Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
There are several methods for U.S. exporters to enter the Dominican market. One can use a locally-appointed distributor, a wholly owned subsidiary, a joint venture partner, or Dominican importers and wholesalers who also own retail outlets. The subsidiary and joint venture mechanisms have been enhanced through Foreign Investment Law (No. 16-95).
The fundamental purpose of this law is to place foreign investors on an equal footing with local businesspeople, thus guaranteeing equal protection under the law in terms of their respective rights and obligations. A distribution agreement is not required for any of the above.
Using an Agent to Sell US Products and Services
Generally, the most efficient and effective means through which U.S. exporters conduct business in the DR is through the appointment of an agent or distributor. However, this is not an absolute requirement. The Commercial Service of the U.S. Embassy in Santo Domingo offers several cost-effective programs to help identify an appropriate trading partner in the country.
U.S. exporters should be aware of a provision in DR Law, the Dominican Agent/Distributor Law (Law 173, implemented in April 1966), which was designed to protect Dominican citizens who work as agents or distributors for foreign companies.
Under Law 173, agents and distributors are able to claim the right to compensation based on a multiple of annual sales if the U.S. exporter decides to terminate the relationship. With the DR’s entry into CAFTA-DR, U.S. exporters are able to avoid being subject to Law 173. However, the process can be complicated and U.S. firms are advised to seek legal counsel before appointing an agent or distributor in the Dominican Republic. Foreign Investment Law No. 16-95 allows foreign firms to assume direct representation of their products manufactured abroad or in the Dominican Republic without Law 173’s lengthy residency requirements and without the requirement of two-thirds Dominican ownership of distribution companies.
For agency/distributorship contracts signed after the entry into effect of CAFTA-DR on March 1, 2007, Law 173 applies unless there is a clause clearly stating that it does not apply.
The most significant changes to Law 173 post CAFTA-DR include the following:
- Apply principles of general contract law to the covered contract.
- Treat the covered contract in a manner consistent with the obligations of the Agreement and principle of freedom of contract.
- A contract may terminate on its termination date, earlier for just cause by the supplier of the goods or services or be allowed to expire without renewal.
- If the covered contract has no termination date, it can be terminated by any of the parties with six months advance termination notice.
- Allow disputes arising from the contract to be resolved through binding arbitration; and,
- Allow the parties to establish in the contract the mechanisms and forums that will be available in the case of disputes.
Establishing an Office
The strengthening and formalization of micro and small companies is a priority for the Abinader Administration. After several pilots and years of testing, at the beginning of 2015, the FORMALIZATE website was released that allows companies to establish their operations under the modality that better suits their business.
Through the FORMALIZATE website, local entrepreneurs have access to a simplified procedure for business formalization. FORMALIZATE brings together in one site the main institutions of the formation of companies.
Franchising is a familiar and highly successful concept in the Dominican Republic and enjoys a long history. However, early ventures into the DR market in the 1970s by Kentucky Fried Chicken and Howard Johnson’s Ice Cream were initially unsuccessful, and the concept took several years to gain traction. By the late 1980s, the franchise phenomenon was flourishing, although it was confined principally to the fast food sector at the time, more franchises have since been established in a wide variety of industry sectors.
As the DR economy began to rebound from a period of crisis in 2003-2004, franchising was viewed as a quick and simple way to develop new opportunities that began to develop as the local economy recovered. The implementation of CAFTA-DR in 2007 presented new prospects for franchising in the DR, as it allowed franchisors to avoid the application of Dominican Law 173 on the Protection of Agents and Distributors.
The franchising sector has matured and consolidated in the past several years, constituting a thriving sector in the Dominican economy. Large Dominican business groups are key players in the franchising industry and the publc and business community perception of the sector has improved and has more credibility.
Franchises have increased their presence throughout the nation. Though the bulk are in the Santo Domingo area (44%), they also have a noteworthy presence in other areas of the country, including: Santiago and the North (21%); the South (16%); and the East (19%). Franchises have a considerable impact on the economy, with over 8,000 points of sales and over 76,000 jobs created.
U.S. franchises have a dominant position accounting for 45 percent in the Dominican market. Local, Dominican franchises account for another 40 percent of the market, and the remaining 15 percent is comprised somewhat evenly among the following three groups: Spain & Europe, Venezuela & South America, and Canada & others.
As a mature market, a variety of franchises are already present in the Dominican market from the following industry sectors: restaurants (35%); retail sales (25%); services (20%); education (7%); personal care (5%); entertainment (3%); and others (5%). A marked slowdown in the introduction of new food franchise concepts indicates the maturation and potential slowdown in this particular segment of the franchise market. The consumables used by the franchises are 60 percent locally sourced and 40 percent imported.
Dominicans feel increasingly more comfortable doing business with a franchisor today. The success stories of reputable franchise companies already in operation add to the confidence of entrepreneurs.
Some of the many franchise concepts present in the market include:
- Food: KFC, Taco Bell, Burger King, McDonald’s, Domino’s Pizza, TGI Friday’s, Pizza Hut, Tony Roma’s, Baskin Robbins, Quizno’s, Krispy Kreme, Hooters, Papa John’s, Little Caesar’s, Sweet Frog, Chili’s, Wendy’s, P.F. Chang’s , Applebee’s, and recently Starbucks shops started in Santo Domingo.
- Furniture: Baker, Ethan Allen, Sealy Mattress, Serta, Simmons, Thomasville, and Ashley Furniture.
- Physical Fitness: Gold’s Gym and Planet Fitness
- Real Estate: Century 21, Coldwell Banker, Re/Max.
- Apparel: Forever 21, Nautica, Tommy Hilfiger, Guess, Polo Ralph Lauren, VS, Perry Ellis, Nike, among others.
- Other Services: Dry Clean USA and Heel Quick.
The lack of an efficient and reliable mail system in the DR has constrained the development of mail order and catalog sales. Dominican retailing businesses have been compelled to create other ways of transmitting their message to customers to achieve sales growth. Some local firms have used direct mailings (via delivery services) of promotional materials, social media and telephone marketing. Other firms, especially footwear retailers, have established catalog sales through using agents/sellers to reach end users. Local credit card companies sometimes target cardholders with direct marketing of goods and services.
Avon, Jafra, and Amway have established successful direct marketing organizations.
There is considerable joint venture/licensing activity in the Dominican Republic, including both manufacturing and services. The Foreign Investment Law (16-95) provides opportunities in this area. Before negotiating a joint venture or licensing partnership, legal counsel should be consulted to minimize potential conflicts, unexpected taxes, withholding expenses on royalties, contributions to capital and related aspects of these ventures.
For steps to establish an office through incorporation of a local subsidiary (other than free-zone investments governed by Law 8-90), please contact the U.S. Commercial Service in Santo Domingo for a list of local lawyers knowledgeable of such legislation.
Reliable courier services are available in certain areas of the country through international and local express delivery companies. The most popular U.S. couriers include FedEx, and UPS. The average delivery time from the U.S. to the Dominican Republic and vice-versa is 1 to 3 days, with a few days delay for packages that require customs clearance. DR Customs may apply taxes on packages with a value of over $200 US dollars.
U.S. companies may find it necessary to obtain more information on a Dominican company with whom they plan to do business. For a nominal fee, the U.S. Commercial Service can provide an International Company Profile (ICP) due-diligence background check on the local company, which includes a report and trade references.
The foreign company must be a prospective, or current, business partner and these reports are typically not compiled on individuals.