The Family Business Special [PT1]: The DNA of Egypt’s SMEs and family businesses

Hassan Allam Holdings, El Sewedy Electric, Electrolux Egypt just to name a few – family businesses in Egypt have been at the forefront of economic growth and development for many years. Companies such as Arabian Food Industries Co. (Domty) have even made the jump to an initial public offering (IPO) in the Egyptian Exchange (EGX) in 2016.

Data on those businesses in Egypt is scarce. However, during the first meeting of the Family Business Consortium in the Arab Region at the American University in Cairo’s (AUC) School of Business this week, chairman and CEO of SEA Capital Holdings Malta Company Samir El Alaily provided insights on the DNA of Egypt’s family businesses and stats on small-and medium-sized enterprises (SMEs).

The importance of SMEs
Since SMEs are considered the first step towards or the birthplace of family businesses, they are considered a vital backbone of Egypt’s economy.

The survival chances of family businesses
According to El Alaily, family businesses in Egypt will not exceed 43 years of existence, starting from their launch date. This was noticeable when many of them came across transition issues in the period between 2000 and 2005, he explained.

The survival and scaling of a family business depends on the sector it operates in and the field’s liquidity, the level of education of family business owners, the financial planning of the firm and the management style.

The family business DNA
Most family businesses’ reason for existence is to provide not only for direct family members, but the extended family as a whole. However, this comes with its problems, El Alaily highlighted.

The issue of leadership and ownership succession becomes noticeable once the second generation starts becoming more involved, he elaborated, adding that family employment remains a priority. Consequently, accountability, governance, responsibilities, profit distribution and tensions amongst shareholders become areas of concern.

When looking at the management style of Egypt’s family businesses, it appears that their form of governance is not necessarily formal and the existence of a board of directors becomes rare. Management jobs usually go straight to family members, while there is an acute shortage of trained Egyptians in management, El Alaily said.

The family business work culture
In said firms, preserving relationships becomes more important than completing tasks, as harmony is valued above openness and speaking one’s mind, he stated, adding that this gives room to conformity, while promotions within family businesses directly affect team work.

It is also important to note that the role of women in these companies is improving.

What does the future hold?
According to a survey on family businesses in 2016, 80 percent of owners believe that the leadership style of the company will differ in the future and 56 percent are looking to change their company strategy and corporate governance structure. About 51 percent of respondents also revealed that they will take more risk.

In terms of managers, the average age of 61 percent of second generation managers are between 30 and 40 years old.

Stay tuned for Part 2 of our Family Business Special for a more in-depth look at the challenges and opportunities these firms face and how second-generation owners deal with the problems they face.

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