JEDDAH, 28 June 2005 — As many as 56 family businesses have presented their applications to the Ministry of Commerce and Industry to win its approval for changing their status to joint stock companies, press reports said yesterday.
The move is significant as it comes ahead of Riyadh’s accession to the World Trade Organization (WTO), which is expected to take place before the end of this year after years of negotiations with trading partners.
“Businessmen who own these family firms have realized the importance of converting them to joint stock companies in order to face challenges posed by international giants, especially after WTO admission,” analysts said. Family businesses face a lot of problems such as financial constraints, disputes among family members, lack of proper management and dearth of systems for the smooth transfer of businesses to heirs to protect them from collapse.
In a statement last year, the Council of Saudi Chambers of Commerce and Industry (CSCCI) said it was working to protect family businesses from collapse as a result of internal and external challenges, including the fight for top management posts among the heirs.
Dr. Fahd Al-Sultan, secretary-general of CSCCI, said the challenges facing family businesses included the lack of strategic planning, separation of ownership from management, absence of transparency in dealing among family members and the problem of centralization.
The CSCCI, the apex body of chambers in Saudi Arabia, is in the process of establishing a national center for family businesses. The center aims at helping these businesses overcome the challenges of globalization and ensure their successful continuation in the business.
Sultan said 95 percent of Saudi companies are family owned, including 45 of the top 100 companies in the Kingdom. Saudi firms have been reporting impressive profits on the back of a booming economy driven by high oil prices. Sultan said 70 percent of family businesses are still run by first generation, charismatic leaders.
Sultan urged family firms set up during the oil boom of the 1970s to offer shares to the public as part of necessary structural changes. “We need to move such companies toward an institutional and objective manner of management. They have to think seriously about going public,” he said.
He gave Saudi book and office supply trader Jarir Marketing Co. as an example of a family firm that listed recently and flourished. The firm announced a net profit of SR120 million ($32 million) for 2004, up from SR108 million in 2003. He said there would be great interest in firms going public from investors on the thriving Saudi bourse, the Arab world’s largest.
According to 2002 statistical figures carried by Al-Riyadh Arabic daily, the ministry has licensed 11,622 companies with a total capital of SR171.4 billion. These companies made a combined profit of SR120 billion in 2003. Informed sources said the ministry would take three to four months to study applications for joint stock company licenses.
Many family businesses want to go public but bureaucratic procedures were discouraging them. “There is still a long bureaucratic process. There is a great need to speed up the procedure,” Sultan agreed. But he said family firms would sooner or later have to make the leap to the stock market. “We could soon join the WTO. Family companies will have to go public and institutionalize if they want to compete and prosper at an international level,” he said.
