Investing In Spain

Market Entry Strategy

• The Spanish market is made up of a number of regional markets joined by the two hubs of Madrid and Barcelona. There are a total of 17 autonomous communities in Spain (similar to U.S. states) with varying degrees of autonomy and cultural identity. However, the vast majority of agents, distributors, foreign subsidiaries and government-controlled entities that make up the economic power block of the country, operate in these two hubs. The key to a foreign firm's sales success is to either appoint a competent agent or distributor, or to establish an effective subsidiary in the Madrid or Barcelona areas.
• Spanish commercial procedures are in line with the rest of Western Europe, where price remains paramount. However, credit terms, marketing assistance and after-sales service are key factors in local purchase decisions. The use of credit to purchase consumer goods is widely accepted in Spain, particularly in the cities, with banks competing aggressively to offer coverage.
• The Spanish government has eased regulations at all levels and increased incentives in an effort to attract foreign firms and investments. In recent years investment incentives designed to reward investors for establishing manufacturing operations in less developed areas have dispersed some investment from the major hubs. Except in a few cases, Spanish law permits foreign investment of up to 100 percent of equity. However, disincentives such as high labor costs, inflexible labor laws, and concern for intellectual property rights still exist.
• Spaniards tend to be more formal in personal relations than Americans but much less rigid than they were ten years ago. Nonetheless, the approach to doing business is more in line with that in Italy or France rather than Mexico and Latin America. Professional attire is recommended and business cards are expected.
• There is no substitute for face-to-face meetings with Spanish business representatives to break into this market. Spaniards expect a personal relationship with suppliers. Initial communication by phone or fax is far less effective than a personal meeting. Mail campaigns generally yield meager results. Less than 30 percent of local managers are fluent in English.
• Spaniards tend to be "conservative" in their buying habits. Known brands do well. Large government and private sector buyers appear more comfortable dealing with other large, established organizations or with firms that are recognized as leaders within their sectors.

Using an Agent or Distributor

There are several forms of representation agreements in Spain. The most common are:
Distribution Agreements
Agency Agreements
Commission Agency Agreements
The law applicable to this type of contracts in Spain is similar to that in most other OECD
countries.
Distribution Agreements
Distribution agreements in Spain have traditionally allowed the contracting parties broad
discretion to decide on the form of contract.
* The distributor obtains the merchandise from the supplier "in its own name and
interest" and assumes the risk of the transaction for later re-sale at a profit.
* The relationship between the supplier and the distributor is a legal relationship
within a specific time period.
* The distribution contract may obligate the parties to future purchases and sales.
The ordinary clauses of a distribution contract may cover any subject to which the
parties agree unless the clauses are contrary to the laws of Spain. Normally, the
standard clauses include the markets or territory covered, volume of sales, conditions
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regarding the sale of goods, pricing, length of contract, advertising, financing, servicing,
licensing of industrial property and conditions for termination, among others.
Companies wishing to use distribution, franchising and agency arrangements need to
ensure that the agreements are in accordance with European Union (EU) and member
state national laws. Council Directive 86/653/EEC establishes certain minimum
standards of protection for self-employed commercial agents who sell or purchase goods
on behalf of their principals. In essence, the directive establishes the rights and
obligations of the principal and its agents; the agent’s remuneration; and the conclusion
and termination of an agency contract, including the notice to be given and indemnity or
compensation to be paid to the agent. U.S. companies should be aware that the
directive states that parties may not derogate certain requirements. Accordingly, the
inclusion of a clause specifying an alternate body of law to be applied in the event of a
dispute will likely be ruled invalid by European courts. For additional information see:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31986L0653:EN:HTML
The European Commission’s Directorate General for Competition enforces legislation
concerned with the effects on competition in the internal market of "vertical agreements."
Most U.S. exporters are small- and medium-sized companies and are therefore exempt
from the regulations because their agreements likely would qualify as "agreements of
minor importance," meaning they are considered incapable of affecting competition at
the EU level but useful for cooperation between SMEs. Generally speaking, companies
with fewer than 250 employees and an annual turnover of less than euros 50 million
(approx. $62 million) are considered small- and medium-sized undertakings. The EU has
additionally indicated that agreements that affect less than 10 percent of a particular
market are generally exempted as well (Commission Notice 2001/C 368/07). For
additional information see: http://eurlex.
europa.eu/LexUriServ/site/en/oj/2001/c_368/c_36820011222en00130015.pdf
The EU also looks to combat payment delays with Directive 2000/35/EC. This covers all
commercial transactions within the EU, whether in the public or private sector, primarily
dealing with the consequences of late payment. Transactions with consumers, however,
do not fall within the scope of this directive. In sum, the directive entitles a seller who
does not receive payment for goods/services within 30-60 days of the payment deadline
to collect interest (at a rate of 7 percent above the European Central Bank rate) as
compensation. The seller may also retain the title to goods until payment is completed
and may claim full compensation for all recovery costs. For additional information see:
http://ec.europa.eu/comm/enterprise/regulation/late_payments/
The most common basic distribution agreements are:
(1) Commercial Concessions or Exclusive Distribution Agreements: The supplier agrees
not to supply its products to more than one distributor in a specific territory and also not
to sell those products directly to end users in the territory of the exclusive distributor.
(2) Sole Distribution Agreement: Similar to the above category, but in this case the
supplier reserves the right to supply certain products to end users in the territory.
(3) Authorized distribution agreements under the selective distribution system: The
distributors are carefully selected according to their ability to handle technically complex
products and to retain a certain image or brand name.
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Models of distribution contracts and clauses can be obtained on-line from the bookstore
of the International Chamber of Commerce, section “Model of Commercial Contracts”,
at: http://www.iccbooks.com/Product/CategoryInfo.aspx?cid=81
Further counseling on international contracts can also be obtained from US Export
Assistance Centers and local chambers of commerce. A model published by the
Spanish Foreign Trade Office (in English) is available at:
http://www.icex.es/staticFiles/MODELO%20CONTRATO%20DISTRIBUCION%20INGLE
S_4916_.pdf
Agency Agreements
Through an agency agreement, and individual or company, called the agent, is bound
with another (the principal) to advance the principal's business, or to advance and
conclude transactions on the principal's behalf, without assuming the risk of such
transactions.
Beyond the basic obligations (to act loyally and in good faith), the agent must:
* Promote the products, and if authorized to do so, conclude the transactions;
* Inform the principal supplier of all matters relating to the agency, especially the
financial aspects of all parties with whom there are pending transactions;
* Follow the principal's instructions and company policies (for example, prices,
delivery dates, and procedure for claims);
* Receive any claims by third parties regarding defective merchandise in the
merchant's name; and
* Maintain independent accounting for each principal represented.
Beyond the same basic obligations of loyalty and good faith, the principal supplier must:
* Provide books, catalogs, price lists and other needed literature;
* Make payments on time and as agreed;
* Give the agent the information required for the performance of the agency
contract;
* Inform the agent with reasonable advance notice of the acceptance, refusal, or
the lack of performance of each deal obtained by the agent. The agent has the
power to request the accounting books of the principal.
Commission Agency Agreements
Under Commission Agency Agreements, an authorized agent (commission agent)
participates in a commercial transaction or agreement on behalf of another (the
principal). Commission agents may act in their own name or that of their principal.
The main difference with an Agency Agreement is that Commission Agency Agreements
involve occasional engagements. In addition, a commission agent facilitates the
conclusion of an agreement but does not ultimately represent either party. The
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commission agent brings the parties together so that they can conclude an agreement,
but is not party to that agreement, whereas an agent represents one of the parties.
As Spain is part of the EU, U.S. companies benefit from greater transparency in agent
and distributor commissions throughout Europe, uniform compensation plans and
greater transparency in reporting revenues to local tax authorities.

Establishing an Office

U.S. companies interested in investing in Spain must first decide whether to incorporate a subsidiary (i.e. as a separate corporation) or establish a branch. Both have full legal status and their profits are taxable in Spain. If the investor decides to incorporate a subsidiary, the next decision is whether to incorporate a corporation or public limited-liability company (Sociedad Anonima, SA) or a private limited company (Sociedad de Responsabilidad Limitada, SL or SRL). The structure of the SA is for larger operations and the SL for smaller. Shareholders in corporations (S.A.) and limited liability companies (S.L.) are not liable for the company's debts, and limited to their contribution. The main differences between these entities are: capital (euros 60,000 minimum versus euros 3,000); the number of founding members (three versus two), flexibility permitted at general meetings, transfer of shares and management of an SL. Other kinds of mercantile entity can be formed, but they are not used very frequently. Companies interested in setting up operations in Spain should obtain legal advice. Major consulting groups and law firms are available to help firms incorporate.

To acquire legal status, a U.S. firm must follow the following steps:

1. Registration of company name: Applicants must certify that the name of the future company is not already registered. Applications must be presented at the Central Mercantile Registry. The certification is valid for two months.
2. Declaration of the investment to the Spanish Ministry of Economy
3. Execution of notarized public deed of incorporation
4. Payment of asset transfer tax and legal proceedings document tax: These taxes are for new incorporation (roughly one percent of capital stock).
5. Assignment of a tax identification number (locally called NIF – Número de Identificación Fiscal): This must be done within 30 working days of the signature of the public deed. The NIF must be used within six months of application.
6. Register the company in the Mercantile Registry: The company must be registered at the corporate registry corresponding to the company’s official address. On average, it takes two months to complete registration.

In an effort to simplify the process of setting up a business in Spain, the Spanish Government and local chambers of commerce have created the “Ventanilla Unica” (One Stop Shop). At the “One Stop Shop", businesspeople can count on the assistance of an expert who is familiar with the official channels and all the paperwork involved. Further information on the service and the different areas where the service is available can be found at: http://www.ventanillaempresarial.org/menu.htm.

Franchising

The franchise sector has been a steady performer over the past several years. Spanish franchisors account for 83 percent of the systems; the remaining 17 percent are from the United States, France, Italy, Portugal and the UK. Statistics vary due to the difference in criteria used by main trade sources. The number of systems is estimated at 830 – 900 with 51,500 - 63,000 outlets, and sales averaging euros 16 billion ($19 billion).

Although Spain does not have specific legislation regulating franchising, Article 62 of the 1996 Retail Trade Act provides a definition as well as conditions for franchising in Spain. When drawing up contracts, franchisors should bear in mind that franchise companies - whether Spanish, foreign, or master franchisee – must be registered in a special administrative Franchisors Registry. They are also bound by the Disclosure of Pre-Contractual Information requirement. All required information must be delivered in writing to the intended franchisee at least 20 days prior to signing a franchising contract or pre-contract or prior to any payment to the franchisor.

As of April 2003, Spanish legislation enacted EU regulations on franchising, distribution agreements and exclusive purchases. The purpose of the EU regulation is to guarantee competition practices in agency and distribution contracts. Some of the areas covered include term of contract, market share considerations, exclusivity rights, and mandatory volume of products. Companies are advised to have all new contracts drawn up in compliance with this new legislation, and to have current contracts reviewed whenever possible.

Direct Marketing

The different sub sectors of direct marketing are feeling the impact of expanding ecommerce. Some have already been absorbed by e-commerce, and currently many activities previously performed via telephone or regular mail are conducted via Internet. The telemarketing sub sector employs 48,000 permanent employees and is the sector that generates the most positions for the disabled. Banks, insurance agencies, and public administration are the leading consumers of telemarketing services in Spain. Sales for 2006 are estimated at $1.59 billion, mainly fueled by the proliferation and success of call centers. The sector’s future is brightened by increased sophistication in the telephone services offered by Spain’s largest telecom company, Telefonica, as well as competition by a number of new telecom providers. The five main call center operators in Spain - Atento, Sitel Ibérica, Qualytel Teleservicios, TeleTech, and AGM Contacta - control 46 percent of market share.

Television direct-marketing companies have been operating in Spain since 1990, when television was opened to private broadcasters. In this time, it has become increasingly popular and profitable. Spanish companies spent more than $180 million on television direct marketing in 2005. Mail-order market growth has averaged 2 percent over the last 3 years. Spanish mail-order houses report sales of $912 million in 2005, with a 2 percent increase expected again for 2006. Most activity in this sub sector has migrated to e-commerce. Trust is an important competitive factor in this market. Direct-marketing firms that are members of the Spanish E-Commerce and Direct Marketing Association (Asociación Española de Comercio Electrónico y Marketing Directo) tend to inspire more confidence in the consumer. Membership implies adherence to a number of ethical codes, including a code of self-regulatory rules for electronic advertising. (www.fecemd.org). The misuse of personal data is regulated in Spain by the Spanish data protection law, known as LORTAD as well as EU legislation.

A wide range of EU legislation impacts the direct marketing sector. Compliance requirements are stiffest for marketing and sales to private consumers. Companies need to focus, in particular, on the clarity and completeness of the information they provide to consumers prior to purchase, and on their approaches to collecting and using customer data. The following gives a brief overview of the most important provisions flowing from EU-wide rules on data protection, distance selling and on-line commerce. Companies are advised to consult the information available via the hyper-links below for more specific guidance.

The EU’s general data protection Directive (95/46/EC) spells out strict rules concerning the processing of personal data. Businesses must tell consumers that they are collecting data, what they intend to use it for, and to whom it will be disclosed. Data subjects must be given the opportunity to object to the processing of their personal details and to opt-out of having them used for direct marketing purposes. This opt-out should be available at the time of collection and at any point thereafter. This general legislation is supplemented by specific rules set out in the "Directive on the processing of personal data and the protection of privacy in the electronic communications sector" (2002/58/EC). This requires companies to secure the prior consent of consumers before sending them marketing emails. The only exception to this opt-in provision is if the marketer has already obtained the intended recipient’s contact details in the context of a previous sale and wishes to send them information on similar products and services.

The EU's general data protection Directive provides for the free flow of personal data within the EU but also for its protection when it leaves the region’s borders. Personal data can only be transferred outside the EU if adequate protection is provided for it or if the unambiguous consent of the data subject is secured. The European Commission has decided that a handful of countries have regulatory frameworks in place that guarantee the adequate protection of data transferred to them – the United States is not one.

The Department of Commerce and the European Commission negotiated Safe Harbor to provide U.S. companies with a simple, streamlined means of complying with the adequacy requirement. It allows those U.S. companies that commit to a series of data protection principles (based on the Directive), and who publicly state that commitment by "self-certifying" on a dedicated website, to continue to receive personal data from the EU. Signing up is voluntary but the rules are binding on those who do. The ultimate means of enforcing Safe Harbor is that failure to fulfill the commitments will be actionable as an unfair and deceptive practice under Section 5 of the FTC Act or under a concurrent Department of Transportation statute for air carriers and ticket agents. While the United States as a whole does not enjoy an adequacy finding, companies that join up to the Safe Harbor scheme will.

EU based exporters or U.S. based importers of personal data can also satisfy the adequacy requirement by including data privacy clauses in the contracts they sign with each other. The Data Protection Authority in the EU country from where the data is being exported must approve these contracts. To fast track this procedure the European Commission has approved sets of model clauses for personal data transfers that can be inserted into contracts between data importers and exporters. The most recent were published at the beginning of 2005. Most transfers using contracts based on these model clauses do not require prior approval. Companies must bear in mind that the transfer of personal data to third countries is a processing operation that is subject to the general data protection Directive regardless of any Safe Harbor, contractual or consent arrangements.

The EU’s Directive on distance selling to consumers (97/7/EC) set out a number of obligations for companies doing business at a distance with consumers. It can read like a set of onerous "do’s" and "don’ts," but in many ways it represents nothing more than a customer relations good practice guide with legal effect. Direct marketers must provide clear information on the identity of themselves as well as their supplier, full details on prices including delivery costs, and the period for which an offer remains valid – all of this, of course, before a contract is concluded. Customers generally have the right to return goods without any required explanation within seven days, and retain the right to compensation for faulty goods thereafter. Similar in nature is the Doorstep Directive (85/577/EEC), which is designed to protect consumers from sales occurring outside of a normal business premises (e.g., door-to-door sales) and assure the fairness of resulting contracts.

Financial services are the subject of a separate Directive that came into force in June 2002 (2002/65/EC). This piece of legislation amends three prior existing Directives and is designed to ensure that consumers are appropriately protected in respect to financial transactions taking place where the consumer and the provider are not face-to-face. In addition to prohibiting certain abusive marketing practices, the Directive establishes criteria for the presentation of contract information. Given the special nature of financial markets, specifics are also laid out for contractual withdrawal. Additional information available at: http://ec.europa.eu/consumers/cons_int/fina_serv/index_en.htm.

The e-commerce Directive (2000/31/EC) imposes certain specific requirements connected to the direct marketing business. Promotional offers must not mislead customers and the terms that must be met to qualify for them have to be easily accessible and clear. The Directive stipulates that marketing e-mails must be identified as such to the recipient and requires that companies targeting customers on-line must regularly consult national opt-out registers where they exist. When an order is placed, the service provider must acknowledge receipt quickly and by electronic means, although the Directive does not attribute any legal effect to the placing of an order or its acknowledgment. This is a matter for national law. Vendors of electronically supplied services must also collect value added tax (VAT). Additional information available at: http://ec.europa.eu/internal_market/e-commerce/index_en.htm.

Joint Ventures & Licensing

U.S. companies can also penetrate the Spanish market through joint ventures. This type of agreement allows the parties to share risks and combine resources and expertise. A description of joint ventures under Spanish law can be found at the section “Forms of business cooperation” (Establishing a business in Spain).

License contracts in Spain may cover industrial property rights (patents, utility models, trademarks), intellectual property rights (rights of use for literary, scientific, artistic works, or software), know-how, or other uses of technology. Spanish regulations allow the parties a wide range of freedom to negotiate terms and conditions of the agreement. There are many clauses common to this type of contract, such as:

• Exclusivity clauses, sometimes including exclusive purchase obligations;
• Measures to limit the licensor's commercial activity;
• Confidentiality and non-competition obligations;
• Obligations relating to improvements and innovations (this includes updating the rights granted to the licensee and communicating to the licensor innovations developed by the licensee);
• Indemnities in case of breach of contract by one party.

A model of a licensing contract is available at: http://www.reexporta.com/portal/recursos/doc_contrata_Contratodelicencia.pdf. Full detail on intellectual property rights legislation in Spain, including sections on trademarks and industrial designs, is available at:

http://www.interes.org/icex/cda/controller/interes/0,5464,5322992_5325211_5334951_0_0,00.html 
http://www.interes.org/FicherosEstaticos/auto/0806/6%20Intellectual%20property%20law_18516_.pdf.

Selling to the Government

Government procurement theory follows the principle of best value through competition.
There is no official domestic preference policy, or discrimination against foreign
suppliers, although the Spanish Government encourages “full and fair opportunity” for
Spanish suppliers.
In Spain, all levels of administration -- central government, autonomous communities,
municipalities and companies that have over 50 percent government ownership -- have
to follow certain procurement practices as regulated by the Law of Contracts With the
Public Administration. Royal Decree 2/2000 of June 16 refunds previous legislation on
contracts with the government, and especially Law 13/95, of May 18. Full text of the
decree can be found at (in Spanish):
http://noticias.juridicas.com/base_datos/Admin/rdleg2-2000.html
The authorities allowed to contract or obligate funds on behalf of the Government are:
* Central Government: Ministers and State Secretaries.
* Autonomous Communities: Legal representatives as established by the local
government (usually a member of the cabinet).
* Municipalities: the Mayor or any other formally designated official.
* State-owned companies: the Chief Executive Officer.
The procedure to bid for a specific tender is relatively straightforward. All proposals are
kept secret and must be accompanied by proper documentation. This information
should include:
* Accreditation of the legal representation used by the company.
* Proof of economic and financial solvency and technical or professional
competence plus a declaration that the company is not prohibited from
contracting.
* Proof that a provisional guarantee, as required by the conditions of participation,
has been deposited.
* For foreign companies, formal acceptance of the jurisdiction of the Spanish
courts if necessary.
* Accreditation of having met all fiscal and social security obligations.
U.S. companies have to comply with the Spanish Law of Procurement Process with
Public Administration (Ley de Contratos de las Administraciones Públicas). Article 23 of
this Law establishes that the U.S. supplier should provide a statement issued by the
Spanish authorities in the United States (the Spanish Embassy in Washington), stating
that Spanish companies have equal rights and access to public tenders in the United
States. For more detail, see:
http://www9.map.es/documentacion/legislacion/procedimiento_administrativo.html
U.S. companies interested in bidding for contracts with the public administration must
contact the Spanish Embassy in Washington DC to document their compliance, at:
Embassy of Spain
Commercial Service
2/23/2007
2558 Massachusetts Ave. NW
Washington, DC 20008-2865
Tel: (202) 265-8600; Fax: (202) 265-9478
http://www.spainemb.org/
Although procurement decisions are made at the respective department or agency level,
the Spanish Under Directorate of Purchasing has released a centralized bidding
mechanism that even incorporates an on-line register for bidders and open bids, valid for
some categories of products (computers, vehicles, office equipment, heating). The
website for this centralized purchasing tool is:
http://catalogopatrimonio.minhac.es/pctw/index.aspx
Specific details on the bidding process for telecommunication firms with Spanish Public
Administration are available at the following link:
http://www.legallink.es/webenglish/18clasif_companies.htm
EU Procurement
The EU public procurement market, including EU institutions and member states, totals
around euros1.6 trillion ($1.9 trillion) per year. This market is regulated by two EU
Directives for contracts above certain agreed thresholds. Under the agreed thresholds,
each EU member state has developed its own procurement law, which is not regulated
by the EU public procurement Directives, although the general principles of the EU
Treaty regarding non-discrimination and free movement of goods apply even below the
thresholds. The two EU public procurement Directives are: Directive 2004/18 on
Coordination of procedures for the award of public works, services and supplies
contracts, and Directive 2004/17 on Coordination of procedures of entities operating in
the Utilities sector, which covers water, energy, transport and postal services. Those
Directives are implemented in each EU member state’s national procurement legislation.
Two Remedies Directives outline the procedures that EU member states ought to put in
place in case of violation of the EU public procurement law: Directive 89/665 on the
“Coordination of the laws, Regulations and administrative provisions relating to the
application of review procedures to the award of public supply and public works
contracts” for the classic sectors, and Directive 92/13 for remedies in the utilities sector.
Two proposals for new Directives, scheduled for 2007, are under discussion by EU
institutions. First, EU institutions are discussing a proposal for a new Remedies
Directive, which would increase possibilities for aggrieved companies to complain in the
pre-contractual period. Second, a proposal for a Directive covering defense procurement
would detail which particular less- sensitive armaments procurement will be covered by
EU Directives and which sensitive items will be exempt from the law.
Most tenders from European public contracting authorities for public supplies with values
above agreed thresholds are open to U.S.-based companies by virtue of the WTO
Government Procurement Agreement (GPA). The GPA allows U.S. firms to bid on all
supplies and services and some construction contracts above thresholds contracted by
EU central public-contracting authorities. However, there are restrictions for U.S.
suppliers in the utilities sector, both in the EU Utilities Directive and in the EU coverage
of the GPA. The Utilities Directive allows EU contracting authorities to reject non-EU bids
where the proportion of goods originating in non-EU countries exceeds 50 percent of the
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total value of the goods constituting the tender, or to apply a 3 percent price difference to
non-EU bids to give preference to the EU bid. These restrictions are applied when no
reciprocal access for EU companies is offered in the U.S. market.
The website of the U.S. Mission to the EU also has a database of all European public
procurement tenders open to U.S.-based firms by virtue of the GPA. This database is
free of charge, contains on average 6,000 to 10,000 tenders and is updated twice per
week: http://www.buyusa.gov/europeanunion/euopportunities.html
http://www.buyusa.gov/europeanunion/mrr.html

Distribution & Sales Channels

As a result of the growth of the Spanish economy, distribution has become a key factor in supplying the consumer market. Sales channels to consumers have developed significantly in the last few years, ranging from traditional distribution methods, in which wholesalers sell to traditional shops and those shops sell to the public, to more sophisticated methods, with an increased presence of large multinational supermarkets, retail stores and central purchasing units. The major competitors to U.S. exporters and investors in Spain are Western European firms, although Japanese and Chinese companies have emerged as formidable competitors as well. Cost, financing terms, and after-sales service play important roles in a firm's market success. Since Spain joined the EU, member states' exports to Spain have benefited from lower tariffs than U.S. goods, which remain subject to the EU's Common External Tariff.

Nonetheless, U.S. products are still competitive with EU exports, often due to lower production costs in the U.S. derived from economies of scale, and are expected to become more so as long as there is a favorable dollar-euro exchange rate. European exporters provide generous financing and extensive cooperative advertising, and most of their governments actively underwrite their exporting efforts with trade promotion events and other support. Although U.S. products are well respected for their high level of technology and quality, some U.S. firms face challenges, including flexibility on financing, adaptation of product design to local market needs, and assistance with marketing and after-sales service. The Spanish market echoes the rest of Western Europe, where price remains paramount. Credit terms, marketing assistance and aftersales service are also key factors in local purchase decisions.

The Spanish market is made up of a number of regional markets and two major hubs, Madrid and Barcelona. The vast majority of agents, distributors, foreign subsidiaries and foreign trade related entities operate in these two hubs or have some type of presence there. In recent years, the autonomous regions have created their own investment promotion agencies and are heavily promoting the establishment of foreign firms in their territories. As a consequence, some foreign firms have successfully dispersed their investment from the major hubs. The section “Regions” in the website www.interes.org includes details on each Spanish region, including main sectors of opportunity, investment incentives and foreign firms established there:

http://www.interes.org/icex/cda/controller/interes/0,5464,5322992_5325572_5335360_0,00.html

Selling Factors & Techniques

Relationships are still very important in selling U.S. products in Spain, sometimes as important as price or quality, especially in large account sales. The decision-making process within a Spanish company is different from that in the United States. In Spain, for example, the company's top executives often make decisions that would typically be done at lower levels elsewhere. These executives take action after review by different departments, making the sales process longer. An initial "yes" usually means that the company will study the situation, and not necessarily that it will buy the product. Additionally, once the Spanish potential partner of a U.S. firm has agreed to start a commercial relationship with a U.S. supplier, the Spanish company expects the U.S. firm to translate into Spanish all commercial brochures, technical specifications and other relevant marketing materials. Decision makers at the Spanish firm may do business in English with the U.S. firm, but the communication from the U.S. firm to their clients should come in Spanish.

Department stores, hypermarkets, shopping centers and very specialized outlets are introducing the customer fidelity concept, which usually involves client cards, cumulative discounts and special offers for frequent customers. New selling techniques are becoming very popular. Vending machines have spread throughout Spain in the last decade. E-commerce is having an effect on some traditional segments of the direct marketing sector, such as mail order. (See Direct Marketing section.) Demand for logistical services is also rising sharply. Otherwise, selling techniques, taking into consideration local tastes, are very similar to those in the rest of the Western world.

Electronic Commerce

As indicated above, e-commerce is making steady progress in Spain. Spain had 17 million Internet users in 2005. The B2C market is estimated to have generated $3.1 billion in 2006, up from $2.6 billion the previous year. Due to a change in the classification system followed by the National Statistics Institute (INE), the $69 billion estimated for B2B in 2006 is considerably higher than the figure of previous years.

In July 2003, the EU started applying Value Added Tax (VAT) to sales by non-EU based companies of electronically supplied services (ESS) to EU-based non-business customers. U.S. companies covered by the rule change must collect and submit VAT to EU tax authorities. ECl Directive 2002/38/EC changed EU rules for charging Value Added Tax. U.S. businesses mainly affected by this rule change are those that are U.S.-based and selling ESS to EU-based, non-business customers or those businesses that are EUbased
and selling ESS to customers outside the EU who no longer need to charge VAT on these transactions.

There are a number of compliance options for businesses. The Directive created a special scheme that simplifies registering with each member state. The Directive allows companies to register with a single VAT authority of their choice. Companies must charge different rates of VAT according to where their customers are based, but VAT reports and returns are submitted to just one authority. The VAT authority providing the single point of registration service is then responsible for reallocating the collected revenue among the other EU VAT authorities.

Trade Promotion & Advertising

CS Spain’s primary objective is to help small and medium-sized businesses (SMEs) to
enter the Spanish market. One of our most valuable tools is counseling, including the
best possible trade promotion strategies for specific needs. CS Spain has an agreement
with IFEMA (Institución Ferial de Madrid), Madrid’s trade fair authority, which facilitates
the business activities of U.S. companies in Spain. IFEMA is also Spain’s largest show
grounds, with more than 5 million square feet of exhibit space. It is a world class, stateof-
the-art exhibition facility just five minutes from the Madrid Barajas Airport and directly
linked by metro to Madrid’s city center. IFEMA organizes 70 shows annually, attended
by more than 4 million visitors and 30,000 exhibitors.
U.S. firms attending and or participating in IFEMA trade fairs will have the support of CS
Spain. Under the agreement between IFEMA and CS Spain, IFEMA provides advance
information to U.S. companies to enable them to participate in or attend future events.
CS Spain has a large office on IFEMA’s main avenue to support U.S. exhibitors and
reach out to visitors. This office can be used free of charge for meetings by U.S. firms
exhibiting, visiting or attending IFEMA shows.
Additional information on IFEMA and its shows can be found in its web site:
www.ifema.es
CS Spain also has close relationships with other important trade fair authorities, i.e.
Barcelona, Valencia and Bilbao. CS Barcelona participates actively in fairs organized by
Fira de Barcelona. Spain’s largest franchise fair, held annually in Valencia, has had a
U.S. pavilion on several occasions, while the Bilbao Exhibition Center hosts several of
Spain’s key events in the industrial sector.
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The News Media
Spain’s dynamic media market is characterized by the legacy of Spain’s transition to
democracy more than 25 years ago, the relatively recent privatization of the broadcast
and telecom markets, and the existence of strong regional identities.
Radio is the most trusted medium, but most Spaniards get their news from television.
Today, Spain publishes more newspapers and magazines per capita than any other
European country. Ironically, circulation figures are among the lowest in Europe. Only
42 percent of Spanish citizens read newspapers every day; of these, half belong to the
middle class, and the largest readership group is that of men between the ages of 25
and 44 years.
El País is generally regarded as the nation’s paper of record. Other influential papers
include El Mundo, ABC, La Razón, and the Barcelona dailies La Vanguardia and El
Periódico. Regional papers proliferate, many in regional languages. Spanish
newspapers tend to have an editorial line that favors a particular political group.
One important recent change has been the appearance of free newspapers, such as
Metro (1.8 million daily readers) or 20 Minutos (2.4 million), which are published from
Monday to Friday. As in the United States and other countries, these free papers
distributed at metro stations and other key commuter hubs, and are changing the newsreading
habits of Spanish readers. (Source: EGM Oct04-May05)
Five major media holding companies own most of the newspapers in Spain. They are:
Grupo Prisa, Grupo Godó, Grupo Zeta, Vocentro, and Grupo Voz.
Virtually, every Spanish home (99.7 percent) has a television and 89 percent of
Spaniards watch television each day. TV viewers are 88.8 percent men and 89 percent
women over the age of 14. Peak viewing hours are from 2:00-4:00 p.m. and 9:00-11:30
p.m. State-run Television Espanola (TVE 1 and TVE 2), and regional stations run by the
autonomous governments have been supplemented by three national private
commercial channels: Antena 3, Canal Plus, and Telecinco. Just last year the private
channels overtook the government-run channels in ratings. In the last year two new
privately owned national TV channels, Cuatro TV (4 TV) and La Sexta, joined the others
on air.
Currently these TV stations broadcast in analog, but by Spanish law all TV stations in
Spain must broadcast digitally by 2010. Two digital stations have received permission to
start broadcasting in 2010: Veo TV and Net TV.
About 60 percent of Spaniards listen to radio every day for almost two hours, most to
FM. Peak listening hours are early in the morning and late at night. Major radio stations
include the privately owned SER, Onda Cero, COPE, and Punto Radio as well as
government-owned RNE.
Spain is also home to several wire news services, such as government-owned Agencia
EFE, and privately owned Europa Press, Colpisa, and Servimedia.
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The U.S. Embassy’s Public Affairs (PA) section maintains active relations with a broad
range of Spanish media, making frequent contact with Spanish journalists through
briefings, interviews, targeted mailings, research services, International Visitor (IV)
grants, media tours and representational events. PA actively pursues placement of
policy and program material in the major Spanish media, primarily on foreign affairs,
security, and international trade issues. Spanish opinion and editorial sections often
publish articles and interviews signed by U.S. government policy makers.
Advertising
General Legislation
Laws against misleading advertisements differ widely from member state to member
state within the EU. To respond to this imperfection in the Internal Market, the European
Commission adopted a Directive, in force since October 1986, to establish minimum
objective criteria for truth in advertising. The Directive was amended in October 1997 to
include comparative advertising. Under the Directive, misleading advertising is defined
as any "advertising which in any way, including its presentation, deceives or is likely to
deceive the persons to whom it is addressed or whom it reaches and which, by reason
of its deceptive nature, is likely to affect their economic behavior or which for those
reasons, injures or is likely to injure a competitor." Member states can authorize even
more extensive protection under their national laws. Comparative advertising, subject to
certain conditions, is defined as "advertising which explicitly or by implication identifies a
competitor or goods or services by a competitor." Member states can, and in some
cases have, restricted misleading or comparative advertising.
The EU’s Television without Frontiers Directive covers broadcasting activities allowed
within the EU. It is currently being adapted to advances in Internet, mobile phones and
digital TV technologies. It partially lifts regulations on advertising and product placement
and proposes to ban advertising to children of food and drink. The new rules should be
adopted in 2007.
Following the adoption of the 1999 Directive on the Sale of Consumer Goods and
Associated Guarantees, product specifications, as laid down in advertising, are now
considered legally binding on the seller. (For additional information on Council Directive
1999/44/EC on the Sale of Consumer Goods and Associated Guarantees, see the legal
warranties and after-sales service section. The EU adopted Directive 2005/29/EC
concerning fair business practices to further tighten consumer protection rules. These
new rules will outlaw aggressive or deceptive marketing practices such as pyramid
schemes, "liquidation sales" when a shop is not closing down, and artificially high prices
as the basis for discounts, in addition to other potentially misleading advertising
practices. Rules on advertising to children are also set out.
http://ec.europa.eu/comm/consumers/cons_int/safe_shop/fair_bus_pract/index_en.htm
Medicine
EU Council Directive 2001/83/EC regulates advertising medicinal products for human
use. Generally speaking, advertising of medicinal products is forbidden if market
authorization has not yet been granted or for prescription drugs. Mentioning therapeutic
indications where self-medication is not suitable is not permitted, nor is the distribution of
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free samples to the general public. The text of the advertisement should be compatible
with the characteristics listed on the product label, and should encourage rational use of
the product. The advertising of medicinal products destined for professionals should
contain essential characteristics of the product as well as its classification. Inducements
to prescribe or supply a particular medicinal product are prohibited, and the supply of
free samples is restricted.
The European Commission plans to present a new framework for information to patients
on medicines in 2007. The framework would allow industry to produce non-promotional
information about medicines while complying with strictly defined rules, and would be
subject to an effective system of control and quality assurance.
http://ec.europa.eu/eur-lex/pri/en/oj/dat/2001/l_311/l_31120011128en00670128.pdf
Food
On July 16, 2003, the European Commission adopted a proposal for a regulation on
nutrition and health claims made on foods (COM 2003/424), supplementing 2000/13/EC
on labeling, presentation and advertising of foodstuffs. The EU adopted the proposal in
October 2006. The Regulation sets rules on the use of language such as "low fat” and
"light." It also harmonizes rules for making claims throughout the EU and establishes
allowable nutrition and health claims. For additional information see:
http://ec.europa.eu/comm/food/food/labelingnutrition/claims/index_en.htm
Food Supplements
Directive 2002/46/EC establishes rules for labeling food supplements, particularly
maximum levels of vitamins and minerals. In summer 2007, the EC will evaluate if items
other than minerals and vitamins should be included in this Directive. For more see:
http://ec.europa.eu/food/food/labellingnutrition/supplements/index_en.htm
Tobacco
The EU Tobacco Advertising Directive bans tobacco advertising in printed media, radio,
internet and sponsorship of cross-border events or activities. Tobacco advertising on
television has been banned in the EU since the early 1990s, and is governed by the TV
Without Frontiers Directive. Please see:
http://ec.europa.eu/health/ph_determinants/life_style/Tobacco/tobacco_en.htm

Pricing

Pricing practices in Spain are similar to those of the United States, although markups
tend to be slightly higher. Products and services in Spain are subject to Value Added
Tax (VAT, or IVA in Spanish), which is presently 16 percent. A reduced rate of 7 percent
is applied to the sale and import of human or animal foodstuffs (except alcoholic
beverages), water, agricultural chemicals, pharmaceuticals for animal use, medical and
health products, mopeds, personal dwellings, hotel and restaurant services,
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transportation services, agricultural services, street cleaning services, entertainment
services, building and construction services, medical services and funeral services. A
reduced rate of 4 percent is applied to bread, dairy products, eggs, fruit and vegetables,
books and newspapers, pharmaceuticals for human use, vehicles and medical items for
handicapped people. VAT is not imposed in the Canary Islands, Ceuta and Melilla. A
General Indirect Tax of 5 percent is imposed in the Canary Islands.
Additional details on the VAT regime in Spain and on Spanish taxation system can be
found at:
http://www.interes.org/icex/cda/controller/interes/0,5464,5322992_5325221_5334951_0
_0,00.html
http://www.interes.org/FicherosEstaticos/auto/0806/3%20Tax%20system_18518_.pdf
(Value Added Tax, Page 38)
Payment terms have been reduced drastically in the recent years, and are usually based
on 15-, 30-, and under certain circumstances, 60-day terms. Large corporations and
large retailers negotiate or impose longer payment terms of up to four to six months.
The government defers all payments, and depending on the department, payments can
be deferred up to one year. Product pricing must include the necessary financial
charges.
Spain became a full member of the European Economic Community in 1986, and is one
of the 12 countries participating in the euro zone since 2002, along with EU counterparts
Germany, Austria, France, Italy, Ireland, Portugal, Greece, Holland, Belgium,
Luxembourg and Finland. Additional information on the euro can be found in:
http://www.europa.eu.int/euro and
http://www.interes.org/FicherosEstaticos/auto/0606/1%20Spain%20a%20profile_18217_
.pdf (Spain and the European Union, Page 8)
Conscious of the discrepancies among member states in product labeling, language
use, legal guarantee, and liability, the redress of which inevitably frustrates consumers in
cross-border shopping, EU institutions have launched initiatives harmonizing national
legislation. Suppliers within and outside the EU should be aware of existing and
upcoming legislation affecting sales, service, and customer support.
Product Liability
Under the 1985 Directive on liability of defective products, amended in 1999, producers
are liable for damage caused by defects in their products. A victim must prove the
existence of the defect and a causal link between defect and injury (bodily as well as
material). A reduction of liability of the manufacturer is granted in cases of negligence on
the part of the victim.
http://ec.europa.eu/comm/consumers/cons_safe/prod_safe/defect_prod/index_en.htm
Product Safety
The 1992 General Product Safety Directive introduces a general safety requirement at
the EU level to ensure that manufacturers place safe products on the market. It was
revised in 2001 to include an obligation on the producer and distributor to notify the
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European Commission in case of a problem with a given product, provisions for its
recall, the creation of a European Product Safety Network, and a ban on exports of
unsafe products to third countries.
http://ec.europa.eu/comm/consumers/cons_safe/prod_safe/index_en.htm
Legal Warranties and After-sales Service
Under the 1999 Directive on the Sale of Consumer Goods and Associated Guarantees,
professional sellers are required to provide a minimum two-year warranty on all
consumer goods sold to consumers (natural persons acting for purposes outside their
trade, businesses or professions), as defined by the Directive. The remedies available to
consumers in case of non-compliance are:
- Repair of the good(s);
- Replacement of the good(s);
- A price reduction; or
- Rescission of the sales contract.
http://ec.europa.eu/comm/consumers/cons_int/safe_shop/guarantees/index_en.htm
Other issues pertaining to consumers’ rights and protection, such as the New Approach
Directives, CE marking, quality control are dealt with in Chapter 5 of this report.

Sales Service & Customer Support

Spanish consumers are becoming more demanding for after-sales and customer service. All technical products and most consumer products have after-sales service/customer support. At the industrial level, service and technical support remains an important competitive factor. Regulations require that after-sales service be available for government procurement. Customer service is not as developed as it is in the United States. Many shops have no return policies. Only large department stores and new retailers (usually foreign) have liberal return policies similar to those in the United States. In recent years, customers and users have developed organizations to fight for rights and fair treatment from businesses (Better Business Bureaus). OCU (Organización de Consumidores y Usuarios) is the largest and best organized of these organizations.

OCU, Organización Consumidores y Usuarios
Albarracín, 21
28037 Madrid
Phone: 902 300 187
Fax: 917 543 870
www.ocu.org

Protecting Your Intellectual Property

Spanish and European legislation on intellectual property protection (IPR) is very strict
on the ownership and circulation of personal data. Law 15/1999 on data protection
applies to personal data, but not to data concerning legal entities or corporations. It is
important for U.S. firms to be aware of the EU protections on personal data before
engaging in any type of transfer or purchase of personal data on EU citizens or
residents.
Further information on data protection can be obtained from:
Agencia Española de Protección de Datos (Spanish Data Protection Agency)
https://www.agpd.es/index.php?idSeccion=347
Agencia Española de Protección de Datos
C/ Jorge Juan, 6
28001-Madrid
Tel.: + 34 901 100 099
+ 34 91 399 62 00
Fax: +34 91 445 56 99
Spanish IPR legislation is consistent with EU directives and main international treaties.
Basic legislation is included in Royal Decree 1/1996. This legislation specifies that
intellectual property is subject to protection, and the owner may seek protection either
under civil or criminal codes.
Copyright
The EU’s legislative framework for copyright protection consists of a series of directives
covering areas such as the legal protection of computer programs, the duration of
protection of authors’ rights and neighboring rights, and the legal protection of
databases. Almost all member states have fully implemented the rules into national law;
and the European Commission is now focusing on ensuring that the framework is
enforced accurately and consistently across the EU.
The On-Line Copyright Directive (2001/29/EC) addresses the vexing problem of
protecting rights holders in the online environment while protecting the interests of users,
ISPs and hardware manufacturers. It guarantees authors’ exclusive reproduction rights
with a single mandatory exception for technical copies (to allow caching), and an
exhaustive list of other exceptions that individual member states can select and include
in national legislation. This list is meant to reflect different cultural and legal traditions,
and includes private copying "on condition right holders receive fair compensation."
http://ec.europa.eu/internal_market/copyright/index_en.htm
Patents
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EU countries have a "first to file" approach to patent applications, as compared to the
"first to invent" system followed in the United States. This makes early filing a top priority
for innovative companies. Unfortunately it is not yet possible to file for a single EU-wide
patent that would be administered and enforced like the Community Trademark (CTM)
http://oami.europa.eu/en/mark/default.htm. For the moment, the most effective way for a
company to secure a patent across a range of EU national markets is to use the services
of the European Patent Office (EPO) in Munich. It offers a one-stop-shop that enables
rights holders to get a bundle of national patents using a single application. However,
national patents must be validated, maintained and litigated separately in each member
state. EPO’s web site is http://www.european-patent-office.org/.
http://ec.europa.eu/internal_market/indprop/index_en.htm
Trademarks
The EU-wide Community Trademark (CTM) can be obtained via a single-language
application to the Office of Harmonization in the Internal Market (OHIM) in Alicante,
Spain. It lasts 10 years and is renewable indefinitely. For companies looking to protect
trademarks in three or more EU countries, the CTM is a more cost-effective option than
registering separate national trademarks. On October 1, 2004, the European
Commission acceded to the World Intellectual Property Organization (WIPO) Madrid
Protocol. The accession of the European Commission to the Madrid Protocol establishes
a link between the Madrid Protocol system, administered by WIPO, and the Community
Trademark system, administered by OHIM. As of October 1, 2004, Community
Trademark applicants and holders are allowed to apply for international protection of
their trademarks through the filing of an international application under the Madrid
Protocol. Equally, holders of international registrations under the Madrid Protocol will be
entitled to apply for protection of their trademarks under the Community Trademark
system. http://oami.eu.int/en/default.htm, http://www.wipo.int/madrid/en
Designs
The EU adopted a regulation introducing a single system, known as Community design,
for protection of designs in December 2001. The regulation provides for two types of
design protection, directly applicable in each EU member state: the registered
Community design and the unregistered EU design. Under the registered Community
design system, holders of eligible designs can use an inexpensive procedure to register
them with the EU’s Office for Harmonization in the Internal Market (OHIM), in Alicante,
Spain. Exclusive rights to use the designs anywhere in the EU will then be granted for
up to 25 years. Unregistered Community designs that meet the regulation’s
requirements are automatically protected for three years from the date of disclosure of
the design to the public. http://oami.eu.int/en/design/default.htm
Trademark Exhaustion
Within the EU, rights conferred on trademark holders are subject to the principle of
"exhaustion." Exhaustion means that once trademark holders have placed their product
on the market in one member state, they may not prevent the resale of that product in
another EU country. This has led to an increase in the practice of "parallel importing,"
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whereby goods bought in one member state are sold in another by third parties
unaffiliated to the manufacturer. Parallel trade is particularly problematic for the
research-based pharmaceutical industry, where drug prices vary from country to country
due to national price regulation. Community-wide exhaustion is spelled out in the
Directive on Harmonizing Trademark Laws. In a paper published in 2003, the European
Commission indicated that it had no plans to propose changes to existing legal
provisions.
Further information on intellectual property, including trademarks, patents, utility models,
industrial designs and computer software, is also available at:
http://www.interes.org/icex/cda/controller/interes/0,5464,5322992_5325211_5334951_0,
00.html
http://www.interes.org/FicherosEstaticos/auto/0806/6%20Intellectual%20property%20la
w_18516_.pdf
http://www.legallink.es/webenglish/15lssice.htm
http://www.legallink.es/webenglish/46outsourcing.htm
http://ec.europa.eu/internal_market/indprop/tm/index_en.htm

Due Diligence

CS Spain offers an ideal service to complete due diligence with potential business partners or clients: the International Company Profile service. The International Company Profile (ICP) provides the U.S. client with detailed information on a specific foreign company to help the client determine its suitability as a potential export partner. The information is gathered from the foreign company with its cooperation, and/or from publicly available sources. Full details on the scope of the service and fee is available at: http://www.buyusa.gov/spain/en/tradecontacts.html. Private firms or local chambers of commerce can also provide this type of service on-line or via direct request.