Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
A number of selling options are available in the UAE. The most common sales approach is the appointment of a distributor or local commercial agent for the entire country or in specific emirates. For operational purposes, commercial agents are responsible for the sale of products for the specified territory (many companies appoint emirate-based agents), including identification of trade and service channels, product registration, supply, inventory replenishment, merchandizing, in-store promotions, etc.
Some foreign companies choose to open an office either in one of the free zones on in the mainland to retain control over product registration and then appoint agents for local sales.
According to media reports, wholesale and retail trade contributes to over 10% to the UAE’s GDP. In the retail trade sector, supermarkets have the largest market share of sales in UAE. Major groups in the category are Carrefour, EMKE (Lulu) Group, Nesto Group, Spinneys, and local Cooperative Stores, e.g., Abu Dhabi Cooperative Stores, Sharjah Cooperative, Union Cooperative, etc.
Other comparatively smaller supermarket chains and group stores include Al Maya Supermarkets, Centrepoint Stores, Choithram Supermarkets, K.M. Trading, Safeer and West Zone Supermarkets.
Retail sales in the UAE are followed by wholesale sales, shopping mall store sales, C-class supermarkets and groceries and finally boutique stores.
With the ongoing Covid-19 pandemic, however, the trend is fast changing. The UAE consumer is increasingly depending on online and tele-purchasing. Groceries and supermarkets are deploying additional resources to match customer expectations by responding to online orders.
The UAE is one of the most advanced eCommerce markets in the region. This sector has lately seen a huge surge in demand and predictions are that all major retailers in the country will have to expand their online sales capabilities to remain competitive.
Challenges and Tips
The UAE offers various options to foreigner companies for the sale and distribution of their products and services. There are also a variety of challenges and tips to doing business in the UAE to include:
- Identifying the right trustworthy business partner – one who has the necessary contacts, connections, and a good knowledge of targeted and potential markets.
- Be familiar with UAE laws and have experienced legal counsel.
- Effective negotiation and accountability - American companies will do well to negotiate directly with local sponsors since expatriate executives may separate anytime.
- Ensure the accuracy of Arabic translations (since this supersedes the English version in case of disputes).
- Drafting and signing of agreement that protects and benefits mutual interests. The UAE Commercial Agency Law is highly protective of local distribution partners. Therefore, it is important to identify specific geographical areas and whether exclusivity of distribution is needed.
- Enforcement of contractual compliance – set up a mechanism for appropriate compliance of agreements.
- Dispute resolution and termination of contract – the UAE Commercial Agency Law governs agency dispute mechanisms and decides on contract termination cases. The process can be difficult.
Using an Agent or Distributor
To sell in the UAE without opening an office or a subsidiary, many companies choose to appoint local agents or distributors (companies, groups, or individuals) who have the potential and resources to sell and distribute their products. This enables foreign companies to leverage domestic expertise and avoid some of the costs associated with establishing a physical presence in the UAE. Due diligence is crucial when choosing an agent or distributor.
Engaging experienced legal counsel is highly recommended because the regulations and the legal system favor local agents and agency agreements can be very difficult to terminate.
The UAE Commercial Agencies Law is regulated by Federal Law No. 18 of 1981 which stipulates that agents must be UAE nationals or companies incorporated in the UAE and majority owned by UAE nationals.
The agreement includes any arrangement whereby a foreign company is represented by an agent in the UAE to distribute, sell, offer, or provide goods or services in an Emirate, with a specified territory of distributorship and duration of the relationship. These arrangements are generally entered into specifying payment, sales commission, or profit structures.
The agreement may or may not be registered with the UAE Ministry of Economy (MoE). However, under registered MoE agreements, the agent can obtain various protections afforded to agents under the UAE Commercial Agencies Law, including terms covering:
- Exclusivity – exclusive right to import goods covered under agency agreement.
- Commission – Entitled to receive commission as agreed upon.
- Termination – Agreed mutually (amicably) or with UAE MoE approval.
Agency agreements recognized by UAE MoE are protected under the law.
- Commercial Agency agreements must be registered in the commercial agencies register maintained by the Ministry of Economy in the relevant emirate or, if for the entire UAE, with the Ministry of Economy in the federal capital, Abu Dhabi.
- To register an agreement, an agent must have a presence and be licensed to operate in each emirate in which it conducts business, because there is no blanket license for the entire UAE.
- Agreements must be signed before a notary public and must be written in Arabic only or in Arabic and English.
- The agreement can be exclusive with respect to a defined territory, which can be one Emirate, or several, or the entire UAE.
A foreign company cannot re-register the commercial agency in the name of another agent even if the previous agency was for a fixed term unless: (i) it is amicably terminated by the principal and the agent; (ii) termination or non-renewal is for justifiable reasons that are satisfactory to the Commercial Agencies Committee; or (iii) a final judicial judgment is issued ordering the cancellation of the agency.
UAE Federal Law No. 2 of 2010 prevents termination, or non-renewal, of commercial agencies unless the principal has a material reason to justify the termination or non-renewal and re-introduced the specialized Commercial Agencies Committee designed to deal with disputes relating to commercial agencies.
Under the current legislation, the Committee has full authority of investigation, including the ability to appoint experts and the ability to apportion the costs of a hearing between the parties. The Committee has 60 days from the receipt of a complaint to provide a verdict and share findings.
Parties can also appeal the decisions of the Committee before the UAE courts.
UAE Distribution Agreements are governed by UAE Federal Law #18 of 1993, the Commercial Transactions Law. Such agreements may be implied or expressed (in writing), exclusive or non-exclusive, or non-specific in nature. They do not require a UAE national or a company fully owned by a UAE national to be their partner and such agreements do not have to be registered with the UAE’s MoE. An international or local free zone company can be appointed a distributor.
Exclusive Distribution Agreements may be signed by foreign companies giving rights to local partners to sell their goods within a specified geographical area. Such agreements fall under the UAE Commercial Transactions Law.
On the other hand, within the UAE Commercial Agency framework, companies with exclusive agency rights may sign distributor contracts locally which are treated as contractual agencies.
Foreign companies can also appoint several distributors in the same area.
Establishing an Office
Foreign companies can establish a formal presence in the UAE such as:
- Incorporating a Limited Liability Company (LLC).
- Establishing a branch office of a foreign company.
- Establishing a company or office in a free trade zone.
- Establishing a civil company.
Before establishing an office in the UAE, seeking advice from qualified legal counsel and/or a business advisory firm is a good best practice to follow.
UAE Official Resources:
- Starting a business in a free zone
- Steps to start a business on the mainland
- UAE Embassy - Establishing a Business
Free Trade Zones
Foreign companies can also establish a formal presence in one or more of the UAE’s free zones. A free zone is an economic area “offshore” created in one of the seven UAE emirates, established to be governed by rules and regulations that are generally different from those governing “onshore” UAE.
UAE free zones include:
- Abu Dhabi Global Market (ADGM)
- Twofour54 Media Free Zone
- Masdar City Free Zone
- Abu Dhabi Airport Free Zone
- Khalifa Port and Industrial Zone (KIZAD)
- Jebel Ali Free Zone (JAFZ)
- Dubai Airport Free Zone (DAFZ)
- Dubai Internet City (DIC)
- Dubai Media City (DMC)
- Dubai Gold and Diamond Park (DGDP)
- Dubai Cars & Automotive Zone
- Dubai Health Care City (DHCC)
- Dubai International Financial Centre (DIFC)
- Dubai Maritime City
- Dubai Logistics City
- Dubai Knowledge Village
- Dubai Outsource Zone (DOZ)
- Dubai Techno Park (DTP)
- Dubai Silicon Oasis Authority (DSOA)
- Dubai Studio City (DSC)
- Dubai Textile City (DTC)
- Dubai Flower Centre (DFC)
- Dubai Carpet Free Zone
- Jumeirah Lakes Towers Free Zone (JLT)
- Sharjah Airport Free Zone (SAIF Zone)
- Hamriyah Free Zone (HFZ)
Ras Al Khaimah
- Ras Al Khaimah Free Trade Zone (RAKFTZ)
- Ras Al Khaimah Media Free Zone
- Ras Al Khaimah Investment Authority (RAKIA)
- RAK Maritime City
- Fujairah Free Zone (FFZ)
- Fujairah Creative City
- Ajman Free Zone (AFZ)
Umm Al Quwain
- Ahmed Bin Rashid Free Zone
Many franchises have been very successful in the UAE, and the UAE is open to new franchise brands and concepts. Franchise brands have expanded in the UAE across a variety of sectors in recent years including restaurants, food and beverage, and fashion. There are many malls in the UAE, and these malls are very popular with consumers. There are also many tourists and business visitors to the UAE, boosting the demand for goods and services.
The UAE has no laws specifically governing franchising. As a result, general contract and commercial law are applicable to franchise agreements in the UAE. In addition, Sharia law applies to commercial transactions. All franchise agreements must be registered before a UAE court.
There are multiple laws which can apply to franchising relationships including the following:
- Federal Decree-Law No. (19) of 2018.
- Federal Law No. 18 of 1981 commercial agency law.
- Agencies (as amended by Law No. 14 of 1998) and Law No. 13 of 2006.
- Federal Law No. 5 of 1985 on Civil Transactions.
- Federal Law No. 18 of 1993 on Commercial Transactions.
- UAE intellectual property laws for trademarks, copyright and patents.
- Labor laws.
- Local Municipality rules in relation to names and signage.
- UAE general principles dealing with restraint of trade and assignment of the franchise back to the franchisor in the event of default.
For the Agency Law to apply, the following must be considered:
- The agent must be a UAE national or a company majority owned by UAE nationals.
- The relationship must be exclusive.
- The relationship between the agent and principal must be registered with the UAE Ministry of Economy.
Helpful Tips for New-to-Market Franchisors:
- Conduct thorough due diligence to select the proper franchisee.
- Understand the UAE Commercial Agencies Law and other relevant laws.
- Consult with a local legal franchise expert.
- Carefully draft the franchise contract and operations manual for the franchisee specifying the manner in which the franchise is to be operated.
- Ensure the franchise agreement is prepared by a legal franchise expert, explicitly spells out the terms and operations of the franchise, and clearly states the rights and duties of the franchisor as well as the franchisee.
- Take steps to protect IP by registering it with the Ministry of Economy, including logos, trademarks, and business processes.
International Franchise Exhibition (IFE)
Venue: Abu Dhabi National Exhibition Center (ADNEC)
Date: March 9-10, 2021
Venue: Dubai International Convention and Exhibition Center
Franchise Souq (http://franchisesouq.com/)
A leading online marketplace for franchisors aiming to promote brands to prospective franchisees.
Direct selling in the UAE has existed for many years as a traditional model, catering to remote and desert areas, where water and other necessary items were directly supplied to consumers. In recent years, the financial sector and insurance companies have seen a boom in direct marketing for their services, and there has been growth in one-on-one contact sales.
In prior years, direct marketing in the UAE largely occurred through one-on-one engagements and other personal contact arrangements. However, with the rapid adoption of the internet and mobile technologies in the UAE, computer-aided retailing and home-shopping have become increasingly popular. Also, with increased push for multimarket models, direct marketing companies are slowly seeing increased group engagements and “peer/buddy support”. A recent trend is that many companies, specifically in the consumer goods sector, have opted to market their products online by placing advertisements on social media platforms like Facebook, Instagram, Twitter, and YouTube reaching approximately 8.4 million social media users, which represents 96% of the total population in the UAE.
In order to cater to the many shoppers who prefer online shopping, major UAE retail groups such as, Carrefour, IKEA, Landmark, Lulu, and Sharaf DG have strengthened their connections with targeted consumers via direct marketing, using mobile messaging, promotional emails, interactive consumer websites, and online advertising for increased consumer awareness and retention.
The Department of Economic Development (DED) consented to the formation of the Direct Selling Association in UAE (DSA), an official member of the World Federation of Direct Selling Associations, in order to promote transparency and to regulate the sector. The Direct Selling Association represents 14 direct selling companies operating in the region.
Foreign companies are expected to conduct direct transactions only with importers and agents who are already established in the UAE market. Direct marketing by international companies is not encouraged by the UAE government even though many companies tend to lure UAE consumers through direct marketing from overseas. Such activities are not common and are mostly restricted to well reputed brands from verified sources. It is worth mentioning that such activities may be subject to UAE import levies and customs regulations. Also, in many cases, products imported from non-verified outside sources have resulted in unscrupulous suppliers with little or no control over product quality and uncertain service warranties.
Joint Ventures and Licensing
A Joint Venture (JV) is another option for entering the UAE market or develop an operation beyond an agency or distribution arrangement. JVs are an option when it is difficult for a single contracting entity to execute a project alone, such as large projects where a local contractor and international contractor partner. JVs are one of the options available for foreign defense companies to fulfill their offset obligations. Before considering a JV in the UAE, seeking advice from qualified legal counsel and/or a business advisory firm is a good best practice to follow.
Express delivery shipping rates from the United States to the UAE depend on a few factors:
- Package weight.
- Delivery options (overnight, urgent, etc.).
- Carrier (FedEx, UPS, USPS, DHL, etc.).
- Package content (some restricted or regulated items may require additional paperwork to clear customs).
- Delivery address.
Packages can be delivered to the UAE in as little as 2-4 business days. Before shipment from the United States to the UAE, the shipper must confirm the products are legally allowed to be transported. Additional information can be found at the Government of Dubai’s customs website or the UAE’s Federal Customs Authority website.
The Federal Customs Authority implements customs policies, executes customs related laws and legislation, and represents the UAE in and out of the country. Local customs departments do the executive work and draw the customs policies for each Emirate in compliance with the Common Customs Law. Customs clearance is conducted by the Customs Authority in the individual Emirate where the package is received.
Before signing any commercial agreements or commencing business activities in the UAE, U.S. companies should conduct in-depth research and due diligence. U.S. companies should seek competent professional legal advice on how to structure any agreement document and about doing business in the UAE.
The U.S. Commercial Service in the UAE can assist companies with performing due diligence through its International Company Profile (ICP) service. The ICP helps U.S. companies evaluate potential business partners by offering a detailed report on UAE companies. A full ICP provides the most in-depth information related to a local entity’s ownership and management structure, business activities, foreign companies represented, reputation in the local market, and a commercial specialist’s opinion on the relative strength of a local firm and its reliability.