[Izzy]

The Dominican Business Model 101!



The formal and informal markets.

The Dominican Republic's internal economy (non-exports sector) can be divided into two parts.
One is the formal sector which by economic investment power, represents the majority of commercial tax revenues to state's GDII (IRS).

The other is the informal sector, which by population and practice, comprises the largest economic sector of the country.

To understand the internal economy of the Dominican Republic, one must be first fully aware that this is a developing economy. By all measures, this is an economy that's not matured or even operating to more than half of its own true latent potential.

One social sub-sector of the economy shows possible all the same traits of developed economies elsewhere in democratic countries: The middle Class.

The Middle Class of the Dominican Republic is not any different than what you'll find in traits common to middle class of the U.S.A. or the U.K. They are modern, have purchase power and overall represent the largest single marketable sub-sector of the internal economy. They are both represented equally in both the formal and informal sectors of the economy.

For now, let's pick this single sub-sector to better understand the actual Dominican Business Model in our debate...

[Izzy]

If you have a basic business background, then you'll know that there are two basic principles to run a successful business anywhere in the world: Expenses VS Profits! You want to stick to maximize profits and minimize expenses in order to have a successful business...


The DR business model is the same as the above basic principle, but then, how do you actually achieve that and what model of business allows for that in the Dominican economy?


For that we take to exploring the innards of the most popular and prevalent business of the Dominican Republic and possibly the most revealing of what model is best to work with here: The Colmado (bodega, convenience store, etc...).

Rent don't buy!

It's something that we are accustomed to hear and follow up on when we venture into any small to large business in the developed world. But, is this true for the Dominican Colmado and local business model it represents?

Facts are that Dominican RE is cheap firstly, location is a non-issue as any place is as good as the business it carries secondly and rent is a thorny issue which can see you in the streets, due to rent control modifiers not applying to commercial property in the country.

So, rent and don't buy is not really true or applicable for the Dominican business model, which is strongly suggestive elsewhere in the region and world.

So our Colmado is fully owned for in terms of RE and leasing terms.

Now we set upon the operational part of the business!

A mechanical scale hangs from the ceiling. A counter big enough to partition the client access area to that of the staff and goods. We have several refrigerators, utensils, lavatory, etc...

Then we have the shelves stocked with the goods for sale, inventory. We have the register and the common things you expect in the line of business like these in the country.

But wait! Didn't we just mention inventory?

How does this relates any different to operating a business model back home, just the same, no?

You estimated the costs, shelf life, demand and value of that inventory just as you do in the US bodega model, so what's there to say they are different models of business at all?

Sure the actual property is different by virtue of looks and development. The inventory also reflects the exotic location. The equipment and furnishings also, but all this is expected from different locations and cultures, right?

NOT!

You see in the US model, you can carry on the business basics as usual when it comes to inventory control and allocations, but in the Dominican Republic prices are not stable for long periods in most of the consumables you carry, nor is the price jumps within a margin you can work around with ease to process your next inventory refill.

You see, the soap bars you got for your inventory last week, and sold with a 100% markup for profit, just went up 125% for the next order to stock your now empty shelve. So even when you made a comfortable and nice profit of 125% for the complete inventory sold, your costs for the next order surpasses the costs of the inventory sold atop the profits you made and still need you to come up with an extra % to cover the new stock!

That's not only a frequent cost of doing business in the DR, but the standard operating procedure each week!

So how can a business model you so understand in USA, be so impossible to carry out here in the DR?

Your model starts to crumble just weeks after having invested into your new Colmado and things don't seem to let up on their rise of costs!

But that's not only inventory! Then we have that the energy costs also have risen along the gasoline spent to get your goods at supply points. The water bill went up!

So how can you survive the Dominican Republic economy using a fit model for all this?

Well, we call it the Dominican business model for a reason: It's made for the DR alone!

Above was just one example of the lowest and simplest type of business in the DR...

[Izzy]

The Colmado is a type of business that's present in the formal and informal sectors of the DR economy.

They pay taxes, but only a fixed amount each term, regardless of true and actual profits/sales made.
They don't pay taxes when they feel they can't stretch in order to cover said examples of the costs of running a business.

They serve to all sub-sectors of the economy and their largest client block is the middle class by all accounts and ease to find one close to you.

So how does the Colmado carries out their business in the DR? What's the business model they follow to keep open and profitable?

[Izzy]

I took the Colmado for one reason to break open the Dominican business model for all of you here:

It's the simplest and most basic of all types of business that can be said to mimic the business model used in the Dominican economy, up to the largest corporations!

[b3JOkwXL]

So how does the Colmado carries out their business in the DR? What's the business model they follow to keep open and profitable?

Well, some simply add drugs to their line of merchandise.

donP

[mazabotman]

Since you describe how any small mom 'n pop convenience store in the states, I suppose lesson #1 in the "Dominican business model" is cheating on taxes.

Oh, please, continue.

[Izzy]

With a little less than 10 million people for the whole country and 32% of that said population living at or below poverty level, the Dominican Republic's economic model is very inflexible and hard to implement foreign businesses' models upon it, which have been tried and successfully copied onto other markets.

For this I'll break down the model to the basics on this Colmado business!

We go back to inventory, a crucial element of all types of retail businesses around the world.

How does the Colmado owner deals with the market conditions present in our internal economy?

How can he remain open for business and still make a profit, when so many variables are strongly possible to diminish and even wipe out his income potential?

In a business model like the US and pretty much elsewhere, the basic principles dictate that you keep yourself exposed to a minimum of disruption of this type, by reducing the inventory to the minimum aspects that reflect the timeline to product's replenishing on the shelves first and foremost. That's how large suppliers of convenience stores like H. T. Hackney or McLane came about in those markets like the US.

But, in the DR this plays out differently! Prices go up on a moment's notice and suppliers are also unpredictable with their products.

How does the Colmado keeps in business then? That's where the Dominican Business Model comes into play at the most basic of levels in business!

Supply prices don't follow demand trends! The trends are fully controlled by the supply end on the end retail/services provider in the Dominican Business Model!

The model calls for a constant review of historical waypoints for each product or brand/manufacturing house or importer, in order to administer a floating price cushion. The retail price is not inflated but appreciated to reflect potential rises on costs that such waypoints indicate. To say that if you haven't notice, the Colmados are the first sign of when a product or brand is going to hike their prices, even days or weeks prior to the actual price hikes on the chain or their introduction.


Colmados are some sort of a prices early radar alarm for goods in the DR market!

So the model implications are to preempt the price cost rises VS the profit margins, instead of reacting to the event after the fact.

Now, how can this possibly be part of the major scale business model for the DR's sectors?

The facts are that just as the Colmado, the majority of business faces the same prospects in the DR economy the same, but with marked time delays between the sectors. But the effect nevertheless is the same for the entire spectrum from the Colmado to the brand clothes retailer in one of those new Malls in operation.

Unlike in your business model, the Dominican business model is pre-active real time and not post-active to trends.

You can accelerate or bring stability to a market, when you can control the shocks to the majority of business from big to small in that internal economy.

[Izzy]

Since you describe how any small mom 'n pop convenience store in the states, I suppose lesson #1 in the "Dominican business model" is cheating on taxes.

Oh, please, continue.

Certain sectors of the formal economy do operate under can't pay now, will pay later option. They simply don't pay the rated taxes and pay the penalties later for that (which are about always at reduced costs than most people realize here).

The DGII (IRS) allows this and tries NOT to force those business due to the implications of adding more burden to an already troubled business! The gov wants the business to pay the taxes on time, but if they can't they also want the business to stay open and keep people employed and the economy active.

This is unique to our system and possibly something other countries facing major economic troubles should allow on limited instances! It helps small business owners a lot and it shows!

The purpose of the gov is facilitate trade to grow the economy and regulate it. The purpose of the DGII is to collect taxes so that the gov can operate efficiently and focus on other problems that need attention. If the government allows the DGII to go after the business's neck for failing to pay taxes on time, and kills the business on the way, then the government itself is ruining the economy!

That's the reason why there's a big difference between failing to pay the taxes on time and tax evasion, where you hide assets from the DGII!

Tax evasion is criminally penalized, tax bills that go unpaid get amnesties to come clean and rejoin the tax paying business community anew.

[chelviweeme]

PICHARDO, why don't you seek a DR public office that requires lots of speaking? Lots of talk, very little useful info "to the point". Or in other words, lots of crust, very little pulp. "How does the Colmado keeps in business then? That's where the Dominican Business Model comes into play at the most basic of levels in business" - you have said this like 10 x in the last 2 pages of this thread. No real info, just lots of talk.

BUT, please go on ... hopefully we will learn some useful info & tricks in the next 10 pages or so that will come ...

[Izzy]

Well, some simply add drugs to their line of merchandise.

donP

I guess since you know so much of the Dominican business model, you should take over the floor now and explain it to all of us?

[Izzy]

PICHARDO, why don't you seek a DR public office that requires lots of speaking? Lots of talk, very little useful info "to the point". Or in other words, lots of crust, very little pulp. "How does the Colmado keeps in business then? That's where the Dominican Business Model comes into play at the most basic of levels in business" - you have said this like 10 x in the last 2 pages of this thread. No real info, just lots of talk.

BUT, please go on ... hopefully we will learn some useful info & tricks in the next 10 pages or so that will come ...

Agreed, I'll shut my mouth (fingers) here...

[EHjEjdqe]

If you have a basic business background, then you'll know that there are two basic principles to run a successful business anywhere in the world: Expenses VS Profits! You want to stick to maximize profits and minimize expenses in order to have a successful business...


The DR business model is the same as the above basic principle, but then, how do you actually achieve that and what model of business allows for that in the Dominican economy?


For that we take to exploring the innards of the most popular and prevalent business of the Dominican Republic and possibly the most revealing of what model is best to work with here: The Colmado (bodega, convenience store, etc...).

Rent don't buy!

It's something that we are accustomed to hear and follow up on when we venture into any small to large business in the developed world. But, is this true for the Dominican Colmado and local business model it represents?

Facts are that Dominican RE is cheap firstly, location is a non-issue as any place is as good as the business it carries secondly and rent is a thorny issue which can see you in the streets, due to rent control modifiers not applying to commercial property in the country.

So, rent and don't buy is not really true or applicable for the Dominican business model, which is strongly suggestive elsewhere in the region and world.

So our Colmado is fully owned for in terms of RE and leasing terms.

Now we set upon the operational part of the business!

A mechanical scale hangs from the ceiling. A counter big enough to partition the client access area to that of the staff and goods. We have several refrigerators, utensils, lavatory, etc...

Then we have the shelves stocked with the goods for sale, inventory. We have the register and the common things you expect in the line of business like these in the country.

But wait! Didn't we just mention inventory?

How does this relates any different to operating a business model back home, just the same, no?

You estimated the costs, shelf life, demand and value of that inventory just as you do in the US bodega model, so what's there to say they are different models of business at all?

Sure the actual property is different by virtue of looks and development. The inventory also reflects the exotic location. The equipment and furnishings also, but all this is expected from different locations and cultures, right?

NOT!

You see in the US model, you can carry on the business basics as usual when it comes to inventory control and allocations, but in the Dominican Republic prices are not stable for long periods in most of the consumables you carry, nor is the price jumps within a margin you can work around with ease to process your next inventory refill.

You see, the soap bars you got for your inventory last week, and sold with a 100% markup for profit, just went up 125% for the next order to stock your now empty shelve. So even when you made a comfortable and nice profit of 125% for the complete inventory sold, your costs for the next order surpasses the costs of the inventory sold atop the profits you made and still need you to come up with an extra % to cover the new stock!

That's not only a frequent cost of doing business in the DR, but the standard operating procedure each week!

So how can a business model you so understand in USA, be so impossible to carry out here in the DR?

Your model starts to crumble just weeks after having invested into your new Colmado and things don't seem to let up on their rise of costs!

But that's not only inventory! Then we have that the energy costs also have risen along the gasoline spent to get your goods at supply points. The water bill went up!

So how can you survive the Dominican Republic economy using a fit model for all this?

Well, we call it the Dominican business model for a reason: It's made for the DR alone!

Above was just one example of the lowest and simplest type of business in the DR...

But he forgot to mention that no one pays cash to the Colmado owner. Everyone gets written down on a scrap os paper, no account books at all, just varying sized scraps of paper. Then each Quincena your customers come in and pay for what they have charged.
Or one hopes that a significant majority comes in and pays.
Der Fish

[chelviweeme]

Agreed, I'll shut my mouth (fingers) here...

Don't get too teady-beady. WE ARE interested in that info that you want to share. Just please don't repeat the same thing over and over, or as my writing's professor said to me once, BE MORE CONCICE (I too somehow always managed to prepare simple term papers with 50+ pages).

[chelviweeme]

Certain sectors of the formal economy do operate under can't pay now, will pay later option. They simply don't pay the rated taxes and pay the penalties later for that (which are about always at reduced costs than most people realize here).

The DGII (IRS) allows this and tries NOT to force those business due to the implications of adding more burden to an already troubled business! The gov wants the business to pay the taxes on time, but if they can't they also want the business to stay open and keep people employed and the economy active.

This is unique to our system and possibly something other countries facing major economic troubles should allow on limited instances! It helps small business owners a lot and it shows!

The purpose of the gov is facilitate trade to grow the economy and regulate it. The purpose of the DGII is to collect taxes so that the gov can operate efficiently and focus on other problems that need attention. If the government allows the DGII to go after the business's neck for failing to pay taxes on time, and kills the business on the way, then the government itself is ruining the economy!

That's the reason why there's a big difference between failing to pay the taxes on time and tax evasion, where you hide assets from the DGII!

Tax evasion is criminally penalized, tax bills that go unpaid get amnesties to come clean and rejoin the tax paying business community anew.

For what it's worth, from what I have seen, this post is 100% on the mark.

[mazabotman]

If you ask Pichardo what time it is, he'll tell you how to build a clock.

I had a prof who used to have a big red rubber stamp and red inkpad on his desk. If he ever thought you were bullspitting or bloviating he'd !WHUMP! that stamp on your paper and you got an "F."

Genius is taking the complex and explaining it with concise brevity. Bullspit is taking the commonplace and creating complexity...

I specifically asked about the Dominican business model that created profits without revenue, like businesses in expensive retail mall space with a dearth of buying traffic. He's yet to answer that.

[monologue]

Buy a Finca

Sexy Lisa Douglas - Green Acres (Shower scene) - YouTube

[mazabotman]

Certain sectors of the formal economy do operate under can't pay now, will pay later option. They simply don't pay the rated taxes and pay the penalties later for that (which are about always at reduced costs than most people realize here).

The DGII (IRS) allows this and tries NOT to force those business due to the implications of adding more burden to an already troubled business! The gov wants the business to pay the taxes on time, but if they can't they also want the business to stay open and keep people employed and the economy active.

This is unique to our system and possibly something other countries facing major economic troubles should allow on limited instances! It helps small business owners a lot and it shows!

The purpose of the gov is facilitate trade to grow the economy and regulate it. The purpose of the DGII is to collect taxes so that the gov can operate efficiently and focus on other problems that need attention. If the government allows the DGII to go after the business's neck for failing to pay taxes on time, and kills the business on the way, then the government itself is ruining the economy!

That's the reason why there's a big difference between failing to pay the taxes on time and tax evasion, where you hide assets from the DGII!

Tax evasion is criminally penalized, tax bills that go unpaid get amnesties to come clean and rejoin the tax paying business community anew.

This wouldn't be a problem if the businesses were generating enough revenues. That has been my point.

And tax collectors in the US do the same, even on 940/941 and sales tax delinquencies. They cut businesses slack all the time, to a point. Unless, of course, they catch you using the $$$ for personal gain and not because of lowered revenues.

They won't, however, cut you any slack on the principle. Maybe, maybe a little on the penalties and interest.

They will lower the boom on fraud.

So, once again, you've shed NO light on this mysterious Dominican business model.

(BTW: you admit that tax collection can hurt the Dominican economy. Why, it seems like just yesterday where you waxed at length about the future of tax collection which will cause evasion to just vanish. Again, you want it both ways: the gubmint wants to help businesses with tax issues because aggressive enforcement hurts economic growth, but they will be implementing policies which will force the HUGE tax-free underground economy into the sunlight with aggressive collections.)

[Izzy]

This wouldn't be a problem if the businesses were generating enough revenues. That has been my point.

And tax collectors in the US do the same, even on 940/941 and sales tax delinquencies. They cut businesses slack all the time, to a point. Unless, of course, they catch you using the $$$ for personal gain and not because of lowered revenues.

They won't, however, cut you any slack on the principle. Maybe, maybe a little on the penalties and interest.

They will lower the boom on fraud.

So, once again, you've shed NO light on this mysterious Dominican business model.

(BTW: you admit that tax collection can hurt the Dominican economy. Why, it seems like just yesterday where you waxed at length about the future of tax collection which will cause evasion to just vanish. Again, you want it both ways: the gubmint wants to help businesses with tax issues because aggressive enforcement hurts economic growth, but they will be implementing policies which will force the HUGE tax-free underground economy into the sunlight with aggressive collections.)

No Robert! This doesn't happen because the businesses fail to generate enough revenues, but because the tax hike implied by the spike on costs, almost instantly eats well into the cushion on appreciated values some business can only afford to pre-set their goods to. These types of business don't have the same flexibility to cushion their inventory price index due to too much competition (think of three to four Colmados in the same block to follow up on the exampled business I picked upon to illustrate the DR model for you guys here), type of goods or if shelf life makes it impractical to attempt to.

As for tax issues? Nice try, but no. The IRS will not let you off because you claim things are tough and you fail to prove that it afflicts your ability to pay them. They will treat you the same as they do business that fail to pay on time!

If you guys took to learn a bit and didn't instantly apply your foreign first world knowledge on business to discredit on the spot, you would learn a lot about the Dominican business model at the heart of it all.

It's late, I need to eat something and walk a few before hitting the sack...

[mazabotman]

No Robert! This doesn't happen because the businesses fail to generate enough revenues, but because the tax hike implied by the spike on costs, almost instantly eats well into the cushion on appreciated values some business can only afford to pre-set their goods to. These types of business don't have the same flexibility to cushion their inventory price index due to too much competition (think of three to four Colmados in the same block to follow up on the exampled business I picked upon to illustrate the DR model for you guys here), type of goods or if shelf life makes it impractical to attempt to.

Pure 100% baloney.

Taxes are NOT PAID BY A BUSINESS!!! They are COLLECTED BY A BUSINESS!

If a business COLLECTS THE TAX BUT DOESN'T PAY THE STATE it's because the owner CHOSE to divert the funds to himself BECAUSE he didn't have enough revenue or cash capital reserve to cover his expenses!!!!!!!!!!!!!

That comes from LACK OF REVENUE!!!!!!!

If he didn't collect taxes in the first place and is now required to pay them to the state, he DISCOUNTED the product by the % of taxes to the customer; he STILL, by law, collected the taxes! If he didn't pay them and didn't divert the funds to himself

THAT COMES FROM LACK OF SUFFICIENT GROSS MARGIN TO COVER TAXES AND EXPENSES!

Debits and credits, Pichardo. That is what business LIVES on!

As for tax issues? Nice try, but no. The IRS will not let you off because you claim things are tough and you fail to prove that it afflicts your ability to pay them. They will treat you the same as they do business that fail to pay on time!

Dude, please, just STOP IT!!!!! You have NO idea how many businesses I bought because the owner got into tax problems and the doors were STILL open because the state (FL, PA, DE & NJ) cut them some slack because their AUDIT determined the owners did NOT direct $$$ toward themselves instead of paying taxes. Same with the Feds. I did this for both a public corporation as well as my OWN businesses.

It happened to me! My healthcare business exploded and I grew waaaaaay beyond the ability to pay current taxes with a huge pile of receivables collected in 90-150 days! Both FL as well as the Feds cut me a LOT of slack.

But let me make this caveat: if you are delinquent in taxes and it is determined you LIED to the auditors (either verbally or in withheld documents) they may lower the boom...at their discretion.

That is how the US system works.

Sheesh...there isn't one student in a business school that doesn't understand that Uncle Taxman is the creditor of LAST RESORT! Like the IMF!!!

If you guys took to learn a bit and didn't instantly apply your foreign first world knowledge on business to discredit on the spot, you would learn a lot about the Dominican business model at the heart of it all.

It's late, I need to eat something and walk a few before hitting the sack...

More baloney. Why do you keep this up?????

I actually believe you believe your reconbigulating ostalation transfigulator mind technique will convince people that there IS some mysterious "Dominican Business Model" that is DNA-specific...

[OWDavid]

Based on what I've learned here in graduate school the tax law is fairly vigorous and requires monthly reporting to II. Also, larger businesses or businesses that have lots of suppliers virtually guarantees that an accountant will need to be hired to keep the books in order. The Dominican tax law is structured around standard economics as taught anywhere else in the world.

However, this doesn't mean people aren't able to have two sets of books like in other places.

Back to the topic at hand - the Dominican business model - I would say it is based on generally on a start up with constraint free capital and minimizing costs and overhead to the maximum which generally means finding the cheapest labor and/or goods which sometimes means compromising the service or deliverable product. A smart businessman here who doesn't let a successful business go to his head and blow it on crap is able to save capital by fairly impressive amounts. I personally know of a few cases.