V. MARKETING U.S. PRODUCTS AND SERVICES DISTRIBUTION AND SALES CHANNELS: Marketing channels in New Zealand are very similar to those found in the U.S. The size of the market will allow one to two distributors per unique product/manufacturer. The principal import channels are sales agents, importer- distributors (distributors who import and stock certain lines and take orders for direct shipment of others), and direct importers and users. Sales agents are the common medium for selling a variety of products, including producer's materials bought according to specifications and consumer goods for distribution to large wholesalers and retailers. The preference for buying direct from manufacturers is well established in New Zealand. A number of sales agents carrying a broad range of products have developed special departments and technical personnel to market products requiring specialized knowledge. Agents or importer-distributors are a common channel for the distribution of products involving technical knowledge, service, repairs and parts, and other more involved service for the manufacturer. Typical products handled are metalworking machinery and equipment; agricultural and electrical machinery; transportation, medical, and scientific equipment; measuring and testing instruments; and certain kinds of consumer durables. Importer-distributors frequently are used to sell certain chemical products, textiles, foodstuffs, and other consumer goods where stocked supplies are an important factor. A number of large retailers also buy through purchasing offices in the United States and other countries. There is a good network of agencies that specialize in handling refrigerated and frozen foodstuffs throughout New Zealand. Numerous subsidiaries of foreign manufacturers import directly from parent companies and distribute products to round out or supplement their domestic production. Import and distribution by a New Zealand branch or subsidiary is common when the volume is substantial and the foreign parent wishes to retain control of distribution. A number of well established companies with nationwide networks of offices perform, in addition to trading activities, a broad range of other functions such as transportation, packaging, manufacturing, and distribution at both the wholesale and retail levels. These firms are usually excellent representatives for new products seeking market penetration, although they usually import products to complement existing lines. With the growth of the New Zealand economy, there has come some blurring of the traditional pattern of the channels of distribution. In the past, wholesalers provided the link between manufacturers and retailers. Large department and chain stores dealing directly with manufacturers or having factories of their own, and associations of retailers buying in bulk, together account for a significant volume of goods. In addition, some manufacturers have established organizations for the purpose of selling direct to retailers, while smaller manufacturers often sell to retailers located in areas adjacent to their factories. Wholesalers sometimes extend the scope of their activity to include manufacturing, packaging and retailing. USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER: Many New Zealand agents and distributors are active participants in trade fairs world-wide as both exhibitors and attendees. This activity places them in direct contact with new product opportunities. Manufacturers then use their own credit and reference checking resources to verify the competency of the agent- distributor. In New Zealand, the U.S. and Foreign Commercial Service (US&FCS) has had a great deal of success with the Trade Opportunity Program (TOP), Agent/Distributor Service (ADS), World Trader Data Reports (WTDR), and most recently the Gold Key Service, as productive means for U.S. manufacturers to locate effective sales and distribution channels. The U.S. Foreign Agricultural Service (FAS) (Wellington) has a comprehensive listing of food importers and distributors as well as their principal contacts, and also offers exporters the Agriculture Information and Marketing Services (AIMS) buyer alert network to find buyers. FRANCHISING: While franchising in New Zealand has only been active in the last five years, it is becoming an increasingly important way of doing business as New Zealand companies seek ways to expand in a cost- effective yet profitable manner. New Zealand has a very high proportion of small and medium size businesses; many are taking advantage of the economic upturn and franchising their businesses. According to recent estimates, there are between 150 and 200 systems (franchisors) accounting for 2-3% of sales. Most of the initial growth was concentrated in retail, but has recently included the service sector. As of mid 1994, specific regulations governing franchising had not been enacted or proposed. U.S. based companies have found a great deal of success in franchising in New Zealand. The best example is McDonalds which has its fourth largest franchise location per capita in New Zealand (after the U.S., Canada, and Australia). DIRECT MARKETING: Direct marketing started in New Zealand with direct mail solicitation, often for articles of apparel. In the last five years, it has become the fastest-growing distribution channel in New Zealand. New Zealand Post estimated that by 1994 the direct marketing component of total industry advertising and promotion expenditure will have grown to over USD 386 million (NZD 700 million). This represents a jump from 17 percent of 1989/1990 expenditures to 30 percent of 1993/1994 advertising expenditures. It also is reflected in the 30 percent growth in the NZ Direct Marketing Association membership over the last year. The deregulation and privatization of the postal system (NZ Post) has opened the door to special services. NZ Post offers everything from bulk mailing rates, data processing, and bonded goods storage to remittance processing. All but the mail processing is also offered by private third parties. Direct television marketing activity has increased with the use by internationally based marketers using pay-for-view channels that access more than one country. Retailers and the educational sectors use direct response press activity to publicize immediate opportunities. Telemarketing is used for direct sales, lead generation, inquiry qualification, customer service operations, surveying and research, validation of previous orders, promulgating advertising messages and public image building, credit handling and for 0800 number (akin to 800 numbers in the U.S.) marketing -- telemarketing's hottest growth area. JOINT VENTURES/LICENSING: There are no compulsory requirements for foreign companies to form a joint venture with a New Zealand entity when starting up operations. Some U.S. firms do choose for their own strategic reasons to join forces with established New Zealand firms to jointly manufacture and market their products. Licensing by the New Zealand Government for export and import activity was repealed as part of the significant deregulation of the economy that occurred in 1983/84. STEPS TO ESTABLISH AN OFFICE: 1. INDIVIDUAL PROPRIETOR: As in the United States, an individual may establish a business without incorporation, subject to various formalities and authorizations that may apply to specific types of activities. The owner has the sole responsibility for the operation and is personally liable for debts of the business. 2. PARTNERSHIP: The types of partnerships and the general principles relating to the rights and liabilities of partners are similar to those applying under English or American law. Generally, a partner is jointly and separately liable for all debts of the firm while that person is a partner. A special partnership, similar to a limited partnership under English law, may be formed for transaction of business other than banking and insurance. Such a partnership must be registered and consist of general partners and special partners. Special partners may not transact the business of the partnership. Rather, they contribute specific sums of money to the capital of the business and, beyond that sum, they are not generally responsible for any debt of the partnership. 3. COMPANY: New Zealand companies law has recently been substantially amended. From July 1, 1994, the new Companies Act 1993 will govern all new companies (and existing companies which re-register under the new Act). The Companies Act of 1955 will continue to govern existing companies until they voluntarily re- register, or until 30 June 1997, whichever is the sooner. Under both Acts, companies may have limited or unlimited liability. However, the great majority of companies are established as limited liability companies. The shareholders of limited liability companies are liable to creditors on dissolution only to the extent of any unpaid calls on their shares. A limited liability company must have the word "Limited" as the last word of its name. Under the new Act, there is no distinction drawn between private and public companies. However, under the 1955 Act, private companies need not observe all the requirements applying to public companies, examples being the rules relating to forming companies, passing resolutions, and audits. 4. REGISTRATION: Registration must be granted by the Registrar of Companies and an IRD number assigned by the Inland Revenue Department. From July 1, 1994, new companies must have at least one share, at least one shareholder, and at least one director. To become incorporated, an application for registration involves the following documents: - a signed application in the prescribed form; - signed consents relating to shareholders and directors; - a notice reserving the name of the proposed company (previously obtained from the Registrar); and - a certified copy of the company's constitution (if it is to have one; this is optional). A certificate of incorporation is deemed conclusive evidence that a company has been duly incorporated under the Act. Companies must maintain proper accounting records and prepare an annual report, including financial statements, for shareholders. Companies also must file an annual return at the Companies Office. 5. REGISTRATION of OVERSEAS COMPANIES: As of July 1, 1994, Part XVIII of the new Act provides for companies incorporated outside New Zealand to carry on business in New Zealand. An overseas company must not carry on business in New Zealand, unless the name of the overseas company has been reserved with the Registrar of Companies. Within 10 days of commencing business in New Zealand, an overseas company must apply for registration under the Act. Registration involves an application stating: - the name of the company; - the full names and addresses of directors; - the address of the principal place of business in New Zealand; - evidence of overseas incorporation and a copy of an instrument defining the constitution of the company; - notice of name approval; and - the name and address of a person who is authorized to accept service in New Zealand on behalf of the overseas company. Overseas companies must file an annual return with the New Zealand Companies Office. Further, under the Financial Reporting Act 1993, overseas companies are required to keep accounts relating to their New Zealand business, and to file financial statements at the Companies Office once a year. The Registrar may accept financial statements prepared under the rules of the country of incorporation as complying with the New Zealand requirements. Every overseas company must ensure that its full name and the name of the country in which it is incorporated are clearly stated in any communication sent by or on behalf of the company, and in any documents that evidence or create a legal obligation of the company. 6. OVERSEAS INVESTMENT COMMISSION: Overseas persons (including companies incorporated outside New Zealand) making investments over approximately USD 5.5 million (NZD 10,000,000), or any business involving rural land or commercial fishing within New Zealand's exclusive economic zone, must first obtain the consent of the Overseas Investment Commission (see part III, Investment Barriers and part VII, Investment Climate). 7. REPATRIATION of CAPITAL and FOREIGN REMITTANCES: Repatriation of overseas capital and capital gains is permitted. It is the policy of the New Zealand Government to allow the remittance of profits, interest and dividends earned by overseas investors. This policy applies to loan investment as well as to direct and portfolio investments. The only impediment to repatriation of capital falls under the New Zealand Income Tax Amendment Act (No 3) 1993. The Underlying Foreign Tax Credit regime allows a credit against the New Zealand company's foreign dividend withholding payment liability for tax paid by an affiliated overseas company on its profits. To be eligible for the credit, the New Zealand recipient company must hold an interest in the paying company being: (1) a 10 percent or greater income interest in a controlled foreign company, or (2) a 10 percent or greater voting interest in a foreign investment fund, the income of which is accounted for under the branch equivalent system. Non-resident investors (individuals or businesses) who hold less than 10 percent of the shares of the recipient company receive, in addition to the cash dividend, an imputed tax credit based on a portion of the overseas tax payment by the affiliate. However, no tax credit benefit is available for foreign investors who own more than 10 percent of the shares of the New Zealand Company. 8. SHELF COMPANIES and LEGAL ADVICE: Shelf companies and specific legal advice relating to New Zealand incorporated companies are readily available in any of the New Zealand metropolitan areas. (See part V under Need For Local Attorney.) SELLING FACTORS/TECHNIQUES: Both sales presentations and problem solving techniques are used successfully in New Zealand as approaches to selling. One-on-one discussions with potential buyers are the predominate method of selling capital intensive or service products to other businesses. Telemarketing and mass media advertising are used most often by retailers to communicate to the public new products or purchasing opportunities. ADVERTISING AND TRADE PROMOTION: Advertising is well developed in New Zealand and is used by a large cross section of the business and institutional community to inform the public about goods and services. At the end of March 1992 there were approximately 85 agencies of which 57 were New Zealand owned. The remaining 28 were affiliated or partially owned by large multi-national companies. The largest share of advertising in New Zealand is handled by the 28 daily newspapers. Eight of these are morning newspapers and 20 are published in the evening. Of the eight morning dailies, the one with the largest circulation is The New Zealand Herald, which is published in Auckland and has an audited net circulation of 250,814 copies daily. The other dailies have circulations ranging from 3,000 to about 105,000. Other major newspapers are The Dominion and the Evening Post (Wellington), The Waikato Times (Hamilton), and The Press (Christchurch). Currently, two major companies own the majority of the country's daily papers. The two major publishing groups are Independent Newspapers Limited (8 papers) and Wilson and Horton Limited (8). These two firms account for 80% of the country's 1 million daily circulation. The leading business journal is The National Business Review. It is published weekly by Liberty Holdings Ltd in Auckland. Late in 1993, a second weekly financial journal called The Independent came on the market. It is published by Pauanui Publishing Ltd in Auckland. There are over 2,300 magazines available in New Zealand on a regular basis. Of this number, 58 are listed with the New Zealand Audit Bureau of Circulations as being either published in New Zealand or New Zealand editions. Most local magazines (34) are published monthly, 11 are published on an alternate month basis, and six are weeklies. New Zealand is serviced by three television stations and a pay-for- view vendor that presently offers three additional choices. Television New Zealand (TVNZ), the operator of two of the three (free) commercial channels, is a State Owned Enterprise (SOE) run independently from the government. It claims to have almost 100 percent coverage in New Zealand. TV3 Network Ltd (TV3) is New Zealand's privately owned commercial network and reaches about 93% of the population. Sky Television, the pay-for-view operator, offers a 24 hour news (CNN and BBC) channel, a movie channel (HBO), and a sports channel (ESPN). Sky announced in mid 1994 its intention to offer two more channels to its subscribers. Radio has over 33 commercial and community stations, each with a local management grouped under several regional management structures, and ultimately responsible to either a central metropolitan or provincial management structure. There are two self regulatory bodies in New Zealand's advertising industry, the Advertising Standards Authority and the Advertising Standards Complaint Board. Additionally, the Broadcasting Standards Authority (statutory) is responsible to radio and television advertising code and adjudication. PRICING PRODUCT: There are no government price control regulations. Export prices on certain agricultural products are maintained by statutory marketing boards (see part VI. under Export Controls). SALES SERVICE/CUSTOMER SUPPORT: Sales service and customer support is a growing area of focus for New Zealand retailers and manufacturers. Historically, under the controlled economy of the 1950's and 1960's, the consumer did not have many choices or opportunities to speak out. With the removal of import and export licenses and further movements to encourage competition in the marketplace, the buyer has become more demanding and sophisticated; a buyer's market exists. The entrance of U.S. based retailers and franchises like KMART and McDonalds have received glowing reviews on the level of service. Also, as the population has become better travelled, expectations of product quality and service have increased. Consequently, consumer pressure on the entire marketing chain also has increased. SELLING TO THE GOVERNMENT: New Zealand has effectively removed all barriers to foreign firms bidding and winning procurement contracts. The Closer Economic Relationship (CER) with Australia allows Australian goods to be considered equal to New Zealand goods (see part VI, under Membership in Free Trade Arrangements). This factor only comes into consideration when all bids are equal and the tenderer reviews "local content" value to finalize the purchase decision. While there are no laws that require "local content" consideration, the New Zealand government has encouraged its and State Owned Enterprises (SOE) procurement officers to buy New Zealand made products when all other factors are equal. The New Zealand government has yet to sign the GATT Government Procurement Code. Government departments and the SOE's must act as efficiently as possible within their limited budgets and may purchase from any source, if they believe it offers good products at a reasonable price. The government believes that since purchasing decisions have been decentralized, open and transparent tendering are ensured and that its procurement policy is actually more liberal than that required by the GATT Government Procurement Code. Generally, American businesses have not registered any complaints about their dealing with the New Zealand government or its SOE's concerning the tendering of procurement opportunities. PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT: At the outset it must be noted that a review of New Zealand's patents, designs, and trade marks legislation was nearing completion in mid 1994. It is likely that a number of changes will be made to the patents, trade marks and designs systems as a result of this review. 1. PATENTS and DESIGN: The Patents Act, 1953 and the Designs Act, 1953 constitute the basic New Zealand legislation governing these forms of industrial property protection. Section 51 of the Patents Act, which contained permissive rules for compulsory licensing of pharmaceutical products, was repealed in 1992, bringing New Zealand's Patent Act into conformity with the intellectual property legislation in other industrialized countries. Patents are obtainable for "any manner of new manufacture," a phrase to which a wide interpretation is given. Those who wish to protect an invention by a patent should arrange for a search of New Zealand Patent Office records to determine what has been done in the same field. If the invention appears capable of being registered for a patent, an application may be filed at the Patent Office, accompanied by either a provisional or complete specification describing the invention. The documents must meet formal requirements, and a fee must accompany the application. An application for a patent may be made in either of two ways: (1) the applicant may apply in the first instance with a provisional specification and then file a complete specification at a later date within 12 months or, with application for extension of time, within 15 months; or (2) the applicant may file a complete specification at the time of making the application. The Paris Convention for the Protection of Industrial Property ("Paris Union"), to which New Zealand is a party, provides that a person (or his/her personal representative or assignee) who has filed an application for a patent in another Paris Union country has the right, within 12 months from the date of the first application in the Paris Union country, to claim priority (i.e., the filing date of first application) for a subsequent application in respect of the same invention in any other Paris Union country. In New Zealand such an application must be accompanied by a complete specification, together with certified copies of the application filed abroad. New Zealand is also a member of the Patent Cooperations Treaty and can, therefore, be included as a designated country when making applications by this route. An application with a complete specification is examined in the Patent Office to determine whether the invention meets the conditions for the grant of a patent. For example, a complete specification must describe the invention and the method by which it is to be performed, disclose the best method for performing the invention which is known to the applicant and for which the applicant is entitled to claim protection, and have a claim or claims which define the scope of the invention. The application also will be examined to determine whether it is novel in New Zealand at the date of priority. If the application passes the examination stage, it is accepted and published in the Patent Office Journal. Thereafter, the application is open for a period to opposition by any interested party. If the opposition stage has passed successfully, the patent is granted for a 16 year term from the filing date of the complete specification. Extensions of up to ten years are possible but difficult to obtain. A New Zealand patent is a limited monopoly granted by the Crown (New Zealand Government) to make, use, exercise, and vend an invention and its products throughout a 16 year period, with the proviso that it may be terminated in certain circumstances. Those who infringe on patent rights are liable for damages and other penalties. The New Zealand Patent Office does not make searches for members of the public (except trademark searches), but will assist inquirers wishing to search the registers or the collection of New Zealand and foreign patent specifications. No search fees are charged. The Patent Office has a complete record of all patents granted in New Zealand. There is also a comprehensive library of specifications from overseas countries. Those not familiar with the practice of the Patent Office are advised to employ a patent attorney for searches and all work relating to patents. The Patent Office will supply a list of attorneys upon request. Inventions are either subject to patent rights or in the public domain. If subject to patent rights, they may be used only under license, normally obtained from the patentee. The Patents Act, 1953 gives protection against the abuse of patent rights, and compulsory licenses and other remedies are available. Designs may be registered to obtain protection for the shape, configuration, pattern, or ornament applied to articles by an industrial process or means. The law on the marketing of registered designs and the system for searching is similar to that for patents. To register a design, an application must be made, supplemented by drawings or photographs of the design. The application is examined and a search for novelty is made. The term of registration is for 5 years, which may be extended to 15. The registration of the design may be canceled if found to be invalid for any reason. 2. TRADEMARKS: The Trade Marks Act, 1953 provides for the registration, in respect to particular goods or classes of goods, of a distinctive mark, stamp, device, brand or name. The Commissioner of Trade Marks may refuse to accept any application with representations of royal or official coats of arms or other items. The appropriate classification of goods and services is determined according to the Nice Agreement on the International Classification of Goods and Services, although New Zealand is not yet a party to that agreement. Registration may be permanent subject to payment of renewal fees. To obtain registration of a trademark, it must have been used or proposed to be used. A trademark may be expunged from the register on the grounds of non-use. The registration of trademarks is not essential for protection, but those who use marks without registering them must rely for their protection on common law rights and remedies. Definite statutory rights are given to registered proprietors. Because the value of a well-known trademark may be high, its registration is desirable. 3. PLANT VARIETY RIGHTS: A system of protection for plant varieties, known as plant variety rights (PVR), is administered by the Plant Variety Rights Office in accordance with the Plant Variety Rights Act 1987 (the Act). New Zealand is a member state of the International Union for the Protection of New Plant Varieties (UPOV), adhering to the 1987 UPOV Convention. Under the Act, the breeder of a plant variety may obtain a grant of PVR if the variety is new (it should not have been sold earlier than certain specified times before application is made), distinct, uniform and stable. An application for a PVR must be made to the PVR Office following which an examination is carried out to determine whether the candidate variety meets prescribed criteria. The examination normally involves a growing trial of the variety conducted in New Zealand. Notice of applications, grants and other matters concerning PVR, are published in the quarterly New Zealand Plant Variety Rights Journal. A grant of a PVR gives the breeder exclusive rights of commercialization of the variety for 20 years, or 23 years in the case of woody plants. Such a breeder is entitled to take court action against anyone infringing the PVR. 4. COPYRIGHT: Copyrights are governed by the Copyright Act 1962 and the Copyright Amendment Act 1985. New Zealand adheres to the Rome revision (but not the Brussels revision) of the Berne Copyright Convention. It is also a signatory to the Universal Copyright Convention. These two treaties provide that citizens of member countries are afforded protection in respect of work that may be copyrighted. The statute specifies various circumstances in which reproduction of copyright material will not amount to an infringement, for example, if such material is used in fair dealing or for various research and educational purposes. It also stipulates that reproduction of drawings included in the Register of Patents or the Register of Designs in relation to patents and designs that are no longer in effect will not amount to an infringement of copyright. Copyrighted work published within the lifetime of the author generally subsists during the author's lifetime and 50 years thereafter. Otherwise, it subsists for 75 years after the author's death. 5. COMPUTER TECHNOLOGY: Computer software may be subject to copyright, and hardware may be patented. Patents may be granted for industrial processes characterized by the use of specific software. 6. TRIPS AGREEMENT: In implementing the GATT Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), New Zealand will be making a number of changes to intellectual property legislation, particularly in the patents and copyright areas. NEED FOR A LOCAL ATTORNEY: The legal system in New Zealand has developed from British law. Much of the law is codified, but English common law remains important in many areas. The system of courts extends from the district courts through the High Court and Court of Appeal to the Privy Council in London. The public receives protection under a Bill of Rights and may obtain information on request under the Official Information Act. It is recommended to use local attorneys when registering a company, closing a contract, hiring office space, or any other time one would normally contact an attorney in the normal course of business. The US&FCS office in New Zealand maintains a list of solicitors and barristers for reference.