Distribution Channels

The most common method of selling into the UAE is by appointing a commercial agent. Other methods used, depending on the product or service, include direct sales to the end-user; sales through an informal, non-exclusive re-seller arrangement; establishment of a company presence through a joint venture; or authorization to a local firm via a licensing or franchising arrangement.

foreign exporters often find it advantageous to appoint different commercial agents or distributors for different emirates. Multiple agencies and distributorships may also be appointed to handle diverse product lines or services.

Distribution and Sales Channels - Agriculture
There are numerous food importers, many of whom are wholesalers, distributors, and retailers. Few companies dominate the retail food sector. Many fruit and vegetable importers also import eggs.

Dubai is a major transshipment center for a variety of food products. It is estimated that about 60 percent of total UAE food imports are re-exported to other destinations, primarily other Gulf countries, India, Africa.

Use of Agents/Distributors: Finding a Partner
The UAE legal system distinguishes between the two forms of commercial agents - the registered and the unregistered commercial agent. Local companies prefer to work as registered agents because the law favors this arrangement. On occasion, local companies will accept the unregistered method based on good faith, but almost always prefer exclusivity.

UAE law does not distinguish between an agent and distributor, referring to both as commercial agents. The Ministry of Economy and Commerce handles registration of commercial agents.

Selection of the right entity is the most important decision. Registered agents may not be terminated, except with sufficient cause as determined by a government committee, which usually rules in favor of the local entity. In most cases, compensation to a terminated agent is required. Only UAE nationals or companies wholly owned by UAE nationals can register with the Ministry of Economy and Commerce as local agents.

Agency contracts: Terms and conditions vary. Commissions and other forms of compensation typically depend on the amount of work required of the agent and sales volume. Responsibilities and performance measures should be clearly defined. The agreement should establish the geographic territory covered because UAE law awards automatic exclusivity to the agent in the agreed-upon geographic area. An agent must have a presence and be licensed to operate in each emirate, as there is no blanket license for the whole of the UAE. In some instances agents have been appointed on a project basis, with the relationship restricted to the specified project terminating automatically upon reward or completion.

The UAE is very receptive to franchising. High per capita income, receptivity to new products, tax-free earnings and an upwardly mobile population are indicators of the future growth potential for this market. Currently, franchises are operating in fast food and dine-in restaurants, auto leasing, apparel, soft drink bottling, beauty products, hotels, toys, photography, jewelry, vending machines, dry cleaning, furniture, hardware stores, office supplies, natural health products, publications, quick printing, garden care and florists, sporting goods, retail/convenience stores, and maid and personal services.

General contract and commercial law apply to franchise agreements as no special legislation for franchise arrangements are currently in place. A single company or individual usually owns 100 percent franchise operation rights in the UAE. In other cases, the franchisee enters into a joint venture with the franchiser to operate all outlets as "company owned" stores employing local managers.

Direct Marketing
Direct marketing is only used when a firm sells directly to the end user. Under local law the international company would still need to honor the commission payable to its local agent or distributor even if they had no part in the sale. Direct sale to the end-user approach is suitable only for infrequent, low volume exports, as marketing in the UAE is very competitive.

Other than advertisements in newspapers and magazines, the only other forms of direct marketing in the UAE is by way of mail, fax and catalog sales campaigns (with local pick-up or delivery arranged). Commercials via TV and satellite channels offer an effective direct marketing approach. It is expected that this method of marketing will be impacted by the wide use of the Internet in the UAE, as it opens up an unlimited choice of products. Selling over the Internet will provide possibilities and accessibility to this market that were not available in the past.

Joint Ventures/Licensing
Maintaining a local presence through joint ventures and license agreements can offer distinct advantages. Local business and government officials prefer to deal with someone they know and trust.

In a joint venture, profit and loss distribution can be prescribed even though UAE majority ownership is mandatory. It is not compulsory to license the joint venture or publish the terms of agreement. The foreign partner could deal with third parties under the name of the local venture.

Banks, insurance, and financial companies must be run as public shareholding companies, requiring a minimum capitalization of Dhs 10 million (US $2.725 million). If foreign banks, insurance, and financial companies open a branch or representative office in the UAE, 100 percent foreign ownership is allowed. However, this limits their business activities to offshore operations.

Licensing of manufacturing processes is a growing market, especially with the UAE's desire to increase the quality and diversity of local production.

Steps to Establishing an Office
The decision to set up an office in the UAE and the type depends on the nature of the business of the foreign firm. To set up an office, the following procedures must be followed.

First, firms must find a local sponsor, both for the firm and for its resident employees. A sponsor may be a UAE citizen or institution, such as a free zone. The sponsor can be involved in the business, or simply a service sponsor providing, for a fee, legally required administrative functions.

Second, firms have to be licensed by the emirate of domicile before beginning business activities. In general, individual emirates will issue trade licenses covering all kinds of trading activity; professional licenses covering professions and services; industrial licenses for industrial and manufacturing activities; and vocational licenses for craftsmen and artisans. Licenses for other categories of business require approval from federal ministries and other authorities. For example, banks and financial institutions require approval from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health. More detailed procedures apply to businesses engaged in oil and gas production and related industries.

In addition to the required licenses, all firms must be registered with the Chamber of Commerce in each of the emirates where the business is licensed to operate. In the UAE, these Chambers are quasi-governmental organizations and membership is mandatory.

For firms conducting regional marketing or administrative functions, a representational office, allowing 100 percent ownership, is a possibility. For firms conducting offshore services, a branch office, also allowing 100 percent ownership, is feasible. Establishing an office in any of the UAE free trade zone, regardless of activity, allows 100 percent ownership. Basically, foreign companies are allowed to open representative, branch, or regional offices with 100 percent ownership, but they are restricted from conducting certain business activities. These offices are not licensed to conduct direct business or marketing operations, including obtaining credit facilities, submitting offers, and participating in local government tenders.

The following documents are required to establish an office in the UAE:

  1. Articles of association of the company
  2. Certificate of incorporation
  3. A resolution from the company's board of directors to set up the office and practice activities in the UAE (the resolution should also give power of attorney to the representative to establish an office and to submit the required applications to the local government authorities)
  4. The foreign company's last two audited balance sheets together with the auditor's report, or any other documents that prove the sound financial position of the company
  5. A copy of the national agent/sponsor agreement duly authenticated
  6. Photocopies of the national agent/sponsor's passport
  7. A valid lease agreement of the company's office premises

All the above mentioned documents should be notarized and authenticated by the concerned governmental authorities.

Selling Factors/Techniques
The commercial tradition of the UAE is that of the middleman or trader acting as a conduit for goods from large manufacturers to South Asia, the Gulf, and East Africa. Today, with Dubai the hub of the Gulf, the UAE still serves those traditional markets along with those of North, South, West, and Central Africa, and the rest of the Middle East.

Traditional approaches to business are beginning to change. There is growing emphasis on quality, after-sales service, and maintenance requirements and costs.

Price remains the dominant-buying factor and for foreign firms selling to traders (the dominant business type in the UAE), there is no substitute. Government procurement also places heavy emphasis on selection of the lowest bidder, as long as the lowest-priced bidder is compliant with all technical specifications. As of August 2003, the high value of the Euro compared to the low value of the US dollar provides a price advantage that is unprecedented in the last three years.

The use of Arabic in packaging and advertising is desirable, effective, and sometimes mandatory in marketing consumer goods.

Pricing Products
For consumer goods, price is the primary buying factor for the middle and lower classes. These market segments are served through small stores and shops in traditional souks, or markets.

The average importer markup on food products is about 10-15 percent. Retail food prices are generally 20-25 percent above import or wholesale prices.

Sales Service/Customer Support
The commercial and industrial markets are very competitive. For these markets price is also a key purchase factor, but quality, durability, and after-sales service are increasingly becoming more dominant for purchases by government and business. The increasing emphasis on after-sales service favors those products backed by local distributors with adequate part stocks and routine maintenance capabilities. The training of qualified maintenance and repair personnel is a critical marketing factor when catering to the more sophisticated end of the market.

Selling to the Government
Government buyers are either federal or emirate governments. Federal purchases are administered through the respective local authority in Abu Dhabi or Dubai. For most civilian purchases, government entities will usually only deal with firms registered in the UAE, or the particular emirate, and will favor local products over imports. Only when goods or services of acceptable quality are not available locally will the procurement authority seek outside sources. It is common for bids not to go out on a public tender, but rather to select firms that were pre-qualified with the organization in question. For all types of government procurement and projects, foreign firms are encouraged to seek a presence in the UAE and get their goods/services pre-qualified for procurement tenders.

Competition in the public sector is very strong. Besides, governments in the UAE invest heavily in infrastructure projects, such as roads, power generation and distribution systems, desalination facilities, sewage systems, public housing, recreational facilities, hospitals and other medical facilities and services, schools, athletic facilities, refineries and other hydrocarbon facilities, airports, and government buildings.