Trade mission to Costa Rica, Guatemala and El Salvador
Trade mission participants at Costa Rica’s opening night reception (l to r): Ricardo Cardona, commercial specialist; Josh Merin, IFA; Mike Kim, Bonchon Chicken; Reed Nyffeler, Signal 88; Nancy Weingartner, Franchise Times; Gabriela Lucke; commercial specialist; Bill Chemero, Wayback Burgers; Rogelio Martinez, Berlitz; Emilio Cordoba, commercial assistant; Scott Krupa, Fastsigns; Mark Jameson, Fastsigns; Carlos De Leon, Kona Grill; Jackie Coan, Xtreme Lashes; Bill Gabbard, EGS (representing Arby’s, Fuddruckers, Mosquito Squad and Sky Zone): Abby Daniell, commercial director; and Sergio Orozco, Signal 88 Security.
I pity the poor franchisor who doesn’t go on at least one international trade mission. While the missions are designed to match U.S. companies with investors in the selected countries, they also serve to brief franchisors first-hand on a country and its special challenges—or as we say in franchising, “opportunities.” Call it boots-on-the-ground education.
But at the same time, trade missions require hardy folks who can check in and out of hotels every day and a half; be charming all day during one-on-one meetings with prospects who are sometimes the richest person in the country and sometimes a disappointment; attend nighttime receptions, often with the ambassador; and exchange war stories with the other trade mission participants on the long bus rides to the next mall or airport.
This year, Franchise Times, the International Franchise Association and the U.S. Commercial Service hosted missions to three very different parts of the world: South China; Latin America; and the Nordic countries.
We’re reporting here on the September trade mission to Costa Rica, Guatemala and El Salvador for the simple reason that it’s the one we attended. We’re leaving armchair travel to other publications.
Dan Bjerk, senior international trade specialist in the Tampa office, led the mission, along with Josh Merin of IFA. In addition to all the calls and organizing before the event, they’re also responsible for herding the cats from stop to stop.
A decorative dessert served at the Hotel Sheraton Presidente in San Salvador—avocado mousse.
Here’s an overview of what we learned about the franchise environment and the culture on each of our stops. Check out our blog at www.franchisetimes.com for more stories from the road.
San Jose, the capital of Costa Rica, is a very different animal from the country’s Pacific Coast beaches, populated by resorts like the Four Seasons. At least that’s what we’ve surmised since the official trade mission only left the Hotel Intercontinental once for a mall tour and a walk around the old downtown area. We were told the oldest McDonald’s outside of North America was located in the downtown market, but since there were four within a four-block square it was hard to identify which one it was. We did, however, find yucca fries on the menu.
For established franchisors, Costa Rica is a good entry point into the region. The other gateway country is nearby Panama, the two richest countries in the region. The currency is the colón, and at the time we visited, the exchange rate was 500 colónes to one U.S. dollar, leaving those of us who got change for our dollars in colónes feeling rather rich. Merchants in all three countries accepted U.S. dollars, and in El Salvador, it was the official currency.
Like most of the cities the trade missions visit, traffic moved at a drunken snail pace, but what compounded the inconvenience was that parking was almost nonexistent for stores and restaurants situated on the busy streets. It’s not uncommon for landlords to sell commercial locations with no parking, we were told (lack of parking was a concern we heard at each stop). Real estate deals require a broker, or you won’t get the best prices. Another good reason for local help is that there are no street signs to aid with navigation. Our bus driver said you just have to memorize landmarks.
A first for this trade mission is that the local presenter was also a trade mission participant. Rogelio Martinez, president of Berlitz Franchising Corp., lives in Costa Rica, and since he was attending just the El Salvador leg of the trip, he donated his time to talk to us about the local economy. As a past participant on many of these events with Tutor Doctor, Martinez knew the information his fellow international development directors wanted to know.
A view of San Salvador from the window of our hotel room. Although El Salvador was said to be one of the most dangerous countries, we didn’t see as many wrought-iron gates as in Costa Rica.
While the government is more stable than in other countries, such as Guatemala, security is still a concern here—Costa Rica is No. 1 in the world for stolen passports. We viewed houses in the commercial areas with high walls starting at the sidewalks, many topped with razor wire. It’s not uncommon to see entire houses in cages, not just bars on the windows.
It’s a highly legalistic society stalled by bureaucracy and a system that tends to favor the employee in employer/employee disputes. One could say it’s a bit socialistic.
“Our neighborhoods are inclusive like our people,” Martinez said. It’s not uncommon to find a high-level executive who is hunting buddies with the man who drives a garbage truck, he said.
Taxes are a flat rate of 19.5 percent, and while there’s socialized healthcare, it’s a long wait to see a doctor, so those with money pay to go to a private clinic or hospital, said Emilio Cordoba, commercial assistant.
The workforce is highly educated, but expensive. For instance, for every $1 an employer pays an employee, he or she has to pay an additional 45 cents to La Caja, which administers social security, pensions and healthcare accounts.
Don’t offer bonuses, Martinez warned, or employees may petition La Caja to make it part of their regular salary. All workers, even yard care or housekeeping, require written contracts to protect the employer, Martinez said.
If an employee is terminated, he or she is entitled to severance pay of one month’s salary for every year worked, up to eight years, plus any sick time and vacation pay. They are also entitled to the 13th month payment, an extra month’s salary for all employees that’s required by law and must be given in the month of December. Unfortunately, because it’s so much more lucrative to be fired than to quit, some workers use work slowdowns to force employers to fire them.
But on a plus side for franchisors: There’s no formal franchise legislation.
None of the three countries participates in the Madrid Protocol, which facilitates international registration of trademarks. This means trademarks have to be registered in each country. There are lots of examples of names for products that closely mimic the established brands, such as Durabell (Duracell) and Shucway, a hot dog cart in Guatemala, which has the same font and colors as Subway.
In Costa Rica, trademarks will be turned down for registration if they contain generic words. For instance, Martinez said, “Tutor Doctor” was considered too generic there. Another word of caution: Don’t allow your local partner to use your name in his or her company’s name, or you may have to fight to get it back.
The decor at the Vista Real hotel in Guatemala City incorporated old-world charm, such as the statue above, with modern conveniences and horticulture lavishness.
For most posts, the senior commercial officer is an American who rotates in and out every three to four years. In Costa Rica, Commercial Director Abby Daniell is both a local and a U.S. citizen. She’s lived in the country for 20 years, and was previously the publisher of Tico Times, the English-speaking newspaper.
Daniell started her career working on Capitol Hill, before going back to earn her master’s degree in international business. “I came here to study Spanish,” she says about Costa Rica. “I thought it would be six months, and then I got a job and stayed.”
In 1994, she headed up the newly created tourism section for the newspaper, which basically meant she was paid to travel all over Costa Rica. She met her husband in her adopted country, a Canadian, who is a custom builder there. But the U.S. is still her country of choice.
Her experience with the Tico Times (Ticos is the nickname for Costa Ricans) has helped her staff get an even deeper bench of investor contacts.
“It’s a small country,” she says. “Everyone knows everyone.”
Guatemala’s government was having a roller coaster ride around the time we were there in late September. “The government was in jail; the government was not in jail,” Senior Commercial Officer Nicole DeSilvis said about the political situation. But while the dramatics continue at the capitol, the rest of the country is tied up in the day-to-day business of life. “These are wonderful people who love this country and want to make it better,” she said of the Guatemalans we’d be meeting later.
Guatemala’s commercial service office was without a U.S. officer for four years before DeSilvis transferred there over a year ago. According to her commercial specialists, it was nice to be on their own, but there’s nothing like the attention and resources available when an American is in the office. “An office can get sleepy,” she said, “and then you put in someone like me who is crazy over the top.” And things start to happen. Like a trade mission.
U.S. Ambassador to Guatemala Todd Robinson is also pro business, which ensures American companies’ interests are protected, she added. “It makes a world of difference when you have a front office (the ambassador) who loves commerce,” she said. “He comes on time (to her events), stays ‘til the end and works it. We’re here to tell the good story and Guatemalans are so proud of their country so to have someone who wants to bring business here is huge.”
The Guatemalan Franchise Association came calling bearing gifts for the participants, and representatives from AmCham, the American Chamber of Commerce in Guatemala, attended the early morning briefing and networked with the franchisors.
Guatemala’s population is around 14.7 million (more than twice that of El Salvador), making it the most populous country in Central America. According to info from AmCham, Guatemala’s economy is dominated by the private sector, which generates about 90 percent of the country’s GDP. Ecotourism is catching on here as well as at other countries in the region. Although Guatemala City is the capital and dominant city in the region, other sites, such as Antigua, draw tourists and tourists’ dollars.
There are more than 200 U.S. brands, with a collective 1,500 units, already doing business in Guatemala, and 50 non-U.S. franchises, the Guatemalan Franchise Association reported. The good news for the participants who made the trek is that investors here prefer U.S. franchises when looking for an international franchise.
The area development model is the most common expansion method.
One cautionary note expressed in all three country briefings is that investors will want large territories, covering more than one country. Many of the investor groups with units in the other countries were from El Salvador. Whether to grant that large a territory is a matter left up to each brand based on the candidate.
While there is no specific franchise laws, contacts must be in Spanish to be legal. “The contract takes on a bigger role because neither side is protected by law,” a lawyer told us. In addition, franchisors have to ensure the person who signs the contract to develop their brand is the person in the company with the power to do so. Plan to mediate or arbitrate in local courts, she said, because any decision by a U.S. court does not hold up in Guatemala.
Tardiness is a strong suit of the Guatemalans, which made it difficult to keep the one-on-one meetings running on time. Because several important people asked to meet with the companies the day before the event, the commercial service staff was scrambling to fit in additional meetings. For some of the brands with lighter schedules, this was a plus, but for one participant it presented a voice-numbing challenge. Bill Gabbard of EGS, who represented four brands on the trip — Fuddruckers, Sky Zone, Mosquito Squad and Arby’s — had 31 meetings scheduled. Fortunately, he’s a pro with years of experience.
No matter the number of meetings, all the brand representatives were impressed with the caliber of the investors they met in all three countries. Gabbard even went so far as to say these were some of the best leads he’s encountered in his 30-year career.
The Commercial Service screens investors for the meetings, but DeSilvis cautioned that it’s even more important here than in other areas to “know who you’re partnering with at a higher level.”
Security is taken seriously at the malls. At Arkadia Shopping, where we visited, the manager boasted that every car in the parking lot had a camera on it. This was for shoppers’ safety, but also to prevent the mall from being liable for accidents or faked car thefts.
The country boasts natural beauty, perfect for the new booming business of ecotourism, but it’s also home to at least two active volcanoes —“You can roast marshmallows on the rivers of lava,” we were told— and earthquakes. Think mandating insurance coverage be written into the franchise contract.
A common thread in Latin countries, Guatemala is a family-oriented place. “People go home after work,” DeSilvis said. “It’s not a cocktail party town, but when you do have a party everyone’s excited because they’re not overcommitted.”
They also appreciate a taste of home when they’re away. As we sat in the airport waiting for our flight to El Salvador, we were privy to the phenom that is Pollo Campero. Included with travelers’ carry-on luggage were oversized bags of chicken from Guatemala’s No. 1 franchise.
The legal representative at our breakfast briefing, Marcella Romero, an attorney with BLP law firm, didn’t mean to scare us, but she did. “Don’t test the waters here,” she warned about starting Central American expansion in El Salvador. Both investors and employees need to be checked out thoroughly.
“On these initial meetings, there was due diligence done,” Laura Gimenez of the U.S. Commercial Service said, “but not on the level Marcella is talking about.”
Because the population is small —about 6 million — franchisors were cautioned to tamper down their expectations when it came to the number of units that could be developed here. The size of the population is also one of the reasons investors want additional territory. Guatemala is the natural progression, especially since 70 percent of El Salvador’s fresh food comes from it. (Equipment tends to come from the U.S.)
Insurance policies are a must here, Romero said, because of the very real threat from earthquakes and volcanoes. San Salvador, the capital, is known as the “Valley of Hammocks,” because it sways.
To attract the locals who avoid taking their children to play in what they consider unsafe neighborhood parks, the Pizza Hut restaurant in San Salvador sports an enclosed slide in its indoor playground. Next door, a Wendy’s employee was blowing up balloons in anticipation of an upcoming birthday celebration in its expanded party/play area. The games continued in the main dining room, where a foosball machine took up residence among the tables. Even Denny’s has an indoor playground.
The square-footage of these restaurants was also impressive.
Dining out in San Salvador—the capital of El Salvador—is more than nutrition, it’s nurture. Extended families go out together on weekends, and linger over their meal, necessitating more tables and larger restaurants.
Here Pizza Hut is closer to fine dining than delivery. “The amount of pizza consumed here is huge,” said one of the commercial specialists. The reason? It’s filling and inexpensive. Breakfast out and delivery are the two biggest food trends, she added. (Delivery is huge in Guatemala, as well, where almost anything can be delivered, DeSilvis said.) When U.S. sandwich concepts, such as Subway, came into the region, they had to reprogram consumers, because traditionally Salvadorians like their main meal—lunch—served hot.
Malls are not just places for shopping, they’re hangouts—a place to go to be seen. And they’re viewed as safe zones. A mall security guard, who was directing traffic in front of a center, wore an orange vest and a large, holstered gun on his hip.
A line-up of U.S. restaurant concepts, all with outdoor seating and large dining rooms, lined the first-floor hallway of the oversized mall we visited. One investor owns all the brands.
American brands do well here for a number of reasons, but No. 1 is that this country of around 6 million people has 3 million relatives who live in the U.S. And collectively those relatives send close to $4 billion annually back to family members in El Salvador.
If a person receives money from a relative in the U.S., his or her buying habits may be different from the mainstream, because the relatives tend to suggest they try out new brands that have just come to El Salvador, says Luis Arturo Garcia, who works with a consulting company that conducts consumer polls.
That’s not true of the frugal majority, he adds. Coupons and discount deals trump all other marketing. When a couple goes out on the town at night, they have a fixed budget they won’t exceed. So inevitably, they will go to the establishment that can give the best value. “Two-for-one (offer) is effective marketing,” he said.
Fashion is also important to the Salvadorians, according to Arturo Garcia, but they almost always opt for the less expensive brands and discount stores like Forever 21.
And because they are a sentimental people who like to stay in touch with their families, Arturo Garcia said Salvadorians will have four different chips for their cell phones from several different carriers to get the best deals. “There are four cell phone companies here,” he pointed out. “More than other countries (in Latin America).”