Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
The UAE is a dynamic market economy, and there are a variety of selling options 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. Exporters often rely on commercial agents for the marketing and sale of products and services in the specified territory including the identification of distribution channels, marketing, sales, 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 or on the mainland to retain control over product registration while working with 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.
The COVID-19 pandemic accelerated trends towards online and telephone purchasing. Groceries and supermarkets are deploying additional resources to match customer expectations by responding to online orders and expanding digital marketing and sales channels.
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 use 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 because agency agreements can be very difficult to terminate. Seeking advice from experienced legal counsel is highly recommended to help navigate complex regulations that favor local agents.
Local agents are governed by the UAE Commercial Agencies Law (Federal Law No. 18 of 1981). A commercial agent in the UAE may distribute, sell, offer, or provide goods or services in an Emirate, with a specified territory of distributorship and duration of the relationship. The agency agreement may specify the payment, sales commission, or profit structure.
The agreement may or may not be registered with the UAE Ministry of Economy (MoE). Under registered agreements, the agent is protected under the UAE Commercial Agencies Law (which is favorable to agents) 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. Termination of an agent agreement can be a very difficult process.
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.
Seeking advice from experienced legal counsel is highly recommended to help navigate complex local regulations and the legal system.
Free Trade Zones
Free trade zones are another option for entering the market and doing business in the UAE. A free zone is an economic area “offshore” in one of the seven UAE emirates, governed by rules and regulations that are generally different from those governing “onshore” UAE. Seeking advice from experienced legal counsel is highly recommended to help navigate complex local regulations and the legal system.
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)
- Ajman Free Zone (AFZ)
Umm Al Quwain
- Ahmed Bin Rashid Free Zone
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
The UAE is open to new franchise brands and concepts and many franchises have been very successful in the UAE. There are many malls in the UAE, and malls are very popular with consumers. There are many tourists and business visitors to the UAE, boosting the demand for familiar brands.
The UAE has no laws specifically governing franchising. As a result, general contract and commercial law are applicable to franchise agreements in the UAE. All franchise agreements must be registered before a UAE court. Seeking advice from experienced legal counsel is highly recommended to help navigate complex local regulations and the legal system.
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.
Helpful Tips for New-to-Market Franchisors:
- Consult with a local legal franchise expert.
- 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.
- Protect IP by registering it with the Ministry of Economy, including logos, trademarks, and business processes.
- Understand the UAE Commercial Agencies Law and other relevant laws.
- Conduct thorough due diligence to select the proper franchisee.
- Carefully draft the franchise contract and operations manual for the franchisee specifying the manner in which the franchise is to be operated.
International Franchise Exhibition (IFE)
Venue: Abu Dhabi National Exhibition Center (ADNEC)
The Global Franchise Market (TGFM)
Venue: Dubai International Convention and Exhibition Center
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 developing 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 experienced legal counsel is highly recommended to help navigate complex local regulations and the legal system.
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. Customs clearance is conducted by the customs authority in the individual Emirate where the package is received.
Good due diligence will help protect your company from problems, loss, and liability. As your company expands into new markets, it’s important to continue your due diligence efforts. Resources on how to evaluate countries and potential buyers/partners can be found at the Trade.gov due diligence section.
Before signing any commercial agreements or commencing business activities in the UAE, U.S. companies should conduct in-depth research and due diligence. Seeking advice from experienced legal counsel is highly recommended to help navigate complex local regulations and the legal system.
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.