Changing the rules of the competition

As the UAE begins to overhaul its Commercial Agency Law — very little of which has changed in more than 40 years — the transition will have to be micro-managed given the likely scale of its impact on the economy.

In its present form the law requires any international business or brand to have an exclusive local partner if it wants representation in the UAE marketplace. It helped create the big family-owned business groups over the decades.

Global corporate houses, for their part, accepted the reality that they will need a significant local partner if they needed to make a presence felt here. Sharing the proceeds was the price they had to pay and, by and large, it's a regime that has worked well over the decades with few exceptions.

But now, senior officials have been reported as saying that changes to the Commercial Agency Law are in the offing and that it would come through soon enough. Last week, the World Trade Organisation urged the UAE to scrap this legislation as a means of increasing trade and investment in the country.

The old order is in for a change, but how will the new one look? "As specific changes to the legal framework have not been disclosed, it is not possible to determine the impact of any such contemplated changes on existing business arrangements," said Hassan Rizvi, partner at the law firm Taylor Wessing.

"However, from reports, it appears that the proposed changes may impact exclusive distributorship arrangements in particular sectors."

Now that's the key. There is near unanimity among industry sources that changes to the status quo will only apply to a limited number of sectors, at least in the initial phase. Their contention is that exclusive arrangements in food distribution are likely to change. This, they say, comes against the backdrop of the inflationary pressures that food and essential commodity prices have gone through in the recent past.

"While global events had a major hand in creating the volatility on essential commodity pricing, one could argue that exclusive sourcing and distribution arrangements also had a part in their retail pricing in the UAE," said a commodities trader. "That, by extension, impacted at some level on inflationary pressures.

"By freeing up this sector from exclusive agency arrangements, the authorities might be trying to alter the dynamics for the future."

Again, things would only become clear as and when the revised Agency Law comes into effect and clearly spells out which sectors would see a recasting. "From a consumer perspective, change could herald price competition leading to lower prices as multiple players compete for the business of the same brand," said Abhay Nadkarni, executive director for marketing and commercial at Al Aqili Retail.

"For principals, it would mean freedom to take on board multiple partners and have the import of any product done by anyone.

"But multiple partners could be detrimental as this is sure to trigger price wars. Price variations and instability are not good for any brand which has a market standing. In the late 1990s, some of the companies on Al Fahidi Street went out of business because price wars lowered margins and in the end business was not sustainable.

"In the case of FMCG [fast moving consumer goods], I believe existing arrangements would continue and principals would not look for multiple partners. In the electronics sector we already have non-exclusive partnerships and the repeal of the law would not change anything.

"At the end of the day, if a principal is satisfied, regardless of any legislation, they will stay with the local partner."

The first announcements on the upcoming revamp of the Agency Laws mentioned the local automotive market as an ideal candidate to test it out. It did leave the established agencies in a bit of a fluster, which they overcame in no time.

"It could work with those auto brands that are not getting the adequate support from their current dealerships; but for any established marquee which has had a seamless alliance with their local partner it would be even unthinkable to consider signing up an additional one for this market," said a general manager with a leading dealership representing a Japanese carmaker. "So much so, the local dealership has become part of the auto brand here. These cannot be replicated. Not in a small marketplace as the UAE."

In other words, it is not a full-scale transformation that is on the cards but a subtle change, for both companies and consumers.

That the UAE consumer can benefit whenever they have been given options can be gauged from the opening of the country's telecom sector and the entry of a du as full-on competitor to etisalat, as recently as early 2007.

It would be downright churlish for sceptics to suggest that little has changed since both operators are majority-owned by government entities. However, in a recent report to the World Trade Organisation, the government acknowledged that the duopoly which exists in the telecommunication industry has resulted in relatively high prices.

Much the same sentiment exists when a shopper sizes up the retail options offered to him when it comes to buying an iPhone or iPad or any consumer electronic device he or she has eyes on.

Now, with the Agency Law up for revision, they will have access to the same rights across a wider product category. "Although further details relating to these proposed changes or timeframe for their introduction have not been specified, as and when implemented, these may help to gradually create a more open market environment in the UAE," said Rizvi. "And support competition for the consumer's benefit."

If that means a consumer has the option to pay even a dirham less for the same food product or any other daily staple, the revised law would have achieved its purpose. In these inflationary times, that would have a far greater consequence on the residents' daily lives than having the same options when it comes to choosing a car or a fashion accessory.

That does count for a lot.