Similar to Egypt, the United Arab Emirates (U.A.E.) experienced its first influx of major international franchise brands in the late 1970s and early 1980s, with Western concepts keen to tap the financial potential that comes with expanding into this cash-rich region. Lesser-known operations followed suit, and the U.A.E. is now a popular destination for any international franchisor looking to expand beyond the West.
The U.A.E. is often regarded as a homogenous market, but it’s important to remember that this region is comprised of seven unique, distinct emirates: Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Fujairah, Umm al-Qaiwain and Ajman. The largest of these, Abu Dhabi, is 87 per cent of the overall land mass for the country, and houses 38 per cent of the total population. It is also the political capital of the country, and one of the first places that franchisors tend to target as part of expansion agreements.
This could be a mistake, however. While Abu Dhabi is naturally an important cornerstone of the market, focusing all efforts on just one of the seven emirates could leave other possibilities on the table.
“Some franchisors don’t think of the country correctly. They think of the U.A.E. as one entire country, and don’t appreciate the separate markets and that some are quite a distance away. Having a unit in Dubai is not going to service the market in Ras Al Khaimah. If people want to penetrate that market, they need to think about locations in submarkets,” explains Babette Marzheuser-Wood, global head of franchise group at international law firm, Dentons.
“It’s the same as when you may develop somewhere like Germany. Is the deal for 50 units in Germany as a whole, or one in Berlin, one in Hamburg, one in Dusseldorf? Some people don’t go into that level of detail; some brands even give the entire G.C.C. to one partner.”
A lack of franchise law
Unlike the newly-regulated market of Saudi Arabia, the U.A.E. doesn’t have any specific laws governing franchising. That being said, there are still legal and regulatory issues that affect franhchisors, and could inhibit growth in particular parts of the country.
Previously, only U.A.E. nationals or corporations wholly owned by U.A.E. nationals were permitted to carry out business operations in the country. However, like with other regions of the Middle East, the government has since been working to make this a more accessible market for foreign investment.
There are also sector-specific considerations such as Islamic dietary laws to contend with; not a deal-breaker by any means, but attributes that are unique to this part of the world.
With regards to the former, this means that identifying the perfect local partner is paramount. But considering many local entrepreneurs are well financed, how can franchisors qualify which development partner would be best for them?
“Some of the families own some shopping malls so having access to leasable sites depends on what families you’re with. Because a lot of the deals are G.C.C.-based, it’s good to look at your partners and ask if they’re truly operating in multiple countries or if they’re based in their home country and may have one or two outlets elsewhere,” says Melissa Murray, a partner at law firm Bird & Bird.
“Doing some proper due diligence is key. Some franchisors that we’ve spoken to haven’t done enough due diligence because it’s an interesting dynamic; when you’re in the States and coming out here, quite often, the master franchisee will be a lot bigger than the brand. There’s a lot of negotiating power that they have, as well as capital.
“We have some franchisors that have franchised and then the franchisee says that they want to outright buy the brand, or do a joint venture structure. In some situations, there’s unequal bargaining power when you’re coming into those conversations.”
Understanding local demand
Franchising has permeated every possible sector imaginable, and you can often find a franchise brand for any kind of business you may want to own. However, there are always domestic nuances in a country that may promote or prevent certain market verticals from really taking hold. A medical care franchise from the U.S. may not perform as strongly in the U.K., for example, due to how both markets’ healthcare systems differ.
“The U.A.E. is often regarded as a homogenous market, but it’s important to remember that this region is comprised of seven unique, distinct emirates”
The same can be said for the U.A.E. Food franchises are wildly popular (like they often are around the world), but not every kind of operation can find success.
“I would say the focus in the U.A.E. is on retail and hospitality – hotels and restaurants, specifically. There isn’t much in the fitness industry, and hardly anything at all in the domestic and general services areas,” explains Marzheuser-Wood.
“That is because there’s a large population of foreign workers who do their work for a cheap wage; there’s no need for a franchise. This is contrasted with somewhere like the U.K., where people can’t find cleaners, gardeners, or plumbers.”
As mentioned by Melissa Murray, due diligence is crucial. This has always been the case with international development, but it’s doubly important in the Middle East – there’s prosperity to be found, but you’re certainly not in Kansas anymore.
The U.A.E. by the numbers
Population: 10 million
Size: 83,600 square kilometers
Primary language: Arabic