Succession Challenges Facing Family Businesses in Saudi Arabia

Introduction

Saudi Arabia is a very rich and big country in the Middle East, and currently the country is striving towards stability and growth which largely depends on public and private sectors. In the recent years the statistics for family business were high where in among the top 100 companies 45 companies were family owned businesses. Generally, 90 per cent of the businesses in Saudi are family-owned while only 5 percent were surviving the third generation and most of the companies which were successful were less than 65 years old. The total number of businesses operating in Saudi Arabia was 763,589 in 2009 (Ministry of Economy and Planning, 2009). The Saudi government is aware of the impact of such businesses to the economy of the country and hence has presented several methods of addressing this challenge that might affect both family and afterwards the economy of the nation. There are important issues that need to be differentiated in order to separate the businesses and the family loyalties, employing only the most competent family members as managers and the need to come up with resource to match with the best managerial practices.

The past decade has been characterized by the adoption of ‘Saudization’ and economic policy of localization that encourages local nationals to take up jobs and embark on running businesses that were owned by foreign nationals (AsadSadi & Henderson, 2007). This has to some extent led to benefits in developing opportunities for Saudi nationals, but also led to problems in having family members to run their family entities, especially those who have secured better jobs elsewhere. On a micro level, however, family businesses are a family property and are expected to benefit the family, thus control rests on family members, most notably the eldest male member, who makes all major decisions, often with little voices on the contrary (Nakauchi & Wiersema, 2014).

The history of family businesses in Saudi Arabia can be viewed from the traditional and cultural orientation of the country, where family bond and unity is highly regarded. The need to retain wealth in the family counts towards ensuring that the profile of the family is raised and this can be of importance even at the time of marriages. This implies that family property is to be entrusted to the most senior members of the family who, may be viewed with awe and assumed to have the experience for the same. This poses two challenges, first, succession issues, which must be shared among old members of the family and secondly, the challenge of having to pass the business to someone who may not be able to run the same (Nakauchi & Wiersema, 2014). Family enterprises are mainly concentrated in the fields of hospitality, services and retail, which tend to have high level of customer contact, thus increasing the importance of the owner (or patriarch), and indirectly poses new potential challenges when the owner is no longer able to remain active in the management of the business.

It has been found that the rate of failure of family business in Saudi Arabia is staggering and the problem is that with such failure, business stability in the country is volatile as is the problem of sustaining employment (Wagner‐Tsukamoto, 2008). The failure of family businesses in an economy that is largely run by family businesses is a worrying trend, but this speaks more about the internal management aspects of such entities. When businesses fail, joblessness increases, the family source of income is also affected and social vices may increase. This means that business failure is not just a simple issue as it impacts on the general economy of the whole country. There are many perspectives from which the situation of family business can be viewed; the cultural issues including gender situation in Saudi Arabia, the personal views of the owner of the business, extended family circumstances and influence, and the specific industry situations (i.e. competition). All these are a multitude of variables that denote that family businesses (especially small and medium) entities are in a delicate situation and their survival is harder than large entities.