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.