The dos and don’ts of expanding to the U.A.E.

The dos and don’ts of expanding to the U.A.E.

The seven states that make up the United Arab Emirates are proving enticing to many internationally-minded franchisors, but there are myriad factors to research before exporting your brand there

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While the world’s spotlight initially shone on the UAE because of its vast oil wealth, it took ingenious policy to make it the Middle East’s business hub, a gateway to Asian markets, and a bonafide global destination.

During the late seventies and early eighties, the UAE experienced the first influx of top-tier international food and retail franchises, keen on tapping its rapidly growing potential. Lesser known brands followed suit, and eager investors fiercely competed to lap up their franchise rights.

Despite the narrow understanding of franchising prevalent at the time, investment appetites were insatiable – and often undiscerning – with several dubious brands slipping through the cracks, too. But even though some business casualties did occur, franchising was decidedly the new byword for ‘cash-rich’. And it thrived.

For a good part of two decades, the franchising juggernaut in the U.A.E. remained unstoppable. Today, however, as it stands at the confluence of major economic, demographic and technological changes, investors no longer view it as a prolific cash cow. A brand oversupply and a long run of absurdly high rents that only began to ebb recently exacerbated the situation and battered many businesses.

In spite of being a far cry from the seller’s market of yesteryear, franchising isn’t going anywhere in the U.A.E. If anything, it is coming of age and massive corrections are happening at this very moment. The country still has a lot to offer franchisors, but only to those who make a real effort to embrace its new reality. The presumptuous needn’t even bother. For franchisors desirous of coming to the U.A.E., here are some dos and don’ts that could stand them in good stead:

DO

OFFER SMALL FOOTPRINT OPTIONS:
Regardless of which sector of franchising they consider, investors are increasingly wary of spending too much on fixed recurring costs like rent. The rise of dark kitchens and pop-ups in the food and beverage sector and ‘mobile formats’ in others are testament to a trend that is certain to continue.

UNDERSTAND THAT DOMESTIC BRANDS POSE REAL COMPETITION:
In the past, brands from the West were perceived as distinctly superior to domestic ones and in most cases, that was probably true. But the quality of homegrown franchises has improved dramatically in recent years, and in many cases, they are simply better investments than their overseas counterparts.

PROVIDE ROBUST AND RELEVANT SOCIAL MEDIA SUPPORT:
Today social media and online platforms aren’t an important part of marketing, they are the marketing. Even though franchisees aren’t typically social media experts, they are largely left to their own devices when it comes to developing viable social media strategies for the brand.

The majority of franchisors have tried to make do with tired, scarcely relevant manuals for way too long, but franchisees are now demanding comprehensive social media support to protect their investment.

LESS BUT DO IT WELL:
Lean, economic and dynamic operations are the name of the game right now. Clunky and elaborate setups aren’t adaptable to the quick pace of ongoing change and are therefore unsustainable. Moreover, in the days of endless consumer options, doing less but doing it well is the best bet for a viable business.

RESPECT CULTURAL NORMS:
In spite of being ‘modern’ in most senses of the word, people in the UAE are deeply connected with their culture and that includes most of the expats. The relationship always precedes the business and whereas candidness is appreciated, franchisors must remember there’s a fine line between direct and brusque.

UNDERSTAND INVESTOR MOTIVATION:
Some wealthy investors consider a franchise as a prestigious acquisition as opposed to a serious business venture. This implicit conflict of interests could adversely impact franchisor plans if signs are not clearly read early on.

DON’T

CONSIDER THE UAE AS A SINGLE HOMOGENOUS COUNTRY:
Despite its small size, the UAE isn’t a homogenous market. For example, the relatively quiet, low profile town of Al Ain in the Abu Dhabi Emirate reports some of the highest countrywide average transaction value for many franchises.

ALWAYS SEEK OUT LARGE GROUPS TO DO BUSINESS WITH:
Franchisors seek to do business with prominent groups whenever possible but can end up playing second fiddle in their large portfolio of other priorities. Also, some groups aren’t as well-capitalized as their reputations might suggest, whereas others have all the resources but keep a low profile.

TRY TO SELL MULTIPLE REGIONAL TERRITORIES TO SINGLE FRANCHISEES:
Barring a few cases, the attempt to sell vast swathes of territory to single investors has met with abject failure. The franchisees’ ability to fulfil the development schedule doesn’t stem from their net resources, but how well spread and decentralized they are.

LEAVE LAWS AND REGULATIONS ONLY TO LAWYERS:
Oversight with regard to awareness of local laws could make a franchisor pay dearly, and for long. For example, they should know that registering the franchise agreement with the Ministry of Economy makes it virtually impossible to terminate by the franchisor – even with franchisee default. As the registration isn’t mandatory, this is often a bone of contention during negotiations.

HESITATE TO PROMOTE UNCONVENTIONAL FRANCHISES:
If you represent non-traditional franchise sectors, now could be your time. With excessive competition in food, retail, and fitness, there is a good opportunity to leverage growing interest in sectors like telemedicine, STEM education, environmentally friendly disposal services, elderly care and the like.

RESTRICT YOURSELF TO AREA DEVELOPMENT AGREEMENTS:
Area Development Agreements are the expansion vehicle of choice for most franchisors, as they are convenient to execute and offer the most control. But even though master franchising is messier business, it offers more opportunities for single, noncorporate franchisees – an area where domestic franchises normally have the upper hand.

U.A.E. is an extraordinary country with its best days undoubtedly ahead of it. Globally eminent, ahead of the curve, an audacious thinker and a prodigious doer; well-prepared businesses that are willing to adapt will always do well here. And that should be every franchisor’s bottom line.

ABOUT THE AUTHOR
Sanjay Duggal is the CEO of U.A.E.-based Stellar Eastern Franchising, which provides in-depth advisory on how to navigate the Middle East franchise industry

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