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Manal Naboulsi, Ph Din International Business Management International School of Management ISM Paris The American University of Culture and Education E-mail: [email protected]
FAMILY BUSINESS: A COMPARATIVE ANALYSIS OF CONDITIONSIN LEBANON AND THE USA
Abstract: The article presents a review of the research devoted to the family business in the Lebanese Republic and the United States. The main trends and directions of modern research are revealed. The specifics of the transformation of social and economic processes in the Lebanese Republic, connected with the confessional specificity of the state, are analyzed.
Used methodological approaches and methodological tools in the Lebanese and foreign studies of the family business. Conclusions are made about increasing the scientific and practical interest of modern researchers to the problem of gender inequality and institutionalizing the mechanisms of continuity of the family business and building an effective organizational culture in family companies.
Keywords: family business, women in the family business, gender inequality in the family business, features of business inheritance.
Introduction
Comparative analysis of the conditions of inheritance and family business in the United States and the Lebanese Republic at the present stage is an important subject of sociological research, as well as an urgent issue of reforming the social and economic policies of the countries studied.
The reform of a number of legal provisions and traditional conditions regulating this sphere in Lebanon, contain the specifics of a new model of social and legal public administration. The reforms carried out represent the practical activities of the state authorities, which consist in finding out the problems of running a family business in Lebanon and developing tools for their solution, expressed in the creation of normative legal acts regulating the social and economic development of the state.
Therefore, in this article, using the method of comparative analysis, current laws and the main problems of creating favorable conditions for conducting family business in the Lebanese Republic will be examined. Of particular importance in the
study is the evolutionary nature of the American family business inheritance model, because, due to recent trends, the US is the world leader in its economic development and business prospects, which is undoubtedly determined by the innovative approach to reforming the country's socioeconomic and legal system. At the same time, general conclusions on the transformation of social processes in the field of family business in the Lebanese Republic have been made in the work, since the choice of effective organizational and legal mechanisms requires complex system assessments of social processes aimed at solving the problems of various spheres of family business. Therefore, a study of the ongoing and developed for the future transformation of the conditions for conducting family business in both countries is of great importance. Main part. Family business represents a special type of organization with many features related to the influence of informal kinship relations on managing economic processes, the family business has a number of structural problems that are especially acute in the devel-
opment process. Considering the family business, it is necessary to understand that the family enterprise is an enterprise founded by family members with the aim of generating income and its further development. A large number of foreign studies are devoted to the development of approaches to the definition of a family business and the identification of its differences from a non-family business.
An important consideration is given to the analysis of market strategies for the development of family enterprises. Scientists rightly point out that the majority of conflicts that impede the effective development of the family business arise with respect to the policy of continuity, the interaction of parents and children, the problems of family control and the distribution of roles in the family business in terms of differentiating the roles of family members and employees in the family business. Particular attention is paid in a number of studies to the study of the specifics of the organizational culture and ethical values of the family business. One of these concepts is the analyzed concept of emotional possession, which assumes the role of motivating future generations to participate in the continuation of the family business through an early professional and value orientation.
Entrepreneurial teams of the family business with a high level of general organizational experience and a low level of functional differentiation made it possible to reveal the highest level of internal consistency and the importance of the uniqueness of human resources. This suggests that a strong relationship between team members can be a more important element in the success of both family and non-family businesses than the overall skill set of team members.
Although the potential for conflict of relations between members of the business team is not high, a team consisting of members of a family of different generations does not guarantee peace of mind.
Prospects for the development of the family business were investigated. According to the researchers, the dynamics of the development of the family business and the nature of entrepreneurial activity, re-
gardless of the number ofyears since the foundation, are based on the process when the participants of the next generation involved in the family business challenge the management of the family business by the current generation or the generation of the founders.
At the same time, the pace of development of entrepreneurial activity can be reduced when three or more generations become involved in the family business in conditions of lack of a common vision, low level of trust and potentially other concepts of understanding family management, that is, the effectiveness of entrepreneurial activity in the family business depends on the number and diversity of skills and approaches of the management team within the limits of reasonable sufficiency. In the context of the research, Heather_Habermanand Sharon Danes "Father-Daughter and Father-Son Family Business Management Transfer Comparison: Family FIRO Model Application", describing the authority structures "father-son" and "father-daughter" in the transfer of business. The authors identified several types of potential research: 1) inclusion of the second generation in the family business; 2) control of the business management process; 3) the integration ofheirs into business management. The whole study focuses on the adaptation of women in the system of doing business. According to scientists, daughters, their excluded systems of inheritance of the right to run a family business, feel restrained. As a result, this leads to isolation of family members and the emergence of interpersonal conflicts. The problem of including women in the family business is especially acute in Arab countries, where the prevailing religion is Islam.
The development of the theory of family business and family business in Lebanon, theoretical studies devoted to the family business, are just beginning, and this phenomenon is currently under study. Taking into account the fact that the family business develops and transforms under the influence of external factors (social and economic policy of the state, traditions, cultural and domestic characteristics, etc.) and internal factors (the social status of the
family, personal relationships, status of heirs, etc.) conditions of doing business is quite difficult. With a change in historical, political, social and demographic factors, the family as the basis of entrepreneurial relations remains the most closed and informational non-transparent economic system. That is why both in the foreign and in the Lebanese statistics, the family business was not studied in the complex.
The study of the characteristics of inheritance and the conduct of the family business is a multidis-ciplinary problem area, which differs substantially from its related disciplines with an exclusive focus on the social and legal paradoxes caused by the family's involvement in business. The overall goal of this field of research is to build knowledge about one particular type of organization - family enterprises, as the oldest specialized form of doing business in the world. In this form ofbusiness, the functional imposition of the family and production system is such that family members significantly influence the key decisions and directions of the enterprise development.
Analyzing the specifics of the conditions of inheritance and conducting family business in Lebanon and the USA, it is very important to analyze their features. The basis ofthe criteria analysis is the entire complex of ongoing social transformations, financial and budgetary policies, as well as general trends in the transformation of existing regulatory legal acts. The family business is ranked from small and medium to conglomerates that operate in millions in different industries and countries. Famous family firms include: Salvatore Ferragamo, Benetton and Fiat Group in Italy; L'Oreal, Carrefour Group, LVMH and Michelin in France; Samsung, Hyundai Motor and LG Group in South Korea; BMW and Siemens in Germany; Kikkoman and Ito-Yokado in Japan; Ford Motors Co and Wal-Mart Stores in the USA. Practice shows that most family businesses do not exist long after the founder's death. As a rule, about 95% of enterprises are closed by the third generation. This is due to the fact that the family is expanding, and subsequent generations do not always understand the essence of doing business, as its founders.
Figure 1. Structural distribution by country of the world's largest family companies (2016)
According to Figure 2.1, the United States is the absolute leader in the world in terms of the number and amount of assets of the family business in the international rating. At the same time, 32% accounted for family companies that trade through supermarkets, the automotive industry occupies 29%, the media business and trade in
catalogs only 6%. Other industries also occupy a large segment - 32%.
As for Libya, it can be seen that for a long enough period of independent existence of the Arab countries of the region, their economy, despite the rich mineral resources, has not become a component of the modern structure of the world
economy. At the same time, this region remains to this day for countries with developed market economies, primarily European ones, not only a source of various problems, such as uncontrolled migration, but also an invariably important zone of economic interests. The economies of the region, along with rich resource opportunities, have a great productive potential, which is to some extent realized in the course of market reforms. The degree of such implementation depends not least on the characteristics of the economic psychology of the Arabs. Being in the majority of the population non-market in the western sense of the word, it determines the existence of a special goal of their activity in the system of commodity-money relations: the desire is not so much to achieve results, maximize profits, but to implement the very process of creating a product and selling it.
The transition of Lebanon to market conditions for doing business became the basis for the development of private business, and gave a powerful impetus to the development of family businesses. It is worth noting that the interest of Lebanese scientists and specialists in the development of the family business is currently at the stage of formation. This leads to serious differences in approaches to determining the family business, the methodology used to study it, and assessing the prospects for its development. Consider the results of key changes in social and legal changes in the field of family business conducted by Lebanese and foreign researchers.
The ongoing reforms in Lebanon aimed at transition to a market type of economic management showed that, although at the initial stage of their implementation, there were no big changes, in the future the chosen direction made it possible to partially reorient the structure of production to the sphere of services. The reforms had a special impact on the choice of strategic goals and objectives of state regulation of social and economic processes through a gradual transition from religious influence to the secular sphere.
In connection with the fact that the family business is inherited, the heirs have been trained since childhood in the principles and characteristics of the business. This determines the success of their entry into the management of the family business. In this case, the secrets and technologies of doing business are transferred from generation to generation. The main differences of the family business are mutual assistance, responsibility, trust, cohesion. Family members are not attuned to their own result, but to the development of their business.
Preservation of family business in the future is based on planning the continuity of the family business. The rule of continuity is a clear understanding ofwho will lead the company in the next generation.
The analysis of behavior from the point of view of minimizing entrepreneurial risks, combined with the relatively long life of the business family, as an explanation of the findings of a number of national scientific studies, as well as expert conclusions, revealed the following: family enterprises, especially small ones, are often tightly integrated into local communities; which is focused on the interests of the local business community (ie, the priority of cooperation with local suppliers, the restriction of the level of foreign trade, Provision of employment for the locals). This can go so far that the decision to reduce or even close a family business will already be seen as a reduction in the number of jobs offered to local residents, which in turn will be in conflict with a high degree of commitment to the local community in which the family lives.Especially in small Arab countries, experts have determined the proximity of the conditions and mechanisms for running a family business with the market infrastructure where family businesses operate, resulting in, on the one hand, good relations with customers and knowledge of local market conditions, and on the other - a kind of barrier to enter the markets of other countries.
The complexity of research in the field of family business in Lebanon is determined by the need to analyze the economic efficiency of a large group of
family business enterprises compared to non-family businesses identified. At the same time, the analysis should be conducted on key absolute and relative indicators: turnover excluding VAT, the average number of employees, the number of enterprises of the appropriate type, according to the classification characteristics of micro, small and medium-sized enterprises, with estimated averages throughout the country. In this regard, it seems appropriate to single out family businesses in a separate group and monitor information about the family business on the basis of the complex methodology of comparative-comparative and complex regression analysis presented in the work to accumulate the best experience of successful family-type companies.
The Lebanese economy is dominated by family enterprises of all sizes. Associate Professor of the Department of Management and Director of the Institute for Family and Entrepreneurship of the Lebanese American University investigated the main drivers of growth of Lebanese family firms. Family enterprises in Lebanon, despite the crisis times in which the region is located, showed fi-
In the American model of building financial support for small businesses, state and private regula-
nancial stability. Business owners are always looking for opportunities to grow their business. A recent study conducted at the Institute of Family and Entrepreneurship of the Lebanese American University showed that the average life expectancy of family companies in Lebanon is about 40 years (world average 28 years), and 75% of firms of this age are currently run by the second generation. At the same time, 46% of Lebanese family enterprises show growth. During the social survey, 9% of respondents indicated an increase in income from the family business by more than 21%. The study confirms that the preservation and rooting of gender differences hinders the development of business in the Lebanese Republic.
Positive experience in supporting the role of women in the family business can be attributed a set of activities and initiatives by the US government. Thus, one of such initiatives stimulates the possibility of carrying out comprehensive programs for training and financing start-ups (men and women), which are successfully implemented by the American Small Business Administration (Table 1).
tory instruments are effectively combined. Another area of activity of the SBA is active assistance to
Table 1.- Features of the American Small Business Administration (SBA)
Elements of the SBA system Characteristic
Obj ectives offinancialsupport - Replenishment of working capital of small enterprises; - purchase of land and property; - purchase of equipment and a microfinance program.
Government programs (7a, SDS / 504, Miscoloans) 1) Program 7a: an entrepreneur can obtain guarantees, if for any reason he can not provide a security. 2) SDS / 504 program: a long-term loan with a fixed rate for the purchase of land is granted. 3) Miscoloans: small short-term loans to small businesses are provided (average loan size is $13,000).
Grantofguarantees - an enterprise takes a loan at the start and does not have a credit history; - the borrower needs a long-term loan, which exceeds the internal credit requirements of the bank; - subject to the issuance of a loan for a type of activity unknown to the creditor.
small export-oriented enterprises. In this regard, the SBA together with the US Department of Commerce set up export promotion centers. Also in the competence of the Small Business Administration during the implementation of information support and training of entrepreneurs in the framework of trainings and courses. The institutional system of the bodies, which finances small and medium-sized businesses from the budget, includes centers for women entrepreneurs (WBCs). Their competence includes the preparation of a business lady for business management.
All the decisions implemented within the framework ofstate programs are controlled by independent inspectors who formally work in the structure of the American administration of small business support, but are independent of the structure of the administration. Employees of this structure, having discovered
any violation, can immediately send a request directly to the US Congress or the US President.
In the United States, there are so many benefits that private and family businesses seek help from audit firms to determine the most suitable benefits for them.
Thus, the American model of business regulation, including family regulation, has a more developed institutional structure, broad financial support and social support.
Analysis of the conditions of inheritance and conduct of family business in Lebanon and the United States, conducting comparative analysis and forecast of prospects, allows to determine the differences in socio-economic development of countries, and will also allow to learn experience. Applying the method of comparative analysis, we will reveal certain similarities and differences between the countries studied (Table 2).
Table 2.- Similarities and differences in inheritance and family business in the Lebanese Republic and the United States
Similarities Differences
The ongoing reforms in the field of family business were carried out according to the same strategy: step by step from direct regulation to market self-regulation. Lebanon has a special political system based on religious diversity (confessionalism). State regulation is carried out in accordance with the division of society into religious communities.
The general legal aspects of the registration, conduct and inheritance of the family business of the United States and Lebanon are almost identical. For example, the owner is responsible for initiating and implementing the process of transferring the family business. Traditional views on the family structure and the role of women in the development of family business. The normative legal framework in Lebanon is formed taking into account the basic religious principles of Islam. The US is a secular state that has abandoned the norms of traditional law.
In the transition period, there were similar problems: pricing, tariff regulation, the predominance of state ownership. The size of the family business, national ideology, management concept, etc. Features of the socio-cultural structure of the United States and Lebanon determined the choice of priority areas for the conduct of the family business: in the US - all spheres of the economy, in Lebanon - social services.
Gradual introduction of modern legal and social institutions: inheritance rights, social reform, reduction of the influence of traditions on the general way of life, etc. The mechanisms and instruments of inheritance in the family business are different: in the USA - equal rights of men and women, in Lebanon - gender inequality.
All of the above differences in the conduct of busi- performance ofthe Arab state in the international rating ness between the US and Lebanon account for the low of the Doing Business of the United States (Table 3).
Table 3.- The situation of Lebanon and the United States in the rating of Doing Business
Countries 2006 r. 2010 r. 2015 r. 2016 r. 2017 r.
USA 3 4 7 7 8
Lebanon 95 108 104 123 126
According to the information provided, the most favorable position in the US in 2017 (8th place), however, this indicator is worse than 2006 (3rd place). Lebanon deteriorated its ranking in the ranking in 2017 compared with 2006 by 31 positions.
Rating indicators of the Doing Business rating 2016-2017. rightfully point to problems with taxation, lending, protecting the interests ofinvestors, etc.
The transformation of the conditions for the conduct of the family business in Lebanon was carried out over a period of more than 50 years, during which time the following features manifested themselves in the reforms:
- firstly, during the whole process of socioeconomic transformations, the orientation of the reforms to liberal ones remained, which is the main specificity of the Lebanese reforms;
Secondly, the implemented transformations were implemented gradually and plannedly through the implementation of state programs to support business, including the family one. This made it possible to significantly reduce the costs of the ongoing transformation. Low spending allowed Lebanese family-type companies to survive the crisis;
Thirdly, the current socio-cultural changes in Lebanon are aimed at moving to a new model of society formation. At the initial social goals of the development of the family business were blurred, but at the present stage, the main strategic goal is a gradual transition to a market type of running a family business and the opportunities for women to take an active part in this process;
Fourthly, the implementation of reforms in Lebanon was carried out by direct government influence, which allowed to achieve the projected results and
proved the effectiveness of the application of administrative measures for the implementation of socioeconomic transformations;
Fifth, the success of the family business in Lebanon was realized by borrowing the experience of other Arab countries, but the changes were adapted to the Lebanese specifics of creating a socialist market economy.
At the same time, there are certain problems hampering the development of forms and stability of the mechanisms for running a family business in Lebanon. In particular:
- Substandard institutions (corruption, bureaucracy);
- limited use of technology and innovation;
- low level of intra-Arab economic integration;
- large public sector;
- authoritarian rule and political instability;
- export of capital;
- sanctions, conflicts, wars and, as a result, excessive military expenditures.
To date, in order to guarantee the continuity of the family business in Lebanon, it is necessary to develop not only the steam inheritance bases, but also a broad vision of the owner, which allows from the very beginning to involve his children in the family business, as well as the ability to combine the solution of everyday management problems with building relationships between family members and overcoming contradictions. In this regard, the following organizational rules can be proposed to implement a new mechanism aimed at ensuring the continuity of generations in the family business:
- the conscious and methodical involvement of family members in the family business;
- ensuring motivation for understanding the goals and objectives of the family business of children and heirs;
- Respect for the human resources of the enterprise;
- exclusion of possible manifestations of nepotism in case of transfer of business management to heirs who do not have the relevant competence;
- distribution of decisive powers as widely as possible between representatives of different generations working in the family enterprise, in order to transfer knowledge, competence and experience.
As part of the implementation of the above-mentioned initiatives, Lebanon is assisting the family business in identifying problems that may arise, as well as providing expert advice on the first steps in the creation of family businesses. It is also necessary to note the great untapped opportunities for international cooperation of associations of the largest family companies or the creation of cooperative ties in the experience of the United States, which allow exchanging best practices and studying advanced ideas that have proved their effectiveness. A successful example of the organization of an entire network of seed enterprises is a new project that allows the younger generation of family business heirs to short-term an internship in another private or family firm, often in another region or another business segment. Similar internships are organized in a variety of markets, usually developed countries in the US, Finland and Switzerland.
Thus, with a competent management approach and thorough planning and preparation of the process of changing generations in the family business, destabilizing tendencies and factors can be effectively overcome and continuity in the family business can be created by creating favorable conditions for its future development.
Main conclusions
Analyzing the studies devoted to the family business, it can be concluded that in a gradual transition from the domestic understanding of the family busi-
ness as a company in which members of one family work, to business inherited by the family for several generations. All this determines the shift in the methodological emphasis of research - from describing the problems of interaction between relatives in the implementation of business ideas and strategies to study the key factors that affect both the effectiveness of the business itself and the success of its transfer by inheritance and keeping it the status of an important family asset.
The life cycle of family business organizations is related to the life cycle of the family itself and requires special economic and management actions in the formation of a new business at the startup stage, at the subsequent stages of transformation, merger, fragmentation, preservation and transfer from one to the other.
When considering the family business as an object of inheritance in the modern social and legal situation of the Lebanese Republic, it is determined that it is necessary to develop a policy of continuity of the family business that avoids conflicts of interest in the transition of power from one generation to another and serves as the basis for fulfilling two main conditions for the long-term success of family companies - professional management and continuous management of business by family members. That is why the problem of continuity of the family business, the formation of future entrepreneurial competencies of subsequent generations, motivating their desire to participate in this business can be systematically solved in the Lebanese business practice only taking into account the institutional support and time factor.
Increased scientific and practical interest in this issue in Lebanon is due to the need to eliminate significant gender differences in the vision of seed business, which are still inherent in this country. In this regard, scientists agree on the need to change the institution-alization of the mechanisms of continuity of the family business and build an effective organizational culture in Lebanon. Studying and adapting the experience of
the USA in this vein can serve as a promising mod- in the legislation of Lebanon, and the socio-cultural
eling mechanism for transformation, both legal gaps characteristics of running a family business.
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