UK Enterprise Ltd
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UK Enterprise Ltd Suite 1 Staple's House, Eleanor’s Cross, Dunstable, Bedfordshire LU6 1SU tel +44 (0) 01444 220980 fax +44 (0) 01444 459680 |
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Bulgaria - Country Guide Market OverviewBulgaria is the newest member of the European Union and has an economy with real growth potential. The UK is among the leading investors in Bulgaria, with over EUR 93 million worth of investment in 2009. The country enjoys political stability, and forecasts are for slight or flat economic growth in 2011. The Bulgarian Government introduced the lowest tax rates in the region – ten per cent rate both on personal income and on corporate income, which contributed to strong foreign investment inflows. The global financial crisis has slowed investment growth somewhat, particularly in the real estate and manufacturing sectors. Bulgaria has managed to weather the global financial downturn through strict fiscal discipline. The currency peg to the Euro and fixed exchange rate are seen as an obstacle to the export of Bulgarian products, especially in the context of currency devaluation in neighbouring countries. Local demand will remain low due to limited allocation of consumer loans and a 10% jobless rate. Other risks include high foreign debt and the potential for gas supply disruptions. EU membership will continue to result in funding for infrastructure projects, provided that the Bulgarian government procedures are efficient and transparent. Due to its geographical location, Bulgaria is an excellent launching pad for sales into the European Union, Russia, Turkey and the Middle East. Bulgaria joined NATO in 2004 and is participating in joint operations. Market ChallengesBulgaria offers excellent opportunities for foreign suppliers, but there are challenges. While the business climate is generally positive, there are factors that inhibit trade and investment. The major challenges include: inefficient bureaucracy; a slow moving court system; organized crime influence in some sectors of the economy; corruption; intellectual property rights violations; and a complicated and often non transparent tendering process.
Market OpportunitiesBulgaria boasts a talented labour force, one of the lowest wage rates in EU, and a convenient geographical location. EU membership offers additional opportunities as Structural and Cohesion funds are funding major infrastructure projects. Good prospects for exports to Bulgaria are listed below (in alphabetical order). A more detailed analysis of these sectors can be found in Chapter Four of this Guide:
Market Entry StrategyFinding a good, reputable local representative is key in order to successfully enter the market, and conducting due diligence before selecting a representative is essential. Enlisting qualified local legal services for contract negotiations is also highly recommended. Using an Agent or DistributorBulgarian law stipulates that representation in court and before administrative agencies must be performed by duly licensed members of the Bulgarian Bar Association, who are independent practitioners in law firms or who are certain employees of corporations. Bulgaria does not allow foreign (i.e., non-EU) lawyers to practice in Bulgarian courts, except as defence counsel of a national of his/her own country in a civil and criminal action. In such instances, the attorney must be accompanied by a Bulgarian lawyer, and there must be an agreement between Bulgaria and the respective foreign state or justified on the basis of reciprocity for such representation. In all instances, a preliminary request must be submitted to the Chairperson of the Supreme Bar Council for approval. Lawyers who practice in another EU member state can establish a branch office of their international firm in Bulgaria and provide legal services in the local market. In the case of a corporation, representation may be either by an authorized senior executive of the firm such as executive director, or by an employee who has passed the practical examination of the Ministry of Justice and who has a power of attorney from the corporation to represent it as “in-house counsel”. A Bulgarian patent representative who specializes in intellectual property rights and who is admitted to practice before the Bulgarian Patent Office is also essential for preparing documents to protect intellectual property rights. Some lawyers are patent representatives. Other services such as filing corporate documents with the courts or the Commercial Registry, legal opinions, and legal consultations, are in practice performed by self-styled “legal consultants” whose qualifications and experience may vary. Some legal consultants may be former in-house counsel. Attorneys who are members of the Bulgarian Bar Association also provide such services. Additionally, some of the larger international accounting and consultancy firms have established legal offices, which perform some of the services offered by a law firm. Establishing an OfficeThe Law on Encouragement of Investments sets forth preferential treatment measures for foreign or local investments. The measures are differentiated according to the class of the investments, and include two levels of benefits, depending on the amount of the investment. For more information, see http://www.investbg.government.bg/index.php A representative office for information gathering and non-proprietary activities, such as performing promotions, exhibitions, demonstrations, training or advertising of products or services, is established by registration with the Bulgarian Chamber of Commerce and Industry http://www.bcci.bg/index.htm A representative office is not a legal entity in Bulgaria. The Law on Encouragement of Investments places certain restrictions on the office's activities, and in particular, a representative office may not carry out commercial activities. The Law on Commerce defines the various forms of economic associations and regulates their foundation, organization, and termination. While it is possible to register a branch of a foreign entity in Bulgaria, the most common type of organization for foreign investors is a limited liability company (OOD), or a one-person owned limited liability company (EOOD) respectively. FranchisingMore than half of the franchise chains present in Bulgaria have entered the market during the last five or six years, and significant surge was experienced during 2007 and 2008. This trend will accelerate even more as disposable income and understanding of the franchise business model grows. Due to the growth in this sector, Franchising is one of the top sectors for exports. Among the most visible brands in Bulgaria are: KFC, Dunkin Donuts, Subway, Berlitz, ERA, Centrury 21, Remax, GNC, Wilson Learning, and others. Recent entrants to the Bulgarian market are Domino’s Pizza, Curves, Subway and Starbucks. The Bulgarian legal system accommodates franchise agreements. Laws on labour relations are clearly spelled out, leases can be freely negotiated, and laws protect trademarks, patents and copyrights. Direct MarketingDirect marketing is relatively undeveloped in Bulgaria. There are few Bulgarian mail-order catalogues. Vacuum cleaners, small kitchen appliances, home healthcare products and consumables, hospitality, catering and cosmetics are being sold fairly successfully door-to-door. Companies employ different marketing techniques. A Slovenian company, which offers direct marketing of U.S. products, and an Austrian company are currently using television home shopping "infomercials" to sell kitchen tools and fitness appliances not available in local shops. Home demonstrations are not popular and have generated little success. Avon and the Swedish company Oriflame report success in the direct sale of cosmetics. Direct marketing through catalogues, telemarketing and the Internet to Bulgaria is still quite difficult. Bulgarians are switching to debit and credit cards but still prefer to use cash. Catalogue and internet shopping are still in their infancy due to low purchasing power, the high cost of shipping and lack of security for parcels. Joint Ventures/LicensingIn addition to establishing own company, one can also invest in existing companies. Joint ventures with state-owned companies (i.e., wholly owned by the Bulgarian State) must be approved by the Council of Ministers or by the relevant minister. The negotiation phase usually addresses the evaluation of existing assets and contribution of the foreign partner. The foreign contribution can be in cash and/or in-kind, for example know-how. The contribution of the local partner is usually in long-term assets (i.e., existing equipment, and facilities). Joint ventures with private companies do not follow the same procedures. No government involvement or approval is necessary. After completion of negotiations, the new legal entity must be registered in the Commercial Registry. Joint ventures are subject to the provisions of the Law on Protection of Competition regulating concentration of economic activity. Selling to the GovernmentPublic procurement procedures used by state agencies and state controlled companies for purchases are prescribed by the Law on Public Procurement. The law harmonizes Bulgarian legislation with the two major public procurement directives of the EU. According to the said law, a Government Procurement Agency was established, responsible for public procurement and reporting to the Minister of Economy, Energy and Tourism. The most often used form of procurement is a public tender. All Bulgarian and foreign companies are eligible to participate in public procurement tenders in Bulgaria. The Commission on Protection of Competition (CPC) is the authority enforcing the Law on Public Procurement and the Law on Protection of Competition. Appeals are no longer under the direct competence of the civil courts. Distribution and Sales ChannelsAt the end of 2010, the following retail chains established network of stores throughout Bulgaria: Fantastiko (33), Billa (64), Metro (11), Picadilly (40), Praktiker (9), Hit (2), Mr. Bricolage (10), Baumax (4), German discounters Penny (47), Kaufland (35) and Lidl (25) + PLUS (24); Tempo (1), Roda (2), T Market (36). Como (1) and Aiko (4) are furniture and house ware retail chains. Technopolis (23), Technomarket (43), Densi (6) and Domo are retail chains for consumer electronics. Carrefour (4), the world’s second-largest retailer after Wal-Mart started operations in 2010 as well. According to GfK Shopping Monitor, the Bulgarian consumer still prefers to use the local store near their homes. There are three major factors, which influence the choice of the place for shopping: the proximity to home and the working place, the level of prices, and the range of goods. The Bulgarian consumer is still not very mobile – less than 30% of consumers go shopping by automobile, which limits the choice of stores. The percentage of consumers who read promotional brochures is barely 26%. Shopping malls in Sofia (8), Plovdiv (3), Veliko Turnovo (1), Pleven (1), Stara Zagora (2), Russe (3) and Varna (5) are becoming very popular among the urban population. Several others shopping malls are in the process of being built. Selling Factors/TechniquesBulgarian consumers and companies have low purchasing power, which means that price is a major consideration in developing a market strategy. Available market size statistics are usually unreliable and do not assist in accurately predicting market responses. Electronic CommerceShopping over the Internet is becoming more and more popular. It doubled in 2010 and the number of customers who purchase online more than once is increasing, whereby 58% of the online customers prefer local internet shopping sites, and 38% are using international web sites for online purchasing. Nevertheless most people especially in smaller cities and villages still prefer to shop at local stores. Despite these difficulties, some companies are already offering goods for sale over the Internet. Trade Promotion and AdvertisingThe 1998 Law on the Protection of Competition and the 2006 Law on Protection of the Consumers and on Trading Rules regulate advertising. These laws prohibit advertisements that disseminate misleading information to consumers or malign the reputation of competitors. Separate legislation regulates advertising for specific products such as tobacco products, pharmaceuticals, and alcohol beverages. All the normal channels for advertising are available and are widely used in Bulgaria, including newspapers, internet banners, magazines, television, radio, and outdoor billboards/signs. Trade fair activities in Bulgaria grew rapidly to a full year's schedule of industry and product specific events in major cities around the country. Bulgaria has a number of industry-specific trade shows. PricingDue to low per capita income and purchasing power, consumers are highly price sensitive. Consumers are willing to spend more in return for higher quality. Most people restrict purchasing to basic necessities. Imported products are typically higher priced than locally produced goods. Small niche markets exist where consumers demand high-end luxury goods. Sales Service/Customer SupportBulgarian consumers expect good after-sales service and customer support when purchasing products. New private companies understand the importance of customer support and follow through on promises. Companies expect support from the exporter when purchasing imported products. Emphasis on customer support is an initial step in developing customer loyalty. Supplying companies operating in Bulgaria should provide training to their distributors/agents. Protecting Your Intellectual PropertyThere is no such thing as an “international copyright” that will automatically protect an author’s writings throughout the entire world. Protection against unauthorized use in a particular country depends on the national laws of that country. However, most countries do offer copyright protection to foreign works under certain conditions, and these conditions have been greatly simplified by international copyright treaties and conventions. Registration of patents and trademarks is on a first-in-time, first-in-right basis, so you should consider applying for trademark and patent protection even before selling your products or services in the Bulgaria market. It is vital that companies understand that intellectual property is primarily a private right. It is the responsibility of the rights' holders to register, protect, and enforce their rights where relevant, retaining their own counsel and advisors. Companies may wish to seek advice from local attorneys or IP consultants who are experts in Bulgarian law. It is always advisable to conduct due diligence on potential partners. Negotiate from the position of your partner and give your partner clear incentives to honour the contract. A good partner is an important ally in protecting IP rights. Consider carefully, however, whether to permit your partner to register your IP rights on your behalf. Doing so may create a risk that your partner will list itself as the IP owner and fail to transfer the rights should the partnership end. Keep an eye on your cost structure and reduce the margins (and the incentive) of would-be bad actors. Projects and sales Bulgaria require constant attention. Work with legal counsel familiar with Bulgarian laws to create a solid contract that includes non-compete clauses, and confidentiality/non-disclosure provisions. Bulgarian law protects intellectual property rights, but enforcement is often problematic. Bulgaria is a member of the World Intellectual Property Organization (WIPO) and a signatory to a number of agreements. Leading Sectors for Export and Investment
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