Comment:Expanding a Retail Business into the Middle East
The Middle East has for some years been the port of first call for many UK retailers looking to internationalise their business. By Dr Mark Abell
Historically this has been because of the desire of Dubai’s ruling Maktoum family to build a modern regional hub that attracts both investment and tourism, the similar ambitions of the Kuwaiti government and the wealth, size and lack of infra structure of Saudi Arabia. However over the last few years the oil fuelled ambitions of Abu Dhabi, ( which together with Dubai and five lesser known Emirates comprise the United Arab Emirates) and the World Cup charged energy of Qatar have also become very evident. The region therefore offers great opportunities for foreign retailers.
However, successfully establishing a retail brand in the region is not straight forward. There are restrictions on direct investment in all of the Gulf countries , with limits placed upon the percentage shareholding that foreign nationals and corporations can hold. It is therefore usual for foreign retailers to establish a presence in the region through a relationship with a local developer. The challenges are therefore choosing the most appropriate partner and structuring the relationship in the most effective manner. Neither are as straight forward as they may sound.
Local partners need to have the right blend of capital to invest in the brand’s expansion in the region , operational experience in whatever markets are to be targeted and a real hunger for making the brand a success. Capital is rarely an issue, although due diligence beyond the fact that the partner is related to the local royal family is essential. Appropriate operational experience in the relevant markets often is an issue though. The restrictions on direct foreign investment apply not only to non-Arabs, but to other GCC member state nationals too. So if, for example, a Kuwaiti national is to operate a brand in , say, Dubai, he will need to link up with a Dubai partner in some way. This proposed relationship needs to be carefully investigated by the brand owner and a track record for the partner in each target market is preferable. One rarely expects that a partner who is investing substantial capital in a brand will need to be pushed to make that investment produce appropriate results. However, that is far from unknown in the Middle East . Wealthy dilettantes can take on brands as hobbies , of which they eventually become bored and either abandon , or worst of all, badly neglect and under invest in.
Structuring and documenting the relationship with the local partner in an appropriate manner is therefore essential. This is made even more important by various legal “elephant traps ” that await unwary brand owners, such as the mandatory application of Shariah law in Saudi Arabia and the potential application of agency laws in other jurisdictions that can make termination, even for good cause, a difficult and expensive matter. These challenges and those that that can face brand owners seeking to litigate or enforce foreign judgements in the Middle East mean that it is essential to take advice from lawyers who are expert in structuring these types of relationships and experienced in doing deals in the Middle East.
Dr Mark Abell, Partner at Field Fisher Waterhouse will be speaking at the Retail Bulletin’s International Expansion Conference, 27th March 2012. His topic will be ‘Internationalising Retail Businesses – The Legal Perspective’. The overall theme of the conference, which is sponsored by GfK, is ‘Driving sales and market share, mitigating risk and strengthening your business through international multichannel growth strategies’. To register and for more information, click here.
