Investing In Kuwait

Market Entry Strategy

To be successful in the Kuwaiti market, most U.S. companies must locate, develop and support a local manufacturers representative or account executive to manage the marketing strategy for both the company and the product. Companies rely on local experience and knowledge as to how business is conducted. Knowing the regulatory and business framework is almost an impossible task without the support of a local agent and business partner. If U.S. companies are seeking this type of business relationship and understand that the best representatives are those with already existing distribution and sales networks, sales and customer support centers, and maintenance and repair facilities if needed; then the Commercial Service in Kuwait has a number of programs and services available to assist the U.S. business community in establishing a presence in this growing market. In addition, the Commercial Service in Kuwait employs experienced Commercial Specialists with industry sector expertise that can tailor your business approach to the right audience and to advise and steer your company through the often less than transparent bureaucratic procedures that are common in Kuwait and the Gulf. If you would like to learn more about your particular industry in Kuwait, please contact the Commercial Specialist assigned to your industry sector at: http://www.buyusa.gov/kuwait/en/contact_kuwait.html.

Using an Agent or Distributor

Commercial Law 36 of 1964, as amended by Commercial Law 68 of 1980, governs the establishing of a business or business relationship in the State of Kuwait. Under the above provisions, a foreign firm (including a partnership) may not establish a branch and may not perform any commercial activities in the country except through a Kuwaiti agent. Foreign and U.S. firms seeking a presence in the Kuwait market may do so utilizing commercial agents, distributors or service agents. Per definition, commercial agents promote products or services for a principal and negotiate, conclude and carry out deals on behalf of the principal (within the scope and authorizations allowed the agent per the contractual agreement). A distributor promotes, imports, stocks and distributes the principal’s goods and products. Service agents (sponsors) act as representatives for foreign firms seeking to contract with the Government of Kuwait per Article 24 of Commercial Law 68 of 1980.

The U.S. Department of Commerce and the U.S. Foreign Commercial Service in Kuwait recommend that agency and/or distributor contracts should include information pertaining to the geographic sales/marketing territory to be covered by the agent/manufacturers representative or distributor, the products and services that the party would support and manage, the validity period of the agreement, agent/distributor fee and commission structure, the choice of applicable law and any arbitration clauses, milestones and responsibilities of both parties and termination clauses. In addition the agreement must be crafted that it complies with both Kuwait and U.S. laws. Though there is no statutory period for the providing of notice of termination, a three-month notification is customary. Apart from termination, a U.S. principal must also be aware that the local agent may need to be compensated for investments made and good faith efforts undertaken to promote, sell, and service the principal’s products in Kuwait. The Kuwaiti Commercial Code contains a formula for compensation (this would likely not apply to cases of termination for cause if the local agent is in breach of contractual obligations or the agent has not met performance goals).

Establishing an Office

Any Kuwaiti or Gulf Cooperation Council national/citizen over the age of twenty-one may engage in commercial activity in Kuwait. Foreign companies may not engage in commercial activities in Kuwait unless the Kuwaiti interest in the business or joint venture exceeds 51 percent of the total capital of the enterprise (60 percent for banks, investment brokerages, and insurance companies). Foreign companies may not establish a branch or perform any commercial activity except through a local agent or manufacturers representative.

In order to establish a business in Kuwait, the Kuwaiti firm or joint venture needs to apply for a business license issued by the Ministry of Commerce and Industry. Application documentation must be in Arabic. For special commercial activities such as telecommunications, health services, pharmaceuticals etc. the relevant ministry, department or regulatory agency may require other certificates or licenses. Business enterprises may be established in several forms including Kuwait Shareholding Company (KSC), company with limited liability (WLL), and general partnership. The cost and time required to register and open a business will vary due to company structure.

Franchising

Kuwait business is highly receptive to the franchise business model. High per capita income, significant spending power, tax-free earnings, and an upwardly mobile population reflect the opportunity that exists in Kuwait. Apart from food and service franchises, there is also high demand for quality education and training services. To respond to this need, the Government opened the door to foreign universities and colleges to establish branches in Kuwait. As the government’s objective is to develop a skilled and employable Kuwait private-sector work force, the opportunity for training and skills development suppliers cannot be over emphasized. For additional information on the franchise industry in Kuwait, please contact CS Kuwait Commercial franchise industry specialist at bassam.adham@mail.doc.gov.

Direct Marketing

Direct marketing is limited in Kuwait. Most direct marketing campaigns using print and catalogue media are European and U.S. enterprises. Women’s fashion catalogues including Quelle and Otto of Germany and Freeman (USA) and IKEA home furnishings offer catalogs to their regular shoppers and customers. Larger companies rely on newspaper inserts, mass mailing or Internet mass mailing campaigns in order to promote the latest product or one-time sales. Most fast food franchises engage in flyer distribution direct to homes. Direct marketing via the cold calling of unsolicited potential customers also takes place in Kuwait.

Joint Ventures & Licensing

Foreign businesses are offered several incentives to establish joint ventures with Kuwait firms, including partial relief from Kuwaiti corporate taxes (Kuwaiti firms are not assessed corporate tax). Given that all government procurement must be conducted with Kuwaiti citizens or firms and given that only Kuwaiti companies may be licensed in Kuwait, the joint venture model is a good vehicle in order to enter and maintain a long-term presence in Kuwait. A joint venture is not considered a legal entity, and as such, official notification in the Commercial Register is not required. It is common for several foreign contractors and engineering firms involved in a major public contract to form a joint venture or consortium.

Selling to the Government

Tender Law No. 37 of 1964 regulates government tenders. The Central Tenders Committee (CTC), which is under the jurisdiction of the Council of Ministers, acts on behalf of most government ministries, for example oversseing tenders in the oil sector that are valued at more than US $17,000 (KD 5,000). The Ministries of Housing, Defense, and Interior (including the security forces) however can sometimes issue their own tenders independently of the CTC. All contracts with the Government valued at KD 100,000 (US $340,000) or more are subject to Kuwait Law No. 25 of 1996, which requires contractors/agents to disclose and report all payments made, received or that they will be made or received when securing a contract.

Tenders are usually awarded on the basis of the lowest price once technical compliance with the tender's specifications have been established. It is worth mentioning that if a bidder wins a tender but then refuses to sign the contract, the Ministry concerned has the right to confiscate the bid bond as well as the performance bond, which might equal 5-10 percent of the contract’s value.

Foreign companies cannot sell directly to the Government nor participate in public tenders except through a local agent. In the oil sector, for instance, supplying companies should be approved by an internal committee and placed on a list of ‘pre-approved’ companies. For major projects, international companies are usually invited to pre-qualify.

Distribution & Sales Channels

Marketing of most foreign products in Kuwait is through local agents and or distributors. Depending on the location, type of product and after market service/support that may be required, most U.S. companies will work through an agent or manufacturers representative that would have an already established distribution network and customer support operation in place. Commission representatives/agents, on the other hand, periodically visit their customers with their foreign principals to maintain much-needed strong personal contact, a very important marketing tool in Kuwait and other Gulf Cooperation Council (GCC) member states. For direct support of U.S. interests in Kuwait, please contact any of Commercial Industry Specialists located at the U.S. Embassy in Kuwait http://www.buyusa.gov/kuwait/en/contact_kuwait.html.

Selling Factors & Techniques

Once an U.S. firm appoints a manufacturer’s representative or agent, the agent or distributor expects-and should receive-the principal’s full support with respect to literature, technical information and advertisement materials. Possible public sector buyers and potential private sector importers should receive company/product catalogs and other literature clearly displaying the name and address of the local representative/distributor. A common and highly effective support practice is to invite the representative/agent to the principal’s country every year for annual sales and technical support meetings and training. Both agents and, if possible, their principals, should periodically visit existing and new customers since the importance of personal contact in Kuwait cannot be overemphasized.

In order to be competitive in the local market, the key selling factors in Kuwait remain price, quality, effective and convenient after-sale service and support, payment terms/discounting, and commitment to the business relationship. Payment installment plans and discounts are common marketing tools in a market that exhibits a high price elasticity of demand (price sensitivity).

Marketing schemes vary and include offering commercial discounts, frequent sales, free service for equipment purchased over a limited offer period, give-aways, warranties, trade-in opportunity and promotional events. For consumer products, Kuwait inaugurated a local shopping festival called Hala (Welcome) February. Special offers and promotional campaigns are common during this period, with hotels and other entertainment centers offering special rates and deals to attract shoppers from the Gulf region. Companies are reminded that all sales discounts require prior approval of the Ministry of Commerce and Industry.

Exhibitions in Kuwait are local and regional in nature. The support of a local manufacturer’s representative or agent will go along way in establishing an image of U.S. corporate support of the local business enterprise. Participating along side your representative makes good business sense. For additional information on the Kuwait International Fair, please click onto the following web site: http://www.kif.net.

Electronic Commerce

Kuwait has over 200,000 Internet users, however, E-commerce remains predominately limited to Internet on line banking and brokerage services. Most Kuwaiti companies are not on-line for business-to-business or business-to-consumer transactions. The Government of Kuwait must still make significant progress toward E-Government. An electronic signature law, based on the United Nations Commission on International Trade Law (UNCITRAL) Law on Electronic Commerce, still awaits legislative action.

Trade Promotion & Advertising

The Kuwait International Fair www.kif.net holds several national and regional exhibitions per year. Though primarily local events, the Kuwait International Fair allows attendees an opportunity to meet with local sales agents and account executives. In addition to exhibitions in Kuwait, the Embassy of the United States will be organizing several buyer delegations to major U.S. international events this year including the Builders’ Show, the World of Concrete and the Offshore Technology Conference. Delegation information will be made available on the Commercial Service Kuwait Web site at www.buyusa.gov/kuwait/en during and following the exhibition.

Marketing in Kuwait can be challenging business. There are several local advertising agencies in Kuwait serving the U.S. and international business community. Newspaper advertising in Kuwait is a highly effective tool for communicating with the general public,
with newspapers securing forty percent share of the advertising market. Billboards, signs and vehicle panels account for thirty percent of the advertising market. Advertising is also available on several FM radio stations (both Arabic and English speaking) and three state television channels. For franchise operators, direct marketing via mail circular or newspaper insert is very common.

A list of newspaper companies and advertising firms is available from the Commercial Service in Kuwait. Depending on your industry sector, you may wish to contact any of our Commercial Specialists for more details. http://www.buyusa.gov/kuwait/en/contact_kuwait.html.

Pricing

The key selling factors in Kuwait remain price, quality, effective and convenient aftersale service and support, payment terms/discounting, and commitment to the business relationship. Payment installment plans and discounts is a common marketing tool in a market that exhibits a high price elasticity of demand (price sensitivity). Marketing schemes vary and include offering commercial discounts, frequent sales, free service for equipment purchased over a limited offer period, give-aways, warranties, trade-in opportunity and promotional events.

Most products imported to Kuwait from a non-Gulf Cooperation Council (GCC) member state will be assessed a duty of 5 percent. This will need to be included in any pricing calculation. There is no Value Added Tax. In addition to the CIF price quotation plus import duty, U.S. exporters should also factor in the Kuwaiti agent’s commission (typically between 5 and 15 percent), other transportation costs, and any installation costs/training that may be part of the agreed upon terms of delivery.

Government Procurement

There is a 10 percent price preference on public contracts in favor of Kuwaiti businesses. If a contracting officer or authority determines that a local company meets the technical specifications per the request for proposal, and though the bid price may be higher (within 10 percent), the local company may be awarded the public contract.

Sales Service & Customer Support

U.S. suppliers should identify local manufacturer representatives/ distributors with the necessary service and maintenance capability. Companies should include follow-on maintenance clauses if the products/equipment so requires. Local representatives must ensure that appropriate standards of manufacture and service are maintained. Consumer warranties are often provided to products including electronic goods, white/brown appliances, vehicles, tires and a variety of consumer products. Warranties can range from 90 days to up to five years depending on the product or capital good. When sales volume reaches a substantial value, the establishing of a factory service center with their local representative may be an option. There are a number of independent service and repair centers, however, use of lower valued components or non-manufacturers suggested maintenance protocols might often take place. After-sales service and customer support is especially critical in the automotive and white appliances industry. Automobile dealers offer a one-year or 15,000 mile warranty. White appliance dealers will offer either repair or replacement over a particular period, and dealers will make home repair house calls.

Protecting Your Intellectual Property

Kuwait was elevated to the USTR’s Special 301 Watch List in 2004 due to continued failure to address serious and rampant copyright infringement, and its failure to amend its copyright law. Kuwait did not implement the 2002-work plan that outlined steps it would take to increase IPR enforcement. In 2003, Kuwait still had insufficient enforcement and penalties remained inadequate to deter IPR violators. Problems continued with Kuwait having the worst optical disc piracy rate in the region as well as problems with software piracy.

In 2004, the Kuwait Customs authority established a special IPR unit and began taking some enforcement actions. Other Kuwaiti ministries, most notably the Ministry of Commerce and Industry, began taking a more active role in copyright enforcement. A new copyright bill was to be put before the National Assembly in 2005. Kuwait’s patent and trademark legislation passed the National Assembly in December 2000 and took effect on 14 January 2001. The legislation was to make Kuwait compliant with the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The legislation affords protection of twenty years and extends coverage to include pharmaceuticals. Industrial designs and integrated circuits are afforded protection of between 10 to 15 years. Though legislation is in place, penalties are light and do not act as a deterrent. Trademarks can be registered in Kuwait for ten years and renewed in additional ten-year increments indefinitely. If a trademark has not been used for a five-year period, an interested party can apply to the judicial system to have the trademark rescinded. Registration affords the owner exclusive rights to use the trademark, and third parties would be barred from the use of the trademark. Since trademark registration is linked to the Kuwaiti agent, the trademark would need to be again registered when a mark holder signs a new agent or distributor.

Due Diligence

Companies can minimize their risk of exporting to new customers or entering into business relationships with new partners by utilizing the U.S. Department of Commerce International Company Profile (ICP) program. An ICP provides up-to-date information that includes bank and trade references; names of corporate principals, key officers and managers; product lines; the number of employees; financial data; sales volume; reputation and market outlook, all at a reasonable price. For more information, please visit our web site at www.buyusa.gov/kuwait/en. Companies are also encouraged to seek local legal counsel for matters related to establishing the contractual relationship that is most beneficial to all parties.