Even though a substantial number of business people might still connect Serbia with wars, economic sanctions and the general poverty during the 1990s and the rule of Slobodan Milosevic, the situation today is completely different.

Over the past six years of extensive political and economic reforms, Serbia has developed into a stable democratic country with a fast-growing market economy.  Western-oriented, Democratic political parties have a clear majority among the citizens, and the government exerts whole-hearted efforts to create a secure and attractive environment for conducting business.  Legislative activities are highly-intensive to bring the legal framework in line with European Union regulations.

The country’s progress is fully-supported by leading international-development institutions, such as the World Bank and the European Bank for Reconstruction and Development, while the process of the European Union and the World Trade Organization accession is under way.  Investment projects in Serbia can be insured by all major national and international investment and export insurance agencies. The protection of foreign capital is further safeguarded by Bilateral Investment Treaties signed between Serbia and 34 other countries, including the United States, United Kingdom, Germany, France, Austria, Italy and Greece.

As one of the largest markets in the region, second only to Romania, Serbia has undertaken aggressive reform programs with the intent to re-establish the country as a regional center.  With a population of 8 million people, Serbia's internal market is among the largest in Southeast Europe.  All major road, rail, water and even air routes traverse Serbia, connecting Europe with Southeast Europe, Turkey, Greece and the Middle East.  Since 2001, GDP per capita has more than doubled to almost US$3,500, which is ahead of most other countries in the region, including Romania, Bulgaria, Macedonia, Albania and Bosnia and Herzegovina.  In 2004, the economy reached its record growth rate of 9.3 percent and is expected to maintain the highest-growth rate in the region of about 7 percent in 2006.

The upswing in production has fueled a steady increase in purchasing power, which is manifested in the double-digit rise in household consumption and retail trade. Serbia is still one of the few unsaturated markets in Europe.  Today, Serbia is an importing market and consumer preferences are highly-turned toward the products originating from the United States and other developed countries.  An increasing number of international trading companies are taking advantage of the rapid local-market expansion, and the Organization for Economic Co-Operation and Development awarded one of them, German Metro Cash & Carry, Investor of the Year in Southeast Europe for its €150 million investment in Serbia.

Favorable Conditions
Consumer and economic conditions in Serbia are developing quite favorably for the entry of international franchising.  A general opinion exists, among both government officials and business circles, that the foreign franchising sector will be the pioneer of further economic growth and technical development.  Therefore the interest in franchising is growing daily. 

Generally speaking, Serbian as well as Montenegrin customers are intrigued by all kinds of new products.  Since quality merchandise and quality services are lacking on the market, all new marketing ideas promoted through franchised systems are very welcome.  Also, awareness of how successful franchising is in the United States is very strong and many Serbian and Montenegrin businesses are interested in acquiring the rights to operate American franchises primarily in the services sectors.

Today, there are approximately 270,000 entrepreneurs, including 90,000 small and medium- sized enterprises operating in Serbia.  The experts are expecting this number to increase to more than 400,000 in the next five years, providing huge opportunities for U.S. franchise companies.  Furthermore, due to the privatization process, a large number of employees are losing their current jobs and obtaining severance packages, which can be invested in acquiring a franchise.  There are definitely a large number of companies and private entrepreneurs in Serbia with sufficient funds to commence franchising operations without having to borrow money.  But, if necessary, obtaining financing for franchisees in Serbia should not be a problem.

Attractive Prospects
One of the most attractive prospects in Serbia is probably in the restaurant sector.  Serbians spend a disproportionate amount of their income on eating out.  Serbians are used to spicy cuisine, and have a high consumption of all kinds of meat.  Italian and French cuisines are very popular, as people are generally curious and open to all kinds of novelties.  The number of foreigners living in Serbia is increasing, which is another target market for franchise systems.  Currently, there are two U.S. quick-service chains present on the market:  McDonald’s with several restaurants throughout Serbia, and Pizza Hut with one restaurant in Belgrade.  The U.S. Commercial Service in Belgrade has been approached by several Serbian businessmen, inquiring about possibilities of obtaining a U.S. franchise in this sector.  One of the primary success factors is definitely the restaurant’s location.  The real-estate owners are well aware of this fact and are pricing property accordingly. 

Montenegro, despite the very small size of the country (650,000 inhabitants), has one of the most beautiful coastlines in Europe with a pace of development unseen in this part of the world.  Real-estate prices have jumped more than 1,000 percent in the past four years.  This relatively-small and recently-undeveloped area managed to attract such names as Amman Group and luxurious hotels are being constructed daily. 

This situation is creating incredible possibilities for U.S. companies; first because all of the newly-constructed hotels will need a large number of service providers to support their operations.  Secondly, it is noticeable that a lot of people that have sold their land to the developers are sitting on their money waiting for a good opportunity to invest and start their own businesses.

In April, the U.S. Commercial Service in the American Embassy in Belgrade hosted the International Franchise Association’s Global Marketing Committee Vice Chairman William Le Sante, CFE, CEO and managing director of Le Sante International, and organized the First Franchising Conference in Serbia and Montenegro.  The conference attracted approximately 200 attendees in Serbia and more than 60 in Montenegro.  The conferences were organized in cooperation with the local chambers of commerce and the American Chamber of Commerce in Serbia. 

Both conferences managed to raise extremely-high interest in the local business communities and were broadcasted through all major TV stations and daily newspapers.  Le Sante expressed satisfaction with the turnout and emphasized the turnout to be higher than those in events in more advanced markets.

As a direct result of the conference, USCS Belgrade is currently working with the Serbian Chamber of Commerce and IFA to establish a franchising association in Serbia that would serve as a primary point of contact and a liaison between IFA and the Serbian business community.

However, there are several factors that are crucial for running a successful business in Serbia and Montenegro, such as a careful choice of local partners, protection of intellectual property rights and a smart-pricing policy.  Fulfillment of these three conditions will substantially help U.S. franchise systems to establish successful business in these markets.

Legal Aspects
To date there are no franchise laws in Serbia, nor are any expected in the near future. There is no specific registration nor any specific governmental approval or license that franchise companies are required to secure before operating in Serbia. There are no specific legal limitations imposed on franchisees or their employees, however, they must comply with laws concerning general, long-term contracts. 

According to foreign investment law, foreign investors can invest or establish wholly-owned companies or subsidiaries under the same regime as domestic entrepreneurs. The repatriation of profits and investment is unrestricted, after fulfilling all necessary obligations in Serbia (taxation), which are in compliance with all foreign-exchange-management regulations.  All forms of international franchising operations are permitted: direct franchising, master and development franchises through joint ventures or wholly-owned companies.  No special duties can be imposed on the franchise system, other than acting according to general duties mandatory for contractual parties.

Forms of Franchising
A foreign franchise company may directly franchise its business to a franchisee in Serbia, without establishing a branch or subsidiary. No requirement exists for registration of the franchise contract with the Ministry of Trade. However, the National Bank of Serbia has to be notified of every foreign-trade transaction.

Trademark and Service Mark Protection
The new Law on Trademarks (2004) is fully harmonized with the EU trademark law.  Trademarks and service marks are protected in Serbia by registration at the Serbian Intellectual Property Office.  Service marks are under the same legal regime as trademarks.  Therefore, no impediment exists for the registration of service marks for services provided by retail stores or service businesses.   Serbia is a party to the Paris Convention, therefore, all foreign owners of intellectual property are entitled to the same legal protection provided to domestic owners.  Foreign language trademarks and service marks may be equally registered and have the same protection as those in Serbian language.  The right-of-trademark usage is also extended to packing, catalogues, advertisements and other forms of business documents.  The exclusive licensee (besides the owner) can file a claim if the trademark has been infringed. All forms of sublicensing arrangements for trademarks are permitted according to the law of Serbia.

Know-How and Confidential Information
There should be no legal impediments to stipulating a franchisee's duty to return all improvements and innovations to the franchise company and discontinue use after termination or expiration of the agreement.  The means of protection provided for know-how and confidential information in the laws of Serbia are similar.  Any information can be proclaimed and deemed confidential, unless the law imposes a duty of disclosure for such information.  The transferred know-how must not be common knowledge.  Private and penal law protection is available to the owner of intellectual property, should an infringement occur.

Abuse of Foreign Marks
There have been no lawsuits resolving situations where a Serbian national had registered a prominent foreign trademark and later demanded compensation for transfer of this registration to the original.  The principle of national protection is still valid and prevails internationally, and the foreign owner of the trademark has to prove that his trademark had been "well known" on the market of Serbia before the defendant applied for registration, which is a factual question left for evaluation by the courts. However, it is recommended that every owner of intellectual property who has a valuable trademark or design should ensure due protection, as this protection is relatively inexpensive compared to other countries.

For more information please contact Boris Popovski at boris.popovski@N0SPAM.mail.doc.gov  ,or visit International Franchise Association Web Site