Distribution Channels

To be successful in the Kuwaiti market, most foreign companies must locate, develop and support a local manufacturer’s representative or account executive to manage the marketing strategy for both the company and the product. Companies rely on local experience and knowledge as to how business is conducted. Knowing the regulatory and business framework is almost a difficult task without the support of a local agent and business partner. If companies are seeking this type of business relationship and understand that the best representatives are those with already existing distribution and sales networks, sales and customer support centers, and maintenance and repair facilities if needed; then the Commercial Service in Kuwait has a number of programs and services available to assist the business community in establishing a presence in this growing market. In addition, the Commercial Service in Kuwait employs experienced Commercial Specialists with industry sector expertise that can tailor your business approach to the right audience and to advise and steer your company through the procedures that are common in Kuwait and the Gulf.

Laws and Regulations
Commercial Law 36 of 1964, as amended by Commercial Law 68 of 1980, governs the establishing of a business or business relationship in the State of Kuwait. Under the above provisions, a foreign firm (including a partnership) may not establish a branch and may not perform any commercial activities in the country except through a Kuwaiti agent. Foreign firms seeking a presence in the Kuwait market may do so utilizing commercial agents, distributors or service agents. Per definition, commercial agents promote products or services for a principal and negotiate, conclude and carry out deals on behalf of the principal (within the scope and authorizations allowed the agent per the contractual agreement). A distributor promotes, imports, stocks and distributes the principal’s goods and products. Service agents (sponsors) act as representatives for foreign firms seeking to contract with the Government of Kuwait per Article 24 of Commercial Law 68 of 1980.

Common Practices
It is recommended that agency and/or distributor contracts should include information pertaining to the geographic sales/marketing territory to be covered by the agent/manufacturers representative or distributor, the products and services that the party would support and manage, the validity period of the agreement, agent/distributor fee and commission structure, the choice of applicable law and any arbitration clauses, milestones and responsibilities of both parties and termination clauses. Though there is no statutory period for the providing of notice of termination, a three-month notification is customary. Apart from termination, businessmen and companies must also be aware that the local agent may need to be compensated for investments made and good faith efforts undertaken to promote, sell, and service the principal’s products in Kuwait. The Kuwaiti Commercial Code contains a formula for compensation (this would likely not apply to cases of termination for cause if the local agent is in breach of contractual obligations or the agent has not met performance goals).

Establishing an Office
Any Kuwaiti or Gulf Cooperation Council national/citizen over the age of twenty-one may engage in commercial activity in Kuwait. Foreign companies may not engage in commercial activities in Kuwait unless the Kuwaiti interest in the business or joint venture exceeds 51 percent of the total capital of the enterprise (60 percent for banks, investment brokerages, and insurance companies). Foreign companies may not establish a branch or perform any commercial activity except through a local agent or manufacturers representative.

In order to establish a business in Kuwait, the Kuwaiti firm or joint venture needs to apply for a business license issued by the Ministry of Commerce and Industry. Application documentation must be in Arabic. For special commercial activities such as telecommunications, health services, pharmaceuticals etc. the relevant ministry, department or regulatory agency may require other certificates or licenses.

Business enterprises may be established in several forms including Kuwait Shareholding Company (KSC), company with limited liability (WLL), and general partnership. The cost and time required to register and open a business will vary due to company structure.

Kuwait business is highly receptive to the franchise business model. High per capita income, significant spending power, tax-free earnings, and an upwardly mobile population reflect the opportunity that exists in Kuwait.

Apart from food and service franchises, there is also high demand for quality education and training services. To respond to this need, the Government opened the door to foreign universities and colleges to establish branches in Kuwait. As the government’s objective is to develop a skilled and employable Kuwait private-sector work force, the opportunity for training and skills development suppliers cannot be over emphasized.

Direct Marketing
Direct marketing is limited in Kuwait. Most direct marketing campaigns using print and catalogue media are foreign enterprises. Larger companies rely on newspaper inserts, mass mailing or Internet mass mailing campaigns in order to promote the latest product or one-time sales. Most fast food franchises engage in flyer distribution direct to homes.

Joint Ventures/Licensing
Foreign businesses are offered several incentives to establish joint ventures with Kuwait firms, including partial relief from Kuwaiti corporate taxes (Kuwaiti firms are not assessed corporate tax). Given that all government procurement must be conducted with Kuwaiti citizens or firms and given that only Kuwaiti companies may be licensed in Kuwait, the joint venture model is a good vehicle in order to enter and maintain a long-term presence in Kuwait.

A joint venture is not considered a legal entity, and as such, official notification in the Commercial Register is not required. It is common for several foreign contractors and engineering firms involved in a major public contract to form a joint venture or consortium.

Selling to the Government
Tender Law No. 37 of 1964 regulates government tenders. The Central Tenders Committee (CTC), which is under the jurisdiction of the Council of Ministers, acts on behalf of most government ministries, for example tenders in the oil sector that are valued at more than US $17,000 (KD 5,000). The Ministries of Housing, Defense, and Interior (including the security forces) however can sometimes issue their own tenders independently of the CTC. All contracts with the Government valued at KD 100,000 (US $340,000) or more are subject to Kuwait Law No. 25 of 1996, which requires contractors/agents to disclose and report all payments made, received or that they will be made or received when securing a contract.

Tenders are usually awarded on the basis of the lowest price once technical compliance with the tender's specifications have been established. It is worth mentioning that if a bidder wins a tender but then refuses to sign the contract, the Ministry concerned has the right to confiscate the bid bond as well as the performance bond, which might equal 5-10 percent of the contract’s value.

Foreign companies cannot sell directly to the Government nor participate in public tenders except through a local agent. In the oil sector, for instance, supplying companies should be approved by an internal committee and placed on a list of ‘pre-approved’ companies. For major projects, international companies are usually invited to pre-qualify.

Distribution and Sales Channels
Marketing of most foreign products in Kuwait is through local agents and or distributors. Depending on the location, type of product and after market service/support that may be required, most foreign companies will work through an agent or manufacturer’s representative that would have an already established distribution network and customer support operation in place. Commission representatives/agents, on the other hand, periodically visit their customers with their foreign principals to maintain much-needed strong personal contact, a very important marketing tool in Kuwait and other Gulf Cooperation Council (GCC) member states.

Selling Factors/Techniques
Once the foreign firm appoints a manufacturer’s representative or agent, the agent or distributor expects-and should receive-the principal’s full support with respect to literature, technical information and advertisement materials. Possible public sector buyers and potential private sector importers should receive company/product catalogs and other literature clearly displaying the name and address of the local representative/distributor. A common and highly effective support practice is to invite the representative/agent to the principal’s country every year for annual sales and technical support meetings and training. Both agents and, if possible, their principals, should periodically visit existing and new customers since the importance of personal contact in Kuwait cannot be overemphasized.

In order to be competitive in the local market, the key selling factors in Kuwait remain price, quality, effective and convenient after-sale service and support, payment terms/discounting, and commitment to the business relationship.  Payment installment plans and discounts are common marketing tools in a market that exhibits a high price elasticity of demand (price sensitivity).

Marketing schemes vary and include offering commercial discounts, frequent sales, free service for equipment purchased over a limited offer period, give-aways, warranties, trade-in opportunity and promotional events. For consumer products, Kuwait inaugurated a local shopping festival called Hala (Welcome) February. Special offers and promotional campaigns are common during this period, with hotels and other entertainment centers offering special rates and deals to attract shoppers from the Gulf region. Companies are reminded that all sales discounts require prior approval of the Ministry of Commerce and Industry.

Exhibitions in Kuwait are local and regional in nature. The support of a local manufacturer’s representative or agent will go along way in establishing an image of corporate support of the local business enterprise. Participating along side your representative makes good business sense.

Electronic Commerce
Kuwait has over 200,000 Internet users; however, E-commerce remains predominantly limited to Internet on line banking and brokerage services. Most Kuwaiti companies are not on-line for business-to-business or business-to-consumer transactions.