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