Franchise, known as a franchise agreement, involves a person called the franchisor granting the right to another person called the franchisee to conduct the franchise business on their own behalf under an agreement called a franchise agreement. This agreement is between two legally, financially, and administratively independent parties, linking it to the trademark or trade name owned by the franchisor or licensed for use. This includes providing technical expertise and know-how to the franchisee, determining how the franchise business should be operated, in exchange for financial or non-financial compensation as agreed in the franchise agreement.
Among the new investment methods recently adopted to keep up with development is the franchise. At this stage, the Kingdom of Saudi Arabia clearly encourages franchise activities, aiming to boost small and medium enterprises, encourage entrepreneurs and investments by providing a conducive investment environment. Reflecting the Kingdom’s role is the incorporationof a regulatory framework to govern the relationship between the franchisee and the franchisor, reinforcing the principle of contractual freedom, and establishing the foundations of this relationship based on transparency, as emphasized by the Saudi Franchise Law. All this is a crucial aspect for economic advancement.
According to Articles 8 and 9 of the Saudi Franchise Law, there are specific obligations for both the franchisee and the franchisor. The franchisor is primarily obligated to train the franchisee’s employees, provide technical and marketing expertise, and other necessary skills required by the nature of the granted franchise. The franchisee is obliged to obtain the franchisor’s approval for any changes in goods or services or the way of conducting franchise business, provide data related to the franchise business that allows the development of the franchise model, and enable the franchisor or its representatives to inspect the facilities used in conducting the franchise business. The franchise agreement, which governs the relationship between the franchisee and the franchisor, includes clauses covering all aspects of the franchise grant and serves as the primary reference for both parties. The Saudi Franchise Law specifies a minimum set of clauses, allowing the addition of any other clauses that do not contradict the law.
In this context, we refer to the role played by the Franchise Center, established by the Council of Ministers’ Decision No. 122 dated 9/2/1441 H under the umbrella of the General Authority for Small and Medium Enterprises (Monsha’at). Among the most important tasks and powers of the center are setting the necessary conditions for engaging in franchise brokerage and mediation activities, preparing programs and organizing events to raise awareness about franchise activities and opportunities, preparing informative and educational publications and documents related to franchising, conducting studies and research, collecting information and statistics related to franchising, and raising awareness among franchise practitioners about regulations and decisions related to their practices.
It is worth noting that there are many benefits to franchising, including: 1- Financial Benefits: This system provides investment opportunities for both parties through profit generation. 2- Operational Benefits: This is achieved by forming a smaller organizational structure for both parties, as they are legally independent entities. While the franchisor focuses on production, product development, innovation, and understanding customer needs as a whole, the franchisee handles marketing and distribution. 3- Administrative Benefits: Management is distributed between the franchisor’s business center and the franchisees, significantly enhancing employee efficiency and reducing resignation risks for the franchisor, while the franchisee receives comprehensive administrative and operational support from the franchisor and manages the relatively small business based on the strength and expertise of the franchisor.
4- Marketing Benefits: Marketing operations are primarily the responsibility of the franchisee. Learning the latest developments and changes in the local and global market from the franchisor is highly beneficial for the franchisee. Additionally, receiving the franchisor’s support helps focus entirely on increasing revenue by operating under a well-known brand and achieving better marketing results.
All this requires providing infrastructure that supports and stimulates the franchise system and its development mechanism, promoting and encouraging competitive culture, and enhancing partnerships with the private sector to increase investment, and working on training and qualifying capable personnel for development.
In reality, the opportunity is ripe for the Kingdom to emphasize that the franchise sector is one of the prominent non-oil sectors that has received and will continue to receive significant attention from the Saudi government. It will be used as an effective mechanism—among several others—to achieve the desired economic development, significantly contributing to the goals of Vision 2030.
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