Dr Business Profile 2009

CONFIDENTIAL DOMINICAN REPUBLIC BUSINESS PROFILE

Entrepreneurship The La Hispaniola Island, second in size in the Caribbean with 30,000 sq. miles, gathers the Dominican Republic, 20,000-sq. miles/10 Million inhabitants and, Haiti with 10,000 sq. miles and 9 million people. Add another 5 million tourists a year. DR’ economy handles around US$7.5 billion/year plus another US$1 billion/year from its informal sector (not necessarily from drugs trafficking) and, another US$2 billion/year from expatriates money sending. The United States represents 80% of DR both formal and informal –import/exportbusinesses. Haiti –the poorest country in the continent- should be –stats are scarce- a US$1.5 billion/year economy. Those US$3 billions put extra money over the low & middle classes, 70% of the consumers of nonessential goods and services like energy drinks. The impact of DR expats over the country after 30 years of immigration (more than one million Dominicans live in the U.S., maybe another million somewhere else around the world) plus its unique closeness to the United States (the population is exposed to American fashion, sports, technology, music…throughout the media and expats visiting) is the reason for the heavy consumption of artificial drinks in a tropical country exporter of tropical fruits! The DR has a relative short span of 165 years of republican-style independent way of living. The La Hispaniola was the first to be discovered by Columbus in 1492. It was ruled by Spain until 1804, when Haiti start its fighting for independence (second after the United States), and occupied the whole island until DR’s independence in 1844…from Haiti (not Spain). They turned themselves to Spain in 1863…but fought them again and won fully independence in 1865. What does it mean? Up to the raise of the U.S. as a worldwide super power in the 19 th Century, Spain’s influence was understandable. In 1916, the U.S. decided to end that influence and took by force the DR. They have been market competitors ever since. Thus, the DR has a rather curious combination of American-European flavor. But in one sense, Spaniards –or their descendants- are still ruling the country: supermarkets, tobacco/sugar/coffee crops, cattle, tourism (25% of DR’s economy) and 60% of commerce, mining and industry. Italian and Palestinian/Lebanese descendants run another 25% and regular Dominicans the other 15%. On the other side, even with that tight European control, no less than 65% of good -and some services- are brought from… the United States (partly made in China, now…), another part –mostly vehicles- from Asia and, the rest from Spain, England and France.

Beverages –non-alcoholicSince this is a tropical country, the population consumes, first, millions of gallons of sodas and bottled water; then, milk (millions of children), fruit juices (both natural and packed), then sport drinks and energy drinks. -alcoholicThe consumption of rum (an original agro industry), beer (locally brew and/or imported), whisky (locally made or imported) or bourbon (imported) over runs milk consumption by far. But, curiously, since the introduction of the named ‘energy’ drinks (a complex formula, but usually helped with a lot of caffeine) maybe 10 years ago, Marketing positioning of the energy drinks has been developed as a substitute for hard liquors. Even for such mentioned soft drinks as beer (locally is a little strong that U.S. beer) or wine. But, smart enough from CYCLONE, number two after Red Bull, they positioned themselves as an aphrodisiac for men! Monster is in third place, battling with another 3 or 4 other small brands. Monster Energy Drinks Even with more or less 5 years on the market, Monster’s positioning -even without a good management, nor professional marketing- clinched rapidly into the 18/35-target sympathies due to its taste (a little sweeter, always a local preference), superb graphics and extreme sports presence. Here, Monster closeness to Motocross, a highly popular spectator-sport in the DR (in fact, it is in third place after Baseball and Basketball) even when it’s raced by an elite and, it’s a very expensive sport. Motocross’ practitioners come from the high-middle classes, yet popular classes – by the ten of thousands- go to the dozen of Motocross tracks around the island to enjoy the races. Dominican Motocross has a 40-year history and Motocross athletes (both Dominicans and Americans) are very popular locally. This study strongly suggest that due to the evident mismanagement of the brand –or dominance fighting- by the importer, on one side and, marketers, on the other side; that it should be taken directly by the U.S. central management, hire a Dominican professional marketer, negotiate compensations with actual importers or marketers and launch a strong Marketing offensive for 2010. It should include the total dominance of Motorsports as first positioning. Then, Bicycling (both on and off-road), Running and recreational Walking. It looks that those sports represent a substantial market share and brand loyalties. Motocross (as well as Supercross, Dirt Track and Enduro) should become the flagship of Monster’s Marketing efforts. And again, curiously, this could be done very easily since Monster’s current brand manager is –in fact- both a professional marketer and, motocross racer himself! We estimate that with a well-managed Marketing investment of US$150,000 in 18 months the brand can surpass all other brands and become number one. Better yet, with a little as US$10,000 wisely poured in between November and January over local Motocross (DR’s championship finals), the brand could easily increase its market share against

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Cyclone and Red Bull in a manner of days. Monster’s fans loyalty is very strong in the DR, a consumer behavior that identifies Latin Americans from Anglo-Saxons. DR as Monster’s hub for the Caribbean Even with Monster’s actual ties to local influential and powerful families, it is advisable to consider a more broadly scope of business in the Caribbean. The Dominican Republic has a free trade agreement both with the U.S. and Central America. Another similar with the European Union. That means the desire of the developed countries to stop Dominican illegal mass immigration by actually developing the Dominican Republic. During the 60s and 70s they opened their frontiers to millions of Dominican low-educated labor, as well as Mexicans. Then, in the late 80s the U.S. signed a free trade agreement (CBI) only for the Caribbean, yet –again- due to local problems, thousands of Dominicans, this time professional middle classes, were in turn heading to Miami. In 1996 won the presidency Lawyer Leonel Fernandez, 56, a liberal, pitched by U.S. / IMF rulers and financed him to produce a strong change within the country. It was a turning point in DR history. In his first 4-year term (same that in the U.S.) he modernized the country and brought it to the 21rst. Century. He won again in 2004 and 2008 so he is steadily guiding the country into what is now: one of the best democracies in the world, with a stable economy (it even survives the 2008 U.S financial disaster) and a reasonable bright future based in tourism, light manufacturing industry, technology, mining, agroindustry and commerce. Both the IMF and the U.S. government will continue with their support to President Fernandez. More than US$2 billion will be loaned in the next two years to the DR looking to preserve the status quo and confront the financial crisis. This money will be used actually to increase social expending and jobs, particularly, throughout public construction. DR rulers do not want social turmoil –like in 1984- general strikes or street protesters hanging around. The reasons for the last “social” movement happenings are strictly political-oriented, mostly from the opposition party (yet a small part is authentic) looking for the next DR congress and major elections in May 2010. Usually Dominican elect them for a 4-year turn, but this time it will be for six years. In 2016, both presidential and legislative election will be celebrated the same year, three months apart. Those 2,500+ new governmental –six years!- posts are driving native politicians crazy! On the other hand, worldwide financial crisis caused, like any other country around the globe, a jobless situation, mostly in the real estate business. In the DR, it affected the explosive 15%+ growing rate (20042007) of real estate projects in Punta Cana, 120 miles east Santo Domingo, with 60% of the DR tourism industry. Punta Cana’s construction industry also take care of Haitian illegal immigrants by the thousands. To confront this situation, President Fernandez will be reactivating the El Coral Highway (US$300+ million), part of the money from Brazil, to join Santo Domingo –and the 3 international airports on its way- with Punta Cana and, the future American-Venezuelan Cisneros Family’s US$2 billion Tropicalia tourism humongous investment 50 miles north Punta Cana. With a historic 6+% growing rate estimate (IMF) for the next 10 years, the DR is at the center of the Caribbean with an all-year round 77°F average weather perfect for outdoors activities. The, named “sport island” (remember Dominican baseball players…) has six different ecosystems (third island

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in the world) gathering 10,000-feet peaks, 500 miles of first class beaches, deserts, a network of lakes, lagoon, ponds and rivers. Plus, five international airports, three ports, a first quality paved road network, 60,000 hotel rooms (its main economy engine), 35 golf courses (a dozen more on construction or planning) with three of them among the best 100 worldwide (Golf Digest Magazine, 2008) and thousand of Acres for high-class urban developments.

The Caribbean The southernmost U.S. frontier apart from Mexico, the Caribbean Basin, gathers more than 5,000 islands and 50 million inhabitants, plus, another 12 million of tourists every year, with a growing rate of 11% (Caribbean Tourism Organization). The DR accounts for 4 millions of visitors alone, half from North America. The competition for such a proposed Monster’s Caribbean hub could be Panama, although it is more prepared for Central America. Puerto Rico’s hub –now in deep financial problems, was built by the U.S. as an all-purpose testing ground during the sixties, yet even that it has been working as a well-organized system, it is far more expensive than the DR. Also, its major cities are highly insecure with an uprising crime rate. It is advisable, then, that you should consider the Caribbean as a whole 50+ million market of Monster drinks consumers, easily attacked from the Dominican Republic due to its competitive costs, even compared to Californian companies traditional Miami hub. The ever-present shortsighted U.S. management business practices when related to the Caribbean usually ended in their loss of clients in favor of European –or Asian- products! You need to remember that Europe still has an enormous influence in the Caribbean. Over the eastern islands, the very same Puerto Rico, Cuba –in the future- and even Central America or…Venezuela (amazingly similar to the DR), the presence of Dominican marketers is more welcome than Puerto Ricans (perceived more like second-citizen Americans) and, of course, Americans. Rich islanders like in Trinidad & Tobago (they got oil!) -by the way- with also a strong Motocross presence, travel to the DR to compete or do trail riding. Jamaicans, even…that specials, love to come to this other island to do trail riding –yet on mountain bikes- as well. Colombians, Guyanese… they’ve all being expose to legendary Dominican hospitality after 40 years of DR tourism. Drink assembling Monster drink formulas could be compared to pharmaceuticals’. Like the colas around the world, they alter slightly the formulas to fit better every country’s taste. In the DR, Coca Cola is sweeter than in the U.S. (research by the author in Atlanta, GA). Franchisers assemble their colas formulas using the less expensive local water, and of course sugar. Other examples are the cough syrups from U.S. pharmaceutical companies: they are sold as ‘over the counter’ cough medicine under registered trade marks yet partially assembled in the DR, but with all considerations to international patents due to DR CAFTA agreements.

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Thus, it is advisable to Monster drinks to consider bringing down to the DR their basic ingredients, cans and packaging paraphernalia and, deal with local companies the canning. Then selling and re-exporting…even to European countries. Less production costs mean more revenues. Other investments The Dominican Republic has developed a portfolio of incentive laws to direct foreign investments (DFI) such as Law 16-95, Retiree Law, Tourism Incentive Law 158-01, Free Trade Zone Law, Mining Law, Editorial Law… It also has a modern Business Law and, as it was said before, several free trade agreements and/or bilateral agreements with different countries. Some of the advantages to do business in the DR are an exchange ratio Dollar versus Peso of 36 to 1, an up-to-date banking system, a well-trained abundance of executive/technical personnel, mostly bilingual (thanks to 40 years of tourism) and the best communication network in the region. Besides, strategic geographic location –at the very center of the Caribbean: Miami in a 2-hour flight, Madrid in less than a 8-hour flight, even Moscow… in less than 9 hours. Foreign investments over the last 10 years poured more than US$15 billion in the country. That explains the healthy hotel & real estate industry, 500 free trade zone light manufacturing companies, and the like. All major worldwide corporations, including a lot from the U.S., have presence –directly or indirectly- in the Dominican Republic. Foreign investments, in an equalitarian treatment with locals, are also protected by international organizations such as World Bank’s MIGA, and others. Thus, it is again advisable to consider a portfolio of collateral investments. We recommend –among others: i) real estate for the second-house market (it will recover for 2011), ii) manufacturing of goods for the golf industry, iii) ethanol & biodiesel production, iv) high technology parts assembling, v) construction. Since this is an island… any marine-related business: from cruise ships dealership, light boat manufacturing…to sports, including yacht racing, fishing, diving, sailing… Scale-down business could be franchises, house maintenance, export/import, cargo and/or international financial services (due to a new free trade zone near of Santo Domingo), tour operator or TV/movie production.

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