SECTION V - MARKETING U.S. PRODUCTS AND SERVICES - Distribution and Sales Channels Most products are imported by large distributors who then pass on the goods to retailers, although large department stores import directly from manufacturers or exporters. The Salvadoran market is very receptive to U.S. products. Many Salvadoran businesspeople were educated in the U.S. and have developed a preference and trust for U.S. made products. Also, the proximity of the U.S. means quicker delivery than from other major exporting countries. Additionally, many small end-users prefer to visit the U.S. and purchase the products themselves. This is especially true in the areas of used vehicles and auto parts, computers, and household goods. - Use of Agents/Distributors When a U.S. firm wishes to sell its products in El Salvador, it usually appoints an agent or distributor. Sections "B" and "C" of Chapter III, Title III of the Salvadoran Commercial Code define the role of representative agents and intermediary agents. According to article 392, an agent, representative or distributor is any natural or juridical person who, on a permanent basis and with or without legal representation and through a contract, is appointed by a principal for the establishment of an agency-representation or distribution for some products or services in the country. The agency, representation or distribution may be either exclusive or of any other type agreed upon by the parties. In case the principal should terminate, modify or deny to prorogate or extend the representation agency or distribution without having met any of the conditions specified in Art. 398 of the Commercial Code, the agent shall be entitled to the be compensated for the damages caused to him, and the compensation shall be extended to the following: A. The expenses incurred by the agent or distributor, in benefit of the business which is being deprived, whenever such expenses cannot be recovered due to a unilateral decision to rescind the contract; B. The value of the investment made for a particular place, equipment, installations, furniture and utensils, if such investments are only useful for the business for which is being deprived; C. The value of the merchandise and accessories in stock if, due to the expiration of the contract, the representative agent or distributor can not continue selling them, or if sale is especially difficult. This value shall be calculated taking into account the acquisition cost, plus freight, to the agent or distributor place, taxes and charges that he has had to pay for possessing the stock. Once this value has been paid by the principal, he shall be entitled to possess them; D. The amount of gross profit obtained by the representative agent or distributor, during the performance of the representation or distribution, for the last three years, or during the shortest period in which he performed it; E. The value of the credits that the representative agent or distributor has granted to third parties, to pay the value of the merchandise that he distributes. Once the principal pays the value of the credits, he shall subrogate the rights of the representative agent or distributor. This compensation is included in the law in case that the agent has both faithfully fulfilled his duties and that the principal terminates the contract in a unilateral decision. The Commercial Code also categorically establishes some justified causes to terminate the contract, modify it or deny to prorogate it, as in the following cases: A. Failure in fulfilling the contract of representation agency or distribution; B. Fraud by the agent, notwithstanding the criminal sanction if there is one; C. Inability or serious negligence by the representative agent or distributor; D. Continued decrease of the sale or distribution of the merchandise or services due to causes imputable to the representative agent; E. Revealing confidential information.; F. Acts imputable to the representative agent that prejudice the introduction, sale or distribution of the products that have been committed to him. According to Article 399 A of the Commercial Code, disputes that arise from applying the above articles shall be resolved by a summary trial in the commercial courts under whose jurisdiction the representative agent or distributor resides. - Franchising In the first half of 1994, four new U.S. franchises started up in El Salvador in areas such as fast food and ice cream stores. To date, there has been very little growth in franchises of photocopy or other service centers. With the growth of investor confidence following the last elections, the commercial section has been continues to receiveing requests on available U.S. franchises. With the growth of investor's confidence after the last elections, the Commercial Section has been receiving requests on available U.S. franchises. This is an area well worth exploring by interested U.S. firms. The new Foreign Investment Promotion and Guarantee Law of 1988 provides for unrestricted remittance of royalties and fees for use of foreign patents, trademarks, technical assistance and other similar services abroad (not to exceed 10 percent of net sales per fiscal year). - Direct Marketing Telecommunications and mail delivery infrastructures are not well developed for this kind of marketing. However, there is a very limited amount of direct marketing by television as well as some door-to-door direct marketing (e.g. Avon, Amway). - Joint Ventures/Licensing The Commercial Section of the American Embassy in San Salvador regularly reports to the Department of Commerce Salvadoran firms interested in pursuing joint ventures. In fact, as political stability increases, more interested firms seek the Commercial Section's services to report their interest. The licensing process usually takes place between the interested parties without the knowledge of the Commercial Section. The use of licenses of U.S. firms is legally established in a contract signed by both parties and is governed by the Salvadoran Commercial Code. - Steps to Establishing A Business Office in El Salvador The following outlines the steps necessary for establishing a business office in El Salvador: i. Find a legal representative or a lawyer. ii. Request a permit to operate in El Salvador at Superintendencia de Empresas y Sociedades Mercantiles, 1a. Calle Poniente y 45 Avenida Norte San Salvador, El Salvador Tel. (503) 79-2152 iii. The Superintendencia de Empresas y Sociedades Mercantiles authorizes all types of commercial activities that take place in the El Salvador and establishes the minimum starting capital required for businesses to begin operations. iv. Obtain an income and property clearance from the Direccion General de Impuestos Internos at the Ministry of Finance (Ministerio de Hacienda): Ministerio de Hacienda Avenida Alvarado y Diagonal Centroamerica Condominio Las Tres Torres No. 2 San Salvador, El Salvador Tel: (503) 25-1022; Fax: (503) 26-7170 v. Request a license at the Commerce Registry (Registro de Comercio), in the Commerce and Industry License Registry Department. The industrial and/or Commercial patent registry is also requested in this office. vi. Register both the firm's board of directors and administrative personnel at the Commerce Registry. vii. Obtain a municipal services clearance from the City Hall under whose jurisdiction the commercial or industrial establishment falls under. viii. Obtain certification that the firm is properly registered in the Industrial and Commercial National Establishments Directory at: Direccion General de Estadistica y Censos 1a. Calle Poniente y 43 Avenida Norte Tel. (503) 24-1603; no fax available. ix. Obtain a permit from the Consejo Superior de Salud Publica when the firm is a drug store or manufactures pharmaceuticals. Consejo Superior de Salud Publica Avenida Espana No. 736 San Salvador, El Salvador Tel: (503) 21-0497/21-0151 Contact: Dr. Mauricio Mossi Calvo, President x. Publish the firm's license in a local newspaper. xi. Register the investment at the foreign capital and Technology Transfer Department of the Ministry of Economy. xii. Hire both an accountant and an external auditor that has been certified by the Republic of El Salvador. - Advertising and Trade Promotion Advertising in El Salvador is made mainly through TV, radio, newspapers and leaflets. Additionally, certain trade associations' newsletters accept advertisements. The following is a list of the principal Salvadoran newspapers (for a list of advertising agencies, please contact the U.S. Embassy's Commercial Section): Newspapers La Prensa Grafica, TEL. (503) 81-3333; FAX: (503) 71-1676 El Diario de Hoy, TEL. (503) 71-0122; FAX: (503) 71-2270 Diario El Mundo, TEL. (503) 71-4400; FAX: (503) 71-4342 Diario Latino, TEL. (503) 22-1009; FAX: (503) 71-0971 - Pricing Product There are no controls on prices in El Salvador, with the exception of a few food items, liquid propane gas, and diesel, which are subsidized. There is a value-added tax (VAT) of ten percent that must be added to the sale price of each item. - Sales Service/Customer Support It is very important for firms that sell equipment, machines or electric appliances to provide effective customer support. The availability of adequate service and support frequently makes the difference for decisions on purchases, especially in government orders. - Selling to the Government For local purchases contact the procurement office in each ministry or autonomous institution. For international purchases of a value over $20,000 USD, the government publishes a tender in the major newspapers of El Salvador and/or sends written notices to the Embassies. Some of the Government bids received by the American Embassy in San Salvador are placed on the Department of Commerce's on-line Electronic Bulletin Board under the Trade Opportunities Program. In addition, many of the bids appear in the Department of Commerce's National Trade Data Bank, available on Internet. The aspects that are evaluated in the offers besides cost include: delivery time, seriousness of the firm, compliance with previous contracts, and specific aspects related to that particular bid. - Protection of U.S. Intellectual Property El Salvador's Legislative Assembly approved a new law protecting intellectual property rights in July 1993. El Salvador remains on the special 301 watch list pending U.S. Government evaluation of the law. In addition, El Salvador was pended under the intellectual property rights criteria for the 1993 Generalized System of Preferences Program. While it embodies substantial progress in many areas, some U.S. trade groups have raised questions about whether the law will provide effective protection in all. The law went into effect in the beginning of 1994 but included a four-month postponement in the area of audio and video cassettes. Piracy of audio cassettes, videos and television signals has been common, but many firms, particularly in the areas of cable systems and video rentals, are currently moving to comply with the requirements of the new law. The new law does address several key areas of weakness. Patent terms are lengthened to 20 years (15 for pharmaceuticals), and the definition of patentability is broad. Compulsory licensing applies only in cases of national emergency. Computer software is also protected, as are trade secrets. El Salvador is a signatory to the Geneva Phonograms Convention and the Rome copyright. The government has signed the Berne Convention on the protection of artistic and literary works and has signed the Paris Convention on the protection of industrial property. Both have been ratified by the National Assembly. - Need for A Local Attorney It is useful to hire a local attorney to help in the opening of a business in El Salvador, to prepare contracts and in general to understand the legal system that applies to the individual needs. The Commercial Section of the American Embassy in San Salvador maintains a list of lawyers that regularly assist U.S. firms.