Saudi Arabia to introduce new franchising laws

Government agencies are working to promote the role of franchises in economic development and in doing so reduce unemployment and improve living standards. (Shutterstock)
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Updated 17 February 2020

Saudi Arabia to introduce new franchising laws

  • Regulations are designed to increase transparency and encourage investment in the Kingdom

RIYADH: New franchise regulations designed to increase transparency and encourage entrepreneurs to invest are expected to be implemented in Saudi Arabia within a few weeks, according to the chairman of the Franchise Committee.

The franchisor will be required under the new law to disclose all relevant information, including employee numbers, profits and losses, and the number of its outlets that have closed. The regulations will increase entrepreneurs’ awareness of their rights and may encourage them to acquire a franchise, committee chairman Muhammad Ibrahim Al-Mojel said. 

Franchises offered Saudi companies a good opportunity to expand their businesses, he added.

“Franchising allows a franchisee to run and own an investment and get support from the franchisor, who enjoys considerable experience and has the power to help the franchisee to market the product profitably,” he told Arab News. “This system will help small and medium enterprises prosper and survive in today’s markets.”

A franchisor, Al-Mojel said, brought with it years of experience and a strong brand identity, which helped franchisees to establish themselves and survive in the marketplace.

If the franchisee faces marketing, financial or logistic difficulties, Al-Mojel said, the franchisor will offer support and help the franchisee to succeed because their relationship is reciprocal. 

The franchising system had been in the Kingdom for many years and there were countless successful examples, he added, including hotels and fast-food restaurants. 

One of the biggest challenges in the Kingdom was a lack of awareness of how a franchise operates and how it differs from an agency, according to Al-Mojel. He advised the franchisee and franchisor to agree on a detailed contract that prevents the franchisee from getting into trouble by abusing the contractual relationship.

Some Saudi brands have successfully franchised in other countries, enhancing the global reputation of the brand owners and their partners. 

“For a franchise to succeed, the franchisor should have an integrated training and control program that allows it to monitor closely the work of the franchisee and make sure all requirements and conditions of the franchise have been satisfied and understood properly,” said Al-Mojel. 

“The franchisor should provide the franchisee with detailed operational manuals for the site, including cleaning and the final layout.”

Al-Mojel added that he hoped government agencies would work together closely to promote the role of franchising in economic development and in doing so reduce unemployment and improve living standards.

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Franchise

In a franchise, legal, financial and administrative responsibilities are divided between franchisor and franchisee, while an agency is characterized by a close relationship between the company and a local agent.


Virtual oil summit planned amid ongoing market volatility

Updated 04 April 2020

Virtual oil summit planned amid ongoing market volatility

  • Meeting follows call from Saudi Arabia for urgent meeting and telephone diplomacy between Kingdom, Russia and the US

DUBAI: Leaders of the global oil industry are planning a crucial “virtual” summit next Monday amid ongoing volatility in crude prices and falling energy demand.

The meeting follows a call from Saudi Arabia on Thursday for an urgent meeting and a round of telephone diplomacy last week involving the Kingdom, Russia and the US, as well as meetings between policymakers and oil industry executives.

The summit is expected to involve the 11 members of OPEC as well as other oil producers from the OPEC+ group.

But exactly which countries will take part in the summit was still up in the air last night. 

Russian President Vladimir Putin was holding talks with executives from the country’s major oil companies before deciding whether or not to participate. The Russian leader has previously indicated his willingness to get involved in talks to help resolve the crisis in the global energy industry, but Russia was also the country that refused to take part in a round of deeper production cuts proposed by Saudi Arabia in Vienna last month, sparking the current price war.

In response to that refusal, the Kingdom increased production and lowered its selling prices. On Sunday, Saudi Aramco, which has pushed output to a record 12.3 million barrels per day, is scheduled to announce its “official selling prices” (OSP) for the month of May, expected to show a continuation of the deep levels of discount to attract customers, especially in Asia, in the battle for global market share. 

Brent crude continued its rollercoaster ride on global markets on Friday, dipping nearly 5 percent before hitting a high of 17.5 percent up at $34.91, before paring gains to about $33.

The options for the producers at Monday’s meeting are limited, in the face of an unprecedented drop in global oil demand. By some estimates, more than 20 million barrels of daily demand was lost last month, the biggest ever contraction in oil history.

Saudi Arabia and Russia, which between them produce around 23 million barrels per day, are unlikely to be willing to take all the pain of bigger cuts without an offer from the Americans.

US President Donald Trump tweeted on Thursday that he expected between 10 million and 15 million barrels of oil to be taken out of supply, but he did not specify where this would come from. Meetings were expected to take place at the White House with oil industry executives and policymakers on Friday.

Daniel Yergin, Pulitzer Prize-winning oil expert, said: “The ‘when,’ ‘how’ and ‘who’ of the potential deal remain unclear. And the larger the universe of players the more difficult it will be to implement an agreement.”

OPEC+ consists of the 11 OPEC members, led by Saudi Arabia, plus 10 non-OPEC producers, of which Russia is by far the biggest.

The involvement of the US in the Monday meeting is also unclear. America is not an OPEC member, but US oil executives have attended OPEC deliberations in the past. American participation in any new rounds of output cuts will be constrained by the fact that the US oil industry is made up of private companies — as opposed to state-directed corporations — whose interests diverge.

While big players including Exxon Mobil and Chevron might be willing to take some advice from the White House, the smaller companies in the Texas shale fields are more focused on the immediate financial repercussions of the past month’s volatility.