Franchising in Saudi Arabia
Franchising in Saudi Arabia, the Middle East market is always important, the biggest known brands operate there at least in a few different countries, the market is developing with a strong economy and high growth rate, Saudi Arabia alone accounts for nearly 60 percent of the market with huge potential In many business sectors, especially after the launch of Saudi Vision 2030 and the way the country has transformed.
After more than a decade of waiting, the Saudi Franchise Law has recently entered into force on April 22, 2020, as this law consists of 11 articles divided into 27 sections, and over the past two years, the government has been studying franchise models of different countries and concluded a standard for franchise law in the world .
Some people will see that the Saudi franchise law has a lot of similarities with the American franchise law, one difference is that the franchise law in Saudi Arabia is shorter. It seems that the strategy of the Saudi government is to launch a basic regulation that can be followed and implemented smoothly, and over time it can be developed and upgraded.
Franchising in Saudi Arabia
Franchising is one of the many ways of doing business in Saudi Arabia. Through franchising, small investors can use global brand names for goods and services.
On the other hand, these large companies are able to tap into the local market by creating franchise opportunities in Saudi Arabia.
Many entrepreneurs choose this business model because of the low risk involved and the good rate of return. After all, when a franchise is granted, you have a known name to back you up. In a standard franchise contract, the franchisor becomes eligible for franchisor experience — or trade secrets, so to speak.
Franchisors provide advice on various aspects of the business such as financial, accounting, legal, and others. Another thing that makes a franchise so attractive to investors is the good standing that comes with it.
Without question, it is much easier to get a loan from banks and other financial institutions if you are a well-known brand name rather than representing a startup company.
Franchises are open to almost all industries, and some of the most popular international franchises in Saudi Arabia are Starbucks, McDonald's, Chipotle, Zara and Apple.
But perhaps the most common franchise business is related to food such as restaurants and coffee shops. Locally, Albaik is an example of a homemade fast food restaurant that is arguably McDonald's in Saudi Arabia.
Since its humble beginnings in Makkah in 1990, Al Baik has been able to expand and operate throughout the Kingdom of Saudi Arabia through a licensed chain of restaurants.
How do you get a business franchise in Saudi Arabia?
A franchise agreement is an undertaking between the franchisor and the franchisor. Typically, the franchisor is obligated to grant use of its trade name and trademarks, as well as share the know-how in running the business, in return for a substantial payment by the franchisor.
The law regulates Saudi franchise agreements, especially the Franchise Law of 2019. It states that all franchise agreements must be written in Arabic, and must contain twenty (20) standard clauses stipulating them.
Furthermore, experience is a requirement before franchising in the Kingdom. The business to be awarded must have been operated under the franchise operations scheme for at least one (1) year and by at least two (2) persons (which may include the franchisor or any of its related entities, or in two (2) units Separate: Likewise, franchisees are not allowed to offer sub-franchises unless he or the sub-franchisee has a minimum of 1 (year) experience in the Kingdom.
Registration is also a requirement for franchising in Saudi Arabia, and franchise agreements must be registered with the relevant authorities.
The relationship of the two parties
The Franchise Act 2019 also sets standards when it comes to the transfer of property, contract term and compensation, parties, however, are free to stipulate otherwise.
Normally, if the termination of the contract by the franchisor is based on grounds established by law, there is no obligation for him to repurchase the property that has been transferred to the franchisor, and if the termination is otherwise, the obligation to repurchase arises, without prejudice to the franchisor's right to receive compensation.
There is no application of the Commercial Agency Law between the parties to the franchise agreement, this is a new rule issued by the Franchise Law 2019, and it is a rule that the parties must keep in mind.
The Importance of Franchise Law
Franchising in Saudi Arabia Franchise law in the Kingdom will help solve many different issues that local and international franchisors are currently facing, and franchising is a great model for expanding a successful business model and reducing risks for investors.
But in some cases, some brands in the Kingdom have been able to sell franchises based on someone who has shown an interest in the brand, even though the brand is only in the launch stage, without any regulation and some have done worse, they franchise their business based on the name or an idea or just a slogan, and before the franchise law is revealed, no law or regulation can stop or punish such business practices.
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