Selling to Brazil, Chile & Colombia- Toolkit for Success

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This joint presentation with Kegler Brown, JPMorgan Chase and the Ohio Department of Development educated attendees regarding the legal and financial considerations to be considered when doing business in Brazil, Chile and Colombia. Topics addressed include Mercosur, labor, finance, trade, tax, culture, politics and the regulatory environment in South America.

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  • On this slide, explain that there are three key issues and that to best address the group (small to medium size enterprises, looking to export their products from the US to BCC) we have organized the content of our presentation into this format. First we will cover Methods of Entry . . . , 2nd we will address issues surrounding impor/export . . ., and 3rd we will discuss Agency distributorships and labor issues.
  • When you think of how to enter Brazil, Colombia or Chile, what do you think about? What questions jump into your mind. I generally begin with asking why? Is it because your competitor entered? Is it because an article in the WSJ said Brazil is not the 6th largest economy in the world, the largest in Latin America and the middle class is growing at an explosive rate? Is it because your organizations’ core competencies can be leveraged to do xyz? All of those could be great reasons, but the way that you approach the information we are about to discuss, and the decisions you make will vary greatly based on the answer to that question.
  • Simply a framework to discus macro level factors, how you evaluate the factors will differ based on your organizations industry, strategy, competencies and goals; however, I try to pose a general question that you can ask yourself to begin the analysis and help identify what additional information and factors you should research
  • -list of several available organizational structures, take a moment on this slide to discuss the importance of research, culture and selecting the right local partner. Mention that we will likely hear several stories related to this topic during the panel discussion later today. Provide a list of some research tools
  • -you may decide that you need an actual legal presence in Brazil, Colombia or Chile to execute your desired entry method. Although, each country offers several legal entities, these are the most common that are employed by foreigners when creating a subsidiary for the purpose of importation
  • -list of several available organizational structures
  • This is a very generic process, the way that you import will vary greatly based on your individual circumstances. If you decide it is best to register as an importer, then you will need to allocate time to navigate the that process. In Brazil: Siscomex registration, RADAR registration (ordinary or simple), licensing with various ministries (by product)Colombia: Chamber of Commerce registration, obtain tax registration, locate tariff sub-regime
  • There are several social contribution, pay roll taxes, health benefit and pension taxes also required to be paid in each country
  • Mention US Chile FTA, since 2004 (it is also referenced on the first free trade agreements “basics” slide noted as a YES under double tax treaty)
  • In Chile, managers may be terminated without cause in certain circumstances – source: PLC
  • Selling to Brazil, Chile & Colombia- Toolkit for Success

    1. 1. Doing Business in Brazil, Chile & Colombia Presented by: Vania Zulatto, Director of TVZ International- Brazil Verónica Medina, COO of TradeChile S.A.- Chile & Colombia
    2. 2. Brazil in the Americas
    3. 3. Brazil in Brief • 8.5 mi square km • 193 million people (approx 85% urban) • Language: Portuguese • Labor force: 110 million people in 2010
    4. 4. Political Environment • President Dilma Rousseff • Took office in 2011 • 30 years of political stability
    5. 5. Why Brazil? • Strategic location • Approximately 50% of South America’s GDP • Political and economic stability • Favorable exchange rate: U$1.00 = R$ 1,75 • Largest and most diversified industrial country in Latin America
    6. 6. Economy • 6th largest economy in the world • Solid Banking System • Inflation under control: 4.4% estimated for 2012 • GDP: US$ 2.3 trillion • GDP per capita: US$ 8,207.00 • Growth Rate: 4% estimated for 2012 • Brazil part of a world-wide phenomenon of a swelling middle class • In Brazil the economy is largely domestically oriented and consumer demand drives wage income.
    7. 7. World Cup 2014 and Olympic Games 2016 Business Opportunities • Brazil - World Soccer Cup in 2014 • 12 cities do host the World Cup • Investments needed in airport infrastructure • Hotels • Public transportation • Stadium building / refurbishing • Communication • Rio de Janeiro - first-ever Olympic Games in South America in August-September 2016 • These events will generate numerous trade and investment opportunities in several areas
    8. 8. Market Opportunities • State-of-the-art equipment and technologies • Agriculture Equipment • Aerospace and Aviation • Airports • Information Technologies • Telecommunications • Transportation • Electrical Power • Oil and Gas • Safety and Security • Environmental Technologies • Mining • Medical Equipment • Architecture/ Engineering/Construction
    9. 9. Brazil Import and Export Statistics 2011 - (US$) Brazil Imports Statistics Commodity: Total World 226,243,408,907 1. United States 33,962,382,474 2. China 32,788,424,507 3. Argentina 16,906,099,483 4. Germany 15,212,859,089 5. Korea South 10,096,972,279 Brazil Exports Statistics Commodity: Total World 256,039,574,768 1. China 44,314,595,336 2. United States 25,804,628,156 3. Argentina 22,709,344,431 4. Netherlands 13,639,692,908 5. Japan 9,473,095,520
    10. 10. Source: Ministério do Desenvolvimento Brazilian Imports – 2011 Imports by Use Categories - % Share
    11. 11. Market Challenges Advantages • Growing consumer market • Diversified/sophisticated industry • Geographical proximity / US • Brazilians receptive to US culture/products • Favorable exchange rate • High import tariffs (0-15%) • Informal economy • Burdensome regulations • Slow/bureaucratic customs system • European /Asian competition
    12. 12. How to Enter the Market • Agents & Distributors • Licensing Agreements • Joint Ventures • Local Office • Government Sales
    13. 13. Strategies for Success in Brazil • keep in touch and informed on the market, THE TIME IS NOW! • take advantage of the favorable exchange rate. • visit the market (Major Trade Shows/Trade Missions) • learn local business practices • reestablish contact with former clients • personal relationships are important • be flexible and innovative with your negotiations • Meet partners face to face • Be fast on your follow-up / give support to your rep • Provide after sales and technical assistance • Translate your catalogs into Portuguese • Be patient • Try to understand the complex tax regime
    14. 14. Contact Us! Obrigada! Thank You! Ohio Department of Development Global Markets Division (614) 466-5017 Vania Zulatto São Paulo, SP - Brazil (55 11) 3384-9051 vzulatto@tvzinternational.com.br www.tvzinternational.com.br
    15. 15. Copyright 2012© TradeChile Chile and Colombia: the Places to Be!
    16. 16. Copyright 2012© TradeChile  Area: 293,000 m2  Population – 17.2 M (Growth rate: 1.02%)  Language: Spanish  Capital: Santiago 6.5 M  Other Urban Centers:  Valparaiso 1M  Concepcion 1M  Workforce - 7.2 M (~38.7% women)  Life expectancy – 79.2 yrs Chile at a Glance
    17. 17. Copyright 2012© TradeChile Why Chile? 1. Highly competitive, dynamic and globally integrated economy: among the highest growth rate economies in the world 2. Institutional and financial strength: low country risk 3. Tax friendly economy: Chile's corporate income tax rate is 17%, one of the lowest corporate income tax rates worldwide 4. High transparency: #1 in Latin America, 21st place among 174 countries worldwide 5. Great business environment and economic freedom: #1 in Latin America, 10th place among 174 countries worldwide 6. Highly skilled and competitive human resources: labor costs in Chile are competitive as compared to the USA and European countries. 7. Excellent transport infrastructure and connectivity to the world
    18. 18. Copyright 2012© TradeChile And what about Colombia?  Area: 1,147,748 m2  Population – 47.5 M (Growth rate: 1.377%)  Language: Spanish  Capital: Bogotá 6.8 M  Other Urban Centers:  Medellin 2.2 M  Cali 2.1 M  Workforce - 18.9 M  Life expectancy – 78.5 yrs
    19. 19. Copyright 2012© TradeChile Why Colombia? 1. Excellent economic supported perfomance: GDP per capita has doubled in the last six years (US$2,803.95 in 2004, US$6,273.37 in 2010) 2. Attractive domestic market: 47.5 million inhabitants, fourth in Latin America and the second largest Spanish-speaking country in the world. 3. Strategic location: international hub, center of 5 hourly zones 4. Public commitment with investment: second in Latin America under terms of personal safety and suitable protection of private property. 5. Qualified workforce: second most available qualified workforce in South America (IMD, Switzerland); most productive (PriceWaterHouseCoopers 2009) 6. Good quality of life and flexible culture
    20. 20. Copyright 2012© TradeChile Political background  Colombia, a presidential representative democratic republic, one of the oldest in Latin America Juan Manuel Santos, Colombia´s president since 7th August 2010  Colombia Primero (Colombia First), a liberal party leading the country  Chile embraced a successful democratic system in 1981, the most transparent in Latin America Sebastián Piñera, elected Chile´s president on 17th January 2010 Coalición por el Cambio (Coalition for Change), the right-wing alliance in power
    21. 21. Copyright 2012© TradeChile Country Facts *PPP = Purchasing Power Parity Chile Colombia GDP growth 2011 (est.) 5.9% 4.6% GDP growth 2012 (est.) 4.9% 4.5% GDP (PPP*) US$276.05 billion US$460.05 billion GDP per capita (PPP*) US$15,866 US$9,970.6 Population 17.2 million 47.5 million Inflation 2012 (est.) 3.2% 3.1% Unemployment rate 2011 7.1% 11.5% Total trade 2010 US$118.51 billion US$76.5 billion Trade balance 2010 +US$10.05 billion +US$3.98 billion Main trade partners United States, China, Japan, Argentina, Brasil United States, China, European Union, Mexico Imports from USA US$9.25 billion (25.5%) US$11.81 billion (21.77%)
    22. 22. Copyright 2012© TradeChile Country Ratings & RankingsChile Colombia S&P 2011 A+ BBB- Fitch 2011 A+ BB+ Moody's 2011 Aa3 Ba1 Global Competitiveness Index 2011-2012 (out of 133 countries) World Economic Forum 31st (#1 in Latin America) 68th Doing Business 2012 (out of 183 countries) World Bank 39th (+2 from 2011) 42th (+5 from 2011) Number of days for starting a business 9 days 26 days Cost to import (US$ per container) 795 2,830 Enforcing contracts 67th 480 days 149th 1,346 days
    23. 23. Copyright 2012© TradeChile Global Competitiveness Index* 2011-2012 * World Economic Forum
    24. 24. Copyright 2012© TradeChile Sustained Economic Growth (GDP rate)
    25. 25. Copyright 2012© TradeChile Declining Poverty Rates (as percentage of population)
    26. 26. Copyright 2012© TradeChile Inflation Comparison Chile and Colombia have had the lowest inflation rates among the major LA economies Source: Business Monitor International 2012
    27. 27. Copyright 2012© TradeChile Chile and Colombia, open economies to the world Chile enjoys Free Trade Agreements with 58 countries and numerous Double Taxation Agreements including Canada and USA.  Duty-free access to 86% of the world’s GDP; 4.2B inhabitants 1st SA country to join OECD (2010) Colombia has recently ratified a FTA with the United States, in addition to those already signed with other countries in the region. Access to 1.3B inhabitants
    28. 28. Copyright 2012© TradeChile Healthcare Mining  Safety and security  Consumer-Oriented products for the retail sector Business Opportunities Agriculture machinery & Equipment Construction Energy Food processing & packaging Franchising
    29. 29. Copyright 2012© TradeChile Business Opportunities Oil & Gas Machinery & Svcs Plastic Materials and Resins Telecom equipment & Svcs Information Technology Safety & Security Automotive parts and accessories  Electrical power systems Travel and Tourism Building materials Food beverage processing / Packaging equipment  Medical Equipment  Pollution control equipment
    30. 30. Copyright 2012© TradeChile Recommendations  Have a clear objective and projected vision  Visit and be committed to the market  Define what format of business activities would be viable for the Chilean/Colombian market; it differs by company and product type  Define type of product/service with value-added characteristics that could be of interest for Chilean/Colombian clients  In the case of Chile, it is a very price-sensitive market. Develop a thorough and aggressive marketing campaign and pricing strategy appropriate for the local market  Be proactive in communications and follow-up activities with interested companies  Provide strong support to the local counterpart (ie. after sales) Oxford Univ. study in 2009 showed that every US$1 spent on international travel, companies gain US$3.60 in profit
    31. 31. Copyright 2012© TradeChile Verónica Medina COO TradeChile S.A. Tel.: +(56-2) 2442435 Fax.: +(56-2) 2442436 E-mail: vmedina@tradechile.cl
    32. 32. www.keglerbrownGlobal.com @KeglerGlobal Luis Alcalde & David M. Wilson, Kegler Brown PREPARING FOR SUCCESS IN BRAZIL, COLOMBIA & CHILE Methods of Entry Import / Export Agency, Distributorships & Labor
    33. 33. 3 Issues that can Make or Break Your Latin America Business Strategy Agency, Distributorships & Labor -Creation -Termination 3. Labor Methods of Entry -Strategic Considerations -Available Organizational & Entity Structures -Features 1. Entry Method & Organizational Structure Import/Export -Process -Taxes -Free Trade Zones & Treaties 2. Regulation & Tax Methods of Entry Import / Export Agency, Distributorships & Labor
    34. 34. Entry Method & Organizational Structure  Strategic Considerations  Available Organizational & Entity Structures  Features Methods of Entry Import / Export Agency, Distributorships & Labor
    35. 35. Entry Method & Organizational Structure  Political  The ability of government to respond to and NOT create political risk  Economic  Macro trends, Currency risks  Social  The ability of stakeholders to identify vulnerabilities & apply pressure to the company to change its behavior  Technological  Infrastructure, IP Protection, Government Incentives P E S T What are the Political, Economic, Social and Technological reasons to enter Brazil, Colombia or Chile? export, manufacture, distribute, design . . . Methods of Entry Import / Export Agency, Distributorships & Labor
    36. 36. Entry Method & Organizational Structure P E S T Methods of Entry Import / Export Agency, Distributorships & Labor 0 10 20 30 40 50 60 70 80 90 100 PDI IDV MAS UAI LTO Chile Chile 0 10 20 30 40 50 60 70 80 PDI IDV MAS UAI LTO Brazil Brazil  Geert Hofstede’s Cultural Dimensions  Power Distance  Individualism  Masculinity  Uncertainty Avoidance  Long-Term Orientation  www.geert-hofstede.com 0 10 20 30 40 50 60 70 80 90 PDI IDV MAS UAI LTO Colombia Colombia
    37. 37. 0 10 20 30 40 50 60 70 80 90 PDI IDV MAS UAI LTO Latin America Latin America Entry Method & Organizational Structure P E S T  Geert Hofstede’s Cultural Dimensions  Power Distance  Individualism  Masculinity  Uncertainty Avoidance  Long-Term Orientation  www.geert-hofstede.com Methods of Entry Import / Export Agency, Distributorships & Labor 0 10 20 30 40 50 60 70 80 90 100 PDI IDV MAS UAI LTO US Brazil Colombia Chile Latin America 0 10 20 30 40 50 60 70 80 PDI IDV MAS UAI LTO Brazil Brazil
    38. 38. Entry Method & Organizational Structure  Direct sale from US using freight forwarder  Non-Equity Alliance  Distribution agreements  Licensing agreements  Franchising agreements  Supply agreements  Joint venture  Equity Alliance  Joint venture  Joint company  Wholly Owned Subsidiaries  Greenfield operations Methods of Entry Import / Export Agency, Distributorships & Labor May also require a small wholly owned subsidiary holding company presence in country
    39. 39. Entry Method & Organizational Structure  Joint Venture  May be created with or without a full joint company  Contractual joint ventures between subsidiary company and a partner company  Low cost entry and exit to new markets, industries and industry segments  Opportunity for learning  Provides a “contractual” framework for operations without generating many issues associated with an agency relationship  Enables each party to take full responsibility for its contribution to the venture while minimizing the issues associated with exclusivity  Enables low cost entry and exit  May later evolve into full equity alliance Methods of Entry Import / Export Agency, Distributorships & Labor
    40. 40. Entry Method & Organizational Structure Methods of Entry Import / Export Agency, Distributorships & Labor Similar to US LLC Similar to US Corporation Sociedade Limitada (LTDA) Sociedade Anônima (SA) Sociedad por Acciones Simplificada (SAS) Sociedad Anónima (SA) Sociedades de Responsabilidad Limitada (SRL) Sociedades Anónima (SA)
    41. 41. Entry Method & Organizational Structure Methods of Entry Import / Export Agency, Distributorships & Labor -No restrictions on foreign ownership* -No minimum or maximum capital requirements* -Partner & parent company liability limited to capital contributions -Product Liability: Yes -No restrictions on foreign ownership* -No minimum or maximum capital requirements* -Partner and parent company liability is limited to capital contributions ** In insolvency PC is responsible for subsidiary liabilities if PC caused the subsidiary’s liquidation -Product Liability: Yes -No restrictions on foreign ownership* -No minimum or maximum capital requirements* -Partner and parent company liability is limited to capital contributions -Product Liability: Yes LTDA / SAS / SRL & SA Common Features
    42. 42. Import / Export  Import Export Process  Associated Taxes & Duties  Free Trade Zones & Treaties Methods of Entry Import / Export Agency, Distributorships & Labor
    43. 43. Import / Export Methods of Entry Import / Export Agency, Distributorships & Labor 17 Days -Document Preparation (8 days) -Customs clearance and technical control (4 days) -Ports and terminal handling (3 days) -Inland transportation and handling (2 days) 13 Days -Document Preparation (6 days) -Customs clearance and technical control (2 days) -Ports and terminal handling (2 days) -Inland transportation and handling (3 days) 20 Days -Document Preparation (12 days) -Customs clearance and technical control (2 days) -Ports and terminal handling (4 days) -Inland transportation and handling (2 days) General Import Process & Timeline Source: World Bank, Doing Business 2012 Importing a container of goods to Brazil requires 8 documents, takes 17 days and costs $2,275 Importing a container of goods to Colombia requires 6 documents, takes 13 days and costs $2,830 Importing a container of goods to Chile requires 6 documents, takes 20 days and costs $795 Baseline: -medium size business -ship to economy’s largest business city -private, LLC -non hazardous goods -dry cargo, 20-foot full container * All US exports are also subject to US export controls *
    44. 44. Import / Export Methods of Entry Import / Export Agency, Distributorships & Labor Associated Taxes & Duties II-Import Duty varies based on product & Country of origin (CNM, HS) 0-35% Import Duty 0-5% raw materials, 20% finished consumer goods, 35% autos and luxury items 0-35% 12% avg Import Duty 6% IPI-Industrial Product Tax Varies based on product (CNM) 20% avg VAT 16% VAT 19% PIS-Social Integration Program Contribution 1.65% COFINS-Social Security Financing Contribution 7.6% ICMS-State Tax SP 18% 7– 25%
    45. 45. Import / Export Methods of Entry Import / Export Agency, Distributorships & Labor -Importer must register with Brazilian Ministry of Development, Industry and Commerce -No payment for the product may be made by a Brazilian entity -Exemption from II (Import Duty) -No license required for samples & promotional products outside of prior license list -Maximum of 10 samples -Max value of US $50 per sample -If over 10 samples but less than US $1,000 value packing must state “merchandize with no commercial value" -Subject to applicable custom duties -Under the terms of the US / Chile FTA -Professional equipment necessary for carrying out business may receive temporary duty-free admission -This is intended for display or demonstration of commercial samples -Temporary admission of food samples require additional consideration Samples / Tradeshow exceptions
    46. 46. Import / Export Methods of Entry Import / Export Agency, Distributorships & Labor Additional Tax Considerations Corporate Tax Plus 10% on taxable income over R$240,000 15% Corporate Tax 33% Corporate Tax 17% Transfer Price Considerations Yes Transfer Price Considerations Yes Transfer Price Considerations Yes On average, firms make 9 tax payments per year and spend 2600 hours per year filing, preparing and paying taxes and pay total taxes amounting to 22.4% of profit On average, firms make 9 tax payments per year and spend 193 hours per year filing, preparing and paying taxes and pay total taxes amounting to 18.9% of profit On average, firms make 9 tax payments per year and spend 316 hours per year filing, preparing and paying taxes and pay total taxes amounting to 18% of profit Baseline: -medium size business -began operations 1/1/2009 -taxes & mandatory contributions are measured at all levels of government -a range of standard deductions & exemptions is also factored Source: World Bank, Doing Business 2012
    47. 47. Import / Export Methods of Entry Import / Export Agency, Distributorships & Labor Free Trade Agreements and Memberships Double Tax Treaties US Colombia Chile NO NO YES Double Tax Treaties US Brazil Chile YES NO YES Double Tax Treaties US Brazil Colombia YES YES YES Membership Mercosur (Argentina, Uruguay, Paraguay, Bolivia, Chile, Colombia, Ecuador, Peru) Latin American Integration Association LAIA (Argentina, Brazil, Mexico, Chile, Paraguay, Uruguay, El Salvador, Costa Rica, Guatemala, Nicaragua, Honduras, Cuba) Membership Mercosur Latin American Integration Association LAIA Andean Community of Nations CAN (Ecuador, Bolivia, Venezuela – Peru withdrew) G-3 (Mexico, Venezuela) Membership Mercosur Latin American Integration Association LAIA
    48. 48. Import / Export Methods of Entry Import / Export Agency, Distributorships & Labor -Manaus ZFM -Areas de livre Comercio ALC (4) -Amazonia Ocidental -Permanent Free Trade Zones (23) -Special Enterprise Free Trade Zones (40) -Transitory Free Trade Zones -Inquique -Punta Arenas Free Trade Zones: The basics Reduced/Exempte d II, PIS & COFINS Reduced/Exempt ed II & VAT Reduced/Exempt ed II & VAT
    49. 49. Import / Export  US / Colombia Free Trade Agreement  18 to 24 months to implement  Will Reduce tariffs on 80% of US imports  Other tariffs reduced over 10 years  Colombia to implement new domestic legislation in a number of areas:  sales agents, intellectual property, provide greater access to several sectors in financial services and telecommunications investments Methods of Entry Import / Export Agency, Distributorships & Labor
    50. 50. Agency, Distributorships & Labor  Agency, Distributorships & Labor  Creation  Termination Methods of Entry Import / Export Agency, Distributorships & Labor
    51. 51. Agency, Distributorships & Labor Methods of Entry Import / Export Agency, Distributorships & Labor General Labor Considerations -Labor law is rooted deeply -Written contract not required, employment relationship may be implied -Termination without cause will likely require provision of wages, holiday compensation and other benefits
    52. 52. Agency, Distributorships & Labor Methods of Entry Import / Export Agency, Distributorships & Labor Creation: -If written contract does not exist, one may be implied -Contract should contain limitations, termination events, territory, products or goods, commission structure and time of payment -Exclusivity is not presumed Termination: Upon termination, without cause, agent entitled to: -1/12 of the total compensation during the time of agency -If a specific agency term , then the average monthly compensation for half of the months remaining in the contract. If $3,000 per month and 12 months into a 36 month contract, then agent would receive $3,000 x 12 = $36,000 -Expenses related to promoting the brand and opening the market Creation: -Written registered contract subject to Colombian law -Contract should contain limitations, termination events & territory Termination: -Upon termination agent entitled to 1/12 of the average commission of the last three years -Without cause termination agent entitled to damages for opening market & promoting product Creation: -In Chile, agency, distribution and franchise agreements are not specifically regulated. However, case law has provided some useful guidance -Their validity, binding nature and enforceability has been recognized by the civil and anti-trust courts -Relationship is contractual Termination: -Chilean civil and anti-trust courts provide precedents for termination and have established circumstances in which they are null and void -Relationship is contractual -Contract subject to anti-trust, consumer and general commercial contract law principals Sales Agent / Distributor Creation & Termination
    53. 53. www.keglerbrownGlobal.com @KeglerGlobal Luis Alcalde & David M. Wilson, Kegler Brown PREPARING FOR SUCCESS IN BRAZIL, COLOMBIA & CHILE Methods of Entry Import / Export Agency, Distributorships & Labor
    54. 54. Additional Sources  Doing Business 2012, Doing Business in a More Transparent World, World Bank Report, October 20, 2011  UBS Investment Research: Emerging Economic Focus, UBS, August 29, 2011  A Closer Look at Brazil’s Credit Boom, Deutsche Bank EM Special Publication, July 22, 2011  Anchoring, De-Anchoring, Re-Anchoring, Bradesco Corretora Economics BBI Equity Research, September 6, 2011  Economic Outlook: Brazil, BBVA, Third Quarter 2011  Brazil Auctions Rights to Airport, WSJ, August 23, 2011  The Geopolitics of Brazil: An Emergent Power’s Struggle with Geography, STRATFOR, July 14, 2011  The Aging World, Ned Davis Research Inc, July 21, 2011  Japanese Dump Real Funds at Fastest Pace Since Earthquake: Brazil Credit, Bloomberg, September, 30, 2011  First they went for the currency, now for the land, The Economist, September 24, 2011  Gaining & Sustaining Competitive Advantage Third Edition, Jay B. Barney, 2007  Privatization and the Distribution of Assets and Income in Brazil, Economic Reform Project: Global Policy Program, July, 2000
    55. 55. STRICTLYPRIVATEANDCONFIDENTIAL © 2010 J.P.Morgan Chase and Co. All rights reserved. Financing Your Future in Brazil, Colombia and Chile JPMorgan Chase Bank, N.A. Member FDIC
    56. 56. © 2010 J.P.Morgan Chase and Co. All rights reserved. 58 STRICTLYPRIVATEANDCONFIDENTIAL This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of J.P. Morgan. The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. J.P. Morgan’s opinions and estimates constitute J.P. Morgan’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. J.P. Morgan makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects. Notwithstanding anything herein to the contrary, the Company and each of its employees, representatives or other agents may disclose to any and all persons, without limitation of any kind, the U.S. federal and state income tax treatment and the U.S. federal and state income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Company relating to such tax treatment and tax structure insofar as such treatment and/or structure relates to a U.S. federal or state income tax strategy provided to the Company by J.P. Morgan. J.P. Morgan’s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or price target, to a subject company as consideration or inducement for the receipt of business or for compensation. J.P. Morgan also prohibits its research analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors. IRS Circular 230 Disclosure: J.P. Morgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone not affiliated with J.P. Morgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties. J.P. Morgan is a marketing name for investment banking businesses of J.P. Morgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities Inc., J.P. Morgan plc, J.P. Morgan Securities Ltd. and the appropriately licensed subsidiaries of J.P. Morgan Chase & Co. in Asia-Pacific, and lending, derivatives and other commercial banking activities are performed by J.P. Morgan Chase Bank, N.A. J.P. Morgan deal team members may be employees of any of the foregoing entities. This presentation does not constitute a commitment by any J.P. Morgan entity to underwrite, subscribe for or place any securities or to extend or arrange credit or to provide any other services.
    57. 57. © 2010 J.P.Morgan Chase and Co. All rights reserved. 59 STRICTLYPRIVATEANDCONFIDENTIAL Trade Factoids and Notes November 2011 Trade Figures: Bureau of Economic Analysis of the United States Department of Commerce  Exports of goods and services over the last twelve months totaled $2.089 trillion, which is 32.64 percent above the level of exports in 2009. Over the last twelve months, exports have been growing at an annualized rate of 15.9 percent when compared to 2009, a pace greater than the 15 percent required to double exports by 2015.  Over the last twelve months, among the major export markets (i.e., markets with at least $6 billion in annual imports of U.S. goods), the countries with the largest annualized increase in U.S. goods purchases, when compared to 2009, occurred in Turkey (45.4 percent), Panama (40.6 percent), Honduras (37.0 percent), Argentina (33.4 percent), Hong Kong (32.9 percent), Peru (30.7 percent), Chile (29.2 percent), Brazil (29.1 percent), South Africa (28.7 percent), and Thailand (27.7 percent).
    58. 58. © 2010 J.P.Morgan Chase and Co. All rights reserved. 60 STRICTLYPRIVATEANDCONFIDENTIAL Economic Climate – It All Swirls Together Recent Trade Environment  Current credit environment has resulted in liquidity and balance sheet constraints  Market consolidation and reshaping in the current environment has limited the number of lending institutions willing to lend at attractive rates  Risk mitigation options such as distribution and insurance are reflecting the market volatility and uncertainty limiting the hedging availability  Due to market uncertainty and instability, we have seen an increase in demand for risk mitigation instruments such as guarantees and confirmations as well as for cost efficient transactions What We’re Seeing  Issue – Capital goods buyers are struggling to raise capital in the debt market due to liquidity constraints and increase in cost of funds, which consequently impacts their ability to either source new goods or perform under their payment obligations.  Solution – Buyers and Suppliers are working together with Export Credit Agencies and Lending Institutions to enhance the credit risk by shifting it to sovereign risk, in order to access cost efficient capital and longer repayment terms.  By Product - Increased demand for US Ex-Im and Export Credit Agency financing in the market
    59. 59. © 2010 J.P.Morgan Chase and Co. All rights reserved. 61 STRICTLYPRIVATEANDCONFIDENTIAL J.P. Morgan in Latin America  Full branch presence in Brazil and Mexico.  More than 100 years of operation in Mexico and 60 years in Brazil  Brazil in-country capabilities launched in 2009, including a local language Brazilian Internet banking platform  Over 1,000 employees currently in Latin America  Global Credit - USD & local currency revolving credit, term loans & overdrafts, as complying with in-country regulations  Treasury services - foreign & local currency accounts, payments and receipts,  J.P. Morgan ACCESSSM - Web-based Global eBanking Channel  Foreign exchange – spot, forward, non-deliverable forward, swaps, options, electronic FX platforms  Trade finance – import & export letters of credit, structured trade, bank guarantee, supply chain finance  #1 Latin America Research Team – Institutional Investor, 2010  Best Investment Bank – LatinFinance, 2010  Best Debt House in Latin America – Euromoney, 2010 Latin America at a glance Product Suite What makes us different? How we are focusing our investments  Technology: A single global seamless system for improved product linkages and standardizations, new virtual accounts and state-of-the-art liquidity processing  New branches: 2012: Argentina and Chile ; 2013: Colombia  New capabilities: Upgrading our systems and expanding our product offering in Brazil and Mexico. 2011 & 2012: Network expansion into Peru, Uruguay, Costa Rica, El Salvador, Trinidad & Tobago, Jamaica, and Barbados. Buenos Aires Sao Paulo Santiago Lima Caracas Bogota Mexico City Monterrey Rio de Janeiro Branch office Representative office DISCUSSIONMATERIALS
    60. 60. © 2010 J.P.Morgan Chase and Co. All rights reserved. 62 STRICTLYPRIVATEANDCONFIDENTIAL Access to Capital and Borrowing Costs Brazil Chile Colombia USA Overnight Rate 10.5 5% 3.25% 0.25%  It’s important to note that the borrowing cost of an individual company depends on the nature of financing, tenor, collateral quality, etc. Hence there may be high variation among different companies - even in same country  When discussing the supplier's financing cost in general, financiers tend to address the medium tier  When financing their receivables, companies in these markets could pursue local ECA (Export Credit Agency) coverage when available, and the cost for that coverage is subject to the buyer's credit rating, which is an additional cost (generally 50-100bps) on top of the above illustrated borrowing costs
    61. 61. © 2010 J.P.Morgan Chase and Co. All rights reserved. 63 STRICTLYPRIVATEANDCONFIDENTIAL Global Trade Finance – What’s Top of Mind Global Trade Finance Should:  Integrate seamlessly with cash and liquidity processes to increase the efficiency of treasury operations  Employ a broad range of settlement, risk mitigation and financing tools and solutions related to the commercial transaction and flow of goods  Recognize that individual requirements differ. Therefore in order to select the right mix of tools and solutions, demand a consultative approach from your provider(s)
    62. 62. © 2010 J.P.Morgan Chase and Co. All rights reserved. 64 STRICTLYPRIVATEANDCONFIDENTIAL Global Trade Finance – Tools and Solutions Classic Trade Solutions  Imports  Letters of credit (LC)  Documentary collections  Exports  Letters of credit  Documentary collections  Standby letters of credit (SBLC)  Bank guarantees Specialized Trade Solutions  Supply chain finance  Purchase order management (open account) Structured Trade Solutions  Receivable and payable financing  Export Credit Agency (ECA) backed structured trade: Ex-Im Bank in the USA  Pre-import/export financing structures  Private credit insurance and political risk insurance (PRI)  Financing sales of capital equipment with terms greater than one year  Issuance of standby letters of credit to support bid, performance and payment bonds  Financing of export-related accounts receivable and inventory
    63. 63. © 2010 J.P.Morgan Chase and Co. All rights reserved. 65 STRICTLYPRIVATEANDCONFIDENTIAL Trade Cycle FinancingExport Finance Life Cycle Shipment: Shipping Documents Title Transfer Pre- Shipment: Negotiating the Sale and Terms of Payment Arranging Working Capital Financing Post-Shipment: Transacting the Payment Financing the Receivable Financing the Buyer Working Capital Financing Bid & Performance Standby L/Cs Export Letters of Credit Non-LC Solutions Ex-Im Bank or SBA Working Capital Guaranteed Loan Program Foreign Buyer Financing Letters of Credit and Bankers Acceptance Financing (generally, up to 180 days) Non-LC Solutions Documentary Collections and TA Financing A/R Credit Insurance Discounting BAs and Foreign A/R Ex-Im Bank: Direct Buyer Financing
    64. 64. © 2010 J.P.Morgan Chase and Co. All rights reserved. 66 STRICTLYPRIVATEANDCONFIDENTIAL Classic Trade Solution - Documentary Letter of Credit Letter of Credit (LC) Characteristics  Offers the most protection to the SELLER  Three independent “agreements” underline a letter of credit  between BUYER and SELLER (their contract)  between Applicant and Issuing Bank (application and reimbursement agreement)  between Issuing Bank and Beneficiary (the LC)  Banks deal in documents only. BUYER’s recourse for problems with goods is to the contract with the SELLER  Documents presented under an LC must comply with its terms and conditions, otherwise there is no obligation to honor LETTEROFCREDITCYCLE
    65. 65. © 2010 J.P.Morgan Chase and Co. All rights reserved. 67 STRICTLYPRIVATEANDCONFIDENTIAL Documentary Letter of Credit: a tool to provide short term finance to your Buyer – Overview  Buyer has requested extended payment terms of 90 days from date of shipment  Seller has countered that they will not offer such terms on Open Account basis, but would consider if Buyer provides acceptable LC and agrees to absorb the associated additional costs of financing  Seller talks with their bank, to obtain indicative pricing for 3 key credit/finance driven fees associated with this arrangement:  Confirmation fee  Acceptance commission  Discount charges  Buyer’s bank issues the LC  Seller’s bank is the Advising and Confirming Bank  LC is payable via a Time Draft to be drawn at 90 days from date of Ocean Bill of Lading LETTEROFCREDIT
    66. 66. © 2010 J.P.Morgan Chase and Co. All rights reserved. 68 STRICTLYPRIVATEANDCONFIDENTIAL  Seller ships and presents documents to their bank, requesting that the Accepted Draft be discounted.  Documents are examined and found to be in compliance with the LC  Time Draft is Accepted under the LC, creating a Bankers Acceptance  Seller’s bank discounts the Bankers Acceptance, depositing funds to the account of the Seller  Seller’s bank collects the full amount due under the Bankers Acceptance from the Issuing Bank at maturity  Illustrative Fees: $300,000 sale to Chile at 90 days date of shipment  Confirmation fee 2.0% per annum. LC expires 90 days from date of issuance: $1500  Acceptance commission 2.5% per annum. Documents presented and Bankers Acceptance is created10 days after shipment, leaving 80 days left until the payment due date: $1667  Discount charges 90 day LIBOR + 2%. Bankers Acceptance is discounted with 80 days left to maturity: $1940  Total “financing” costs: $5107. 1.7% of the face value of the sale, or 6.8% if you multiply the 90 day cost by 4, to express it as an annualized or 360 day cost Documentary Letter of Credit: a tool to provide short term finance to your Buyer – The Numbers LETTEROFCREDIT
    67. 67. © 2010 J.P.Morgan Chase and Co. All rights reserved. 69 STRICTLYPRIVATEANDCONFIDENTIAL Access to Solutions – What is “Bankable”? ■ In a recent export finance seminar, Mike Howard, Regional Director of the Ex-Im Bank, made the very important statement: Ex-Im’s programs are not designed to make bad deals look good. ■ During this most recent financial recession, there has been much attention paid to credit quality as well as compliance (OFAC, Patriot Act and Know Your Customer, for example). ■ When you’re seeking to talk with a commercial bank regarding financing to support your global trade activity, you’ll need to present a solid case. ■ A business plan and 2 to 3 years of financial statements are a start. ■ Arrange a meeting with a commercial banker at your financial institution and explain your complete scenario – not just the single transaction, but how that transaction fits into your company’s overall business and business plan. ■ Be prepared to tell your story a couple of times, because export finance will almost always involve not only your domestic banker but also the international specialist(s) at that bank who will work with the banker.
    68. 68. © 2010 J.P.Morgan Chase and Co. All rights reserved. 70 STRICTLYPRIVATEANDCONFIDENTIAL Structured Trade Solution - Export-Import Bank  The Export-Import Bank of the United States (Ex-Im Bank) is the official export credit agency of the United States. Ex-Im Bank's mission is to assist in financing the export of U.S. goods and services to international markets.  The agency assists exporters by guaranteeing term financing to creditworthy international buyers, both private and public sector, for purchases of U.S. goods and services.  Ex-Im Bank does not compete with private sector lenders but provides export financing products that fill gaps in trade financing. They assume credit and country risks that the private sector is unable or unwilling to accept. They also help to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters.  Product suite includes working capital guarantees (pre-export financing); export credit insurance; and loan guarantees and direct loans (buyer financing). No transaction is too large or too small. On average, 85% of transactions directly benefit U.S. small businesses.  Ex-Im Bank approved $32.7 billion in total authorizations in FY 2011 -- an all-time Ex-Im record. This total includes more than $6 billion directly supporting small-business export sales -- also an Ex-Im record. Ex- Im Bank's total authorizations are supporting an estimated $41 billion in U.S. export sales and approximately 290,000 American jobs in communities across the country.
    69. 69. © 2010 J.P.Morgan Chase and Co. All rights reserved. 71 STRICTLYPRIVATEANDCONFIDENTIAL Ex-Im Bank EWCG Program Benefits – Expansion Of Borrowing Base Asset Based Facility WCGP Collateral Amount Advance Collateral Advanc e Collateral Exportable Inventory Raw Materials $ 200,000 20% $ 40,000 75% $ 150,000 WIP $ 200,000 0% $ 0.00 75% $ 150,000 Finished Goods $ 600,000 50% $300,000 75% $ 450,000 Subtotal $1,000,000 $340,000 $ 750,000 Foreign Accounts Receivable (A/R) Open Account $ 400,000 0% $ 0.00 90% $ 360,000 L/C Backed A/R $ 600,000 75% $420,000 90% $ 540,000 Subtotal $1,000,000 $420,000 $ 900,000 Total Borrowing Base $760,000 $1,650,000
    70. 70. © 2010 J.P.Morgan Chase and Co. All rights reserved. 72 STRICTLYPRIVATEANDCONFIDENTIAL Structured Trade Finance – Protecting Your Accounts Receivable THE ONLY UNINSURED ASSET  One of the most vulnerable to a loss  More likely to be affected by business cycles  Provides the cash flow (lifeblood) of a business  Represents permanent investment  High cost to maintain (funded through bank borrowings and cost of delinquencies) Senior Executives Cash Land & Buildings Mach & Equip Inventories Accounts Receivable
    71. 71. © 2010 J.P.Morgan Chase and Co. All rights reserved. 73 STRICTLYPRIVATEANDCONFIDENTIAL Short-Term Export Credit Insurance WHAT: Commercial Risk of Default: Insolvency and Protracted Default Country/Political Risk: Debt Moratorium, Trade Embargo, License Cancellations etc. WHY: Provides coverage against the unforeseen and unexpected Export receivables are usually the riskiest portion of the current asset portfolio yet it is the only one that is unprotected WHERE: The US Government’s Official Export Credit Agency: Ex-Im Bank The Private Sector: Filling the “niches” and shortfalls in the programs of the ECA’s. Commercially oriented insurance programs WHEN: When you want to mitigate the risk of loss and/or cap it When you want to meet or beat the competition When you want to tap new sources of financing for your company and your buyers
    72. 72. © 2010 J.P.Morgan Chase and Co. All rights reserved. 74 STRICTLYPRIVATEANDCONFIDENTIAL Summary – Global Trade Finance Key Challenges ■ Arranging financing: for you, your suppliers, your customers ■ Navigating regulations: U.S. and foreign ■ Managing counterparty risk: suppliers and customers ■ Controlling and optimizing cash: reducing DSO and extending DPO ■ Accessing expertise: local market knowledge, best practices Contact Martha I Gabrielse, Vice President JP Morgan Chase Bank, NA 616-771-7410 martha.i.gabrielse@jpmchase.com

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