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Wednesday 19th January, 2022

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Development essentials for Middle Eastern growth

Asia

Development essentials for Middle Eastern growth

The recent crises have laid the groundwork for expansion into this exciting franchise region

The Japanese concept of ‘Kiki’ is an unfamiliar one for those living in the West. It means both crisis and opportunity. The inherent meaning of this confusing concept is that every crisis is but an opportunity for change. For progress. For success. And this could not be more relevant to us today.

We live in an era of crises on an unprecedented scale. And the opportunities are just as grand and potent. A well-trained eye will observe the emerging trends. A hungry soul will capitalize on them. We have lived through a year of upending chaos, and a new world order is crystalizing before our eyes. What can we see?

Growth. Variable and still broadly uneven, but the global economic upturn has markedly begun. Franchising has been a documented success story of the pandemic, even at a time when entire sectors of the global economy were being decimated. More and more people have turned in the past year to franchising as a model for commercial success, with over 90 per cent still successfully operating franchises one year on in the U.S. and U.K.

The Middle East, particularly in the G.C.C., is a mirror of this trend.

“For a franchisor, existential questions should already be answered before expansion is seriously considered”

Harnessing a regional gateway

The U.A.E. effectively serves as a regional gateway into the notoriously lucrative market of the G.C.C. and the wider Middle East. Dubai in particular, with its majority ex-pat population and friendly attitude to business, is a playground of household brand names in the West.

Many of those brands use local knowledge to expand in the region and beyond. The potential of franchising in the region is immense and only growing. But the pitfalls could mean the difference between profit and trouble.

Any franchisor looking to expand outside of their territory understands that there may be cultural, linguistic, economic, social, legal, or myriad other nuances and subtleties that are very much worth paying attention to. Because they can affect the bottom line quite dramatically.

A failure to grasp the territorial context turns a business venture into a naked gamble. Planning and preparation become paramount and an unfamiliarity with the terrain starts to dwarf the chances of success.

Franchise law – or lack thereof

It is important to understand the implications of franchise law, or lack thereof, within the G.C.C. Historically the G.C.C. has adopted a laissez-faire approach to legislating specifically for franchising and each country has opted to subsume those activities under their own version of a Commercial Agency Law.

This arrangement was always favorable to franchisors looking to expand into the region, as there were very few legal or regulatory hurdles to impede quick expansion. In a first for the region, Saudi Arabia enacted legislation in April 2020 looking to protect franchisees and implement international best practices in line with the West.

Whilst the legislation certainly is not prohibitive, it is indicative of the legal meanderings one needs to be aware of when looking at expansion across the Gulf. This legislation was certainly anticipated by those with knowledge of franchising in Saudi Arabia, which has sustained years of incredible growth in franchising both from without, but also within, the G.C.C.

Understanding culture

Likewise, culturally. Labor in the U.A.E. is predominantly foreign, which is something to consider when recruiting a team and building the communication structures that will need to work together effectively to maximize the potential for success.

If a skilled accountant is required in Dubai, more often than not it would be more prudent to advertise in India or the Philippines than it would be to advertise locally in Dubai. Then there is the communication method and format between the business and the customer base. If these are not tailored to and understood, time is wasted. Money is wasted.

The pitfalls are so easy to fall into without adequate, experienced guidance. The Middle East has its own way of working, its own way of making it all come together. Dubai dares you to dream big. If you think you have a concept for the U.A.E., you need to think about how that puts you in Saudi Arabia and Bahrain in five years.

If you want a rollout across the G.C.C., look at the gift of a wider Arab world of over 300 million people. Egypt, Jordan, Iraq – they are all waiting. The route is a proven one. International franchisors get a foothold in the U.A.E. before a rollout across the region.

“Labor in the U.A.E. is predominantly foreign, which is something to consider when recruiting a team and building the communication structures that will need to work together effectively”

It is such a tested route to expansion that the region is seeing a variety of Dubai-based franchisors expanding out into the G.C.C. and beyond. From fashion and fitness to food and services. This is because a successful model in the U.A.E. can be replicated and rolled out with minor but significant tweaks to the operational structure.

For many foreign franchisors, the U.A.E. almost acts as a shallow pool to the deeper G.C.C. It is less daunting and the environment is less unfamiliar, so the setup needs less adjusting. And the rewards of this particular shallow pool have a global reputation for being rather significant. It is the natural step now to expand from Abu Dhabi to Riyadh, and homegrown successful franchisors are taking full advantage of the ease of expansion.

Incentivizing initiatives

There are interesting initiatives across the region that have recognized the role franchising has to offer for expansion and, as a result, they are providing added impetus to local ideas and businesses.

We have teamed up with a local consultancy to offer our services to a state-owned bank in Saudi Arabia, for example, looking to significantly invest in 60 SME’s and franchise them out as a way of growing these businesses and as a proven method to empower local SMEs. This particular initiative is looking to be self-sustainable by acknowledging that, with the right help, homegrown businesses can expand nationally and internationally by franchising.

The 60 SME’s chosen from a list of 200 demonstrate clear commercial potential but are simply lacking the internal expertise to transform them into a successful franchise.

The most recent trend has seen homegrown franchisors expanding into Europe via the U.K. The U.K. market is mature, stable, and secure, and offers less capital risk. The historical ties between the U.K. and U.A.E. and the lack of linguistic barriers (English is the formal language of business in the U.A.E.), coupled with the nearby affluent European market of 500 million people, has seen the U.K. become the stepping stone to European expansion for franchisors from the U.A.E.

Lay the groundwork early

For a franchisor, existential questions should already be answered before expansion is seriously considered. Once the level of risk has been determined, a financial information analysis has been completed, the marketing has been done and the cash flow projected, and when the housekeeping is done and is all in order, then the real question of expansion begins. Growing a business does not fix any problems; the foundations have to be sound before you can truly build something stable on top.

It is not enough to know that there are a plethora of differences in a new market; each difference has to be known and appreciated. Each one has to be adapted to and catered for.

Which language is on the branding? Is translation necessary? Is a master franchisor model suitable for the market or is it best to operate as a joint venture? What are the risks associated with local partners? How do I find a trusted local partner? Are there any tax-free zones or tax breaks this business can benefit from? Is a single site more or less risky than multi-site? Are there territory-specific marketing methods to be aware of? What systems will a franchisor need to adapt to the local population?

“To be successful, you have to play the game. To play the game, you have to know the rules”

The immediate future seems almost apparent, at least from certain perspectives. Cloud kitchens are on the rise in food and beverage; online shopping is continuing to gain dominance in fashion, groceries and household items; the travel industry has already begun a grand awakening; and our relationship with entertainment is being redesigned and revolutionized.

These are seismic changes. These are themselves opening new fronts for expansion into new sectors and territories. In the face of the tumult, the only choice is to dream big, plan big, and go big. The opportunities are real. Your money is real. Invest in the people and organizations that can shape your business to your customers, but also the climate to your business.

Across the entire Middle East and North Africa region, business is personal. Relationships matter. Knowing the right people opens doors quickly – this is a simple fact here. Religion and tradition permeate almost every aspect of commercial life. And commercial life very much starts to blend with social life.

To be successful, you have to play the game. To play the game, you have to know the rules. Get some help in understanding the local context for your concept, and see how bold your goals become. In Arabia, when you put your foot down, you aim to leave a mark. Here, the sky is the limit.

The author

As the Middle East director for Accentiá, Khalid is responsible for the market entry and development of international client brands within the region along with assisting successful local small and medium enterprises (SMEs) to expand globally

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