V. MARKETING U.S. PRODUCTS AND SERVICES Distribution and Sales Channels Distribution channels in Finland are similar to the United States market. Goods may be sold through an agent, distributor, established wholesaler, or by selling directly to retail organizations. The majority of Finnish commission agents, about 300, are members of the Finnish Foreign Trade Agents' Federation, which has 18 divisions for different types of trade. These commission agents are relatively small, private companies, most of them operating in such sectors as imports of textiles, apparel, and raw materials. Privately-owned wholesalers and trading houses are particularly strong in certain specialized sectors, such as electronics, electrical components and instruments, pharmaceutical and health products, technical products and machinery, raw materials and chemicals. Most of these importers and wholesalers belong to the Federation of Finnish Trade, which is a central organization for over 25 trade associations covering the bulk of foreign goods sold to Finnish trade and industry. Wholesale and retail of consumer goods sales are highly concentrated among four large companies: K-Group (Kesko), T-Group (Tuko), S-Group (SOK) and E-Group (Tradeka). These companies distribute and sell products ranging from food and clothing to construction and agricultural machinery. They account for over 90 percent of the retail sales of groceries, 50 percent of clothing, 70 percent of shoes, 30 percent of consumer electronics, and 70 percent of sporting and recreational goods. The K- and T-Groups are private corporations while the S- and E-Groups are consumer- owned cooperatives. Use of Agents/Distributors, finding a partner Firms involved in capital goods, industrial raw materials and similar commodities should employ Finnish commission agents; companies involved in electronics, precious metals and chemicals should act through Finnish private wholesalers and trading houses which handle such goods. As a rule, one exclusive agent/distributor is usually appointed to cover the entire country. Finnish importers often represent several different product lines. In selecting a representative, the exporter should check whether that company handles competing products. Consumer goods and similar merchandise requiring maintenance of stock are often imported through wholesalers or trading houses. Such products may also be sold directly to retail chains, department stores, and other retail outlets. A method commonly employed to enter the Finnish market is to work through local wholesalers. Finnish wholesalers control distribution for most goods and work through the four large trading houses mentioned above. Contacting local trade associations for a list of importers is a good way of finding a distributor in Finland. Finnish importers also attend major trade fairs in Europe and in the United States. Fairs are attended in order to find new products and ideas, but also to find new principals. In the United States, Finnish importers attend trade fairs in sectors in which U.S. companies represent the latest available technology. The Foreign Commercial Service of the American Embassy also seeks agents/distributors for U.S. exporters through Agent/Distributor Search, Gold Key Service, etc. VI. MARKETING U.S. AGRICULTURAL PRODUCTS AND SERVICES AGRICULTURE/FISHERY - Finland has a highly integrated food marketing system which became even more so in 1992. Finland's farm cooperatives also play a major role in its food industry, dominating the dairy (Valio markets almost all milk), meat - 70 percent and egg (Munakunta - one-third) sectors. Highly vertically integrated conglomerates dominate most of the rest of the food (grocery) industry. The three major groups are Kesko (K-Kauppa) with a 40 percent share, Inex Partners (handles purchasing for S-Market, Tradeka and City-Sokos and the associated EKA and SOK Cooperatives) with a 28 percent share and TUKO (T-Kauppa) with 24 percent. Alko is the government alcohol and wine monopoly distributing all strong beers, alcoholic beverages, wines and spirits through its network of Alko Stores. Tuko is a partner in a joint international buying company, United Nordic, with headquarters in Stockholm. Inex, which buys for the EKA and S-group cooperatives, handles most of its buying from the United States through Nordisk Andelsforbund CA Inc., in San Mateo, California. Kesko is Finland's largest wholesale/retail enterprise. Its structure is much like ICA in Sweden in that its members are private retail merchants who buy most of their products from the Kesko wholesale organization. Kesko-affiliated retailers accounted for nearly half of retail food sales in Finland in 1993. Kesko, ICA and Bema (a Norwegian firm) jointly own the Viking Fruit Company, located in Goteborg, Sweden. It is one of Scandinavia's largest fruit importers. The Tuko group is a joint enterprise owned by over 20 private wholesalers having over 20 percent of the Finnish retail food market. S-Group and EKA are consumer cooperative societies that operate food shops through member regional societies. The S-Group operates its own processing facilities and bakeries and runs over 400 restaurants and hotels. Finland's food processing industry relies heavily on domestically available raw materials and also on getting subsidies from the government on certain of the raw materials going into food products produced for export. This will change with EU membership which will eliminate Finland's import licensing system. Finland's cheese and meat processing industries are actively involved in exporting, including exports to the United States. In recent years, however, Finland's meat and cheese exports to the United States have fallen as export subsidies have been cut back. Major companies dominate certain sectors like Fazer (chocolate), Cultor (sugar and grain), Raisio (margarine, starch and bakery products), Hartwall (soft drinks, beer), Huhtamaki (liquors, confectionery, frozen berries, etc.) to give several examples. Alko, which has dominated the spirits, wine, beer, vinegar and food starch industries, will lose many of its monopoly privileges in these sectors due to the EU agreement. Finland's small population of approximately five million provides a somewhat limited base for a highly diversified food processing industry with proper economies of scale. Consequently, there have been consolidations of several companies and an increasing emphasis on exports of processed food items from Finland, especially of cheeses, candies, snack foods and various jams and preserves made from the very plentiful wild berries of Scandinavia. Several Finnish companies own and operate food manufacturing firms abroad. One of the largest is the U.S. candy company Leaf Inc. Many Finnish food processing firms are joint ventures with foreign companies. Consolidations through joint ventures and even buyouts by leaders in major food processing sectors probably will accelerate after EU membership. Finnish interests are also expected to continue to grow in the Baltics (particularly Estonia) as additional investments are expected in the tourist and food industry sectors there. U.S. exporters have a relatively easy job of locating potential buyers since the Finnish market is dominated by a relative handful of companies. A joint Nordic buying office, serving all Scandinavian countries' consumer cooperative retail groups, operates in San Mateo, California. Getting a foot in the door can, for the same reason, be much more of a challenge. FORESTRY - Forestry is one of Finland's most important export sectors. Major Finnish forest product companies opG2 erate their own sales offices in Europe and the United States. Finland along with Sweden and Norway is a member of the Nordic Timber Council. This organization operates export offices in the United Kingdom, the Netherlands and France. With large raw material reserves available domestically, the Finnish forestry import sector is small relative to the export side. Opportunities for U.S. exporters to the major softwood products market are severely limited by heat treatment requirements related to the pinewood nematode. Resolution of this issue through negotiations with the EU would improve U.S. export opportunities. Franchising There were a total of 49 franchise chains in Finland in 1993 with a total sales volume of about $310 million. The biggest number of chains operate in the retail (13 chains) and car rental (15 chains) sectors. These two sectors are also expected to have the biggest increase in the number of outlets in Finland. However, the largest increase in sales volume is predicted for food and beverage franchising, which has expanded rapidly in Finland over the past few years. In 1993, there were 14 foreign chains in Finland, five of which are American. U.S. franchise chains represent about 80 percent of the sales volume of all foreign owned chains, which is mainly due to a few, well known fast food chains. The remaining U.S. chains operate in the car rental business. The expansion of American fast food franchisors will increase the total sales volume of U.S. chains by about 20 percent over the next 2-3 years, which is more than the average in Finland. Franchising has increased in popularity during the last few years. The increasing popularity is explained by the expansion of franchising as a business concept - franchising involves lower risks for companies expanding their operations. For this reason, traditional Finnish chains, especially restaurants and various service chains, have started to close down independent outlets of their own and expand through franchising. The majority of Finnish franchise chains are members of the Finnish Franchise Association, which is also belongs to the International Franchise Association. Direct Marketing Direct marketing in Finland accounts for about 23 percent of the total value of marketing and advertising in Finland - a total of $350 million was spent on direct marketing in 1993. Direct marketing is commonly used in business-to-business marketing, but also in the retailing of books, magazines, and housewares. Direct marketing in Finland is controlled by the Act on Consumer Protection and the Personal Data File Act. The Consumer Ombudsman, the Data Protection Ombudsman, and the Marketing Court monitor the use of direct marketing in Finland to ensure that it follows the guidelines of these two acts. The Finnish Direct Marketing Association also gives recommendations on fair business conduct in direct marketing. It implements local legislation and gives instructions on the contents of the sales message, use of customer registers, etc. The Finnish Direct Marketing Association also maintains a so called 'Robinson's Register' consisting of people not wanting their contact information to be used for direct marketing. Joint-Ventures/Licensing Licensing agreements are quite common in Finland because of the good quality of Finnish manufacturing, the small size of the market and the relatively high cost of transporting goods to the country. Royalties and licensing fees may be freely transferred out of Finland. Finland is involved in many joint venture projects around the world, particularly in developing countries in Asia and Africa. Finnish firms specialize in the construction of factories, and these projects often include infrastructure and housing facilities. The wide range of products and services required by these projects provides opportunities for the participation of U.S. companies. Several U.S. companies have established themselves in the Finnish market with subsidiaries or joint ventures. A good example of a joint venture is Vaisala Technologies Inc. Oy, Helsinki, where Finnish technology is combined with U.S. know-how (United Technologies Corp.) to develop, market and manufacture silicon capacitive microprocessors primarily for automotive manufacturers and suppliers in Europe, Japan and North America. This joint venture was formed in 1991. Of particular interest to U.S. businesses are Finnish-Russian joint ventures. A number of Finnish firms are interested in using their long-established contacts in the former Soviet Union and the Baltic countries to market U.S. goods. The Finns cite a number of selling points for using Finland as a gateway to Russia and the Baltic countries including physical proximity, and Finland's network of rail road and air connections with Russia. Finns also stress that as a future member of the European Union, Finland will have its feet firmly planted in the west but possess unique access to and expertise about the Russian market. Telecommunications services are particularly good in Finland. Finland has the highest density of cellular phone usage in the world and fiber optic links with St. Petersburg and Tallinn. Finland's investment regime is now highly open following legislative changes and Finland is using the gateway concept as a primary targeting tool in trying to attract foreign investors. Steps to establishing an office Finland removed most restrictions on foreign investment and ownership through a law which took effect at the beginning of 1993. The new law abolished various restrictions placed on companies with foreign ownership and eliminates distinctions between foreign and domestic shareholders. The new law provides for a screening mechanism for proposed foreign acquisitions involving a third or more of the stock of approximately 100 large companies. The provision will be in effect until the end of 1995, but the government has pledged that only in extreme circumstances would a foreign takeover of a Finnish company be prevented. Besides the laws now ratified, the EEA (European Economic Area) agreement and Finland's membership in the European Union will further liberalize the permit practice applicable to foreigners carrying on trade in Finland. If a foreign organization intends to establish an office in Finland: - A memorandum of association is drawn out to indicate that the founder is a Finnish citizen resident in Finland (e.g. a lawyer), who is familiar with the Finnish law in establishment of companies, while the whole stock of shares are subscribed to by the foreign organization. A founder can also be a citizen living in the EEA area. Exceptions are granted by the Ministry of Trade and Industry. - If a joint company is established in Finland by Finnish and foreign citizens, the memorandum of association can be drawn with the Finnish citizens as founders and subscribers to shares and the foreigners as only subscribers to shares. - The establishment of a company must be recorded in a memorandum of association, drawn up in Finnish or Swedish. It must state, inter alia, citizenship, place of residence and postal address of the founder. The memorandum of association also includes a statement regarding the number of shares each founder and subscriber. The memorandum of association has to be signed by all founders and submitted to the Ministry of Trade and Industry. Articles of Association: The articles of association must include: - the name of the company. - the municipality in Finland where the registered office of the company is located. - the field or fields in which the company intends to operate - the share capital or the minimum and maximum share capital - the par value of shares - the number of the members of the board of directors and any deputy members - the manner in which a general meeting of the shareholders is to be convened and matters to be discussed at a general meeting of shareholders - the financial reporting period of the company Registration Notice: A statutory notice, in Finnish or Swedish, must be submitted to the Trade Register in the National Board of Patents and Registration within six months from the date of establishment. Selling factors and techniques Selling factors and techniques are very similar in Finland to those in the United States. When selling to the Finnish market, it is recommended for successful entry that a local agent/distributor who has a sales network covering the whole of Finland be appointed. It is often counterproductive to appoint a regional distributor in Sweden or other Nordic country to service the Finnish market. Finnish buyers are often reluctant to deal with a representative located outside the country. Only one local distributor is needed to cover the whole country since it is a small market population wise, but distances are great and therefore a distributor with a country-wide network is most desirable. Consumer goods and similar merchandise requiring maintenance of stock are often imported through wholesalers or trading houses. These products can also be sold directly to retail chains, department stores and other retail outlets. U.S. suppliers should provide the local distributor with English language product literature and export prices. Strong promotion efforts are very important to introduce new products into the Finnish market. Terms generally applied to international trade with industrial countries apply to selling in Finland. When selling through a local distributor financing is covered in mutual agreements. It is common to request a letter of credit at the beginning of a business relationship. When a business relationship has been established, 30-60 days credit terms are common. Advertising and Trade Promotion Advertising A total of $1.5 billion is spent annually on advertising and sales promotion in Finland, of which 52 percent represent advertising in the mass media, 23 percent direct marketing, and 24 percent other trade promotion, such as trade fairs, sponsoring, etc. About $800 million is used for advertising in the mass media, which is 0.91 percent of GDP and $155 per person in Finland. Newspapers account for 59 percent of all media advertising, television 19 percent, magazines 11 percent, radio 4 percent, and others the remaining 7 percent. The International Chamber of Commerce (ICC) published the first Code of Advertising Practice in 1937 and a revised edition in 1987. The Code is applied by practitioners in Finland as a general code concerning advertising. The Council on Business Practice of the Finnish Central Chamber of Commerce acts as a self-regulating body concerning the code. Advertising legislation in Finland follows the Scandinavian model. There are two different acts concerning marketing, the Consumer Protection Act, regarding marketing directed to consumers, and the Act on Unfair Business Practice, regarding all business activities in general. Both laws apply to local advertising. Advertising is controlled by the Consumer Ombudsman and the Marketing Court. The general rule is that advertisements may not contain claims which cannot be substantiated. There are also restrictions concerning the use of children and animals in advertising, and advertising of tobacco products and alcoholic beverages is completely prohibited in Finland, with the exception of low-strength beer. Further information regarding advertising in Finland is available from the Finnish Section of the International Chamber of Commerce (ICC), and from the Association of Finnish Advertisers, which belongs to the World Federation of Advertisers. The Finnish Association of Advertising Agencies is a member of the Finnish Section of the ICC and the European Association of Advertising Agencies. It also has up-to-date information on the rules and regulations regarding advertising and advertising expenditure in Finland. There are over 60 advertising agencies in Finland, including several U.S. advertising agencies. Major Finnish newspapers and journals and their circulation in 1993: Helsingin Sanomat (480,000) Ilta-Sanomat (212,000) Aamulehti (135,000) Turun Sanomat (127,000) Iltalehti (108,000) Suomen Kuvalehti (104,000) Tekniikka & Talous (100,000) Kaleva (97,000) Keskisuomalainen (82,000) Kauppalehti (78,000) Etela-Suomen Sanomat (69,000) Hufvudstadsbladet (61,000) Talouselama (54,000) Trade Promotion There are seven fair centers in Finland with a total of 996,800 visitors in 1993. The Finnish Fair Corporation (Helsinki Fair Center) dominates the market with over 480,000 visitors (48 percent of total trade show visitors) followed by the Tampere Trade Fair and Turku Trade Fair Centers, which together have a market share of about 14 percent of all visitors. Trade fairs account for 5-10 percent of all marketing expenses in Finland, but in business-to-business marketing they account for 20-40 percent. Pricing Products Products in Finland are priced using the following method: CIF price + import duty + excise tax + value added tax (22 %) + profit Imports from the EU (European Community) and EFTA (European Free Trade Association) countries enter Finland duty free if the products have been manufactured in one of these countries. Finland has a free trade agreement with these regional blocs but not with non-European countries such as the United States, Australia, Japan or Canada. Import duties for these countries depend on specific product lines. Excise taxes are levied on fuel, electricity, alcohol, beer, tobacco, candy, margarine, soft drinks, mineral water, fertilizers, matches, tires and motor vehicles. Finland replaced its turnover tax with a value added tax at the beginning of June 1994. The VAT expands the range of goods and services subject to tax and increases the number of allowable deductions. The introduction of the VAT brought the Finnish practice of levying tax on goods and services more in line with that in effect in most other European countries. The U.S. dollar rate of exchange has fluctuated during the past several years due to a devaluation and subsequent floating of the Finnmark. While the average exchange rate of the U.S. dollar against the Finnmark was $1.00=FIM 4.483 in 1992, the average exchange rate in April 1994 was $1.00=FIM 5.491. Sales Service/Customer Support Major suppliers normally establish sales offices in Finland that are supported by dealers. There are also importer/distributors who use a network of dealers to support their marketing efforts. As a rule, one exclusive agent/distributor is appointed to cover the entire country. Finnish importers often represent several different product lines. Importers may serve large customers themselves while dealers work with smaller customers and those located outside the Helsinki metropolitan area. Dealers are often specialized in supplying a specific industry area. Training, usually arranged and carried out by dealers, is an important aspect. Most Finnish importers attempt to maintain low stock levels in these challenging economic times. Therefore, prompt deliveries become an important consideration. A good distributor should have full service, maintenance, and training facilities and after sales service available to the customer, especially in high tech products. Service points should cover the whole country and be located not only in the southern part of Finland but also in the central and northern parts of the country. Selling to the Government In 1991, Finland's public sector spent FIM 64 ($11.6) billion in procurement, about 13 percent of GDP. After the EEA agreement became effective on January 1, 1994, the law on government procurement was renewed and the EU directives became the basis of Finnish national legislation. The new public procurement legislation applies to: - Government officials - Municipalities - Churches - Water supply, energy management, public transportation and telecommunications (so called service sectors) - Public utilities - Almost all procurement where over half of the funding comes from the public sector Procurement of goods GATT entities: There are 16 entities in Finland such as the Government Procurement Center, Civil Aviation Administration, General Headquarters of the Defence Forces, Government Printing Center that fall under the GATT Procurement Code of which Finland is a member. According to the Code, these entities are required to advertise procurement of goods, services, construction projects etc. in Finland's Official Gazette. Code-covered entities are required to announce procurements above FIM 906,000 ($164,730), which is lower than the publishing requirement for non-Code- covered entities (FIM 1,057,522 - $192,277). Following are minimum values of procurement that have to be published in the government procurement section of Finland's Official Gazette, where the announcement will be forwarded to the EU Official Gazette and to the Tenders Electronic Daily (TED) data base. Procurement Minimum value Government Units: - Goods and services FIM 1,057,522 ($192,277) - Construction projects FIM 26,438,050 ($4,806,918) Basic Service Sector Units: (Water, energy management and traffic) - Goods and services FIM 2,115,044 ($384,550) - Construction projects FIM 26,438,050 ($4,806,918) Telecommunication sector: - Goods and services FIM 3,172,566 ($576,830) - Construction projects FIM 26,438,050 ($4,806,918) Methods of Procurement Open procurement In an open procurement, an announcement is published in Finland's Official Gazette, where potential suppliers can ask for bid documents. The announcement should be sent to the Official Gazette for publication at least 52 days before the bid is due. Tenders are open to all potential suppliers. Procurements will be made on the basis of written bids. Restricted procurement Restricted procurement is done in two phases. First, the procurement opportunity is published in the Official Gazette after which potential suppliers can state their wish to take part in the bidding. Companies will be selected to which bid materials will be sent. A minimum of 40 days has to be provided for submission of bids. Winning bids will be selected on the basis of written offers. Negotiated procurement Usually, an open or restricted procurement has preceded a negotiated procurement. If acceptable offers have not been received using an open or restricted procurement, a negotiated procurement will follow. In the negotiated procurement method, the purchasing unit negotiates with one or more suppliers on the terms of the contract. In certain cases, a negotiated procurement can occur directly without having been preceded by an open or restricted procurement. Protecting your product from IPR infringement Finland is a member of the Paris Convention for the Protection of Industrial Property. Thus, U.S. business representatives are entitled to national treatment under Finnish patent and trademark law. Trade secrets are protected by the Law of Inappropriate Business Behavior, which enjoins various forms of corporate espionage. In 1991, Finland passed a law granting specific rights to designers of integrated circuit layouts. Patents: Patents are granted for a 20-year, non-renewable period. American nationals have a one-year period to file a patent application in Finland to receive the benefit of an earlier U.S. filing date. Process patent protection for pharmaceuticals is currently offered in Finland (that protection is scheduled to be extended to product patents for pharmaceuticals in 1995). Trademarks: Finland has adopted the Nice International Classification System, which also applies to the registration of service marks. Trademark registration is valid for 10 years and is renewable for like periods. The use of the trademark is not a prerequisite for its registration in Finland. However, the registration may be forfeited after five years of non-use without a valid reason. Americans have six months to file an application in Finland after filing in the United States to receive the benefit of the earlier filing date. Copyrights: Finnish copyright law has been amended to correspond to EU directives as part of the implementation of the EEA agreement. The term of protection is the author's life, plus 50 years. Finland is a member of the Berne Convention for the Protection of Literary and Artistic Works, the International Convention for the Protection of Performer, Producers of Phonograms and Broadcasting Organization (Rome Convention) and the Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonograms (Geneva Phonograms Convention). The government Copyright Information and Anti-piracy Center handles general questions on copyrights and copyright infringement. Need for a local attorney Finnish Legal System: Finland has a statutory law system, but the law has not been codified like the Civil Code of France or the BGB of Germany. A law is passed in Finland when the Parliament approves a government bill and the President signs it into force. The President, Council of State (cabinet) and lower authorities such as government or municipal councils also have powers to issue legal regulations. Court precedents play an important role in interpreting laws and regulations, although precedents are not legally binding. The Finnish legal system is based on the Roman- German tradition historically, with a great deal of influence from Sweden and Germany. More recently, many Finnish laws are based on common Nordic models through the Nordic cooperation process. At the beginning of 1994, the EEA (European Economic Area) became effective. As a result of the EEA, many directives and regulations of the European Union are being incorporated into Finnish legislation. Finland is also expected to join the European Union at the beginning of 1995. Finnish attorneys: It is advisable that U.S. companies planning to operate in Finland or entering into contracts with Finnish companies contact an experienced Finnish attorney for legal advice. There are approximately 1,100 attorneys in Finland who are members of the Finnish Bar Association, and permitted to use the name of attorney. Attorney practice is controlled by the Finnish Bar Association. The Bar in turn is controlled by the Ministry of Justice and the Attorney General. Only qualified legal practitioners of law may be admitted to the Finnish Bar Association. In selecting a Finnish attorney, emphasis should be given to the special knowledge of the attorney in a particular field of law. Language skills and experience in working with U.S. entities should be taken into consideration. A list of Finnish attorneys can be obtained from the American Embassy, Consular Section, Itainen Puistotie 14 B, 00140 Helsinki, Finland, tel: 358-0- 171931 ext. 271, fax: 358-0-652 057.