Signing with an agent or distributor in the Gulf is not significantly more complex than other international business agreements, but it can be much more difficult to terminate. When doing so however, you should get the advice of a locally-based law firm to vet what you are doing, so you are covered in the context of domestic law. It’s also wise to check that the distributor does not have other agreements with similar companies in your sector as well, as this could have an impact on how effective your sales presence is.
The key parts of the contract should have:
- A defined term
- A defined territory
- A performance related component (such as sales targets)
- Right of termination
- A ‘no competitor’ clause
- A right of continuity option (an agent or distributor will probably seek to include this type of clause, subject to meeting certain targets).
Need to Know
If the contract is signed under local law, it is good practice to ensure you have an arbitration clause. This applies whether it is a supply contract or an agency agreement and is useful in the event of a dispute.
CASE STUDY: A local Irish partner in the Gulf
Douglas Collins, MENA President of Business Development, Gabriel Scientific
Gabriel Scientific has developed anti-MRSA pillows which have a unique patented bacteriological filter technology and are sold under the SleepAngel brand products. The company is represented in the market by Douglas Collins, who held senior positions in healthcare providers in Ireland for many years and now works in the UAE, using his high-level network of contacts in the market to build sales for Irish companies in this sector.
How did you start working for Gabriel Scientific?
Gabriel Scientific’s product was presented to me and immediately I recognised its healthcare benefit and the research that had gone into it. Based on the network I had built up, I was able to take a presentation of the product and some marketing material, and start presenting it to individuals in the
healthcare system where I thought there was a potential opportunity. The product itself was suitable for the retail market, the pharmacy market and the healthcare market. The first contract in the market was with one of the wealthiest pharmacy companies in region: Planet Pharmacy and that contract was for distribution of 15,000 units year one and 20,000 units after that. It’s worth about $3 million to Gabriel Scientific. We also signed a manufacturing and distribution licencing agreement with Al Abbass, a long-standing Emirati group company with a bedding specialist in the region. That contract is worth $10 million. Gabriel Scientific got early traction because the product was so good. You need to create right level of expectation within your company. When Gabriel Scientific engaged in the market, they assigned a budget, arranged a number of trips there and they created a strategy.
What routes to market are open to Irish companies, and what advice would you give about choosing the right one?
If you’re not you here you can’t win business. Leaning on resellers or distributors with no connection to your business is a mistake. The difference between success and failure in the Gulf is being present, understanding the culture, knowing that it’s different than doing business in Ireland or the US. It’s slower, and you have to build trust. There’s a subtlety to it. This is where local knowledge comes in. Having me on the ground, chasing these target markets – to arrive off the plane and do what I did, two years would very quickly be consumed up.
Distributors and agents generally have no real interest in the product or the emotion behind it, whereas I select the Irish companies and represent them, so I’m very much involved. A distributor will look for a high-volume, small margin product, see if there’s a space in the market to generate money
and when the next product comes along, they’ll shift their sales team onto that. If you plan to work with a distributor, one of the big mistakes is to sign up for exclusivity where the term might be at least a year, but then no products are moving off the shelf. Write up a deal for a probationary period and while the first six months is difficult because you’re looking at early market development, you could give yourself an exit clause after six months. Also, by having a second distributor doing similar work, you can compare like with like and you can see if it’s your product that’s wrong, is the pricing too high, or is it the other company that’s the wrong fit.
How can Irish companies prepare for selling in the Gulf?
You have to have a unique value proposition associated with your product; it has to be distinctive, and solve a problem that’s relevant to the Middle East market. They’re simple questions, but they’re critical to the market. The next point to ask is, are you export-ready? What I mean is, do you have sophisticated marketing material – and that should include brochures which are English and Arabic – a sophisticated website, very powerful PowerPoint presentations that capture the innovation associated with your product and the problem it solves, and do you have a very believable ROI model. The reason I emphasise that is, of all the territories I’ve worked in, decision-making is very much from the top down in the Gulf. A CEO won’t even pass it down the food chain unless it has strong ROI. In the case of Gabriel Scientific, the product is three times more expensive than a regular pillow but it lasts five times longer, never needs to be laundered and it solves a HAI [hospital-acquired infection] problem.
And the ROI also forces the company to look at what is the price that the market can suffer. A simple example is, a regular pillow might be $10, whereas ours is $30, so why would anyone want to sell it? Only because you can show them it lasts longer. Also, you need to understand the pricing in the market: have you done research in similar competitive products and where they pitch themselves. The illusion of the Middle East is that it’s flowing with money, but in fact the health authorities are on tight budgets, and the private hospitals are about making money.
What other advice would you give about the market?
The other big thing, which isn’t often discussed, is that this is a hugely brand-driven culture. What drives brand is visibility and marketing, so your marketing material has to be top-notch. It was something Gabriel Scientific were very good at. You have to create an illusion about your product being the best in the world. They worked with an advertising professional who worked with good design houses and co-ordinated the whole effort to develop their adverts and marketing material. They spent a lot of money on a photo-shoot in Greece.
Bear in mind, some photography you might use in Europe may not be suitable for the Arab market. Using marketing material that’s culturally sensitive is important. In Dubai, we ended up using an image of a mother with her two children – a nice, simple, soft image, shot very well. And we use a different image for the Saudi market. Even marketing material needs to be handled differently. I would say there’s a respectfulness to have it translated into Arabic. My advice would be, put the budget into really high-impact material, and get the right team in to produce it. You have a short attention span Establishing a local presence with big decision-makers, so you have got to create that ‘wow’ factor quickly.
There may come a time when the level of your business in the region warrants a more permanent base. The regulations governing foreign investment into Gulf countries typically require you to set up a company structure that is 51 per cent owned by citizens of that country – with the exception of Free Zones in the UAE where 100 per cent foreign ownership is permitted. (See Chapter 5, Legal issues in the Gulf States, for more information.)
Once you make the decision to set up a base of operations in the region, you have a lot of choice. In theory it’s possible to base yourself in one location in the Gulf and commute as business needs dictate. In the UAE and Qatar, you can obtain a visa on arrival with your Irish passport and this allows you to travel within many Gulf countries, including Kuwait, Lebanon or Jordan, without difficulty. However you need to apply well in advance for a separate visa if you intend to visit the Kingdom of Saudi Arabia – even from another Gulf country.