Saudi Arabia to introduce new franchising laws

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

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.