V. MARKETING U.S. PRODUCTS AND SERVICES DISTRIBUTION AND SALES CHANNELS Business practices in Panama are very similar to those in the U.S.; i.e., business tends to be direct and straightforward. On average, Panama City accounts for 65% of total national sales of consumer goods, the remaining 35% is distributed among the principal cities of David, Santiago, Chitre and Colon. The marketing channel structure in Panama tends to be simple. Direct importers usually act as wholesalers and in some cases also as retailers. This situation is common in the case of apparel, automotive parts and hardware products. In the case of consumer goods and food and medicines, the retail operation is separate from the wholesale operation. In the industrial goods sector, sales are normally handled by local exclusive agents or distributors. In other cases, local firms order directly from U.S. brokers or the manufacturer. Some of Panama's major importers are also regional distributors located in the Colon Free Zone (CFZ). The CFZ (located on the Atlantic side of the country), is a major warehouse/distribution center for re-exporting to Central and South America, as well as the Caribbean. Generally, CFZ importers/distributors have affiliated stores in Panama City for retail sale to the local market. USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER According to Panama's constitution, nationals and foreigners are equal under the law. Both Panamanian and foreign companies must fulfill the same basic requirements to organize and operate most types of business activities in Panama. However, there are restrictions on foreigners operating retail trade activities and practicing certain professions. Agents and distributors in Panama are regulated only by the private agreements made between the parties involved. In cases of contract termination or disputes the private contract clauses prevail over any other document or practice. Individuals may engage in business activities in their own names or through legal entities. The most commonly adopted form of legal entity is the corporation (sociedad anonima). Other types of legal entities commonly used in Panama are: general partnerships, simple limited partnerships, joint stock partnerships and limited liability companies. FRANCHISING Panama is receptive to U.S. style franchising. The market for both specific and general franchising opportunities is attractive, since Panama maintains no control on royalty payments or transfers. Recreation, entertainment services, automotive, as well as hotel and motel franchising operators will find a fertile market as the local market demands better facilities and services. Th U.S. Embassy in Panama recommends consulting a local attorney for details on how to set up a franchise in Panama. DIRECT MARKETING Key factors for market success in Panama are: high quality, customer service, brand-name recognition and attractive packaging. U.S. products targeting along the middle to lower upper income markets compete well, since Panamanians have a penchant for high quality U.S. products. Panama's domestic market serves 2.5 million people. Those with disposable incomes follow sophisticated U.S. consumption patterns. U.S. products and equipment are appreciated and in great demand. Most high end U.S. and foreign brand names are represented in Panama. An aggressive marketing strategy improves the level of success in meeting the needs of a trend-conscious market. JOINT VENTURES/ LICENSING Joint ventures are not common in Panama. Joint ventures are formed for a specific period of time, such as for a specific construction or technology transfer contract/concession, rather than a long term business venture. The profits from joint ventures are to be distributed annually to each joint venture partner, and are taxed in the same manner as any other income. Panamanian law does not regulate the registration of license agreements in Panama. Nevertheless, common practice is to accept license agreements over trademark registers in Panama. The agreements must be attached to the registered trademark filed with the Industrial Property Department of the Ministry of Commerce and Industry. The agreements become part of the file of the said trademark. (Refer to Appendix C for contact information). Panama offers a unique condition for licensing, distribution arrangements and joint ventures as well as routine buy/sell operations. The Colon Free Zone offers the U.S. exporter looking for a share of the region's market a convenient one-stop distribution center covering the entire region. STEPS TO ESTABLISHING AN OFFICE Panama has one of the most modern and flexible corporate laws in Latin America. The following are some of the advantages offered to Panamanian Corporations: 1. Two or more persons of any nationality, even though not domiciled in Panama, may organize a corporation for any lawful purpose. The articles of incorporation may be executed anywhere, even outside of Panama, and in any language. 2. There are no requirements regarding the amount paid in capital. 3. Ownership of a Panamanian corporation may reside in a single individual or corporation and no part of the capital needs to be held by a Panamanian. 4. There are no nationality or residence requirements for shareholders. 5. Neither the directors nor the officers are required to be shareholders. 6. The Board of Directors must be composed of at least three directors, but one person may hold more than one position. 7. Meetings of shareholders or directors may be held outside of Panama. Proxies may be used by shareholders/directors. In order to form a corporation in Panama, the client must furnish the following information: 1. The name of the corporation. It may be in any language, but it must terminate in a word or abbreviation indicating that it is a corporation. 2. The objectives and purpose of the corporation. 3. The amount of the authorized capital. Usually the authorized capital will consist of US$ 10,000 divided into 100 shares of US$ 100 each. 4. The types of shares, may be nominative or bearer share. 5. Duration of the corporation, usually perpetual. 6. The full names and addresses of three or more directors and/or officers. 7. The domicile of the corporation. The time period usually involved in setting up a corporation is from one to two weeks. Attorneys fees range from US$ 600 to US$ 1,500. In order to engage in commercial or industrial activities, all corporations, partnerships or individuals must obtain proper authorization from the Ministerio de Comercio e Industrias, Oficina de Comercio Interior. There are three basic types of licenses involved: a) Commercial License Class A is required for wholesale operations, commercial and mortgage banks, financial companies, international financial brokers, insurance and reinsurance companies, international transportation companies, mutual funds, public utilities, and high- technology service companies. b) Commercial License Class B is required for retail businesses; including representation agencies, service companies, bars, restaurants, drugstores, real estate agents, gas stations, local transportation, distributors and others. This license is only granted to Panamanians or corporations owned solely by Panamanians. c) An Industrial License is required for extractive and manufacturing industries, as well as construction companies. (Refer to Appendix C for contact information). Exemptions for business license requirements are granted to persons or legal entities engaged exclusively in agriculture, cattle, bee, or poultry raising, or in the manufacturing and sale of handicrafts, provided that the work is not performed by hired workers. Licenses must be kept at all times in a visible and accessible place. The cost for obtaining one ranges from US$ 250 to US$ 750. Also, an annual tax is levied based on the net worth of the company, as stated in the income tax return. SELLING FACTORS/TECHNIQUES Panama has the highest per capita income in Central America. The majority of income is skewed to a small, consumer goods oriented economic class. Upper middle and upper class families have high levels of disposable income. They are interested in purchasing high quality, trend-setting goods; price plays less of a factor in purchasing an item for this class than for the middle to lower income classes. At the other end of the income scale, is the majority of Panamanians who remain interested in quality. Price plays an important factor in the purchase decision for this class. The availability of the U.S. dollar as legal currency and consumer preference for high quality products at a good price are two factors which explain the high acceptance of U.S. imported products in Panama. Overall, U.S. products compete well in the market and are considered of good quality. However, in many instances, in order to maintain their market share, U.S. products must compete against often lower priced products especially from the Far East. For example, Japanese and Korean electronics dominate the market because of aggressive market entry techniques and good quality at competitive prices. ADVERTISING AND TRADE PROMOTION Advertising in newspapers and on T.V. are the promotion tools used by the majority of distributors of U.S. products. Panama has a very competitive advertsing market, followed by standard prices and good quality of production. Newspaper advertising is the most used sales promotion tool for new products followed by T.V. campaigns. Additionally, trade show and exhibitions have proven to be effective tools for trade promotion in Panama. Newspaper advertising is used heavily in promoting sales. Special sales prices are usually advertised during weekends. Most foreign manufacturers of consumer products keep a high profile presence in the country through large billboards, sponsoring sports events and T.V. advertising. Radio advertising is mainly utilized in the interior cities of the country. Major Newspapers: El Panama America Advertising Manager - Luis Carlos Arias P.O. Box B-4 Panama 9A, Republic of Panama Tel: (507) 30-1666 Fax: (507) 30-1033 Daily Circulation: is 29,000 Format: standard Advertising prices: US$ 7.00 per columnar inch, each page has 126 columnar inches. La Estrella de Panama Advertising Manager - Juan Antonio Gonzalez P.O. Box Q Panama 4, Republic of Panama Tel: (507) 27-0555 Fax: (507) 27-0723 Daily Circulation: 21,200 Format: standard Advertising prices: US$ 8.00 per columnar inch, each page has 126 columnar inches. La Prensa Advertising Manager - Mabel de Jaen P.O. Box 6-4586, El Dorado Panama, Republic of Panama Tel: (507) 21-7222 Fax: (507) 21-7328 Daily Circulation: 38,000 Format: standard Advertising prices: US$ 11.00 per columnar inch. Panama has a well-developed market for advertising. Main advertising companies are usually associated with international advertising companies. Refer to Appendix C for contact information. PRICING A PRODUCT The price structure in Panama depends on the level of competition for a product. The costs of transportation and import duties vary from item to item. However, for the sake of illustration, the sample below offers average costs added to the product as it reaches the consumer: import duties 20%, wholesale and retail markups 20% each. Average Pricing Schedule $ Price CIF Panama 100.00 Import Duty 20.00 Total Landed Cost 120.00 Wholesale Price 150.00 Retail Price 187.50 Note: A 5% value added tax over CIF value is assessed at the time of customs liquidation. However, this tax is placed on all goods, domestic and imported, and is transferred to the consumer and thus is not included in this calculation. SALES SERVICE/CUSTOMER SUPPORT Competition among distributors is reflected in the training, counseling and support they can provide to their customers. U.S. companies should focus on providing training and technical assistance to their distributors and making sure they have the resources to provide after sales support, including spare parts, service equipment, etc. GOVERNMENT PROCUREMENT Panama does not have a Central Procurement Office such as the U.S. General Services Administration (GSA). All purchases of goods and services of any significant value are by law advertised as a public bid. Lack of transparency, excessive delays and bureaucracy in the bid selection process have caused problems for U.S. and other bidders in important government bids in the past. INTELLECTUAL PROPERTY RIGHTS Panama is a member of the World Intellectual Property Organization (WIPO), the Geneva Phonograms Convention, the Brussels Satellite Convention, and the Universal Copyright Convention. Although Panama is not a member of the Bern Convention for the protection of Literary and Artistic Works or the Paris Convention for the Protection of Industrial Property, the Government of Panama has submitted to its National Assembly legislation for Panama to accede to the Paris Convention. In August 1994 Panama was on the U.S. Government's Special 301 List under the category Special Mention. (See also Section VII: Protection of Property Rights, for more information). REGISTERING YOUR PRODUCTS All food products and beverages sold in cans, bottles or any other form of packaging, must be registered before the Bureau of Public Health, and must comply with requirements of hygiene and quality control (Refer to Appendix C for contact information). Alimentary imports to Panama is forbidden if the sale of such products is not authorized in its country of origin. The Executive Branch, at the request of the Ministry of Public Health, issues the sanitary regulations for the manufacturing, warehousing, importation, and sale of medicines and related products. These products cannot be manufactured or imported into the country without prior analysis and registration. In the case of certain foods and pharmaceutical products, a Certificate of Free Sale issued by the sanitary authority of the place of origin authenticated by a Panamanian Consul in the U.S. must accompany the application for sanitary registration and Certificats of Free Sale. CONTACTING A LOCAL ATTORNEY The law requires that every corporation organized pursuant to the laws of Panama have a resident agent within Panama, who must be an attorney. The annual fee for this service is about US$ 200. Legal fees for professional services in connection with the organization of a corporation normally range from US$ 600 to US$ 1,500. Registering a national trademark or patent requires a power of attorney. Also, a local attorney is needed to handle business visas. The Consular Section, of the U.S. Embassy in Panama, issues a list of attorneys in Panama. Contact: U.S. Embassy, Consular Section, Unit 0945, APO AA 34002, Tel: (507) 27-1777, Fax: (507) 27-0239.