese po­lit­i­cal par­ties. It has been char­ac­ter­ized by prom­ises for re­form and anti-cor­rup­tion ini­tia­tives, so hopes are in­creas­ing for an up­swing in the Le­banese econ­omy.

Fam­ily busi­nesses are a build­ing block of the Le­banese econ­omy, as they are the back­bone of the in­dus­trial sec­tor as well as the ser­vice and com­merce sec­tors. In Le­banon, 46 per­cent of fam­ily-owned firms have ex­pe­ri­enced steady growth over the past 10 years, and 21 per­cent of them achieved a rise be­tween 6 and 20 per­cent in an­nual rev­enues. Th­ese firms ac­count for 14,000 jobs an­nu­ally, mak­ing up 12 per­cent of the en­tire work force in the in­dus­trial sec­tor. The suc­cess of fam­ily busi­nesses lies in the fact that own- ers tend to be more con­ser­va­tive and will take metic­u­lous care of their own per­sonal in­vest­ments. They are 6 per­cent more prof­itable on av­er­age than non-fam­ily busi­nesses, and the mar­ket value for th­ese busi­nesses is 10 per­cent higher on av­er­age. Due to the im­pact of fam­ily busi­nesses, Le­banon has one of the high­est Gross Do­mes­tic Prod­ucts (GDPs) per capita among non-oil based Arab economies. Fam­ily busi­nesses world­wide ac­count for a com­bined $6.8 tril­lion in an­nual sales, and em­ploy 24.8 mil­lion peo­ple. In Le­banon they em­ploy most of the work­force, more than six times what the pub­lic sec­tor em­ploys.

HID­DEN CHAM­PI­ONS

The in­no­va­tive ca­pa­bil­i­ties of fam­ily busi­nesses proved to be an es­sen­tial build­ing block in their suc­cess and hence the rise of the econ­omy. Le­banon re­lies heav­ily on the pri­vate sec­tor, which con­sti­tutes 85 per­cent of its econ­omy, and 95 per­cent of pri­vate sec­tor firms are fam­ily busi­nesses. As a re­sult, we can say that fam­ily busi­nesses are the back­bone of the pri­vate sec­tor in Le­banon. In spite of the fam­ily busi­nesses’ main con­cerns, which is the preser­va­tion of wealth from one gen­er­a­tion to the next and wealth for fu­ture gen­er­a­tions, re­cent stud­ies have shown that fam­ily firms are more in­no­va­tive than com­monly thought. Th­ese firms have been called “hid­den cham­pi­ons” be­cause they fo­cus on their main busi­ness and re­lent­lessly in­no­vate to keep their lead­ing po­si­tion in their in­dus­tries. Fam­i­lies in busi­nesses that have been lead­ers in their in­dus­tries have main­tained this lead­er­ship po­si­tion due to their in­no­va­tive ca­pa­bil­i­ties and re­lent­less de­vel­op­ment of their prod­ucts and ser­vices. In a study con­ducted at the In­sti­tute of Fam­ily and En­tre­pre­neur­ial Busi­ness at Le­banese Amer­i­can Uni­ver­sity (LAU), in­no­va­tion has shown to have a di­rect cor­re­la­tion with the per­for­mance of the busi­ness. In­no­va­tion is a cru­cial point in un­der­stand­ing the ca­pa­bil­i­ties of fam­ily firms, their pro­ce­dural ca­pac­i­ties and their po­ten­tial in terms of com­pet­ing in the global econ­omy. The study showed that 75 per­cent of the Le­banese fam­ily busi­nesses were found to be in­no­va­tive. This could go some way to­ward eas­ing the con­cerns of the Le­banese, as through the rise in fam­ily busi­nesses and their in­no­va­tive ca­pac­i­ties the Le­banese econ­omy may see im­prove­ment.

In con­clu­sion, fam­ily busi­nesses can play a cru­cial role in the growth of the Le­banese econ­omy. It is im­por­tant to con­duct more re­search on how to help fam­ily busi­nesses im­prove their in­no­va­tive ca­pa­bil­i­ties by al­low­ing them to in­cor­po­rate in­no­va­tion pro­cesses within their busi­nesses, or by sup­port­ing them in cre­at­ing the ad­e­quate in­fra­struc­ture to al­low them to en­hance their com­pet­i­tive ad­van­tages in light of the fierce com­pe­ti­tion in this glob­al­ized world. Even­tu­ally, this im­prove­ment will have a retroac­tive ef­fect on the well-be­ing of the over­all eco­nomic sit­u­a­tion.

DR. JOSIANE FA­HED-SREIH is an As­so­ciate Pro­fes­sor of Man­age­ment in the School of Busi­ness at the Le­banese Amer­i­can Uni­ver­sity. She is the founder and cur­rently the Di­rec­tor of the In­sti­tute of Fam­ily and En­tre­pre­neur­ial Busi­ness at LAU

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