Franchising’s Appeal: Market Growth in Saudi Arabia
Franchising World,November 2008
By Samir Ali
What factors support franchising as an appealing introduction to business ownership in Saudi Arabia?
First, Saudi Arabia is the largest oil producer in the world, its economy depends mainly on this industry and its population is more than 23 million people, according to the Saudi Arabian Monetary Agency’s 2007 annual report.
Secondly, Saudi people generally prefer to be self-employed and to establish and operate their own businesses. Saudi entrepreneurs generally have sufficient capital to invest in a business and they try to avoid the risk of establishing a new concept or idea especially in the case of small- to mid-sized businesses. Being an agent of a foreign concept is very familiar in Saudi Arabia, especially for U.S. and European concepts.
Third, the Saudi government is aware of the importance of being independent of the oil industry; hence, it has launched many initiatives to encourage Saudis to invest in different sectors and to encourage foreign direct investment where it has attracted $18 billion in 2006.
Franchising in Saudi Arabia
Over the past 10 years, the number of franchises has increased in Saudi Arabia, the largest market in the Middle East. Most of the international franchise concepts are available, some of them under “the exclusive agency” concept by which agents are used to opening numerous stores and branches under their own ownership.
Sub-franchising is not a very familiar concept in the country, as the majority of Saudi franchisees are from strong, wealthy groups who can open several branches without trying to sub-franchise. Recently, sub-franchising has started to become an accepted concept, even for some of these groups. This option needs more development and awareness among Saudis who are current and potential franchisors. Sub-franchising is the magic strike of franchising which will contribute to real change in the economy and encourage entrepreneurial concept and participate in creating jobs.
The Saudi population is mainly concentrated in a few cities that have widely-available commercial retail facilities. The franchise sector started expanding after the Gulf War with numerous American quick-service food companies. The franchise market is not limited to this sector only, but it also covers automotive services, beauty, laundry services, printing, hotels, logistics, medical, retail, furniture and food and beverages.
Distribution of Franchise Segments in Saudi Arabia
Marcom research shows that Saudi franchise developers managed to develop more than 30 Saudi concepts within the Saudi market; some of them even have gone internationally. Currently, it is estimated that more than 300 Saudi successful concepts are potential franchisors that need to be developed.
Saudi Arabia is a suitable market for franchising. Statistics from the Saudi Arabian Monetary Agency indicate:
• High incomes and purchasing power. The GDP
per capita is $14,724.
• Half of the 23 million population is composed of
people under 15 years old and many of them have traveled to the United States and Europe.
• Twenty-seven percent of the population is an expatriate work force in Saudi Arabia and they consider franchising a way of decreasing “product unfamiliarity.”
• A strong Saudi infrastructure and supporting services.
• Availability of many international and local banks.
• The government supports, encourages and stabilizes the Saudi private sector.
• Saudi Arabia is a member of World Trade Organization.
However, the Saudi franchise market has some constraints that the official and governmental parties are working to remove. The legislative environment is not ready to support franchising. Franchising has no special law that determines the relationship between the franchisor and franchisee as in the United States and Europe. Franchising is covered by “trade agency law” of the Saudi trade law as in many countries of the world. There is a lack of franchise associations. Franchise committees, which are a part of the Saudi chambers of commerce, are currently playing the role of the franchise associations to a certain extent. There is also lack of franchising consultancy services that could develop local Saudi concepts and provide them with legal and financial advice.
The Role of Governmental and Official Agencies in Franchise Development
Understanding that population is the real capital of a nation, the Saudi government provides its population with the maximum support, education, healthy investment environment and jobs, whereby Saudi companies have to employ a minimum number of Saudis.
The Saudi government has introduced “the Saudi credit bank” with a capital of $1.6 billion to provide Saudi investors with long-term loans at very low interest rates.
The country’s chamber of commerce
has launched many campaigns to increase franchising awareness by organizing various workshops, training sessions and seminars, and has published numerous franchise publications.
The International Conference and Expo for Franchise 2009, an international event that will be conducted May 25 to 27 in Riyadh, is a major step toward creating the capital of franchising there. ICEF will be conducted for the second time after its first successful 2008 show where more than 3,000 specialized visitors attended and met with the franchisors who came from the United States, France, Germany, Switzerland, the United Kingdom, Turkey, Indonesia, Egypt, Kuwait and Saudi Arabia.
ICEF 2009 Franchising-Sector Participants
Under the patronage of His Royal Highness Prince Salman bin Abdulaziz, the governor of Riyadh, ICEF 2009 is scheduled at Riyadh International Expo Center. The show is supported by the Riyadh Chamber of Commerce and Industry and sponsored by the International Franchise Association and the French Franchise Federation, and is certified by the U.S. Department of Commerce.
The ICEF 2009 will be a three-day expo, one full-day conference and will include three specialized workshops. Speakers are invited from all over the world to address such topics ranging from franchise ethics to women and franchising to sub-franchising. For details about the show, visit
The current Saudi population, based on data from the Saudi Arabian Monetary Agency, is more than 23 million people with a growth rate of 3.5 percent.
Seventy-three percent are Saudis while 27 percent are non-Saudis. Forty-five percent of the population is under 15 years of age, while 65 percent is under 30 years of age.
The kingdom’s population is concentrated in three regions: Makkah, Riyadh and Eastern Province. The total population of these
three regions constitutes 14.6 million or 64.5 percent of the kingdom’s total population. The rest are distributed among the other 10 administrative regions.
Religious and Cultural Considerations
Saudi Arabia is the heart of Islam and the two holiest cities of the faith, Mecca and Medina, are located in the country. As such, daily life in Saudi Arabia is deeply influenced by the five tenets of Islam: confession of faith, prayer five times a day, contributions to charity, fasting during the month of Ramadan, and pilgrimages to Mecca.
Businesses are required to adapt and adjust to the local customs. For example, restaurants will have two entrances, a “family section” where women must enter and be served with or without their husband and children, in addition to a main entrance, where only men can enter and be served. Another example is that businesses will close during each prayer time. Some businesses require that all customers leave the premises and wait outside during the prayer time. Other businesses will allow the customers to remain inside, however no business can
be conducted during the prayer time and all cash registers will be turned off.
Franchisors should realize, however, that the culture and religious background of the Saudi people might make it necessary to modify some franchise concepts before they can be successfully introduced and operate in Saudi Arabia. Some considerations include the separation of the sexes and a general prohibition on photographs or advertising that would be considered only mildly-suggestive in the West.
Samir Ali is general manager of Marcom. He can be reached at