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Executive Report on Strategies in Greece
ICON Group International, June 2007, Pages: 390
How to Strategically Evaluate Greece
Perhaps the most efficient way of evaluating Greece is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
Relative Accessibility
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities.
Latent Demand and Accessibility in Greece
This report provides an extremely detailed overview of factors driving latent demand and accessibility in Greece. Latent demand is largely driven by economic fundamentals. But, latent demand only represents half of the picture. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks.
Chapter 2 deals with macro-accessibility. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Greece:
Openness to Trade in Greece
Openness to Direct Investment in Greece
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are also covered in Chapter 2, which is presented from the perspective of an American firm, though it is equally applicable to most firms entering Greece. This chapter has been authored by local offices of the U.S. Government. I have included a number of edits to clarify the provided information as it relates to the general strategic framework.
In Chapter 3, I summarize the economic potential for Greece over the next five years for hundreds of industries, categories, and products. The goal of this chapter is to report my findings on the real economic potential, or latent demand, represented by Greece when defined as an area of dominant influence. The data presented are the result of various spatial econometric and time-series forecasting models which, for each category presented, are applied to forecast and allocate latent demand across all countries of the world and major distribution centers or centers of dominant influence within each country. This is accomplished knowing that economic fundamentals (e.g. income) generally vary from one country to another within a given country over time. In this chapter, I report the allocation for each category for Greece as an area of dominant influence in Europe and, potentially, the world.
The report concludes with trade indicators for Greece. Often, the amount of trade flowing into and out of a country is a strong indicator of trading partners, trade openness, and related latent demand. Trade indicators are purely statistical in nature. Although international trade is not a direct measure of latent demand, it does provide an indicator of general market conditions with respect to trade flows and trade openness in Greece.
As a whole, this report presents a strategic assessment of Greece by considering an extremely broad set of factors affecting both latent demand and accessibility, as outlined in the following chapters.
MACRO-ACCESSIBILITY IN GREECE
Political Risks
Greece is a parliamentary democracy and one of 15 members of the European Union.
Despite EU-mandated devolution to regional and local authorities, political and economic decision-making remains highly concentrated in Athens, with elected district governors dependent for funding on the central government. Greece achieved a significant success with Greece’s entry into the EU’s Economic and Monetary Union (EMU) in 2000.
The United States and Greece are partners in the North Atlantic Treaty Organization (NATO) with shared concerns for the stability of southeastern Europe. The two countries enjoy excellent bilateral relations. Common strong democratic traditions and a large and active Greek-American community further strengthen ties between the countries.
Political Issues Affecting the Business Climate
The continuing operation of indigenous terrorist groups -- although attenuated to a strong degree by last year’s arrest of several 17 November members --opposed to U.S./NATO policies, globalization, and privatization;
Instability in the Balkans, where Greek companies are highly active;
Intra-PASOK resistance to efforts to privatize/trim a bloated state sector;
Labor movement insistence that the government and companies make the major contribution to saving problematic pension funds, and strong resistance to liberalizing rigid labor markets;
Dependence by politicians on media groups with strong ties to business interests;
A politicized, anti-globalization environmental movement increasingly sophisticated in using the courts and the EU to block large projects.
Marketing Strategies
Distribution Channel Options
It is estimated that over 80 percent of Greece’s import trade is handled through sales agents or distributors. Agency agreements are not required to be exclusive and can be signed for any period of time. Distributors operate on wholesale (and in some cases, retail) basis with exclusive sales rights for certain districts or for the entire country. Importers usually maintain offices in Athens, Piraeus, or Thessaloniki with branch offices, subagents, and traveling sales staff covering the rest of the country. There are instances of small importers joining together to form cooperatives.
Sales agents representing foreign nationals are required to obtain an operating license from a special committee of the local Chamber of Commerce. The issuance of the license is subject to verification that Greek nationals are accorded reciprocal treatment in the applicant’s country of residence. Reciprocity must be proven through a certificate from a Greek consular officer stationed in the applicant’s country. Prospective sales agents are screened on the basis of reputation, experience and financial standing.
Retail and wholesale trade is mostly characterized by small, family-owned and operated businesses, each of which deals in a narrow range of goods. There are over 300,000 trading establishments in Greece. There are 7,700 corporations and limited liability companies engaged in wholesale trade and 3,200 corporations and limited liability companies handling retail trade.
There are a handful of department stores and several supermarket chains. Some department stores have closed, due to failure to adjust to new shopping trends. Those that remain in business tend to operate like small shopping centers where the “shop-in-shop” concept is applied. A considerable volume of retail sales is still made by small, specialized shops.
Direct marketing is increasing in Greece, but the relatively limited use of personal checks and credit cards, in comparison with the rest of Europe, has inhibited its development. There are a few small mail or telephone order services in Greece. Door-to-door selling exists on a limited scale. Franchising is becoming increasingly popular in Greece, with most of the franchises in fast food. There is no special law governing franchising in Greece.
Licensing Options
Licensing agreements have to be filed with the Industrial Property Organization and Greek tax authorities. All procedures for payment and transfer of royalties to EU and non-EU residents are handled by commercial banks operating in Greece. No foreign exchange regulations apply to royalties. The Ministry of National Economy and the Bank of Greece intervene only when a foreign firm requests an unusually high royalty percentage. Rates over 10 percent are considered exorbitant and are not permitted.
Agents and Distributors
The key to success in the Greek market is to have an experienced agent or joint venture partner with suitable experience and an extensive sales network. The ability to offer full after-sales support to the end-user, along with spare parts is also crucial.
As the Greek Government accounts for most major purchases, it is also essential that local agents or joint venture partners have the knowledge and experience to participate in government tenders on behalf of U.S. suppliers. The decisive factor in government purchases is low price and strict adherence to specifications. Private sector purchasers are more likely to weigh price in relation to the quality and after sales support of the goods or services being purchased.
Before making a commitment to prospective agents or joint venture partners, U.S. firms are advised to obtain background information and credit reports.
Creating a Sales Office
In order to establish any type of business office in Greece, a certified true copy of the company’s articles and relevant agreements must be filed with the Court of Misdemeanors. Then, the local tax office must receive a copy of these documents in order to record the newly established entity with the local Merchants’ Social Insurance system. Finally, the local Chamber of Commerce issues the license number under which company will operate in Greece.
All traditional types of business organizations exist in Greece along with some more clearly defined subtypes. These include the following:
Corporation
Limited liability company
General or common partnership
Limited partnership
Sole proprietorship or individual enterprise
Cooperative
Joint venture or consortium
Under Greek law, joint ventures and consortia are not recognized as different kinds of legal entities. The law governing joint ventures has been developed through decisions of the courts and directives issued by the Ministry of Finance. In general, each participant in a joint venture is liable for his share of the total debt, including taxes. Current tax law recognizes the existence and special nature of joint ventures and provides specific rules as to how their accounting records should be maintained.
Foreign enterprises may establish operations in Greece under any of the categories listed. In the case of industrial projects, the foreign investor is generally required to organize a Greek corporation in order to enjoy the full benefits of Law 2687 (which covers foreign productive investment) and other incentives provided by the Greek Government.
If none of the above forms is appropriate, foreign firms may establish branch offices. This requires the written approval of the Ministry of Development. Such approvals are issued on the basis of a power of attorney that designates a person who permanently resides in Greece to act as the foreign corporation’s legal representative in the country.
Selling Strategies
The selling factors and techniques that are applicable to Greece are generally the same as those in other western European countries and the United States.
Advertising Options
Advertising and sales promotion are usually handled by one of many local advertising companies. Advertising companies use all types of media to reach target groups. The mass media in Greece includes four state-run and over fifty private TV channels and more than five hundred radio stations. There are also eight major national daily newspapers and a large number of general and specialized interest magazines, most of which target young age groups. International press is also available in major cities and tourist destinations.
Pricing Issues
Greece has no price controls, except for pharmaceutical and agricultural products. When pricing a product, firms should consider payment and credit terms. Orders are usually small, and Greek importers will request special consideration if a U.S. supplier requires large orders.
Greek importers generally expect a C.I.F. quotation, except when the purchasing company does a large amount of direct buying and provides its own insurance. American firms should be prepared to quote prices on whatever basis is preferred by the prospective buyer.
Credit
U.S. exporters should bear in mind that letters of credit and drafts in amounts generally required by small businesses are very expensive in Greece. Banks require the cash equivalent to be deposited before issuing any guarantees. Working capital loans are relatively expensive, and to avoid extra costs, Greek firms often seek cash against documents or extended credit terms of 30-60 days (or longer) from their suppliers.
Nevertheless, U.S. banks and firms should exercise caution when extending credit to Greek businesses. It is important to obtain full credit background information on any prospective recipient of liberal financing terms. Greek firms with an unhealthy debt/equity ratio are very vulnerable to changing interest rates. It is advisable to run periodic credit checks, even on businesses that have good payment records.
There are no debt collection agencies in Greece. Only courts are empowered to collect debts, through a legal process that is usually long and expensive.
There are a large number of bilingual law firms in Greece, which practice business law.
Government Procurement
Purchases by the Greek Government of capital equipment and supplies play an important role in the country’s commercial environment. Greece is a member of the European Union and a signatory of the GATT Government Procurement Code, and adheres to the polices on government procurement of those organizations. The Ministry of Development controls the procurement of almost all-public sector entities such as ministries, and state organizations and agencies.
It is a standard requirement for all bidders to post a bond, usually 5 percent of the bid value, for all tenders issued by the Greek Government and quasi-governmental agencies. Bids not accompanied by bonds are invalid. Bonds are returned to unsuccessful bidders within 5 days of the award of a contract.
After a bid is approved, the successful bidder is invited to sign a contract that incorporates the terms and conditions of the bid, subject to any negotiated additions or amendments. At that time, the firm must post, a performance bond, usually equal to 10 percent of the bid value.
Bids for the construction of public works are governed by special legislation. Construction bids are normally only open to local firms. However, when projects are complex and require a high degree of technical expertise, or when externally financed, international bids are welcomed.
If a local firm can supply a particular commodity or service, the tender may be limited to local firms. Another means of directing purchases to local firms is to stipulate that foreign bidders must submit their offers in joint ventures with local enterprises. In major projects, the utilization of local resources (engineering services, manpower supplies, manufacturing, or assembly) is an important factor in bid evaluations. Foreign as well as local bidders must quote and accept payment in Euros, unless otherwise specified in the tender documents.
Special legislation also governs military construction projects and the purchase of defense items. Most military tenders for defense equipment require offsets. Procurement sponsored by the North Atlantic Treaty Organization (NATO) is open to international competitive bidding in accordance with NATO bidding procedures.
E-Commerce
Whether Business to Consumer or Business to Business, E-Commerce has been very slow to mature in Greece, even in comparison to lesser-developed countries.
In Greece, relatively few companies opt to use the Internet as a platform for their communication requirements, as compared to the European (EU) example as a whole. Although competition among Internet Service Providers contributes to the lowering of prices, a marketing presence on the Internet nevertheless constitutes an expensive exercise for many Greek companies. This is reflected in the small number of leased lines that Internet Service Providers have managed to secure. Thus, E-Commerce is proceeding at an experimental level in Greece, with many Greek firms concluding that there are few immediate, tangible benefits and considerable costs in exploring the capabilities of the international network.
The Greek Government has adopted all EU regulations concerning E-Commerce and its applications, and is looking at E-Commerce as a positive factor of economic development, encouraging Greek business and government entities to explore its potential.
Currently, however, Internet users in Greece number approximately 600,000 out of a total population of about 11 million. As such, Internet penetration in Greece remains relatively low, reaching less than 10%, while other EU countries range from 13% in Spain up to 40% in Finland. of the 600,000 Internet users in Greece, only 8% have ever engaged in any type of E-Commerce transaction.
Import and Export Regulation Risks
Trade Barrier Risks
Greece is member of the WTO and the EU. The Euro replaced the drachma as of January 1, 2002.
Greece maintains nationality restrictions on a number of professional and business services, including legal advice. These restrictions do not apply to EU citizens, and U.S. companies generally circumvent these barriers by partnering with Greek or EU businesses.
The transitional period for de-monopolization of the Greek audit industry officially ended on July 1, 1997. Numerous attempts to reserve a portion of the market for the former state audit monopoly during the transition period (1994-97) were blocked by the European Commission and peer review in the OECD. However, in November 1997, the Greek Government issued a presidential decree that reduced the competitiveness of multi-national auditing firms. The decree established minimum fees for audits, and imposed restrictions on utilization of different types of personnel in audits. It also prohibited audit firms from doing multiple tasks for a client, thus raising the cost of audit work. The government has defended these regulations as necessary to ensure the quality and objectivity of audits. In practical effect, the decree constitutes a step back from deregulation of the industry.
Under the “Open Skies” aviation agreements that the U.S. has with most EU member states, there are no restrictions on bilateral routes, capacity or pricing. Greece is one of several member states without an Open Skies agreement, and where the U.S.-Greece bilateral aviation relationship still reflects some limitations.
Greek film production is subsidized by a 12 percent admissions tax on all motion pictures. Enforcement of Greek laws protecting intellectual property rights for film, software, music, and books has been is problematic, but has considerably improved in the last few years.
Greece has not been responsive to applications for introduction of bioengineered (genetically modified) seeds for field tests despite support for such tests by Greek farmers and Greece’s agricultural science community.
Greek testing methods for karnal bunt disease in U.S. wheat, which initially resulted in a high incidence of false positive results, have been improved to the point that they are no longer an obstacle to importation of U.S. wheat. Imports of U.S. wheat, however, have not recovered and are close to nil.
Valuations on Imports
As a member of the European Union, Greece subscribes to the EU’s common external tariff, common agricultural policy, joint transportation policy, and to directives on the free movement of goods, labor and capital. Trade between EU members is duty-free. Import duties on products from non-EU countries, (including the U.S.), is 5 - 7 percent for most manufactured products. In general, duties are lower on most raw materials and higher on some other product categories, such as textiles. Import duties are applied on C.I.F., ad valorem basis. In addition to import duties, imports are subject to other minor surcharges totaling less than 1 percent.
Agricultural products from non-EU countries are subject to a complicated protection system administered by the EU. The system includes surcharges that make non-EU agricultural products non-competitive in price. Greece occasionally bans imports of some types of agricultural products that compete with similar domestically produced ones. Greece also sometimes prevents or delays customs clearance on the grounds of phytosanitary problems.
Commodity imports into Greece are generally free and no import licenses are required. The EU applies certain quota restrictions on products from low-cost countries. U.S. businessmen wishing to market products manufactured in low-cost countries, such as China, are advised to review the quota system with their importers.
Banks require one original invoice from the foreign supplier in order to carry out a transaction. Temporary duty relief can be granted for raw materials imported into Greece for processing and re-exportation to non-EU countries. Goods imported into Greece for demonstration, such as at a trade event, can be imported under a carnet, which can be issued by most U.S. Chambers of Commerce.
All products, regardless of origin, (foreign or domestic), are subject to the Value Added Tax, (VAT), generally 18%. On non-EU products, the VAT is applied to the total CIF value, plus the import duty, and payable in full upon import. Payment of the VAT on EU-origin products is deferred until point of sale, making the import less costly than a shipment from the United States.
Labeling Issues
Labeling and marking requirements are in accord with EU requirements. Labels must be in Greek. The Greek labels can be attached to the product between clearing customs and being offered for sale. If this presents a problem, U.S. manufacturers should consult with their Greek importers.
Local Standards
Greece follows standards requirements according to guidelines set by the EU. ISO 9000 is accepted and used by many local firms and is a requirement for many government procurement contracts.
Additional Trade Issues
Pharmaceutical imports require special approval that is granted by the National Pharmaceutical Organization. New-to-market food products require similar approval by the General State Laboratory.
Products complying with the Food Code do not require a special permit to be imported and marketed in Greece, with the exception of seeds, meat and poultry products, nuts, and dairy products.
In order for a seed variety to be imported into Greece it should be listed in the European Variety Catalog. If not, it must be registered in the national Catalog of Greece, which requires tests taking 2-3 years, depending on variety and species. Seed shipments must be accompanied by certain certificates required by the EU.
Imports of meat and poultry and their by-products from third countries into Greece are allowed only from EU approved plants. Imports of poultry products into Greece from the U.S. were suspended due to failure of the U.S.-E.U. Veterinary Equivalency agreement to include poultry.
Imported nuts are subject to an aflatoxin test performed by the Supreme Chemical Laboratory.
Imports of dairy products (i.e., ice cream and frozen yogurt) of U.S. origin should be from plants included in the list of EU approved plants.
Free Trade Zone Options
Greece has three free-trade zones, located at the Piraeus, Thessaloniki, and Heraklion port areas. Goods of foreign origin may be brought into these zones without payment of customs duties or other taxes and remain free of all duties and taxes if subsequently transshipped or re-exported.
Similarly, documents pertaining to the receipt, storage or transfer of goods within the zones are free from stamp taxes.
Handling operations are carried out according to EU regulations 2504/88 and 2562/90. Transit goods may be held in the zones free of bond. The zones also may be used for re-packing, sorting, and re-labeling operations. Assembly and manufacture of goods are carried out on a small scale in the Thessaloniki Free Zone. Storage time is unlimited, as long as warehouse charges are promptly paid every six months.
Investment Climate
Openness to Foreign Investment
Greece, a member of the European Union, provides a reasonably hospitable climate for foreign investment. Greece’s membership in the EU’s Economic and Monetary Union offers currency stability.
The Greek Government encourages private foreign investment as a matter of policy. Investments are screened only when the investor wants to take advantage of government provided tax and investment incentives. In such cases, foreign and domestic investors face the same screening criteria. Greece, which restricted foreign and domestic private investment in public utilities, has opened its telecommunications market and has plans to gradually liberalize its energy sector. Restrictions exist on land purchases in border regions and on certain islands (on national security grounds). Also U.S. and other non-EU investors receive less advantageous treatment than domestic or EU investors in the banking, mining, broadcasting, maritime, and air transport sectors (these sectors were opened to EU citizens due to EU single market rules).
Major investment laws are:
Legislative Decree 2687 of 1953 which, in conjunction with Article 112 of the Constitution, gives approved foreign “productive investments” (basically manufacturing and tourism enterprises) property rights, preferential tax treatment, work permits for foreign managerial and technical staff, and permission for the export of capital, dividends, interest, and other current payments. The Decree also provides a constitutional guarantee against unilateral changes in the terms of a foreign investor’s agreement with the Greek Government, but the guarantee does not cover changes in the tax regime.
Law 2601/98 revised the investment incentives regime replacing Law 1892/90 and its subsequent amendment 2234/94. Under the new law, new businesses (with less than five years of operation) may choose either of the following combinations of incentives: a) grants and interest subsidies as well as subsidies for leasing equipment, or b) tax exemptions and interest subsidies. The emphasis of the new law is on assistance for large projects, mergers of small and medium size manufacturing companies and on the development of new products. Law 2601/98 is about to be revised. The new investment incentives bill will reportedly include higher tax-free reserves for re-investment and creation of new jobs and will simplify the existing tax regime for foreign investment.
Laws 89/67, 378/68, 27/75 and 814/78 provide special benefits (such as tax and import duty exemptions) for offshore operations of foreign companies established in Greece.
Law 468/76 governs oil exploration and development in Greece. Law 2289/95, amending this legislation, allows private participation in oil exploration and development.
Law 2773/99 opened up 34 percent of the Greek energy market in compliance with EU Directive 96/92 concerning the regulation of the internal electricity market.
Law 2246/94 and supporting amendments opened gradually Greece’s telecommunications market.
Conversion and Transfer Policies
Greece’s foreign exchange market is in line with EU rules on free movement of capital. Receipts from productive investments can be repatriated freely at market exchange rates. Remittance of investment returns is made without delays or limitations. As of January 1, 2001, Greece became a member of the European Monetary Union.
Expropriation and Compensation
Private property may be expropriated for public purposes, but only in a nondiscriminatory manner and with prompt, adequate and effective compensation. Due process and transparency are mandatory, and investors and lenders receive compensation in accordance with international norms. There have been no expropriatory actions involving the real property of foreign investments in recent history.
Dispute Settlement
A dispute between the Greek Public Gas Corporation and GAZPROM, the Russian supplier of natural gas, over the price of gas went to international arbitration but the two sides reached a friendly settlement before the final ruling.
Greece accepts binding international arbitration of investment disputes between foreign investors and the Greek State. International arbitration as well as European Court of Justice judgments supersede local court decisions. Greece has an independent judiciary. The court system is a highly time-consuming means for enforcing property and contractual rights. Foreign companies report that Greek courts do not always provide unbiased and effective recourse. Although an investment agreement could be made subject to foreign legal jurisdiction, this is highly uncommon, particularly if one of the contracting parties is the Greek State. Foreign court judgments are accepted and enforced, albeit slowly, by the local courts.
Commercial and bankruptcy laws in Greece are in accordance with international norms. Under Greek bankruptcy law, private creditors receive compensation after claims from the state and insurance funds have been satisfied. Monetary judgments are usually made in local currency unless explicitly stipulated otherwise. Greece has a reliable system of recording security interests in property.
Greece is a member of both the International Center for the Settlement of Investment Disputes and the New York Conv ention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Performance Requirements and Incentives
Greece is in compliance with WTO TRIMS Notification. Investment incentives are available on an equal basis for both foreign and domestic investors in productive enterprises. The monetary value of an incentive is inversely proportional to the level of development of a given region; in other words, the less developed the region where the investment will occur, the more generous the incentive. Under the Investment Incentives Law 2601/98, new businesses (with less than five years of operation) may choose either of the following combinations of incentives:
Grants and interest subsidies, as well as subsidies for leasing equipment.
Tax exemptions and interest subsidies.
Businesses with more than five years of operation qualify only for interest subsidies and tax exemptions. Additional tax incentives are extended to foreign investors if they establish export-oriented businesses, or if they save foreign exchange through import substitution (Law 2687/53). The Hellenic Center for Investment (ELKE), a quasi-state entity established as a one-stop shop for assisting investors, is responsible for reviewing projects valued over 8.8 million euros ($8.3 million), or 3 million euros ($2.8 million) if there is at least 50 percent foreign participation, for which government incentives are sought.
There are no performance requirements for establishing, maintaining, or expanding an investment. However, performance requirements come into play when an investor wants to take advantage of tax and/or investment incentives. Local content, import substitution, exports orientation, and technology transfers are considered by the Greek authorities in evaluating applications for investment incentives. Companies that fail to meet the specified performance requirements may be forced to give
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