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Country Commercial Guides FY 2000: Netherlands Report prepared by U.S. Embassy The Hague, released July 1999 Note*

CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICES

Distribution and Sales Channels

The introduction of products into the Dutch market is relatively uncomplicated and may be achieved using several methods. Product representation throughout the Netherlands is facilitated by the compact market and may be achieved with any of the following distribution methods to cover the entire area, depending on the expected sales volume, product support requirements, and marketing techniques. However, these methods must be applied being mindful of the advantages a local representative would have in serving the home market:

• Establishing a sales office to serve the entire country and provide a distribution base for Western Europe.
• Selling through an agent or distributor whose activity may cover specified areas, the entire Benelux, or include European sales.
• Selling through established wholesalers or dealers.
• Selling directly to department stores, chains, retailer cooperatives, consumer cooperatives, or other purchasing organizations.

Use of Agents and Distributors; Finding a Partner

The Netherlands is one of the most densely populated countries in the world, with an average of 958 inhabitants per square mile. This population density compares to 848 inhabitants per square mile for Belgium, 830 for Japan, 613 for the United Kingdom, 583 for Germany, and 70 for the U.S. The most densely populated region in the Netherlands is called the Randstad. This region comprises the key marketing areas of Utrecht, Amsterdam, The Hague, and Rotterdam. The Randstad is compact, homogeneous, and easily accessible.

Areas outside of the Randstad, including the provinces of Gelderland, Noord-Brabant and the northern provinces, have more land available for larger commercial operations. Other benefits include less congestion, and the availability of financial incentives at some locations.

Distances in the Netherlands are short: from Groningen, the most northerly major city, to Maastricht, at the southern tip, is 200 miles by road. The distance from Rotterdam to Enschede, located near the German border, is about 120 miles. Transportation is excellent by road, rail, and the numerous canals and rivers. Shipments to any point in the country can reach their destination with ease.

The Netherlands has a variety of experienced importers, sales agents, and distributors well versed in international trade. A large portion of the goods is handled by importers who purchase for their own account and distribute throughout the country and Europe. Because of the size, accessibility, and competitive nature of the Dutch market, importers often insist on an exclusive distributorship. If the importer is a well-qualified and experienced firm, an exclusive distributorship often yields the best results. Wholesalers constitute an important segment of importers doing business in this manner. They are the primary source of supplies for the small- and medium-sized retail outlets, which often find it impractical to buy directly from manufacturers who usually require large orders.

Purchasing associations are formed by independent retailers. These associations combine purchasing power and operate their own warehouses, thereby performing a function similar to the wholesaler.

There are many commission agents and brokers in the Netherlands serving the domestic and European markets. A Dutch representative can often provide an excellent starting point in exporting to Europe. Dutch firms can easily handle the logistics, linguistics, adaptations, and stocks on behalf of the American firm.

For products with a high sales volume and low profit margin, the Dutch prefer to deal direct with the manufacturer. Sales to a department store, chain store, or end-user often gives best sales results, but in turn, require greater promotional effort by the American exporter. Direct sales eliminate shipping and warehousing expenses, but the U.S. exporter and Dutch importer must handle the shipping formalities and work harder to ensure a successful business relationship.

Since the Netherlands represents a compact market, foreign firms customarily have one exclusive representative for the entire country, but it is common for the representative to appoint subagents to cover certain sectors of the market if sales volume and profit margin warrant this.

Franchising

There are few regulations concerning franchising and none that limit market access to U.S. firms. Franchising has gained wide acceptance and Dutch franchise formulas are one of the fastest growing retail phenomena. A number of American franchise companies have succeeded in the Netherlands, particularly in the fast food area. The European Union issued regulation EU 4087/88 regarding franchising, which provides a unified code for the 15 member states. Its main thrust concerns price fixing, transfer pricing, non-competition clauses, and exclusive dealing. It also exempts certain franchise agreements from EU antitrust regulations.

Direct Marketing

There are numerous well established sales outlets in the Netherlands. These firms, both at the wholesale and retail level, have traditionally been small units with high overhead. The trend now is for a smaller number of units dealing with a greater volume, and with more competitive prices. Trends in the Netherlands generally mirror those in the U.S. and other European countries. Nevertheless, the Dutch distribution system is moving toward larger, more economically viable units to meet changing market needs. The increased tempo of commercial and industrial activity, as well as suburban development, is bringing about changes in the distribution system. Wholesalers supply a variety of services to associated small retailers, including sales promotion, advertising, and retail training. In some cases, they combine as a group to purchase from manufacturers and then distribute the goods to their customers.

Retail outlets range from the large department stores, through franchise formulas, to the small shop owned and operated by an individual. Although some retail outlets are small, such enterprises are decreasing in number as efficiencies of scale and purchasing power become the major competitive factors bearing on profit margins. A trend toward larger outlets has been underway, with the formation of chains, expansion of department stores, establishment of medium-sized department stores, and the development of chain stores under single management.

Mail-order sales account for a very small part of total Dutch retail sales. Certain firms have used this technique successfully in combination with their usual retail outlet operation. Promotion is carried out by catalog or by newspaper advertisements with no personal contact. Hobby centers, do-it-yourself, auto supply centers, and discount stores also make use of mail-order.

Existing channels of distribution for direct marketing in the Netherlands are set to be shaken up by the increased use of infomercials on Dutch television.

Infomercials, available on most commercial channels, tend to be crudely dubbed versions of existing American infomercials. Most infomercials seen in the Netherlands are broadcast after midnight when air time is cheap, although some shorter, direct-order advertisements are shown during prime time.

Prospects for growth using this method of selling are positive. While Dutch state controlled television networks are currently prevented by law from setting aside the amount of time required for an infomercial, media laws will inevitably be adjusted to allow infomercials on state television. Suppliers of home entertainment products, fitness items, cosmetics, jewelry, and house wares can best benefit from this emerging retail sector.

Joint Ventures/Licensing

Joint-venture and licensing agreements are commonly used in the Netherlands. The privatization of state-owned companies, including telecommunication and public transport systems, has further stimulated the potential for U.S. firms to enter into joint venture partnerships with Dutch companies.

Steps to Establishing an Office

The Netherlands offers extensive public and private sector support for companies looking to invest in the Netherlands and/or establish offices. U.S. & Foreign Commercial Service staff at the Embassy can provide appropriate contacts for interested companies.

The following are the most common forms of incorporation:

* Private Company (Besloten Vennootschap met beperkte aansprakelijkheid or BV):
The private company or BV is the most common form of business organization in the Netherlands. This form of organization is similar to the NV, but has a more closed character as shown by differences in the legal provisions concerning shares and lack of regulations requiring disclosure of annual accounts.

The shares of a BV must be registered, but cannot be sold on the stock market or offered for public subscription. Usually, the BV bylaws are written to restrict the transfer of shares. For example, a shareholder may transfer shares only to a very limited category of relatives without the prior approval of the company oversight board established for that purpose without first offering the shares to other existing shareholders. The most important advantage of a BV is the lack of requirement to publish financial reports as a NV must do. However, firms in the insurance or banking sectors that have issued bearer bonds or certificates and that have its shares or bonds listed on the stock exchange must file financial reports.

* General Partnership (Vennootschap Onder Firma)
In a general partnership, the individuals operate a business under a common name. The partners are the owners and managers of the firm and have unlimited liability. They are jointly and severally liable for any obligations of the firm. There are no requirements regarding capital or nationality of the partners who may be individuals or commercial entities. Transfer of an interest in the partnership must be approved by the other partners. Upon retirement or leaving the partnership, the partner remains responsible for any liabilities incurred by the firm before retirement or departure. A written partnership agreement is required by law with the rights and duties of the partners clearly stated.

* Limited Partnership (Commanditaire Vennootschap):
A limited partnership is similar to a general partnership except it has two kinds of partners: one or more general partners who are unconditionally liable for all the firm's activities and one or more limited partners who are not active in management of the firms and whose liability is limited to their capital contribution. Unless previously a general partner, a limited partner's name may not appear in the firm's name. A limited partner who does not conform to these conditions will be considered a general partner with full liability.

* Limited Partnership with Shares (Commanditaire Vennootschap OP Aandelen):
This is similar to the limited partnership except that the interests of the limited partners are represented by transferable shares.

* Cooperative (Cooperatie):
The cooperative is a special type of entity formed to represent the collective interests of its membership, such as buying or selling, rather than primarily an establishment to make profits for investors. This type of association permits the free entry and exit of its members from the cooperative society. The organization's name must include the word cooperative (cooperatief) and must give a general indication of its purpose such as a consumer, dairy, or insurance cooperative. The cooperative name must also include the degree of liability its members are exposed to: WA, unlimited; BA, limited; or UA, no liability.

* Cooperation (Naamloze Vennootschap or NV):
The advantages of being a corporation (NV) in the Netherlands include the limited liability for shareholders, entering into contracts, ability to sue (and be sued), and transferability of shares.

Several steps are required to form an NV:
(1) execution of the articles of incorporation before a notary by at least two of the company's founders;
(2) the submission of notarized articles to the Netherlands' Ministry of Justice for review for legal compliance;
(3) publication of the articles and the ministry declaration in the Official Gazette (Nederlandse Staatscourant);
(4) registration of the NV with the local chamber of commerce.

The articles of incorporation must be in Dutch and be executed before, and registered by, a notary. The name and location of the principal administrative office and purpose of the company must be provided. The amount of capital, number of shares owned by each of the founders must also be indicated. The first board of directors, if there is to be one, is included in the articles with later appointments to the board made at the general stockholders' meeting.

Included in the articles of incorporation must be information on any special agreements that will obligate the company being set up. Such expressed or tacit agreements may relate to acquisition of shares on a preferential basis or assuring the founder of a profit or payment. After the company has been established, management can enter into such agreements only if it has explicit authority in the articles of incorporation.

The name of the corporation must begin or end with Naamloze Vennootschap or its abbreviation NV, which is the more common practice. The firm's name should either be in Dutch, or if in another language, include some additional name such as Nederland, Holland, or the place of establishment of the company. Any business name previously in legal use by another company, or one that may cause confusion between two firms, may not be used.

The principal administrative office of a Dutch company or foreign subsidiary must be in the Netherlands if it is to have Dutch nationality. Transfer abroad of the principal administrative office deprives the company of Dutch nationality. Where the activities of the company are actually conducted is of no relevance in establishing nationality if the company's principal administrative office is in the Netherlands.

The NV, whether domestically or foreign-owned, may raise capital by public or private issue of shares in the Netherlands. The typical NV has three separate and distinct authorities: the stockholders, board of directors, and managing board. Responsibilities among these three bodies are governed by the commercial code and the articles of incorporation. The stockholders, as owners of the firm, exercise authority at the general shareholders meeting. Each shareholder has voting rights proportional to the stocks held. The board of directors is charged by the general meeting of shareholders with supervision of the management of the firm. The managing board is entrusted with managing the affairs of the firm, administering to the business activity, care of the property and other assets, and representing the interests of the shareholders and the firm.

Selling Factors/Techniques

The European Union has created a Directive establishing the obligations and conditions of European agents and their foreign suppliers. The purpose of this legislation is to harmonize the laws and provisions of the member states governing the relations between commercial agents and their principals.

The Directive establishes terms and conditions regarding the respective rights and obligations of the principal and the commercial agent, remuneration of the agent, and the conclusion and termination of the agency contract. To date, implementation of the Directive has been slow, but U.S. firms entering into agency contracts in the European Union should be aware of the principles of the Directive.

On a micro level, the following generalizations can be made about the Dutch consumer:

* The Dutch are price sensitive but demand quality.

* They are not impulse buyers.

* Clever packaging plays a minor role in influencing shoppers.

* Advertising tends to be informative and not creative.

* The Dutch speak their minds and will not waste your time or their own, if they are not interested in your product.

Advertising and Trade Promotion

A full range of advertising media is available in the Netherlands. Numerous radio and television stations serve the country. A cable television system is available in most areas with the majority of the population having cable service. The Netherlands is receptive to new technology and the Internet is no exception. Use of the medium is growing exponentially and is becoming an important medium for commerce.

There are numerous advertising agencies with a wide range of services. Larger agencies provide a full range of advertising services and are members of the Institute of Advertising Practitioners, which is closely associated with the American Association of Advertising Agencies.

Advertising agencies utilize every medium available to advertisers: Internet, direct mailing, press, radio, television, point-of-sale advertising, posters, and public transportation placards. Other promotional techniques, such as coupons, samples, premiums, and prizes, are also used. Laws covering gaming and lotteries as well as restrictive trade practices are strictly enforced by the Government. Firms advertising and selling goods should obtain local advice regarding provisions of the laws and consumer acceptance of the promotional or marketing approach.

Dutch firms engaged in market research provide the usual range of services, including store audits, consumer surveys, product field testing, and attitude and motivation research. In general, if the advertising technique works well for a particular product line in the U.S. and elsewhere in Europe, the Dutch market should also be receptive to the approach, but on a more reserved basis. Local opinion should be obtained before implementing a strategy that calls for a major commitment of the marketing budget.

The names of Dutch advertising agencies, market research organizations, and management and public relations counseling firms may be found in such publications as the International Directory of Market Research Houses and Services, American Marketing Association, 420 Lexington Avenue, New York, NY 10017, Phone: (212) 687 3280, and the Directory of Marketing Research Agencies and Management Consultants in the U.S. and the World, Bradford, P.O. Box 276, Fairfax, VA 22030, Phone: (703) 560 7484.

The principal advertising media are the press, television, and radio. Cinema is primarily a support medium with a strong reach among the 15 to 24 year age group.

The following are major Dutch newspapers:

Algemeen Dagblad
P.O. Box 8751
3009 AT Rotterdam
Phone: (31) 10 406 7211
Fax: (31) 10 406 6975
National conservative daily
Circulation: 416,000

Het Financieele Dagblad
P.O. Box 216
1000 AE Amsterdam
Phone: (31) 20 592 8888
Fax: (31) 20 592 8800
National business daily
Circulation: 41,000

De Volkskrant
P.O. Box 1002
1000 BA Amsterdam
Phone: (31) 20 562 9222
Fax: (31) 20 562 6289
National labor-oriented daily
Circulation: 358,000

De Telegraaf
P.O. Box 376
1000 EB Amsterdam
Phone: (31) 20 585 9111
Fax: (31) 20 585 2113
Conservative, sensationalist national daily
Circulation: 750,000

NRC Handelsblad
P.O. Box 8751
3009 AT Rotterdam
Phone: (31) 10 406 7211
Fax: (21) 10 406 6975
Influential, independent national evening daily
Circulation: 268,000

Elsevier
P.O. Box 152
1000 AD Amsterdam
Phone: (31) 20 567 4911
Fax: (31) 20 567 4592
Weekly news and opinion
Circulation: 124,000

Management Team
P.O. Box 397
3900 AJ Veenendaal
Phone: (31) 318 549 710
Fax: (31) 318 549 720
Biweekly national management magazine
Circulation: 120,000

Exhibitions are a cost-effective method to enter a foreign market and meet a wide range of buyers interested in a particular industry sector. Sales professionals find that trade fairs attract extensive buyer attendance and frequently can be used to gauge acceptance and pricing of new products and to observe the competition. In the course of a few days, a new market entrant may be able to generate more qualified and motivated prospects than by using any other sales approach. New products are frequently introduced at trade shows so that competitive products can be identified and evaluated as they emerge in the market place, thus providing important marketing information. Fairs are particularly useful for introducing a new product to the market or for finding an agent, distributor, or representative.

Pricing Product

The Netherlands is an extremely competitive market with high receptivity to U.S. goods. When pricing product for sale in the Netherlands, U.S. exporters should be aware of additional costs which can reduce profit margins below those available in the U.S.

A value-added tax of 17.5 percent is charged on the majority of goods sold in the Netherlands. Imported goods are also subject to customs duty. The costs of transportation, freight forwarding and customs brokerage charges will further diminish margins, as will commissions to agents and distributors. Commissions are generally higher in the Netherlands than in the U.S., as are retailer profit margins.

As is the case in the U.S., pricing of product depends on a myriad of variables including: channel of distribution, product, season, consumer receptivity, economic climate, etc. The U.S. & Foreign Commercial Service can offer U.S. exporters advice on product pricing if required.

Sales Service/Customer Support

The Dutch purchase from international sources and expect well-designed, high-quality products, with efficient after-sales service. An effective servicing system should be incorporated into distribution plans.

The U.S. exporter would be ill-advised, after having appointed a representative firm, to provide only product literature and samples and then expect to have good sales results. Regular communications and visits to the representative, particularly when newly appointed, by seasoned sales personnel or company technicians can reveal information on market developments and assist in the solution of any problems. Regular submission of sales reports can be a vital link to analyzing sales results and identifying potential problems before a serious one occurs.

Selling to the Government

It is almost impossible for U.S. companies to sell to the Dutch Government without local representation. All public sector procurement tenders over the threshold amount of 5 million ECU ($4.3 million) are published both in the EU Journal and the Dutch Government Gazette (Staatscourant).

Companies interested in identifying and bidding on government procurements under this amount will have to contact the individual Dutch ministries directly. A well-connected local representative is vital in this process.

Protecting your Product from IPR Infringement

The Netherlands has legislation for the protection of patents, trademarks, and industrial designs. It is a member of the Paris Union, which adheres to the International Convention for the Protection of Industrial Property. Detailed information and applications for patents, registration of trademarks, and for design protection should be obtained from: Patents Council, Octrooiraad, Patentlaan 3, 2288 EE Rijswijk (ZH), the Netherlands.

The Netherlands is a signatory to the European Patent Convention, which provides for a centralized European-wide patent protection system. The European Patents Act of 1977 provides increased legal protection, a patents court, and guidelines for compensation of an inventor.

The European Patent Convention has simplified the process for obtaining patent protection in the EU member states. Under the European Convention, an applicant for a patent is granted a pre-examined 15-year, nonrenewable European patent that has the effect of a national patent in all 16 countries that are signatories of the convention, based on a single application to the European Patent Office. This procedure should expedite the granting of patents. However, infringement proceedings remain within the jurisdiction of the national courts, which could result in some divergent interpretations. For information, write to the European Patent Office, Motorama-Haus, Rosenheimer Strasse 30, Munich, Germany.

Both the Netherlands and the U.S. are signatories of the Universal Copyright Convention, which provides for mutual copyright protection. The Netherlands is also a member of the Bern Convention, which forms the International Union for the Protection of Literary and Artistic Works.

Need for a Local Attorney

While it is important to obtain specific legal advice on appointing an agent or distributor, some general guidelines follow. All agent agreements should be in writing and state if it is an exclusive arrangement. Termination of the relationship is the single main area that most frequently causes problems for American exporters. Generally, the civil codes protect the interests of the representative. In the absence of termination provisions in a written agreement, the law provides for a minimum notice of termination of four months. Parties may agree to other terms, provided the notice of termination is not less than one month and up to 6 months, depending on the duration of the agency relationship. An agreement with a definite period terminates on the agreed expiration date. If the parties continue to operate under the agreement after that date, the agreement is usually deemed extended for a further identical period but not for more than a year. If the American principal wants to terminate the relationship, notice of termination should be given, even with definite term contracts.

The termination of an agreement without the required notice makes a principal liable for compensation. The agent could seek to claim the amount of the commissions that would have been earned during the termination period or for the amount of actual damages suffered. In exceptional cases, and only for just cause (such as competition or fraud), an agreement may be terminated without notice provided the other party is immediately advised of the reason. In such cases, the courts may be requested to terminate the contract.

At the expiration or termination of an agreement, by whatever means, an agent who has increased the value of the business is entitled in principle, to an adequate remuneration which cannot exceed the average of the commissions in one year. Such claims by agents are subject to an expiration term of one year.

A sales representative located in the Netherlands is in an ideal position to market a product throughout all of Europe. Frequently, American firms will also rely on the Dutch distributor to handle the details of customs clearance, product labeling, and packaging for European preferences regarding the product. These duties should be explicitly stated in a contract.

Before entering into any agreement with a partner, the American principal should first review the provisions of Dutch law with a qualified attorney. The legislation regarding unilateral termination of distribution agreements is designed to provide the local distributor with some degree of protection and monetary compensation when an agreement is terminated by the grantor, for reasons other than cause. The legislation will apply regardless of any clause in the agreement itself, and the parties may not deviate from the legislation as long as the distribution agreement is in force.

Three kinds of agreements are generally recognized:

* Exclusive distributorships, where the distributor has the sole right to sell specified goods within a defined area.

* Quasi-exclusive distributorships, where the distributor sells almost all the specified products within a defined area.

* Informal distributor arrangements under which the grantor imposes heavy obligations on the distributor and which would cause damage to the distributorship if the grantor terminated the agreement.

In the absence of mutual agreement, or the failure to meet contract obligations, a distribution agreement of indefinite term cannot be terminated by the grantor without reasonable notice or fair compensation. In general, grantors should consider protecting themselves by entering into agreements for definite periods rather than an indefinite period. Also, specific minimum performance clauses should be considered, such as percent of distributor's sales, minimum annual sales, number of business contacts to be made, etc., and proposing that U.S. law and courts have jurisdiction.

Performing Due Diligence/Checking bona fides of Banks/Agents/Customers

The U.S. & Foreign Commercial Service provides publicly available information on Dutch banks and other commercial organizations. For more in-depth background checks, it is advisable to make use of the services of a reputable credit reporting agency.