Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Distribution channels in Honduras are similar to those in the United States, although Honduras has fewer levels of distribution and a limited number of specialties, chain, and department stores.
Tegucigalpa and San Pedro Sula are the major distribution centers for imported products. Puerto Cortés, the largest deep-water port in Central America, is the most active logistics center in Honduras. Honduras has a 13,603 kilometers (km) official road network connecting the ports and airports with the secondary cities and rural areas of the country.
The local market has been traditionally highly receptive to U.S. products and services. To increase the success of a solid market penetration, U.S. exporters should consider establishing a relationship with a local partner, agent or even open a regional sales office. U.S. firms will find that in most cases, securing a single distributor or representative is sufficient to cover the entire Honduran territory.
Representatives and distributors tend to carry broad lines of goods on a non-exclusive basis. The number of full-service local distributors that stock large inventories of parts and equipment are limited. Many local buyers make direct contacts with U.S. suppliers at the factory or warehouse level. Store owners often buy goods in small lots from export brokers or they buy from wholesalers in the United States, particularly in Miami, New Orleans, Los Angeles and Houston.
Using an Agent to Sell U.S. Products and Services
The principal-agent relationship in Honduras is governed by the civil and commercial code, Decree Law No. 549, Official Register (La Gaceta) No. 22366, of December 7, 1977. This law, entitled “Law on Agents, Distributors and Representatives of Domestic and Foreign Companies,” includes a provision for penalties for wrongful termination that discourages exclusive distribution agreements. For new-to-market or new-to-export companies, authorized distributorship arrangements or renewable periods of representation are recommended over exclusivity contracts, unless the relationship has proven to be stable and profitable for both parties.
For contractual relations entered into after the date of entry into force of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), April 1, 2006, the following special regime obligations apply:
- Honduras may not require that a representative, agent, or distributor be a national of Honduras or an enterprise controlled by Honduran nationals;
- Honduras may not require a goods or service supplier of another Party to supply such goods or services in Honduras by means of a representative, agent, or distributor, except as otherwise provided by law for reasons of health, safety, or consumer protection;
- Honduras shall provide that: the fact that a contract of representation, distribution, or agency has reached its termination date shall be considered just cause for goods or service supplier of another Party to terminate the contract or allow the contract to expire without renewal; and any damages or indemnity for terminating a contract of representation, distribution, or agency, or allowing it to expire without renewal, without just cause shall be based on the general law of contracts.
- Honduras shall provide that: if the amount and form of any indemnification payment is not established in a contract of representation, distribution, or agency and a party wishes to terminate the contract, the parties may agree to resolve any dispute regarding such payment in the Center for Conciliation and Arbitration of Honduras, or if the parties agree otherwise, to another arbitration center; and in such proceeding general principles of contract law will be applied; in any decision awarding an indemnity calculated under Article 14 of Decree Law No. 549, the amount shall be calculated as of the date of entry into force of the CAFTA-DR Agreement, expressed in terms of Honduran Lempiras as of that date, and converted into U.S. dollars at the exchange rate in effect on the date of the decision. Decree Law No. 549 applies to a contract only if the representative, distributor, or agent has registered with the Ministry of Economic Development (SDE).
Although a U.S. firm may export directly to Honduran companies, appointing a local agent, representative, or legal advisor is strongly recommended to help with import procedures and regulations, sales promotion and after-sales service. Independent intermediaries are especially important for smaller companies, as their knowledge of the market and of the relevant business customs and practices adds to the strength of the U.S. manufacturer/exporter. U.S. companies are advised to evaluate local prospects in terms of the services and benefits provided, considering factors such as location, financial strength, quality of the sales force, warehousing facilities, reputation in the market, outlay for advertising, product compatibility and overall experience. As a primary step in any international business venture, verifying the identity of a potential partner is of vital importance. Prior to engaging in a commercial relationship, U.S. companies should visit potential partners or agents in Honduras.
Renewable periods for representation and non-exclusive relationships are strongly recommended when drawing up the agent/distributor agreement. After successfully locating prospective intermediaries, U.S. exporters should contact a Honduran lawyer for assistance with key issues such as contract arrangements, taxation, residence permits, and advice on protection of intellectual property. The Embassy Commercial, Economic, and Consular Sections can provide a list of attorneys (see web resources section). A written agreement often avoids later disputes and misunderstandings between the U.S. firm and the local partner. Two of the country’s largest chambers of commerce, the Chamber of Commerce and Industry of Tegucigalpa (CCIT) and the Chamber of Commerce and Industry of Cortés (CCIC), have established International Arbitration Centers for alternative dispute resolution.
Exporters of pharmaceuticals, agricultural chemicals, food items, animal feeds, and medicines are required to register their products before they can be sold in the Honduran marketplace. Pharmaceuticals, food items and medicine-related products must be registered with the Sanitary Regulation Agency (ARSA). Agricultural chemicals and animal feeds must be registered with the Ministry of Natural Resources & the Environment (SERNA).
In compliance with the CAFTA-DR agreement, U.S. firms are no longer required to participate in public tenders through a local authorized agent or representative. In terms of participation in international public bids in general, foreign firms engaged in the execution of construction, design, consulting, and rehabilitation projects are required, under the State Contracting Law, to register provisionally at the Company Registration and Classification Committee of Civil Engineers (CIRCE). Once a contract for a specific project has been awarded, foreign firms are required to register on a permanent basis with the Honduran Organization of Civil Engineers (CICH). In general, since the time frame between the public bid announcement and the presentation of bids is often short, having a local partner enhances the U.S. firm’s ability to prepare a competitive offer.
Selection of the appropriate agent or distributor in Honduras requires time and effort. The U.S. Department of Commerce offers several services to U.S. firms interested in finding a partner or distributor for their product or service. The U.S. Commercial Service (USCS) offers free and intensive one-on-one counseling plus low-cost, highly effective programs to help U.S. businesses establish or expand their foreign markets. The Commercial Section of U.S. Embassy Tegucigalpa can help locate interested, qualified representatives in potential markets in Honduras through its International Partner Search (IPS) service. A U.S. firm may also check the background and reputation of a prospective partner through the International Company Profile Report (ICP). Through its Gold Key Service, the Commercial Section can schedule appointments, arrange translators and make reservations for U.S. businesses searching for partners or customers in Honduras. The IPS and ICP, as well as other valuable services, are also available for a nominal fee through the U.S. Export Assistance Centers (USEACs) of the U.S. Department of Commerce. For additional information on export-related assistance and market information offered by the federal government, U.S. companies may call 1-800-USA-TRADE.
Establishing an Office
Efforts are underway in Honduras to further streamline registration requirements to establish an office. On July 8, 2018, the Government of Honduras announced the creation of a high-level “Technical Cabinet” aimed at formulating, implementing, and monitoring a Strategy on Simplification of Administrative Procedures at state offices.
Another important step in this regard has been enactment of a law on simplification of administrative procedures in setting up a company (Article 308 of the Commercial Code, Decree No. 255-2002), as well as the establishment for a “Single Window for Investors” (Investment Protection & Promotion Law 2011). Although challenges still remain, significant improvements have been made in eliminating a series of long and costly administrative obstacles. According to the latest World Bank’s Doing Business Report, the time required to launch a business in Honduras was reduced from 62 days in 2005 to an average of 42 days in 2019. Out of 190 economies, Honduras ranked an overall 133rd on the 2020 “Ease of Doing Business.”
Foreign businesses setting up operations in Honduras are subject to the Commercial Code, which recognizes several types of mercantile organizations: individual ownership, general partnership, simple limited partnership, Limited Liability Company (LLC), corporation and Joint Stock Company. The most common and economically significant legal entities are corporations (Sociedad Anónima, or SA) and Limited Liability Companies (Sociedad de Responsabilidad Limitada, or SRL). Starting capital for a limited liability company should be no less than 5,000 Lempiras (L)/ US$210 and always include at least two partners. Required starting capital for a stock company or corporation is 25,000L/ US$1,000 and should always include at least five partners.
An Environmental Impact Assessment, obtained through the Honduran Ministry of Natural Resources & the Environment, is an important requirement for any project, industrial facility, or other public or private activity that could generate potential harm to the environment, natural resources, or national cultural and historical sites. Additional information for doing business in Honduras, as it pertains to the specific requirements for different sectors of investment, is available through the Honduran Ministry for Economic Development at http://www.prohonduras.hn.
The following information summarizes the eleven (11) steps involved in setting up a business in Honduras. Thanks to an innovative partnership with the Government of Honduras, some of these procedures can be handled by the Chambers of Commerce of Tegucigalpa and Cortés, slightly reducing the time and effort required to establish a business.
- Procure a certificate of deposit at a local bank; pay the registry fee. Time to complete: One day; cost to complete: Lps. 100.00 (US$4.00)
- Establish the company before a Notary Public, who will draw up the articles of incorporation. Time to complete: Two days; cost to complete: notary fees of five percent for starting capital up to Lps. 25,000 and three percent for companies with over Lps. 25,000 (US$ 1,000) of share capital
Comment: A company may be set up by public subscription or simultaneous foundation. The procedures described here are for simultaneous foundation (fundación simultánea). The constitution instrument should be written on stamped paper (papel sellado). The notary uses its paper for the protocol (the original signed document in the notary’s custody) and for the first copy (testimonio) of the instrument of organization.
- File the articles of incorporation with the Mercantile Registry at the Chamber of Commerce. Time to Complete: Two days. Cost to complete: US$8.00 for the first L1,000 of capital.
- Apply for a tax identification code (Registro Tributario Nacional, RTN) at the Revenues Administration Service (Servicio de Administración de Rentas-SAR). Time to complete: One day; Cost to complete: no charge.
Comment: All natural or juridical persons must obtain a RTN. In order to obtain the RTN, the Notary who authorizes the incorporation deed must send a note to the administrative authority informing them of the incorporation.
- Acquire legal accounting and “minutes” books. Time to complete: One day; Cost to complete: US$45 (about US$0.5 per page).
- Register with local and national Chambers of Commerce. Time to complete: One day; Cost to complete: US$77.00.
- Apply for an operational permit (Permiso de Operación) from municipal authorities. This step can now be conducted directly by the company, without the services of an attorney. Time to complete: One day; Approximate cost: L1,250.00 (US$50).
Comment: To obtain the operational permit, it is necessary to fulfill some or all of the following requirements, depending on the type of industrial or commercial activity:
a) Copies of the personal identification card and municipality tax solvency of the General Manager;
b) Copy of the RTN;
c) Copy of the company’s articles of incorporation (Escritura de constitución)
d) Copy of the cadastral code (Clave cadastral) corresponding to the place in which the corporation will operate its business;
e) Zoning record;
f) Environmental impact assessment;
g) Tenancy agreement and income tax solvency record of the owner of the place in which the corporation will operate;
h) Cadastral inspection in the place in which the corporation will operate its business;
i) Payment of the following taxes (which vary based on the company’s income): nomenclature taxes; zoning tax; inspection tax; code tax; environmental tax; annual fire department and garbage department taxes.
8. Register for sales tax and acquire authorization of the company books. Time to complete: Two days. Cost to complete: no charge.
Comment: According to the Tax Code (Código Tributario), corporations are required to file an incorporation instrument and operation permits with the Minister of Finance, in order to pay sales taxes imposed on the sale of goods or services.
9. *Register with the Social Security Institute (Instituto Hondureño de Seguridad Social, IHSS). Time to complete: Three days (simultaneous with previous procedure); Cost to complete: No charge.
Comment: IHSS is the national social security hospital and patient care institution for company workers and their dependents. Corporations are required to contribute five percent of each employee’s salary for illness and maternity (Enfermedad y Maternidad, EM), plus two percent for disability, old age and death (Invalidez, vejez y muerte, IVM).
10. *Register with the Professional Training Institute (Instituto Nacional de
Formación Profesional, INFOP). Time to complete: One day (simultaneous with previous procedure). Cost to complete: No charge.
Comment: Employers are required to contribute one percent of the company’s total payroll to INFOP.
11. *Register with the Social Housing Fund (Régimen de Aportación, (RAP) al Fondo
Social de la Vivienda (FOSOVI). Time to complete: 1 day (simultaneous with previous procedure). Cost to complete: No charge.
Comment: If a corporation has more than 10 employees, it is required to contribute 1.5 percent of each employee’s salary.
Note: Steps marked with an asterisk (*) may be completed simultaneously.
Additional Sources of Information:
Franchising continues to be an attractive business concept in the Honduras market, with over 80 foreign firms operating under franchising agreements. The majority are in the fast-food and casual dining sectors, with leading brands such as Denny’s, Chili’s, T.G.I. Friday’s, Johnny Rockets, Carl’s Jr., Pizza Hut, Burger King, McDonald’s, Wendy’s, Subway, Church’s Chicken, UNO Chicago Grill, Cinnabon, Auntie Anne’s Pretzels, Popeye’s, Domino’s Pizza, Quiznos, Dunkin Donuts/Baskin-Robbins, Little Caesar’s and Kentucky Fried Chicken (KFC) serving local consumers. Other industries operating franchise systems in Honduras include automotive aftermarket services, retail, clothing, movies and entertainment, children’s services, cleaning and pest control, health and fitness, electronics, cosmetics and toiletries, business services, convenience stores, dry-cleaning, specialized tutoring, car rental, hotels/motels and hospitality. Demand in this sector has generally been spurred by local need for fast service, convenient hours and locations, changing consumer preferences, quality products, and most importantly, good customer service.
Franchising in Honduras presents opportunities for growth and expansion of U.S. business. Regional stability and increased investor confidence have contributed directly to the broad availability of U.S. franchises in various economic areas. For franchisers in Honduras, positive market entry factors include availability of suppliers and personnel, absence of trade barriers, and high receptivity to U.S. goods and services (especially if no equivalent local product or service exists). In addition, the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) and the Honduran Investment Protection and Promotion Law of 2011 provide for national treatment for most foreign direct investment, guaranteeing foreigners the right to freely establish, acquire, and dispose of interests in business enterprises within constitutional bounds.
Finding the right partner will determine the ultimate success or failure of a franchise venture in Honduras, so potential franchisees must be carefully selected. The most promising candidates are those with proven financial resources who have already established a successful business in the country.
Direct marketing is becoming not only more and more common in Honduras, in spite of the fact that telecom and mail delivery infrastructures are not well developed for this type of marketing. Obtaining reliable addresses is problematic, as the use of “reference” addresses (and not street names and numbers) is the common practice. Mail advertising of products and services is generally conducted through credit card companies,
Direct Marketing thru mobile telephony
Mobile telephony carriers including the government-owned HONDUTEL and the private companies TIGO, and CLARO have escalated their promotional programs and advertising in their bid to increase their market share. With number portability having entered into effect on April 30th, 2014, the competition to offer even better services and content has increased. Telemarketing services are offered to companies that now send ads for their products and services via SMS or text messaging.
Direct Internet marketing – Advertising 2.0
Direct Marketing through the Internet is growing in the region, yet Honduras ranks 129th in internet usage in the world. In 2020 only 37.6% of the population has access to the internet. These numbers do not include the percentage of the population that goes online through mobile phones and or have access to the web via their places of employment, which brings the total of Honduran internet users close to 40%.
The most popular forms of internet direct marketing in Honduras are:
CPM - Cost per thousand impressions - It is used for measuring the worth and cost of a specific e-marketing campaign. This technique is applied with web banners, text links, e-mail spam, and opt-in e-mail advertising.
PPC- Pay Per Click - is an Internet advertising model used on websites, in which advertisers pay their host only when their ad is clicked. With search engines, advertisers typically bid on keyword phrases relevant to their target market. Content sites commonly charge a fixed price per click rather than use a bidding system. Many small and medium-sized enterprises (SMEs) have employed resources like Facebook and Twitter to reach out to their potential clients.
CPA- Cost Per Action (sometimes known as Pay Per Action or PPA) is an online advertising pricing model, where the advertiser pays for each specified action (a purchase, a form submission, and so on) linked to the advertisement.
Advertising through social media by large companies like TIGO and CLARO dominate as the most popular Honduran companies on Facebook and Twitter. It is estimated that over 3,400,000 Hondurans actively use Social Media Sites.
Banks are utilizing direct marketing strategies as they generate new and alliance based financial products for their customer base, however, this is limiting the target market only being their respective clients. Local company listings and mailing information can be obtained through local chambers of commerce and industry associations. The Call Center is an emerging source for Direct Marketing in Honduras but still has a long way to go until it becomes a contending tool both for international call center assistance and as a regional marketing device.
Overall growth in Cable TV and Internet subscriber markets are creating increased opportunities for direct TV sales and e-mail-based promotional campaigns. Among the companies that currently utilize non-conventional distribution channels are TV Offer, Ofertel (direct response TV) and Avon (catalog and door-to-door sales).
The Law for the Promotion and Protection of Investments (Investment Law; Decree 51-2011) allows foreign investment and joint ventures between national and foreign investors through the execution of contracts whereby the contracting parties may contribute land, capital, services, technology, technical assistance or other assets for the production or marketing of goods and services. Licensing agreements, in which foreign firms are authorized to produce a patented product in exchange for royalty payments, are also guaranteed under the country’s regulatory framework for investment. Laws applicable to joint venture and sharing contracts are also contained in Chapter XIII, Title II, and Book IV of the Commercial Code. Joint ventures are commonly established in Honduras to compete for government contracts or in heavily regulated sectors.
Joint venture initiatives offer a wide variety of opportunities for investment and strategic alliances. The Investment Law stipulates that, with few exceptions (some involving special requirements under Public Private Partnership mechanisms), there are no restrictions on the percentage of capital that can be owned by a foreigner. Although no special policy exists to regulate joint ventures, in certain sectors majority control must be in the hands of Honduran nationals. These exceptions include companies that wish to take advantage of the Agrarian Reform Law; wish to obtain commercial fishing rights; are local transportation companies; or seek to operate radio or TV stations.
Under the Honduras 2020 economic development program, the country has prioritized investment promotion in the following industries: tourism, textiles & apparel, light manufacturing, outsourcing services, housing, and agri-business. Power generation, mining, and services are also active sectors.
The Honduran government’s investment promotion arm is coordinated through the Ministry of Economic Development. The Honduran Foundation for Investment and Development of Exports (FIDE) also supports the development of new export and investment sectors, works with local businesses to strengthen their capacity to attract foreign joint venture partners, and locates appropriate manufacturing facilities for investors.
Licensing of foreigners to practice law, medicine, engineering, and other professions is tightly regulated by national professional organizations. Most bodies have developed procedures for the temporary licensing for foreign professional service.
Except for foreign currency earned by companies operating in free-trade zones and industrial parks, Honduran law dictates that all export foreign exchange earnings be repatriated. The liberalization of Honduras’ foreign exchange regime in 2011 made it easier for companies operating in the country to remit dividends and royalties, return capital overseas, and make payments on foreign debt. Foreign exchange authorizations by the Central Bank were eliminated and foreign debt authorizations take less than 48 hours to obtain. Remittances of dividends and royalties must still be approved by the Central Bank.
Taxation is an important issue to consider when investing in Honduras. Except for firms operating in the industrial parks, located in the free tourism zones or under the Temporary Import Regime, income tax is payable on income derived from operations within Honduras. The annual period for computing tax on taxable income begins on January 1 and ends on December 31 each calendar year.
The reliability of express delivery firms within Honduras is adequate. Express shipping and door-to-door service takes approximately 2-3 business days. It is important to consult with an international freight forwarder to determine the best method of shipping specific products and handle the required documentation. The cost of the shipment, delivery schedule, and accessibility to the shipped product by the Honduran buyer are all factors to consider. U.S. companies also need to familiarize with customs regulations prior to exporting. Certificates of Origin and all other relevant documentation must be precise because slight discrepancies or omissions may prevent merchandise from being exported or result in significant delays and fines at customs points in Honduras. U.S. exporters must correctly pack, label, document, and insure all merchandise.
U.S. companies should conduct legal, financial, regulatory and corporate due diligence before completing a commercial transaction or formalizing any agreement. Verifying the identity of a potential partner is a basic but important step. Performing due diligence in Honduras, as in most of Central America, can be time-consuming and difficult. Before entering any trading relationships, it is important to visit the potential partner to see its operation and overall business environment.
There are very few sources of independently verifiable information about companies and individuals. There are no publicly listed Honduran companies and Honduran firms rarely publish information about their officers, sales or financial information. Most companies are sole proprietorships and partnerships, and business generally is conducted based on personal reputation and contacts.
Companies should request bank and trade references from potential agents and customers. The U.S. Department of Commerce in Honduras can assist your company in collecting information on Honduran companies through the International Company Profile (ICP) service, which can be ordered through any U.S. Office of the U.S. Commercial Service (U.S. Export Assistance Centers).
Companies should also consult with their own U.S. banks for information on Honduran banks, most of which have correspondent banking relationships with financial institutions in the South and the East Coast.