Let me be blunt

GunnarE · #1 02-08-2003, 03:16 AM

I am trying to take a bunch of high-paying American production jobs and turn them into "high-paying" Dominican jobs in a free-trade zone and then ship the product back here to the US. The products are ornamental art designs, the market is already established in the US and elsewhere, and I'm not going to try to sell a thing to anybody in the DR. In fact, I only picked the DR because of the combination of cheap labor and tax-free trade-zone deal. It's also a plus that board meetings can be held on a tropical island without any fear of having the expenses denied by the IRS... and various corporate officers can manage a Caribbean vacation a couple of times a year and have the company pay for it.

PRIOR to catching a plane to the DR (I HATE flying) I want to have as many questions answered as possible. I could hire a consultant, but I'd rather get the information from a "peer reviewed" location such as this one. I really appreciate the propensity of certain members of this forum to say "Hey! So-and-So is full of ****! It doesn't work that way at all!" It took me quite a while to get used to people like CRISCO, but I've come to appreciate the effect such accountability has. Also, there are people who post here that I'd never have an opportunity to communicate with otherwise.

I can't find much information on the Free-Trade Zones on this board. If the archives have something, please let me know what terms to use for searching and I'll go back to reading.

As to specifics, I have read with interest the people who have talked about the labor laws and their chilling effect on hiring employees. What about paying piece-work? I really hate to pay by the hour, and always prefer to tie the pay directly to the performance, so naturally I like piece-work. I've also found that if I can set the pay scale to allow an experienced and hard worker to make 150% of the average wage for that locale, then there is always enough competition for the jobs to lessen the problems with finding workers. An added plus is that they give themselves their own raises for experience and longevity, right up to the point that those things cease to contribute to productivity.

Piece-work is a variable rate of pay. If a worker developed an attitude and stopped working hard, their pay would fall. If I had to fire them, would their liquidation be based on an average pay, their ending rate of pay, or maybe some kind of government formula? And, if they are fired for cause, do I still have to pay liquidation?

Just how hard is it to get a license for operation in one of these free-zones, and what will it really cost? In fact, where *are* these free zones? I'd love to see a map of the country with all the free zones marked on it. I guess I'm dreaming, though. I'll have to deal with whatever I can near the cheapest point of departure for cargo containers, because the downside of shipping jobs down to the DR is that I have to ship product back to the US.

Speaking of shipping, I have to send 40 ft. containers to various points around the US. Who can I talk to to get some realistic shipping rates that will be close enough to "ball park" for planning purposes? What companies would be worth working with, and is there anybody I should avoid?

I have read that I can bring production equipment (Lathes, grinders, welders, presses, tooling, etc.) into the country duty-free for the purpose of setting up a business. Is that just bathroom reading? I know the customs guys are corrupt... but am I going to have my production equipment sitting in a container until I pay the ransom- even if the law says that I don't have to? If it's likely, then who is the best person to bribe?

Probably most important of all, how long does the process of transferring a small production line down to the DR actually take? It will take me a week to set up presses and machines, but what about the bureaucracy end of things? Does the license and permit process take days, weeks, months or years? I'm reminded of an experience I had in Southern California years ago. Some problems we dealt with the local police, and some problems we dealt with the local gang... just a matter of knowing who handled what and how to do business. Who handles what in the DR?

Once I get set up and producing, other than labor problems, what should I be concerned with? I know that there'll be problems, there always are. There is always a "gotcha" somewhere in there, and I'm wondering what it might be. I have been reading some of Golo's posts with extreme interest. I was in the Philipines in 1986 when Marcos fell.... that was a real experience for this white boy, and I don't look forward to seeing it happen again.

I have lots of questions, but those are the major ones right now. I'd have to move down to the DR to manage the operation, but I'd bring my family with me. Yes, I speak Spanish, OK to get by, but I have a native Spanish speaking wife. I've been in lots of third world places and dealt with the "manyana" culture for years, in Mexico, the PI and on Guam. This is one time when I'm more worried about the larger unknown than the minor stuff.

Chris · #2 02-08-2003, 09:22 AM

A few comments about my experiences with free zones.

How many and where - I have a list which I believe is quite
current and it lists 52 free zones - some privately administered and some publically administered. I have this on paper and can fax it to you if you give me a fax number. It may be in existence somewhere else on the web.

I have had dealings with two Free Zones - the Free Zone in Puerto Plata and the Free Zone in Santiago Norte which is called Pisano.

The Pisano folks gave me a tremendous amount of very well put together information. I was pleased with this visit as I met helpful and knowledgable people. I can give you a contact for this park on e-mail - so, if you would like this, please e-mail me.

The Free Zones function in a sense like a free market economy - but only in the sense of you having a choice. In my experience, the rest of the process sometimes needs a gift or two in the correct hands. My attorney advised me on this and the gifts were not outrageous.

You also need to select the correct Free Zone for your product and your requirements. The Puerto Plata Free Zone had me jump through hoops to assure them that my product did not contain any environmentally harmful materials.

Then, there is a question of space - This is not always available in the free zone of your choice. I suggest you visit a few and in my limited dealing with Free Zones, I would suggest Pisano as their marketing 'engine' is quite well developed and their information is well put together.

In my experience, the customs thing seems to be easier when your containers go directly through to a free zone. Our container loads do not even get opened most of the time. Following some of Pib's advice, I now get a upfront quote for clearing a container and at least I know what I am in for. I arranged with my suppliers to close our boxes with special tape, so it is very easy to see if any of the boxes were opened and I can check those to see if anything has disappeared.

In terms of shipping, we deal with Tropical Shipping. Their Puerto Plata rep has been tremendously helpful to us and has gone out of her way on various occasions to assist. I can give you her contact information once you e-mail me.

In terms of customs agent, do contact Pib, who is active on this board. There are a number of others also. Also look at Pib's FAQ which should be somewhere on this board.

To create our company and to get the Free Zone permissions and space took time - most of 4 months - and everything is not complete yet. This did not really stop us from starting to trade however. There are ways. The documentation load for all of this was not too heavy. I cannot stress enough the importance of a reputable lawyer. The Pisano free zone offers assistance with some of the documentation.

I'd be happy to give you more information or to chat if you decide to visit.

Hillbilly · #3 02-08-2003, 10:38 AM

Dear Gunnar: the rules for the Free Trade Zones are somewhat different thatn the rules for work outside the Zone. In Santiago, we now have four zones, the PISANO referred to above, the Santiago Free Zone-the first one in the DR- and the new one in La Canela and the one in Gurabo. there are also zones in Montecristi, Mao, Esperanza, each with different incentives for you to establish your business there.
I heartedly applaud your basic idea.
If you come to Santiago, I would be happy to serve as your guide, at least point you in the right direction, since 'who' you see is as important as 'what' you see.
If you would be so kind as to send me an e-mail or PM I can talk a bit more freely, and you might find some insightful people thee in the States...

HB

frederic · #4 02-08-2003, 08:49 PM

You might want to visit www.cnzfe.gov.do for many FAQs...

and I do have a map of the DR with all the FreeZones, but not your email to send it you as an attachment; so if interested, send me your email and I'll send you the map.

If you need any more info feel free to contact me directly at:

frederic@tricom.net

Hope you find this forum and its participants most helpful...

Frederic

Hlywud · #5 02-09-2003, 08:59 AM

No need to hire a consultant, take Hillbilly up on his offer and visit him in Santiago. I am sure not only will you have a nice trip but will get all the information you require.

Pib · #6 02-10-2003, 01:16 PM

I'll be blunt too.

Answering all those questions would take too much typing. I also volunteer to help you when you are in Sto. Dgo. I know quite a bit about Free Zones. When you are somewhere near just shoot me an email. I'll be delighted to help.

GunnarE · #7 02-10-2003, 05:39 PM

A couple of things, though.

I really appreciate all of you who emailed me and offered advice or support. My major problem is that companies of this size are too small for the major groups who specialize in outsourcing, and after one drops through the ranks of the majors, who do you trust? I've already been told that I represent the last and final wave of businesses fleeing the US: small businesses with less than 49 employees. As I see it, the decision for moving offshore comes down to 5 items:

Management: Who? Gotta be "someone we trust."
Labor: Obviously cheaper in the DR, quality may vary.
Materials: No tarrifs and no duty coming into the free zones.
Regulations: You can't even begin to make a comparison.
Shipping: The magic question. How much does it cost?

The two major sticking points that I am currently working to overcome are the political issues at home and the fear of political issues abroad.

At home, here in darkest Kentuckian midwest, there is tremendous fear of being publicly identified as someone who "shipped American jobs overseas." That isn't a "good thing." A manager will get a bonus if they can wring a 3% production increase out of the people on the line, but mentioning that one can get a 40% decrease in expenses and no tax on the profits just by moving offshore causes small-business owners to run for cover.

I know owners who would rather run their business into the dirt, fire their employees and liquidate their equipment (because they produce a product that isn't competitive), rather than face the reality of the Wal-Martization of America and act accordingly. Unfortunately, technology is forcing everyone to compete on price.

In addition, there is the fear of foreign political unrest where everyone fears that shipping jobs somewhere "over there" is taking too great a chance on deliveries not being met and contract penalties being enforced or perhaps losing customers. Again, this is not a "good thing." In the company politics department, I have to present an overwhelming case in a surprise attack in order to overcome opposition and shut down the nay-sayers before they can get back on their feet. I've found almost everything that I needed although it wasn't easy and took a lot of time. It's funny, though. How long has the DR had free zones? And isn't something like 80% of the trade with the US? So why is the English section of the website still "under construction?"

(Frederic, I really did appreciate the link, it's just that I can't print it out and say "SEE! It IS true, and here is the info from a .gov site to prove it!" Well, I could print it out, but they can't read Spanish, and the Google translation is a scream. "Frank Zones" heh.)

http://www.cnzfe.gov.do/index_i.htm

I now have enough information to make a good case, and will probably get a board resolution for a junket to sort things out. However, it still requires overcoming the political question about "shipping jobs overseas" and all that. If this flies, Hillbilly, I'll be visiting you in a few weeks. The only way I can sweeten the pot is with an offer to finance setting up the offshore operation. That might work, but would take more time, months instead of weeks.

Hillbilly · #8 02-10-2003, 09:53 PM

While you certainly have legit worries, political unrest in the Dr is not one of them. Through thick and thin the Zonas Francas produce.
As for shipping, Tropical is perhaps the majors shipper out of this part of the country, I am sure you can talk to them either here or there.
As for this size of company, It seems that partial space rental-not a whole 50,000 sq ft area for example. There are zones in Moca and La Vega, as well as the ones around here that will go out of their way to help you.
As for "your People" you might offer to re-locate a couple of your #1 guys or gals to the DR on a contract basis. They know the product, and can train the local operators.
Something to think about: The most efficient and productive companies here are now using "modular"systems of team production. Each Module can finish their work by Thrusday andgo home, or they can make extra money and work on Friday, too. it seems that when each member of the module knows just how important his/her contribution to the whole group is, they work harder and fulfill the job requirements....Don't know if your product is done that way. Anyway it is just for thought.

Send me an e-mail for how to get in touch when you get here.

HB

Pib · #9 02-10-2003, 09:56 PM

You must come down here first. Talk to other small-business owners, I have some as customers and can take you around to visit some Free Zones. You have to visit the Asociation of Free Zones by yourself, have meetings and such. There's nothing you can figure out from where you are now.

Pib · #10 02-10-2003, 09:58 PM

And what HB just said.