Transcript Dr. Josiane Fahed-Sreih Associate Professor of

Dr. Josiane Fahed-Sreih
Director
the Institute of Family and Entrepreneurial Business
Lebanese American University
Lebanon Economic Forum
Session II – Outlook of SMEs in the Lebanese Economy and Existing
Challenges
Tel: +961 1 780200
Fax: +961 1 780206
P.O. Box 113-6194
Hamra, Beirut 1103 2100
Lebanon
Contact: Ms. Eva Dirany
[email protected]
Dedicated to the Continuity of Family Businesses
Ways to Stimulate the
Innovation Culture
Dr. Josiane Fahed-Sreih
Associate Professor of Management
Founder and Director, Institute of Family and Entrepreneurial
Business
Lebanese American University
Middle East Coordinator and Fellow for the Family Firm Institute,
USA
Beirut, November 29-30, 2012
Program Outline-Supporting SMEs
and Entrepreneurs
The Lebanese Economy
 Profile of Lebanese Entrepreneurs
 Support for Innovation
 Create and Stimulate an Innovation
Culture
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Dr. Josiane Fahed-Sreih
Associate Professor of Management
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The Lebanese Economy
The economy of Lebanon is a
developing economy
 The private sector contributes to 75% of
aggregate demand
 The large banking sector supports this
demand.
 Lebanon has the 54th richest GDP per
Capita in the world.
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Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Private Sector

The private sector in Lebanon employs
most of the workforce, 1,050,000 out of
1,240,000 employment opportunities
leaving to the public sector only 190,000
positions.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Local Work Force: Private vs. Public Sector in Some
Selected Arab Countries
Country
Total Local Workforce
Private Sector
Public Sector
Bahrain
115,800
70%
30%
Kuwait
127,600
1.6%
92%
Oman
274,000
57%
43%
Saudi Arabia
5,000,000
10%
90%
Lebanon
1,240,000
84.6%
15.4%
Source: EIU Reports, 1997
Source: Ministry of Economy, Lebanon, 1999
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Lebanon’s Highlights
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The Lebanese economy is service-oriented;
The main growth sectors include banking tourism,
health and education. (attracting international and
regional interest -as much as 10K-15K USD/Arab
tourists)
There are no restrictions on foreign exchange or
capital movement
Lebanon’s estimated GDP per capita is some
8131.50 USD/year/individual.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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The Private sector is financing the Public
sector
Lebanon’s debt is between 151-160% of the
GDP. 80% of that debt is held by private
banks.
 What this means is that the private sector in
Lebanon is financing the public sector…
 In other words, the private sector provides
social security and services, funded by the
public sector, which in turn is originally funded
by the private sector.
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Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Fuel
The private sector generates 45% of the
electricity in Lebanon.
 Contrary to established laws, some 5.2
million tons of fuel are imported by the
private sector.
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Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Health Services
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As for health service, 80-90% of healthcare
services in Lebanon are provided by the
private sector.
 70% of the funds allocated to the healthcare
sector end up in only 110 hospitals across
Lebanon, and usually not the hospitals in the
poorer areas.
 So, even the healthcare system is a privately
run, public sector.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Entrepreneurship in the MENA
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Access to capital, regulatory framework
and infrastructure and entrepreneurial
education are among the main challenges.
 Arab youth’s newfound interconnectedness
through social media is a game-changer that
will help overcome obstacles standing in the
way of innovative enterprise.
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Source: Arabia Monitor- Economic Research and Strategy- Regional Views – Issue #8 –
07.XI.2012
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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SMEs and Entrepreneurship in
Lebanon (Cont.)

The majority of private companies are family
businesses; these businesses are young , emerging
small and medium size organizations SMEs in the first
and second generation.

In SMES the family plays a leading role, often serving
as the primary source of start-up capital, not to
mention low cost labor and know-how.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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SMEs and Entrepreneurship in
Lebanon
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The family and its kinship network are the central
elements powering the socio-economic system in the
Middle East
The Family Business is the engine that drives
economic development and wealth creation around
the world and the ability to foster an entrepreneurial
mindset across generations is a major element of their
continuity and longevity.
Entrepreneurial-led family firms only have an average
life span of 24 years
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Sources of Financing used by Entrepreneurs (%
of those surveyed)
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Source: GEM MENA 2009 Regional Report. Percentages >100 as several options
accepted in survey.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Study at LAU
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The study explores 112 Lebanese family
businesses. The research question posted is:
“What are the characteristics, attributes and
growth orientations of Lebanese
entrepreneurs; and what relationships, roles
and contributions do family and culture play in
the development of private SMEs?”
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Source: -“Family Contributions to Entrepreneurial Development in Lebanon”, (J. Fahed-Sreih
with D. Pistrui, W. Huang, H. Welsch), International Journal of Organizational Analysis,
Emerald Publishing, 2009 issue 3, 2009, pp 248-261.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Study at LAU
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This study explored four descriptive and predictive dimensions
shaping entrepreneurial characteristics and orientations:
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(a) the psychographic motives and demographic attributes of the
entrepreneur,
(b) the types of businesses being started, as well as their
ownership structure and method of establishment,
(c) family and enterprise relationships related to participation and
influence including employment, investment, and advice, and
(d) how family participation shapes and influences the growth
intentions and expansion plans of Lebanese entrepreneurs.
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Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Results of the Study LAU
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The findings suggest that Lebanese entrepreneurs are
motivated by the need for independent based achievements
and by the flexibility independent work gives.
They are also motivated by the security this gives to their
families.
Entrepreneurs were found to rely on the support of their families
to develop and grow their businesses.
70% of the family businesses surveyed employed at least one
member of their families on a full time basis.
Family participation in the form of employment and investment
was found to have a positive impact on entrepreneurial growth
intentions and expansion plans.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Barriers to Innovation and Competitiveness of the
Private Sector
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In this fiercely competitive, fast paced, global
economy, creativity is not only an important
source for building a competitive advantage,
but it is also a necessity for survival

When developing creative solutions to modern
problems, entrepreneurs must go beyond
merely relying on what has worked in the
past.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Lebanese SMEs
 Lebanese
SMEs suffer from this fierce
competition,
from
the
globalization
phenomenon and from structural factors such
as:
 1- The fragile finance structure of businesses
 2- The inflexible business models
 3- And the focus of the banking sector on
financing the public debt rather than
productive activities.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Improving Competitiveness
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Typically policies to improving competitiveness have
focused on three main areas:
1-providing infrastructure such as transportation,
telecommunication, water and sanitation
2- Improving public services such as education,
health, public services, housing
3- Reducing the cost of doing business by
simplifying regulations, such as making it easier to
open businesses, pay taxes, hire workers, acquire
land and exit from businesses.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Ease of Starting a New Business
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Source: World Bank, “Doing Business Report”, 2012. New firm density is number
of newly registered limited liability companies per 1,000 working-age people.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Land
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By comparing the price of land in Lebanon to
the region, we find that Lebanon stands
among the highest when it comes to the cost
of land.
 Saudi Arabia for instance, offers land for a
symbolic value of 1$ /meter square for every
industrial project to be executed in Saudi
Arabia to promote the industrial sector and to
encourage large multi- nationals to come to
Saudi Arabia for investments.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Fuel
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Another comparison is the price of fuel, in Lebanon the
price of fuel is L.L.36600 for 20Liters the equivalent of
$24.4, for the 95octane and 35900LL equivalent to $23.93
for 98 octane, the government lately decreased it by
5000L.L. the equivalent of $3.33 which is still a way above
the regional rates.
 In Saudi Arabia for instance, the price is around $0.1/Liter
or $2 per 20 liters, which raises the question again, how
can the Lebanese Industry compete at a cost level?
 In the US the price of fuel is around $0.66/liter or equivalent
to $13.2/ 20 liters knowing that the purchasing power of the
Americans is far higher than the Lebanese.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Some Lebanese companies have delocalized to Syria
for instance and hence were able to decrease their
overall cost structures by 80% as compared to their
presence in Lebanon, and mainly the cost of labor
which is much lower and the cost of energy
Such examples show that the Lebanese environment
still needs a number of action plans and policy
reforms and support to be able to compete according
to International standards and at least on a regional
stand.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Recent theoretical advances and successful cases
suggest that, for a local economy to be competitive in
a globalized environment, simply reducing the cost
of doing business, while critical, is not sufficient.
One should advise to take actions aimed at adding
value to local businesses, by creating an environment
that creates incentives for local firms to innovate and
learn from each other, to upgrade the level of
competitiveness of the overall local economy.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Understand the Market

The starting point is to understand the local
economy and the market.
 Interventions to boost competitiveness should
start with a clear understanding of the market
and the main drivers of economic growth.
 It is critical to bear in mind that private firms
determine competitiveness, and government
intervention should merely complement the
market and take effect only in situations where
market failure is present.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Such scenarios include government provision of public
goods, mitigation of negative externalities such as
environmental pollution and traffic congestion,
promotion of positive externalities such as knowledge
sharing, and addressing coordination failures.
It is important, however, to recognize the risks
associated with these types of intervention.
If they are of the wrong type or scale, or implemented
poorly, the possibility of failure is significant.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Cluster Approach
In practical terms, the “cluster approach”
developed by Michael Porter, provides
one pragmatic course of action for
government action plans for
competitiveness.
 The cluster approach offers a practical
framework for policy makers to organize
public and private actions (social capital)
centered on competitive market forces.
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Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Up Grading
The essence of the cluster approach is
to foster innovation and upgrading
among the members of the existing or
emerging clusters in the economy.
 There are no guarantees for success,
and the risk of government endeavors in
economic development is often higher
than that of other types of government
activities
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Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Cautious Approach
Forces outside government control are
often more important than policy
interventions.
 It is therefore important to understand
the key drivers of growth, both internal
and external, and to maintain a cautious
approach towards government
interventions.
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Dr. Josiane Fahed-Sreih
Associate Professor of Management
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The 10 suggestions
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I, then suggest the following:
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Consider Lebanon’s private sector as unique
Joint marketing and investment and export promotion
Value chain integration
Entrepreneurship development and support to SMEs
Support research and development
Skills upgrading
Economic zones
Specialized infrastructure or service
Community economic development
Lower taxes
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Dr. Josiane Fahed-Sreih
Associate Professor of Management
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1-Consider Lebanon's Private Sector as Unique

In pursuing competitiveness, we must search
and formulate a unique set of strategies and
actions that are suitable for Lebanon’s
situation.
 There is no single action that is applicable to
all.
 In fact, the most important challenge is to
propose a unique value proposition and
formulate a strategy that differentiates
Lebanon from the rest of the Middle East.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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2-Joint marketing and investment and export
promotion
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We must support activities that expand the demand for
local products and services, and attract external
foreign or domestic investments.
Taking Brazil as an example with its trade fair and how
the Ceará Footwear Technology Trade Fair (FETECC)
had an impact that went beyond commercial
promotion.
This fair although considered as a marketing tool to
promote cluster sales, FETECC had served as a
learning opportunity for local firms, as it brought into
the region new technologies, inputs and machinery,
which most local producers would otherwise not have
a chance to become Dr.familiar
with.
Josiane Fahed-Sreih
Associate Professor of Management
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2-Joint marketing and investment and export
promotion (Cont.)
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As a specialized trade fair, FETECC brought together suppliers,
buyers, local producers and support agencies, and is one of the
best opportunities to do business during the year, and is an
essential tool for sales promotion, marketing and networking
initiatives.
The event allowed participants to be in close contact with clients
and to reach visibility on the local and national scene. Numbers
were remarkable.
During its first year (1998), a total of 54 firms participated in the
event, which resulted in sales of approximately US$6 million.
Ten years later, nearly 120 firms took part in the event (FETECC
2007), including some operating in footwear business in other
states of Brazil, selected countries of Latin America, and China.
In that year, reported sales reached US$77 million and the
number of visitors reached 12,000.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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3-Value Chain Integration
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An important feature of today’s global economy is the presence of
global value chains, where the R&D, design, manufacturing of
different components, and marketing are undertaken in a highly
integrated fashion but from different locations and by different
firms.
One way to quickly catch up in productivity is to enter into such a
value chain, often starting with a less lucrative segment of the
chain and then moving on to higher value-added ones.
Value chain analysis helps the policy maker to identify the
bottlenecks in the productive chain and to determine which
bottlenecks deserve priority attention of government, which can
be expected to be resolved by the private sector and which
require public-private partnership.
In Lebanon, the major bottleneck in the process is the high cost
of labor relative to the regional market, and high cost of land in
addition to the high cost Dr.
ofJosiane
energy.
Fahed-Sreih
Associate Professor of Management
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4-Entrepreneurship development and support
to SMEs
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Significant scope exists for public policies and actions,
to address market failures that limit supply of finance,
business development services and training, industrial
real estate, information problems faced by start-up
enterprises, and non- competitive market structures
dominated by one or a small number of firms.
In Lebanon, most of those problems were addressed
by ELCIM, however what is still left is to address the
problem of industrial real estate.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
36
5-Support Research and Development

By expanding well-focused, applicable R&D
expenditure, motivating university-industry
linkage, supporting targeted business
incubators, and attracting talents.
 The University /industry linkage is part of the
project, however, identifying interesting
business incubators and supporting them is of
relevance to improve the competitiveness of
the private sector.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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6- Skills Upgrading
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Two of the highest priorities of almost any
cluster’s plan should be the availability of
experienced and skilled labor, and the
customized and specialized education and
training that produce, upgrade, and deepen
skills and knowledge.
 This is performed by ELCIM but could be
enhanced with other educational projects
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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7- Economic Zones
The economic zones offer a combination
of benefits: by facilitating the land
assembly process for industrial
development; providing specialized
infrastructure;
 facilitating inter-firm learning, exchanges
and collaboration through physical colocating of firms; and creating a “cluster”
identity.

Dr. Josiane Fahed-Sreih
Associate Professor of Management
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8- Specialized infrastructure or service
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High quality infrastructure, such as
transport, power, water and
telecommunications, are in themselves
important for Lebanon’s economy.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
40
9-Community Economic Development

In advancing the competitiveness agenda, we
need to look for solutions to address livelihood
and job needs of low-income communities.
 actively engaging in slum-upgrading activities
to improve services
 The challenge is to identify the critical
relationships among the many agents that are
likely to shape the future economic, social,
political and environmental quality of Lebanon
Dr. Josiane Fahed-Sreih
Associate Professor of Management
41
10- Lowering Taxes

Increasing taxes would lead to a structural
damage at a time when the economy is facing
its hardest conditions.
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Lowering taxes for starting a business and
encouraging entrepreneurship would over the
long term increase public revenues, while
creating a climate that would enhance
investments and attract Middle Eastern
investments.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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Achieve a common vision
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The process of strategic planning is to identify the unique,
hidden, intangible capacities of Lebanon, to achieve a broadbased agreement on the unique value proposition and
direction for the country, and to arrive at an actionable
roadmap to achieve a common vision.
We should respond to how Lebanon can be distinctive, and
what is its economic role in its region. In which cluster can
Lebanon build a competitive advantage, and what aspects of
Lebanon are crucial to success when compared to other
locations.
For Lebanon to attract investments to the region it needs to offer
a unique mix of strengths in terms of business environment
conditions and cluster positions; the mere absence of
weaknesses is not enough.
Dr. Josiane Fahed-Sreih
Associate Professor of Management
43
Action Plan
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The establishment of a platform to allow SMEs to implement innovative
ideas more easily
The establishment of the special service platform to ensure safety,
proper packaging, labeling, branding etc.
Support SMEs by providing an E-Platform
Support franchising activities for SMEs.
Support the establishment of new ventures and production capacity
Support the use of Innovative strategies
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The establishment of a link between IRI/ELCIM and SMEs for applied
research projects and development.
 Support research studies for SMEs Support educational programs for SMES
 Capacity building and awareness raisingDr. Josiane Fahed-Sreih
Associate Professor of Management
44
Contact Details
Dr. Josiane Fahed-Sreih
Associate Professor of Management,
Founder and Director, Institute of Family and
Entrepreneurial Business, Lebanese American
University
Middle East Coordinator and Fellow, Family Firm
Institute, USA
Mobile: 961-3 411 811
Fax: 961-9 740 163
Email:[email protected];[email protected];
Dr. Josiane Fahed-Sreih
Associate Professor of Management
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