Saudi Arabia - Using an Agent to Sell US Products and Services Saudi Arabia - Agents & Distributors
Traditionally, only GCC citizens and companies (from the Gulf Coast Countries - Saudi Arabia, Kuwait, Qatar, Oman, Bahrain, and the UAE) have been allowed to engage in trading and retail activities in the Kingdom, including real estate, without a local Saudi partner. In June 2016, the SAG’s Council of Ministers formally approved full foreign ownership of retail and wholesale businesses, removing the former 25 percent local ownership requirement. To date, over half a dozen companies have taken advantage of the new regulation, including several U.S. firms. American exporters are not required to appoint a local Saudi agent or distributor to sell to Saudi companies. As mentioned above, we recommend that all new-to-market companies consider finding a qualified local partner through one of our matchmaking services.
Agent/distributor relations are governed by the Commercial Agency Regulations of the Ministry of Commerce and Investment (MOCI). Even though it is no longer legally required, we recommend that U.S. companies seeking to do business with Saudi government agencies appoint a Saudi service agent. The sales commission paid to the Saudi service agent is justified by the relatively quick and easy access to the appropriate government decision-maker. The U.S. Commercial Service in Saudi Arabia can help U.S. companies find a reputable Saudi account executive (service agent). Sales commissions are entirely negotiable between the U.S. party and the Saudi agent or distributor, but typically range from three to 10 percent, depending on the product or service and the duties required of the service agent. Whether or not and when sales commissions are to be paid should clearly be spelled out in any agency or distribution contract.
Terminating an agent/distributor agreement can be difficult even though Saudi policy has changed to permit registration of a new agreement over the objections of an existing distributor. While most prospective Saudi agents and/or distributors generally prefer exclusive agency contracts, they are not required. American firms should be aware that beccause of the close-knit nature of business circles in Saudi Arabia (many companies work in multiple sectors and know the players well in each sector) replacing an agent or distributor could damage a U.S. firm’s reputation if not handled sensitively. A U.S. company should avoid being viewed as lacking adequate commitment to its Saudi business relationships. Saudi agents may request “parting compensation” in the event the foreign exporter decides to dissolve a business relationship. Since this is a common practice in this market, U.S. companies should address this prior to executing any contract.
U.S. firms interested in the Saudi market are cautioned against trying to use lists of importers for “cold calls” on prospective agents. Saudis prefer to do business with someone only when they have been properly introduced and have met face-to-face. To help dispel reluctance on the Saudi side, an introduction by a liaison will serve to vouch for the reliability of both parties. The U.S. Commercial Service in Saudi Arabia performs these introductions for U.S. companies as part of its “Gold Key” matchmaking service. Other appropriate third parties for such introductions include other Saudi firms and U.S. companies that have successfully done business in Saudi Arabia, banks, trade associations, and chambers of commerce.
The Saudi legal system, known as Shari’a Law, is based on the Koran and Hadith (sayings of the Prophet) and differs considerably from the U.S. judicial system. U.S. firms are strongly encouraged to seek in-country legal counsel to evaluate risk and navigate the complex investment environment.
U.S. firms contemplating an agency or distribution agreement with a Saudi entity are strongly urged to consult with a local attorney and have a legally binding contract drawn up in detail and clearly stating the rights and obligations of all parties, how and when sales commissions are to be paid, and how and in what venue any disputes are to be settled.
The U.S. Commercial Service, through its domestic U.S. Export Assistance Centers and overseas offices in Embassies and Consulates, offers a variety of services to assist American firms in selecting a reputable and qualified representative. In Saudi Arabia, the U.S. Commercial Service maintains offices in the capital, Riyadh, and in the regional business centers of Jeddah and Dhahran. The U.S. Commercial Service’s Gold Key Matching Service is a personalized and targeted matchmaking service that constitutes an exclusive and tailored orientation and briefing on specific sectors and on the broader Saudi market, a profile of prospective Saudi partners, interpretation services during meetings, the expertise of a Commercial Specialist assigned to accompany you to your meetings, and assistance in developing follow-up strategies. The International Company Profile provides background information on potential partners. These services are available for a fee to U.S. companies exclusively. https://www.export.gov.