Palestinian Family Businesses Palestinian Family Businesses" in a Compendium on the Family Business Models Around the World (Hyderabad: ICFAI University Press, 2008).
Dr. Nidal Rashid Sabri Professor and Dean of College of Economics, Birzeit University, Palestine Fax: 972 2 2982963 Tel: 972 2 2810396 Email:
[email protected] http:// home.birzeit.edu/commerce/sabri
1. Introduction: The importance of family business comes from the fact that it forms the majority of the private sector in both developing and developed economies as expressed by number of economic units. The Palestinian economy is not an exception, this is applied to all business sectors including commercial, industrial, agricultural, and services sectors. For example, the Palestinian economy contains about 104,000 economic units, of the total 91% are working in the private sector, 5% are functioning as government ministries and sub government units, and 2.6% of the total are organized as NGOs, While about 1.4% are organized in local government units and UNRWA (United Nations Relief and Works Agency for Palestine Refugees) units (PCBS, 2005). Accordingly, the number of establishments in Palestinian private sector is about 94,640 units organized in sole proprietorship firms and three types of legal entities including partnership, Private Corporation, and public corporation, while the family businesses form 99% of the total private sector as presented in Table No. 1. Therefore, we can conclude that the Palestinian private sector is mainly family business, and it is applied to all sectors including the industrial sector. However, in this regard we considered the definition of family firm that are owned, as well as management by family, while firms owned by family and managed by professional employees are considered as non- family firms. The family means a person and his son’s and/ or brothers, in some cases, there are groups of first cousins.
The major issue of family business as mentioned in the international literature may be summarized in three aspects; First is the issue of continuing the family firm under further generations and to what extend the family firms have lower survival rates compared to nonfamily businesses, and about the life cycles and the succession processes of family firms (Lambrecht, 2005; Venter, Boshoff, and Maas 2005; Morris, Williams and Nel, 1996; Rodsutti, and Makayathorn 2005; Bjuggren, and Sund, 2001; Chung, and Yuen 2003; Wang, et al 2004; and Gersik et al., 1997). The second issue is concerned with the performance and
1 Electronic copy available at: http://ssrn.com/abstract=1097686
methods of managing family business firms including good governance practice compared to non- family firms and about the need for training family managers who inherited their businesses from first or second generation (Brockhaus, R.H. 1994; Poutziouris, Steier, and Smyrnios 2004a and 2004b; and Osborne 1991). The third issue is involved with entrepreneurship aspects of family business as found in various cultures and experiences (Sharma, Chrisman, and. Chua1997; Suáre, and Santana-Martín 2004; Westhead 2003; Westhead, and Cowling 1997; Tio, and Kleiner 2005; Ibrahim, Soufani, and Lam; Johnson 2004). Table No. 1 Size of Palestinian family business as expressed by number of establishments All business Family business Legal forms Ratios Ratios Public Corporation 0.01 0.002 Private Corporation 6.6 5.798 Partnership 3.3 3.200 Sole proprietorship 90 90.000 Total 100 99%
Accordingly, this chapter will discuss the above three issues as existed in the Palestinian family business experience. Before that, the Palestinian economy and culture will be identified as the framework of the family business experience. Thus, this chapter will be organized in various sections; the coming two sections will summarize the features of Palestinian economy, as well as the Palestinian culture. The next sections will explore the main issues of family businesses in order to explore the above-mentioned aspects as well as to present the major merits and disadvantages of the Palestinian family businesses, while the seventh section will present a summary and conclusion for the chapter.
2. The Palestinian economy The value of GDP in Palestine increased from 2238 US million dollars in 1992, to 4,462 millions in 2004, while the GNI reached about five billions at the same year (Sabri, 1994 and PMA, 2005). The final consumption of the Palestinians living in Palestine reached about 5.9 billions in 2004, in which about 20% of the total consumption related to public and government sector. The average annual inflation rate in the Palestinian economy was about 5% in the last ten years. The trade balance deficits reached up to two billions dollars, while there is no national currency, which resulted in the use of three currencies for different purposes such as exchange transactions, saving and wealth measurement.
On the other side, there is a high incoming remittance to the Palestinian economy compared to developing economies. The incoming remittances increased in the last few years
2 Electronic copy available at: http://ssrn.com/abstract=1097686
due mainly to the increase of external aids to support the Palestinian budget, which lead to a surplus of cash flow of about 1297 million dollars in 2004 (PMA, 2005). In addition there are other sources that have contributed to a positive net cash flow from remittances which are the transfers of Palestinian working outside Palestine and to the contribution of foreign NGOs operating in Palestine (Sabri, 2000). The majority of investments in Palestine are local investments or investments belong to Palestinians working abroad, while the foreign investments are very limited (Sabri, 2003a).
The majority of Palestinian private financing system for both family business firms and non- family business come from what is known as the internal sources of funds, which is considered the primary source that finances most of the private sectors. It includes the paid- in capital, the gained capital including the compulsory and optional reserves, and retained earning, or what is known as the owner-equity. Studies have shown that the internal sources of fund range on average between 80% 90% of total assets, and this applied to all economic sectors (Sabri, 2003a). The credit offered by suppliers (Accounts payable) is considered as the second source of funds for most of the commercial, industrial, and agricultural institutions. While loans granted by banks operating in Palestine formed only about 8%, of the total liabilities of both family and non family business balance sheets, including medium term loans, short terms loans, overdrafts accounts, and discounting of commercial bills.
3. Features of Palestinian Culture Palestinian people are now about nine millions, four millions living in Palestine and five millions living abroad as refugees, they are part of the Arab nation and speak Arabic; and are either Moslems or Christians. The Palestinians people are will educated compared to other Developing nations. For example, the audit literacy rate is 92.4%, the life expectancy at birth is 73 years for females and 70 years for males, and the adjusted real per capital GDP is about 1203 US$, while the average family size is about six persons in 2004 (PHDR, 2005). The women in Palestine are relatively well educated in comparison to other less developed countries and has a good status compared to most of Arab states as expressed by literacy rate, education, work opportunities and advanced professions. For example, the literacy rate of Palestinian Women is about 87% compared to 96% for men in 2003. They work also in advanced professions; since about 20% of dentists, Journalists, lawyers, chemists, and civil engineers in Palestine are women (PCBS, 2004 and PHDR, 2004).
The income source of Palestinians comes from self-employment that forms about 40% of the total revenues of Palestinian family budget compared to other sources of income
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such as wages (Sabri and Jaber, 1992). The majority of private establishments 56% are working in wholesaling, retail trade and repairs, while about 24% working in Manufacturing in the Palestinian economy and the rest are working in agriculture and services industry (PCBS, 2004).
The share of Palestinian women is about 25% of the total labor force. Considering the share of women as self-employment in Palestinian businesses, it has lower share compared to business firms owned by female. However, this is expected if we consider the share of women in advanced professions. Women are also active in education, public managerial positions, and secretariat positions, hospitals, health services and telecommunications (UAER, 2004). The share of women as independent self-employment is about 17% of the total businesses in Palestine (PCBS, 2004b). In addition, the share of women in loans granted by official banking system is estimated to about 12% of the total loans, according to different sources of banks (Sabri and Jaber, 2006). However, this share is much higher if we considered special programs which offer financing for family business related to low income family. For example, the ratio of loans granted by microfinance programs conducted by UNRWA to women was about 31% (UNRWA, 2004).
4. Performance of family firm governance To compare between the performance of family business and non-family businesses, it should be noted that almost all small and medium scale businesses as presented by sales values and number of employees are family business. While the majority of large scale businesses in industry and services businesses in Palestine are non family business even a substantial part are owned by family definition, but they are managed by professional management, especially the public corporations. In Palestine there are about 75 public corporations working in Banks, insurance firms, communications, industry, and other services. It is about 90% of public corporations are non- family business.
The author has conducted related surveys (Sabri, 1998 and 1999) for about 240 industrial firms in Palestine. In order to compare between small scale industry which are mainly family businesses and large industrial firms which are mainly non- family firms and found that family firms have some merits compared to non- family firms in various aspects, while the management performance of non- family firms is much better in other aspects. The following paragraphs present a comparison between the management performances of family firms to non- family firms as measured by various aspects.
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4.1: Merits of family firm governance: The management performance of family business has advantages over non- family firms in the following aspects and measures:
Labor productivity: The average annual labor productivity of the Palestinian worker (sales value to number of employees) was about US$ 26000 for family business compared to the labor productivity of non -family business workers, which was about of US$ 23200 per worker. The supervision on labor worker is more efficient in family firm compared to the supervision of employees working in the non- family management. The labor productivity here is connected to labor work rather than machine and technology environment.
Rate of Return on Investments: The rate of return on investments (ROI) for the Palestinian family manufacturing firms is slightly better which was about 34% compared to 33% for nonfamily firms. The high percentages of ROI for both family and non- family firms is due to the fact that the book value of fixed assets is low because the Palestinian industry use old or rebuilt machines.
The Activity Ratio (Sales over total Assets): The average assets turnover ratio in family business in the Palestinian industry sector is more efficient than in non- family factory firms. The assets turnover ratio known as activity ratio which computed by dividing the annual sales value over average total assets of the firm, was about 2.3 times a year compared to 1.6 times for non- family firms. This means that the management of family firms is more efficient in managing the available assets to produce the sales targets, compared to the non- family business. This may be related to the fact the family business which is mainly small scale firm which uses less technology and rebuild machined compared to non -family firms which mostly started with new machines and high technology. In addition, family management usually are more conservative in replacement of their fixed assets and using less advanced technology compared to the professional employed managers.
Inventory Turnover ratio: The average inventory turnover for the Palestinian family firm is about 12 times compared to 9 times a year for non- family firms. This is related to the fact the non- family firms which is mainly large scale firms have more inventory capacity than family firms which mainly have limited facilities for inventory, thus lead to more efficiency in managing inventory aspects. In addition, many of the family firms have subcontracted arrangements with other major firms, which will lead to high inventory turnover ratio, because production will be scheduled based on the contractors’ job orders and time sheets.
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Product brand policy: Own product brand usage may cost more than using generic brand name, and may fit small factory firms that have limited allocation for marketing and promotion. Accordingly, we found about 48% of family firm’ products are generic product, while only 6% of non- family firms use generic product names. The non- family firms use their own product names, since about 60% of Palestinian non- family firms use their own firm brands. However, using of generic name regarding family firm’s product may be considered as wisdom market policy, since we found only 26% of the family industry firm uses their own brands in their products.
Sales Credit Policy: The credit policy of Palestinian business firms differs from family business firms compared to non-family firms, since family firms have policy that is more conservative compared to the non-family polices. The family firms prefer to sell in cash, and in case of selling on account, they only give a credit period of between one to two months. On the other side, the non- family firms sell less in cash and give a long credit period and up to three months or more.
For example, about 80% of selling value of industrial family firms were in cash or 30 days credit period, while only 21% of the total selling value were in cash or 30 days credit period in case of non- family firms. The granted credit period of 60 days was four times in case of non- family firms compared to family firms regarding to the similar period. This conservative policy of family business may be related either to the low value of working capital or to the mentality of owner manager compared to professional mangers who are working within credit written policy.
Finally, Table No. 2 summarized the merits' factors for family firms in financial, marketing, and operational aspects compared to non- family firm. Table No. 2 Merits' factors for family firm in financial, marketing, and operational aspects Compared to non- family firm Financial, marketing and operational measures Family Non- Family o Rate of return on investments
34%
33%
2.3
1.6
11.6
8.6
26000
23200
o Generic product brands
48%
8%
o Sales credit policy (cash or up to 30 days)
80%
29%
o Assets turnover ratio (times a year) o Inventory turnover ratio (times a year) o Labor productivity per US $ sales value
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4.2: Merits of Non-family firm governance: The management performance of non-family business has advantages over family firms in the following aspects and measures:
Net Profit Margin: The average net profit margin to sales for the Palestinian family business is about 15% compared to 22% for non- family business. This is due to the fact that family firms use generic brand products and short term credit policy, thus they have to sell with minimum margin of profit in order to compete with company brand products and better credit sales polices in case of non- family firms. However, as indicated earlier the non-family firms have more fixed assets, which eliminate the advantage of becoming part of the rate of Investment formula.
Starting business with new machines and equipment: About 70% of Palestinian family factory firm uses rebuild or old machines when first established their businesses compared to 60% for non- family firms. Using old machines may reduce the total capital investments in the firm, but it will lead to an increase in running costs, especially the maintenance cost. In addition, using an old technology will make it very difficult to the Palestinian industry to compete with the imported industrial products in terms of quality and prices. Reducing the fixed cost by using old or rebuilt machines has less advantage compared to increasing of the variable cost and undermining the quality of products. The majority of family factories preferred to use old machines due to the limited capital that can be accumulated from family sources and due to the limited role of private financing offered by the Palestinian banks.
The Idle Capacity Ratio: In general, family and non- family factories are suffering from having a high percentage of idle capacity due to various reasons. However, the non- family firms slightly have an advantage in this regard, since the idle capacity in the family firms is about 61% compared to 58% for non- family firms. Working at full normal capacity will reduce the fixed cost of production in the manufacturing sector substantially. In addition, the manufacturing sector may increase the production volume behind the normal capacity if this sector works around 24 hours. A few factories from the sample of the study mentioned that they work 24 hours a day in seasonal periods. Such as soft drink industry in the summer season, clothes manufacturers when they receive rush orders, and the textile sector in the fall season to produce the girls uniforms of public schools (Sabri, 1999).
The Leverage Ratio “debt to total assets”: The debt to total assets ratio for the Palestinian family factories has the advantage of using banking system in financing compared to family
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businesses. The short term loans to total assets ratio in non -family business is twice the same ratio for family business. It was 20% for non- family factory firms compared to 10% for family factory firms. It is clear that in spite of non- family firms have better chance in financing from local banking system compared to family firms, but both have limited access to external financing including medium or short loans. The 10% to 20% are divided into three sections: First; overdrafts to cover the operation of the working capital. Second; the accounts payable, which forms about 40% of total credit, the maturity of these payable, ranged from two to four months to cover the purchasing of raw materials, and third; discounting of commercial bills belongs to the firm’s customers. (Sabri, 1999).
The limited source of financing family factory firms is also supported by other studies that show that the Palestinian banking system prefers dealing with commercial firms and corporations rather than industrial firms and small scale firms (Sabri, 2003a and Sabri 2003b). Such conclusion is expected because the opportunity and conditions of borrowing in largescale industry, which are the non- family firms, are much better than in the small family industry. This situation leads to increase the cost of capital as long as the external financing at the most minimum level.
The Job creation ratio: Creating a new job in the Palestinian industry needs additional investments of US$ 13000. However, the additional needed investment is different from one group of industry to another. It ranged from 14300 US$ for family businesses compared to 12,300 US$ for non- family business. This means that non- family business has an advantage from national economy point view, as long as the creation of the new job is less costly in case of non family industries.
Building conditions of business firms: About 55% of family factory firms are located in owned buildings compared to 85% of non- family firms are located in owned buildings. This means that the non- family firms has the advantage over family factory firms concerning condition of premises. The owned building are equipment building to be a place for a factory and located in industrial zones, while the rented buildings which represents the majority place of family factory firms in Palestine are regular shops and apartments located in residential or commercial buildings, most of them are not designed for manufacturing firms. They are located in various locations, because industrial zones are not found in all cities. The rented buildings create various problems such as technical, storage, safety and environmental issues and create a serious problem when the firm needs to expand its operation (Sabri, 1999).
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Channels of Distribution: The non-family firm has the advantage over family firm regarding channels of distributions of final products in particular and in using marketing activities and strategies in general. For example, about 60% of the total products of the Palestinian family industrial products are sold and distributed without any marketing effort , and only 18% of total family firms have exclusive agents to distribute their products. On the other side about 41% of non -family firms have either exclusive agents, or retail outlet, or sales men forces, which means that a substantial part of non- family firms have marketing and distribution activities more than family firms which relied mainly on selling from the factory outlet. In addition, two thirds of Palestinian family firms ignoring marketing functions in general.
Finally, table No. 3 presents the merits' factors for non- family firm in financial, marketing, and operational aspects compared to family firm.
Table No. 3 Merits' factors for non-family firm in financial, marketing, and operational aspects Compared to family firm Financial, marketing and operational aspects
Family
Non- Family
o Net profit margin
15%
27%
o Firms started with new machines
30%
39%
o Leverage ratio (debt to assets)
10%
20%
14300
12300
o Idle capacity ratio
61%
59%
o Firms located in rented factory building
45%
14%
o Selling from the factory outlets
63%
59%
o Selling through exclusive agents and retail outlets
18%
29%
o A job creation by US $ value of capital
5. Entrepreneurship in Palestinian Family Business Palestinian firms are exclusively established by the private sector, there had been no public contributions to the private sector up to 1993, in which the initiation ventures came from local private savings and transfers from Palestinians working in the Diaspora. However, the contribution of financial institutions and banks was also immaterial (Sabri, 1994). In addition and after 1994, in which the Palestinian authority has been established, the private sector continued to be the sole player with few exceptions in which the Palestinian government owned and established few public business projects under the Palestinian Investment fund. Palestine Investment Fund (PIF) was established by decree of the President of the PNA in 2000. It is an independent legal entity aims to include all public firms' and investments owned by the Palestinian National Authority. The total investments for the fund
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reached about 773 million dollars inside and outside Palestine, which were distributed into about 79 firms and projects as in 2004. Some of these projects are owned completely or partially by the PIF. (PIF, 2004). The total investments of projects owned by Palestinian government inside Palestine are about 200 million US$.
For non- family business, the corporate law applied in Palestine stated detailed steps to establish a public corporation, which started from forming a group of founders consisted of at least seven persons, the founders should pay at least 10% and not more 50% of first installment of the par value of the authorized capital in a Palestinian bank. The rest of capital shares should be sold in public offering through Palestinian banks. If the subscriptions value is more than authorized capital, there is a way for allocations of shares over the total of subscribers. The stated procedures of corporate law may lead in most cases to non-family business in case of public corporations. However, in some cases the public corporation may be considered as non- family firm based on ownership, but may be family business in case of management for various generations, because the majority of stockholders are not concerned in managing that specific corporation. Accordingly, we find about 20% of the public corporations are family businesses, and 85% of private corporations are family businesses.
To analyze the entrepreneurship forms in Palestinian family businesses and ways of initiation of the Palestinian industries, including sole proprietorship firms, partnership and the private corporations, and based on a survey conducted by the author on the industrial sector, it was found that there are various ways that may be summarized as follows: •
There are entrepreneurs who initiated their own family businesses without previous
technical experience which formed about 26% of family factory firms. They just invested their family savings in a project, in which the entrepreneur is expected that the project would be profitable, and without conducting a feasibility study. •
There are entrepreneurs who initiated their own family businesses with previous
experience to their type of ventures. The previous experience gained by either one or more of the family members or they were trained for the related projects and encouraged other members to joint them in this project. Those formed about 27% of the total family entrepreneurs. •
About 17% of the investors were working in trade and expanded their businesses into
industry using what is known as backward integration. Most of those groups of entrepreneurs were working mainly in trading of constructions materials or trading of clothes and food
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products. This group of entrepreneurs is the most successful ventures compared to other methods of starting businesses in the Palestinian industry because they already had a good market of local share, but the successful situation may be jeopardized in the next generations. •
Other way of entrepreneurship was the horizontal expansion which means that the
factory ventures were small workshops and developed into small-scale industries and formed about 16% of the total ventures. This group of entrepreneurs depends only on family as owners, management and employees, using low technology and limited working of capital. Such venture of this group may be continued to be profitable for first and second generations, but not thereafter. •
The last way of doing business was related to what is known as employee
entrepreneurship, which formed about 9%. They usually use old or rebuild machines, which were replaced by their previous employers to initiating their own business, and the employee entrepreneurs have limited capital, and thus use family members as employees.
6. Life cycle and succession issue in family business: The issue of continuing the family firm under management of further generations, and to determine to what extend the family may survive without being liquidated or divided voluntarily. Due to the conflict initiated among family firm partners is the most contradicted issue in managing of family businesses. This issue is to be found cross cultures and regardless of the economic maturity stages. A substantial part of similarities was to be found when we examine this issue in different cultures as reported by various studies that explored the various experiences in different economies. Such as studies of Wong, 1993; Wong, McReynolds, and Wong, 1992; and Chung, and Yuen 2003 which discussed the Chinese family business succession issue, Venter, Boshoff and Maas 2005 who discussed the South Africa experience, Rodsutti, and Makayathorn 2005; studied the Thailand experience, Wang, et al 2004; UK,. Welsch, 1991 who compared between the experience of U.K., the Federal Republic of Germany, and Spain, Suáre, and Santana-Martín, 2004 discussed the experience of Spain.
For the Palestinian experience, the author may summarize the major features of the issue of governance succession and life cycle of family business in the following findings:
o
Many family firms were the most successful firms in the Palestinian economy as
expressed by a number of employees, sales value, and market share in the last four decades.
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o
The most successful family firms were mainly in food and beverage industry, clothes,
wood and metals furniture, hotels, retailing and wholesaling sectors. The market share of some of the family firms reached about 95% of the total demand of their respective products in the Palestinian economy. Some of the family firms hired between 200 and 350 employees, while the average size of Palestinian economic unit is around five persons per establishment.
o
About one third of Palestinian family businesses have conflict among the family partners
in managing their own business. The conflict of management leads in most cases to cripple the activities of the firms and eventually the partners split their firm. In addition, the conflict of management may be found in all groups of businesses.
o
The conflict of management among partners is a common phenomenon in the Palestinian
family firms, either in the past that led to divide many successful firms, or currently existed, in which the family governance members working on a solution, or it is expected to be in just near future as expressed by declining sales volume compared to previous years.
o The majority of family businesses of the third generation will be liquidated, divided, or transferred to Private Corporations.
o
The conflict between family partners may be found in various levels: 1. Between first generation: the ratio of disputes between management members of family businesses is relatively limited, especially between the biggest owner and his smaller brothers who joint the firm gradually and during the growth of the firm. However, in some cases, there are few cases which witnessed dispute in the first generation, when some brothers participated by work (effort) and the others participated in capital and later on the ones who participated in capital want to participate in management as well
2. Between first and second generations: One of the critical point in the life cycle of Palestinian family business, when two generations joint in one governance of a firm. Significant differences between ways and means of running the business will appear. For example, one of the most successful firms in Palestine was a private corporation working in chocolate products, which was established by an entrepreneur and his three brothers, it includes about 300 employees and use to have 90% of market share in the Palestinian market. When the oldest brother passed away, his son joint the management of the firm. The dispute among the old brothers and their nephew started in almost in all aspects of running the firm. The major dispute was related that the chairman of the board of director wanted to distribute the firms’ products thought various sales men, while the nephew
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wanted to select exclusive sales representative in each district. The family board members asked a lawyer for advice, and he suggested that decisions issues by the board governance of firm should be consensus. Eventually and because of this advice, the board could not agree on any of the further decisions and lead to sell the firm and closed down.
3. In the second generation: The majority of family business firms working in retailing and wholesaling facing disputes among family partners, thus most of partners leave the business to one of the brothers. For family industrial firms, there are disputes among family partners, but they may continue to coop with their variances up to the third generation.
4. In the third generation; most of partnerships and private corporations ended through one way or another, and only family public corporations may survive further generations.
o The reasons for dispute in family management may be detected in various aspects: 1. Distribution of profit, and withdrawing shares: The dispute between partners in forms of partnership family firms is a major cause of conflict for both first and second generation governance. Many of disputes of family firms' management were due to the withdrawal of dividends by the family partners. Generally, the big brother argues that he spend more time in his father business, while his brothers in schools and universities, thus he deserves more profit than his brothers who get better education than he does.
2. The heartburning of sisters in laws: The jealousy and envy between the sisters in laws (wife of brothers' partners) is the most reported cause of management dispute that lead to liquidate or divide the family firms, especially in the second-generation management cycle. In Arabic, the wife of brother called Selfa and there are so many sayings in Arabic about the heartburning between Selfats (Sisters of laws). For example, the heartburning between sisters of laws is more bitter than eating stones, all parties may agreed upon except the sisters in laws, enemies in a one vehicle may reach the target but not a vehicle includes sister in laws. The negative affect of sister in laws on their husbands as family governance members lead to a major dispute on family businesses and eventually divide the firm or liquidated.
3. Tax issues in case partnerships: the tax issue is one of the most important factors, which lead to terminate family firms; especially in case of legal entity of partnership, where all partners are responsible for tax settlements individually.
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4. Dispute between family partners over management, marketing and production polices and strategies such as the issue of replacement or rehabilitation of fixed assets, the credit policies, producing new products and initiating new business lines.
Finally, Table No. 4 presents examples of some family businesses that faced management disputes and succession issue during life cycle during the last two decades Table No. 4 Examples of management disputes and succession issue during life cycle of Palestinian family businesses during the last two decades Business Clothes worships A chocolate company
Level of Generations First generation
A food (meat company)
Second generations
To rehabilitee factory
Aromatic materials firm
Second generation
jealousy and envy between sisters in laws
A hotel
Second generation
A furniture company Wholesaling of constructions materials
Second generation
Distribution of work among partners Marketing and management strategies Over withdrawals of profits
Between first and second generation in one management
Second generation
Main Dispute reason Relationship to contractors Marketing and management strategies the
The End Partners left the business to one owner Sold to outsiders and closed completely by new owners Transfer the business to another country and sold it to outsiders Half of partners left the firm Sold to other owners Sold to other owners Close the business and to share losses
7. Summary and Conclusion This chapter aims to explore the major issues of Palestinian family business. The Palestinian family business was defined in this chapter as that firm which was owned and managed by a family, while firms owned by family and managed by professional employees are considered as non- family business. The issues of family business were discussed in this chapter and applied to the Palestinian experience. Those covered the issues of continuing the family firm and the succession cycle, the performance of governance practice and management of family business compared to non- family business firms, and the entrepreneurship aspects in the Palestinian family businesses. The Palestinian family business forms about 99% of private sector, while it is about 100% in case of wholesaling and retailing sector.
The Palestinian family firm has the advantage of management performance regarding to some financial, marketing and operational aspects compared to the non- family firm, including the rate of return on investments, assets turnover ratio (times a year), inventory
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turnover ratio, labor productivity and less cost of marketing through using generic product brands, and less cost of sales credit policy. On the other hand, the Palestinian non- family firm had several advantages over family firms in other aspects. For example, the Palestinian nonfamily firms accomplished higher net profit to sales ratio, it had the advantages of using more credit facilities to finance its working capital, it had less idle capacity, and it was located mainly in proper places and inside industrial zones. In addition, it costs less value to create a new job which is a positive aspect regarding national economy, and it is more efficient in using marketing functions and strategies.
About one quarter of the Palestinian entrepreneurs initiated their own family businesses without previous technical experience, while another quarter used to have such experience at least by one of the family member. The other ways and means of entrepreneurs to establish their own family businesses included the conversion from trade to industry, the expansion from workshop to industry or from employee to employer using the old facility of the previous employer. In addition, it may be concluded that about one third of Palestinian family firm governance have dispute among the family partners in managing their own business. The dispute is to be found even between first generation, between first and second generations when they meet in one board of directors, in the second generation, as well as in the third generation. The reasons for disputes in governance come from the fact the each of the family managers believe that he/she knows the relevant ways and means of management and marketing strategies, and due to the way of distributing dividends, and partners' withdrawals.
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