The Role of International Franchises in the Economic Development of Saudi Arabia

Abstract

According to official sources the Saudi economy, its demographics and customer purchasing power render it an appealing market for the franchising industry. With a population of about 31 million people, there exists a craving for entrepreneurial activities by the younger generation. Franchising as business model, has witnessed tremendous growth in recent times, supposedly generating employment, technology transfer and contributing to revenue, among other effects. Surprisingly, this tempo has not been matched by scholarly interest and investigation into the true contributions and attendant barriers associated with international franchising in the Kingdom. This study intends to fill this void.

The study has a national outlook and seeks to explore the appropriate franchise models in the context of an emerging market such as Saudi Arabia in single sector (restaurants).Through primary and secondary methods of data collection, semi-structured interviews were adopted to fulfil the study’s aims and objectives. The researcher interviewed 45 people to explore the appropriate franchise models within the context of the Saudi Arabian restaurants sector and to investigate the potential barriers that may impede the success of international franchising in Saudi Arabia. The information yielded by this study will assist the government in taking appropriate policy measures to enhance the performance and benefits of franchising in the economy. Furthermore, the study is significant in terms of theory building regarding the use of different organisational forms specifically the franchise model in a developing economy. Much of the theories about franchising have been derived from the western developed economies particularly the United States. This study, therefore, extends the body of knowledge on franchising in the developing economy, especially in an Islamic country such as Saudi Arabia. The findings of the study revealed that pure franchising is appropriate organisational form to penetrate Saudi Arabia in the restaurant sector. International franchising is a vital vehicle for developing SMEs and encouraging the entrepreneurial spirit among Saudi businessmen. The findings demonstrated that SMES benefited from international franchising in terms of improving their management skills and enhancing innovation among SME owners in the restaurant sector. However, international franchising had limited impact technology transfer and providing jobs in the restaurant sector. Surprisingly, this study identifies that culture and religion are not major barriers to the international franchisor. In contrast, the lack of intellectual property protection and the absence of franchising law appeared to be barriers. The applicability of agency theory in the context of Saudi Arabia has been examined. As a result, payment of royalty fees, franchisee’s experience and business development plans, controlling, monitoring and asymmetry of information are the most significant issues that confront the potential franchisor that plans to enter the Saudi market.