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1st International Conference on Social Science,

Arts, Economics and Education (ICSSAE2016),


Bangkok, Thailand, July 23-24, 2016

Growing the Arab Family Business (1):


Hybrid Organizational Arrangements

Dr. Georgios Palaiologos


Assistant Professor of College of Business and Financial Sciences,
& Zainab Al Khunaizi,
Graduate of College of Business & Financial Sciences
The Status of AFB

A great majority of the businesses operating globally are of


Family type. (Debicki et al, 2009; La Porta, Lopez-de Silanes,
& Sheifer, 1999).
More than 90% of businesses in MENA are family businesses,
65% are 1st and 2nd generation (Ernst & Young, 2015)
Constitute 75% of the private sector economy, employ 70%
of the labor force and account more than 60% of the wealth
in Arab Gulf region (Pearl Initiative and PwC, 2012)
Decline of the influence of Family Business in the region and
a shift from 100% of family ownership to mixed modes and
IPOs.
The Status of AFB Research

Family business literature(direct or indirect), Weir &


Hutchings(2005) on Cultural Embeddedness, Hutchings &
Weir(2006a & 2006b) on Wasta and Networking respectively
and Mohamed & Hamdy(2008) and Cunningham &
Sarayrah(1993) on Wasta
Publications also exists for Family and Non-family businesses,
small businesses and entrepreneurship(Welsh and Raven,
2004, 2006; Yasin, 1996; Al-Jafary & Hollingsworth, 1983).
Cultural studies and characteristics of Arab and/or Islamic
Community(Metcalfe, 2006; Ali, 1995, 1999, 2005; Dodd,
1973; Joseph, 1996; Izraeli, 1997; Noble, 2007; Kabasakal &
Bodur, 2002).
The Status of AFB Research

Management in the Arab World has been criticised as being


autocratic, informal and favouring family members.
It is common in the Anglo-Saxon community to view the
world from the westernised perspective, impairing their
ability to understand the structures in different religions and
cultures.
There is a growing pressure on Arab Corporations and Family
Businesses to adapt to westernised models.
The differentiating factors of Arab clans are precisely the
ones that provide competitive advantages and security from
competitive pressures and make Family Businesses in the
region long-lasting and prosperous
What We study
• This research would mainly study family businesses owning franchise in
Bahrain specifically a business format franchise.

• It would concentrate on the family businesses owned by Bahraini


families who operates business format franchises (specifically fast food
restaurants) in Bahrain.

• This type of business (Family Business) has become widely spread


especially after the recent economic downturn.

• The research in this field is still considered in its infancy.


Research objectives

This research is addressing the following objectives


regarding Business Format Franchising for
Family Businesses in Bahrain:
• Recognizing the percentage of their market share in the
Bahraini market.

• Identifying the fundamental factors that contributed to build


the family business structure and governance.

• To recognize the reasons that encourages the franchisors to


expand their operations through franchising.

• To find out the obligations of the franchisor and franchisee


under business format franchising agreement.
Family Business Definition

• “The family business is a business governed and/or managed


with the intention to shape and pursue the vision of the
business held by the dominant coalition controlled by
members of the same family or a small number of families in
a manner that is potentially sustainable across generations of
the family or families.” (Chua, Chrisman & Sharma, 1999)
• three qualifying combinations of ownership and
management:
– A. Family owned and Family managed;
– B. Family owned but not family managed;
– C. family managed but not family owned
Family Business System
Arab Family Business Defined
• Arab Family Business is a nexus of kin-based relationships
and entrepreneurial images or networks. The raison d'être is
to create value for the family embedded in the social context,
preserve family loyalty, spread the sense of belongingness to
all, and enhance the family image in the social setting. The
value could be monetary or non-monetary or both.
• Its governance is communicated within the traditional setting
of Diwan, decisions are enacted by senior people but they
are owned by all, and knowledge is implicitly transferred
horizontally and vertically over the generations.
• The structure of Arab family business is shaped from the
hierarchical traditions of Diwan and the influence of Wasta.
Family members have to contribute to the added value of
Namus and the unique family identity.
Arab Family Business Model

Namus(Ird) Wasta

Diwan(Majlis)
Defining Wasta

• Wasta is an Arabic word that means “the use of


social connections to obtain benefits that otherwise
would not be provided”, (Mohamed & Hamdy, 2008)
• Doing business in the Arab World 'is to establish
relationship first, build connections and only then
actually come to the heart of the intended business
at a later meeting' (Hutchings & Weir, 2006b)
• The Wasta social network - that includes family and
kin - is central to the transmission of knowledge and
the creation of opportunity (Weir & Hutchings,
2005).
Defining Diwan (Majli)
• Diwan (Majlis ) is the room, group of rooms or area which
mediates between the household & the community. Is both
a Locus and Medium of Communication of the occupant's
status and character (Nagy, 1998).

• The Diwan is a place of decision as well as of social


intercourse. Decisions of the Diwan are enacted by the
senior people, but they are owned by all (Weir, 2005).

• The mobility of the knowledge reservoir, vertically (within


generations) and horizontally (among family and kin) -
vehicles of knowledge should be the main root of sustainable
competitive advantage. (Palaiologos, 2015)
Defining Namus(Ird)
• Namus in Arabic may mean "law", "custom" or "honour" and
in Greek ‘nómos’ (νόμος) means "law, custom". Namus can
be ‘a symbolic attribute of a larger group as well, but in such
instances patriliny is retained conceptually and
metaphorically’ King (2008).
• The identity of family firm’s owner is inextricably tied to the
organization that usually carries the family’s name. (Berrone,
Cruz, & Gomez-Mejia, 2012).
• An individual’s identity decision and social reputation are
profoundly influenced by his or her kin group. Namus (Ird
and Sharaf, total influence) constitutes the symbolic capital
of Arab Family business, that must be preserved and
increased, horizontally (keeping family and kin ties) and
vertically (within family generations) (Palaiologos, 2015)
Business Growth
• The cell division model states that organizations must alter their shapes as their
mass expands (eg. more staff personnel). The metamorphosis models use a
metaphor of the development of living organisms, and propose a life-cycle model
of emergence, growth, maturity, decline, and death ” (Ardichvili, Cardozo &
Ray, 2003).
• The diversification literature holds that different modes of growth (internal,
acquisitive, or mixed) may be related to the product market strategy of the firm or
diversify their activities into unrelated fields (McKelvie & Wiklund, 2010).
Additionally, they identify as most important measures of growth; sales levels,
profitability, number of employees, and market share.
• Williamson (1991) identifies three layers of organisational form – Hierarchies,
Markets & Hybrid that defer based on authority, ownership and incentives. He
claims that Franchising but also Family business is a kind of mixed modes (hybrid)
of organizational arrangement.
• Gupta, Guha and Krishnaswami(2013) suggest that growth can be defined in
terms of revenue generation, value addition, and expansion in terms of volume of
the business. Alternatively, can be measured in the form of qualitative features like
market position, quality of product, and goodwill of the customers.
Franchising
• Franchising can be defined as "a legal business arrangement in
which the owner of a product, process, or service (the
franchisor) licenses another party (the franchisee) to use it in
exchange for some sort of payment" (Watson et al, 2005).

• Business Format Franchising "an ongoing relationship between


the franchisor and the franchisee that not only includes product,
service, and trademark, but also the entire concept of the
business" (Elango & Fried, 1997).
Research Methodology

Research
Philosophy: Positivism

Approach: Deductive

Strategy:
Survey
Choices: Quantitative
method

Time Horizon:
Cross-sectional
Techniques and procedures for Data collec

Data Collection:
Secondary data (Articles and Journals)
Primary data (Questionnaire)

Questionnaire created (Google Forms)


Distributed on (24 Family businesses)
Distribution Method (Email & WhatsApp
broadcasts)

Data Analysis:
Statistical techniques (graphs and
charts)
Demographics

• The majority responses (62%) were from the retail and consumer products sector.

• Either in the upper or lower management positions.


Demographics Cont.
• Majority were non-family members .

• Second Generation family members.


Family Business Strategy & Structure
Family Business Governance
Family Business Growth Strategies
Reasons to Franchise from the Perspective
of the Franchisor
Reasons to Franchise from the Perspective
of the Franchisor Cont.
Obligations of the Franchisor toward Franchisee
under Business Format Franchising
Obligations of the Franchisor toward Franchisee
under Business Format Franchising Cont.
Obligations of the Franchisee toward Franchisor
under Business Format Franchising
Obligations of the Franchisee toward Franchisor
under Business Format Franchising Cont.
Limitations and challenges

Access to Family
Language Business Modernity
Culture of companies Not homogenous
Privacy Definitional populations.
Issues
Conclusion and Recommendations
• Family businesses operating a business format franchising dominates only small
portion of the market share.

• Majority were operating product franchising.

• Family businesses are having effective structure and governance.

• Reasons of franchising: (resource scarcity, market competition, expanding the


brand name nationwide,…).

• Agreement of family business on the obligations of the franchisor and franchisee.

• Recommendations: further expansion and marketing to maintain market


share, Diversification.
References
• Arabic Knowledge@Wharton (2010). Family firms in the Middle East: The new rules of engagement. Retrieved from
http://knowledge.wharton.upenn.edu/arabic/article.cfm?articleid=2405
• Berrone, P, Cruz, C., & Gomez-Mejia, L.R. (2012). Socioemotional wealth in family firms: theoretical dimensions, assessment approaches, and
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No.3, pp 195-215.
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• Cunningham, R.B., & Sarayrah, Y. (1993). Wasta: The hidden force in Middle Eastern society. Praeger publications.
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References
• Chua, J.H., Chrisman, J.J. and Sharma, P. (1999), “Defining the family business
by behavior”, Entrepreneurship Theory and Practice, Vol. 23 No. 4, pp. 19-37.

• Elango, B. & Fried, V. (1997), “Franchising research: a literature review and


synthesis”, Journal of Small Business Management, Vol. 35 No. 3, ProQuest pg.
68.

• Ernst & Young, (2011), “An insight into family business enterprises in Bahrain”.
Bahrain Family Business Association, Kingdom of Bahrain.

• Palaiologos, G (2015), “Arab family business; toward a conceptualization”, The 7th


Indonesia International Conference on Innovation, Entrepreneurship and Small
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•Thank You…