New Strategies to Accelerate the Realization of Saudi 2030 Vision's Objectives _ Part 3

(This article is one of four articles in a series discusses four main strategies to accelerate the realization of Saudi Arabia vision 2030. Those four strategies if well implemented they will open horizons for a new diversified economy in Saudi Arabia).

Strategy 3: Growing and Expanding Saudi Conglomerate and Family-owned Businesses

Saudi Arabia “Chaebols”

Introduction

Family businesses form almost 63% of the private sector in Saudi Arabia and make significant economic contributions to the economy – whether GDP or employment. These enterprises often span multiple generations and maintain a strong sense of tradition, values, and unity. Saudi Arabia government shall support this family business and remove any challenges for them to grow further and expand. By doing so theses family business will become conglomerates and will be an instrument of the national economy to break away from the oil-based economy.

In 2009, there were 45 family-owned Saudi entities in the top 100 Saudi companies. The main challenge for the family business is liberalization of the economy and global competition. In Saudi Arabia, family businesses are estimated to hold around SR 250 billion in domestic investments, with 200 family companies dominating commercial life in all sectors of the economy.

Family Business in Saudi Arabia is Worthy of Study and Should Gain More Attention for Many Reasons as Follows:

1. The unique characteristics of Saudi Arabia, such as its Islamic laws, long-standing tribal ties, nomadic merchant culture, and quick financial and economic growth, have drawn the attention of several scholars from various business fields.
2. In terms of ultra-high-net-worth (UHNW) families, Saudi Arabia is the nation with the highest concentration.
3. Families own the bulk of enterprises in Saudi Arabia, and family members and the government are said to be the Saudi Stock Exchange's largest owners. The GDP and employment of the nation are significantly boosted by family companies.
4. The Saudi Stock Market, which is ranked 23rd globally and as the eighth-largest emerging market, has the highest market capitalization in the Arab world.
5. Saudi Arabia is among the top 20 economies that oversee business regulation and ranks 17th out of 183 economies in the World Bank Doing Business 2012 report based on the strength of the investor protection index.
6. Saudi Arabia is regarded as the world's 25th largest importer and exporter, accounting for 25% of the Arab GDP.

The List of Top Family Companies in Saudi Arabia

It is known that the rate of survival of family businesses drops significantly as the business transitions from one generation to another. What makes family businesses unique in the Kingdom compared to other countries outside the region, is that majority are fairly young – established during the 1960s – and have either gone through one succession or none yet.

1.Olayan Group

Chairperson: Hutham Olayan

Established in: 1947

Sector: Diversified

Founded in 1947 by Suliman S. Olayan, the Olayan Group built its foundations in contracting and commerce in Saudi Arabia. Today, the conglomerate is famed for its diverse commercial, industrial operations and investment portfolio. The family owns 4.93% of Swiss bank Credit Suisse, and 18.24% of the Saudi British Bank. Real estate assets include 550 Madison Avenue in New York City, Knightsbridge Estate in London, and the Hotel Ritz in Madrid, as well as office, retail, and residential assets in Paris’s 8th Arrondissement. Hutham Olayan has also been a board member of IBM.

2. Rashed Abdul Rahman Al Rashed & Sons Group

Chairperson: Abdulaziz Al Rashed

Established in: 1950

Sector: Diversified

Founded in 1950 by Rashed Al Rashed, Saudi’s Rashed Abdul Rahman Al Rashed & Sons Group has 26 wholly-owned companies. It operates in seven business areas, including building materials, cement, and bulk materials, finishing materials, real estate, contracting, industrial products, automotive products, and food products. The company’s investments include 9.83% in Banque Saudi Fransi, 9.9% of Arab National Bank, and 16.9% of Al Yamamah Steel Industries making it one of the biggest private investors in the Saudi Stock market.

3. Abdul Latif Jameel

Chairperson: Mohammed Abdul Latif Jameel

Established in: 1945

Sector: Diversified

Abdul Latif Jameel was founded in Jeddah in 1945 by Abdul Latif Jameel as a small trading business. Ten years later, the group was appointed as a Toyota distributor and built the largest vehicle distribution network in the kingdom. Today it operates in 30 countries in the Middle East, North Africa, and Turkey. Its core operations are mainly in transportation, engineering and manufacturing, financial services, land and real estate, energy and environmental services, consumer products, and advertising and media sectors. The group has grown through various investments and acquisitions.

4.Zamil Group Holding

Chairperson: Khalid A. Al-Zamil

Established in: 1920

Sector: Diversified

Founder Abdullah Hamad Al Zamil first established his trade and services business in Bahrain in 1920. While its portfolio is dominated by wholly-owned and joint-venture entities, Al Zamil Group also owns shares of two publicly listed companies on Saudi Stock Exchange, Zamil Industrial and Sahara petrochemical. Zamil Industrial became the first family-owned company in Saudi Arabia to be listed on the Saudi Stock Exchange in 2002 and was later followed by Sipchem in 2006. Khalid Al Zamil was chairman of the Saudi Council of the Chambers of Commerce.

5. Al Muhaidib Group

Chairperson: Sulaiman Al Muhaidib

Established in: 1943

Sector: Diversified

Investment conglomerate, Muhaidib Group was founded in 1943 by Abdulkadir Al Muhaidib. Today it has more than 200 companies and investments in the region. It holds stakes in some of Saudi Arabia’s leading organizations, including publicly-listed Savola Group where it owns 8.2% and Bawan Holding Company. The group’s investments are mainly focused on food and retail, industrial and infrastructure, real estate, and financial services. Abdulkadir Al Muhaidib ran the company until the 1980s and remained involved in decision-making along with his children, who took over the group’s management.

6. Yousuf M.A. Naghi & Sons Group

Chairperson: Mohammed Yousuf Naghi

Established in: 1911

Sector: Diversified

Family conglomerate Yousuf M.A. Naghi & Sons Group is divided into four diversified companies—each managed by one of the sons of founder, Yousuf M.A. Naghi. The group is Saudi Arabia’s exclusive wide sales and distribution agent for Rolls-Royce, BMW, Mini, and Jaguar. Its FMCG sector includes Reckitt Benckiser products such as Dettol, Harpic and Finish. The group also produces and distributes pharmaceuticals and food products, and electronic brands including LG.

7. Al Nahla Group

Chairperson: Abdulrahman Hassan Sharbatly

Established in: 1996

Sector: Diversified

The Al Nahla Group, founded by Hasan Abbas Sharbatly, is one of the oldest businesses in Saudi Arabia and belongs to the Sharbatly family. The holding and investment company is composed of four clusters: automotive, real estate, trading, and investment. Under its automotive sector are SAMACO Automotive and Fast Auto Technic. SAMACO Automotive imports and distributes Audi, Volkswagen, Porsche, Bentley, and Lamborghini. Fast Auto Technic is Saudi’s exclusive dealer of Ferrari and Maserati.

8. E. A. Juffali & Brothers

Chairperson: Khaled Al Juffali

Establihed in: 1946

Sector: Diversified

Brothers Ebrahim, Ali, and Ahmed Abdullah Juffali founded the E. A. Juffali & Brothers company in 1946 in the fields of electric power, communications, and cement. Juffali began growing its international partnerships with brands in the early 1950s including Electrolux, Siemens, and Massey Ferguson, mainly for product sale, marketing, and distribution. By 1959, Juffali became the exclusive distributor of Daimler-Benz AG’s Mercedes-Benz. From automotive, the company has expanded to technology, AC and refrigerator, construction, and chemicals.

9. Sedco Holding

Chairperson: Saleh Salem Bin Mahfouz

Established in: 1976

Sector: Diversified

SEDCO is a Shariah compliant private wealth management and institutional investment company, founded in 1976 by the late Salem Ahmed bin Mahfouz. The Mahfouz family’s businesses include direct, financial, and real estate investments, as well as education and healthcare. SEDCO Holding wholly owns Saudi Arabia’s biggest car rental company, Auto World, which was founded in 1981. It also owns 50% of MENA’s largest pharmacy chain, Nahdi, 49.5% of Red Sea Mall in Jeddah, and 21.3% of Indonesia’s largest Islamic bank, Bank Muamalat.

10. Zahid Group

Chairperson: Talal Zahid

Established in: 1943

Sector: Diversified

Headquartered in Jeddah, Saudi Arabia, the Zahid Group was founded by Mohamed Mahmoud Zahid. The group’s first business was to represent GM in the Kingdom. Today it has a portfolio of 23 companies operating across 11 sectors and representing over 50 international and homegrown brands, including Volvo and Daewoo. The company specializes in the supply of heavy vehicles and has been dealing Caterpillar vehicles in the kingdom for over a half a century. Chairman Talal joined his family’s company in 1967.

Family Business Sustainability in Saudi Arabia:

• A large number of family businesses failed, particularly those in the third generation, which led many individuals to look for a way to make sure these firms could survive. The determination of the legal framework and the sustainability of enterprises are related.
• Furthermore, restructuring the business by going through the process of changing its legal structure to one that is suitable for the labor market allows it to remain competitive with other businesses.
• The closed joint-stock corporation is the ideal legal structure for implementing the governance rules that promote trust by governing partner relationships and the administration, hiring, and profit-sharing processes. One internal issue that could cause the family firm to fail is the lack of distinction between ownership and management.

The Economic Sectors for the Saudi Family-Owned Business

Over 60 percent of the private sector and 7.4 million jobs are held by family firms in Saudi Arabia, making up a significant portion of the country's corporate landscape. Furthermore, they make up more than 63 percent of the GDP in the private sector and more than 30 percent of the GDP overall.

The most important economic sectors for the Saudi family-owned conglomerates are industry (24%), services (14%) and banking (11%).

Strategic National Center to Support Saudi Arabia Family Business

• National Center for Family Business (NCFB) shall be empowered and equipped with the right resources to look after the existing family business and work with these families to set a clear succession plan to maintain their business and grow it further.
• NCFB, Ministry of Industry and Mineral Resources (MIM) and the Ministry of Investment (MISA) shall work with the family business to expand their investment in the industrial sector and facilitate their market entry.
• NCFB shall coordinate regular meetings between the Council of Economic and Development Affairs (CEDA) and the heads of the family-owned business to discusses their issues and listen to them to give them sense of empowerment.
• NCFB and MISA shall enable the existing family owns business to expand their penetrations in the international markets and export their products to out of kingdom