Navigating International Waters: Keys to Success in Selling Overseas Market Advisory Series February 1, 2007

Today’s Speaker Alan Andrews Vice President and Manager PNC Global Trade Group and Equipment Finance Direct telephone : 412- 768-7662 Email : alan.andrews@pnc.com Alan serves as a business development manager in PNC Bank’s Global Trade Group. Based in Pittsburgh, he focuses on assisting PNC corporate customers in mitigating the varied risks in selling internationally. Alan has contributed significantly to PNC Bank being the most active user of U.S. Export-Import Bank programs for the past several years as well PNC being awarded the President’s Export Service Award and being selected in 2005 as the first bank to team up with the U.S. Commercial Service for a new initiative aimed at boosting exports by small and medium-sized U.S. businesses Alan has over twenty years of experience in trade finance. He has lived and traveled overseas and is proficient in Mandarin Chinese. He holds a Bachelor of Science Degree in Business Administration from Boston University and a Masters Degree in International Management from the American Graduate School of International Management (Thunderbird). Alan has been an active member of FCIB, an association of executives in Finance, Credit, and International Business, for many years. He has been an Advisory Council member and currently serves on FCIB’s Board of Directors. He is currently active in the Cleveland Foreign Credit Group, the International Club of the PACM in Pittsburgh, and is a Southwestern PA District Export Council Board member. .

Alan Andrews

Vice President and Manager PNC Global Trade Group and Equipment Finance

Direct telephone : 412- 768-7662

Email : alan.andrews@pnc.com

Alan serves as a business development manager in PNC Bank’s Global Trade Group. Based in Pittsburgh, he focuses on assisting PNC corporate customers in mitigating the varied risks in selling internationally. Alan has contributed significantly to PNC Bank being the most active user of U.S. Export-Import Bank programs for the past several years as well PNC being awarded the President’s Export Service Award and being selected in 2005 as the first bank to team up with the U.S. Commercial Service for a new initiative aimed at boosting exports by small and medium-sized U.S. businesses

Alan has over twenty years of experience in trade finance. He has lived and traveled overseas and is proficient in Mandarin Chinese.

He holds a Bachelor of Science Degree in Business Administration from Boston University and a Masters Degree in International Management from the American Graduate School of International Management (Thunderbird). Alan has been an active member of FCIB, an association of executives in Finance, Credit, and International Business, for many years. He has been an Advisory Council member and currently serves on FCIB’s Board of Directors. He is currently active in the Cleveland Foreign Credit Group, the International Club of the PACM in Pittsburgh, and is a Southwestern PA District Export Council Board member.

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Agenda The Middle Market Advisory Series Navigating International Waters: Keys to Success in Selling Overseas Introduction to PNC Reality Check on Exports Degree of Globalization Exercise 6 Winning Export Strategies Developing Your Own Growth Strategy

The Middle Market Advisory Series

Navigating International Waters:

Keys to Success in Selling Overseas

Introduction to PNC

Reality Check on Exports

Degree of Globalization Exercise

6 Winning Export Strategies

Developing Your Own Growth Strategy

PNC – A Diversified Financial Services Company PNC has a multi-state banking franchise along with specialized business that operate regionally, nationally and internationally

PNC has a multi-state banking franchise along with specialized business that operate regionally, nationally and internationally

Reality Check on Exports

Reality Check on Exports

Reality #1: GDP dependent on US Trade Total US Trade 1970 - $200 billion 1989 - $1 trillion 1995 - $1.6 trillion (21% of GDP) 2005 - $3 trillion (24% of GDP) Total World Trade 1989 - $3 trillion 1995 - $5 trillion 2005 - $11 trillion vs. 2015 projections for US: $5 trillion or 29% of GDP

Total US Trade

1970 - $200 billion

1989 - $1 trillion

1995 - $1.6 trillion (21% of GDP)

2005 - $3 trillion (24% of GDP)

Total World Trade

1989 - $3 trillion

1995 - $5 trillion

2005 - $11 trillion

Reality #2: U.S. Exports are Large and Growing U.S. is the largest exporter in the world at nearly $1.3 trillion/year 2001-2005 growth in U.S. exports of goods and services was 26% Source: World Trade Organization.

U.S. is the largest exporter in the world at nearly $1.3 trillion/year

2001-2005 growth in U.S. exports of goods and services was 26%

Reality #2: U.S. Exports are Large and Growing The U.S. continues to have strong competitive advantages in many industries Source: US Department of Commerce

The U.S. continues to have strong competitive advantages in many industries

Reality #3: World Exports are growing faster… World merchandise exports grew 68% from 2001 to 2005 (vs. 24% for the U.S.) World merchandise exports exceeded $11 trillion in 2005 Source: World Trade Organization.

World merchandise exports grew 68% from 2001 to 2005 (vs. 24% for the U.S.)

World merchandise exports exceeded $11 trillion in 2005

Reality #4: Today, only few U.S. companies take advantage of exporting opportunities… Only 4% of U.S. 5.7 million companies exported in 2004 Source: U.S. Department of Commerce, Bureau of the Census.

Only 4% of U.S. 5.7 million companies exported in 2004

…the opportunity for success is great! U.S. market is large and competitive. Local companies in most industries experience: Intense pricing pressures Buyer sophistication Changing market leaderships over time U.S. has been ranked #1 or #2 in global competitiveness every year from 1998 to 2005 by the World Economic Forum Local Competition in the U.S. Opportunity for U.S. companies

U.S. market is large and competitive.

Local companies in most industries experience:

Intense pricing pressures

Buyer sophistication

Changing market leaderships over time

U.S. has been ranked #1 or #2 in global competitiveness every year from 1998 to 2005 by the World Economic Forum

Degree of Globalization Exercise

Degree of Globalization Exercise

Degree of Globalization Purely domestic Limited foreign sales and/or inclusion of foreign suppliers Robust foreign sales and/or inclusion of foreign suppliers Foreign sales office(s), expanded global supply chain Foreign management office(s) Foreign operation(s)      

Polling Question: Where are you? Degree of Globalization Purely domestic Limited foreign sales Robust foreign sales Foreign sales office(s) Foreign management offices Full fledged foreign operations

Degree of Globalization

Purely domestic

Limited foreign sales

Robust foreign sales

Foreign sales office(s)

Foreign management offices

Full fledged foreign operations

Degree of Globalization—international banking needs Financing, Treasury Mgmt, Capital Markets +Letters of credit & other trade services, foreign exchange trades, international wire transfers, export working capital + Automated management of trade services, FX risk mgmt/ hedging, Canadian lockbox, buyer financing + In-country account services, global financial/ position information management, local collections + Global liquidity management tools, pooling/ netting services, centralized management of local small-value payments + Full array of global cash management, multinational financing       Purely domestic Limited foreign sales and/or inclusion of foreign suppliers Robust foreign sales and/or inclusion of foreign suppliers Foreign sales office(s), expanded global supply chain Foreign management office(s) Foreign operation(s)

Winning Export Strategies

6 Winning Strategies Know your buyer Investigate the market Introduce buyer financing programs to enhance and distinguish your product Price opportunistically in your buyer’s currency and hedge your risk Explore alternative ways to secure working capital to fulfill an overseas order Do your homework      

Know your buyer

Investigate the market

Introduce buyer financing programs to enhance and distinguish your product

Price opportunistically in your buyer’s currency and hedge your risk

Explore alternative ways to secure working capital to fulfill an overseas order

Do your homework

Exporter (Seller) Negotiate favorable payment terms Get paid as quickly Minimize risks Sell in US $ Limit banking fees Importer (Buyer) Negotiate favorable payment terms Delay payment Minimize risks Buy in local currency Limit financing and banking fees Know Your Buyer  Understand and evaluate your buyer’s objectives: Sales Agreement

Exporter (Seller)

Negotiate favorable payment terms

Get paid as quickly

Minimize risks

Sell in US $

Limit banking fees

Importer (Buyer)

Negotiate favorable payment terms

Delay payment

Minimize risks

Buy in local currency

Limit financing and banking fees

Pre-qualify your business partner Investigate the market Review the potential risks Review offering terms Evaluate the costs Minimize contract misunderstandings Know Your Buyer  Cost Benefit Analysis—make sure you get paid!

Pre-qualify your business partner

Investigate the market

Review the potential risks

Review offering terms

Evaluate the costs

Minimize contract misunderstandings

Know Your Buyer Ex-Im Bank Financing is an attractive option if over $250,000 Low Risk Buyer: Open Account Terms Documentary Collections (Acceptance) Medium Risk Buyer: Open Account Terms with Standby L/C or Export Credit Insurance Documentary Collections High Risk Buyer: Cash in Advance Confirmed Letter of Credit Letter of Credit Increasing Risk  Hedge risk with appropriate instruments

Low Risk Buyer:

Open Account Terms

Documentary Collections (Acceptance)

Medium Risk Buyer:

Open Account Terms with Standby L/C or Export Credit Insurance

Documentary Collections

High Risk Buyer:

Cash in Advance

Confirmed Letter of Credit

Letter of Credit

Investigate the market Source: US Department of Commerce 

Investigate the market Payments Geo-Political Regulatory Payment standardization with SEPA (Single European Payments Area) Direct corporate connectivity to SWIFT (MA-CUGs) Electronic payments dominate--open account settlement Central and Eastern European Cross-border bank consolidation continues New, stricter accounting standards such as IAS 39 Anti-money laundering screening (cf. OFAC) Europe 

Payment standardization with SEPA (Single European Payments Area)

Direct corporate connectivity to SWIFT (MA-CUGs)

Electronic payments dominate--open account settlement

Central and Eastern European

Cross-border bank consolidation continues

New, stricter accounting standards such as IAS 39

Anti-money laundering screening (cf. OFAC)

Investigate the market Payments Geo-Political Regulatory Payment systems and sophistication levels vary greatly Checks are very common Many exporters seek payment in US$ from emerging markets Primarily import markets (import letters of credit) Political risk and currency devaluation Trade deficit between the U.S. and China North Korea Restrictive regulations impede free funds movement No regional regulations to standardize payments and banking Asia 

Payment systems and sophistication levels vary greatly

Checks are very common

Many exporters seek payment in US$ from emerging markets

Primarily import markets (import letters of credit)

Political risk and currency devaluation

Trade deficit between the U.S. and China

North Korea

Restrictive regulations impede free funds movement

No regional regulations to standardize payments and banking

Investigate the market Payments Geo-Political Regulatory Checks primary payment type Most countries now have or are building ACH and inter-bank networks Eximbank buyer financing programs Sales largely done on a documentation collection basis Top banks in the region are owned by large international financial institutions History of political unrest and unstable currencies Banking and tax restrictions, foreign exchange controls, funds movement taxes No regional regulations to standardize payments and banking Latin America 

Checks primary payment type

Most countries now have or are building ACH and inter-bank networks

Eximbank buyer financing programs

Sales largely done on a documentation collection basis

Top banks in the region are owned by large international financial institutions

History of political unrest and unstable currencies

Banking and tax restrictions, foreign exchange controls, funds movement taxes

No regional regulations to standardize payments and banking

Investigate the market Payments Geo-Political Regulatory No float Truncation and Electronic Cheque Presentation Lockbox services are attractive for US companies Many US banks now offer Canadian cross border accounts NAFTA has simplified and reduced the cost of conducting business OFAC screening on cross-border ACH-payments Border controls Canada 

No float

Truncation and Electronic Cheque Presentation

Lockbox services are attractive for US companies

Many US banks now offer Canadian cross border accounts

NAFTA has simplified and reduced the cost of conducting business

OFAC screening on cross-border ACH-payments

Border controls

Situation Thar Technologies manufactures environmental friendly supercritical fluids technology. Expand into Asia and Central Europe Introduce Buyer Financing $1,000,000 – 5 yr. Loan to Thar’s Turkish buyer Eximbank Guaranteed Medium Term Program offered through Results Thar was able to expand into a new market, and beat out a European competitor Follow up loan for $2.1 million to one of Thar’s buyers in the Ukraine Solution PNC offered a 5-year $1.0 million loan to Thar’s Turkish buyer 

Situation

Thar Technologies manufactures environmental friendly supercritical fluids technology.

Expand into Asia and Central Europe

Results

Thar was able to expand into a new market, and beat out a European competitor

Follow up loan for $2.1 million to one of Thar’s buyers in the Ukraine

Solution

PNC offered a 5-year $1.0 million loan to Thar’s Turkish buyer

Price in your buyer’s currency and hedge your risk Why sell in the buyer’s currency: Beat the competition Provide better terms of sale Enhance customer service Managing the FX Risk Identify exposure Measure value-at-risk (VAR) Assess risk tolerance Develop Hedging Strategy Define corporate objectives Review hedging instruments Implement strategy Execute  FX risk reward analysis

Why sell in the buyer’s currency:

Beat the competition

Provide better terms of sale

Enhance customer service

Managing the FX Risk

Identify exposure

Measure value-at-risk (VAR)

Assess risk tolerance

Develop Hedging Strategy

Define corporate objectives

Review hedging instruments

Implement strategy

Execute

Situation Aquatech International is a designer and manufacturer of industrial water conditioning and waste-water treatment systems Opportunity to sell water purification equipment to Italy’s largest power company Aquatech $25,000,000 Exim Bank Guaranteed Working Capital Line Seek export working capital Results Less than 90 day turn around Recently closed a second working capital line for a project in Oman With the assistance of PNC, the Aquatech has doubled in size Solution PNC used its Fast Track lending authority by the U.S. Export-Import Bank for a $25 million guaranteed working capital loan 

Situation

Aquatech International is a designer and manufacturer of industrial water conditioning and waste-water treatment systems

Opportunity to sell water purification equipment to Italy’s largest power company

Results

Less than 90 day turn around

Recently closed a second working capital line for a project in Oman

With the assistance of PNC, the Aquatech has doubled in size

Solution

PNC used its Fast Track lending authority by the U.S. Export-Import Bank for a $25 million guaranteed working capital loan

Do your homework—work with specialists Visit the market US Commercial Service Bank with international expertise 

Visit the market

US Commercial Service

Bank with international expertise

Developing your own growth strategy Who can help?

Who can help? Start with your bank To implement many of export strategies, consider a banking partner with proven track record in: Consultative services Help you navigate within the regulations, clearing systems and documentation Support your efforts to sell in multiple currencies Web-based international transaction initiation and reporting Extensive international banking relationships Buyer financing and working capital options Continuous training

To implement many of export strategies, consider a banking partner with proven track record in:

Consultative services

Help you navigate within the regulations, clearing systems and documentation

Support your efforts to sell in multiple currencies

Web-based international transaction initiation and reporting

Extensive international banking relationships

Buyer financing and working capital options

Continuous training

Typical Letter of Credit Goods Ship. Doc. Goods Pres. Docs. Pay. Docs. Pay. Claim Pay. Pay. Pay. L/C L/C Reimb. Auth. L/C Appl. Sales Agreement Importer Exporter Issuing Bank Reimbursing Bank Advising/ Confirming Bank Carrier Carrier Ship. Doc. Goods Docs.

Who can help?--US Commercial Services The U.S. Commercial Service is the trade promotion arm of the International Trade Administration (Department of Commerce) Some services: helping exporters identify and qualify leads for potential buyers, distributors, joint venture partners, and licensees from both private and public sources. Access to an extensive network of commercial officers posted in countries that represent 95 percent of the market for U.S. products, and product, country, and industry specialists in major US centers. PNC is the first bank to enter into a public-private partnership with USCS By teaming up with USCS and other alliance partners (e.g. FedEx), we have assisted many export-ready businesses One stop website: www.export.gov Phone: 1-800-USA-Trad(e)

The U.S. Commercial Service is the trade promotion arm of the International Trade Administration (Department of Commerce)

Some services:

helping exporters identify and qualify leads for potential buyers, distributors, joint venture partners, and licensees from both private and public sources.

Access to an extensive network of commercial officers posted in countries that represent 95 percent of the market for U.S. products, and product, country, and industry specialists in major US centers.

PNC is the first bank to enter into a public-private partnership with USCS

By teaming up with USCS and other alliance partners (e.g. FedEx), we have assisted many export-ready businesses

One stop website: www.export.gov

Phone: 1-800-USA-Trad(e)

Who can help? Other Export Documentation Service Providers Logistics/transportation provider--FedEx The Export-Import Bank of the U.S – www.exim.gov US Chamber of Commerce– www.traderoots.org

Export Documentation Service Providers

Logistics/transportation provider--FedEx

The Export-Import Bank of the U.S – www.exim.gov

US Chamber of Commerce– www.traderoots.org

Recap of Winning Strategies Know your buyer Investigate the market Introduce buyer financing programs Price in your buyer’s currency and hedge Secure export working capital Do your homework and work with specialists      

Know your buyer

Investigate the market

Introduce buyer financing programs

Price in your buyer’s currency and hedge

Secure export working capital

Do your homework and work with specialists

Questions? Thank you for attending. National Export Strategy – www.trade.gov

Thank you for attending.

National Export Strategy – www.trade.gov

The PNC Middle Market Advisory Series PNC is the premier provider of financial services to middle market companies. We appreciate your participation. Thank you for attending! Alan Andrews Direct telephone : 412- 768-7662 Email : alan.andrews@pnc.com Please feel free to contact Alan with any questions.

Alan Andrews

Direct telephone : 412- 768-7662

Email : alan.andrews@pnc.com

Please feel free to contact Alan with any questions.