U.S.

Franchises available in Saudi Arabia

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Abstract

In this particular paper, U.S. franchises in Saudi Arabia is the main statement for

discussion. A good number of US franchises are offering great opportunities in the country in

order to grow a successful business in any given industry. Further, there is a website platform

named ‘franchise direct’ which has got a number of franchises listed in it. This online platform

has got many other franchises from other countries like France, Canada, Ireland and many others

but in this case here we focus only on the U.S. franchises in Saudi Arabia. In addition to that,

there are some factors that may have contributed to the success of these U.S. franchises in Saudi

Arabia that needs to be analyzed, and lastly the risks involved with establishing any franchise

business in Saudi Arabia.

Introduction

A franchise business is basically a business whose owner, commonly referred as a

franchisor sells the rights to their business label to a third party, known as the franchisee. In other

words, it can be described as a method of distributing products or services and intellectual

properties to interested investors who can thereafter operate within that established business

model. For this entire process to be effective, a franchise agreement that is made to legally bind

the two parties as well as lay out the rights and obligations for each. These agreements are

mostly reviewed by lawyers familiar with franchise matters. Control of franchises requires that
the franchisee to use the same business methods, signs, logos and uniforms particular to the

business itself.

American franchise systems are on the rise, expanding to new markets across the globe.

These American brands have fueled job creation as well as promotion of exportation of

American products and services across the globe. Looking back at history, franchising has been

successful globally with most of the economies from all over the world having benefited from

the franchise model. American franchising offers product and services in over three hundred

categories including food, educational services, professional services, auto care, lodging,

accounting and tax services, retail products among others.

In Saudi Arabia, according to IBP, Inc. (2015), franchising has been an increasingly

popular approach to establish consumer-related business in Saudi Arabia. The Saudi Arabia

franchise market is relatively small compared to that of the United States. Nevertheless,

according to reports and local study, the market in expected to expand on an average of ten to

twelve percent annually in the next three years. U.S. franchises in Saudi Arabia has been steered

by the Saudi’s desire to own their own business as well as the appreciation of the western

methods of running businesses. American franchises dominate the Saudi market. There are a few

US brands that have recently penetrated into this market. These include; Krispy, Kreme, TGIF,

Gap, Curves among others.

Franchising became popular in Saudi Arabia as a way of running business. According to

Mohamed A. Ramady (2010), most of the towns and cities have the world-famous franchise

brand names, whereby US takes up to 35-40% of the franchise market in Saudi Arabia currently.

With a population of about 32 million in the year 2017, it is estimated that 83 percent of this

population live in urban areas, where these franchise outlets are mostly located. The other factors
suggesting a positive outlook for franchising in Saudi Arabia especially by the US brands is the

growth of the retail sector due to high internet penetration that has adverted online ordering as

well as home delivery for both food and non-food items. Concerning the increasing interest of

US franchisors to the Saudi economy, it is noted that since the oil-boom of the 1970s in Saudi

Arabia, the country has been a prime destination for a good number of franchisors who offer

innovative methods and models of business especially in the food sector. The kingdom of Saudi

Arabia, being relatively a new country with vibrant and young population, has enacted

commercial agency law that mostly governs the nationalization and registration of franchise

businesses. Concerning nationalization, it is stated that only Saudi Arabian nationals may serve

as commercial agents in Saudi Arabia. Therefore as far as franchising is concerned, the

franchisee must always be a Saudi Arabian national. For the registration, a commercial agent

must be registered at the commercial agent’s registry, at the ministry of commerce and

investment.

The website provided has included many items, not only franchises involving US and

Saudi Arabia, but also other regions which viewers can search in regard to their interests. It has

provided over fifty industries offering franchise opportunities. Most of the industries provided

are common most countries. Any person visiting the website can be able to search in any country

of interest. Countries with franchising opportunities have been listed under the ‘start location’

button at the right side of the webpage. At the right top of the same website, we have a list of

countries where the franchisors are. This platform further provides a range of investments,

whereby any viewer can search the availed franchises depending on the amount at stake. This

varies from as high as high as $500,000 to as low as $10,000. For an overview purpose, there is

provision of search at any amount. We have more relevant information provided including
popular searches as well as resources to ensure viewers capture important information

concerning franchise. Having chosen Saudi Arabia in our discussion, we find out a good number

of companies posted at the home page. These companies can be sorted by name, investment or

relevance. They are further filtered by industries. The top companies appearing with relevance in

all industries and investment include F45 Training, Chem-Dry Cleaning, Classic Rock Coffee

Company among others. Therefore from the general view of this web platform, there are as many

US companies willing to offer franchise in Saudi Arabia, offering different prices. All the

companies have to post information about themselves as well as their terms of operations.

Success of these franchise businesses in Saudi Arabia can be attributed first on the Saudi

culture of absorbing the western methods of conducting business. The Saudis have that desire to

own their own businesses and therefore becomes easy for US companies to make deals with the

Saudi people. The retail market in the Gulf has only Saudi Arabia covering the larger part. This

has also helped to franchise businesses especially due to the larger section of the country’s

population living in the urban centers where most of the American franchise businesses are

located. With most of the franchise concepts focused on food sector, many franchise developers

are able to promote the Saudi concept as well. The penetration of internet into the retail sector

has also contributed to the success of a number of franchise businesses especially through online

ordering and delivery. In Saudi Arabia shopping is among the top list of pastime activities. The

Saudi market is like a paradise of shoppers, with majority of the people visiting the malls in an

average of once or twice per week. This has resulted to construction of shopping malls in various

towns. Therefore franchise businesses stand to benefit from the availability of regular customers.

As the country’s wealth continue to grow, many more Saudis are travelling overseas and

gaining appetite for global franchise concepts and brands. The aspect of the Saudi society has
therefore continued to liberalize, therefore more foreign brands have the opportunity of getting

into the market while the existing brands continue to thrive. Lastly, the franchise concept in

Saudi Arabia helped by the national policies that support innovations and job creation of the

young population.

There are risks associated with establishing a franchise in Saudi Arabia. Mohamed A.

Ramady (2010) states that Saudi family businesses play an important role in the country’s

economy. Therefore with the increased globalization and international completion with franchise

businesses, they adapt internally to overcome these challenges. This takes the approach of

publicly listing of the high-profile family businesses, hiring of external professional management

as well as delegation of authorities. Small and medium sized enterprises pose a great challenge to

these franchise businesses due to the fact that they dominate most of the private sectors of the

economy.

Intellectual property protection of the franchisors comprises up to 85% of the economic

value of any given company, (Fitzpatrick & DiLullo, 2005). In Saudi Arabia, registration can

only give protection to the intellectual property of those companies whose country of legal

residence have already signed the same international convection on intellectual property. Due to

the infancy stage of the country, implementing all these agreements in business aspects, some

companies are left vulnerable to violation of the intellectual property right.

The country’s political instability and the influence of terror groups has affected franchise

business. Local study shows that franchisees are scared of running businesses in an unstable

market setup. Lastly we have the stiff competition from other franchisors worldwide. Saudi

Arabia has more than 300 foreign companies that have founded franchises in Saudi Arabia. IBP,
Inc. (2015). These involve world-famous companies from countries such as France, Spain, and

South Africa among others.

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