BUSINESS INFORMATION SERIES 2012/Vol.1/ No.4 …

1 BUSINESS INFORMATION SERIES 2012 FRANCHISE IN DUBAI Dubai BUSINESS Guide Operations BUSINESS Support Department Dubai chamber of commerce and Industry Published by: Dubai chamber of commerce and Industry BUSINESS Support Department Box 1457 Dubai, United Arab Emirates Tel: 800 chamber (2426237) Website: Dubai BUSINESS Advisor 2012 Dubai chamber All rights reserved Disclaimer: INFORMATION in this guide is obtained from sources deemed reliable, but no warranty expressed or implied is made on any part of its contents. While a good faith effort has been made to ensure the accuracy, timeliness, and completeness of the contents of this guide, we do not guarantee the INFORMATION contained herein.

2 Laws, rules, regulations, and procedures may change significantly with short notice, and this guide may reflect details that, while accurate at the time the INFORMATION was gathered, could be currently no longer in effect or otherwise modified. Nothing in this guide should be construed as legal, accounting, or other professional advice and we will not be held responsible for any changes, omissions or inaccuracies in the INFORMATION contained herein. Interested parties are urged to seek the advice of competent, licensed professionals in the appropriate area of expertise for any further questions regarding their specific circumstances. ISBN 978-9948-430-46-9 Table of Contents 1. Introduction ..4 What Is Franchising .. 4 Elements of Franchising.

3 4 Traits of Franchisors .. 4 The Franchise Scenario and Context in Dubai .. 4 The Advantages and Benefits of 5 2. What Makes a Good Franchise? ..7 The Franchise Relationship .. 8 Types of Franchises .. 8 Ownership Structures Used in Franchising .. 9 How Franchises Work .. 9 Franchise Arrangement .. 9 3. A Typical Franchise System .. 10 Licensing .. 10 The Difference between a Distribution, License and Franchise Agreement .. 12 Things to be Aware of When Selecting a Franchise .. 12 The Franchisor Starting a Franchise Chain .. 13 Goodwill .. 13 4. How to Open a New Franchise in Dubai .. 14 What franchising laws are in place in Dubai? .. 15 International Franchising .. 16 Minorities and Women in Franchising.

4 17 Technology and Franchising .. 17 Dubai, GCC & MENA Franchises .. 18 Conclusion .. 23 References .. 24 4 1. Introduction Dubai is one of the fastest growing and dynamic markets in the world. Dubai is bursting with new commercial and residential property developments. The ultra-modern developments are attracting international attention. BUSINESS and trade is booming and international companies and people establish at the Emirate. Dubai has joined China as one of the fastest growing economies of the world. There are no capital gains, inheritance, income, or sales taxes in Dubai. Many visitors become residents and open new businesses in Dubai, where franchise opportunities are bountiful.

5 Franchising is a BUSINESS method to expand and distribute in markets. Franchising is a system of BUSINESS that is steadily growing and accounts for more than one-third of the world s retail sales. A franchise acts like a license for rapid expansion, a brand s recognition and provides a consistent method to deliver your brand s promise. Franchises are based on a financial relationship between the franchisor and franchisee. This guide looks at what is franchising, how it works, why franchising is growing as a way of doing BUSINESS and what makes a good franchise. Aside from a basic understanding of franchising, the guide considers the benefits given by a franchise and provides basic guidance to allow businesses to benefit from innovation.

6 Franchising is not restricted just to fast food outlets and gardening contractors. There are now franchises for mentoring managers and sportspeople and franchises for internet shopping. In the future the Dubai economy will more likely be filled by innovative and creative franchises which seek to capitalize on their market lead and intellectual property advantage. Franchises fill a market need and therefore, are the fastest growing way of doing BUSINESS . The 1980 s and 1990 s brought radical changes to the employment market and the way people work. The oil-shocks and stock market corrections, the opening up of the world economy, reduction in subsidies, government deregulation and downsizing thrust into the job market capable, energetic and resourceful people who work on their own.

7 Franchisees are people who have been employed in the past by someone else and a franchise opportunity is seen as a more relaxed way of making the transition from working for an employer to being self-employed. The risk factor of a proven BUSINESS is also seen as a better option than breaking totally new ground. Thus, franchises are taken up by people prepared to invest in themselves, their personality and their skills who look for freedom and the rewards of hard work. Franchises are a personal investment, in the equity invested in the BUSINESS , in the time and energy required to achieve success. Therefore, it is important to take a few commonsense precautions when selecting a franchise.

8 4 What Is Franchising Franchising has picked up pace in Dubai with lots of international and national brands recognizing the significance of the model. Franchising is when a BUSINESS realizes that its products or services and brand have created value that other investors want to replicate its proven concept. In order to benefit from its brand reputation and achieve scalability, the BUSINESS owner becomes a franchisor. In the franchise model, the franchisor sells the rights to its BUSINESS model to a franchisee. The franchisor receives up-front fees from the franchisee for granting BUSINESS rights and using its logo. The initial fee also includes training and equipment support.

9 Additionally, the franchise company also receives royalty fees from its franchisee(s) from time to time as agreed upon by both parties. Elements of Franchising Franchisors seek expansion into new markets and deliberate different strategic options and plan the franchise model structure. The franchisor needs to follow some rules pertinent to franchising while launching and running its franchise BUSINESS . These considerations help not only the franchisor but also its franchisees to create an effective franchise system and goodwill between both of them. The franchisor should carefully draft the franchise contract and operations manual. The agreement serves as a foundation for both the parties to the franchise contract to impart an understanding of the terms of starting and running the franchise.

10 It clears the rights and duties of the franchisor and the franchisee. The franchise agreement should be prepared by experienced legal franchise expertise. The franchisor needs to draft an operations manual for the franchisee that specifies the manner in which the franchise is to be operated. The franchisor should also take steps to protect its intellectual property (IP) comprising its logos, trade-marks, BUSINESS process against potential misuse by its franchise partner. The franchisor requires successful management of its brand portfolio, to represent, communicate and safeguard the key brand fundamentals. Finally, as franchises are volume driven in terms of number of stores, units or locations, so, it is essential that a franchisor has a flair for diverse franchisees to rung a successful franchise distribution channel.