V. MARKETING U.S. PRODUCTS AND SERVICES DISTRIBUTION AND SALES CHANNELS Industrial Sectors: The Commercial Code of Costa Rica in its Chapter related to representatives of foreign companies (agnets, Distributors, etc.) textually states the following: all foreign companies to which this chapter refers, may freely do business in Costa Rica through distributors, concessionaires, by proxy or agents and through representatives of foreign companies, excepting agencies and branches of foreign companies, whose products are manufactured in our country (Costa Rica) and, as such, may exercise directly and freely the distribution and representation of their lines of products, as well as those of Central American origin, having been While the representative may be either a Costa Rican citizen or a resident alien, he/she must have resided in Costa Rica for at least ten continuous years and must have done business in Costa Rica for three years. U.S. firms would be well advised to consider establishing a resident sales office. Although a U.S. firm may export directly to Costa Rican companies, we strongly recommend the use of a qualified representative for a successful participation in the Costa Rica Government procurement system. Because Costa Rica is a small country most U.S. companies will find that identifying one distributor or agent is sufficient to cover all of Costa Rica. Agricultural Sectors: Imports of consumer foods are made totally by private firms. There are several wholesalers dedicated to the food import business with distribution of products to supermarkets and small stores. However, imports of some consumer-oriented foods are made by supermarket chains directly. Distribution channels do not vary significantly among the different products. However, some products such as fresh fruits require more attention, due to the fact that they are more sensitive to environmental conditions (and require refrigerated warehouses). USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER Industrial Sector: The U.S. Department of Commerce offers to U.S. companies the Agent/Distributor Service (ADS), a customized search to locate appropriate Costa Rican representatives for U.S. products or services. Before finalizing a contract, all U.S. businesspersons are strongly advised to review the Costa Rican company's profile by ordering a World Trader Data Report (WTDR) from a local District Office of the U.S. Department of Commerce. This confidential report is similar to a Dun and Bradstreet report and can provide the U.S. businessperson with an assessment and a financial profile on the specific Costa Rican company considered as a trading partner. According to the Costa Rican Commercial Code when a company breaks an agreement with an agent/distributor that company must compensate the agent or distributyor according to the sales or commissions earned by the Costa Rican company. We also recommend that both parties sign an agreement to include a precise description of the conditions which the agent must respond to in order to avoid any possible unfair claim by the U.S. company. Note: a one time sale is not proof of permanent representation relationship. Agricultural Sector: An exclusive distributor relationship can be contracted by both parties if desired. A list of the most important Costa Rican importers of consumer oriented foods can be found in these USDA/FAS reports: CS4008/CS3016/CS4006. The U.S. has been one of the most important commercial agricultural partners of Costa Rica due to its geographical proximity, high quality products, and wide selection of competitively-priced products. These factors are expected to continue providing an advantage to the U.S., but the Mexico-Costa Rica FTA which enters into effect in January 1, 1995, will result in more competition from Mexico for some products (canned fruits and vegetables, snacks, wheat- based products). Grain imports are made by a limited number of players. All wheat is currently imported by the GOCR National Production Council (CNP); in 1995 the private sector could be allowed to import if permitted by the GOCR. Two groups of private sector importers make almost all imports of yellow corn and all imports of soybeans (both are imported in the same ship, roughly on a monthly basis). CNP makes small corn imports. Rice is imported either by the CNP or Rice Office (the latter representing millers primarily). CNP normally imports milled rice and the Rice Office imports rough rice. In November 1994, no quantitative permits will be required for any imports (grains, meats, dairy products) per Costa Rica's GATT accession agreement. FRANCHISING Costa Rica offers a very attractive market for franchisors. Products and services that have proven successful thus far are in the areas of: fast food (almost all major food franchises presently operate in Costa Rica; Pizza Hut, CR is the largest franchise in Central America and the largest Pizza Hut franchise in all of Latin America), rent-a-cars, and courier services. Two major conferences on franchising have taken place in Costa Rica in 1993 and in 1994 to promote the establishment of more business in this category. Best prospects for franchising operations in this country include: printing services, hotels and resorts (and related services), clothing, gas stations, dry cleaning services, car washing, video/movies rentals, photographic services, auto parts, and stationary products to name a few. Large shopping malls, a relatively new phenomena in Costa Rica are experiencing a recent boom in Costa Rica. These new commercial centers provide an excellent location for franchises. DIRECT MARKETING Although direct marketing is a way to communicate and to be acquainted with a client in a very personalized and direct manner, this method is new in the country. Because of this and because Costa Rica does not use a mailing system with defined street names and numbers it is difficult to obtain client lists and more important, reliable addresses. In Costa Rica there is no law that regulates direct marketing. In the absence of a specific law, direct marketing as a method of selling is presently regulated by the general law that applies to publicity and publicity agencies. JOINT VENTURES/LICENSING Licensing is not widespread in Costa Rica. Generally, a foreign company will export to Costa Rica or set up a manufacturing plant in the country. Foreigners may legally own Costa Rican companies, or equity therein, and may invest in all areas not expressly reserved for state or parastatal entities. Foreign corporations may be organized legally in several ways: as branches (except for banks), joint ventures, wholly-owned subsidiaries or locally incorporated companies. Any bona fide investment is encouraged in Costa Rica. STEPS TO ESTABLISHING AN OFFICE The most important provisions affecting business law are contained in the Costa Rican Mercantile and Civil Codes. The first step in establishing a business in Costa Rica is to obtain the assistance of a Notary Public, who is the only authorized professional by law to register a company. Companies must be recorded in the Costa Rican Mercantile Registry in order to be a legal, authorized entity. At registration all information related to the new company and the persons who will administer the company must be submitted to include: the full names, nationality, occupation, civil status, domicile, form of partnership that is being organized, purpose of the company, amount of capital and the manner in which this capital is to be paid, and time limits in which is to be paid, domicile of the company, and any other agreements made by the founders. An extract of the registration is then published in "La Gaceta" (Official Legal Journal). Payment on initial equity (usually nominal), must be expressed in local currency and deposited with a local bank of the Costa Rican National System, until registration is completed. Initial equity payment is generally USD 100 to USD 1,000. Depending on its business field the company may have to acquire a municipal patent or permit. A foreign enterprise that has, or intends to open branches in Costa Rica must appoint and retain a legal representative with full ("generalisimo") powers concerning the business of the branch. Similar to the United States law, foreigners must become Costa Rican residents in order to work in this country. Parties interested in establishing a business in Costa Rica are also recomended to use the Integrated System for Investment Services (SISI), which is a data base system that works for nationals and foreign investors as well as businesspersons in general, to help them establish their company and assist them in locating different services and products offered by public and private institutes. SISI is administered by the Ministry of Commerce Vice-Minister's Office and receives assistance from the Corporation of Free Trade Zones, the Costa Rican Center for Promotion of Exports (CENPRO), as well as Radiografica Costarricense, S.A. (RACSA). SELLING FACTORS/TECHNIQUES Costa Rican buyers may select products on the basis of quality, price, specifications and convenience. U.S. exporters to Costa Rica must be willing to make smaller sales than they are accustomed to in larger markets since the entire Costa Rican population is only 3.1 million people. Sales catalogs and brochures should be translated into Spanish. Product must be price competitive. Terms of payment in Costa Rica should be transacted through a irrevocable letter of credit for purchases above four thousand dollars. Payment of small purchases is usually direct. Within the commercial sector, much of the business conducted in Costa Rica is based on personal relationships. Costa Rican business executives frequently place great importance on personal contacts with foreign suppliers. New U.S. suppliers should initially be prepared to travel to Costa Rica at least quarterly and regularly follow-up with contacts by fax and telephone. A patient sales approach is preferred to a hard sell approach. Again, foreign firms can maximize their export sales possibilities by contracting a Costa Rican representative, agent or distributor. ADVERTISING AND TRADE PROMOTION (LISTING OF MAJOR NEWSPAPERS AND BUSINESS JOURNALS) (Note when telephoning/faxing any of the following numbers: 506 is the international country code for Costa Rica. To dial any of the following numbers you must first dial 011. First example: 011-506-247-4747.) ADVERTISING: Costa Rican newspapers are the best way to advertise products or services. Publicity agencies make good use of major newspapers as well as magazines produced by such entities as the Chamber of Commerce of Costa Rica, for advertising purposes. Major Costa Rican newspapers include: La Nacion Apartado 10138 1000 San Jose, Costa Rica Tel: (506)247-4747 Fax: (506)240-6485 La Republica Apartado 20130 1000 San Jose, Costa Rica Tel: (506)223-0266 Fax: (506)255-3950 La Prensa Libre Apartado 10121 1000 San Jose, Costa Rica Tel: (506)223-6666 Fax: (506)223-4671 The Tico Times (nation's most popular English-language newspaper) Apartado 4632 1000 San Jose, Costa Rica Tel: (506)222-0040 Fax: (506)233-6378 The following publications are a partial list of specialized, industry specific publications: Actualidad Economica (Chamber of Commerce) Apartado 10096 1000 San Jose, Costa Rica Tel: (506)253-2941 Fax: (506)224-1528 Alimentaria (Chamber of Food Industry) Apartado 7097 1000 San Jose, Costa Rica Tel: (506)234-0966 Fax: (506)225-0901 Oportunidades Comerciales (Chamber of Foreign Firms Representatives) Apartado 3738 1000 San Jose, Costa Rica Tel: (506)224-6944 Fax: (506)234-2557 La Industria (Chamber of Industry) Apartado 10003 1000 San Jose, Costa Rica Tel: (506)223-2411 Fax: (506)222-1007 Panorama Internacional Apartado 1163 1000 San Jose, Costa Rica Tel: (506)234-7444 Fax: (506)224-1050 Economic, political and cultural information about Central America Portfolio de Inversiones Apartado 11406 1000 San Jose, Costa Rica Tel: (506)240-7974 Fax: (506)296-1876 Camara Costarricense de la Construccion (Chamber of Construction) Apartado 5260 1000 San Jose, Costa Rica Tel: (506) 221-9814 Fax: (506) 221-7952 Business Costa Rica (Costa Rican-American Chamber of Commerce) Aerocasillas AMCHAM Costa Rica SJO 1576 P.O.Box. 025216 Miami, FL 33102-5216 Tel: (506)220-2200 Fax: (506)220-1000 TRADE PROMOTION: The U.S. Department of Commerce assists U.S. firms looking for new markets through video and catalog trade shows. While the best way to approach the Costa Rican market is to contract a local representative, FERCORI is the one trade fair of limited importance for U.S. exporters to promote their products in this market FERCORI - One of the largest trade fairs in Central America is held annually and is open to trade representatives as well as to the general public. This fair USUALLY takes place during the third and fourth weeks in February of each year. For further information contact: FERIAS INTERNACIONALES, S.A. (FERCORI) Apartado 1843 1000 San Jose, Costa Rica Contact: Lic. Flor Carreras - President Tel: (506)233-6990 Fax: (506)233-5796 PRICING PRODUCT Products imported into Costa Rica are priced based on the CIF value plus importation taxes, customs agent fees, in-country transportation costs, and other product related costs. The prices of the products are not regulated by the Costa Rican Government. For 49 products the Costa Rican Government recently established a "Canasta Basica", (the Basic Basket) -- a list of consumer products considered essential for making the purchase of foods, janitorial products, school uniforms (including shoes) and school supplies, construction products, agricultural chemicals and tools, medicines and other easier and more affordable. The government has indicated it will monitor closely the prices of the products and will react to "unjustified" price rises by increasing imports or establishing direct price controls as a last resort. U.S. exporters can either quote their products based on their list price allowing the local importer or representative to calculate its own profit, or can include its representative commission in the FOB or CIF price. With the second alternative the U.S. exporter may have better control over the prices offered to the end-user, and will make sure its products are competitive in the local market. SALES SERVICE/CUSTOMER SUPPORT For Costa Rican institutions and businesses it is very important that U.S. exporters (through its local representative) provide sales service. This applies to all products and services. After-sale support is also of major importance. Availability of maintenance contracts, repair shops, as well as any other technical support is expected from the buyers, who will be looking for efficiency and quick service. Service literature and contracts should be provided in Spanish. The U.S.'s proximity to Costa Rica provides U.S. exporters with the ability to provide service easily and readily. SELLING TO THE GOVERNMENT The Costa Rican Government procurement system is based on the Costa Rican Finance Administration Law. Government entities purchase or acquire their goods and services through public and private tenders which are published in the official newspaper and major newspapers of the country. Foreign companies may appoint a representative through a power of attorney for a specific tender. This representative can be a Costa Rican citizen/company, or an alien or resident of the country. A general power of attorney can also be given to a person or company to represent the foreign company in various tenders for a certain period of time. The local representative should be able to translate tender documents from Spanish into English, and assist in preparing bid offers in Spanish. Some large projects (mainly construction works) may require the presence in Costa Rica of the U.S. company officials in order to better assess the requirements and prepare a good offer to the entity.