By Rashid AW Galadari
Liberalisation and deregulation will bring massive change for businesses in the region, predicts Rashid Galadari.
A cornerstone of the UAE and indeed the GCC economies for the last few decades has been sole agency agreements, which mean that only one company within a specific area has the right to sell premier brands and services.
While there has been the occasional break-up between a brand owner overseas and its agent in the region, for the most part the practice has continued smoothly. Now with the implementation of the World Trade Organisation (WTO) protocols within the UAE it is more than likely that there will be changes on the playing field.
Under the terms of WTO membership, member countries must have a competitive marketplace for goods and services, whether that is for the provision of telecommunications services or for the franchise operations.
So what does this new age of liberalisation and deregulation mean for established businesses in the region that have long benefited from market exclusivity?
In a recent speech on the liberalisation of the Middle East's aviation sector, HH Sheikha Lubna Al Qasimi, the UAE's Minister of Economy, highlighted the five stages commonly experienced when deregulation occurs. First comes the liberalisation stage, in which regulators or governments realise that competition should be introduced and a specific framework is created for that competition.
Second is the new services stage, in which liberalisation leads to the introduction of new and improved services, creating new opportunities for customers and more personalised or market-specific services. The third stage of liberalisation tends to be industry growth as more consumers take advantage of better services or improved pricing. The fourth stage in liberalisation is the economic impact caused by industry expansion, while the fifth and final stage of liberalisation is the creation of new jobs, as people and companies recognise the latent opportunities afforded by new market entrants.
In the deregulation of sole agency agreements, there are fundamentally three viewpoints to consider.
Possibly the loudest is that expressed by the consumer, who has only one source of a given product or service. As the region's media becomes more liberal, these days we are more likely to hear public criticism of specific companies or service providers, but regulators are giving credence to public concern, and initiatives like the new consumer protection legislation demonstrates that the UAE is determined to be viewed as a consumer-friendly economy.
Another viewpoint is that held by the brand itself. Ideally any manufacturer wishing to sell into the region puts in an appropriate level of due diligence to ensure that the local partner has the reach and know-how to go to market properly, sell and if necessary, service its products effectively. On one hand, manufacturers may be delighted at WTO conditions that enable products to be sold by more than one partner, yet there will not be ‘one throat to choke' and quality may suffer if new agents are less capable than the existing sole arrangements.
Finally, we have the perspective of the agency holders themselves. Because WTO membership has not meant an immediate end to sole agency agreements, for some time they have been aware that industry competition is imminent, and have thus had time to plan their strategies for customer loyalty and retention.
The adage that ‘competition makes everyone better' has given the existing agencies the opportunity to raise their standards and truly win business instead of receiving it by default. So on one side of the scorecard we have the benefits of liberalisation WTO-style, including increased and more efficient production of the desired goods, with manufacturers seeing a wider market in which to increase revenue and productivity while driving down costs.
Consumers have more choice in diverse and better-priced goods and services, and there is a strong case for job creation as new opportunities are created in deregulated sectors.
On the other side, however there is the potential for economic instability if companies are placed in competition with regional and global rivals, as well as structural unemployment should certain imports rise, while this could mean sector-specific job losses.
What remains is clear. As a result of WTO membership and other trade initiatives greater liberalisation is coming to the region sector by sector. It's time for the decision makers behind many of the leading organisations in the Gulf to ask themselves - would we have customers if we weren't the only game in town? The answer could prove surprising.
Rashid AW Galadari is the chairman of Galadari Investment Office (GIO).finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.