Franchising allows businesses to expand into the rapidly growing Qatar market without the risk and capital investment traditionally associated with establishing a joint venture. Franchising is not, however, a risk-free means of expansion. Below, we consider the opportunities and risks associated with franchising in Qatar and briefly examine the legal framework.
Qatar presents a tremendous opportunity for businesses looking to expand internationally. Qatar has a growing population, a rapidly growing economy, the highest GDP per capita in the world, is set to host the 2022 FIFA World Cup and plans to spend an estimated USD 200 billion on infrastructure projects in the coming few years.
Franchising continues to be the preferred model for businesses looking to expand quickly into Qatar’s rapidly developing economy without the risk and significant capital investment associated with entering the market through a joint venture vehicle.
The franchise economy in the Middle East and North Africa (MENA) is worth USD 30 billion and is growing by 27%
per year. The Gulf Cooperation Council (GCC) nations are at the forefront of growing the franchise economy in the MENA region. More than 50% of retail sales in the GCC are generated from international brands and the profitability of franchised outlets is often much higher in the Middle East than in the franchisor’s home country.
Particular areas of opportunity exist in the food and beverage (F&B) sector. Fast food is estimated to account for 40% of the franchising market in the GCC. F&B franchises are expected to grow by 25% in the coming years. It is anticipated that the health food sector will be a key area of growth within the F&B sector. Franchising opportunities are not, however, limited to F&B outlets. There is a strong appetite for international brands in the retail sector.
The education, transportation, tourism and healthcare sectors also present potentially lucrative opportunities to franchisors.
Qatar does not have a specific franchising law. A franchisee will often be considered as an agent under Qatar law and thus franchising agreements will generally fall under the scope of Law No.(8) of 2002 on Organisation of Business of Commercial agents (the Commercial Agency Law).
The Commercial Agency Law provides significant statutory protection to franchisees and local agents such as the right to an exclusive appointment and the right to receive compensation in the event that agreements with principals terminate or expire. The Commercial Agency Law may displace the terms of a written agreement between the parties. Even if the Commercial Agency Law does not apply, the franchisee may be afforded rights on termination by the Franchiser pursuant to Law No (27) of 2006 (Commercial Code).
In addition to the Commercial Agency Law, and the Commercial Code franchisors also need to be mindful of the broader legislative environment in Qatar. Intellectual property, labour and company legislation will impact on the granting and operation of a franchise in Qatar.
For franchisors, trademarks and trade names are at the forefront of brand protection. In the interests of commercial expediency franchisors often allow a franchisee to register trademarks and trade names before the franchise agreement is signed. This practice comes with high risks even if the franchise relationship is later formalised and documented.
It is difficult to contest or assign the ownership of a trademark under Law No.(9) of 2002 On Trademarks, Trade Names, Geographical Indications and Industrial Models and Designs (the Trademark Law). International brand owners often struggle to wrest control of a registered trade name away from a former business partner based on their contractual rights, even if they are able to rely on famous trade mark rights elsewhere in the world.
The enforcement of legal rights can be difficult as there is no concept of binding legal precedent and a limited ability to obtain injunctions. As a result of the above,
although franchising in Qatar can be an excellent financial opportunity for both franchisor and franchisee, it is absolutely crucial to ensure that the agreements are reviewed by lawyers familiar with local laws and their implementation.