Doing Business in the Dominican Republic: 5 Things to Know
Traditionally known as a popular tourist destination, the Dominican Republic rose to commercial prominence in the early 2000’s when interest piqued among Caribbean firms after the ratification of the Dominican Republic– CARICOM free trade agreement. This catapulted the country to the top of the list of the most desirable export markets because it is the second largest Caribbean nation (after Cuba) with a population of over 10M inhabitants. It boasts high economic growth rates, a modern trade and a stable and open economy. If the DR is on your radar, here are five things to know before doing business there.
Firms should not assume that the distribution landscape in the Dominican Republic is similar to other markets operating in CARICOM. Things to consider are the extensive geography, the fragmented distribution channels and multiple tiers at any given level of distribution for FMCG. The modern trade may glitter with its sophisticated retail store imaging, store formats, merchandising and product assortments. However, it is reported to only account for 20 percent of sales. The traditional trade on the other hand is said to account for 60 percent of sales and is made up of more than 45,000 “colmados” (mom and pop shops) that are widely dispersed and conveniently located in densely populated neighborhoods and what is otherwise known as “almacenes” (cash and carry wholesalers). Sufficient time should be invested in doing a channel analysis then finding the right distribution partner that can reach multiple channels.
2. Price competitiveness
With a local market of over 10M consumers and an additional diaspora market that fuels export demand for “Made in the Dominican Republic” products such as Presidente Beer, Dominican companies are able to achieve economies of scale giving them significant competitive advantage over their CARICOM counterparts. This lower cost per unit of output directly impacts their on-shelf price competitiveness and overall attractiveness as a supplier to retailers and distributors. CARICOM exporters will need to consider sacrificing profit margins in order to offer competitive prices in line with the local competition. Different pricing and costing approaches should be explored as part of any business case for market entry.
Brand success in English-Speaking CARICOM markets is no guarantee for success in the Dominican Republic. Dominican consumers are awash with product choices and are heavily influenced by both European and Western products and brands. The average Dominican consumer is very discerning in their taste as brands are worn, consumed and displayed as status symbols. New brand entrants must have a strong brand platform, clear value proposition, unique and attractive packaging design and a complete product portfolio with multiple SKU’s catering to different consumer households and tastes to make an impression. Additionally, a significant percentage of sales (as much as 20 percent) should be allocated towards both above-the-line and below-the-line advertising and promotional budgets that can be sustained long after the launch period and in multiple communication channels and consumer segments.
4. Culture and language
Belonging to a Caribbean conglomerate with offices, assets and stock market cross listings in the Caribbean will neither impress nor guarantee success in the Dominican Republic. A business deal is not likely to be struck without an investment in building a relationship with your potential trading partner over multiple market visits, meetings, and meals. Every effort should also be made to communicate in the Spanish language and to have someone senior on your team who can take the business relationship forward in Spanish. Applying the same business style used in CARICOM business relationships to your negotiations will be met with resistance and could be seen as a sign of impatience and not being a serious businessperson.
5. Law 173
Law 173 has been a sensitive issue and considered a non-tariff barrier by many Caribbean firms exploring business in the Dominican Republic. This law protects local importers, distributors and agents from wrongful unilateral termination by awarding substantial indemnities to the terminated party. However, despite the existence of this law many commercial relationships have been terminated without recourse to Law 173. It is recommended that a comprehensive and well-structured sales agreement be implemented with input from an established Dominican law firm.
If you are looking to increase your consumer base, sales revenue and plant throughput; the Dominican Republic offers an attractive market profile and these pointers should serve as a roadmap as you plan a course