The good standing of Saudi Arabia’s franchising sector is one of the main reasons why international companies are drawn to signing franchising deals in the Kingdom. It was found that over three hundred foreign brands or companies have franchised in the Kingdom, and this has been a successful approach for establishing their businesses.
Saudi Arabia has the largest retail market in the Arabian Gulf region. Aside from the food and beverage market sector, which has always been a mainstay of franchises in the Kingdom, one of the strongest market sectors is fashion (clothing and footwear) retail.
For the food and beverage sector, many western franchises have had a foothold in Saudi Arabia for a considerable amount of time. Franchises like McDonald’s, which is extremely popular in Saudi Arabia, has been operating since 1993. Starbucks has been since 2000, and KFC since 1973.
Suffice it to say that in Saudi Arabia, there is high demand for western brands, and this high demand is attractive for businesses and potential franchisors who want to expand their markets.
That being said, there are four important things which I would advise international clients to take note of when developing in the country:
“There is no better time for prospective foreign investors to look into the possibility of expanding their business into the Kingdom other than now”
1. Choose a reliable law firm
The new franchise law that took effect has introduced a lot of new concepts and provisions. Because of this, it is suggested that you seek professional legal counsel so that you may properly comply with all of the requirements set forth in the law.
2. Be careful with franchise agreements
More often than not, the franchise agreements proposed by western countries are inappropriate in Saudi Arabia’s regime.
The Kingdom’s franchise laws have a lot of special requirements which may not be found in other countries. Due to this fact, international clients should make sure that they have ample knowledge and understanding of these laws and how this will affect their franchise agreements so that they may have the best practice for business development.
3. Don’t ignore the essentials
The registration of documents is something that companies should not overlook. The Kingdom’s franchise law has made it mandatory for the agreements, together with some documents, to be registered in the appropriate ministry or department.
For international clients’ best practice business development in Saudi Arabia, they must avoid any kind of issue with regard to the mandatory provisions set forth by the law.
“Saudi Arabia has the largest retail market in the Arabian Gulf region”
4. Stay abreast of new changes
It is important to note that the government of Saudi Arabia has officially published a resolution that has enacted the Commercial Courts Law, which has enhanced the capability of the judiciary in the Kingdom.
On one hand, this new law gives foreign investors added confidence and security, knowing that their investments and their interests thereon are protected by provisions that widen the scope of cases that can be heard by the commercial courts, provisions that entitle the courts to utilize the services of private institutions in select administrative tasks and provisions which specify mandatory time limits within which the courts must resolve cases submitted to it.
These provisions greatly contribute to the improvement of the speed and efficiency of the administration of justice in commercial cases.
On the other hand, the law contains a provision that obligates parties to submit themselves to modes of alternative dispute resolution in the conduct of their cases. This is actually one of the best business practices that a company can adopt since, from my experience and practice, conducting mediation or arbitration is more beneficial for the preservation of business relationships (and not to mention cheaper), than embarking on the lengthy, rigorous (and quite frankly, expensive) process of litigation.
Additionally, as a lawyer with particular specialization in franchising, I have earned and developed an established network of colleagues and connections in the franchise community and fortunately, through this network, I can share exclusive good news such as how an authority in Saudi Arabia that is involved in franchising will be establishing a new mediation center that is framed similarly to those international centers.
These will solve disputes between franchisors and franchisees, are built under the best business practices worldwide, and are in accordance with the Vision 2030 of the Saudi government which facilitates all kinds of businesses to entice foreign investors to invest in Saudi Arabia. In summary, from the new franchise law paving the way for better business opportunities, to laws like the Commercial Courts Law safeguarding the rights and interests of prospective investors, and to the fact that the Judicial Regime in Saudi Arabia is in the best situation nowadays, I can say that there is no better time for prospective foreign investors to look into the possibility of expanding their business into the Kingdom other than now.
Mohammed Almuzayen is a senior lawyer who is an expert in franchise law and the founder of Mohammed Almuzayen Law Firm. He graduated from King Saud University where he obtained his Bachelor of Laws degree