V. MARKETING U.S. PRODUCTS AND SERVICES During recent years, the United States has maintained its largest bilateral trade surplus with the Netherlands ($6.8 billion in 1993). The industry sectors with the best sales prospects for American exporters provide a good sampling of the breadth and size of the market. The bottom line: an American company that has a quality product with a strong sales performance in the United States, a price that is very competitive and shows a firm commitment to exporting should do well in the Netherlands. Distribution and Sales Channels The introduction of products into the Dutch market is uncomplicated and may be achieved by several methods. Product representation throughout the Netherlands is facilitated by the compact market and may be achieved with any of the following distribution methods to cover the entire area, depending on the expected sales volume, product support requirements, and marketing techniques. However, these methods must be applied being mindful of the advantages a local representative would have in serving the home market: * Establishing a sales office to serve the entire country and provide a distribution base for Western Europe. * Selling through an agent or distributor whose activity may cover specified areas, the entire Benelux, or include European sales. * Selling through established wholesalers or dealers. * Selling directly to department stores, chains, retailer cooperatives, consumer cooperatives, or other purchasing organizations. Use of Agents/ Distributors The Netherlands is one of the most densely populated countries in the world, with an average of 958 inhabitants per square mile in 1994. This population density compares to 848 inhabitants per square mile for Belgium, 830 for Japan, 613 for the United Kingdom, 583 for Germany, and 70 for the United States. The most densely populated region in the Netherlands is called the Randstad. This region comprises the key marketing areas of Utrecht, Amsterdam, The Hague, and Rotterdam. The Randstad is compact, homogeneous, and easily accessible. Distances in the Netherlands are short: from Groningen, the most northerly major city, to Maastricht, at the southern tip, is 200 miles by road. The distance from Rotterdam to Enschede, located near the German border, is about 120 miles. Transportation is excellent by road, rail, and the numerous canals and rivers. Shipments to any point in the country can reach their destination with ease. The Netherlands has a variety of experienced importers, sales agents, and distributors well versed in international trade. A large portion of the goods is handled by importers who purchase for their own account and distribute throughout the country and Europe. Because of the size, accessibility, and competitive nature of the Dutch market, importers often insist on an exclusive distributorship. If the importer is a well qualified and experienced firm, an exclusive distributorship often yields the best results. Wholesalers constitute an important segment of the importers doing business in this manner. They are the primary source of supplies for the small- and medium-sized retail outlets, which often find it impossible to buy directly from manufacturers that require large orders. Purchasing associations are formed by independent retailers. These associations combine purchasing power and operate their own warehouses, thus performing a function similar to the wholesaler. There are many commission agents and brokers in the Netherlands serving the domestic and European markets. A Dutch representative can often provide an excellent starting point in exporting to Europe. Dutch firms can easily handle the logistics, linguistics, adaptations, and stocks on behalf of the American firm. If the product normally has a high sales volume and low profit margin, the Dutch prefer to deal direct with the manufacturer. Sales to a department store, chain store, or end-user often gives best sales results, but in-turn requires greater promotional effort by the American exporter to achieve. The direct sales method eliminates the added shipping and warehousing expenses, but the U.S. exporter and Dutch importer must handle the shipping formalities and work harder to ensure a successful business relationship. Finding a Partner Since the Netherlands represents a compact market, foreign firms customarily have one exclusive representative for the entire country, but it is common for the representative to appoint subagents to cover certain sectors of the market if sales volume and profit margin warrant. While it is important to obtain specific legal advice on appointing an agent or distributor, some general guidelines follow. All agent agreements should be in writing and state if it is an exclusive arrangement. Termination of the relationship is the single main area that most frequently causes problems for American exporters. Generally, the civil codes protect the interests of the representative. In the absence of termination provisions in a written agreement, the law provides for a minimum notice of termination of four months. Parties may agree to other terms, provided the notice of termination is not less than one month and up to 6 months, depending on the duration of the agency relationship. An agreement with a definite period terminates on the agreed expiration date. If the parties continue to operate under the agreement after that date, the agreement is usually deemed extended for a further identical period but not for more than a year. If the American principal wants to terminate the relationship, notice of termination should be given even with definite term contracts. The termination of an agreement without the required notice makes a principal liable for compensation. The agent could seek to claim the amount of the commissions that would have been earned during the termination period or for the amount of actual damages suffered. In exceptional cases, and only for just cause (such as competition or fraud), an agreement may be terminated without notice provided the other party is immediately advised of the reason. In such cases, the courts may be requested to terminate the contract. At the expiration or termination of an agreement, by whatever means, an agent who has increased the value of the business is entitled in principle, to an adequate remuneration which cannot exceed the average of the commissions in one year. Such claims by agents are subject to an expiration term of one year. A sales representative located in the Netherlands is in an ideal position to market a product throughout all of Europe. Frequently, American firms will also rely on the Dutch distributor to handle the details of customs clearance, product labeling, and packaging for European preferences regarding the product. These duties should be explicitly stated in a contract. Before entering into any agreement with a partner, the American principal should first review the provisions of Dutch law with a qualified attorney. The legislation regarding unilateral termination of distribution agreements is designed to provide the local distributor with some degree of protection and monetary compensation when an agreement is terminated by the grantor, for reasons other than cause. The legislation will apply regardless of any clause in the agreement itself, and the parties may not deviate from the legislation as long as the distribution agreement is in force. Three kinds of agreements are generally recognized: * Exclusive distributorships, where the distributor has the sole right to sell specified goods within a defined area. * Quasi-exclusive distributorships, where the distributor sells almost all the specified products within a defined area. * Informal distributor arrangements under which the grantor imposes heavy obligations on the distributor and which would cause damage to the distributorship if the grantor terminated the agreement. In the absence of mutual agreement, or the failure to meet contract obligations, a distribution agreement of indefinite term cannot be terminated by the grantor without reasonable notice or fair compensation. In general, grantors should consider protecting themselves by entering into agreements for definite periods rather than an indefinite period. Also, specific minimum performance clauses should be considered, such as percent of distributor's sales, minimum annual sales, number of business contacts to be made, etc., and proposing that U.S. law and courts have jurisdiction. Franchising There are few regulations concerning franchising and none that limit market access to U.S. firms. Indeed, a number of American franchise companies have taken off in the Netherlands, particularly in the fast food area. The European Community (Union) issued regulation EEC 4087/88 regarding franchising, which provides a unified code for the 12 member states. Its main thrust concerns price fixing, transfer pricing, noncompetition clauses, and exclusive dealing. It also exempts certain franchise agreements from the EU antitrust regulations. Direct Marketing There are numerous well established sales outlets in the Netherlands. These firms, both at the wholesale and retail level, have traditionally been small units with high overhead. The trend now is for a smaller number of units dealing with a greater volume and more competitive prices. Trends in the Netherlands generally mirror those in the United States and other European countries. Nevertheless, the Dutch distribution system is moving toward larger, more economically viable units to meet changing market needs. The increased tempo of commercial and industrial activity, as well as suburban development, is bringing about changes in the distribution system. Wholesalers supply a variety of services to associated small retailers, including sales promotion, advertising, and retail training. In some cases, they combine as a group to purchase from manufacturers and then distribute the goods to their customers. Retail outlets range from the large department stores to the small shop owned and operated by an individual. Although some retail outlets are small, such enterprises are decreasing in number as efficiencies of scale and purchasing power become the major competitive factors bearing on profit margins. A trend toward larger outlets has been under way, with the formation of chains, expansion of department stores, establishment of medium-sized department stores, and the development of chain stores under single management. Mail-order sales account for a very small part of total Dutch retail sales. Certain firms have used this technique successfully in combination with their usual retail outlet operation. Promotion is carried out by catalog or by newspaper advertisements with no personal contact. Hobby centers, do-it-yourself, auto supply centers, and discount stores also are enjoying great success. Joint Ventures General Partnership (Vennootschap Onder Firma) -- In a general partnership, the individuals operate a business under a common name. The partners are the owners and managers of the firm and have unlimited liability. They are jointly and severally liable for any obligations of the firm. There are no requirements regarding capital or nationality of the partners who may be individuals or commercial entities. Transfer of an interest in the partnership must be approved by the other partners. Upon retirement or leaving the partnership, the partner remains responsible for any liabilities incurred by the firm before retirement or departure. A written partnership agreement is required by law with the rights and duties of the partners clearly stated. Limited Partnership (Commanditaire Vennootschap) -- A limited partnership is similar to a general partnership except it has two kinds of partners: one or more general partners who are unconditionally liable for all the firm's activities and one or more limited partners who are not active in management of the firms and whose liability is limited to their capital contribution. A limited partner's name may not appear in the firm's name unless previously a general partner. A limited partner who does not conform to these conditions will be considered a general partner with full liability. Limited Partnership with Shares (Commanditaire Vennootschap OP Aandelen) -- is similar to the limited partnership except that the interests of the limited partners are represented by transferable shares. Cooperative (Cooperatie) -- The cooperative is a special type of entity formed to represent the collective interests of its membership, such as buying or selling, rather than primarily an establishment to make profits for investors. This type of association permits the free entry and exit of its members from the cooperative society. The organization's name must include the word cooperative (cooperatief) and must give a general indication of its purpose such as a consumer, dairy, or insurance cooperative. The cooperative name must also include the degree of liability its members are exposed to: WA, unlimited; BA, limited; or UA, no liability. Cooperation (Naamloze Vennootschap or NV) -- The advantages of being a corporation (NV) in the Netherlands include the limited liability for shareholders, entering into contracts, ability to sue (and be sued), and transferability of shares. There are several steps to form a NV: (1) execution of the articles of incorporation before a notary by at least two of the company's founders, (2) the submission of notarized articles to the Netherlands' Ministry of Justice for review for legal compliance, (3) publication of the articles and the ministry declaration in the Official Gazette (Nederlandse Staatscourant), and (4) registration of the NV with the local chamber of commerce. The articles of incorporation must be in Dutch and be executed before, and registered by, a notary. The name and location of the principal administrative office and purpose of the company must be provided. The amount of capital, number of shares owned by each of the founders must also be indicated. The first board of directors, if there is to be one, is included in the articles with later appointments to the board made at the general stockholders' meeting. Included in the articles of incorporation must be information on any special agreements that will obligate the company being set up in the future. Such expressed or tacit agreements may relate to acquisition of shares on a preferential basis or assuring the founder of a profit or payment. After the company has been established, management can enter into such agreements only if it has explicit authority in the articles of incorporation. The name of the corporation must begin or end with Naamloze Vennootschap or its abbreviation NV, which is the more common practice. The firm's name should either be in Dutch, or if in another language, include some additional name such as Nederland, Holland, or the place of establishment of the company. Any business name previously in legal use by another company, or one that may cause confusion between two firms, may not be used. The principal administrative office of a Dutch company or foreign subsidiary must be in the Netherlands if it is to have Dutch nationality. Transfer abroad of the principal administrative office deprives the company of Dutch nationality. Where the activities of the company are actually conducted is of no relevance in establishing nationality if the company's principal administrative office is in the Netherlands. The NV, whether domestically or foreign owned, may raise capital by public or private issue of shares in the Netherlands. The typical NV has three separate and distinct authorities: the stockholders, board of directors, and managing board. Responsibilities among these three bodies are governed by the commercial code and the articles of incorporation. The stockholders, as owners of the firm, exercise authority at the general shareholders meeting. Each shareholder has voting rights proportional to the stocks held. The board of directors is charged by the general meeting of shareholders with supervision of the management of the firm. The managing board is entrusted with managing the affairs of the firm, administering to the business activity, care of the property and other assets, and representing the interests of the shareholders and the firm. Steps to Establishing an Office The Netherlands offers extensive public and private sector support for companies looking to invest in the Netherlands and/or establish offices in the Netherlands. The US&FCS staff at the Embassy can provide appropriate contacts for interested companies. Selling Factors/Techniques The following generalizations apply: * The Dutch are price sensitive but demand quality. * They are not impulse buyers. * Clever packaging plays a minor role in influencing shoppers. * Advertising tends to be informative and not creative. * The Dutch speak their minds and will not waste your time or theirs if they are not interested in your product. Advertising and Trade Promotion A full range of advertising media is available in the Netherlands. Numerous radio and television stations serve the country. The cable television system is available in most areas with the majority of the population having cable service. There are numerous advertising agencies with a wide range of services. The large ones provide a full range of advertising services and are members of the Institute of Advertising Practitioners, which is closely associated with the American Association of Advertising Agencies. Advertising agencies utilize every medium available to advertisers: direct mailings, press, radio, television, point-of-sale advertising, posters, and public transportation placards. Other promotional techniques, such as coupons, samples, premiums, and prizes, are also used. Laws covering gaming and lotteries as well as restrictive trade practices are strictly enforced by the government. Firms advertising and selling goods should obtain local advice regarding provisions of the laws and consumer acceptance of the promotional or marketing approach. Dutch firms engaged in market research provide the usual range of services, including store audits, consumer surveys, product field testing, and attitude and motivation research. In general, if the advertising technique works well for your particular product line in the United States and elsewhere in Europe, the Dutch market should also be receptive to your theme but on a more reserved basis. There are differences, however, and local opinion should be obtained first for a specific strategy that calls for a major commitment of the marketing budget. The names of Dutch advertising agencies, market research organizations, and management and public relations counseling firms may be found in such publications as the International Directory of Market Research Houses and Services, American Marketing Association, 420 Lexington Avenue, New York, NY 10017, (212) 687-3280, and the Directory of Marketing Research Agencies and Management Consultants in the United States and the World, Bradford, P.O. Box 276, Fairfax, VA 22030, (703) 560-7484. The principal advertising media are the press, television, and radio. Cinema is primarily a support medium with a strong reach among the 15 to 24 year olds. The following are major Dutch newspapers: Algemeen Dagblad -- National conservative daily with 400,000 circulation. Westblaak 180, 3012 KN Rotterdam Het Financieele Dagblad -- National business daily with 28,000 circulation. Weesperstraat 85, 1018 VN Amsterdam De Volkskrant -- National labor-oriented daily with 280,000 circulation. Wibautstraat 148-150, 1091 GR Amsterdam De Telegraaf -- Conservative, sensationalist national daily with 705,000 circulation. Basisweg 3, 1048 AP Amsterdam NRC - Handelsblad -- Influential, independent national evening daily with 180,000 circulation. Westblaak 180, 3012 KN Rotterdam Elsevier -- Weekly news and opinion with 140,000 circulation. Spuistraat 110-112, 1012 VA Amsterdam Samples and Advertising Materials The Netherlands participates in the International Convention to Facilitate the Importation of Commercial Samples and Advertising Materials. Samples of negligible value imported to promote sales are accorded duty-free and tax-free treatment. Prior authorization is not required. To determine whether the samples are of negligible value, their value is compared with a commercial shipment of the same product. Granting of duty-free status may require that the samples be rendered useless for future sale by marking, perforating, cutting, or other means. Imported samples of commercial value may be granted a temporary entry and exemption from custom charges. However, a bond or cash deposit may be required as security that the goods will be removed from the country. This security is the duty and tax normally levied plus 10 percent. Samples may remain in the country for up to 1 year. They are not permitted to be sold, put to their normal use (except for demonstration purposes), or utilized in any manner for remuneration. Goods imported as samples may be imported only in quantities constituting a sample according to normal commercial usage. Trade Fairs Exhibitions are a cost-effective method to enter a foreign market and meet a wide range of buyers interested in a particular industry sector. Sales professionals find that trade fairs attract extensive buyer attendance and frequently can be used to gauge acceptance and pricing of new products and to observe the competition. In the course of a few days, a new market entrant may be able to generate more qualified and motivated prospects than by using any other sales approach. New products are frequently introduced at trade shows so that competitive products can be identified and evaluated as they emerge in the market place, thus providing important marketing information. Fairs are particularly useful for introducing a new product to the market or for finding an agent, distributor, or representative. Sales Service/Customer Support The Dutch can purchase from international sources and expect well-designed, high-quality products, with efficient after-sales service. An effective servicing system also should be incorporated into distribution plans. The U.S. exporter would be ill-advised, after having appointed a representative firm, to provide only product literature and samples and then expect to have good sales results. Regular communications and visits to the representative, particularly when newly appointed, by seasoned sales personnel or company technicians can reveal information on market developments and assist in the solution of any problems. Regular submission of sales reports can be a vital link to analyzing sales results and identifying potential problems before a serious one occurs. Selling to the Government It is almost impossible to sell to the Dutch government for U.S. companies without local representation. All public sector procurement tenders over the threshold amount of 5 million ECU (US $4.3 million) are published both in the EU Journal and the Dutch Government Gazette (Staats Courant). Companies interested in identifying and bidding on government procurements under this amount will have to contact the individual Dutch ministries directly. A well connected local representative is vital in this process. Protecting your Product from Intellectual Property Rights Infringement The Netherlands has legislation for the protection of patents, trademarks, and industrial designs. It is a member of the Paris Union, which adheres to the International Convention for the Protection of Industrial Property. Detailed information and applications for patents, registration of trademarks, and for design protection should be obtained from: Patents Council, Octrooiraad, Patentlaan 3, 2288 EE Rijswijk (ZH). The Netherlands is a signatory to the European Patent Convention, which provides for a centralized European-wide patent protection system. The European Patents Act of 1977 provides increased legal protection, a patents court, and guidelines for compensation of an inventor. The European Patent Convention has simplified the process for obtaining patent protection in the EU member states. Under the European Convention, an applicant for a patent is granted a preexamined 15-year, nonrenewable European patent that has the effect of a national patent in all 16 countries that are signatories of the convention, based on a single application to the European Patent Office. This procedure should expedite the granting of patents. However, infringement proceedings remain within the jurisdiction of the national courts, which could result in some divergent interpretations. For information, write to the European Patent Office, Motorama-Haus, Rosenheimer Strasse 30, Munich, Germany. Both the Netherlands and the United States are signatories of the Universal Copyright Convention, which provides for mutual copyright protection. The Netherlands is also a member of the Berne Convention, which forms the International Union for the Protection of Literary and Artistic Works. Need for a Local Attorney (See section on "Finding a Partner")