SECTION V. MARKETING U.S.PRODUCTS AND SERVICES A. Distribution and Sales Channels There are five easily defined marketing areas throughout Austria: Vienna and its vicinity; the provinces of Styria, Lower Austria and Upper Austria; Carinthia, Tyrol and Salzburg; Vorarlberg in the extreme west and Burgenland in the extreme east. Several distribution channels are open for U.S. goods to enter the Austrian marketplace. These include franchising, joint ventures and licensing, wholesaling and retailing. Austria also serves as a unique western gateway to the markets of Central and Eastern Europe by virtue of its advantageous location, political neutrality and its historical, cultural and linguistic ties to the region. Numerous organizations in Austria offer expertise on trading and investing in these countries. B. Use of Agents/ Distributors; Finding a Partner A foreign individual, partnership or corporation may do business in Austria through an agent. If the agent is a citizen of the United States or another foreign country, the relationship between agent and principal is most likely governed by agency law in that country; if the agent is a citizen of Austria, this relationship is subject to Austrian law. Under Austrian law, a distinction exists between the agent employed by the principal, known as the Handlungsvollmaechtigter, and the agent acting independently, known as the Handelsagent, who transacts business in the name of and for the account of the principal. A Handlungsvollmaechtigter has the authority to carry out all transactions that are normally required in the principal's business. However, he is not authorized to sell or encumber real estate, to sign bills of exchange, to lend money or to engage in legal proceedings unless specifically authorized by the principal to do so. The Handelsagent may have the authority to enter into transactions for the principal which do not require approval (Abschlussagent) or which do require approval (Vermittlungsagent). Both agents are entitled to commissions for transactions entered into during the period of the agency. Commissions are due when the principals have carried out their part of the transaction. If a definite commission fee has not been set, a reasonable fee is then deemed to be agreed upon. Agents appointed for a definite area or for a definite clientele are also entitled to commissions for transactions made without their efforts. For cogent reasons, agencies can be terminated by either the principal or agent without notice. C. Franchising Franchising in Austria is currently more profitable than many other sectors. The market has grown from merely 30 franchising systems in Austria a few years ago to 170 systems at the end of 1993, with approximately 2700 outlets. Approximately 50 percent of all the franchising systems are of foreign origin. EU membership and the opening of Eastern European markets make Austria especially attractive to western franchising companies. Major industries in franchising include cosmetics, apparel, restaurants and fast food, tanning studios, health clubs, language schools, financial consultants, training, cleaning services, auto repair shops, hair salons, shoe repair, hobby shops, home improvement centers, soft drink filling companies, sewing machine companies, photo studios and shops, auto sales, hotels, jewelry stores, food stores and toy stores. A few of the U.S. franchisors operating in Austria include Avis and Hertz, McDonald's, Dairy Queen, Kodak and Champion. Other companies are currently taking steps to enter the market. D. Direct Marketing Some U.S. companies are established in the market with home selling, for example Tupperware and Amway. Telephone and direct mail solicitation are discouraged by Austrian law. A handful of German companies are successfully engaged in catalog sales. E. Joint Ventures/Licensing Joint ventures may be formed as companies, partnerships or other forms of business in Austria. Another common form of joint venture is the civil law association. Such an association is not a legal entity, and participants are jointly liable for its debts. Licensing has become increasingly common in Austria, partly as a means for foreign companies to transfer technology and to stay competitive in the face of steadily rising transportation costs. Royalty and license fee payments may be freely transferred out of Austria. Several important licensing agreements have transferred Austrian technology to the U.S.A. F. Steps to Establishing an Office Many choices are available to the potential investor when setting up a business operation in Austria. These include publicly held corporations, limited liability companies, limited or unlimited commercial partnerships, silent partnerships, branches of foreign enterprises, cooperative societies and sole proprietorships. Most foreign-owned businesses choose to operate in the form of a limited liability company (Gesellschaft mit beschrankter Haftung--Ges.m.b.H.), as it is simpler to form than other types of business operations. One hundred percent foreign ownership is allowed, and the repatriation of capital and earnings will not encounter difficulties. Upon the formation of a limited liability company (Ges.m.b.H.), two shareholders are required (who can be Austrian or foreign citizens). After formation, share capital can be transferred to one owner. Minimum initial share capital is AS 500,000, with at least one-half paid up in cash. Local financing is available to foreign investors. Day-to-day management is the responsibility of the registered managers. A supervisory board is generally required if more than 300 people are employed or share capital exceeds AS 1 million and there are more than 50 shareholders. The supervisory board must have at least three members; one-third of the supervisory board must be the employees' representatives. Certificates may not be issued to transfer shares, and the transfer of ownership must be done by a notarized deed. A Ges.m.b.H. is subject to corporation profits tax as well as trade tax on income. G. Selling Factors/ Techniques Shopping hours in Austria are regulated by law. Retail hours are restricted. Sunday and round-the-clock shopping are unheard of. Price and quality are more important in Austria than sophisticated marketing or high pressure selling. H. Advertising and Trade Promotion Advertising in Austria is behind most of western Europe in style, imagination, targeting and market penetration. U.S. firms have an edge in selling their products and services as U.S. consumer goods are seen to be of good quality. Industrial technology is sought by aggressive, innovative companies interested in upgrading their operations. There is a growing awareness of advertising which presents opportunities for additional penetration by U.S. advertising firms. Advertising Media: Newspapers and magazines rank first among the advertising media, taking in over 50 percent of total advertising outlays. Austria's principal newspapers include the conservative and comprehensive Die Presse with a circulation of about 80,000, the Neue Kronen Zeitung, a tabloid daily having the highest circulation density in the Western World, the Kurier, a moderate paper with a daily circulation of about 450,000, and Der Standard, an economics oriented daily which is a competitor of Die Presse. Radio and television are owned by the Austrian state. The Austrian Broadcasting Corporation (ORF) operates two television channels and three radio stations with a combined daily audience of 2.5 million. Treatment of international developments on television and radio is usually prompt, comprehensive and straightforward. Blue Danube Radio provides English language programming. Poster advertising has remained a constant in Austria for many years. Posters are displayed in post offices, phone booths, on public transportation and other motor vehicles, on outdoor pillars along public routes and other heavily frequented places. Sites may be hard to find since many advertisers retain them year after year. Store displays and commercial samples play a significant role in retail promotion. Displays can be found in shop windows, train stations, streetcar terminals and airports. Direct mail and commercial fliers are also widely used. Truth in Advertising: Following the general trend toward better representation of consumer interests, a Consumer Forum has been established in the Austrian Trade Ministry. The forum comprises representatives of political parties, business organizations, labor unions and business associations. A ministry subcommittee concerned with commercial advertising examines posters, TV radio and newspaper ads and entire sales campaigns with regard to their truthfulness, information value and ethnic sensitivity. It can proceed against advertisers who make false claims. Anyone transgressing established commercial usage laws can be sued. I. Pricing Products Austria is a high-priced country with labor costs and subsidies affecting pricing, but entry into the EU should reduce price gaps. Those products which remain under price controls will be liberalized. J. Sales Service/ Customer Support An exporter to Austria will generally be expected or required to provide post-sales service. Technical brand names have extensive customer service and support networks in Austria. K. Selling to the Government The Austrian Government adheres to GATT Public Procurement Procedures, but some major contracts are negotiated by invitation. Provincial and municipal authorities are not bound by GATT requirements, and the Austrian military sometimes makes its own contracting arrangements. There is no Austrian equivalent of the "Buy America" Act. L. Protecting Your Product from IPR Infringement Austria is a member of all international intellectual property rights agreements. M. Need for a Local Attorney There are Austrian law firms able to conduct business in English, some of whom are familiar with U.S. law or entitled to practice law in the United States.