V. MARKETING U.S. PRODUCTS AND SERVICES A. Distribution and Sales Channels Distribution and sales of products and services occur at wholesale outlets (i.e., larger companies) and in numerous, smaller retail outlets. Either type of outlet may be in either a company's headquarters or in separate warehouses and shops. Consumer goods are distributed mainly through numerous neighborhood cooperative markets. Suppliers of soft drinks like Pepsi Cola, Coca Cola, Crush, Seven up, etc. provide door-to-door service. Larger foodstuffs, auto spare parts, and soft drink companies also have their own distribution teams which sell and deliver goods to retail customers. Many food importers are generally also wholesalers, distributors, and retailers. A handful of large local companies tend to dominate sales. For example, in Kuwait, cooperative owned stores account for about 80 percent of total retail food sales. There is growing demand among processors/packers for bulk shipments of semi-processed food products for final processing and packaging especially, corn oil, tree nuts, fruit juices, and snack foods. Imported U.S. beef products are mostly purchased by hotels, restaurants, and catering companies. B. Use of Agents/Distributors; Finding a Partner Commercial Law No. 36 of 1964 as amended by Commercial Law No. 68 of 1980 regulates commercial agency agreements. Foreign companies wishing to operate in Kuwait without setting up a Kuwaiti registered legal entity may only do so through a Kuwaiti agent. The above laws regulate: -- Commercial agents who undertake to promote a product/service for a principal, negotiate deals on his behalf, conclude such deals and carry them out. -- Distributors who promote, import, stock and distribute the principal's products in the distributor's own name. -- Service agents or sponsors for foreign companies that want to carry out government contract work as per Article 24 of Commerce Law No. 68/1980. No foreign company is allowed to participate directly in a Kuwaiti tender. The foreign company must bid through a local agent duly appointed through an agency agreement registered with the Ministry of Commerce and Industry. To be eligible for registration, agency agreements must include the following: - The full range of products and services that the agent is representing; - The period of the agency agreement (which should be one year with renewal and escape clauses); and - The agent's fees, usually a percentage of any contracts awarded. The agency agreement should be registered with the Ministry of Commerce and Industry within two months of attestation by the Embassy of Kuwait in Washington, D.C and the U.S. State Department. Agency or sponsorship agreements between the Kuwaiti company and the foreign company must be translated into Arabic by an official government translator and then registered with the Department of Commercial Agencies, Ministry of Commerce and Industry. Registration of an agency should not take more than two weeks from the time the documents are available in Arabic. The agency agreement may include choice of law and choice of forum clauses negotiated by the principal and the agent. The application of foreign laws, however, may not contradict the public policy of Kuwait. The agreement between the two parties should indicate the nature of the agent's work, responsibilities of the parties and the commission to be paid to the agent. There is no statutory minimum notice of termination, although contracts should include a termination clause. An agent is obliged to act for the benefit of its principal and to follow the instructions of its principal; to maintain confidentiality on behalf of the principal; and to keep the principal abreast of market and legal conditions in Kuwait. Duties of the principal should be listed specifically in the contract. If the agency agreement is terminated by the principal, it will probably be necessary to compensate the agent for investments made, and good faith efforts undertaken, to promote, sell and service the principal's products and services. Agency termination, whether disputed or not, can be a costly matter. Because of the highly price competitive nature of the Kuwaiti market, Kuwaiti merchants view a commission agent or a third party as a middleman that can be dispensed with. Thus, Kuwaiti merchants prefer to deal directly with the foreign manufacturer or its sole exporting agent. By the same token, Kuwaiti firms normally refuse to be appointed as a sub-agent for Kuwait that would be supplied by a general agent in a nearby country (such as Bahrain). Foreign consulting firms do not need local agents; however, they should register with the Consultants and Physical Plan Department at the Ministry of Planning to be considered for Kuwait government contracts. C. Franchising Despite the relatively small Kuwaiti market, franchising offers U.S. firms excellent opportunities. The population of 1.6 million have high disposable incomes and a strong inclination to buy American goods. Labor saving services are in demand. At present, most franchises are in fast food, with McDonald's being the latest arrival. Opportunities exist for franchises in other areas such as: automotive service centers, beauty salons, testing centers, dry cleaning/laundry shops and photocopy stores. U.S. fast food franchises are highly sought after by local contacts. Almost all the major U.S. companies are present in the market. A local sponsor is required to establish operations. D. Direct Marketing Marketing in Kuwait is a competitive business. In addition to newspaper advertising, direct marketing through personal contacts, i.e. by word of mouth, is very effective. While direct marketing through the mail is still in the developmental stage, it is expected to become a more useful tool in the near future as the postal service improves. As the British Postal Service recently won a contract to establish organized and systematic mail service in Kuwait, such improvement should happen soon. Foreign firms are not allowed to have direct access to the Kuwaiti market except through a local agent or distributor, which markets on behalf of the foreign principal. Direct marketing is possible only when done by a joint venture that the foreign company sets up with a local firm. E. Joint Ventures/Licensing Foreign investors are offered a number of incentives to participate in joint ventures with Kuwaiti firms, such as limited liability, relief from Kuwait corporate taxes, and management control options. Because all government procurement must be conducted with Kuwaiti citizens or firms, joint ventures between foreign investors and Kuwaiti nationals offer the best vehicle to gain access to this market. Kuwait discourages joint ventures in the oil, insurance, banking and other financial sectors. A joint venture may be formed by two or more persons, who are then jointly and severally liable. It is usual for the objects and terms to be set forth in a joint venture contract. A joint venture is not a legal entity and does not require registration in the commercial register. It is common for a number of foreign contractors involved jointly in a major project to form a construction joint venture or consortium. F. Steps to Establishing an Office As indicated above, foreign firms can have direct access to the Kuwaiti market only through a local agent/partner. Any local company shall have no legal personality and may not commence business until it is registered in the commercial register, and until the official instrument whereby it is formed is published in the Official Gazette. The official instrument must include the company's memorandum and articles together with a declaration by the founders, which should include a statement that they have taken up and paid for the subscribed shares and that the paid amount has been deposited in the company's account at a local bank. After the business license is issued, it will take about six months to incorporate a company. The cost of incorporation is about $10,000. Renting an office, furnishing it and selecting staff follow. The minimum amount of capital required to establish a company is $25,000. G. Selling Factors/Techniques Selling factors in Kuwait include reasonable price, good quality, attractive packaging, and effective after-sale service. Offering customers installment purchase plans and discounts for large volume purchases are common practices. Selling techniques vary and include the following: offering a discount percentage; offering big sale discounts twice a year; offering free service for equipment purchased during a limited period; organizing promotional sales and offering reduced prices or give-aways; and offering trade-ins. When selling food products, it is important to stress quality since U.S. foods tend to be higher priced than products from other origins. Gulf consumers recognize the high quality of U.S. products and are willing to pay a premium for such products. H. Advertising and Trade Promotion: Listing of major newspapers and business journals Newspaper advertising in Kuwait is the most effective tool for communication with the public. The 1994 advertising expenditure in Kuwait reached approximately $80 million with 66% of the media coverage in newspapers. List of newspapers in Kuwait: Arabic Newspapers - Anba P.O.Box 23915, Safat, Kuwait 13100. Tel. (965) 483-4772- Qabas P.O.Box 21800, Safat, Kuwait 13078. Tel. (965) 481-2818 - Rai Aam P.O.Box 695, Safat, Kuwait 13007. Tel.: (965) 481-7651 - Seyasseh P.O.Box 2270, Safat, Kuwait 13023. Tel.: (965) 481-6326 - Watan P.O.Box 1142, Safat, Kuwait 13012. Tel.: (965) 484-0451 English Newspapers - Arab Times P.O.Box 2270, Safat, Kuwait 13023. Tel.: (965) 481-6326 - Kuwait Times P.O.Box 1301, Safat, Kuwait 13014, Tel.: (965) 240-3727 There are a number of advertising agencies in Kuwait that serve U.S. and local companies' needs. Some of the agencies mentioned below work independently, while others have affiliations with U.S. or European firms. Some of the larger agencies are: - Camp, Saadeh and Skaff - Fortune Advertising - Horizone Advertising - Idea Advertising - Ideas Unlimited - Impact and Echo - Intermarkets - MASS Consultants and Services - Memac - Oasis Advertising - Pan Arab Advertising Co. - Publiographics - Radius Leo Burnett - Al Siham Promoseven - Warba Graphic I. Pricing Product The selling price of a product to an end user includes the following elements: the invoice price, the costs of freight and insurance, local tariffs and customs duties, charges for local transportation to the warehouse or the importer's premises, administrative overhead, provision for waste and damage and a certain percentage for profits. Common practice in Kuwait in pricing a product is to add a minimum of 100 percent to the supplier's invoice price. J. Sales service/customer support U.S. firms intending to operate in Kuwait should ensure that their sales contracts contain a follow-up maintenance clause. This clause helps to ensure that the quality and the service of the product remain up to American standards. Consumer warranties are normally given for goods such as electrical appliances, vehicles, watches, etc. Warranties range in length from 90 days to 4 or 5 years depending on the product. U.S. firms should establish a factory service center for their products. Independent service centers also repair and maintain most consumer products and goods. After-sale service and customer support are very common in the automotive and electrical home appliance sectors. Automobile dealers offer a one year or 15,000 mile guarantee after sale. They may also offer discounted service fees on occasion. Home appliance dealers offer guarantees or warranties against appliance faults or failures. They either fix the fault at their expense or replace the appliance with a new one within a certain time after sale. Agents or dealers of home appliances can send their repair technicians to make house calls. K. Selling to the Government Tender Law No. 37 of 1964 regulates government tenders. The Central Tenders Committee (CTC) acts on behalf of nearly all government departments, but is independent of them as it is under the jurisdiction of the Council of Ministers. However, the Ministry of Housing has its own tenders committee, and the Ministries of Defence and Interior (including the security forces) can each also issue their own tenders independently of the CTC. The CTC handles tenders seeking more than $17,500 (KD 5,000) worth of goods or services for government ministries and companies in the oil sector. Tenders are usually awarded on the basis of the lowest price once technical compliance of the bids with the tender's specifications has been established. L. Protecting Your Product from IPR Infringement Kuwait is not currently a member of any international intellectual property rights convention, but does have laws providing some patent and trademark protection. These laws are not actively enforced, except for spot customs checks for imitation or counterfeit goods and/or goods bearing infringing trademarks. Trademarks may be registered in Kuwait for ten years and renewed indefinitely for another ten-year period. If a trademark has not been used for a five-year period, an interested party can apply to the courts to have it cancelled. Registration gives the owner the exclusive right to use the mark on the goods for which it is registered, and third parties can therefore be prevented from using the mark on competing products. Registration procedures take about three weeks against a $60 fee. Trademark registration is linked to the Kuwaiti agent; when a new agent is selected, the trademark continues in force under the old agent's name until the new agent registers the trademark. Patents protect against unauthorized use for an initial period of ten years; they may be registered for an additional five years. Patent registration costs only $34 (KD 10). At present, there is no copyright law under which original literary or artistic works, including books, software, videocassettes, audiocassettes, movies, etc., are protected. Pending enactment of a proposed copyright law, all published material, including audio tapes and videotapes, is treated as public property. M. Need for a Local Attorney Disputes arising out of business transactions fall in two broad categories. The first category concerns collection or payment issues, as in the case of an American firm sending goods/commodities to a local firm that then refuses to pay the full amount claiming the goods do not comply with the terms and conditions of the letter of credit (L/C). Another example is when an American firm carries out a project in Kuwait and then has problems in getting paid. The second category consists of disputes arising from the termination of agency agreements. To help resolve a dispute, US&FCS Kuwait may intervene, and advocate strongly, on behalf of the American firm. If the local firm, however, persists in its refusal to settle the dispute, then the American firm may have to resort to the local courts to obtain satisfaction. To gain access to the local judicial system, the U.S. firm will have to hire a local attorney. A list of law firms known to US&FCS Kuwait is set forth below. Abdulla S. Al-Rkayan & Associates P.O. Box 5277, Safat 13053 Kuwait TEL: (965) 242-1281 FAX: (965) 242-0582 CONTACT: Ms. H. B. Coffman TITLE: Attorney Abdul Razzak A. Mohammed Law Firm P.O. Box 22880 Safat 13089 Kuwait TEL: (965) 245-5717 FAX: (965) 246-9357 CONTACT: Mrs. Yvonne R. Carrison TITLE: Managing Director International Legal Department Ahmad G.H. Al Otaibi & Partners P.O. Box 5750 Safat 13058 Kuwait TEL: (965) 242-5163 FAX: (965) 242-2359 CONTACT: Mr. Ernest Alexander TITLE: Attorney Anwar Al-Bisher Law Firm P.O. Box 26292, Safat 13123 Kuwait TEL: (965) 243-1122 FAX: (965) 240-2501 CONTACT: Mr. Anwar N. Al-Bisher TITLE: Attorney at Law Al-Ayoub & Partners P.O. Box 1714, Safat 13018 Kuwait TEL: (965) 246-4321 FAX: (965) 246-6591 CONTACT: Mr. Abdulla K. Al-Ayoub TITLE: Attorney Dixon & Dixon, Najeeb Al-Waqyan Law Firm P.O. Box 22833, Safat 13089 Kuwait TEL: (965) 241-5617 FAX: (965) 240-7030 CONTACT: Mr. Robert Walsh TITLE: Attorney at Law Al-Essa, Al-Bader & Partners P.O. Box 4207, Safat 13043 Kuwait TEL: (965) 243-8020 FAX: (965) 240-9616 CONTACT: Mr. Bader Saud Al-Bader TITLE: Attorney Al Ghazali Partners and Graham & James P.O. Box 4970, Safat 13050 Kuwait TEL: (965) 243-9690 FAX: (965) 242-2895 CONTACT: Mr. Mamoun Hariri TITLE: Attorney Jones, Day, Reavis & Pogue c/o Salman Duaij Al-Sabah Law Office P.O. Box 5117, Safat 13052 Kuwait TEL: (965) 240-0261 FAX: (965) 240-0260 CONTACT: Mr. Martin Camp TITLE: Attorney Al Sarraf & Al-Ruwayeh & Stephenson Harwoud Law Firm P.O. Box 1448 Safat 13015 Kuwait TEL: (965) 240-0061 FAX: (965) 240-0064 CONTACT: Mr. Issam "Sam" Essa Habbas TITLE: Attorney Shea and Gould Law Firm c/o Al-Ayoub & Partners P.O. Box 1714, Safat 13018 Kuwait TEL: (965) 246-6592 FAX: (965) 246-6591 CONTACT: Mr. R. Craig Lusiani TITLE: Attorney Yousef Essa Al-Matar & Edmond Chartouni P.O. Box 23198, Safat 13092 Kuwait TEL: (965) 241-2283 FAX: (965) 246-6591 CONTACT: Mr. Yousef Essa Al-Matar TITLE: Attorney