V. MARKETING U.S. PRODUCTS AND SERVICES A. Distribution and Sales Channels Distribution and sales channels are taking on Western appearances though Bulgaria has little depth in the full utilization of these methods. Distribution of professional and consumer products is shifting increasingly to private firms; however several major state firms such as SOMAT Trucking Co. are still in state hands. Sales to major enterprises is also conducted through private channels with such firms as Allen-Bradley, Honeywell, Ingersol- Rand, and Westinghouse all using private agents/representatives. Regional coverage is most likely from central offices in Sofia, being the hub of commercial and economic activity. Secondary hub sites might be Plovdiv (central Bulgaria - agricultural center) or Varna, the major port on the East Coast of Bulgaria. The bulk of Bulgaria can be reached by car/truck within a 6-7 hour drive from any of the major hubs noted above. Standard distribution techniques are employed with warehouses, showrooms, and/or rep offices all being part of the distribution landscape of Bulgaria. In the agricultural sector, distribution of basic commodities is still primarily in the hands of state firms. However many of these firms are in the process of privatization and no longer have a legal monopoly of sales in the market. A few grain traders exist while the tobacco monopoly has been broken up. Animal genetic opportunities are still primarily related to state enterprises which maintain the genetic materials stock. There is only one "supermarket" chain with stores in the major cities. A myriad of independent small shops offer a wide variety of food and non-food products, many of which are imported from European sources. These small shops are supplied by a large number of small/medium wholesalers and/or import firms or agents. B. Use of Agents/Distributors; Finding a Partner American firms generally find high interest among the well- educated applicants for representative positions. However, depending on the degree of managerial skills required, the greater the executive responsibilities, the more the need for training/contact with Western company officials. Some rep offices begin with an American ex-patriot who then grooms the local successor. Among some of the reasons for direct training is to overcome a trait among many well-educated Bulgarians: "great on theory and research; weak on practice and action." Many American firms have been successful at developing the proper skills especially within the younger category of managers. Amongst those American firms who wish to promote a U.S. product line, some of the options are to enroll in the U.S. Department of Commerce's Agent/Distributor Program (FCS provides a screened list of prospective candidates); participate in a U.S. & F.C.S. sponsored trade promotion program (either a trade show, trade mission or other officially sponsored mission); or, visit Bulgaria and participate in the FCS "Gold Key" program of tailored appointments. Finding an interested partner is generally not difficult; more at issue will be terms and conditions such as minimum purchases and promotional support. Generally speaking, the smaller the operation and less experienced the Bulgarian entrepreneur, the less resources the candidate will have to commit to the relationship and the greater the assistance will be sought from the U.S. side. As another option, American firms can establish ties with marketing institutes which are frequently spin-offs from major state enterprises. This is a hit-or-miss proposition in that one gains a team of specialists, but commitment and initiative may be lacking given the bureaucratic nature of those marketing organizations. C. Franchising Franchising has excellent opportunities in Bulgaria. At present, only a few franchises have been established. As a result, the gamut of possibilities is open from dry cleaners to automotive parts. However, franchisors should be aware that Bulgarians, including the banking community, know little of this method of business. Nonetheless, several factors are moving in favor of franchises: With the first major stores opened in 1994, franchising is becoming better known. Second, several U.S.- supported business assistance organizations have experience in advising and matchmaking those interested in franchises. Third, Bulgarians are travelling more and have seen the business potential of such operations. And finally, despite the difficulties of financing in Bulgaria, more self-financed and well-financed Bulgarians are appearing on the market looking for such opportunities. D. Direct Marketing Direct Marketing is still new to Bulgaria. Some limitations to its broader application are poor telephone service and unreliable mail deliveries. Direct outlet type stores could be developed. Another possibility exists with the new private television stations which can be used for home shopping type programming. Direct sales on a personal referral basis may also have good possibilities when based on efficient distribution and quality products. E. Joint Ventures/Licensing Joint ventures (employing the definition whereby two parties both contribute to create a third entity) have largely not been successful for a number of reasons. First, normally the joint venture potential partner has been a state entity. State entities involve several layers of authority: the Ministries; the partner's Board of Directors, and the management (may also involve trade union officials and municipal authorities). Decision-making becomes particularly difficult under these circumstances especially with a bureaucracy more interested in establishing its influence than in promoting the success of the joint-venture. Moreover, at all levels, the players frequently change, making any relationship with the U.S. partner tenuous. Added to this is the uncertainty of what will happen should the state enterprise be privatized. With such fundamental issues facing a j-v as the determination of assets, establishing an efficient work force, and maintaining quality control, joint- ventures need solid agreement, a consensus which is particularly hard to achieve the above described circumstances. With exceptions of course, firms should consider greenfield operations or perhaps a privatization of a target partner before becoming involved in a joint-venture. Licensing is an accepted method of business in Bulgaria but not widely know. As with franchising, the economies of the transitional countries are just now becoming more familiar with the variations of Western business and as a result, partners, banks, and legal authorities will need to be educated on the methods and facets of licensing. Perhaps the most prominent example of licensing in Bulgaria is in the area of hotels and tourism, where Western licenses have been provided trade names and management packages. F. Steps to Establishing an Office Steps to setting up an office in Bulgaria are fundamentally no different than in other parts of the world, the distinction being in the availability of Western-class office space and the time and energy needed to set-up. First from the legal perspective, Bulgaria requires no special permission to establish a business, except in certain sectors such as defense, banking, and insurance. Investors are required to register their investment with the Ministry of Finance within 30 days of its establishment. To establish a Bulgarian entity of an American firm, application must be made to the court that has jurisdiction over the area. A second option is to establish a promotional office, but such an office can have no contractual powers. In this instance, registration with the Bulgarian Chamber of Commerce is sufficient. Turning to the practicalities of opening an office, the capital and commercial center of Bulgaria, Sofia, has at most only a handful of Western-style office centers. As a result, many firms have resorted to settling in buildings which are partly residential, partly commercial. While central to the city, such locations still lack many basic office amenities and ease of internal access, not to mention their scruffy outward appearance. Rates unfortunately have commensurately risen with increasing demand; some rates for prime downtown frontage equal prices in major European capitals. Several real estate consultants have opened for business and are available to provide office-hunting services, but for the foreseeable future, good office space will continue to be a problem. As one alternative, the U.S. & F.C.S. together with several Sofia-based U.S. firms have organized an "American Business Incubator" which offers low cost rent, complimentary rates for data communication and other basic office services at the World Trade Center, probably the best office complex in Bulgaria. Sprint, U.S. West, and ISCA Insurance Co. have thus far taken advantage of the facilities. U.S. Business representatives may bring a Western vehicle or establish a company vehicle pool with Western vehicles, however, the poor availability of parts and service, the irregular availability of unleaded gasoline, or the targeting of Western vehicles for theft are all considerations to taken into account. G. Selling Factors/Techniques As described earlier, the Bulgarian market can be complex and difficult to gauge given the past market distortions. Fluctuating market demand, poor statistics on disposable income, limited Government spending, and poor consumer education are all factors that challenge the American exporter. The multiplicity of target audiences adds further complexity in that purchasing for industry sectors or major portions of the economy was centralized with foreign trading organizations. Now each individual firm or entity has the right to conduct such activity. Most such organizations are however not trained in purchasing and as such will require some time to cultivate and educate. On the consumer level, mass media is becoming a stronger influence along with the advent of Western-style advertising. The bottom line for sales techniques is that marketing here will be fundamentally the same as in the home territory or neighboring markets, with the successful formula based on quality, price, and service. H. Advertising and Trade Promotion American firms can benefit from a growing number of internationally recognized advertising and public relations firms in Sofia. The spectrum of mass media promotion, from print to broadcast, is available. Specialized magazines and journals are increasingly on the market, such as "ComputerWorld". TV cable systems are now coming on the scene and may offer firms specialized regional coverage. Trade promotion of course varies with the nature of the commodity, but generally speaking from the experience of the U.S. & F.C.S., U.S. firms have had success with such programs as major trade shows (Plovdiv - U.S. Pavilion); single theme shows (AMTECH - special fair for U.S. high technology); and single company presentations, such as conducted recently by: Hewlett-Packard, Compaq, Honeywell; as well as special openings/receptions: Merck, Sprint, IBM, Sheraton, ADM, Ideal-Standard; and charity events: Abbott Laboratories etc. Returning to an earlier comment on the research/technical interests of Bulgarians, technical sales seminars are usually an excellent vehicle to attract a wide audience of decision makers. Most of the major hotels as well as the Plovdiv fairgrounds have full facilities to offer American firms. LISTING OF MAJOR NEWSPAPERS AND BUSINESS JOURNALS 24 Hours;168 Hours; BBN-168 Hours (English Edition) Mr. Alexander Tzvetkov Advertisement Department Director 47, Tzarigradsko Shosse Blvd. 1504 Sofia Tel: (359 2) 46-52-74 Fax: (359 2) 433-9339 Standard News Mrs. Emilia Bakurdjieva Advertisement Department Director 53, Antim I St. 1303 Sofia Tel: (359 2) 316-007 Fax: (359 2) 465-009 Kontinent Advertisement Department 47A, Tzarigradsko Shosse Sofia 1000 Tel: (359 2) 714-1661 Fax: (359 2) 441-904 Trud (Labor) Mr. Ljubomir Drianovski Advertisement Department Director 52, Donkikov Blvd. Sofia 1000 Tel/Fax: 878-214 Duma (Bulgarian Socialist Party's Publication) Advertisement Department 47, Tzarigradsko Shosse Sofia 1000 Tel/Fax: (359 2) 443-824 Democracia Advertisement Department 134, Rakovski Str. Sofia 1000 Bulgarian Economic Review (In English) Advertisement Department 47, Tzarigradsko Shosse St., 4th Fl. Sofia 1504 Tel/Fax: (359 2) 465-490 Cash 1, Angel Kunchev St. Sofia 1000 Tel: (359 2) 885-480 Fax: (359 2) 894-945 Bulgarian Business 73, Cherkovna St. Tel: (359 2) 467-023 Fax: (359 2) 467-093 I. Pricing Product The degree of the competition, sophistication of the target client, and price sensitivity of the market are all key factors in Bulgaria. As emphasized earlier, the market is both complex and in major transition. Sales policies therefore should be flexible and based on a long-term view; such a strategy is essential to riding out the inevitable swings in demand that are a consequence of an economy under transformation. J. Sales Service/Customer Support Service is recognized as an important factor in customer satisfaction, however in practice Bulgarian service still leaves much to be desired. After 45 years of complaining to no avail, customer expectations are very low. As a result, any level of service is considered a bonus. As a consequence, the Bulgarian customer/client today is not nearly as demanding as his Western counterpart. Without such consumer pressure, firms will not be forced to translate their well-meaning slogans into actions. Sales are still the top priority. Yet the new culture of Western firms which do offer both the word and deed of service is having an impact -- firms such as the U.S. computer, pharmaceutical firms, and telecommunications reps are providing good examples. Another level of customer relationships exists with the purchasing agents with governmental authorities or major enterprises. Technical training, guarantees of parts and supply, and some orientation visits are aspects of good commercial programs. K. Selling to the Government Opportunities for direct sales to either the national or local governments are very limited. The current austerity budget policies have eliminated all but the most essential purchases. The national government has little or no money for infrastructure projects, even critical water or energy projects. Most municipal governments cannot support their hospitals or even buy replacement bulbs for street lighting. As dismal as this circumstance is, two major alternatives exist: First, creative proposals which incorporate a revenue generating element such as pay telephones, or parking meters etc. have high potential. Other B.O.T. (build-operate-transfer) proposals are also well- received. The Bulgarian partner will still be seeking seller financing in most of these instances. A second possibility is to participate in internationally funded programs on behalf of the Government. As one example, the World Bank initiated a public health assessment of Bulgaria. L. Protecting Your Product from IPR Infringement In 1993, Bulgaria enacted a new Patent and Copyright Law which was modelled after Western legislation. Bulgaria's Trademark and Industrial Design law is in need of updating, but is considered adequate. Patents are protected for 20 years after filing and trademarks protected for 10 years. The major concern over IPR is enforcement. Lack of manpower, proper training and wrist- slapping penalties have handicapped the administration and maintenance of IPR laws. Moreover, control over imported as well home produced products is a key enforcement issue. The transport of many illicit products from the Middle East cross Bulgaria. For 1992, the International Intellectual Property Alliance estimated total trade losses for the United States of 47 million dollars due to piracy. Areas of greatest concern are audio and video recordings and trademarks for softdrinks or clothing. M. Need for a Local Attorney A local attorney is strongly advised for the simple reason that Bulgaria will enforce the letter of the law. To be in compliance, either a lawyer or a major accounting firm (all major accounting firms are present in Bulgaria) are available for such services. The U.S. & F.C.S. can also provide a list of recommended lawyers. One final note, good lawyers are usually politically and bureaucratically well-connected, and in a city such as Sofia with close-knit ties such connections can be invaluable.