V. MARKETING U.S. PRODUCTS AND SERVICES DISTRIBUTION AND SALES CHANNELS The Portuguese population is concentrated on the coast. The major distribution centers are Lisbon in the South and Oporto in the North though the regional centers of Braga ( north of Oporto) and Setubal (South of Lisbon) have come much into their own in recent years. The Lisbon region accounts for 21% of the Portugal's population with 63% employed in services and 33% employed in industry. Major industries as well as the head offices of large corporation are located here. Most financial institutions have also chosen Lisbon to locate their headquarters. The Lisbon area has the highest purchasing power in the country but suffers already from traffic congestion and rising costs. Oporto is the most dynamic industrial development area in Portugal. It accounts for 16% of the Portuguese population and is also an area of high purchasing power. Oporto is now connected to Lisbon by a new motorway and a new bridge over the Douro river. The coastal region between these two cities, and the area extending into Braga and Setubal, is where the large majority of Portuguese industries are located. Portugal is a relatively small country and most sales channels cover the entire territory. Distribution centers tend to be located in Lisbon and Oporto. However, many large importers and wholesalers have branch sales offices and/or sub-agents or dealers in the principal cities and towns, including those of the Portuguese island of Madeira and Azores. USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER American firms interested in selling in Portugal generally start by appointing an agent or a distributor. This may be followed by the establishment of local facilities through wholly-owned subsidiaries or joint venturing. Most manufacturers exporters commonly are represented in the market through exclusive importers/distributors who may appoint sub-distributors and dealers. Generally agent/distributors who operate a sales network that covers the entire country expect exclusive representation agreements. They tend to be quite specialized in their respective market segment. It is often the case that an American firm offering a wide range of products may require representation in the Portuguese market by different local firms depending on the particular product. So far, large retail stores,(that for many years were a rarity in Portugal), and the few recently opened large department stores are growing very quickly. This may be an alternative sales channel for some products. Some of these organizations buy/import directly and generally do not raise problems of financial/credit reliability. Portuguese law distinguishes two types of distribution contracts: agency agreements and commercial concession agreements. Generally, the relationship established between American and Portuguese companies, with or without a written agreement, meet the requirements of the Portuguese law. However, a good Portuguese agent/distributor respects any informal type of commercial agreement made with his suppliers. As a EU country, Portugal is subject to the EU directive 86/653/CEE which protects commercial agents in their relations with the companies for which they work. The U.S. & Foreign Commercial Service (US&FCS) at the American Embassy in Lisbon can help American exporters find a partner in Portugal. The services offered in Lisbon include all the export assistance core programs of the United States Department of Commerce. They are targeted at the development of sales leads or finding potential partners and have a low cost. Services specially offered by the US&FCS Lisbon include "Portugal Express", a fast-track program combining in-depth market reports with videoconferencing capabilities that enhances the delivery of information on market opportunities, otherwise available through slower and costlier means. Another electronic-age service is an on-line database, "PortugALL", with nearly all the information available from the Commercial Services office at the Embassy once only accessible through conventional means- - phone, fax, correspondence. Of course, personalized consultancy tailored to the needs of small- and medium-sized exporters are also available to US companies interested in exploring the growing potential of the Portuguese market. FRANCHISING Franchising is a relatively new word in the Portuguese commercial vocabulary. It was the last of the retail trade systems but its growth has been very fast since 1989 and has brought a new vigor to the retail market. The first franchises to get the attention of Portuguese consumers were non-food stores, especially clothing. Next were food stores, then cosmetics, and now other businesses are making their appearance in the most important cities and towns. Simila to many European countries, Portugal does not have any legislation about franchising. If any of the parties is a foreign resident and establishes a local branch or subsidiary, the contracts and agreements are treated as a foreign investment and should be submitted to the Portuguese Institute of Foreign Trade (ICEP) for approval. Otherwise, franchising agreements may be freely established between the parties (franchisor and franchisee). Because there is no specific regulation, franchising is considered a complex juridical relationship ruled by local laws (civil, commercial, intellectual and industrial property rights and competition, etc.) and European Union Law. Franchising contracts and agreements should also be drawn up in light of the fact that through the Portuguese Association of Franchising, Portugal adopted the Deontology Code of the European Federation of Franchising. The Portuguese economy and the purchasing power of the population are growing quickly and offer many opportunities for franchising initiatives. Some well known American franchising networks have already been established in Portugal, but many further opportunities exist in apparel and clothing, fast-food and a large number of services. DIRECT MARKETING Direct marketing comprising door-to-door sales, mail order sales and TV-sales became increasingly popular in Portugal beginning in 1987. However, after 1990 mail order sales and TV-sales have become a distinctly effective direct marketing method and have experienced a very quick growth rate. Between 1990 and 1993 sales growth was estimated at about 12% a year and presently there are 43 direct marketing firms in the market. The most popular direct marketing sectors are selected wines (27% of sales), books, instruction/training and amusement materials (26% of sales) and apparel and clothing (23% of sales). Other successful areas are housewares, perfumes and cosmetics and art/collection products. The expansion of this type of marketing has not been even greater because Portuguese mailing expenses are still too high, and because relevant regulations and laws have not been adequately imposed and Portuguese consumers do not feel adequately protected. The Portuguese regulations/laws themselves are considered adequate but inspection and controlling authorities have found some difficulties with their implementation when there are controversial problems. Direct marketing is increasing in importance as a sales instrument and expands every year to new areas of activity such as "on-line" shopping for groceries, freshly-baked bread, office supplies and computer accessories. JOINT VENTURES/LICENSING Joint ventures and licensing are alternative ways to enter the Portuguese market. Joint ventures are a form of foreign investment which can also be wholly owned. In most cases, the investor is not required to have a Portuguese partner, but it may be desirable. Investments can inject capital into an existing enterprise or create a new one. Portuguese law, with certain exceptions, generally places all firms, both domestic and foreign owned, on an equal footing with respect to tax treatment and incentives. Prospective investors must submit project, (including joint venture proposals to the Portuguese Institute for Foreign Trade (ICEP). If ICEP does not respond within 2 months, automatic approval is assumed. Special regulations apply to investment in government-owned or jointly-owned companies. State-owned monopolies are being eliminated. Certain sectors will continue to be government-controlled such as mail, water distribution, sewage, rail service, airport and port authorities, armaments and telecommunications. Licensing is a contractual arrangement in which the licensor makes available or sells its know-how, patents, trade marks or copyrights to a licensee for compensation. Franchising is an important form of technology licensing, and the above discussed conditions and legal environment of its use and application in Portugal can be generalized for licensing in general. In closing, regarding licensing factors in Portugal, American firms should perhaps be reminded of the obvious: as a fully-integrated member of the EU, Portugal abides by the import and investment rules that govern the rest of the EU...therefore whatever applies in other EU countries applies to Portugal. If an American firm is mastering the EU regulations prior to exporting or investing in the EU - it has already done its homework for Portugal. However, the enforcement of some intellectual property rights laws is still weak. STEPS TO ESTABLISH AN OFFICE To establish an office in Portugal, that is, to create a new Portuguese company recognized as such under Portuguese law, the following steps must be taken: - Apply for a name ( which may be the parent company name in the United States), a certificate of approval and a provisional I.D. card at the RNPC-Registo Nacional de Pessoas Colectivas (National Companies Registry Office). - File a declaration of intent to invest foreign capital in Portugal at the ICEP-Instituto do Comercio Externo de Portugal (Portuguese Institute of Foreign Commerce). - Deposit a copy of the company's contract (memorandum and articles of association) at a Notary Public, for evaluation. - Open a Bank account in the name of the new company being created and deposit its initial capital in one of the branches of CGD (Caixa Geral de Depositos). - Sign the company's contract at the Notary Public. - Have the Company's contract published in the Official Bulletin (Diario da Republica) and also in a local newspaper. - File a declaration of activity commencement at the local revenue office. - Apply to register the company at the RNPC and request a definitive I.D. Card. Register the company also at the Commercial Register (CRC- conservatoria do Registo Comercial) - Industrial activities must be licensed by any delegation of the Ministry of Industry co-located at one of the five Regional Coordinating Committees of the national government . Commercial activities generally do not require licensing. For commercial activities related to public health or security a license must be issued by the DGC-Direccao Geral do Comercio (General Directorate for Commerce). - Register the company at the local Social Security Regional Center. - Have the company's work schedule approved at the Ministry of Employment and Social Security. - Register the company's accounts records at the local Revenue Office, at the Court and at the Bankruptcy Office. - Additional requirements may apply: mandatory insurance, registration of employees at the Social Security and the registration of any foreign workers at the Ministry of employment and Social Security. SELLING FACTORS/TECHNIQUES Portugal is an old country where modernization and tradition are still values that coexist everyday. Modern sales techniques are generally accepted and effective, but traditional values continue to be respected. Many businesspeople still consider that a personal contact and a handshake may be stronger than a public deed. Portuguese consumers have seen their purchasing power increase every year and increasingly buy on impulse. Direct sales, large hypermarkets and commercial malls are changing the habits of the population. For consumer goods the decisive selling factors may be the price, the quality, the trade mark or the product's innovative features. However, the institutional buyer is quality conscious and very sensitive to pricing. These characteristics and its market size sometimes make Portugal a difficult market for some American exporters. However, a good understanding of market channels and the requirements for developing markets of opportunity should lead to very profitable segments for the American exporter. ADVERTISING AND TRADE PROMOTION (INCLUDING LISTING OF MAJOR NEWSPAPERS AND BUSINESS JOURNALS) Like in all Western countries some of the preferred techniques to reach Portuguese buyers effectively are advertising and trade promotions. Portugal offers a reasonably priced market in which to advertise. Advertising media is the same as in the majority of developed Western countries. Newspapers, magazines, TV and more recently advertising in automatic bank teller machines are the most popular. In Portugal there are several specialized international trade shows. The US&FCS-Lisbon organizes every year one or more pavilions for the joint participation of US exporters in the major trade shows. Following are some of the major newspapers and business journals: Newspapers and Business Journals - PUBLICO (daily) Comunicacao Social, SA Direccao Editorial e Administrativa R Amilcar Cabral, Lote 1 1700 Lisbon, Portugal Tel: (351-1) 759 95 59 Fax: (351-1) 758 71 38 - DIARIO DE NOTICIAS, SA (daily) 226 Av. da Liberdade 1200 Lisboa, Portugal Tel: (351-1) 355 84 14 Fax: (351-1) 52 15 07/352 48 95 - JORNAL CORREIO DA MANHA (daily) R Mouzinho da Silveira, 27 1200 Lisboa, Portugal Tel: (351-1) 52 75 23 Fax: (351-1) 352 82 56 - JORNAL O PRIMEIRO DE JANEIRO (daily) R Carmo 101, 2 1200 Lisboa, Portugal Tel: (351-1) 346 56 15 Fax: (351-1) 342 35 36 - JORNAL DE NOTICIAS (daily) R Goncalo Cristovao, 195/219 4000 Porto, Portugal Tel: (351-2) 200 94 09 Fax: (351-2) 202 30 13 - JORNAL EXPRESSO (weekly) R Duque de Palmela, 37 - 2 1200 Lisboa, Portugal Tel: (351-1) 352 61 41 Fax: (351-1) 352 24 10 - JORNAL O INDEPENDENTE (weekly) Av. Casal Ribeiro, 14 - 3 1000 Lisboa, Portugal Tel: (351-1) 315 05 23 Fax: (351-1) 315 43 60 - JORNAL SEMANARIO (weekly) Av. 24 de Julho, 6 1200 Lisboa, Portugal Tel: (351-1) 60 40 03 Fax: (351-1) 395 13 75 - JORNAL VIDA ECONOMICA Cp Grande, 50 - 5 Esq. 1000 Lisboa, Portugal Tel: (351-1) 793 77 48 Fax: (351-1) 793 77 51 - SEMANARIO ECONOMICO (weekly) R. St. Marta, 47 1100 Lisboa, Portugal Tel:(351-1) 352 18 73 Fax:(351-1) 352 53 39 - REVISTA VALOR S.T. & S.F., Sociedade de Publicacoes, Lda R. D. Filipa de Vilhena, 4 - 5 esq. 1000 Lisboa, Portugal Tel: (351-1) 315 08 85 Fax: (351-1) 315 51 87 - REVISTA VISAO Av. Liberdade, 232 1200 Lisboa, Portugal Tel:(351-1) 315 47 44 Fax:(351-1) PRICING PRODUCT Pricing a product is a very important competitive factor. Pricing is the most common reason why a number of American products offered in Portugal are not as successful as they could be. Pricing of American products as now practiced tends to directly reflect the dealer's price in the United States which often includes marketing overhead that: 1) must be recalculated downwards to properly account for actual expenses in the Portuguese market; 2) must not be a "double-counted" expense-- that is, the adding of Portuguese marketing expenses on top of "built- in" American marketing expenses. The most appropriate method of pricing a product for the Portuguese market is marginal cost pricing. This would be the marginal unit cost of production in the United States plus Portuguese market-specific costs associated with overseas promotion,labeling and packaging expense. To this would then be added a profit margin which, when added to the other pricing components, should still render the product competitive. Portuguese importers currently accept the more common terms of international trade (C.I.F, C. & F., F.A.S., F.O.B. or Ex point of origin). They prefer to receive C.I.F. quotations or at least F.O.B. quotations including detailed product descriptions, gross and net shipping weight, volume and time of shipment (from where the delivery is made) and delivery. Proforma invoices with all the above details are not mandatory but are advisable. SALES SERVICE/CUSTOMER SUPPORT In Portugal there are no rules or current practices regarding sales service/customer support. It is the special nature of the American product or service exported that decides the importance of this support. However, in representation/agency/distributorship agreements, sharing promotion expenses and cooperating in marketing strategies or technical assistance is most desirable. SELLING TO THE GOVERNMENT Portugal follows the EU directive to the GATT Procurement Code but has a derogation covering utilities such as water, transportation, energy and telecommunications. Portugal also ratified the decisions of the Uruguay Round, regarding government procurement. The derogation was maintained in the text except for telecommunications (where there was no agreement between the United States and The EU). The derogation will be maintained through January 1, 1998. Thereafter, U.S. companies will be considered the same as any Portuguese or EU company and granted national treatment. Depending on the amount, government procurement may be made by direct consultation, national tenders or international tenders. National and international tenders are published in the Portuguese Official Journal (Diario da Republica, Series III) and in the two largest daily Portuguese newspapers. International tenders are also published in the EU Official Journal (Series F). PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT 1. Intellectual Property Rights: Copyright and Trademark Protection In 1989, Portugal was placed on the "watch list" under the "Special 301" provision of the 1988 Trade Act for not providing adequate intellectual property protection. Following implementation of a registration and stamp system for audio and video tapes, Portugal was removed from the "watch list" in 1990. Software copyright legislation (Law 109/91) was published in the Diario de Republica (Official Gazette) on August 17, 1991, and entered into force in December 1991. This legislation provides for various civil and criminal sanctions for the unauthorized reproduction of software. Sanctions range from fines to up to three years of imprisonment. The Portuguese Association of Software Distributors (ASSOFT) has undertaken an active campaign to publicize the new law and is optimistic that sales of authorized software will increase significantly in 1992. Enforcement of anti-piracy law has been weak. The United States will monitor the enforcement of new and emerging anti-piracy laws to ensure that copyrights and trademarks are respected. 3. Patents Consistent with a commitment made when joining the EU, the Government of Portugal published on August 30, 1991 Decree 52/91 which ratified the Munich Convention of European patents. The Government is revising the Industrial Code with the stated intention of providing product patent protection. NEED FOR A LOCAL ATTORNEY Using an attorney is not mandatory to do business in Portugal. Most transactions can be accomplished without an attorney including the establishment of small non-complex businesses. Attorneys are recommended to solve some types of trade disputes and for the establishment of local offices as direct investment in joint-venture with local entities or as a 100 percent subsidiary. For some complex types of licensing, representation/distribution and franchising an attorney is also recommended to assure compliance with local law.