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Country Commercial Guides for FY 2000: Chile Report prepared by U.S. Embassy Santiago, released July 1999

CHAPTER IV:   MARKETING U.S. PRODUCTS AND SERVICES

Distribution and Sales Channels

Establishing a local subsidiary or branch office gives the best guarantee that the exporter will receive efficient service and appropriate promotion of its products. Any corporation legally constituted abroad may form, under its own name, an authorized branch (agencia) in Chile. This method of market penetration may involve a considerable investment, but can be justified if sales are large in volume or when local service support and/or inventory are necessary.

Another practical method is to appoint an agent or representative with good access to relevant markets and with a technical structure. Distances are great in Chile, and larger representatives usually have branch offices in different regions. Some large end-users, e.g. mining and forestry enterprises, demand quick service and specialized technical support.

Despite the elongated Chilean territory, its population of 15 million is very centralized: 40 percent live within 100 miles of the capital in the Metropolitan Region, which covers 5,927 square miles. Most manufacturing, trade, and service activities are managed from Santiago, the capital. It is common in Santiago for importers and manufacturers dealing in mass distribution items to distribute directly to large wholesalers or retail stores.

Sales outlets are the traditional storefronts as well as large department stores and supermarkets (and hypermarkets). Well-designed shopping malls are a booming business in Santiago and the larger cities throughout Chile. These malls are anchored by one or two large department stores surrounded by attractive specialty stores or boutiques. This is a good way to display and market textile products, electronic goods, sporting goods, cosmetics, office supplies, kitchen utensils, etc.

Few discount general merchandisers operate in Chile. Two general merchandisers operate, but they are not very discount or very comprehensive. This means that most products found in U.S.-style mass merchandisers (e.g., Walmart, Kmart, Target, Venture, Caldor, etc.) are still sold through more specialized retailers.

Few so-called category killers operate in Chile. Two larger (Chilean) electronic/appliance retail chains operate, but department stores still dominate the business. Home Depot opened in August 1998 and a local office supply store has tried to move to a larger format. Much remains possible in the retail sector.

Use of Agent/Distributor Service - Finding a Partner

Currently, about 3,000 importers operate in Chile; some of them also act as export agents. Most are small-to-medium size firms. Several large firms handle different lines of products and are large wholesalers. Almost all the firms have their main offices in Santiago. The larger ones have branch offices throughout the country, including in the free-trade zones. Other firms employ specialized traveling salespeople.

In general, foreign suppliers enter the Chilean market by appointing an agent, distributor or wholesaler. To be effective, this local representative must be aggressive, knowledgeable about the product, and well connected with decision-makers at end user firms. The representative will need to promote the products through newspapers, specialized magazines, radio, and TV. Agent/representative commissions normally range from 5 to 10 percent depending on the product. (For contract requirements, see "Need for a Local Attorney" in this Chapter.)

The U.S. firm should be thorough in selecting the agent or representative. For this purpose, it may wish to make full use of the several services offered by the U.S. Department of Commerce or its local U.S. Export Assistance Centers. These services include the Agent/Distributor Search (ADS), which helps identify interested agents and distributors; the Customized Market Analysis (CMA) market reports which can identify potential representatives and supplies a profile of the product in the market; and the Gold Key Service, which can assist exporters in arranging appointment schedules and support services that optimize their time and travel expenses.

Franchising

Since 1990, franchises have rapidly developed in Chile. Presently, there are about 60 franchises operating in Chile with over 200 franchisees, which during 1995 totaled sales of $105 million and employed over 7,500 people directly.

Chile's good economic situation, open market attitude, credit access and high cultural level provide an excellent opportunity for this type of business. The steady growth of the Chilean economy has increased the pace of daily life, creating a good market for fast food and other services.

Most franchises installed in Chile focus on fast-food, including McDonald's, Au Bon Pain, Domino's Pizza, Pizza Hut, Taco Bell, Kentucky Fried Chicken, and Burger King. In the past year, several services franchises (Mailboxes, Etc., AlphaGraphics, and Powerhouse Gym) have opened. There is still a good and largely unexplored market for franchising in full service restaurants, nightclubs, amusement parks, sports facilities, automotive services, cosmetics, repair and rental services, cleaning (home and industrial), clothes, fitness centers, real estate business, hotels/motels, supermarkets and others.

Chile has no special laws on franchises. The Asociacion de Franchising de Chile (AFICH, the Chilean Franchise Association) was established in June 1995, but it has not been active and is still organizing its functions. Its main purpose is to obtain approval by the Chilean congress of a franchise law.

So far, franchise companies operating in Chile are subject to regular trade laws. The withholding tax on royalties is 35 percent; value added tax (VAT) is 18 percent; the import tariff is a flat 10 percent with only few exceptions for a few luxury products. There are restrictions that affect the operations of certain franchisors, e.g., phytosanitary (contamination of plants) regulations that, in effect, ban the importation of uncooked chicken or chicken parts.

Direct Marketing

Direct marketing is well established in the services sector, mainly in banking and financial institutions, seminar organizers, telecommunication services, etc. Direct marketing or catalog sales are not yet common in the market. The low interest shown by Chilean consumers is mainly based on mistrust of warranty claims and promises of after-sales services. The most common way is to hire personnel for telemarketing or mailing campaigns or to contract the services of a firm specializing in this type of service. Data base listings are not easily acquired and commercial firms are cautious in keeping their customers' privacy. However, some firms such as DICOM and Public Mail do sell data base listings or offer complete telemarketing and mailing services. Public Mail can also provide customized sales prospects listings and updates upon request.

Chilean consumers prefer to window-shop, walk and browse in shopping malls or shopping districts and personally choose the goods rather than purchase through catalogs. Exchange of products in Chile is a complicated matter for vendors, who are not inclined to return the money due to VAT complexity.

Electronic Commerce

Electronic commerce is not yet a factor in Chile. Some companies in the hardware and supermarket business have set up, but the volumes are minute. Chileans unaccustomed to even catalog shopping are not ready for electronic commerce. In addition, Chile is not as "wired" as some other Latin American countries. The potential market is still quite small. This sales method is some years away.

Joint Ventures/Licensing

Joint ventures and licensing arrangements require a legally established local partner who can be responsible for Chilean legal and taxation obligations. The various administrative, commercial, profit distribution, and other issues involved in the association are established in contracts drawn up between the partners in accordance with Chilean law and tax regulations.

As Chile continues to establish itself in world markets, its growing and stable economy make more sectors attractive for joint ventures and licensing. These mechanisms are especially attractive when local manufacturing or finishing capacity exists for products whose market costs are affected by shipping costs.

Joint ventures are also attractive because they allow U.S. firms to approach more effectively sectors such as consumer goods and clothing. Other areas, especially where Chilean industry has increased its technology and productivity, may be attractive. One example of this competitive technique is the significant increase in production and export of denim wear under various brands. Other foreign apparel, cosmetics, and perfume manufacturers are also producing good quality, lower cost goods.

Steps to Establishing an Office

Incorporating in Chile is not expensive and takes little time. Chile has no minimum local participation requirement; inclusion of local partners is guided only by commercial considerations. However, a legally established corporation or partnership is absolutely necessary to do any business in Chile except for exporting to the country.

The first step for a U.S. citizen, corporation or entity wishing to do business in Chile on its own is to present a declaration of intent to invest in Chile to a Chilean Consulate, stating the nature of the business and the capital to be invested, simultaneously requesting a Permanent Residence Visa. This confers official residence status on the company, without which it will be barred from conducting commercial activities in Chile.

Within the framework of Chilean law, business entities can choose among various corporate forms, entailing somewhat different legal, taxation and other effects. Since the tax treatment is substantially similar for the various forms of businesses, the choice of entity is often guided by U.S. tax considerations.

Selling Factors/Techniques

The most important selling factor in Chile is price. Price-competitive products from Asian countries such as Taiwan and Korea far outsell more expensive European or North American products in consumer product categories such as electronics, appliances, and automobiles.

Where dependability becomes more influential, such as in advanced electronics and construction machinery, the customer often prefers more expensive North American or European products, based on decision factors of quality, durability, technology, good customer support, and a strong regional service structure where applicable. Price is the fundamental factor, but these others all influence the purchase decision, with the order of importance depending on the industry, the customer and the application.

Many of the larger representatives have regional offices in addition to their Santiago headquarters, or work with commissioned salesmen. More technical product categories are generally sold by visiting salesmen rather than in showrooms or retail outlets. Technical salesmen demonstrate products to clients who prefer to be visited in their offices or are too far from sales points. More thoroughly trained technical sales support personnel often back up the salesmen during client visits.

Payment for major purchases is generally net 30 days when invoices are used. Over-the-counter purchases are paid in cash, check, or credit card. Most retailers use credit terms as a sales technique. Major department stores and chains issue their own credit cards.

Advertising and Trade Promotion

Television, radio, newspaper and magazine advertisement is used heavily to reinforce in-store merchandising methods. Private agencies handle most advertising. Most of these agencies belong to the Asociacion Chilena de Agencias de Publicidad (Chilean Association of Advertising Agencies, ACHAP), located at Guardia Vieja 181, Of. 302, Tel: (56-2) 231-0935, Fax: (56-2) 251-2354.

ACHAP estimates that about $666 million was spent on advertising in 1998. Of this, 43 percent of advertising budgets was spent on television, with 77 percent of TV advertising revenues earned by TV Nacional and TV Universidad Catolica. Newspapers accounted for 35 percent of advertising revenues, with El Mercurio, the newspaper of record, absorbing about 58 percent of that. Radio advertising took 11 percent, outdoor advertising (billboards, subway posters, road signs, etc.) about 6 percent, and magazines 5 percent.

Chile uses the NTSC system for TV broadcasting. Chile has six national broadcast television networks. All of them, including State-owned, but autonomous National Television (TVN), are self-supporting through advertising.

TV broadcasting stations available in Santiago are: Channel 2, Channel 4, La Red; Channel 5, Universidad Católica Valparaíso (UCV); Channel 7, Televisión Nacional (TVN); Channel 9, Megavisión; Channel 11, Chilevisión; and Channel 13, Corporación de Televisión de la Universidad Católica, plus UHF television station Gran Santiago Television, Channel 21.

Programming depends heavily on foreign series and movies. Dubbed U.S. product predominates, but Mexican, Venezuelan, Brazilian, Argentine, and Japanese material can also be seen. Locally produced news, magazine shows, variety shows, and soap operas are high quality and draw large prime time audiences.

Cable TV

Cable television reaches an estimated 700,000 households in Chile, 51 percent of them in Santiago. Two major cable systems (Metropolis-Intercom and VTR-Cablexpress) operate in 95 percent of the country. Both rebroadcast all local stations and a host of international channels from the United States, Italy, France, Germany, Argentina, Brazil, and Mexico. U.S. offerings include CNN International, HBO Ole, MTV, TNT, Worldnet, ESPN, Cartoon Network, and MSTV.

Radio

Radio is Chile's most extensive mass medium and reaches more people in more places than any other medium. Nearly all Chilean stations operate commercially and six have network affiliates. The National Radio Association (ARCHI) reports that there are 179 AM and 614 FM stations in the country, with 24 AM and 32 FM stations in Santiago alone. An estimated 93 percent of Chile's population listens to radio. The figure for Santiago is 97 percent. ARCHI's statistics state that there are 17 million radio sets in Chile.

Radio is a prime source of current news to millions of Chileans, and the national networks devote large budgets to maintaining professional news staff to meet the publics considerable news appetite.

The principal national networks are Radio Cooperativa (76 AM and 93.3 FM), number one in the metropolitan area; Radio Chilena (66 AM and 100.9 FM), and Radio Agricultura (57 AM and 92.1 FM) Other major musical and commercial FM radios are Rock &Pop, Pudahuel, Corazon, Romantica, and Activa.

Newspapers

Chile has approximately forty newspapers ranging from nationally-distributed dailies to small-town tabloids. Distribution ranges from as many as 300,000 copies (Sunday edition of Santiago's El Mercurio), to 3,000 copies of a regional paper. Santiago has ten major newspapers with a combined daily circulation of approximately 479,000. In the regions, the circulation of local dailies is approximately 220,000. Considering an average readership of three persons per newspaper, total readership, countrywide, can be estimated at more than 2,000,000.

There are two major established newspaper enterprises in Chile: the El Mercurio chain, owned by the Edwards family, which has 15 dailies affiliated throughout Chile, and Consorcio Periodístico de Chile (COPESA), owned by the Sergio de Castro and Carlos Latorre group, which publishes country-wide circulation La Tercera, popular La Cuarta, afternoon daily La Hora and the newsweekly Que Pasa. El Mercurio of Santiago, is Chile's most influential and prestigious paper and is nationally distributed. El Mercurio competes with La Tercera and mass-oriented Las Ultimas Noticias (Mercurio-owned) for the largest readership.

In addition, also published in Santiago are: economic and financial newspapers El Diario and Estrategia, and English language periodical The News Review, published twice a week. Government-owned La Nacion, the independent daily El Metropolitano, and the Mercurio chain's afternooner La Segunda, complete the newspaper panorama of Chile's capital city.

Virtually all towns of reasonable size in Chile have newspapers which focus on local news. Apart from the El Mercurio chain dailies, there are approximately 25 other independent regional dailies with small circulation. The most important regional daily is Concepcion's El Sur, with a circulation of approximately 30,000.

The largest in advertising revenues is El Mercurio:

EL MERCURIO S.A.P. 
Santa Maria 5542, Las Condes, Santiago, Chile
Tel: (56-2) 330-1111
Fax: (56-2) 228-9262	

All Chile's leading newspapers carry weekly inserts or supplements on agriculture, construction, computers and fashion. It also publishes special inserts on various topics, including vehicles, throughout the year.

Magazines

The major news weeklies and magazines published in Santiago for a nation-wide readership are: Que Pasa, (app. circulation 20.000) a newsweekly which covers current events and political analysis; biweekly Ercilla (app. circulation 12.000), plus three business oriented monthly magazines, America Economía, Capital and Gestion.

High circulation Cosas and Caras, profusely illustrated biweeklies with a Life format, carry "jet set" type articles as well as political interviews of national and international interest. Other publications include El Siglo, the weekly Communist Party official publication; Punto Final, a biweekly publication of the extreme left group Movimiento de Izquierda Revolucionario (MIR); Paula, a women's magazine; Mensaje, an intellectual monthly published by the Jesuits, and several sports and TV/motion picture magazines.

Approximate circulation for Santiago's major newspapers and magazines:

Approximate
Dailies 	
Circulation		Monday - Friday		*Sunday
La Tercera		120,000			230,000
El Mercurio		 70,000			300,000
Las Ultimas Noticias	 80,000			100,000	
La Cuarta		100,000			100,000
El Metropolitano	 30,000			 30,000 
La Segunda) (Evening)	 35,000			N/A
La Hora(Evening)	 12,000			N/A
Estrategia		 15,000			N/A
El Diario		 12,000			N/A
La Nacion		  5,000
	
Total			479,000			760,000

Magazines:

Newsweeklies
Que Pasa		 20,000
Total			 20,000

Biweeklies
Ercilla			 10,000
Cosas			 25,000
Caras			 20,000
Total			 55,000

*   All circulation figures represent projected daily nationwide sales, and are only estimates, as no dailies submit circulation figures to public verification.

The following are estimated ratings from the National Television Council for the six national broadcast networks prime-time news programs for the month of May 1998. Each point represents approximately 35,000 homes and/or approx. 140,000 viewers.

TVN - National Television of Chile (Channel 7)		24.3 points	
	State-owned
UCTV - Catholic University of Chile (Channel 13)	23.9 points
	Privately-owned (Catholic University of Chile)
Megavisión (Channel 9) 					14.5 points
	Privately-owned (Televisa owns 49 percent)

Chilevisión (Channel 11) 				 5.9 points	
	Privately owned (major U.S./Venezuela company
	 "Ibero-American Media Partners" share)

Rock & Pop (Channel 2) 	 				 0.5 points
	Privately owned (Compania Chilena de Telecomunicaciones).

La Red (Channel 4)		 			 N/A	
	Privately-owned (Mexican investor Angel Gonzalez).

	Pricing Products

Generally, a 10 percent tariff is levied on the CIF value of all imported products, including all products manufactured in the U.S. As of January 1, 2000, this tariff will be 9 percent, declining one-point percent per year until year 2003 when tariff will level to six percent. This and a Value Added Tax of 18 percent are paid by the importer and not by the supplier. There are some exceptions: government entities do not pay these fees, and some luxury goods have higher tariffs. Imports from countries with which Chile has bilateral trade agreements are covered by different, preferential tariff schedules.

Pricing starts with a fairly straightforward formula based on CIF costs plus generally constant ship-to-warehouse expenses. Gross margins for consumer goods are generally 30-50 percent or more for direct sales to consumers, or 20-30 percent each for the importer/distributor and the retailer when a distribution chain is in place. The final price for mass-distributed U.S. items should be competitive with imports from Asia and countries like Brazil. Higher-priced items must identify niche market segments to prosper. More specialized products are sold by stocking distributors, or by commissioned agents who generally earn 5-10 percent on their sales.

Sales Service/Customer Support

Customer service and support are fundamental to successfully penetrating and retaining market segments other than consumer products. The distance and communications hurdles separating local buyers from foreign suppliers are a perpetual worry, as many buyers have been left stranded after buying a product with insufficient or no post-sale technical support.

In addition to the fact that consumer rights are slowly becoming a real issue, any product with an extended lifetime and a need for operator training, for consumables and/or for technical service must have this support provided by a stable local company with solid support from the overseas supplier. Bad reputations acquired by disregarding customer needs are hard to shake.

Selling to the Government

Government entities usually do their own procurement. Chilean law calls for public bids for large purchases, although procurement by negotiation is permitted in certain cases.

Foreign and local bidders on government tenders must be registered with the Chilean Direccion de Aprovisionamiento del Estado (Bureau of Government Procurement Supplies), Amunategui 66, piso 4, Santiago, Chile. They must also post a bank and/or guarantee bond, usually equivalent to 10 percent of the total bid, to assure compliance with specifications and delivery dates. Bidding is best done through a local agent who is registered, well-connected and familiar with the bidding procedures. (See Appendix C for a list of government agencies.)

Protecting Your Product from IPR Infringement

Chile belongs to the World Intellectual Property Organization, and patents, trademarks, industrial designs, models and copyrights are protected in Chile by the provisions of the International Convention for the Protection of Industrial Property (the Paris Convention). Chile's intellectual property regime is generally compatible with international norms, with a few exceptions. Industrial designs and models are protected for a non-renewable period of 10 years. The registration of trademarks is also valid for renewable periods of 10 years.

In 1992, the Chilean Congress approved legislation that expands copyright protection from 30 to 50 years. Despite this copyright protection, industry sources estimate that copyright infringement in Chile cost U.S. firms $50 million in 1998. Most infractions are found in small and mid-size companies. Software piracy should decline as local suppliers adopt more vigorous legal strategies to protect their rights.

A common problem faced by foreign companies that wish to begin operations in Chile is that other individuals or companies may already have their trademarks. Chilean courts have been supportive in cases where the trademark has been "stockpiled" but gone unused, but less so in cases where investments were made in use of the trademark. In either case, proceedings can be lengthy and expensive. The foreign firm should make a business decision whether to take legal action or negotiate with the party who registered the trademark. A trademark should be registered as soon as the exporter/investor has any intention of doing business in Chile. Ownership of the trademark is not prejudiced by lack of use in cases where the registered party makes use of the mark in other countries, and trademarks may be perpetually registered in periods of ten years at a time. Firms wishing to register their trademarks should do so at the Ministry of Economy, Departamento de Propiedad Industrial, Teatinos 120, Piso 1, Tel: (56-2) 672-5522.

Need for Local Attorney

Given that contracts with Chilean firms must abide by Chilean laws, U.S. companies entering the Chilean market should have all legal documents drawn up or checked by a qualified legal counsel. The Commercial Section of the U.S. Embassy in Santiago can supply a list of attorneys practicing in Santiago.

Suppliers can establish their legal relationship with a local representative in one of two ways: an ordinary work contract regulated by Labor Law 19.010, for which some legal guidance is advisable, or the more customary commercial or commission contract, where the parties establish their own terms and conditions, and are not bound by requirements of Law 19.010, especially its severance conditions.

To avoid legal expenses under a commission contract, the supplier should: (a) establish specific performance conditions for the representative; (b) decide upon ground rules for termination; (c) determine territory to be covered by the representative, as the supplier may later wish to appoint additional agent(s) elsewhere in Chile; and (d) have local counsel review the text to ensure its consistency with Chilean law. In establishing a contractual relationship with a local representative, the U.S. supplier should also ascertain its contractual liability vis-a-vis the representative under Chile's labor law.

AmCham Chile

The American Chamber of Commerce of Chile (AmCham) can be helpful in doing business in Chile. A non-profit organization with over 500 corporate members and over 1000 individual members, AmCham conducts a variety of activities designed to promote trade and investment, and provides a good way to meet U.S. and Chilean businesspeople. The AmCham publishes a monthly magazine. For more information on AmCham and its activities, please call Jaime Bazan, General Manager, tel. (562) 290-9700, fax (562) 206-0911.