Not 'The Arab Street' but 'The Arab High Street?
The flight back from Dubai is a puzzling interlude. Those 14 hours provide ample time to reflect on the almost supernatural experience of a week in that—there is no other way to say it: bizarre—environment. It is tempting to think a week there gives one an insight into the Middle East. The temptation should be resisted. A visit to Dubai (the world’s tallest building, ascended by elevators traveling silently at 43 miles per hour; the world’s largest indoor ski slope; soon to be the site of the world’s largest bridge) no more provides a picture of the Middle East than a visit to Las Vegas provides a picture of America.
The puzzlement extends to the reason for its very existence. It’s not oil, which lies at the core of the economy of most of the neighboring countries; Dubai has virtually none. It’s not the home of a large body of like-minded people bonded together by culture, language and history; almost no one who works or lives in Dubai is from there. It is, of course, the secular mecca for those from other Arab countries who are seeking a respite from restrictive and frequently repressive environments, and find it in the far more modern and permissive milieu of Dubai. It is a shopping bazaar virtually without equal. And, despite a substantial hiccup from over building, over borrowing and over promising, it is rapidly becoming a financial center like few others in the world. It will not reach its aspirations of rivaling New York and London, but it need not; to be Dubai in the 21st Century may be quite enough.
If it is not the window into the Middle East, it may nonetheless serve as a unique vantage point. For here is where the bankers and lawyers and investors and builders—in short, those who determine the future of commerce in that critical part of the world—come to deal. And for those who haven’t noticed, Dubai serves as a useful reminder that franchising is near the heart of that world. I am accustomed to the recognition that my office here looks and feels very much like all the others, all over the planet. But what is different here is that when I cross the way to the Dubai Mall (the world’s largest, naturally), I see more of my clients’ outlets than I do almost anywhere else in the world.
Which means it is a window into franchising in the Middle East. It is here where the U.S. and English and French and German franchisors come to search for partners and for sites. It is here where the wealthy families from the region come to bargain for the rights to yet another Western brand. And someday, it may be where those who have developed local brands and a following will come to launch—first, into neighboring countries, ultimately perhaps beyond.
So this is not where one comes to learn what’s happening on “the Arab Street,” that overused phrase which has come to mean popular opinion, especially among ordinary people in the Muslim world. But perhaps it is where one comes to learn what’s happening on “the Arab High Street,” the retail complexes which will someday dot the countryside. Combined with the fortuitous timing of the Annual Conference of the International Bar Association’s International Franchising Committee, the trip thus provided a wealth of data points—some statistical, some anecdotal, some commercial, some legal.
Here’s a sampling:
• The region is huge by almost any standard: combined population of more than a billion people and a combined Gross Domestic Product approaching $2 trillion.
• While the per capita retail expenditures of the countries of the Gulf Cooperative Council are lower than those of the U.S., they compare favorably with two markets viewed as “hot”—China and India.
• As Bloomberg News recently reported, “in the next decade American restaurant chains plan to open more than 250 locations in the Middle East, where growing populations and increasing wealth offer one of the best chances to expand outside of the saturated U.S. market.” Most savvy observers think that number is far too low.
• Some of the companies have had footholds here for some time. Others have braved the political turmoil of the Arab Spring to seize what would have seemed an unlikely opportunity only a few years ago.
• Perhaps unlike any other region in the world, here franchising is dominated by a few “franchisee conglomerates” who are franchisees to a number of Western brands. While they bring to the table enormous local expertise and resources, they (like any large franchisee) are more and more vocal about the way the business should be operated there, a challenge that will only increase in the years to come.
• The challenges of adaptation are perhaps greater than in any other region, but they are being met (in the foodservice space, that frequently means beef instead of pork, alternatives to alcohol, far more conservative attire for both workers and customers, and perhaps even separate facilities based on gender). The juxtaposition of the ancient and the modern is sometimes jarring: as one steps off the sleek jet arriving at a state-of-the-art airport, the sounds of evening prayers come over a public address system.
• There are no meaningful “franchise laws” in the Middle East. But there are plenty of other legal issues of which franchisors need to be aware, and some of them are of special significance in the region. Among others, they include the applicability of Shari’a law (which is not limited to the issue of interest charges; it can also seriously complicate transfer provisions); commercial agency laws which, notwithstanding provisions of the agreement, can require compensation in the case of termination and interfere with both renewals and transfers; the Foreign Corrupt Practices Act, which, if applicable to the conduct in question, is especially relevant in a region characterized by bribery, corruption and lack of transparency; the likelier applicability of regimens such as the restrictions of the Office of Foreign Assets Control and the registry of Specially Designated Nationals; and, of course, the ongoing concern about the practical availability of remedies, making decisions about choice of law and the method of dispute resolution of special importance.
• Trademark piracy is a nagging concern, placing a premium on franchisors taking steps to protect their intellectual property.
To all of these problems there are answers—but they require time, patience, informed counsel and a commitment of resources.
Finally, numbers can be deceiving. While there is a large disparity in income from top to bottom, an increasing number of GCC nationals are being educated abroad, fueling demand for goods and services. Perhaps the most telling statistic of all the Middle East, is experiencing an unprecedented “youth bulge.” With more than 30 percent of its population between ages 15 and 29, representing more than 100 million youth, this is the highest proportion of youth to adults in the region’s history. The future of franchising in this region may thus be far brighter than today’s headlines would suggest.
Philip F. Zeidman is a senior partner in the Washington, D.C. office of DLA Piper U.S. He can be reached at Philip.Zeidman@dlapiper.com