Distribution Channels

Bahrain's primary commercial importance is as a regional center, serving not only the Gulf countries but the Middle East in general. Laws, regulations, and infrastructure have been developed with that goal in mind.

Establishing a business in Bahrain, whether for services, sales or manufacturing, works best after:

-- Carefully researching the market, economic, and social systems

-- Carefully choosing a Bahraini partner/advisor/consultant with good contacts.

-- Conducting due diligence in establishing a business relationship.

-- Requiring confirmed Letters of Credit for purchases, especially in the initial stages of a business relationship.

Commercial sales within Bahrain can only be made through a Bahraini agent or a joint company set up with at least 51 percent Bahraini ownership. Exceptions are made for factories manufacturing in Bahrain and for regional offices established in Bahrain, enabling these firms to sell locally. In early 1998, Bahrain abolished its sole-agency framework in order to promote competition and growth and to comply with its World Trade Organization (WTO) obligations. The Ministry of Commerce now has greater authority to dissolve agency relationships and the consent of both parties is no longer required. If one party is dissatisfied and documents clearly indicate inadequate performance by the other, the Ministry can terminate the relationship.

Agency agreements should be established as limited-term contracts, rather than being open-ended. Also, merchants may import products that already have assigned agents, on the condition that the importer pays the assigned agent a commission decided by the Ministry of Commerce, not to exceed the five percent cap, until such commissions are phased out.

Use of Agents and Distributors
To establish a regional office in Bahrain, Bahraini law does not require foreign companies to hire a local agent or partner. A regional office can cover as little as one other Gulf country. Companies setting up regional offices nevertheless find it useful to have some sort of facilitating relationship with a local representative.

Firms interested in marketing products only in Bahrain will need to appoint an "agent." In Bahrain, a commercial agency exists whenever a foreign party appoints a Bahraini party as the exclusive representative of any product or service of the foreign party. Regardless of whether a relationship is structured as a distributorship, sales agency or otherwise, local law will govern it. The appointment of a commercial agent often enables the foreign party to achieve significant market penetration without establishing a direct presence.

The Commercial Agencies Law of 1975 (amended in 1992 and 1998) regulates commercial agencies. The 1998 amendment modernizes the law considerably, bringing Bahrain into line with its WTO obligations. Sole or exclusive agencies have been abolished, so foreign principals now have the option to appoint more than one agent in Bahrain. Additionally, agency agreements can now be written for a fixed term, and the principal has the right to obtain termination of an unproductive agreement.

Traders may import products that have assigned agents on condition that they pay the assigned agent a commission decided by the Ministry of Commerce, but not to exceed five percent. There will be a five-year transition period during which the existing "agent of record" will be paid a commission of up to five percent for imports by third parties. No commission will be required if individuals import goods for their own use and, importantly, industries can now import raw materials and certain other goods without paying a commission.

Contracts between the Principal and a Bahraini agent should contain the names, nationalities, and assets of the parties, along with a description of the types of products handled. In addition, there is a specific clause in the Commercial Agencies Law that requires the agent to be responsible for providing spare parts and tools needed to maintain and repair any machinery or equipment sold by the agency (Article 3, paragraph h, Legislative Decree No. 10 of 1992).

Joint Ventures/Licensing

The demand for joint venture and licensing opportunities remains high in Bahrain as core infrastructure, information and communication technology, electricity and water, tourism, training and education sectors are privatized and identified as key growth sectors.

Steps to Establishing an Office
The Economic Development Board (EDB) is a government office set up in April 2000 to facilitate foreign direct investment in Bahrain. EDB is meant to be a one-stop shop for all investors. It offers services and information to foreign companies wishing to set up businesses or invest in Bahrain. With the cooperation of the Ministries in Bahrain, EDB has the authority to issue permits, licenses and even provide land allocation for certain investors.

For more information, contact:

Economic Development Board
P.O. Box 11299
Manama, Bahrain
Tel : +973 17 589 999
Fax: +973 17 589 900
E-Mail: bahrain@bahrainedb.com
URL: www.bahrainedb.com

Establishing a manufacturing facility requires a good local partner. The process can be straightforward, or it can be very complex, depending on the local partner's ability to manage the incorporation strategy and to finalize necessary arrangements with local authorities.

Selling Factors/Techniques
Face-to-face contact with importers will significantly increase a company's business prospects. Maintaining that relationship with regular communication is equally important to success. Suppliers should stress on competitive prices, high quality and, if applicable, new-to-market status. Arabic labels are required. Companies willing to print Arabic labels and provide bilingual promotional and marketing assistance will have a competitive edge.

Pricing Products
Shipping generally adds considerably to the cost of items manufactured in the country of origin which face stiff competition from other suppliers. The average importer markup on food products is 10-15 percent. Retail food prices are generally 25-30 percent above import prices.

Sales Service/Customer Support
The provision of after-sales service directly affects product reputation. A good agent/distributor relationship facilitating provision of quality service is crucial to success in this market. The opening of warehouses and after-sales offices in the Gulf can help efficient dispatching of goods, thus enlarging the client base. The abolition of the sole-agency law will affect after-sales service in Bahrain. Agents who offer superior after-sales service will have a competitive advantage over the medium and long term.

Selling to the Government
It is generally necessary to have a local agent. Even where there is no formal agent, it is advisable to have a local company serving as a point of contact, and providing advice. It is important to follow the local agent or contact's advice closely in preparing tenders. Tender documents should be presented to the agent or contact for vetting before submission. The local contact's advice on pricing and timing can be extremely valuable and should be carefully considered.