MIDDLE EAST

Franchising in the Middle East

the Alshaya Group facilitates the franchisor’s search, their domi- nance can easily shift bargaining power. Most countries in the Middle East region do not have fran- chise-specific legislation. However, franchise arrangements may be captured by commercial agency laws which essentially provide significant statutory protection to franchisees and local agents and By Joycia Young may displace the terms of a written agreement between the par- ties. The GCC states are Islamic nations and many of the princi- Franchising continues to be the preferred model by which inter- ples of Shari’a law apply to commercial transactions. In addition, national businesses can quickly expand into the rapidly develop- the enforcement of legal rights is difficult as there is no concept of ing economies in the Middle East, without the risk and significant binding legal precedent and a limited ability to obtain injunctions. capital investment traditionally associated with directly establish- As a result, it is absolutely crucial for franchisors to conduct legal ing company-owned stores. Similarly, the franchise model is also and commercial due diligence on prospective business partners appealing for newer regional businesses that and to ensure that the agreements are are based in only one or two countries in The franchise market in the reviewed by lawyers familiar with local laws the Middle East and that wish to extend and their implementation. their footprint either across the six states UAE is dominated by US For franchisors, trade marks and trade of the Gulf Co-operation Council (GCC) – brands. In recent times names are at the forefront of brand protec- the , , tion. Commercial expediency is often the there have also been entries , , Oman and – or reason why franchisors might forget the fun- worldwide. from Asian franchised damentals of franchising and allow a fran- With a 300 million strong consumer brands… but there remains chisee to register trade marks and trade base in the Middle East and North , the names before the agreements are signed. region continues to present remarkable enormous potential for This practice is risky, even assuming the fran- opportunities in the retail sector. This is clear more Asian brands to gain chise relationship is later formalised and in the Kingdom of Saudi Arabia, for instance, traction in the market documented. In many GCC states, trade where nearly 40 percent of the country’s 27 marks cannot be assigned until they are reg- million people are below fourteen years of istered and international brand owners often age. Dubai in the United Arab Emirates (UAE) remains the pre- struggle to wrest control of a registered trade name away from ferred base for franchised operations in the region, given its tax a former business partner based on their contractual rights, status, the comparative stability of its legal and regulatory systems even if they are able to rely on famous trade mark rights else- and it openness to foreign investment. The franchise market in where in the world. the UAE is dominated by US brands. In recent times there have also been entries from Asian franchised brands such as Clyde & Co and Chow King from the Philippines and ’s MarryBrown, Intellectual Property but there remains enormous potential for more Asian brands to Dubai Office: City Tower 2 gain traction in the market. Sheikh Zayed Road Given the popularity of franchising in the Middle East region, PO Box 7001, Dubai, United Arab Emirates the franchisee market is dominated by a small number of players. Tel: (971) 4 331 1102 For example, the Kuwait-based Alshaya Group has successfully Fax: (971) 4 331 9920 brought more than 55 international retail concepts to the Middle Email: [email protected] East and currently operates more than 1,800 franchise stores in www.clydeco.com fifteen countries. While the experience of leading retailers such as

Volume 8 Issue 6, 2010 79