The UAE possesses a dynamic commercial market of booming business and trade, along with a rapidly-growing population and residential property developments.
The entire region is very business-friendly, shining a beacon of business potential which has attracted a plethora of international companies and expatriate entrepreneurs.
The UAE, and Dubai in particular, offer great opportunities for franchising. In a Khaleej Times article, Farid Karmostaji, Director of Entrepreneur Development Division of Dubai SME, was quoted as saying, “Franchising is one of the most successful ways to start business, and it represents a win-win situation for the franchisor and franchisee.”
Bringing an international brand to the UAE offers the franchisee the benefit hitting new markets with an already-established brand. The franchise model works well for many international brands in UAE including fashion retail, convenience stores, food and beverage, internet shopping, corporate mentoring and much more.
There are many reasons why franchising has flourished in the UAE, including:
- the region’s excellent infrastructure
- state-of-the-art construction developments
- government-led initiatives to diversify the economy and enforce intellectual property rights
- a growing population of expatriates
- a high percentage of wealthy consumers
- an increase in both business travellers and tourists
- a “geographical advantage of being a trade hub”
With the International Monetary Fund (IMF) predicting a 3.4% surge in UAE’s GDP in 2018, now is a great time for foreign entrepreneurs to move forward on plans to expand their international brand into the UAE market.
Here are some things to keep in mind:
THE DIFFERENCE BETWEEN A BRANCH VS REPRESENTATIVE OFFICE
Bringing an international brand to the UAE market is a complex undertaking.
The process begins with deciding how the franchise will be set up. For a foreign investor desiring to bring an international brand into the UAE market (with a desired location outside of a free zone), there are two options: setting up a branch office or a representative office.
Knowing the difference between these options will dictate how much access the business will have, and how it can legally interact within the local UAE market.
For instance, setting up an enterprise as a representative office limits functionality to basically marketing, advertising and lead development for the parent company. Structuring the franchise in this manner precludes the business from engaging in any activity that culminates in direct profits. The parent company itself would need to secure a commercial agent to carry out any sales activities.
While a representative office may work perfectly for certain businesses, many require a more traditional business operation. In these cases, setting up a branch office is the way to go, provided the parent company has existed for longer than two years. This type of formation allows the franchisee to operate and engage in the same activities as its parent company, so long as the specified business activity is approved by local authorities in advance and all regulatory requirements are met.
There is also the option to utilize trademarks to enable local owned companies to trade as internationally recognized brands and establishments.
LOCAL SERVICE AGENT
Regardless of which type of set-up is chosen, and unless the foreign investor is a Gulf Cooperation Council entity (GCC), the business must secure a Local Service Agent.
The LSA must be either a UAE National, or a company owned by a UAE National. This party acts as an administrative representative to the investor in matters dealing with the government (i.e., securing visas, obtaining and renewing licenses and permits, etc.).
The LSA is not involved with the day-to-day operations or management of the business. Likewise, they are not entitled to receive a share of profits, nor a commission, but instead are paid a fixed fee for their services and sponsorship.
Even though the LSA has neither power nor responsibility over the business, they are nevertheless critical to its success. To that end, it is imperative that the foreign investor chooses an entity that is knowledgeably, credible, and reliable.
All terms will be detailed in a Service Agent Agreement which both parties must sign in the presence of a local notary public.
KNOW THE LAW
There are so many civil and commercial laws and regulations regarding franchising in the UAE. Since every situation and business is different, the help of a seasoned and experienced Public Relations Officer (PRO) will help navigate these waters.
Here are just a few examples that may apply;
- Federal laws regarding commercial agencies, transactions, contracts, and more
- Intellectual Property Laws for copyrights, trademarks, and patents
- Local labour laws
- Local municipality governances and rules relating to signage and business names
There are other laws and guidelines to adhere to as well, including such things as Islamic dietary laws, local customs and dress, and trade barriers that either prohibit or otherwise regulate certain products within the UAE.
A qualified PRO services agency can advise about laws, rules, regulations and guidelines that may have relevancy based on the type of business.
TRADE NAMES, TRADEMARKS AND INTELLECTUAL PROPERTY
A slow and expensive step in the process—albeit a necessary one—is filing all necessary paperwork with the proper authorities to federally protect trade names and trademarks, along with other intellectual property.
Prior to entering the UAE market, companies are advised to register their trademarks, logos and business practises with the Ministry of Economy. This not only establishes user rights, but provides first-to-file priority, while preventing franchisees from registering trademarks in their own name.
Likewise, the Department of Economic Development (DED) must receive a branch office proposal in order to grant a license, and the franchisee also needs to reserve their trade name with the DED.
A PRO IN YOUR CORNER
There are many other steps to take, decisions to make, and mounds of paperwork to deal with in order to finalise the process of bringing a global brand to the UAE.
A Corporate PRO Services professional will take care of all the details, saving the franchisee time and money, while avoiding any potential legal infractions due to rookie mistakes.
In fact, some business owners have complained about the UAE’s “lack of clarity of the set-up process,” and claim it is nearly impossible for a foreign investor to open any kind of business there without the assistance of a PRO services agency.
As one entrepreneur stated in a Gulf News article about starting a business in the UAE, “it is almost a given that you need to engage PRO services and work with firms that specialise in company set up to get your business going.”
Click here to learn more about bringing an international brand to the UAE.