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Country Commercial Guides for FY 2000: Sri Lanka Report prepared by U.S. Embassy Colombo, Sri Lanka, released July 1999   Note*

Chapter IV

MARKETING U.S. PRODUCTS AND SERVICES

Distribution and Sales Channels

International trade is centered in Colombo, with more than 90 percent of all imports and exports passing through the port of Colombo. While there are many medium to small importers, 20 to 30 relatively large firms handle the bulk of international traffic. Only a few importers control distribution networks elsewhere in the country; most simply wholesale directly to regional distributors or to retailers. The Government's role in trade and distribution is minimal, except in the case of the food sector, which is controlled for national security reasons. Inland transport is dominated by independent truckers.

Use of Agents/Distributors; Finding a Partner

Most foreign firms select their local agents on the basis of financial stability and technical capability. As the largest trading houses represent many (sometimes competing) foreign principals, medium and smaller firms are becoming more attractive. If products require stocking or servicing, however, large firms are often better. Sales commissions paid to agent's range from 5 percent to 20 percent, depending on sales volume and the product price. Agency relationships can be terminated for inefficiency, misappropriation, or inability to fulfill contractual obligations.

Franchising

Franchising is not as common as agent/distributorships. The few U.S. franchises include Coca Cola, Pepsi, Pizza Hut, UPS, Federal Express, Kentucky Fried Chicken (KFC) and McDonald's.

Direct Marketing

Direct marketing usually takes place when a product is sold on a one-time or irregular basis. Companies with regional branches or representatives have successfully entered the market directly, but an agent is often crucial to penetrate the market.

Joint Ventures/Licensing

Joint ventures have become popular in recent years, particularly in export-oriented projects. Joint ventures are eligible for the same preferences and tax benefits as domestic companies. There are no restrictions on foreign ownership, except for certain specified sectors (see Chapter VII). Only a few foreign companies have licensed products or services to local companies. Two prominent licensing agreements involve Cable News Network of the U.S. (broadcasting services) and Clipsal of Australia (electric switch manufacturing).

Steps to Establishing an Office

A foreign company must apply to register with the Registrar of Companies in order to establish an industry or a branch office in Sri Lanka. The application for registration should be accompanied by a certified copy of the charter, statute or memorandum and articles of association of the company; a certified copy of the incorporation of the company; a list of directors; names and addresses of company directors resident in Sri Lanka; a statement containing the full address of the registered or principal office of the company and principal place of business within Sri Lanka; and, a valid Power of Attorney authenticated using the seal of the company authorizing the person or persons resident in Sri Lanka to act on behalf of the company. The registration fee is on average about $100; the fee varies according to the amount of issued share capital.

A foreign company may also establish a liaison office in Sri Lanka. In addition to the above certificates, the application for registration should include a written undertaking that the company will not engage in any export, import, trade or investment in Sri Lanka. A liaison office can engage in market promotion activities, extend technical support, and source raw materials and manufactured products.

A branch office must file the statutory company documents (annual accounts, returns to be filed) as well as copies of accounting statements compiled under the company's country of origin. There is also legal provision for a company to be registered as an off shore company, in order to carry on business outside Sri Lanka. For more information contact the Registrar of Companies, "Samagam Medura", 400 D.R. Wijewardane Mawatha, Colombo 10, Phone: 94-1-689212; Fax: 94-1-689211.

Selling Factors and Techniques

Price is generally the most crucial factor in selling. Most Government purchases are made on the basis of cost. Increasingly, however, the quality of the product and after-sales service is becoming important selling factors in the Sri Lankan market. U.S. products are regarded as high- quality products here. Advertising and participation in sales promotions and other trade events is often helpful for raising consumer awareness and gaining market share, but effectiveness will vary according to product. Appointing an agent/distributor is recommended, to aid in marketing and sales.

Advertising and Trade Promotion

Advertising is becoming increasingly important as new private television and radio stations open and expand operations and programming. There are five radio stations and six TV stations (operating eight channels) as of June 1999; some are run by the state, and others, by the private sector. Newspapers, radio and television all accept commercial advertising. There are several English language newspapers, as well as dailies in Sinhala and Tamil (see below).

Trade exhibitions and fairs are limited. The Ceylon Chamber of Commerce, with support from the private sector, organized a trade exhibition called "CHAMBER 160" to mark its 160 years in existence. The Government sponsors a regular trade event called "Sri Lanka Expo"; this event is scheduled to be held in November 1999 in Colombo. The American Chamber of Commerce in Sri Lanka sponsors an American Trade Fair every one and a half years; the most recent fair was held in February 1999.

Major English-language newspapers:

Daily News and Sunday Observer
Associated Newspapers of Ceylon Ltd.
Tel 94-1-421181 Fax 94-1-449069

The Island and Sunday Island
Upali Newspapers Ltd.
Tel 94-1-324001 Fax 94-1-448103

Mid-week Mirror and Sunday Times
Wijeya Newspapers Ltd.
Tel 94-1-328889 Fax 94-1-449504

The Sunday Leader
Leader Publications (Pvt) Ltd.
Tel 94-1-686047 Fax 94-1-439987

Send queries to the attention of the Advertising Manager.

Major vernacular newspapers include Dinamina, Silumina, Divayina, and Lankadeepa, all in Sinhala; and Thinakaran and Virakesari, in Tamil.

Pricing Products

Price, which is the most crucial buying factor, should be on par with the prevailing market price. A local agent or distributor can provide helpful suggestions and market intelligence to enable companies to make informed pricing decisions. Some firms have successfully offered special, low introductory prices on consumer products to gain a foothold in the market and develop customer awareness and loyalty.

Sales Service/Customer Support

After-sales service and customer support are becoming increasingly important factors in selling in this market. Local companies with comprehensive support services have proved successful over the years. U.S. firms should consider this factor when appointing an agent.

Selling to the Government

Most Government purchases are made by public tenders, which are usually advertised in the local media. Tender procedures are not fully transparent, and delays are common (see Chapters II and VII). Well-informed local agents can be the key to winning these tenders. However, local agents often represent more than one foreign supplier, so that when they encounter difficulties, including possible corruption, they are reluctant to voice concerns, fearing it will jeopardize other business interests.

Protecting Your Product from IPR Infringement

All trademarks designs and patents must be registered with the Registry of Patents and Trademarks. Sri Lanka is a member of the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). Sri Lanka has signed a bilateral agreement with the U.S. to protect intellectual property rights and is a signatory to the Paris and Berne Conventions, but enforcement remains a problem. Registered trademarks are valid for 10 years, patents for 15 years, and industrial designs for 5 years. For more detailed information, see Chapter VII.

Need for a Local Attorney

It is always useful to put agreements made with local partners and agents into writing. In the event any disputes or problems arise, it is helpful to have written records for the purpose of supporting a legal case, if necessary.

The Embassy's Consular section maintains a list of attorneys in Sri Lanka, a copy of which may be obtained on request.

The list includes the following commercial law firms: De Saram, F. H. & G., State Bank of India Building, Second Floor, Mudalige Mawatha, Colombo 1, telephone 94-1-327414-5, fax 94-1-449482 (lawyers for the U.S. Embassy in Colombo); De Silva & Mendis, 18 2/1 Sir Baron Jayathilake Mawatha, Colombo 1, telephone 94-1-327024; and Mather & Ramanathan of 136 Hulftsdorp Street, Colombo 12, telephone 94-1-324455, fax 94-1-332879. (Note: Inclusion on this list should not be construed as an endorsement. Some reputable local law firms have opted not to be included in this list).