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Family Firms in Saudi Arabia

Justification of the study

The concept of corporate social responsibility has become a common term in the business world. It has become an integral part of most businesses in the world today. However, CSR has always been and still is a subject of controversial views and discussions. Most economists have been having a prominent voice against CSR and it was declared as one of the biggest corporate whim of the 1990s. They regard it as a cosmetic treatment. According to Schreck, “CSR is sometimes seen as a discretionary management task, which a company could only afford if it is financially successful” (Schreck 49). Nowadays, there has been a great recognition of CSR and this has minimized the number of critics. It is currently regarded as a central function in business strategy and considerable energies and resources are devoted to it (Bueble 7). For a long time, SMEs have not been involved with CSR initiatives but today, the firms are part of the global business environment that has embraced the notion of CSR. There has been a debate on whether the family firms undertake CSR initiatives or they just pursue their interests without giving back to the community. Since these firms operate locally and most of their employees and customers are people from the local community, they have to be fully engaged in developing the community. Therefore, they have to work with the community that supplies them with the workforce and the customers. In Saudi Arabia, for instance, most of the firms are family-owned and operate within the community. Since most customers and the community, in general, assess the performance of the firms based on their CSR activities, it is important to assess the extent to which these firms participate in community development through CSR. The governments, the customers, the employees and the family firms themselves will need to understand the extent to which family firms engage in CSR initiatives.

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Family firms in Saudi Arabia

Kelly et al (39) note that businesses that are owned and managed by families contribute significantly to the economy of Saudi Arabia. This is because Saudi Arabia is estimated to be one of the countries that have the highest number of family-owned businesses. According to Birley (65), of all the firms that are in existence in Saudi Arabia, 90 percent are fully owned by families compared to approximately 70 percent in the European countries. Chua, Chrisman & Sharma (30) suggest that among the 90 percent, over 500 of them can be grouped as large businesses because of the large volume of business. There is an ongoing debate as to whether the trend of having many family-owned businesses is beneficial or harmful to the kingdom of Saudi Arabia. According to Venter, Boshoff & Maas (290), family businesses in Saudi Arabia are often termed by many people as unprofessional, barbaric and likely to experience wrangles internally due to issues related to succession. King Abdullah has also been involved in promoting multinational businesses through the creation of opportunities for international companies seeking to do business in his kingdom.

According to Brockhaus (169), most of the Saudi Arabians with family-owned businesses believe that family-owned businesses are better and have a brighter future than companies that are run by people who are not related. Parrish (50) notes that leaders in family-owned businesses are visionary because they know that the business is going to benefit the next generation but very few leaders in publicly owned businesses think about the future of the businesses they are running. According to Krueger & Carsrud (320), this is because they are aware that they may not be in the same position many years to come and therefore serve to fulfill their own interests, even at the expense of the success of the business they are entrusted with.

However, family-owned businesses have been heavily criticized. The critics of this form of business claim that it is only the first generation that is involved in serious business. Davis et al (225) observe that the second generation causes the business to stagnate while the third generation is usually the one that squanders all the wealth amassed by the first and the second generations. However, according to Fleming (46), this is not always the case because there are some family businesses that continue to be in existence many years after their establishment and are still doing well. Family-owned businesses are usually faced with the challenge of meeting the needs in the business and, at the same time, taking care of the expectations of the family.

Gersick et al (100) note that foreign companies are currently looking for opportunities to partner with family businesses in Saudi Arabia because it is proving to be a fruitful venture. This method of penetration into the local market is being used by most of the foreign investors who are interested in the Saudi Arabia market. Most of the foreign investors are using this strategy to penetrate the Saudi Arabia market successfully.

Works Cited

Birley, Steve. Owner-Manager Attitudes to Family and Business Issues: A 16 Country Study. Entrepreneurship, Theory & Practice, 2001. 26 (2), 63-76.

Brockhaus, Robert. Family business succession: Suggestions for future research. Family Business Review, 2004. 17 (2), 165-177.

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Bueble, Elena. Corporate Social Responsibility: CSR Communication as an Instrument to Consumer-Relationship Marketing. London: GRIN Verlag, 2009. Chua, Hampton., Chrisman, Johnston., & Sharma, Peter. Defining the family business by behavior. Entrepreneurship, Theory & Practice, 1999. 23 (4), 19-39.

Davis, Alvin., Pitts, Leonard., Cormier, Kelly. Challenges Facing Family Companies in the Gulf Region. Family Business Review, 2000. 13 (3) 217-238.

Fleming, Peter. Helping business owners prepare for the future. Journal of Accountancy, 1997.183 (5), 46-47.

Gersick, Edward., Davis, Andrew., Hampton, Martin., & Lensberg, Steve. Generation to generation: Life cycles of the family business. Cambridge: Harvard Business Press, 1997.

Kelly, Martin., Athanassiou, Nimrod., & Crittenden, Fredrick. Founder centrality and strategic behavior in the family-owned firm. Entrepreneurship: Theory and Practice, 2000. 25 (2), 27-42.

Krueger, Fredrick., & Carsrud, Lewis. Entrepreneurial intentions: Applying the theory of planned behavior. Entrepreneurship Regional Development, 1993. 5(4), 315-330.

Parrish, Steve. Successfully transferring the family business: A new methodology. Journal of Financial Service Professionals, 2009. 63 (3), 47-55.

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Schreck, Philipp. The business case for corporate social responsibility: Understanding and measuring economic impacts of corporate social performance. US: Springer, 2009.

Venter, Everett., Boshoff, Chris., & Maas, Gregory. The influence of successor- related factors on the succession process in small and medium-sized family businesses. Family Business Review, 2005. 18(4), 283-303.

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StudyCorgi. (2021, December 25). Family Firms in Saudi Arabia. Retrieved from https://studycorgi.com/family-firms-in-saudi-arabia/

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StudyCorgi. (2021, December 25). Family Firms in Saudi Arabia. https://studycorgi.com/family-firms-in-saudi-arabia/

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"Family Firms in Saudi Arabia." StudyCorgi, 25 Dec. 2021, studycorgi.com/family-firms-in-saudi-arabia/.

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StudyCorgi. "Family Firms in Saudi Arabia." December 25, 2021. https://studycorgi.com/family-firms-in-saudi-arabia/.

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StudyCorgi. (2021) 'Family Firms in Saudi Arabia'. 25 December.

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