As a sprawling territory of half a billion inhabitants across 18 nations, the Middle East is better described as a quasi-continent than mere region. Yet, by implicitly restricting the term to the region’s affluent nations, the international franchise community largely prefers the converse. To them, that’s the Middle East that matters. Besides, all roads to opportunity in the rest of the region and Asia usually pass through the subset of these energy rich economies.
Semantics and economic disparity aside, the broader success of international and domestic franchising in the Middle East during the past two decades is indisputable. But right now, in a business environment where change is pervasive and decidedly exponential, simply good just isn’t good enough anymore. As every established franchising norm and notion is relentlessly put to the test, the writing on the wall for the Middle East is loud and clear. Marshal Goldsmith’s famous bestseller couldn’t have said it better – “What got you here, won’t get you there”. Let’s make that “definitely won’t get you there”.
While most of today’s business woes are hung on the pandemic hook by default, Middle Eastern franchising was facing headwinds pre-COVID-19. Economic, technological and behavioral shifts are some of the causative factors that have widely been written about. And then COVID exacerbated them a hundred-fold!
The only way the franchise industry can continue to thrive through these challenges is by a hyper transformation of its own – one that should preferably have begun yesterday. An honest collective review of the present, followed by radical acceptance would be a great precursor to the process. Areas that warrant a closer look and inspired action are as follows:
1 Mend the fractured franchise space
The Middle East is home to world-class annual mega-expos in the fields of food, interior design, technology, construction, and travel to name a few. The sheer scale and depth of these events reflect the participants’ collective commitment to the greater cause of their industry, the benefit of which inevitably circles back to them and the region.
Middle Eastern franchising events, by contrast, are mediocre at best and dare one say, even a tad underwhelming. Service providers, event organizers, brokers, consultants and major franchise operators balk at the slightest suggestion of cooperating outside themselves. Multiple mutually exclusive franchising camps jealously guard their domains and brand portfolios. And because of this disunity, franchising remains less than the sum of its parts in the region.
This self-defeating territorialism does nothing but diminish the entire entrepreneurial ecosystem, and it’s high time that parties rid themselves of this myopic attitude and cooperate. This would pave the way for a more inclusive and dynamic franchise industry, while franchise events, unbeholden to individual consultancies and their portfolios, would have the opportunity to flourish.
2 Focus on real franchise education
Access to a robust, relevant and contemporary education is central to the health of a region’s franchise industry. But the franchise knowhow and insights dispensed by industry experts in regional events and entrepreneurial forums are typically shallow, trite, and heavily self-promotional. It appears that knowledge is only worth disseminating if it promotes a specific brand or organization in the immediate franchising sphere.
“Access to a robust, relevant and contemporary education is central to the health of a region’s franchise industry”
Of course, there’s always the Certified Franchise Executive (CFE) program by the International Franchise Association (IFA), which is considered the definitive certification in franchising. But obtaining it can take two years or more, thousands of dollars, and considerable travel. That makes it elusive and even prohibitive for the majority of individuals.
To build on earlier successes therefore, Middle Eastern franchising needs to develop structured education programs, free from special interests. These should be targeted at entrepreneurs, corporations, and potential investors from both sides of the franchisor-franchisee divide.
Importantly, the focus shouldn’t be limited to the nuts and bolts of franchising, but how to rethink the traditional franchise model, challenge established paradigms, and accommodate the long-term uncertainty of the new normal.
3 Implement bolder franchise agreements
Franchise agreements are notorious for being lopsided in favor of the franchisor. A deviation from established norms is strongly resisted by the franchisor because the unknown is uncomfortable, and their lawyers don’t recommend it. This narrow-mindedness is archaic, naïve and mutually damaging, and actually keeps many new potential doors from opening.
Points that deserve legitimate consideration in agreements include compensation to franchisees for measured enhancement of brand goodwill, performance-based fee structures as standard, and compensation for region-specific R&D by the franchisee.
It’s important to remember that besides a foundational legal framework, the only other mandates applicable to franchising are those agreed between two parties. “That’s not how we do it” is an indefensible opportunity killer.
4 Keep out legal deception
Apart from Saudi Arabia’s recent franchising legislation, most countries of the Middle East don’t have specific franchise laws. That said, the commercial agency laws largely suffice in governing franchise relationships.
Nonetheless, barriers to entry in the Middle Eastern franchise space must be raised with the help of additional regulation. There are more than a few documented cases of unscrupulous franchisors responsible for heavy losses to local investors taken in by their deceit and bluster.
Franchising laws like that of China, which require at least two company stores to be owned and operated by the brand before franchising, would have preempted that. And while this is being seriously considered, a mandatory franchise disclosure document (FDD) would add an extra layer of protection and accountability.
Simply put, keeping the bad out will create more space to accommodate the good.
5 Keep demographics front and center of franchise strategies
The average age in the Middle East is 26, which implies a high percentage of millennials and Gen-Zers. These individuals are typically wired differently. Whereas entrepreneurship appeals to them strongly, they also highly value individualized experiences. That may be an oxymoronic challenge for franchisors, but a willingness to tweak their models will go a long way.
That would mean that cookiecutter is out, and dynamic is in. Whereas some western franchisors have tangibly acknowledged this (for example, some popular coffee franchises have a different look and feel for each outlet), the majority retain a rigid outlook.
At the other end of the demographic spectrum, contemplating retirement in the Middle East, especially in many of the oil-rich G.C.C. nations, is now a real option for many expatriates. Thanks to new progressive laws, the aging population of tomorrow will not only be that of locals, but also of foreigners who were previously compelled to return home on retirement. This will necessitate significantly more services in healthcare, home-care services, wellness tech, nutritional assistance and the like.
Greater demographic awareness will not only facilitate targeted investments, it will also enhance the success rate of regional franchising as a whole.
6 Prioritize thought leadership, progressive franchise associations, and the greater good
Industries prosper when they dare to look beyond immediate profitability toward the greater good. As an example, numerous self-employment opportunities have been created in some of the world’s impoverished communities with the micro franchising model.
The French food giant Danone’s initiative in rural Bangladesh is an excellent case in point. They purchase milk from local farmers, produce a nutritious yogurt from it, and then women from the same areas are given the opportunity to be sales ladies (or micro franchisees). That’s win-win-win, with the fourth win for franchising.
Also, the regional franchise associations should assume the role of think tanks that encourage cooperation, peer-to-peer mentorship, franchise CSR and the development of new ideas based on value and convenience. This would add significant value to the Middle East franchise industry at large. So far though, despite the pretense, many of the regional franchise associations are simply glorified franchise brokers.
7 Remember that Israel is the Middle East, too
Recent developments on the political front have the Middle Eastern nation of Israel showing up on regional franchise radars for the first time. In the past, as a precondition (explicit or implicit) to operate in the wider Middle East, even many Western brands would stay clear of it. But with its commercial pariah status diminishing rapidly, this robust, knowledge-rich economy and its world famous business acumen is becoming more relevant by the day.
In fact, some prominent Middle Eastern businesses are already being acquired and restructured by Israelis at the time of writing this article.
Furthermore, as it was deprived of many quality franchising experiences for so long, the Israeli populace is eager to invest and partake in new franchise experiences from the region and beyond. This has already made it a promising target for overseas franchisors.
All in all, the introduction of Israel has significantly enriched the franchise potential of the Middle East, and the nation is poised to feature prominently in its business discourse for years to come.
What the future looks like
The worldview on franchising in the Middle East remains divergent, with some even viewing parts of the region as transitioning into a mature franchise market. But a mature market inherently refers to one that has plateaued after attaining optimal growth. That is not the kind of maturity this region has or needs at this point. The maturity here needs to be symbolized by a culture that encourages openness, collaboration, adaptation, innovation, humanity and departure from convention.
The new reality of franchising in the Middle East must be that of an industry that’s progressive and self-aware. An industry that demonstrates a clear preference for nurture over exploitation, of goodness over greed and of fresh ideas over dogma. The collective message to the world should be emphatic and unambiguous – “if you embrace these values, we are ready for business”. Now that would be real maturity.
Sanjay Duggal is the CEO of the Abu Dhabi, U.A.E.-based Stellar Eastern Franchise & Retail Advisory, which provides indepth consulting on how to navigate the Middle East franchise industry