Navigating International Waters - Finance - Credit


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How to guide for dealing with International Business form our speaker at PNC Bank.

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  • Navigating International Waters - Finance - Credit

    1. 1. Navigating International Waters: Keys to Success in Selling Overseas Market Advisory Series February 1, 2007
    2. 2. Today’s Speaker <ul><li>Alan Andrews </li></ul><ul><li>Vice President and Manager PNC Global Trade Group and Equipment Finance </li></ul><ul><li>Direct telephone : 412- 768-7662 </li></ul><ul><li>Email : </li></ul><ul><li>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 </li></ul><ul><li>  </li></ul><ul><li>Alan has over twenty years of experience in trade finance. He has lived and traveled overseas and is proficient in Mandarin Chinese. </li></ul><ul><li>  </li></ul><ul><li>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. </li></ul><ul><li>. </li></ul>
    3. 3. Agenda <ul><li>The Middle Market Advisory Series </li></ul><ul><li>Navigating International Waters: </li></ul><ul><li>Keys to Success in Selling Overseas </li></ul><ul><li>Introduction to PNC </li></ul><ul><li>Reality Check on Exports </li></ul><ul><li>Degree of Globalization Exercise </li></ul><ul><li>6 Winning Export Strategies </li></ul><ul><li>Developing Your Own Growth Strategy </li></ul>
    4. 4. PNC – A Diversified Financial Services Company <ul><li>PNC has a multi-state banking franchise along with specialized business that operate regionally, nationally and internationally </li></ul>
    5. 5. <ul><li>Reality Check on Exports </li></ul>
    6. 6. Reality #1: GDP dependent on US Trade <ul><li>Total US Trade </li></ul><ul><ul><li>1970 - $200 billion </li></ul></ul><ul><ul><li>1989 - $1 trillion </li></ul></ul><ul><ul><li>1995 - $1.6 trillion (21% of GDP) </li></ul></ul><ul><ul><li>2005 - $3 trillion (24% of GDP) </li></ul></ul><ul><li>Total World Trade </li></ul><ul><ul><li>1989 - $3 trillion </li></ul></ul><ul><ul><li>1995 - $5 trillion </li></ul></ul><ul><ul><li>2005 - $11 trillion </li></ul></ul>vs. 2015 projections for US: $5 trillion or 29% of GDP
    7. 7. Reality #2: U.S. Exports are Large and Growing <ul><li>U.S. is the largest exporter in the world at nearly $1.3 trillion/year </li></ul><ul><li>2001-2005 growth in U.S. exports of goods and services was 26% </li></ul>Source: World Trade Organization.
    8. 8. Reality #2: U.S. Exports are Large and Growing <ul><li>The U.S. continues to have strong competitive advantages in many industries </li></ul>Source: US Department of Commerce
    9. 9. Reality #3: World Exports are growing faster… <ul><li>World merchandise exports grew 68% from 2001 to 2005 (vs. 24% for the U.S.) </li></ul><ul><li>World merchandise exports exceeded $11 trillion in 2005 </li></ul>Source: World Trade Organization.
    10. 10. Reality #4: Today, only few U.S. companies take advantage of exporting opportunities… <ul><li>Only 4% of U.S. 5.7 million companies exported in 2004 </li></ul>Source: U.S. Department of Commerce, Bureau of the Census.
    11. 11. …the opportunity for success is great! <ul><li>U.S. market is large and competitive. </li></ul><ul><li>Local companies in most industries experience: </li></ul><ul><ul><li>Intense pricing pressures </li></ul></ul><ul><ul><li>Buyer sophistication </li></ul></ul><ul><ul><li>Changing market leaderships over time </li></ul></ul><ul><li>U.S. has been ranked #1 or #2 in global competitiveness every year from 1998 to 2005 by the World Economic Forum </li></ul>Local Competition in the U.S. Opportunity for U.S. companies
    12. 12. <ul><li>Degree of Globalization Exercise </li></ul>
    13. 13. 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)            
    14. 14. Polling Question: Where are you? <ul><li>Degree of Globalization </li></ul><ul><li>Purely domestic </li></ul><ul><li>Limited foreign sales </li></ul><ul><li>Robust foreign sales </li></ul><ul><li>Foreign sales office(s) </li></ul><ul><li>Foreign management offices </li></ul><ul><li>Full fledged foreign operations </li></ul>
    15. 15. 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)
    16. 16. Winning Export Strategies
    17. 17. 6 Winning Strategies <ul><li>Know your buyer </li></ul><ul><li>Investigate the market </li></ul><ul><li>Introduce buyer financing programs to enhance and distinguish your product </li></ul><ul><li>Price opportunistically in your buyer’s currency and hedge your risk </li></ul><ul><li>Explore alternative ways to secure working capital to fulfill an overseas order </li></ul><ul><li>Do your homework </li></ul>           
    18. 18. <ul><li>Exporter (Seller) </li></ul><ul><ul><li>Negotiate favorable payment terms </li></ul></ul><ul><ul><li>Get paid as quickly </li></ul></ul><ul><ul><li>Minimize risks </li></ul></ul><ul><ul><li>Sell in US $ </li></ul></ul><ul><ul><li>Limit banking fees </li></ul></ul><ul><li>Importer (Buyer) </li></ul><ul><ul><li>Negotiate favorable payment terms </li></ul></ul><ul><ul><li>Delay payment </li></ul></ul><ul><ul><li>Minimize risks </li></ul></ul><ul><ul><li>Buy in local currency </li></ul></ul><ul><ul><li>Limit financing and banking fees </li></ul></ul>Know Your Buyer  Understand and evaluate your buyer’s objectives: Sales Agreement
    19. 19. <ul><li>Pre-qualify your business partner </li></ul><ul><li>Investigate the market </li></ul><ul><li>Review the potential risks </li></ul><ul><li>Review offering terms </li></ul><ul><li>Evaluate the costs </li></ul><ul><li>Minimize contract misunderstandings </li></ul>Know Your Buyer  Cost Benefit Analysis—make sure you get paid!
    20. 20. Know Your Buyer Ex-Im Bank Financing is an attractive option if over $250,000 <ul><li>Low Risk Buyer: </li></ul><ul><li>Open Account Terms </li></ul><ul><li>Documentary Collections (Acceptance) </li></ul><ul><li>Medium Risk Buyer: </li></ul><ul><li>Open Account Terms with Standby L/C or Export Credit Insurance </li></ul><ul><li>Documentary Collections </li></ul><ul><li>High Risk Buyer: </li></ul><ul><li>Cash in Advance </li></ul><ul><li>Confirmed Letter of Credit </li></ul><ul><li>Letter of Credit </li></ul>Increasing Risk  Hedge risk with appropriate instruments
    21. 21. Investigate the market Source: US Department of Commerce 
    22. 22. Investigate the market Payments Geo-Political Regulatory <ul><li>Payment standardization with SEPA (Single European Payments Area) </li></ul><ul><li>Direct corporate connectivity to SWIFT (MA-CUGs) </li></ul><ul><li>Electronic payments dominate--open account settlement </li></ul><ul><li>Central and Eastern European </li></ul><ul><li>Cross-border bank consolidation continues </li></ul><ul><li>New, stricter accounting standards such as IAS 39 </li></ul><ul><li>Anti-money laundering screening (cf. OFAC) </li></ul>Europe 
    23. 23. Investigate the market Payments Geo-Political Regulatory <ul><li>Payment systems and sophistication levels vary greatly </li></ul><ul><li>Checks are very common </li></ul><ul><li>Many exporters seek payment in US$ from emerging markets </li></ul><ul><li>Primarily import markets (import letters of credit) </li></ul><ul><li>Political risk and currency devaluation </li></ul><ul><li>Trade deficit between the U.S. and China </li></ul><ul><li>North Korea </li></ul><ul><li>Restrictive regulations impede free funds movement </li></ul><ul><li>No regional regulations to standardize payments and banking </li></ul>Asia 
    24. 24. Investigate the market Payments Geo-Political Regulatory <ul><li>Checks primary payment type </li></ul><ul><li>Most countries now have or are building ACH and inter-bank networks </li></ul><ul><li>Eximbank buyer financing programs </li></ul><ul><li>Sales largely done on a documentation collection basis </li></ul><ul><li>Top banks in the region are owned by large international financial institutions </li></ul><ul><li>History of political unrest and unstable currencies </li></ul><ul><li>Banking and tax restrictions, foreign exchange controls, funds movement taxes </li></ul><ul><li>No regional regulations to standardize payments and banking </li></ul>Latin America 
    25. 25. Investigate the market Payments Geo-Political Regulatory <ul><li>No float </li></ul><ul><li>Truncation and Electronic Cheque Presentation </li></ul><ul><li>Lockbox services are attractive for US companies </li></ul><ul><li>Many US banks now offer Canadian cross border accounts </li></ul><ul><li>NAFTA has simplified and reduced the cost of conducting business </li></ul><ul><li>OFAC screening on cross-border ACH-payments </li></ul><ul><li>Border controls </li></ul>Canada 
    26. 26. <ul><li>Situation </li></ul><ul><li>Thar Technologies manufactures environmental friendly supercritical fluids technology. </li></ul><ul><li>Expand into Asia and Central Europe </li></ul>Introduce Buyer Financing $1,000,000 – 5 yr. Loan to Thar’s Turkish buyer Eximbank Guaranteed Medium Term Program offered through <ul><li>Results </li></ul><ul><li>Thar was able to expand into a new market, and beat out a European competitor </li></ul><ul><li>Follow up loan for $2.1 million to one of Thar’s buyers in the Ukraine </li></ul><ul><li>Solution </li></ul><ul><li>PNC offered a 5-year $1.0 million loan to Thar’s Turkish buyer </li></ul>
    27. 27. Price in your buyer’s currency and hedge your risk <ul><li>Why sell in the buyer’s currency: </li></ul><ul><ul><li>Beat the competition </li></ul></ul><ul><ul><li>Provide better terms of sale </li></ul></ul><ul><ul><li>Enhance customer service </li></ul></ul><ul><li>Managing the FX Risk </li></ul><ul><ul><li>Identify exposure </li></ul></ul><ul><ul><li>Measure value-at-risk (VAR) </li></ul></ul><ul><ul><li>Assess risk tolerance </li></ul></ul><ul><li>Develop Hedging Strategy </li></ul><ul><ul><li>Define corporate objectives </li></ul></ul><ul><ul><li>Review hedging instruments </li></ul></ul><ul><ul><li>Implement strategy </li></ul></ul><ul><li>Execute </li></ul>   FX risk reward analysis
    28. 28. <ul><li>Situation </li></ul><ul><li>Aquatech International is a designer and manufacturer of industrial water conditioning and waste-water treatment systems </li></ul><ul><li>Opportunity to sell water purification equipment to Italy’s largest power company </li></ul>Aquatech $25,000,000 Exim Bank Guaranteed Working Capital Line Seek export working capital <ul><li>Results </li></ul><ul><li>Less than 90 day turn around </li></ul><ul><li>Recently closed a second working capital line for a project in Oman </li></ul><ul><li>With the assistance of PNC, the Aquatech has doubled in size </li></ul><ul><li>Solution </li></ul><ul><li>PNC used its Fast Track lending authority by the U.S. Export-Import Bank for a $25 million guaranteed working capital loan </li></ul>  
    29. 29. Do your homework—work with specialists <ul><ul><li>Visit the market </li></ul></ul><ul><ul><li>US Commercial Service </li></ul></ul><ul><ul><li>Bank with international expertise </li></ul></ul>  
    30. 30. Developing your own growth strategy Who can help?
    31. 31. Who can help? Start with your bank <ul><li>To implement many of export strategies, consider a banking partner with proven track record in: </li></ul><ul><ul><li>Consultative services </li></ul></ul><ul><ul><li>Help you navigate within the regulations, clearing systems and documentation </li></ul></ul><ul><ul><li>Support your efforts to sell in multiple currencies </li></ul></ul><ul><ul><li>Web-based international transaction initiation and reporting </li></ul></ul><ul><ul><li>Extensive international banking relationships </li></ul></ul><ul><ul><li>Buyer financing and working capital options </li></ul></ul><ul><ul><li>Continuous training </li></ul></ul>
    32. 32. 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.
    33. 33. Who can help?--US Commercial Services <ul><li>The U.S. Commercial Service is the trade promotion arm of the International Trade Administration (Department of Commerce) </li></ul><ul><li>Some services: </li></ul><ul><ul><li>helping exporters identify and qualify leads for potential buyers, distributors, joint venture partners, and licensees from both private and public sources. </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><li>PNC is the first bank to enter into a public-private partnership with USCS </li></ul><ul><li>By teaming up with USCS and other alliance partners (e.g. FedEx), we have assisted many export-ready businesses </li></ul><ul><li>One stop website: </li></ul><ul><li>Phone: 1-800-USA-Trad(e) </li></ul>
    34. 34. Who can help? Other <ul><li>Export Documentation Service Providers </li></ul><ul><li>Logistics/transportation provider--FedEx </li></ul><ul><li>The Export-Import Bank of the U.S – </li></ul><ul><li>US Chamber of Commerce– </li></ul>
    35. 35. Recap of Winning Strategies <ul><li>Know your buyer </li></ul><ul><li>Investigate the market </li></ul><ul><li>Introduce buyer financing programs </li></ul><ul><li>Price in your buyer’s currency and hedge </li></ul><ul><li>Secure export working capital </li></ul><ul><li>Do your homework and work with specialists </li></ul>           
    36. 36. Questions? <ul><li>Thank you for attending. </li></ul><ul><li>National Export Strategy – </li></ul>
    37. 37. 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! <ul><li>Alan Andrews </li></ul><ul><ul><li>Direct telephone : 412- 768-7662 </li></ul></ul><ul><ul><li>Email : </li></ul></ul><ul><li>Please feel free to contact Alan with any questions. </li></ul>