Kuwait Franchising: Regulations, Market Entry, and Business Practices

This report provides a comprehensive overview of the franchising system in Kuwait, examining its regulatory framework, market entry procedures, and business practices. It delves into key aspects such as intellectual property rights, trademark regulations, and dispute resolution mechanisms within the context of Kuwaiti law. The report explores the process of establishing a franchise, including registration requirements, foreign exchange, and tax considerations. Additionally, it compares franchising regulations within the GCC countries. The analysis highlights the advantages of franchising for both franchisors and franchisees, along with the challenges and considerations for businesses looking to expand through franchising in Kuwait. The study emphasizes the importance of understanding Kuwait's legal environment and the specific requirements for operating a franchise within the country.

FRANCHISING (MARKETING)
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Table of Contents
1. Introduction:...........................................................................................................................3
2. Discussion on franchising system:.........................................................................................3
3. Regulation of Kuwaiti law in franchising agreement:...........................................................5
3.1 Intellectual property:........................................................................................................6
3.2 Market entry:....................................................................................................................7
3.3 Registration:.....................................................................................................................8
3.4 Foreign exchange and tax:................................................................................................9
3.5 Trademark regulations:...................................................................................................10
3.6 Brand protection:............................................................................................................11
3.7 Dispute resolution between franchise contractual parties:.............................................11
3.8 Franchising regulation in GCC countries for comparison:.............................................12
Conclusion:..............................................................................................................................13
Reference list:...........................................................................................................................14
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1. Introduction:
Franchise business is a process, where another third party private organisation buys the right
to sell the products or services of a large company. In this process, the third party company
would need to provide a security amount to the parent company1. Along with this, the
franchising company would need to sign an agreement with parent company for selling
products and services along with maintaining the market reputation of the parent company.
This study has presented the franchising system in Kuwait. In this regard, the researcher has
stated the regulation, market entry system, registration, and trademark and brand protection
rules etcetera.
2. Discussion on franchising system:
Even though a brief scenario has given in introduction part of franchising, several factors
need to be highlighted while discussing franchising. In franchising business system, the third
party company would need to provide a security amount to the parent company. Along with
this, the franchising company would need to sign an agreement with parent company for
selling products and services along with maintaining the market goodwill of the parent
company2. Along with this, it can be stated that franchising business system is basically a
business expansion process, where the large companies provide right to another small firms
to sell products. Out of the total profit, a potion needs to transfer to parent company and rest
portion is the benefit of franchisee3. However, all business rules and regulations will be
provided by the franchisor. The franchising business system provides some benefits to
franchisee:
 Franchising business provides a chance to a sole enterprise for earning profit and set-
up a new business
 It is easy to start business within a shorter period of time
 In this case, the parent company provides necessary training and support to the
franchisee company
1 Wu, C.W., (2015). Antecedents of franchise strategy and performance. Journal of Business Research, 68(7),
pp.1581-1588
2 Koh, Y., Rhou, Y., Lee, S. and Singal, M., (2018). Does franchising alleviate restaurants’ vulnerability to
economic conditions?. Journal of Hospitality & Tourism Research, 42(4), pp.627-648.
3 Alon, I. and Lattemann, C., (2016). Tchibo Goes Global: Implementing a Hybrid Franchising Strategy at
Germany's Leading Coffee Retailer. Global Business and Organizational Excellence, 35(2), pp.18-30.
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 Alongside, the franchiser company helps to select an most favourable site for starting
the business
 In franchising business, the franchisee earns a brand power for selling the product and
services4
 During advertising, the franchiser company helps the franchisee company for
campaigns
 In this business, the franchise company does not need to create new customer, the
franchiser company will have existing customers5
Therefore, it can be seen that, the franchising business system is much easier and better
compared to other business process. However, the franchisee company would need to have
financial strength for security and royalty amount to the franchiser company. However, a risk
of existing market competition can hamper the new franchising business6. Here, steps for
franchising business are provided:
Figure 1: Franchising business model
4 Hoy, F., Perrigot, R. and Terry, A. eds., (2017). Handbook of Research on Franchising. Edward Elgar
Publishing.
5 Lawrence, B., Pietrafesa, C. and Kaufmann, P.J., (2017). Exploring the growth of multi-unit franchising.
In Handbook of Research on Franchising. Edward Elgar Publishing.
6 Sun, K.A. and Lee, S., (2016). Risk-sharing as a long-term motivation to franchise: Role of franchising
experience. The Journal of Hospitality Financial Management, 24(1), pp.20-32.
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(Source: 7)
The provided franchising business model has stated that the franchiser company provides all
possible supports to the new franchisee company to set-up the new business. However, the
fees or security money and royalty would need to be provided by the franchisee company. On
the other hand, different nations have different rules for business, whether it is franchising or
not. There are obvious rules, which are needed to be followed by each business enterprise8.
3. Regulation of Kuwaiti law in franchising agreement:
A start-up with franchising business can be an effective process to earn profit. Therefore,
maximum sole enterprises focus on franchising business, because they will have existing
customers and supports to run the business. In Kuwait, there are different rules for starting a
franchising business and the law is applicable for both parties, franchisee and franchisor9. The
considerable things while signing a franchising business agreement in Kuwait are provided
below:
a) The franchisee company will be liable to pay royalty fee to the franchisor company.
The royalty fee is basically a percentage (minimum 10%) of gross revenue of
franchisee company. Along with this, the franchisee company would need to provide
a security amount at the initial stage of the business.
b) As per the Kuwaiti business regulation, the franchising business has no minimum or
maximum term for running the franchising business. Therefore, it is easy to start or
end a franchising business in Kuwait. However, if any franchising agreement
considers a particular period for the business, the franchisee would be liable to
continue the business10.
c) As per the business structure of parent company, the franchisee company would need
to have support work force to continue the business practices. Nevertheless, the
7 Rosado-Serrano, A., (2017). Franchising as strategy for internationalization of Family Firms: an exploratory
study. Rosado-Serrano, Alexander.((2017)). Franchising as Strategy for Internationalization of Family Firms:
An exploratory study. Newmann Business Review, 3(1), pp.145-165.
8 Yuanmeng, S. and Hao, L., (2015), April. Does Franchising strategy promote business growth-Based on an
unbalanced panel. In (2015) International Conference on Social Science and Technology Education. Atlantis
Press.
9 Alon, I., Madanoglu, M. and Shoham, A., (2017). Strategic agility explanations for managing franchising
expansion during economic cycles. Competitiveness Review: An International Business Journal, 27(2), pp.113-
131.
10 Song, S., Park, S. and Lee, S., (2019). Does franchising reduce geographically diversified restaurant firms’
risk?. International Journal of Contemporary Hospitality Management, 31(1), pp.161-179.
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franchisor company has the right to inspect the existing ability of Franchisee
Company before signing the agreement.
d) On the other hand, Kuwait does not have any separate law or regulation for
franchising business; it is attached with general business rules and regulation.
Therefore, it is much easier to start a franchising business in Kuwait compared to
other countries. This is reason behind the business development in Kuwait11.
The Kuwait market has become a vast place for business development and earning profit.
According to the government report, Kuwait market is open for all business and that it why,
the economy has become one of highest in the world. According to the Commercial Agencies
Law of 13 (2016), there is no separate or specific definition of franchising business.
3.1 Intellectual property:
Franchising is no doubt utilized eventually an ever-increasing amount sorts about
organizations over ever when. Today, practically whatever item or administration might a
chance to be conveyed through franchising. Kuwait may be exceedingly open of the
establishment benefits of the business model. Secondary for every capita income, huge
investing power, without duty expense-increment salary earnings also an upwardly versatile
populace serve will underline benefits of the business chances here12. American
establishments are warmly welcomed in this small, affluent nation over. Kuwait will be a part
of the planet intellectualisation association (WIPO) Furthermore of the reality trade
association (WTO); thus, it will be a signatory of the assertion ahead Trade-Related
viewpoints from claiming protected innovation privileges (TRIPS). Protected innovation
privileges (IPR) in Kuwait need aid secured nominally perusing trademark, licenses and
copyright laws embraced On 1999 Furthermore 2016, individually13.
In spite of this designation on the exceptional 301 Report, there have been outstanding
upgrades in the IPR administration Throughout as far back as two years, Similarly as Kuwait
took activities against web offerings of pirated materials, led raids Furthermore criminal trials
once a range for pirated What's more fake physical goods, Furthermore stepped up
11 Robson, M.J., Kadile, V., Watson, K. and Clegg, L.J., (2018). International Franchising Relationships.
In Advances in Global Marketing (pp. 427-446).
12 Palmatier, R., Stern, L. and El-Ansary, A., (2016). Marketing Channel Strategy: Instructor's Review Copy.
Routledge.
13 Alon, I. and Elango, B., (2018). Franchising and initial public offering: a signaling perspective. International
Journal of Retail & Distribution Management, 46(11/12), pp.1193-1208.
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endeavours to forbid fake fares14. Kuwait also functioned with good holders to upgrade
implementation deliberations. What's more, the lion's share of companies’ parts does not stay
in their starting work areas once their commitment done. Traditions Furthermore outskirt
insurance (CBP) in-country counselling program, and the marking of a reciprocal traditions
shared support understanding clinched alongside September 2017 conferring on
collaboration, majority of the data sharing, What's more coordination On requirement
exercises.
There are at present steps that compelling reason with make made to Kuwait’s copyright
administration will help Kuwait’s universal commitments, including with admiration to the
expression of protection; confinements on the add up about worth of effort reproduced;
enforcement, remedies, Furthermore damages; Furthermore definitions. Legislature orgs on
draft amendments of the theory should achieve its administration in line with its global
commitments15.
3.2 Market entry:
As it has been stated that Kuwaiti business regulation, the franchising business has no
minimum or maximum term for running the franchising business. Therefore, it is easy to start
or end a franchising business in Kuwait. However, if any franchising agreement considers a
particular period for the business, the franchisee would be liable to continue the business16.
Apart from that, Kuwait does not have any separate law or regulation for franchising
business; it is attached with general business rules and regulation. Therefore, it is much easier
to start a franchising business in Kuwait compared to other countries. This is reason behind
the business development in Kuwait.
On the other hand, Kuwait does not have additional rules for franchising business, so there is
no specification for entering in Kuwait market as new franchising business. Kuwait has
marked 5% rate of tariff on imports and 15% tariff for foreign corporations. However, it has
been found from a business journal that the international firms would need to identify,
develop and support the Kuwaiti agents for managing their marketing strategy in favour of
14 Rosado-Serrano, A., Paul, J. and Dikova, D., (2018). International franchising: A literature review and
research agenda. Journal of Business Research, 85, pp.238-257.
15 Wu, C.H., Ho, G.T., Lam, C.H. and Ip, W.H., (2015). Franchising decision support system for formulating a
center positioning strategy. Industrial Management & Data Systems, 115(5), pp.853-882.
16 Burns, P. and Dewhurst, J. eds., (2016). Small business and entrepreneurship. Macmillan International Higher
Education.
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their companies. A number of commercial services have been regulated for international
firms, so that they can build their business structure in Kuwaiti market17.
In short, it can be stated that Kuwait has normal rules for new entrants in market like the one
other nations have. However, many businesses are restricted in Kuwait as per Islamic law.
Entering in Kuwait market, the new firms would need to face a common challenge that is
existing competitors. Otherwise, no additional problems can hamper the franchising business
practices in Kuwaiti market. Different embassy supporters are assisting there for international
firms to start their business. According to Kafala business system, the organisations can take
advantage of low cost labour force from foreign nations. That means there is a chance for
earning for individuals also18.
3.3 Registration:
Business registration is an important task. In this process, the entrepreneur would need to
have different papers from different government offices; along with this, it is important to
have a good business plan for applying business loan. However, different nations have
different regulations for general business, partnership business, franchising business etcetera.
Here, the registration process of franchising business in Kuwait has been discussed clearly.
 At the initial stage, the sole proprietor would need to submit an application to the
commerce ministry office to have trade licence. This is most important for starting
any business. Along with this, the owner would need to choose a name for the
company and need to submit for next registration process.
 After that, three permission notes would need to collect from Partnership Department.
Amongst those three notes, 1 need to submit to bank for loan apply, 1 note to criminal
investigation department and last one to Kuwaiti municipal corporation19.
 After that, the owner would need to have a permission and franchising agreement
paper copy from Franchisor Company, which needs to submit in bank. A security
amount would need to submit in favour of Franchisor Company through bank.
17 Dada, O., Jack, S. and George, M., (2016). University–Business Engagement Franchising and Geographic
Distance: A Case Study of a Business Leadership Programme. Regional Studies, 50(7), pp.1217-1231.
18 Buchan, J., Frazer, L., Weaven, S., Tran‐Nam, B. and Grace, A., (2018). The Adequacy of Pre‐purchase Due
Diligence in Independent Small Business and Franchising. Australian Accounting Review, 28(1), pp.127-139.
19 Alon, I. and Elango, B., (2018). Franchising and initial public offering: a signaling perspective. International
Journal of Retail & Distribution Management, 46(11/12), pp.1193-1208.
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 After getting all clearance from all departments, the Department of Partnership (DOP)
will provide a memorandum of association and municipality for final approval from
government side will inspect the company premises for final approval.
 Followed this procedure, the owner should register the business with Civil
Department to have Civil number as an artificial person; because this is necessary for
tax payment. The name of the company and civil number will be registered under
Income Tax department20.
 After that, a labour file needs to be submitted to the labour department of Kuwait.
This is necessary for hiring labours for business practices.
The overall procedure is involved in complete registration process for franchising business in
Kuwait. In this case, the business owner should not have any criminal record; otherwise, the
registration would be cancelled. Along with this, all necessary rules and regulations should be
maintained during the business.
3.4 Foreign exchange and tax:
The world economy and exchange rate in all nations are controlled under US dollar; however,
the Kuwaiti dinar has highest valuation in the world. Considering the Kuwaiti dinar with US
dollar it stands, 1 Kuwait dinar is equal to 3.3 US dollar. That means imports from Kuwait
provide lots of currency to the nation. Along with this, the country operates maximum portion
of world’s crude oil business. All businesses together have strengthened the Kuwaiti
economy at the highest level21. Kuwait government has not provided separate tax rules in the
nation like tax from salaries, tax on sales, value added tax, wealth tax etcetera. The
companies, which are collaborated their business with any nationalise or non-Kuwaiti
companies do not come under the preview of income tax.
Only the income tax is imposed on the foreign companies and foreign shareholders. That
means, any foreign company or shareholder from foreign country is directly or indirectly
related to business activities is liable for income tax. On the other hand, the companies, which
are wholly controlled by Gulf Co-operation Council (GCC) are not levied under the income
tax. However, the GCC controlled companies those are collaborated with other foreign
20 Hoy, F., Perrigot, R. and Terry, A. eds., (2017). Handbook of Research on Franchising. Edward Elgar
Publishing.
21 Madanoglu, M. and Castrogiovanni, G.J., (2018). Franchising proportion and network failure. Small Business
Economics, 50(4), pp.697-715.
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companies are liable for income tax22. Kuwait Income Tax Law (Law 3 of 1995) and Law 23
of 1961 have the controlling and regulation authority of national income tax. On the other
hand, the Kuwaiti income tax law has been amended on December 26, 2007 and that
officially became active from 3rd February 2008.
The Kuwaiti dinar is world’s highest denomination due to its stability and it is not affected by
the economic law demand and supply. Nevertheless, the Kuwaiti economy has maximum
reliability on oil supply around the world, which means world’s economy is partially depends
on Kuwait. No industrial or transportation can run without oil and that is imported from
Kuwait. The overall currency contributions from all countries have made the Kuwaiti
currency highest23. That means the foreign exchange with Kuwait will have maximum
currency outflow from other nations.
3.5 Trademark regulations:
In late 1960s, the Kuwaiti government has regulated the trademark for business. Recently
during 2016, the Kuwaiti government has changed the procedure of application, assessment
and registration of trademark. According to the decision number 500 and law number 13 of
2015 by Kuwaiti commerce minister, the trademark has new inclusions like single colour,
multi colour, combination colour, sound marks and smell marks24. The trademark in Kuwait
should include:
a) 4 number of pictures of the marks
b) Decriminalized and interpreted power of attorney
c) The testimony of business practices
d) The trademark should be translated into Arabic language, if it is in any international
language
e) No local or ethnic language can be used for trademark
f) The trademark should not harm social or moral value
g) The symbol or language should not against any religion, specially Islamic religion
22 Kacker, M. and Perrigot, R., (2016). Retailer use of a professional social media network: Insights from
franchising. Journal of Retailing and Consumer Services, 30, pp.222-233.
23 Brookes, M., Altinay, L., Wang, X.L. and Yeung, R., (2016). Opportunity identification and evaluation in
franchisee business start-ups. Journal of Service Theory and Practice, 26(6), pp.889-910.
24 Wu, C.H., Ho, G.T., Lam, C.H. and Ip, W.H., (2015). Franchising decision support system for formulating a
center positioning strategy. Industrial Management & Data Systems, 115(5), pp.853-882.
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On the other hand, the ministry of commerce a protection has been provided to the trademark
for not copy writing for any other commercial purpose. In this regard, the department of
commerce has stated that the particular business organisation should apply for protection at
least one month before of publication. The ministry of commerce has increased the fees of
trademark registration in favour of giving protection and other legal authority25. In short, the
changes in trademark regulation have provided a benchmark for future business perspective.
Along with this, the products and services of the organisation would be protected from
fraudulences.
3.6 Brand protection:
Brand is the most important asset of any business organisation. It is necessary for every
business organization to have a trademark for the brand so that no other company can copy
that for their own business. The brand protection includes protecting brands, copyrights,
patent rights, business trademarks and other additional designs. This brand protection will
provide a security to the goodwill of the company and that will set a fair market competition
in Kuwait market26. The ministry of commerce has established a new wing named Intellectual
Property Protection Committee (IPPC) for focusing on the complaints regarding trademark
and brand fraudulences. In this process, the authority sets a team of experts for taking a raid
in suspected business locations and take necessary actions against those.
That means Department of commerce for brand protection has provided a full protection.
However, it is necessary to submit a complaint file against the fraud with sufficient proofs.
This process is necessary to make the complaint strong and if necessary the defence will be
involve in this perspective27. In main thing is that after filing the report, the respective
department take immediate action without any notice.
3.7 Dispute resolution between franchise contractual parties:
Due to the increased volume of partnership business and franchising business, the department
of commerce has constructed new rules and regulation. As per the agreement and law, all
involved parties would need to obey and maintain all rules to continue the franchising
25 Alon, I. and Elango, B., (2018). Franchising and initial public offering: a signaling perspective. International
Journal of Retail & Distribution Management, 46(11/12), pp.1193-1208.
26 Hoy, F., Perrigot, R. and Terry, A. eds., (2017). Handbook of Research on Franchising. Edward Elgar
Publishing.
27 Wu, C.H., Ho, G.T., Lam, C.H. and Ip, W.H., (2015). Franchising decision support system for formulating a
center positioning strategy. Industrial Management & Data Systems, 115(5), pp.853-882.
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business by sharing profit. The involvement of foreign trade and other international business
players has fuelled the sophisticated lives of Kuwait. However, the arbitration framework is
under reform for more betterment. As per the Kuwaiti business regulation, the franchising
business has no minimum or maximum term for running the franchising business. Therefore,
it is easy to start or end a franchising business in Kuwait. However, if any franchising
agreement considers a particular period for the business, the franchisee would be liable to
continue the business28.
The termination of franchising agreement would take place with collaborate decision of both
parties or permission of franchisor company. The termination of franchising agreement
depends on the business process of franchisee or franchisor. However, it is necessary for
resolve the business issues with an annual meeting, because break of agreement might create
hazards for employees working within the franchisee company.
3.8 Franchising regulation in GCC countries for comparison:
The franchising regulations in Gulf Co-operation Council (GCC) countries are provided
below:
 The agency of commerce regulation might provide a lawful and registered agent to a
particular operated area for examining the business practices and maintaining the
rules and regulations
 The registration process generally provides common rules and laws related to
franchising business. However, the actual business practices and transactions would
be monitored by department of commerce
 In case of any dispute franchisee, the department would take necessary action for
future agreement on new franchising business. This is helpful for protecting the
fraudulence29.
 In case of termination of agreement by the franchisor, there should be valid reason for
terminating the franchisee as a partner; otherwise, the process will be prohibited by
the GCC
28 Robson, M.J., Kadile, V., Watson, K. and Clegg, L.J., (2018). International Franchising Relationships.
In Advances in Global Marketing (pp. 427-446).
29 Sun, K.A. and Lee, S., (2016). Risk-sharing as a long-term motivation to franchise: Role of franchising
experience. The Journal of Hospitality Financial Management, 24(1), pp.20-32.
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