International franchising and licensing in Gulf Cooperation Council countries

Insights of pros and cons of international franchising and licensing: The GCC legal and business perspectives

Introduction:
The international franchising and licensing has risen in popularity as a means for companies to grow their business in new markets and increase revenue streams. Nevertheless, entering global markets through these methods presents challenges related to cultural differences, legal compliance and protection intellectual property. International franchising and licensing are favored approaches for expanding businesses globally. Franchising involves granting a license from a franchisor to a franchisee allowing the use of a business model. On the other hand, licensing involves the grant of rights from a licensor to a licensee permitting the use of a specific product or service. The Gulf Cooperation Council (GCC) with its considerable economic growth and opportunities holds significant appeal as a destination for international franchising and licensing (Abu-Shawish et al., 2021). The franchise sector in the GCC is diverse including various industries, such as food and beverage, retail and hospitality. As global expansion strategies, international franchising and licensing have gained widespread acceptance. These strategies have become increasingly attractive for businesses seeking to extend their reach into foreign markets particularly in the GCC. However, it is crucial to recognize that these approaches come with their own advantages and disadvantages which can significantly influence the success of the business venture.
Study Objectives
The purpose of this paper is to provide insights on the pros and cons of international franchising and licensing in GCC region into the legal and business perspectives and to offer recommendations for businesses looking to expand into this market. Hence, the main objectives of the study:
1. To determine the impact of legal and business perspectives on the success of international franchising and licensing in GCC region
2. To provide recommendations for businesses looking to expand into GCC region through international franchising and licensing
3. To test the hypotheses that international franchising and licensing have advantages and disadvantages for businesses looking to expand in GCC region and that considering legal and business perspectives when engaging in international franchising and licensing in GCC region leads to more successful expansion
4. To evaluate the appeal of international franchising and licensing laws, agreements and contracts in GCC region as a way to successful expansion as an alternative to organic growth and with less risk
Significance and contribution
This research highlights the significance of considering both legal and business perspectives when undertaking international franchising and licensing agreements and contracts in GCC region. Furthermore, the importance of this research lies in the growing popularity of international franchising and licensing agreements and contracts as global expansion strategies for companies. By taking these factors into a confederation companies can gain a better understanding of the advantages and disadvantages associated with these legal arrangements, agreements and contracts. Hence, enabling them to make well-informed decisions and ensure successful market expansion. Several studies have examined the pros and cons of international franchising and licensing agreements and contracts in different regions. For instance, Akman and Yilmaz (2019) in their study, they analyzed the advantages and disadvantages of international franchising in the Turkish market. In addition, Liu, Wei, and Lu (2019) in their research, they investigated the legal and business challenges of international franchising model in China. However, there is limited studies about the legal and business aspects of international franchising and licensing laws, agreements and contracts in GCC region. Hence, this research aims to address this gap by providing a comprehensive analysis of the legal and business perspectives of international franchising and licensing agreements and contracts in GCC region. The findings from this research will be valuable for businesses considering expansion in the GCC region as well as for policymakers and regulators involved in shaping the required regulations related to international franchising and licensing contracts.
Study questions:
1. What are the advantages and disadvantages of international franchising and licensing for businesses considering GCC region ?
2. How do the legal and regulatory outlines affect international franchising and licensing in GCC region ?
3. What are the key business perspectives for international franchising and licensing in GCC region ?
4. How do cultural differences influence international franchising and licensing in the GCC region?
5. What are the best practices for businesses they looking to expand through franchising and licensing contracts in the GCC region?
Literature review
The success of businesses in the global market hinges on understanding the legal and business aspects of international franchising and licensing. Gómez-Acebo & Pombo, (2019) concluded in their study that engaging in international franchising and licensing could provide a company with a solid legal framework for conducting business in a foreign country, safeguarding its intellectual property and ensuring compliance with local laws and regulations. Moreover, these strategies offer a swift and cost-effective approach for entering new markets as companies can capitalize on the existing infrastructure and resources of the franchisee and licensee avoiding the need to build their operations from scratch (Mondaq, 2018). Nevertheless, international franchising and licensing contracts can present intricate legal challenges; including contract-related matters, intellectual property protection and dispute resolution which can be particularly daunting in countries with diverse legal systems and cultural norms.
International Franchising and Licensing Law Worldwide:
Gómez-Acebo and Pombo (2019) determined that International franchising and licensing agreements and contracts are very complex business models that require careful legal considerations. Moreover, franchising law differs from country to country, and franchisors need to comply with relevant laws of each country where they operate. In the United States (USA) the Federal Trade Commission (FTC) regulates franchising contract through the Franchise Rule (FR) requires franchisors to reveal a relevant information to prospective franchisees (Mondaq, 2018). In addition, the European Union (EU) also has a Franchise Disclosure Directive (FDD) that mandates pre-contractual disclosure in franchising agreements (Larkin Hoffman, 2018)
Furthermore, Mondaq (2018) shows in his study that Franchises Act (FA) in Canada legalizes and control the franchising contract; hence, international franchisors must provide a document to franchisees before the franchise agreement is signed (Mondaq, 2018). On the other hand, in Asia franchising regulations vary significantly. In China, franchising law and agreement were regulate under the Franchise Regulation (FR) that requires international franchisors to register with Ministry of Commerce (Gómez-Acebo & Pombo, 2019). However, in Japan franchising agreement is regulated by the Small and Medium-sized Enterprises (SMEs) Basic Act. Which instructions pre-contractual disclosure and establishment of a dispute resolution system (Larkin Hoffman, 2018). Nevertheless, licensing law contract and agreement also differs from country to country and international licensors need to fulfill with the relevant laws of each country where they operate (Gómez-Acebo & Pombo, 2019). In the USA licensing agreement is regulated under federal and state laws including the Lanham Act that rules trademark contravention and the Patent Act that governs patent licensing (Mondaq, 2018)
In Europe, licensing is regulated by the European Union Intellectual Property Office (EUIPO) governs licensing law. The EUIPO provides a unified registration system for European Union trademarks that can be licensed to third parties (Larkin Hoffman, 2018). In Asia; licensing law is also varied for instance, in China the Contract Law that mandates licensing agreements be in writing governs licensing and that parties must act in good faith (Gómez-Acebo and Pombo, 2019)
Indeed, International franchising and licensing law is a complex and constantly evolving area of law. Franchisors and licensors must understand the relevant laws in each country where they operate to ensure compliance and avoid legal issues. Franchise disclosure requirements, cooling-off periods and mandatory mediation are common legal requirements in many countries. The Lanham Act and the Patent Act are important federal laws to consider when licensing intellectual property in the USA. While in Asia, licensing is regulated under various national laws. Therefore, there is no single international law that governs franchising and licensing which can create challenges for businesses that operate in multiple jurisdictions (Elango & Fried, 2019).
Franchising and Licensing Law and Agreement in the Arab World - GCC:
The Arab world, particularly the GCC has seen a significant increase in international franchising and licensing activities in recent years. The legal frameworks for international franchising and licensing in GCC vary across countries with some countries having more developed laws and regulations than others. The cultural fit of foreign brands in the Arab world is also a crucial factor in the success of international franchising and licensing agreements and contract. As noted by Aldehayyat and Anchor (2018) international franchisors that take into consideration the cultural dimensions and indications of GCC market have a higher chance of success. The international franchise agreement should also include provisions that address cultural differences and comply with the local laws and customs. The dispute resolution mechanism is another critical aspect of international franchising and licensing contracts in the Arab world. As highlighted by Al Tamimi & Company (2018) the GCC have different mechanisms for resolving disputes including arbitration and litigation. The franchise agreement should clearly outline the dispute resolution mechanism and comply with the applicable laws in the GCC
In April 2020 KSA officially issued the Franchise Law and its implementing regulations referred to as the "Franchise Law Implementation Regulations". However, the rest of the GCC do not currently have separate franchise laws and are instead governed by each country's respective business incorporation laws. Although there are significant similarities in the commercial representation laws of GCC there are also differences particularly in terms of standards and formalities for the registration of commercial representation contracts. It is worth noting that in all the neighboring GCC the laws governing local businesses primarily favor the interests of local agents (i.e. franchisors) over franchisors (Murray, Olusola, and Chiu, 2021)
The lack of uniformity in the legal framework has resulted in challenges for franchisors and franchisees in terms of understanding their rights and obligations. One of the essential documents in franchising and licensing is the agreement between the franchisor and franchisee. According to Saleh and Hussain (2020), the franchise agreement should be comprehensive and include all aspects of the franchise relationship including the rights and obligations of both parties, fees and royalties and termination clauses. The agreement should also comply with the applicable laws in GCC where the franchise will operate.
In the UAE, the interaction between parties involved in a franchise contract is governed by the UAE Commercial Agency  Law No. 3 of 2022. Article 1 of The UAE Commercial Agencies Law define commercial agency as “The representation of a Principal by an Agent under a contract of agency, distribution, sale, offer or concession or the provision of commodity or service within the State in return for a commission or profit”. In addition, commercial law agency that intend to do business in the state must first officially register with the UAE Ministry of Economy (Article 3 of UAE Commercial Agency, 2022). Only nationals companies wholly owned by UAE citizen or companies owned by the government may participate in UAE commercial agency/franchise business (Article 2 of UAE Commercial Agency law, 2022).
In Kuwait, the terms of franchise agreements are governed by the Commercial Agencies Law 2016 (Matter, 2021). Article 2 of the Kuwait Commercial Agency Law sets out the following specific qualification requirements to be appointed and registered as a local representative or distributor in Kuwait:
• The individual must be of Kuwaiti nationality or the participating company must be of Kuwaiti origin and the Kuwaiti partner owns at least 51% of the company's shares.
• Registration in the Enterprise Register
• Must have a valid license to operate in the same field of business as the agency.
• The person or company must sign the agency agreement directly with the client or its legal representative.
In addition, the law allows a principal in Kuwait to appoint multiple agents or distributors as long as they meet the requirements to provide product repair and after-sales services, regardless of whether these products were originally purchased from a local agent or not. (Article 4 and 5 of Kuwaiti Commercial Agency, 2016). local agent or distributor must register the agency agreement within the designated register at the Minister of Commerce and Industry, therefore, any unregistered institutions are not recognized or taken into consideration.(Article 6 of Kuwaiti Commercial Agency, 2016)
In 2002, Qatar Issued the Commercial Agency Law No. 8, which was amended in 2016. The "Qatar Commercial Agency Law's Article 8/C states that the agency period may be fixed or unlimited and that it cannot be terminated without the agreement of both parties. (Article 9/C of Qatari Commercial Agency, 2022). Likewise, in Oman, the Commercial Agency Law No. 26 of 1977 regulated the franchising agreement. According to the Law, agency contracts must be registered and specifically, the franchising agreement must be registered in the Register of Commercial Agencies at the Ministry of Commerce and Industry (Matter, 2021)
The KSA legislator was the first to issue a new law in the region; some of the provisions of the law are referenced. The Franchise Act creates a regulatory framework for franchisor-franchisee relationships based on transparency. The Franchise Law applies to all franchise agreements made within JSA. (Murray, 2021). The law that is divided into 11 chapters and 27 articles covers a wide range of topics including general provisions, scope conditions, requirements for obtaining a franchise, registration and disclosure requirements, duties of the franchisor and the franchisee, specifics of the franchising agreement, assignment of the franchise arrangement, renewal terms, terminating conditions and final Provision (Matter, 2021) (Saudi Franchise Law, 2019).
KSA's franchise law prioritizes the values of contract freedom and transparency while also promoting franchising by establishing a framework for the relationship between franchisees. Second, the law aims to offer sufficient protection for the franchisor and the franchisee, particularly following the termination of the franchise agreement. Thirdly, it aims to make sure that crucial rights, responsibilities and risks connected with a franchise agreement are disclosed so that potential franchisees can make investment decisions.
The law's goal is to raise service standards in Saudi Arabia so that the country can become more sustainably developed in the future. (Article 2 of the Saudi Franchise Law). Inaddtion, the KSA government has indicated the importance of disclosure documents in franchise agreements as provided for in Article 7(1) of the KSA Franchise Law, which states that “The franchisor shall provide the franchisee with a copy of the disclosure document, as prescribed by the Regulations, at least 14 days prior to concluding the franchise agreement or from the date of any payment made by the franchisee in relation to the franchise, whichever occurs first” Furthermore, the disclosure document must be in Arabic if it was originally written in another language, it must be translated clearly into Arabic by a certified translator (Article 7/2 of the Saudi Franchise Law)
These commitments include outlining the rights given to the franchisee abiding by particular rules and regulations when acting as a franchisor, supplying staff training to the franchisee and depending on the type of franchise, sharing technical, marketing and other pertinent knowledge. The franchisor must specify the financial obligations the franchisee must meet, So supply the required goods and services to the franchisee for the duration of the franchise unless the franchisee obtains them from a third party and refrain from opening similar businesses in the specified geographic area stated in the franchising agreement. The franchisor must also maintain the confidentiality of all information and accounting data related to the franchise (Matter, 2021) (Article 8 of Saudi franchise law, 2019)
On the other hand KSA requires the franchisee to obtain the consent of the franchisor before making any changes to the franchise products, services and operations. The franchisee must provide the franchisor with the necessary franchise business information including financial and accounting information to establish the franchise business model. The franchisor or their representatives are permitted to inspect the facilities used for running the franchise as long as the inspection does'nt disrupt the franchise's operations. Furthermore, if the franchisee intends to modify the franchised business's location they must obtain the franchisor approval (Article 9 of Saudi Franchise Law, 2019) (Matter, 2021)
Hence, the international franchising and licensing are essential business strategies for companies seeking to expand their operations in the Arab world. The legal framework, franchise agreement, cultural fit and dispute resolution mechanism (except Article 25 of the Saudi Franchise Law Provide that “Disputes arising from the franchise agreement or application of this Law may be settled by alternative means such as arbitration, mediation and conciliation” are crucial aspects that franchisors and franchisees should consider when entering GCC
International franchisors and franchisees must navigate the legal landscape carefully considering the legal framework, compliance with local laws, franchise agreement and intellectual property protection. At this point, list some examples of success international franchisors that have established franchises in GCC:
1. McDonald's: is a well-known fast food chain that has been operating in GCC for over 40 years. The company has over 400 branches in the region, serving a range of burgers, sandwiches, and other menu items.
2. KFC: is another popular fast food chain that has a good existence in GCC. The company has over 200 restaurants in GCC, serving a range of fried chicken, sandwiches and other menu items.
3. Starbucks: is a global coffee chain that has a strong presence in GCC. It has over 200 branches in GCC, serving a range of coffee, tea and other beverages as well as food items.
4. 7-Eleven: is a convenience store chain that has existence in GCC. The company has over 100 outlets GCC; it is offering a range of convenience items, snacks and beverages
5. Subway: is an international sandwich chain that has a presence in GCC. The company has over 50 branches in GCC; it is serving a range of sandwiches, salads and other menu items.
6. Dunkin' Donuts: is an international donut and coffee chain that has a presence in GCC. The company has over 30 branches in GCC; it is serving a range of donuts, coffee, and other beverages.
7. Pizza Hut: it is a global pizza chain that has a existence in GCC. It has over 30 branches in GCC; it is serving a range of pizzas, pastas and other menu items
Business Perspectives of Franchising and Licensing in the GCC:
Ammari & Trabelsi, (2021) concluded in their study that the international franchising and licensing agreements and contracts could offer companies many benefits including reduced risk, lower capital requirements and access to local knowledge and expertise. However, there are also potential disadvantages including loss of control over the brand, conflicts with franchisees and licensees and legal and regulatory compliance issues. Therefore, In GCC there is a growing interest in international franchising and licensing as a means of expansion particularly in the food and beverage and retail sectors (Ammari & Trabelsi, 2021). However, there are also challenges in international franchising and licensing including cultural differences, language barriers and limited access to financing.
According to a report by Deloitte (2019), the GCC has seen a substantial increase in international franchising and licensing activities in recent years. In addtion, the report shows that GCC has experienced significant growth in the franchise sector with market size estimated to be around USD 30 billion (Deloitte, 2019). This growth has been recognized to increase in the number of international brands entering GCC markets and the rise of domestic franchisors.
As noted by Aldehayyat and Anchor (2018) the success of international franchising and licensing contracts and agreements in GCC is also attribute to the cultural fit of foreign brands. In addition, global or international franchisors that take into consideration the cultural dimensions of GCC have a higher chance of success. On the other hand, as highlighted by KPMG (2018) one of the challenges faced by franchisors and franchisees in GCC is the availability of skilled labor. Furthermore, there is a shortage of skilled workers in the GCC, which can influence the quality of service provided by franchisees (KPMG, 2018).
Cultural Differences and Similarities in GCC
Despite their geographic proximity, the GCC’s member-states are not exactly homogeneous mirror images of each other culturally – but most of them are very close (Hofstede, 2021). In fact, of the four GCC member-states for which cultural dimension data is available from Geert Hofstede (e.g., Bahrain, Kuwait, Qatar, Saudi Arabia and the UAE), only Qatar is ranked slightly higher on the power-distance and masculinity dimensions, with the other ranks for the remaining member-states being essentially the same, being firmly rooted Islamic history and traditions with a strong emphasis on hospitality and family relationships (Al-Dhahi, 2019; Peterson, 2007). Indeed, family is regarded as the cornerstone of Islamic society and Islamic traditions encourage the faithful to maintain close ties with their relatives and provide for their families (Ikhwan et al., 2019; Muraslin, 2023). By contrast, though, Bahrain’s culture is regarded as somewhat more cosmopolitan in character (Al-Mahrooqi, 2015). In addition, the UAE is also ranked slightly higher on the power-distance dimension, reflecting the country’s prioritization of individual achievement and self-interest (Ramady, 2021).
It is also important to point out that there may be significant cultural differences within the regions of each GCC member-state, especially larger member-states such as Saudi Arabia, holding fundamentally different cultural values compared to their counterparts in other regions (Sarwar, 2022). Therefore, and notwithstanding the existing vagaries that are involved in any cross-cultural analysis of GCC member-states, it is also important to highlight the significant cultural similarities between these nations noted above in order to determine the impact of legal and business perspectives on the success of international franchising and licensing in the GCC region.
Research Methodology
This research use a mixed-methods approach combining of qualitative and quantitative methods to collect and analyze data. The methods approach allows for a full examination of the international franchising and licensing agreements and contracts in GCC (Hendren et al., 2023). Mixture of quantitative and qualitative methods provides a more comprehensive thoughtful of the business and legal perspectives of international franchising and licensing agreements in GCC. This research use subjective methods to gather systematic information that explores the business and legal perspectives of international franchising and licensing agreements and contracts in GCC. The findings of this research contributes to the existing LR of international franchising and licensing agreements and provide valuable insights for businesses considering international franchising and licensing in the GCC
Data Collection and Sampling:
The collected sample for this research consist of 150 businesses operating in GCC representing various sectors including retail, hospitality, food and beverage. We requested 250 businesses that operating in the field of international franchising and licensing in GCC. Data were collected through online questionnaire with key stakeholders including franchisors, franchisees and licensing parties. We received 170 questionnaires and after reviewing and identifying the questionnaires that were fully answered, there were 150 completed questionnaires. This is an acceptable percentage for the study and the level of credibility. The selected companies by using purpose sampling based on their experience with international franchising and licensing.
Data Analysis (Quantitative):
The quantitative collected data through the questionnaires analyzed using statistical methods. We conducted questionnaire with 150 companies’ owners and franchisees in GCC that gathered data on their experiences with international franchising and licensing. The questionnaire involved of Likert scale and open-ended questions and was administered online using Qualtrics software. We used descriptive statistics, Structured Equation Model (SEM) and frequency analysis to analyze the data and identify trends and patterns. The entered data into a statistical software package such as SPSS and descriptive statistics such as; mean, standard deviation (SD) and frequency distributions are calculated. Inferential statistics such as correlation and regression analysis used to explore the relationships between different factors and variables.
Qualitative Comparative Analysis
The qualitative comparative analysis method also used in this research that involves an in-depth observational method to understand the target participants culture, environment, challenges, motivations and settings. The observation method conducted in a non-intrusive manner and the data analyzed through the researchers lens and interpretation of the observations. Qualitative method help to identify the advantages and disadvantages of international franchising and licensing contracts and agreements in GCC. The research employed a record keeping including notes and documentation from different sources such as, articles and references

Hypothesis
Based on the LR and research objectives the study aim to test the following hypotheses and provide insights into the international franchising and licensing agreements and contracts in GCC region
· Hypothesis 1: International franchising and licensing agreements and contracts have advantages and disadvantages for companies seeking to expand in GCC
· Hypothesis 2: Considering legal and business perspectives when engaging in international franchising and licensing in GCC leads to expansion that is more successful
· Hypothesis 3: International franchising and licensing contracts and agreements in GCC are very appealing
· Hypothesis 4: International license contracts and agreement can be easier to manage than the international franchise law, contracts and agreements in GCC
Findings and Analysis
The following table 1 shows the descriptive statistics of the characteristics of respondents. The variables included in the below table are classified as age, gender, nationality, business size -measured by number of employees- and franchising experience - measured by number of years.
Table 1: Descriptive Statistics of Respondents' Characteristics
The above table (1) shows the average age of the respondents was 35.5 years; also, the average franchising experience was 4 years. For age, the respondents in this research have an average age of 35.4 years and a relatively narrow age range with SD of 7.8 years. For gender, the table shows that out of the 150 respondents, 78 are male and 72 are female. Furthermore, for nationality, the majority of respondents (102 out of 150) are from GCC nationalities, while the remaining 48 respondents are from non-GCC nationalities. Additionally, for business size, table indicating that the respondents own or manage businesses with an average of 25.6 employees and a relatively wide range of business sizes, with a SD of 13.2 employees
The below table (2) presents the results of the SEM analysis for four variables: age, gender, experience and education. The table shows the coefficients, standard errors and t-values for each variable.
Table 2: SEM Results

The table 2 shows the coefficient that represents the direction and strength of the relationship between variables and the outcome variables - which is not shown in the table 2
The table represents age, gender, experience and education that have a coefficient of 0.5, 0.8, 0.6 and 0.9. However, table shows a standard error of 0.2, 0.3, 0.3 and 0.1 for variables. In addition, t-value for variables are 2.5, 2.7, 3.2 and 7.6. This indicates that variables have a positive and moderately significant relationship with the outcome variables - see tables 3 and 4
The table (3); provides the results of a questionnaire that measure the advantages and disadvantages of international franchising and licensing in GCC. The table is divided into two sections advantages and disadvantages. The percentage column shows the percentage of respondents who identified each advantage or disadvantage
Table 3: Advantages and Disadvantages of International Franchising and Licensing
For the advantages section in table (3), the survey respondents identified five main advantages of international franchising and licensing. The most commonly cited advantage was increased revenue with 39% of respondents indicating that this was an advantage. Brand recognition was the second most commonly cited advantage with 21% of respondents indicating this was an advantage. Access to new markets mentioned as an advantage by 18% of respondents, while shared risk was an advantage for 12% of respondents. Cost savings mentioned as an advantage by 10% of respondents. For the disadvantages section, the survey respondents identified also five main disadvantages of international franchising and licensing. The most commonly cited disadvantage was legal compliance, with 33% of respondents indicating that this was a disadvantage. Moreover, cultural differences were the second most commonly cited disadvantage, with 31% of respondents indicating this was a disadvantage. However, intellectual property identified as a disadvantage by 17% of respondents, while lack of control was a disadvantage for 10% of respondents. Indeed, market saturation cited as a disadvantage by 9% of respondents.
The table 4 presents the results SEM analysis that examines the relationships between the variables related to international franchising and licensing business model. The table consists of two columns standardized coefficients and p-values. The standardized coefficients represent the strength and direction of the relationship between the variables while the p-values indicate the statistical significance of these relationships.
Table 4: Structural Equation Modeling Results - Regression Analysis Results
In table 4, the first three variables increased revenue; brand recognition and access to new markets are positively related to international franchising and licensing. The standardized coefficients indicate that increased revenue has the strongest relationship with international franchising and licensing with a coefficient of 0.75. Inaddtion, brand recognition has a coefficient of 0.60 and access to new markets has a coefficient of 0.45. All three of these coefficients are statistically significant, with p-values of less than 0.001.
The next three variables in table 4 legal compliance, cultural differences and intellectual property are all negatively related to international franchising and licensing. Legal compliance has the strongest negative relationship with international franchising and licensing with coefficient of -0.25. Moreover, cultural differences also have a coefficient of -0.20 and the last variable intellectual property has a coefficient of -0.15. While all three coefficients are negative, only legal compliance and cultural differences are statistically significant with p-values of 0.008 and 0.027 respectively. However, the coefficient for intellectual property is not statistically significant with a p-value of 0.094. The table shows that the independent variables of increased revenue, brand recognition and access to new markets have significant positive coefficients and P-values indicating that they are strong predictors of success in international franchising and licensing. In contrast, legal compliance, cultural differences and intellectual property have negative coefficients indicating that they have a negative impact on the success of international franchising and licensing. The R-squared value of 0.70 suggests that the model is a good fit for the data and that the independent variables explain approximately 70% of the variance in the dependent variable.
Indeed, SEM analysis shows that international franchising and licensing has a positive and significant effect on increased revenue (? = 0.75 p < 0.001) brand recognition (? = 0.60 p < 0.001) and access to new markets ? = 0.45 p < 0.001). However, it also has a negative effect on legal compliance (? = -0.25 p = 0.008) cultural differences (? = -0.20 p = 0.027) and intellectual property protection (? = -0.15 p = 0.094).
The table 5: presents the frequencies of legal and business challenges, faced by international franchising and licensing in GCC. The data presented in percentage
Table 5: Frequencies of Legal and Business Challenges in International Franchising and Licensing
Table 5 shows top challenge that reported by respondents was legal compliance with 35% of the respondents identifying it as a significant challenge. The second most commonly reported challenge was cultural differences with 25% of the respondents citing it as a challenge. Intellectual property was the third most commonly reported challenge with 20% of the respondents identifying it as a significant challenge. Language barriers and supply chain management were reported as significant challenges by 10% and 10% of respondents respectively. These findings suggest that legal and cultural differences are major challenges faced by companies engaging in international franchising and licensing in GCC
Hypothesis Testing
The below table (6) provides a summary of the mean scores - out of 10 - and SD for the advantages and disadvantages of the international franchising and licensing agreements and contracts in GCC
Table 6: Summary of Advantages and Disadvantages of International Franchising and Licensing in the GCC Region
In table 6 the mean score for advantages is 7.2 with a standard deviation of 1.5 while the mean score for disadvantages is 5.6 with a standard deviation of 1.8. The results suggest that businesses looking to expand through international franchising and licensing in GCC region may expect to experience more advantages than disadvantages. The mean score of 7.2 for advantages is higher than the mean score of 5.6 for disadvantages indicating that the benefits outweigh the drawbacks
Some of the advantages highlighted in this study may include the ability to access new markets and customers leveraging the brand recognition and reputation of the franchisor and benefitting from the support and training provided by the franchisor. On the other hand, the disadvantages may include high initial costs, loss of control over the business operations and potential conflicts with the franchisor. It is worth noting that the standard deviation for both advantages and disadvantages is relatively low indicating a consistent response from the participants in this study. However, further research may be needed to determine if these results are representative of the wider business community in GCC region
The below table 7 provides a summary of the mean scores and SD for the legal and business perspectives on the international franchising and licensing in GCC
Table 7: Legal and Business Perspectives on International Franchising and Licensing in the GCC Region
As can be seen in table 7, the legal perspective mean score was 6.8, suggesting that legal consideration remain an important consideration for the respondents; however, this score also means that legal considerations are still less important compared to the business perspective. The SD of 1.4 for the legal perspective indicates a degree of variability in the responses; however, the majority of respondents evaluated its importance as only being moderate. Conversely, the mean score for the business perspective was 8.2, indicating that businesses in GCC member-states place a high level of significance on this aspect.
In addition, assessment of the business perspective also exhibited some variability, as indicated by the SD of 1.6, but a substantial majority of respondents still regard it as very important. These findings suggest that businesses operating in the GCC prioritize the business perspective over the legal dimension in the context of international franchising and licensing. This preference may be attributable, at least in part, to the GCC’s global reputation for having intricate legal and regulatory frameworks, which can pose challenges for businesses seeking to expand. It is also noteworthy that the business perspective encompasses critical factors such as market research, customer preferences, and supply chain considerations, which are deemed indispensable for the success of any expansion strategy.
Table 8: Business Considerations for International Franchising and Licensing in GCC
The data presented in table 8 suggests that market analysis holds significant importance for companies planning to venture into the GCC market, with a mean score of 8.1. This score underscores the critical role of market analysis, encompassing activities such as assessing the target market, understanding consumer preferences, and analyzing competition. Likewise, the relatively low standard deviation (SD) of 1.3 indicates a notable consensus among companies regarding the importance of market analysis in the GCC context.
Conversely, financial planning is also acknowledged as crucial, as reflected by its mean score of 7.3. Financial planning entails meticulous budget creation, revenue and expense forecasting, and ensuring sufficient capital for expansion. However, there is a slightly higher SD of 1.5, signifying some variability in how companies perceive the significance of financial planning when entering the GCC market. In addition, brand adaptation is recognized as a consideration, with a mean score of 6.9, indicating an awareness that some level of brand adjustment may be necessary to align with local cultural norms and preferences in the GCC market. The relatively higher SD of 1.7 suggests a degree of divergence among companies regarding the importance of brand adaptation in this context. This reflects differing perspectives on the extent to which brand adaptation is required for successful market entry in the GCC region.
The mean score and SD for the cultural factors which can influence international franchising and licensing in the GCC region are set forth in table 9 below, followed by a narrative analysis.
Table 9: Cultural Differences and International Franchising and Licensing in GCC
As can be discerned from the data set forth in table 9 below, there are some challenges related to cultural factors that businesses may encounter when operating in the GCC region. For instance, the mean score for the language barrier is 5.8, indicating that businesses may face some difficulty due to language differences in the GCC. However, the relatively high standard deviation (SD) of 1.9 suggests a wide range of experiences among businesses in overcoming language barriers. This implies that while language differences pose challenges, the extent of these challenges varies significantly among different businesses.
Likewise, the mean score for religious differences was 6.2, emphasizing the need for business practitioners to remain vigilant concerning the potential impact of religious disparities in the GCC region. In addition, the SD of 1.7 indicates that some businesses may encounter more substantial challenges stemming from religious differences than others. This finding underscores the varying experiences and responses among businesses when it comes to managing religious diversity.
Furthermore, cultural norms received a mean score of 7.5, reflecting the importance for businesses to be mindful of cultural differences when operating in the GCC. Moreover, the SD of 1.4 suggests that there may be some diversity in experiences among businesses regarding their adaptation to cultural norms in this region.
In sum, the data set forth in table 9 underscores the significance of cultural factors in GCC business operations. While businesses may encounter challenges related to language, religion, and cultural norms, there is a notable variation in their experiences. To enhance their prospects of success in the GCC region, businesses should proactively address these cultural factors, which can include efforts to bridge language barriers, navigate religious differences, and adapt to cultural norms according to their specific circumstances.
The mean scores and SD for three best practices for international franchising and licensing in GCC region are set forth in table 10 below, followed by a narrative analysis. This data was based on responses from business practitioners in the food and beverage, retail and hospitality industries.
Table 10: Best Practices for International Franchising and Licensing in the GCC Region
The data set forth in table 10 below shows that the highest-rated practice was “Local Partnership,” with a mean score of 8.2 and a relatively low SD of 1.2. This assessment indicates that the respondents view collaborating with local businesses as extremely important in order to successfully expand into the GCC market. Likewise, local partners are regarded as valuable sources of insights and knowledge concerning the specifics about the local market, culture, and business environment in which businesses operate in GCC member-states. This type of collaboration can facilitate risk mitigation and enhance the prospects of success for franchises or licensing agreements.
The practice, “Regulatory Compliance,” was rated the second-highest with a mean score of 7.6 and an SD of 1.3. These ratings suggests that companies are acutely aware of the importance of adhering to the legal and regulatory frameworks in the GCC region. This finding also means that both franchisors and licensees must ensure compliance with local laws and regulations, secure the necessary licenses and permits, and meet their tax obligations, among other requirements.
The third-highest rated practice was “Training and Support,” with a mean score of 8.0 and an SD of 1.4. These ratings underscore the significance of providing comprehensive training and ongoing support to franchisees and licensees that are operating in the GCC region. Properly implemented and administered, training and support programs serve to ensure that business partners competing in GCC member-states understand brand standards, operational procedures, and marketing strategies. In addition, they must assist in adaptation to cultural differences and facilitate overcoming potential language barriers. It is reasonable to suggest that taken together, these practices can contribute to the success and sustainability of franchise and licensing ventures in the GCC market in meaningful ways.
The data set forth in Table 11 below are the findings that emerged to test the study’s four guiding hypotheses concerning the various factors that can affect the likelihood of success for international franchising and licensing practices in GCC region.
Table 11: Results of Hypothesis, Path, Standardized Coefficient (?) and p-value
The study’s first hypothesis (H1) posited that international franchising and licensing in the GCC region would have both advantages and disadvantages that impact business expansion.