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Franchising in Kuwait


Franchising: An Overview

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The challenges that a competitive market has brought upon countries is overwhelming (WTO, 1990). It has spurred creation of new economic strategies, business ventures and marketing plans. The economic value of a county has been the yardstick to which all other countries are measured (Spero, 1990). This way, countries could gauge the power and influence they have based on the rank they occupy in the world market.


Similarly, the competitive market has encouraged entrepreneurs to widen their scope and expand business all over the globe (Popkin, 2001). This provided a link to franchising. Seen as a mode of expanding business and gaining millions of profit returns, multinational corporations turned to franchising their business as a way to create ties with other countries by gaining access to their economy, emphasized by the noticeable presence of these franchises (Protsenko, 2003).


Historical Significance of Franchising


Franchising, although playing a major role in the modern economy has its background rooted in history (Cunningham, 1965). The word “Franchise” is derived from the language of Old French, having a literal meaning of privilege or freedom. During the middle Ages, where everything was under the control of a local sovereign, lord or a King, franchise is a relatively important word, as it connotes right and privilege. Its scope being vast, it covers privileges from hunting to operating market fairs on the local sovereigns land (Kirchhoff, 1994). It soon evolved into the granting of franchise to commercial related activities. This includes constructing roads and bridges, even brewing the popular ale.


The concept of franchising it those times means that a right has been given, decreed by the King, to a particular person or group of persons bestowing upon them the right and privilege of monopolizing a particular commercial activity. From historical point of view, the relevance of becoming the leader in commerce and trade is evident (Cunningham, 1965). As time passed and economic strategies evolved, the rules governing franchises was embedded in the European Common Law.


As the world evolved and the economies adapted new concepts, old economic concepts also advanced. More specifically, the franchising concept developed. The old concept of right to brew ale became a large scale business idea. In the 1880s, widening the scope of franchises was the participation of cities that began allowing monopoly to street car companies, gas and eventually, electricity (Wilcozynski, 1969). Evidence of this existed in the 1840s where major ale brewers in Germany saw franchising concept as a means to generate profit. By granting franchises to taverns and giving them exclusive right to distribute their ale, many business enthusiasts saw the potential of franchising. Similarly, in 1851, the well-known Singer Sewing Machine Company embraced franchising concept when it started granting rights for distribution of their sewing machines. Singer Sewing Machine Company is considered the forerunners of modern franchise concept (Cunningham, 1965).


The franchising concept evolved and was understood as granting the right to distribute and sell manufacturers products. Soon, various companies jump in the bandwagon and started granting franchises. Oil refinery companies and automobile producers allowed the franchising of their products and merchandise.  This resulted to the global expansion of franchising concept, allowing other manufacturers to adopt it and expand their businesses (Andrew, 1997).


Surviving the aftermath of World War II, the franchise concept flourished. It was referred to as the Business Format franchising (Kirchhoff, 1994). The existence of an overwhelming need for all kinds of products and services became the breeding ground for franchising concepts growth. It soon became the most ideal business concept to be adopted by manufacturers and producers by providing a promise of rapid growth and expansion for various businesses.


However, like any other flourishing concept, franchising is bound to have loopholes. It became evident in the 60s and 70s, when franchising concept was subjected to abuse and manipulation of few unprincipled and ruthless people who used franchising concepts’ widely accepted benefits by establishing fraudulent companies granting franchises (WTO, 1997). This resulted to a widespread failure of the franchises brought about by fraudulent companies who either took investors money and ran away with it or tricked people into believing that theirs was a company stable and profitable, well in fact, it was undercapitalized and on the brink of bankruptcy.


Clearly, with such history of the franchising concept, it is in need of change in order to continue as a feasible business concept. Following this change, International Franchise Association was established, holding trainings and disseminating information on franchises, strongly increasing level of awareness and developing high degree of professionalism (Spero, 1990). Governments provided regulatory measures, particularly the United States in 1978, when it provided certain documentary requirements to be submitted before potential franchisees are granted the right. Other states followed and conceptualized their own set of rules and requirements to be complied with.


The franchising concept of today’s modern times is more reliable based on regulations imposed on it. The franchising concept as we see today, still offers a limitless opportunity for entrepreneurs who would want to expand businesses and capture local markets of various countries through the presence and availability  of their products.



Key Information on Franchising


In order to fully grasp the concept of franchising, knowing what franchising means is a necessity. Fundamentally, franchising is the manner of distributing products and services. It plays a major role in commercial enterprises having evolved from a simple grant of privilege to a more advanced type of business format. Franchising concept has varied types, providing more options for companies.


One of these types of franchising is called product franchise (Popkin, 2001). This is where a grant to sell products of a manufacturer is given to the franchisee. Included in this type of franchise are dealerships of products like cars, sewing machines and the like.  Another type is called name and process franchise. This term although it appears not to be popular is very much evident in modern society. This is the manner of allowing the use of name, special processes and even ingredients or recipes. This is what is practiced by well known food chains around the globe.


Today, the most commonly adopted type of franchise is the Business Format franchise. In addition to granting rights for name usage and product distribution, it also involves transfer of the information of doing the business originally developed by the franchiser. This inevitably includes transferring of operating systems, marketing strategies and techniques. By gaining the right to franchise a well known product, the franchisee not only gains the potential profit inflow, but also takes the advantage of knowing vital information needed to sustain the development of the business, straight from the original developer of the company (Protsenko, 2003). This led to the unprecedented success of business format franchising around the world.


Why Franchising?


Franchising offers a lot of advantages. Primary is the fact that franchising lessens the level of risk to be taken in putting up a business. This is because franchising offers a more viable potential for growth, especially if the franchised products does really well in the market. Backed by a well founded company and a tried and tested management system, franchising holds more potential than starting up own business venture (Andrew, 1997).


High level marketing strategy is also one of the advantages of franchising. By franchising a popular product that rings a bell to the consumer population, there would be fewer struggles in finding means to advertise and promote the business. Customers literally com at your doorstep and profits keep on doubling.



Other Franchising considerations


With the presence of a much stringent process and requirements for franchising, the concept seems more fool proof than before. Other considerations for franchising involve fees, selection of franchise, and inclusion of operating systems and possession of vital information. All these lead to the success or failure of a potential franchisee (Kirchhoff, 1994).


Fees include the right to franchise sold by the franchisor to the franchisee. The fact the right is sold, ultimately means that it also needs to be renewed, thus renewal fees come into the picture.  Royalty fees also make up the list of fess required in order to gain the right to franchise. The ingenuity of the original developer of the company never perishes, for that; constant acknowledgement is expressed through royalty fees.


In the United States, A uniform Trade Secrets Act provides protection for vital information part of the franchised product. Violations of such trade secrets will not go unpunished. This is because as a franchisee, it is understood that one has agreed to respect the terms of the franchisor, to which success of the company lies.


In this sense, selection of what to franchise is necessary as it is coupled with various steps and processes that needs to be complied with before the final stages of franchising is approved.



Part II

Kuwait: Existence of Franchising Concept


General Information on Kuwait


Kuwait is a strong economic force in terms of resources (WTO, 1997). Highly reliant on crude oil sector, Kuwait emerges among the top distributors of oil in the world, a commodity that cannot be dispensed with by countries relying heavily on electricity, automobiles and advance technology.


Kuwait’s government predominantly exercise control over the local market. Its economic model patterned on a welfare state allows substantial amount of government regulation (Popkin, 2001). As a result, freeing capital is put strictly under control, lessening participation and competition among sectors of the economy.  This resulted in a number of investment related issues caused by the stringent government rules impose on the economic sector.


The increased clamor from private and public business community, the treatment of the economic sector is bound to change. As a result, privatization schemes have been enacted by the government, offering its shares in the Kuwaiti Stock Exchange. This encouraged participation of foreign investors, given that they can own 40 percent of these companies, subject to prior government approval (Spero, 1990).


Kuwait Franchise Market: Overview


The franchise market in Kuwait is very much competitive (WTO, 1999). With its welcoming acceptance of foreign form produced goods and services, Kuwait projects a viable market for putting up businesses. As a result, various products and services enter the market, increasing the level of competition and heightening consumer expectations.


US dominance in domestic markets all over the world is undeniable Cohen, 1994). The more Americanized a product is the more chances there are in selling it. Same is true in Kuwait. The US made products get the anticipated attention. However, in Kuwait market, Japan produced products becomes a fierce rival of US made goods.  On top of the list is Japanese electronics and automobiles, having a wide following among Kuwaitis. Brands affiliated to the Japanese firms like Sanyo, Panasonic and Toshiba among others enjoy consumer acceptance. Car manufacturers like Honda, Nissan and Toyota lead the favored brands of the Kuwait market. This brought positive impact on the manufacturers’ status in the world market.


Another major players in Kuwait market are fashion centered franchises and the car dealership. Apart from the Japanese manufacture cars, Kuwaiti has expressed interest in Ford, Volvo, BWM, Jaguar and Rolls Royce (Cohen, 1994).  Fashion industry is opening up and creating bigger opportunities for franchises, given that only few British firms have put up franchises in Kuwait. Other franchise opportunity can be related to education and training firms. Kuwait market is ready to accommodate training institutions and educational centers, with the recent opening of the American educational center and the long established presence of British Pitman education center.



The viability of Kuwait market has stirred interest among foreign firms to put up businesses in Kuwait. Evidence of this is shown in the recent opening of a new Ace Hardware franchise. More and more companies participate. This has to the growth of franchises in Kuwait market (Popkin, 2001). The current franchise percentage reached almost 60 percent and is expected to gain more, provided it continues to capture the consumers’ preference. This is so, because Kuwaitis have a tendency to change their preference from time to time, attributable to the fact they are well aware of the latest trend around the world.




Kuwait Market: Investment viability through established international relations


Kuwait has been working on establishing relations with other countries to uplift its economy and regain its place in the international sphere. Sine the devastating effects brought about by the Iraqi invasion in 1991, Kuwait has suffered major setback in its economy (Andrew, 1997). It has struggled to revive its image and once again prove that it still is a viable investment location for foreign firms. As a result, it offered to give tax incentives to investors and conceptualized a debt mechanism in the hopes of helping investors regain losses incurred during the invasion and to further encourage investors in Kuwait. The mechanism is intended to promote Kuwait market and prevent the loss of interest of investors (Cohen, 1994). However, the mechanism was met with various criticisms as to its effective implementation and process of eliminating debts.


Kuwait has been successful in creating links with other economies and establishing trade relations with other countries. More specifically, its established relations with Canada have produced beneficial effect on Kuwait. The cooperation existing between Canada and Kuwait has brought about the presence of Canadian companies in Kuwait (WTO, 1999). By covering a range of trade sectors, services available emphasize the growth sector between Kuwait and Canada.


This exemplifies the positive impact of establishing relations in various countries, potentially increasing economic growth and development. Opening the market to various industries increases the level of economic competence and it becomes more evident when internationally known firms express interest in the development of businesses in the country (Andrew, 1997)


Franchising Opportunities in Kuwait: Different Franchises in the market



The political situation in Kuwait highlighted by the imposing control of its government over private and public companies has not prevented the concept of franchising from penetrating the domestic market. A relatively small market, Kuwait is not to be underestimated as it offers income generating opportunities for franchising. Its population reaching 2 million, the propensity of Kuwaitis to patronize foreign endorsed products and services is very high (Popkin, 2001).


This strong tendency to avail of goods and services of Kuwaitis increase the probability of income generating franchises. Most American products take the lead in terms of preference. A large number of franchises that dominate the Kuwait market belong to the food sector. Requiring a local sponsor to establish franchises in Kuwait, foreign firms quickly set up their businesses and maximizing the vast opportunity that lay ahead (Cohen, 1994).


Leading the franchise market are US based firms. This includes Kentucky Fried Chicken, Burger King, Wendy’s, Subway, Baskin Robbins and Pizza Hut (Cohen, 1994). The recent involvement of Mc Donald’s in the market all the more strengthens the US fast food franchises in Kuwait. The food sector business increase profit as the leading sector in Kuwait’s small but opportunity laden market.


The influx of investments made in Kuwait in the form of the growing number of franchises is attributable to the very open and welcoming image of Kuwait. It exudes a combination of young, growing population ready to embrace new concepts and trends, something that all retailers and franchisers look for in a target market (Spero, 1990). This becomes the reason why increase in the number of international brands engaged in franchises in the middle east, particularly Kuwait.


The franchising concept became the salvation of foreign investors. This may seem so due to the fact that franchising has been considered the most suitable form of doing business and having the capacity to enter the Middle East domestic market, way back when foreign ownership seemed impossible.


Today, even if the foreign investment rules on ownership have been reduced to a more relaxed and flexible policies, franchising has become a valuable substitute means. It is evident in the wide spread presence of international brands on Kuwait and most Middle East countries.  This signifies the importance of franchises in Kuwait market. Its evolution has brought about changes in economic growth and development by providing avenues for business expansion (Protsenko, 2003). The creation of economic ties between and among countries involved in franchising has added to the growth production and profit gain of various businesses around the globe.


Franchises within Kuwait: Competitive market


As a competitive market with generally low tariffs and very few trade and import barriers, Kuwait has dominated the business scene in Middle East countries.  It has obtained US food products to be locally available in the domestic market like vegetables, semi-processed products and increased demand for US products.

Generally receptive to franchising and foreign products, Kuwait has a very strong purchasing power. With a per capita income of US $ 15, 717 economic growths is a sure future destination.

Franchises in Kuwait include entertainment, furniture, clothing and fashion, automotive, commercial sectors and food industry.


Franchising: Role of Kuwait sponsors


To establish a franchise in Kuwait means a need for a sponsor (Spero, 1990). In this case leading franchise groups like Al Shaya hold that part of the deal. By joining the domestic firms, they offer direct marketing to establish the product in a very competitive market. It is a widespread practice in Kuwait, since it is  considered an advanced country with respect to telecommunications and technology.


Another consideration in regarding sponsors as important is licensing and joint ventures. Investors are offered tax incentives and joint liability in debts (Andre, 1997).  This is why joint ventures between foreign investors and Kuwait firms is considered the best way to penetrate the domestic market.


To date, investments in Kuwait amount to more that US $ 100 billion. Direct investments of US alone equal to US $245 million. Other major investors have 45% share in Kuwait franchises amounting to US $ 2 billion (WTO, 2000)).


This significantly emphasizes the importance of franchise groups in Kuwait, making the economy more competitive and the market more susceptible to development and growth. It impact greatly contributes to the widespread acceptance of foreign firms to invest in Middle East, opening the market to a more fruitful investment agreement with foreign firms (Andrew, 1997).



Part III

Kuwait Franchise group: A case study on M.H. Al Shaya Group


Kuwait having embraced the presence of franchises of international brands has also made local companies who provide sponsorships to international brands a well known group (Cunningham, 1965). Most prominent among these existing groups is the M.H. Al Shaya Group. It has become a leading franchisee in Kuwait, providing major franchises allowing the penetration of foreign manufacturers in the domestic market (Protsenko, 2003).


Brief History


The Al Shaya became a well known trading and commerce group since its foundation in 1890.  it success dates back in the 1960s and 1970s when it spearheaded the development of business related to real estate, hotels and even construction (Wilcozynski, 1969). With its new found take off point, Al Shaya soon adjusted to the changing times and became the leader in providing commercial developments throughout the country and afterwards engaging in the operation of international brands making the group to be the leading retailer in the region.


To date, Al Shaya has expanded globally operating in countries like Turkey, Cyprus and Russia.  It has built a formidable retail group with over 1000 stores operating across eleven countries, covering industries like fashion, footwear, clothing, even health and beauty.


Factors leading to success


More and more consumers have enjoyed more and more products over the years. In the recent decade, a revolution has occurred in the manner of living of every individual.  These indicate that consumers are harder to please. Having gained enough knowledge in the modern day of advance technology, consumers are aware of the existence of alternative suppliers to their various demands. Franchising no longer meant monopoly as it did in the olden days (Spero, 1990).


This being a major factor for consideration, franchisees encounter more complex problems in deciding products and services worth marketing in a particular country. It all adds up to the difficulty of injecting new products to the market without taking great risks that could ultimately lead to loss of investment (Cohen, 1994).  Due to this fact, franchise groups, particularly Al Shaya has to develop new strategies and techniques in order to capture the consumer interest and widen its scope in the market.


Al Shaya did not become leaders in the business overnight. It was a result of careful planning and calculated risks. As its focus, Al Shaya banked on positive, future based approach with a deep sense of commitment of upholding traditional values of integrity and honor. This are the basic tenets of business commitment bound for success (Andrew, 1997).


Focusing on the retail business, Al Shaya studied the dynamic nature of retail industry. By focusing on identifying the key factors of retail industry, such as, buying habits, market propensity to change and the monitoring of the latest trends leading to a well managed group. Information Technology was also given adequate attention by providing support to all Al Shaya warehouse operations. Closely monitoring all the transactions for the day, Al Shaya maintains its lead position by constant monitoring of the company’s progress (Andrew, 1997). The focused workforce, dedicated personnel who possess high degree of professionalism is a result of the company’s unending quest for excellence exemplified through their human resources division.


Company Structure


The al Shaya group has expanded over the years. It is currently divided in four business divisions catering to various sectors of the market and economy. The divisions include real estate, hotels, automotive and the M.H. Al Shaya Co. The real estate manages the land properties of the group. Hotel division takes care of developing world class hotels including the Kuwait Sheraton and the Medina Oberoi located in Saudi Arabia (Protsenko, 2003). Al Shaya has also managed to engage in car dealership with its automotive division, gaining exclusive dealership rights of Mazda and the Peugeot. The fourth division respectively termed M.H. Al Shaya Co. is still divided into retail and trading division.


The Al Shaya group has been successful in capturing the entire market of Kuwait and eventually expanding to other countries. Its involvement in various industries speaks of its influence in the market and the innate capability to withstand market shifts and consumer unpredictability.





AL Shaya Group: Impact on Kuwait market


The Al Shaya Group has brought in a lot of changes for Kuwait’s market and economy (Spero, 1990). By venturing into different sectors and covering variety of products and services, Al Shaya Group has made its mark and along with it raised the level of world recognition for Kuwait as international player.


Al Shaya posed a major impact on Kuwait market by providing products and services that are deeply attuned to the consumer needs. Having been rooted in the Kuwait market, Al Shaya has established the instant connection between them and the target market. By bringing in new retail concepts, and gaining franchises to various international brands, Al Shaya has brought the best and the best known brands in the world, increasing the consumers’ right to choose (Cohen, 1994).


It capitalized on the varying characteristics of the consumer market. It recognized the fact that an ultimate consumer market is one made up of different sexes, ages, racial, cultural, religious and national background. More complex is the fact that these factors are also related to certain considerations such as living conditions, purchasing power, degrees of success and even community affiliations.


By this, it means that the theory of consumer behavior is in play (Cunningham, 1965). As a retail group, the need to fully comprehend factors affecting consumer behavior is necessary. By looking at a consumer as an economic man, companies would be able to derive that idea that as a consumer, what any individual aims is the maximum satisfaction of his demands. By targeting this demand and satisfying the consumers, retail groups such as Al Shaya would be gaining more profit and staying long in the industry.


As a marketer, the characteristics of the consumer market are all important. Given the fact that the market is always changing, gauging the capacity to spend and willingness to spend of consumers is necessary. Clearly, Al Shaya Group has more than developed a close knit relationship with Kuwaiti consumers (Andrew, 1997).


Another noticeable change in Kuwait market is the increased interest in consumer goods. Brought about by the successful strategy of consumer motivation, Al Shaya has succeeded in not only winning consumers but knowing the underlying motives as to why consumers behave the way they do (Kirchhoff, 1994). This is evident in the wide success and prosperity of the group making it a leading franchisee in Kuwait. Moreover, the availability of top international brands in fashion, footwear, health and beauty, restaurants and pharmaceuticals has proven the viability of Kuwait market for investment.


The widespread success of Al Shaya Group can also be attributed to its manner of introducing new products or franchises (Popkin, 2001). Since the introduction of new products requires careful exploration of markets, costs and profit opportunities, relevant is the timing of new product introduction. This is where the need to recognize key factors in introducing products such as seasonal and secular factors becomes greatly significant in relation to the time new products are introduced.  A more difficult consideration would be whether or not the company should be the first to introduce it. Undoubtedly, a great deal of consideration depends on the type of product, its uniqueness and the costs it will have on the company. Quite noticeable is the Al Shaya group’s adaptive quality to consumer demands. Knowing that Kuwait has a larger preference on US and Japan produced products, banking on having franchises of these products proved very profitable.



Al Shaya and Franchises: Brands and Agreements


As one of the leading franchise groups in Kuwait, Al Shaya has brought in various international brands in the domestic market (Cohen, 1994).  In 2005, Hong Kong-owned Watson’s made its presence known in Dubai. Having set foot in a Middle Eastern country, it also entertained the idea of opening 200 more across Middle East (Spero, 1990).

Kuwait was seen a viable investment destination, making it one of the countries that would be welcoming a few new Watsons stores.  The reason is attributable to the fact that the Hong Kong based company has seen the existence of American brands like Saks Fifth Avenue, Forever 21, Levis and many more (Andrew, 1997). Not only that, the influx of European brands like Mango, Zara and Benetton all the more strengthen the economic viability of Kuwait for franchising expansion.


Particular is Sweden’s H&M (Hennes & Mauritz) which has made strong pact with Al Shaya Group (Andrew, 1997). This is a very noteworthy development involving Al Shaya. It has been noted that H&M has refused a lot of offers from various Middles East franchise groups; yet, it opted to join Al Shaya in spreading H&M across Kuwait and other countries. This can be considered as landmark deal because H&M does not have franchising in its expansin plan.  This, all the more speaks of the strength of Middle East retail market. The US $100 billion goal for Al Shaya as far as franchising is concerned is no longer a fantasy (Cohen, 1994). With the recent tie-up with H&M, Al Shaya Group has proven its competitiveness in the market.


Another is U.K’S second- largest department store group called Debenhams.  It has recently made agreements with Al Shaya group (Andrew, 1997). As a retail group, Al Shaya formats and guides the department store group as to how things should be and how operations need to be administered. In essence, Al Shaya is doing the complete investment and is expanding the number of stores in the country.


AL Shaya Group: Implications on Kuwait Economy


Economic growth of Kuwait can be attributable to many factors. But with respect to economic growth brought about by the sudden shift of interest of foreign investors to Kuwait can be said to have originated in the success of the franchising concept (Protsenko, 2003).  By establishing the potential for profit gain, Al Shaya has recreated Kuwait market and projected it as a market comprised of broad minded consumers not only looking for major international brands but more so wanting to exercise their purchasing power.


Al Shaya has contributed to Kuwait economy by becoming product leaders. In this sense, product leadership is basically manifested through growth of the firm (Spero, 1990). Done through the creation of new products and improvement of old products have been primary consideration of the group. Through this, it has kept abreast of the changing times and the changing consumer demands.


True to its vision, Al Shaya group has always looked forward with respect to product policy. It has made them a progressive group which looks ahead and anticipates future market trends by planning in advance. The international brand it has successfully franchised depicts its futuristic approach to market crating more profit which leads to economic gains (Cohen, 1994). In relation to that, the group has maintained a competitive look towards product promotion and service oriented relationship with consumers. By determining strengths and weaknesses of competitors, Al Shaya group has been successful in determining what products can be introduced in the market.


Affirming its importance and contribution to the economic growth and development of Kuwait is the fact that local manufacturers, mall owners and small retailers would not engage and commence production without the nod of approval from key retailers in Kuwait such as Al Shaya Group (Popkin, 2001). This solidifies the fact that Al Shaya has gained the lead position in franchisees and retail groups because of its economic contribution to Kuwait.  With the recent franchise of Boots, a UK owned high street pharmacy and the H&M fashion brand, Al Shaya is set to make new waves of profitable business ventures creating a more diverse Kuwaiti market and a more stable economy (Protsenko, 2003).























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