Page 151 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

A Piece of the Action: Strategies for Entering the GCC Market 135

the multinational is paid for the goods it provides and may also
insist on a revenue-sharing agreement beyond the direct fee for
products and services. The multinational will also insist on certain
quality standards and marketing guidelines, though local
marketing, sales, and follow-up services (within the guidelines
provided by the global head office) will be the responsibility of the
distributor.
Classic franchise agreements fit into this model of shallow
engagement. The local franchisee pays a fee for the right to open an
outlet (say, a fast-food restaurant) and also pays a percentage of rev-
enues to the global head office. Further, the local franchisee buys
goods and raw materials (in this case, kitchen equipment, appli-
ances, furniture, food ingredients, etc.) from the multinational,
thereby providing another revenue stream. The local franchisee
operates the business within global guidelines issuing from the
multinational’s headquarters. He or she then enjoys the profits
earned after operating and franchise costs are covered.
“Moderate engagement” typically involves joint ventures
(JVs) or partnerships. Under such arrangements, the multinational
identifies a local firm to work with (just as it does in the case of a
simple distributorship) but takes the relationship further by
actively building the business with the local partner. A new entity is
formed, in which ownership is shared by the multinational and the
local partner or set of local partners. Management responsibility
can either be shared or be contracted to one of the parties to under-
take solely. In the case of the GCC, for example, management
responsibility is often given to the multinational, as it brings its
breadth of experience, global systems, and global talent pool.
Management is supervised by the board of directors of the JV entity,
which is composed of representatives from both the global and
local firms that created the joint venture.
JVs and partnerships can either be privately held by the com-
panies and investors who created them or “spun off” for sale to
third parties or listed on public stock exchanges. The Saudi banking
industry, for example, has many examples of joint ventures in
which ownership is shard by international banks and Saudi
investors. The international bank provides management expertise
and world-class systems; the locals provide capital, governance,
and regulatory status. The banks are listed on the Saudi stock