Using an Agent or Distributor

Finding a good agent and/or distributor is the most effective means of market entry in Bosnia and Herzegovina.  It may take some time and effort but reliable and capable partners can be found.  Nevertheless, it is recommended that a confirmed letter-of-credit be used when conducting business with a new local partner.

Local partners can be located through the Foreign Trade Chamber of Bosnia and Herzegovina (http://www.komorabih.ba), which maintains a business registry and features a goods and services exchange electronic marketplace. However, it is recommended that the creditworthiness of your future partner be verified before signing legal documents and/or conducting any business transactions.

LRC Engineering is a credit bureau that provides a number of services aimed at assessing creditworthiness of both legal entities and individuals including monitoring, credit reporting, and Industry Sector Performance Standards.  LRC partners with commercial banks, micro-credit institutions, insurance companies, pension funds of entities, public utilities companies, legal entities, cantonal governments and courts in the Federation of BiH, and Federation of BiH Statistics Agency in order to provide relevant credit reports.  For additional information and/or to order a service, contact:

LRC Engineering & Credit Bureau (http://www.lrcbh.com/)

Sarajevo Office

Phone: +387-33-266-130          Fax: +387-33-266-133

Email: lrc@lrcbh.com

Dervisa Numica 6

71000 Sarajevo

Banja Luka Office

Phone: +387-51-322-730        Fax: +387-51-322-733

E-mail: lrcbl@N0SPAM.lrcbh.com

Frane Supila 14

78000 Banja Luka

The U.S. Embassy Sarajevo can assist in locating potential partners and assessing their creditworthiness.  Through a partnership with the U.S. Foreign Commercial Service, the Embassy provides the International Partner Search (IPS) and the International Company Profile (ICP) services to U.S. companies who wish to locate partners in Bosnia and Herzegovina and check their creditworthiness.

The IPS provides a report on up to five qualified Bosnia and Herzegovina agents, distributors, manufacturers, representatives, joint venture partners, licensees, franchises, or strategic partners who have examined a U.S. company's materials and expressed an interest in the company's products, services, or licenses, or expressed an interest in otherwise partnering with the company. 

The ICP provides a thorough background check of potential clients and representatives.  Reports include up-to-date information such as:  bank and trade references, principals, key officers and managers, product lines, number of employees, financial data, sales volume, reputation and market outlook.

Establishing an Office

Establishing a business in Bosnia can be an extremely burdensome and time-consuming process for investors.  The World Bank estimates that there is an average of 12 procedures taking a total of 54 days to complete registration for a new business. Registration can sometimes be expedited if a local lawyer is retained to follow up at each step of the process.  Businesses must register in each entity in which they wish to conduct operations.  However, investors in one Entity may register their business as a branch in the second Entity, significantly reducing the time and administrative hurdles to begin operations.  The registration process at the State level should soon be simplified when a new State-level business registration project and accompanying legislation is implemented.  The British Government has financed a project that should, once fully implemented, reduce the registration process significantly and at the same time provide a uniform business registrar for the entire country. Other administrative procedures are even more time-consuming.  For example, obtaining a construction permit can take as long as six months to one year.

The myriad of state, entity and municipal administrations creates a heavily bureaucratic system that lacks transparency.  All three levels of government (municipal, cantonal in the Federation, and entity) establish laws and regulations affecting businesses, creating redundant and inconsistent procedures that encourage corruption.  Often it is impossible to know all of the laws or rules that might apply to certain business activities, given overlapping jurisdictions and the lack of any central source of information.  It is therefore critical that foreign investors obtain local assistance and advice. The basic form of presence in Bosnia and Herzegovina is the representative office.  The State Law on Foreign Trade Policy governs the establishment of a representative office.  A representative office is not considered to be a legal entity, and its activities are limited to market research, contract or investment preparations, technical cooperation, and similar business facilitation activities.

To open a representative office, a company must register at the Registry of Representative Offices, maintained by the State Ministry of Foreign Trade and Economic Affairs and the corresponding entity Ministry of Trade.  Registration procedures and establishment are regulated by the Decree on Conditions for Establishment & Operation of Foreign Representative Offices (1995).  An application must contain the following information: 

1)         A document indicating the decision of the founding or parent company to establish a representative office.  This document must contain the following information:

-          Name and address of the founder;

-          Name and address of the office (in BiH);

-          Name and address of the branch office (if such exists);

-          Scope of activities of the office;

-          Terms of reference of the office;

-          Names of persons managing the office;

2)         A certified document proving registration of the parent company in the home country;

3)         A certified statement of liability for all liabilities that stem from activities of the office;

4)         Appointment of the person in charge of the office (in BiH);

5)         Information concerning the number of employees at the office, including a list of foreign employees.

All documents must be originals and an authorized court translator must translate the documents into the local language.  If the documentation is complete and correct, the registration procedure should be completed within 30 days.  The Ministry will appoint the office by a decree that will be published in the Official Gazette.  After receiving the decree, the office must notify the Ministry within 90 days of the beginning of operation.  If the office fails to do so, the appointment will be cancelled.

More information on the registration process can be obtained from:

Ministry of Foreign Trade & Economic Relations of Bosnia and Herzegovina

71000 Sarajevo

Bosnia and Herzegovina

Tel: +387-33-220-093

Fax: +387-33-445-911

Web Site: http://www.mvteo.gov.ba

A representative office is allowed to have both foreign and local currency accounts with local banks.  Office equipment can be imported free of customs duties, based on a temporary permit with the possibility for extensions.  Office vehicles may be imported but only for expatriates.  Expatriates are required to pay local income taxes. However, residence and work permits are required for the expatriate staff.

FDI insurance instruments in Bosnia and Herzegovina

Foreign investors concerned about risks of transfer restrictions, expropriation, war and civil disturbance, and denial of justice can be insured against these risks from the European Union Investment Guarantee Trust Fund for Bosnia and Herzegovina, administered by the Multilateral Investment Guarantee Agency (MIGA, part of the World Bank Group).

The International Development Association (IDA, also a World Bank Group Member) and the Investment Guarantee Agency (IGA) provide guarantees against political risks for short and medium-term commercial transactions between Bosnian enterprises and foreign companies, suppliers and banks. BiH is eligible for assistance from the US Overseas Private Investment Corporation (OPIC), which also provides political risk insurance for investors.

Franchising

Franchising has yet to make a mark on the economy of Bosnia and Herzegovina.  Car rental companies (Hertz, National, Budget, Alamo) are the best known examples of local franchising operations.  Following the examples of Croatia and Serbia, the fast food industry is probably the best candidate to host franchising ventures in the future.  As the business environment continues to improve, it is possible that franchising could become a more significant way of marketing goods and services.

Direct Marketing

Direct-response selling is making some headway in Bosnia and Herzegovina.  With the steady growth in credit card usage, there are attempts to market mainly consumer goods by way of catalog sales, direct response advertising (TV, radio, and print media), and e-commerce.  The German direct selling merchant “Neckermann” has an outlet in Bosnia and Herzegovina that markets consumer goods via catalog sales and the Internet.  Other examples include Zepter (cookware, cosmetics), Amway (cosmetics, home cleaning products, vitamins), Royal Sales International (cleaning products, cosmetics, vitamins), Golden (cleaning products, cosmetics, vitamins), Oriflame (cosmetics), Tupperware (kitchenware), and Grawe (life insurance).  Marketing is usually carried out via formal or informal multi-level marketing groups or direct sale chains.  Often informal gatherings are used to promote the products and push sales.

Joint Ventures/Licensing

Joint ventures are rare in Bosnia and Herzegovina. The best known example is the UNITIC towers complex in the central part of Sarajevo, which represents a joint investment of the local company UNIS and the Kuwait Investment Fund. There is also a small assembly operation near Sarajevo jointly owned by Volkswagen and Prevent. 

The Law on the Policy of Foreign Direct Investment and the Law on Companies regulate the establishment of joint ventures, investment in companies with mixed ownership, as well as other types of foreign or domestic investment.  Establishment procedures require a local lawyer and registration with the local Court.

Licensing is a good way to tap into local markets but requires financially strong partners with good management skills.  The best known licensing operation is that of Coca-Cola’s regional bottling partner, the Hellenic Bottling Company from Greece.  Pepsi Cola has two bottling partners, one in Sarajevo and one in Banja Luka.  Teleoptic from Sarajevo has acquired a license from the German company Sinalco to bottle its soft drinks.

In the pharmaceutical industry, the local manufacturing leader “Bosnalijek” from Sarajevo has a number of licensing agreements with the world’s leading pharmaceutical companies including Eli Lilly and Roche.

There are no specific laws regulating this area other than the Law on Obligations (“Commercial Code”), which addresses contract law.  The licensing contract should cover intellectual property rights issues (trademark, model, patent or copyright), payments/royalties, the term of the contract, restrictions on using trademarks, etc.  A local lawyer should be consulted to ensure that provisions of the contract do not contravene BiH law, making the agreement null and void.  Similar to franchising, the improving business environment, especially in the area of contractual relationships and Intellectual Property Rights, should encourage licensing business ventures.

Selling to the Government

Government consumption in Bosnia and Herzegovina is significant, estimated at almost 45 percent of GDP.  The scope of government procurements is wide, as it includes many government-owned enterprises such as public utilities and service providers (telecommunications operators, electricity and gas utilities, transportation service providers, water supply). 

In order to promote efficiency and effectiveness in the public procurement procedures and reduce the potential for fraud, corruption and misappropriation of public funds, the European Union launched a public procurement reform project in 2003. 

The Public Procurement Law for Bosnia and Herzegovina was adopted in September 2004.  However, there has been a significant delay in implementing the Law, including the creation of the Public Procurement Agency and Procurement Review Body, and the adoption of by-laws and implementing regulations.  The absence of these key elements of reform has led to significant misinterpretation of the Law and manipulation of tendering procedures in a number of tenders and is a major source of complaints by U.S. companies. The Law has been amended several times, while Bosnian authorities are considering drafting a new Law.

The establishment of Public Procurement Agency and Procurement Review Body should provide for a more consistent application of the Law and introduce a greater degree of fairness and transparency to the public procurement process.

Information pertaining to public procurement legislation including procurement notices can be found at http://www.javnenabavke.ba/

U.S. companies interested in selling to the government are advised to contact the U.S. Embassy Sarajevo in order to seek additional information about specific procurement opportunities.  The Commercial Service Office at the Embassy helps U.S. companies export to Bosnia and Herzegovina by identifying local opportunities for the sale of U.S. products or services, providing counseling on the market, and meeting the advocacy needs of U.S. firms.  In addition, U.S. companies should be aware of the possibility of obtaining advocacy support through the Advocacy Center in Washington, D.C. (http://www.export.gov/advocacy/).

Distribution and Sales Channels

Due to the difficulties many smaller and newer firms face gaining access to credit, the ability to provide financing is an important factor in selling both industrial and consumer goods. Most buyers prefer to pay in monthly installments, even for low-priced goods. Other factors/techniques critical to success are close and frequent contact with buyers, motivated and trained intermediaries, and aggressive market promotion. Selling to state-owned companies and other state entities still depends on cultivating relationships.

It is important to provide product literature and manuals in local languages as well as providing locally available service and maintenance.

There are three dominant types of distribution channels in BiH:

i)  For consumer goods - producer to wholesaler to retailer to consumer;

ii) For industrial goods - producer to industrial user, and producer to distributor to industrial user;

iii) For services - service provider to consumer or industrial user.

To a certain extent, there are two distribution systems in BiH: one in the Federation (FBiH) and one in Republika Srpska (RS), the result of different legal frameworks in the entities.  Although much effort has been made to harmonize the entities’ legal systems, there are still significant differences. Consequently, many manufacturers have developed multiple distribution channels and contract with multiple distributors to cover both the Federation and RS.

Wholesaling:  Wholesalers are the real channels for providing transportation, product storage, market information, financing, and risk management.  Most wholesalers are independent full-service merchant wholesalers, importing and distributing goods.  There is a significant degree of specialization in the wholesale sector by industry.

Foreign companies control their distribution channels in a variety of ways.  Some manufacturers have opened representative offices in order to control distribution channels and supervise/manage marketing efforts.  P&G, Wrigley’s, Microsoft and Oracle are good examples.  Wrigley’s relies on three distributors and a number of wholesalers to penetrate the market.  The company also has sales offices across the country to coordinate marketing efforts.  Oracle and Microsoft cover the market directly and through a network of business partners, usually smaller IT companies, while P&G has a single distributor that covers the whole country. 

Coca-Cola’s local operation is an example of a successful manufacturer-owned vertical marketing system.  Coca-Cola began operations in BiH in 1996, with an emphasis on distribution.  Pepsi is a more recent market entrant, with local production and distribution done by Sarajevo Brewery in the Federation and Fruktona in the Republika Srpska.

Retailing:  The most significant development in the retail market is the appearance of large retailers, many of them foreign-owned, such as Mercator from Slovenia, Interex from France, Velpro from Croatia and locally-owned MIMS group, Sam’s Shop, Tropic Centar, and Robot Komerc.  The introduction of the shopping mall concept has changed consumers’ habits and enabled larger retailers to shift the effort of financing onto manufacturers and distributors, especially in the consumer goods sector.  Some distributors are now trying to enter the retail market but the cost of real estate development is very high, making the effort more difficult.

Selling Factors/Techniques 

Due to the difficulties many smaller and newer firms face gaining access to credit, the ability to provide financing is an important factor in selling both industrial and consumer goods. Most buyers prefer to pay in monthly installments, even for low-priced goods. Other factors/techniques critical to success are close and frequent contact with buyers, motivated and trained intermediaries, and aggressive market promotion. Selling to state-owned companies and other state entities still depends on cultivating relationships.

It is important to provide product literature and manuals in local languages as well as providing locally available service and maintenance.

Electronic Commerce

E-commerce is not well developed.  The country is not “e-ready,” and the citizens and businesspeople of Bosnia and Herzegovina do not have the habit of shopping or doing business on the Internet.  In addition, Internet penetration is low at 20.3 percent (source: International Telecommunication Union, September 2007) along with low PC penetration. The situation is further complicated by inadequate legislation.

The financial sector leads the way with many commercial banks offering e-banking to their clients.  Global Payments Europe (http://www.globalpaymentsinc.com) and Electronic Banking Bureau Sarajevo (http://www.ebb.ba/), a member of Halcom Informatika Group from Ljubljana, are the main providers of e-banking solutions and services in Bosnia and Herzegovina

In the ICT sector, companies such as IT Computers and ComTrade engage in e-commerce in order to penetrate the market.

Despite these positive examples, it will take some time before e-commerce gains significant ground in Bosnia and Herzegovina.

Trade Promotion and Advertising

Trade Promotion

Trade shows are the best trade promotion vehicle in Bosnia and Herzegovina.  Local and regional firms rely on trade fairs to establish business connections, gain market visibility, and learn about new products.  Trade shows are held throughout the country. The most important specialized and general shows take place in Sarajevo (http://www.skenderija.ba), Banja Luka (http://www.banjalukafair.com/), Zenica (http://www.zeps.com/), Tuzla, Mostar (www.mostarski-sajam.com) and Gradacac (http://gradacackisajam.com.ba/).

Advertising

Electronic media (television, cable TV, and radio), outdoor advertising, and print media are the leading advertising mediums.

The broadcasting scene is vibrant, with 6 public TV broadcasters, 39 private TV stations, and 145 radio stations.  The full list of TV and radio broadcasters is available on the web site of the Communications Regulatory Agency of Bosnia and Herzegovina http://www.rak.ba/en/broadcast/reg/?cid=1863

Among the most popular TV stations are NTV Hayat (http://www.ntvhayat.com/home/), TV Pink (http://www.rtvpink.com/), OBN (http://www.obn.ba/), BN Radio & TV (http://www.rtvbn.com/), and the Public Broadcasting Service of Bosnia and Herzegovina (http://www.pbsbih.ba/).

Mareco Index Bosnia has published the results of its Omnibus survey assessing the radio and print media ratings. The survey in PDF format is available at http://www.mib.ba/version01/index.html. Mareco Index Bosnia (http://www.mib.ba/), a member of Gallup International, is the leading public opinion, media and market research company in Bosnia and Herzegovina that conducts comprehensive ad hoc market, consumer, media and public opinion research on a national basis.

The best way to pursue advertising services is to contact one of the many advertising agencies in Bosnia and Herzegovina. Media Group and Media Pool are two key advertising groups.  Media Group includes BBDO and McCann Erickson, while Media Pool consists of SV-RSA, Fabrika, J.W. Thompson, Communis and M.I.T.A. Group/Saatchi&Saatchi.

Pricing

The most significant recent development in pricing is the introduction of a new national value-added tax (VAT) on January 1, 2006. The 17 percent VAT rate replaced entity-level sales taxes that had three rates of 0, 10, and 20 percent.

Sales Service/Customer Support

Sales service and customer support is relatively undeveloped as a marketing tool. In this respect, foreign companies and their distributors are offering a new, upscale service. When selling capital goods, sales services and customer support in terms of maintenance and training is essential. A well-trained local distributor can provide a competitive edge in this area.

Protecting Your Intellectual Property

Protecting intellectual property in Bosnia and Herzegovina is a challenge. Despite some progress in creating a legal and institutional framework, the absence of enforcement presents a major problem. For additional information, see Chapter 6, Investment Climate Statement.

Due Diligence

The complex and rapidly changing legal environment dictates the need for a local attorney. The legal framework is sometimes contradictory or overlapping, creating confusion and uncertainty. Bosnian attorneys’ experience base is still limited with respect to legal questions and issues that arise in a market-oriented economy. However, local lawyers are quickly learning as they gain experience in working with international organizations and companies that are operating in BiH. Companies’ in-house legal counsel should be prepared to oversee their in-country counsel, with explicit explanations and directions regarding objectives.

Local Professional Services

The U.S. Embassy Sarajevo can assist you in locating requested professional services, as available.