V. Marketing U.S. Products and Services A. Distribution and Sales Channels Distribution Practice One of the most important decisions a U.S. company will make in Guatemala will be the selection of a qualified and competent sales representative and/or distributor. To successfully market a product/service here, a local presence is essential. A distributor with well-positioned sales outlets in the major commercial locations will greatly enhance chances of capturing a major share of its end-user market. Most business is conducted in Guatemala based on personal relationships. Guatemalan business executives and government officials place great importance on personal contacts with suppliers. U.S. suppliers should be prepared to have a local representative or distributor and to travel to Guatemala personally. U.S. business persons often are surprised at the accessibility to key decision makers and the openness and frankness of local buyers. B. Franchising Guatemala has traditionally welcomed foreign investment; few legal impediments confront investors, although bureaucratic red tape can be trying. Guatemalan entrepreneurs are very receptive to U.S. companies offering franchising arrangements. Presently there are between 8 to 10 U.S. firms operating under franchising arrangements, particularly companies that provide fast-food services, and physical fitness equipments facilities. Guatemala still has relatively low labor costs. Tax incentives are available for the tourism industry, petroleum exploration and production, and for export industries which locate outside the capital city. The "ZOLIC" free trade zone at Santo Tomas de Castilla, adjacent to Guatemala's principal port on the Atlantic coast, offers exemption from payment of all duties (except employer social security contributions). Legislation passed in 1989 allows the establishment of privately owned and operated free trade zones and provides export incentives for maquila (draw-back) and other export oriented industries whenever located. There are no legal restrictions on repatriation of capital; there has not been any expropriation or nationalization since World War II. The exchange system was liberalized in early 1994: the auction system in sale of foreign exchange eliminated, and the rate of exchange of the Guatemalan Quetzal is freely floating against the U.S. dollar at a rate of 5.68Q to the dollar. C. Direct Marketing As previously mentioned, most business is conducted in Guatemala based on personal relationships. However, direct sales from U.S. manufacturers, suppliers, exporters, etc., directly to local end- users is possible without a local representative. Direct marketing is effective in cases where the product is well known. Direct marketing may also be performed by a local salesperson or company representative who in many instances will act as a demonstrator. The U.S. company representative will be permitted to take orders and in some cases to collect payments but he is not allowed to personally carry merchandise and perform door-to-door sales and collect at the same time without having the proper authorization. Lately the use of newspapers and television has proved effective for direct exporters. U.S. companies' promotional materials should be in Spanish and emphasize U.S. origin. Though many private and public officials speak and read English, many technicians and engineers do not. Guatemalans are extremely receptive to technical presentations that are educational rather than sales oriented. D. Joint Ventures/Licensing Commercial companies in Guatemala are governed by the Commercial Code (Congressional Decree No. 2-70 of January 28, 1970). Article 10 of this Code recognizes exclusively as commercial companies those organized as: (1) general partnerships; (2) limited partnerships; (3) special limited liability companies; (4) corporations; and (5) stock-issuing partnerships. Article 12 provides that banks, insurance companies, reinsurance companies, bonding companies, re-bonding companies, financial firms, general warehouses, stock markets, mutual societies, and other similar organizations will be controlled with respect to their form, organization and operation by the provisions of the Commercial Code only to the extent they are not covered by other specific laws and regulations. Foreign insurance companies are legally prohibited from directly operating branches in Guatemala. Foreign insurers may, nonetheless, offer a full line of insurance services through locally incorporated subsidiaries, even if wholly foreign owned, provided they meet the normal capital and other regulatory requirements of Guatemalan law. Joint Ventures (negocios en participacion) are regulated by Articles 861 to 865 of the Commercial Code as contracts not as companies or juridical persons. The use of a trade name that includes first names and two family names, of the participating persons shall make those persons legally responsible, just as if they were members of a general partnership, assuming they consented to the use of their name. In a joint venture the participants enter into a participation contract (contrato de participacion), by which the person called the "active partner" obligates himself to share with one or more persons called the "participants", who contribute goods or services, the profits or losses resulting from one or several operations of their enterprise or of the complete turnover thereof. The active partner operates in his own name; there is no legal relationship between third parties and the participants. E. Licensing After receiving authorization from the executive branch, a company or association that has been legally established in the United States may be established in Guatemala or may have agencies or branches in Guatemala, It must show proof of its legal constitution, that it is not opposed to the laws of the republic, and that it has appointed a remunerated local agent with all general and special powers. For purposes of the law, the agent will be presumed to be invested with such powers, even though the agency agreement may not specifically so provide. A foreign company or association that does business in Guatemala is required to: (a) establish agencies or branches that take care of its business; (b) have an accounting system, in legal form and in Spanish, in which the operations or business negotiations that take place in Guatemala are recorded; and (c) submit for decision by the laws and courts of the republic any legal questions that arise from the business of the agency or branch. In general, licensing is defined as a contract partnership in which two or more persons agree to place goods or services in common for the purpose of carrying on an economic activity and dividing the profits. The licensing contract is tailored according to the needs and interests in the parties involved. However, all obligations are governed by the Civil Code. F. Steps to Establishing an Office Foreign Companies How to Obtain Permission to Operate in Guatemala A foreign entity legally registered in its country of origin and intending to do business in Guatemala must: -- Register with the Mercantile Registry (Registro Mercantil) and -- Register with the Guatemalan Internal Revenue Service (Direccion General de Rentas Internas-DGRI). Documents to be submitted to the Mercantile Registry with Request for Registration: -- Proof that the entity is legally constituted in accordance with the laws of the country (state) in which it is organized or registered. -- Certified copy of the deed of constitution (charter), by-laws and modifications thereto. -- Proof that the Board Directors has duly resolved to operate in Guatemala and has authorized the legal procedure to obtain permission to do so. -- A power of attorney in which the person named is given ample powers to act and to represent the entity in all legal matters. -- A document in which an amount is assigned as capital with reference to the entity's operations in Guatemala and in which it is expressly stated that the entity will be responsible for its obligations in Guatemala with all of its assets both in Guatemala and abroad. -- A declaration that the entity submits to the courts and laws of Guatemala in respect of its acts and operations in the country and that neither the entity nor its representatives and employees will invoke rights as foreigners. -- A declaration that the entity, prior to concluding operations in Guatemala will fulfill all legal requirements in connection therewith. -- Certified copies of its latest financial statements (balance sheet and income account). The documents must be certified by an authorized official in the country (state) of origin and must be authenticated by an appropriate Guatemalan Consular Official. The address of the Mercantile Registry is the following: -- Registro Mercantil de Guatemala 9 Calle 3-49, Zona 1 01001 Guatemala, C.A. Tel. (502-2) 535819 and 300827 Attn. Mercantile Registrar Registration with the Guatemalan Internal Revenue Service-DGRI The documentation for registration with the DGRI, as required by the Income Tax Law is identical with that pertaining to registration with the Mercantile Registry. It is advisable to have the documents prepared in duplicate and to submit one set thereof to the DGRI together with a copy of the authorization to operate in Guatemala issued by the Ministry of Internal Affairs. Registration under the Value Added Tax (Decree 72-83) is also necessary. G. Sales Techniques Direct sales from U.S. suppliers or exporters to end-users, local agents, importer/wholesalers and sometimes retailers are usually most successful when the product is well known within the market or when a trading relationship already exists between the U.S. exporter and the importer in Guatemala. Direct sales are often supported by local advertisement, sales promotional campaigns, technical or illustrative brochures and in some cases demonstration samples. Indent sales are locally carried out by representatives or free lance sales representatives that have price lists and promotional material and collect orders which are placed with suppliers in the US. This type of transaction is based on a verbal or written agreement between the US supplier and the free salesperson. Indent sales reps in most cases do not maintain inventories. This relationship is usually based on a sales commission agreements. Representative sales is the most common and recommended type operation. The U.S. supplier appoints a local representative or distributor who in turn collects an order from wholesalers or retailers which generally do not have the experience nor the time to import directly or to handle customs clearance which is time consuming. Once an exclusive representation has been given to a local company, it can not be taken away and given to another concern without complying with the existing Agency, Distribution and Representation Law contained in Congressional Decree No. 78- 71, of September 29, 1971. Termination of a contract for a sole agent or distributor before two years could result in legal compensation to the Guatemalan agent or distributor. Unless a U.S. company is absolutely certain of its good business relationship with a potential Guatemalan agent or distributor, a sole/exclusive arrangement is discouraged. H. Advertising and Trade Promotion Advertising in Guatemala is through the local media such as newspapers, some magazines, radio and television. Also the use of billboards displayed along highways has proliferated in recent years. It is suggested that the media association be consulted before launching an advertising campaign. The association may be contacted at: -- Union Guatemalteca de Agencias de Publicidad - UGAP 3 Avenida y 12 Calle, Zona 10 Edificio Geminis 10, Torre Norte 01010 Guatemala, C.A. Tel. (502-2) 353269 Fax: (502-2) 353268 Florentino Fernandez, Presidente Trade Promotion The following trade associations provide assistance, coordination and logistics support to companies planning trade promotion events which may include product demonstrations, seminars, conferences, etc. The associations are as follows: -- Camara de Comercio de Guatemala (Chamber of Commerce) 10 Calle 3-80, Zona 1 01001 Guatemala, C.A. Tel. (502-2) 82681/5 Fax: (502-2) 514197 Lic. Jonas Vasquez A., Manager -- Camara de Industria de Guatemala (Chamber of Industry) Edificio Camara de Industria Ruta 6, No. 9-21, Zona 4, Nivel 12 01004 Guatemala, C.A. Tel. (502-2) 315947 Fax: (502-2) 341090 Ing. Edgardo Ruiz, Manager -- Fundacion para El Desarrollo FUNDESA Ruta 6, No. 9-21, Zona 4 Edificio Camara de Industria, Nivel 9 01004 Guatemala, C.A. Tel. (502-2) 318594 Fax: (502-2) 325702 Paul Weaver, Director A major international promotion scheduled for November 1995 is INTERFER. Participation information can be obtained from: -- Comite Permanente de Exposiciones COPEREX 8 Calle 2-39, Zona 9 Parque de la Industria 01009 Guatemala, C.A. Tel. (502-2) 341539 Fax: (502-2) 316053 Jorge M. Pereira, Gerente Major Newspapers The leading major dailies in Guatemala are the following: 1. Prensa Libre 13 Calle 9-31, Zona 1 Edificio Prensa Libre 01001 Guatemala, C.A. Tel. (502-2) 511830 Fax: (502-2) 518768 J. Eduardo Zarco B., Director 2. Diario El Grafico 14 Avenida 4-33, Zona 1 Edificio Editora El Grafico 01001 Guatemala, C.A. Tel. (502-2) 510001 Fax: (502-2) 521803 Rodrigo Carpio A., Director 3. Siglo Veintiuno 7 Avenida 11-63, Zona 9 Edificio Galerias Espana, Nivel 6 01009 Guatemala, C.A. Tel. (502-2) 346217 Fax: (502-2) 319145 Jose Ruben Zamora, President 4. Diario La Republica 13 Calle 8-41, Zona 10 01010 Guatemala, C.A. Tel. (502-2) 343843 Fax: (502-2) 343846 Gonzalo Marroquin G., Director 5. Diario La Hora 9 Calle "A" 1-56, Zona 1 01001 Guatemala, C.A. Tel. (502-2) 26966 Fax: (502-2) 517084 Oscar C. Marroquin, Director Television Channels The following are the major television channels in Guatemala: 1. Canal 3 de Television 30 Avenida 3-40, Zona 11 01011 Guatemala, C.A. Tel. (502-2) 947493 Fax: (502-2) 947492 Fernando Villanueva, General Manager 2. Canal 5 de Television 4 Calle 18-68, Zona 1 01001 Guatemala, C.A. Tel. (502-2) 517236 Fax: (502-2) 531961 Lt. Col. Otto Samayoa, Manager 3. Canal 7 de Television Boulevard Vista Hermosa 18-07, Zona 15, VH-I 01015 Guatemala, C.A. Tel. (502-2) 690724 Fax: (502-2) 691393 Luis A. Rabbe, President 4. Canal 11 de Television 20 Calle 5-02, Zona 10 01010 Guatemala, C.A. Tel. (502-2) 334651 Fax: (502-2) 334656 Pedro Salinas, Manager 5. Canal 13 de Television 20 Calle 5-02, Zona 10 01010 Guatemala, C.A. Tel. (502-2) 682165 Fax: (502-2) 370861 Antonio Mourra, President 6. Canal 21 de Television Avenida de Las Americas 14-06, Zona 13 01013 Guatemala, C.A. Tel. (502-2) 316319 Fax: (502-2) 314571 Emilio Padilla, Director Radio Stations The following are the major radio station in Guatemala city: 1. Radio Nacional TGW 18 Calle y 7 Avenida, Zona 1 Edificio Tipografia Nacional 01001 Guatemala, C.A. Tel. (502-2) 519872 Fax: (502-2) 519873 Everardo Lopez, Director 2. Radio Fabu Stereo 4 Avenida 2-07, Zona 9 01009 Guatemala, C.A. Tel. (502-2) 316526 Fax: (502-2) 341194 Attn. Director 3. Cadena Azul de Guatemala 6 Avenida 2-80, Zona 1 01001 Guatemala, C.A. Tel. (502-2) 539418 Fax: (502-2) 533652 Attn. Director 4. Emisoras Unidas 7 Avenida 6-45, Zona 9 01009 Guatemala, C.A. Tel. (502-2) 347083 Fax: (502-2) 326123 Attn. Director 5. Radio Corporacion Nacional 6 Avenida 0-60, Zona 4 Edificio Torre Profesional I Nivel 9, Of. # 903 01004 Guatemala, C.A. Tel. (502-2) 352030 Fax: (502-2) 352005 Attn. Director 6. Organizacion Alius 6 Avenida 0-60, Zona 4 Edificio Torre Profesional II Nivel 3 01004 Guatemala, C.A> Tel. (502-2) 352433 Fax: (502-2) 352045 Magazines and Business Journals The following are the leading magazines in Guatemala: 1. Revista Cronica 6 Avenida 0-60, Zona 4 Edificio Torre Profesional Nivel 3, Of. # 312 01004 Guatemala, C.A. Tel. (502-2) 311693 Fax: (502-2) 352360 Francisco Perez A., President 2. Revista Critica 7 Avenida 8-56, Zona 1 01001 Guatemala, C.A. Tel. (502-2) 531997 Fax: (502-2) 514371 (ask for signal) Julio Santos, Director 3. Enfoque Cooperativo 12 Calle 1-73, Zona 9 Nivel 2, Of. # 201 01009 Guatemala, C.A. Tel. (502-2) 314556 Fax: (502-2) 314557 Rodolfo Orozco, Director 4. Revista Gerencia Asociacion de Gerentes de Guatemala 10 Calle 3-17, Zona 10 01010 Guatemala, C.A. Edificio Aseguradora General, Nivel 7 01010 Guatemala, C.A. Tel. (502-2) 311565 Fax: (502-2) 311646 Ms. L. Martinez, Manager 5. Revista Industria Camara de Industria de Guatemala Ruta 6, No. 9-21, Zona 4 Edificio Camara de Industria 01004 Guatemala, C.A. Tel. (502-2) 315947 Fax: (502-2) 341090 Ing. Edgrado Ruiz, Manager 6. Revista Comercio Camara de Comercio de Guatemala 10 Calle 3-80, Zona 1 01001 Guatemala, C.A. Tel. (502-2) 82681/5 Fax: (502-2) 514197 Lic. Jonas Vasquez A., Manager I. Pricing Product The Pricing of a product is based on different factors. Local merchants consider the following as fixed costs: a) Product F.O.B. cost b) Product freight and/or transportation cost c) Product insurance cost d) Consular fees e) Import duties f) Profit percentage - according to the local formula To make a Add to the Gross Profit of: Cost Price: 50 % 100% 40 % 66-2/3% 35 % 53-4/5% 30 % 42-6/7% 25 % 33-1/3% 20 % 25% 15 % 17-2/3% 12 % 14-2/7% 10 % 11-1/9% J. After Sales Service Although after sale servicing is not included in the Commercial Code, many representatives, wholesalers and retailers provide after-sales support in the interest of good business sense. This is particularly observed in items such as white line, electro- domestic appliances, electronic consumer equipment, certain telephone equipment and sets, sound equipment and other electronic merchandise. There are no requirmeents in Guatemalan law to provde guarantees. However, most retailers provide from 60 to 90 day guarantee on equipment which covers regular failures under normal conditions of use. With auto sales, as a common practice, the first three services are provided free of charge by the dealer. U.S. exporters should encourage their local representatives to keep a sufficient stock of parts for after-sale customer service. K. Selling to the Government The existing Government Procurement Law (Decree 57-92) stipulates that all government purchases over US$ 161,000 must be submitted for public competitive bidding and no less than 5 bidders must participate, except when a project is considered to be so urgent as to be declared a national emergency. In the latter case the Government of Guatemala can forgo the bidding process and may acquire the goods or services, regardless of the amount, from local firms or through dealers for direct importation. Unless otherwise specified, all government public bidding requires foreign suppliers to meet pre-qualification requirements, and to submit bids through local established representatives. Government purchases or acquisitions are generally exempted from import duties. The period in which bids may be filed is often quite limited. L. Protecting Products from IPR Infringement Industrial Property Registry Congressional Decree No. 26-73 incorporates the Central American Agreement for Industrial Protection. This law establishes a uniform legal system for all the Central American countries regarding trade marks, trade names and expressions or publicity jingles and signs. Ownership of a trade mark is obtained through its registration in accordance with the above mentioned agreement and proven with the registry's certification, issued by a competent authority. The rights granted through the registration of a trade mark last ten years, and may be renewed repeatedly for the same period of time by complying with the requirements established by the agreement. Any natural or legal person, may obtain the registration of the trade marks. Infringement Remedies In accordance with the law, the author, owner and any other owner of rights, may take any of the following enforcement actions: A. Request the cessation of an unlawful use; B. Request the sequestration or destruction of the unlawful works or reproductions manufactured in the country or introduced into the territory of the republic, and of the means for producing them such as patterns, films, molds, plates and similar materials, without taking into account the ownership of these articles; or at the election of the complaint; C. Request the delivery of the said articles to the trademark/patent owner in exchange for payment of the cost thereof; D. Request, after expert valuation, indemnity in respect of damages, including moral damage, if the violation took place wilfully or negligently; E. Request the net proceeds of the receipts derived from public performance; F. Request publication of the judgement at the cost of the defendant in the Official Gazette and in one other newspaper of major circulation. The Industrial Property Registrar may be contacted at: -- Registro de la Propiedad Industrial 6 Avenida 11-43, Zona 1 01001 Guatemala, C.A. Tel. (502-2) 25514 (five digits only) Lic. Carlos A. Sagastume, Registrar M. Need for a Local Attorney The professional services of a lawyer are very useful in instances like registration of a new company, registration of a patent or trade mark, collection cases, property rights, power of attorney, and trade arbitration. The following is a short list of attorneys practicing business laws in Guatemala: 1. Edgar Alvarado P. Via 1, No. 1-67, Zona 4 01004 Guatemala, C.A. Tel. (502-2) 319444 2. Jorge Asencio Via 5, No. 3-65, Zona 4 01004 Guatemala, C.A. Tel. (502-2) 313706 Telex: 5480 EUSTER GU 3. Beltranena-Beltranena Avenida de la Reforma 12-01, Zona 10 01010 Guatemala, C.A. Tel. (502-2) 318633 Telex: 6037 ZIGMACO GU Dr. Luis Beltranena, Partner 4. Ibarra-Ibarra 4 Avenida 12-07, Zona 1, Of. 306 01001 Guatemala, C.A. Tel. (502-2) 83931 (five digits) Juan Luis Ibarra, Partner 5. Quezada, Ibarguen, Escobar Avenida de la Reforma 9-00, Zona 9 01009 Guatemala, C.A. Tel. (502-2) 312001 Fernando Quezada Sr., Partner 6. Soto & Soto 13 Calle 1-51, Zona 10, Of. 201 Edificio Santa Clara Torre II 01010 Guatemala, C.A. Tel. (502-2) 313960 Telex: 5360 GUALAW GU Manuel A. Soto, Partner