Of all the areas in the world to expand a brand, the Gulf Cooperation Council (GCC) in the Middle East may be the most desirable
“GCC countries have welcomed U.S. franchise brands for more than 20 years. Just about every U.S. food and beverage franchise has been tried in this region,” explained Bill Edwards, CEO of Edwards Global Services. “It is common in the GCC to find companies that have acquired and developed multiple franchise brands.”
Since 1981, the Arab states of the Persian Gulf (sans Iraq) – namely Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Bahrain and Oman – formed a political and economic alliance to promote and protect their shared interests and identities, including common objectives as well as political and cultural values, which are rooted in their Islamic heritage. Some 55 million people (almost two-thirds of them living in Saudi Arabia) occupy a million square miles along the Gulf and generate a collective GDP of about $3.5bn.
Expanding to the Gulf can be a rich opportunity for franchise companies from America, Europe and beyond, and it’s made all the more tempting by well-to-do, western- friendly, often smartly educated GCC residents who are eager to own and expand foreign brands. “Be prepared for your licensee to be a U.S. billion-dollar group,” continued Edwards, “with a wide variety of business holdings. Expect the average annual unit sales for your franchise to be higher in this region as will be the prices charged to the customers.” The customers, you’ll discover, are mostly young and affluent, or at least they have discretionary income to spend on things that make them happy. This often includes food, clothing, household goods, travel, and a variety of services and other products. Many of these customers are easily persuaded to become franchisees, especially if they studied abroad and became familiar with franchise brands.
“A good foreign franchise doesn’t need to spend much time convincing GCC consumers of its value and benefits”
Favorable business regulations
It helps that the GCC countries offer mostly favorable business regulations and that GCC governments are keen to help their citizens prepare to discover and acquire entrepreneurial businesses that can create jobs and lessen reliance on government coffers. GCC governments are known for providing start-up capital to residents who meet minimal requirements so long as the beneficiaries agree to expand their operations within the region. These same governments will help educate citizens about business, entrepreneurship, and franchising.
The segment of the population that appreciates franchising is as interested in systems and regulations as it is products and services sold by franchises. Franchise prospects like franchising because it provides a system of success to people who want to own a business and then requires those people to follow standard operating, marketing and accounting procedures established by the “parent” company. Those who become familiar with franchising see how it can help a country boost its economy while also meeting consumer demands for more reliable products and services.
A good foreign franchise doesn’t need to spend much time convincing GCC consumers of its value and benefits. And if the business hails from North America, Great Britain or Europe, it’s almost instantly more popular and its “coming soon” notice will create unfounded anticipation.
TRIED-AND-TESTED ADVICE
David Wild, director of franchising at U.S.-based Sloan’s, which offers “luxury ice cream,” has sold nearly 40 per cent of his franchise units to investors in Saudi Arabia and Kuwait. He offers these recommendations for franchisors looking to expand into the GCC:
1. Family pride often drives business acquisitions in the GCC
It’s not uncommon for an individual or several family members to acquire a brand simply because they don’t want anyone else to own it. They may have plenty of money and connections, but they may not be competent operators. Or they may be capable, but they’re distracted by other, bigger opportunities and they don’t develop smaller opportunities. Still, controlling the brand in their market may be what’s more important to them. Wild explained: “A few companies/families own an outsized portion of the businesses in a market. This can be great if you land an important person as a franchisee.” However, there are too many variables to guarantee that your brand will get sufficient attention. Know who you’re selling to and better yet, know why they want to buy your brand.
2. Avoid following the money!
Or don’t just follow the money, which is easy to do. “A lot of people in the GCC have a lot of money,” said Wild. “This doesn’t mean they will be good operators.” It’s important to discover what other businesses they own and to evaluate the performance of those businesses. If they own franchises, find out how much of their money and time is devoted to developing units in the GCC. “Reach out to the corporate offices of those other brands,” advised Wild.
3. Build a very strong relationship with your franchisee prior to inking the deal
“With a franchisee very far away, especially in the Middle East, keeping control of your brand is very difficult,” said Wild. “Make sure to spend the extra time validating them, meet them in person, check their other business dealings, and make sure you have a mutual respect before moving forward.”
4. Don’t put your deal in writing until you’ve worked with a GCC-savvy franchise attorney
This is extremely important. People in the GCC are often used to “doing deals” without documenting them, especially if the deals are between “cousins,” “long-time friends,” or “family members.” Investors in the GCC place a lot of emphasis on personal trust, thus they’ll want to spend time getting to know you, too. However, as Wild explained: “The Middle East uses a different style of negotiating.” It’s not a style that’s familiar to westerners. “Additionally,” continued Wild, “several countries may allow or require agency laws which can put you at a significant disadvantage if the relationship goes south.” Don’t make a move you can’t get out of without first consulting with your attorney.
5. For American brands, this is the time to utilize the services of the U.S. government
American embassies are very popular in the GCC and the people who represent the U.S. have developed excellent local relationships. They also know the personalities in their respective country. Wild added: “U.S. embassies always want to encourage foreign investment in their host country and frequently they know the biggest players in the market. They can make an easy introduction for you that may be the ideal candidate.” At the same time, they can keep you out of trouble!
Both Edwards and Wild agree that marketing a franchise brand in the Middle East can be lucrative and rewarding to a franchisor. Furthermore, this area of the world will only increase in its appeal for franchise expansion.
THE AUTHOR
Dr. John P. Hayes is Titus professor for franchise leadership at Palm Beach Atlantic University in West Palm Beach, Florida. He directs the Titus Center for Franchising, which recently signed an agreement to bring franchise education to the GCC countries, starting in Bahrain.
