Doing Business in Saudi Arabia - International Franchise Association

Franchising Return to top
Franchising is an increasingly popular approach to establish consumer-oriented businesses in
Saudi Arabia. Although the franchise market is small compared to that in the United States, it is
rapidly expanding in a variety of business sectors. According to a local study, the Saudi
franchise market is expected to grow an average of 10-12% annually over the next three years.
The same study projects the value of paid fees and royalties at more than SAR 1.2 billion ($323
million). The growth in this sector is based on Saudis’ desire to own their own business and a
widely held appreciation for Western methods of conducting business. American franchises
dominate the market and more U.S. brands have recently obtained a foothold here, including
Gap, Krispy Kreme and TGIF. American companies face growing competition from local and
foreign companies in the following sectors: car rental agencies, fast food and business services.
Franchising opportunities are known to exist in many business categories, including apparel,
laundry and dry cleaning services, automotive parts and servicing, restaurants, mail and
package services, printing, and convenience stores. There are more than 300 foreign
companies that have founded franchises in Saudi Arabia.
To establish a franchise in Saudi Arabia, a foreign franchisor must select a franchisee and
register the franchise. The franchisor must be the original one, and may not be a third-country
franchisor. All franchise agreements follow the Saudi Commercial Law and must be approved
by the Ministry of Commerce and Industry. A foreign company is advised to consult with an
attorney familiar with Saudi law before establishing, changing, or terminating a franchise
agreement.
Direct Marketing Return to top
Direct marketing is not widely used in Saudi Arabia. Personal relations between vendors and
customers play a more important role than in the West. Furthermore, many forms of direct
marketing practiced in the United States are unacceptable due to Islamic precepts regarding
gender segregation and privacy at home. Limitations in the Saudi postal system are also a
constraint. Nevertheless, a new, yet comparatively expensive mail delivery system was
launched, called Wasel, which delivers mail and parcels to residences. The Saudi Post set up a
company named Naqel, which is a joint project with the private sector and aims to upgrade
Saudi Post’s competitive capabilities and develop its services.
Direct marketing has been conducted on a very limited basis using unsolicited mail campaigns
and fax, catalog sales (with local pick-up or delivery arranged), and commercials on satellite
television providing consumers with a local telephone number to arrange delivery. Extensive
consumer surveys are being undertaken, mainly on behalf of multi-national manufacturers and
particularly in the consumer goods sector.
Joint Ventures/Licensing Return to top
Under the Foreign Investment Act, a foreign investor may either set up his/her own project or do
so in association with a local investor. If the latter option is chosen, foreign investors may
structure their enterprise as a limited liability company, which is the most commonly used
approach. By law, the minimum capital of an LLC with foreign participation is SR 500,000. The
required amount is increased to SR 1,000,000 for industrial projects and SR 25,000,000 for
agricultural projects. The Board of Directors of SAGIA may reduce the minimum invested