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Exporting to India: Strategies for Success


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This morning, Kegler Brown hosted a packed room for its “Exporting to India: Strategies for Success” seminar in partnership with JPMorgan Chase and the Ohio Department of Development. The half-day event also featured insights from Prem Behl, managing director of India’s Ohio Office, international business students from the University of Findlay, and a panel of practical experts on the Indian market, comprising providers of both goods and services. Presenters and attendees discussed financial strategies for success with Martha Gabrielse, director of global trade finance for JPMorgan Chase, and best practices in legal intelligence with Kegler Brown’s Asia-Pacific Team Leader, Vinita Mehra and its Global Team Leader, Martijn Steger. Also in attendance were local appointed and elected officials, business leaders from across Ohio, and previous winners of the Ohio Governor’s e-Award for Excellence in Exporting.

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Exporting to India: Strategies for Success

  1. 1. 1
  2. 2. DOING BUSINESS IN INDIA Prem Behl Managing Director Ohio India Office 2
  3. 3. INDEX 1. India: Country Profile -Geographical Profile…………………………………………………………………….04 -Demographic Profile…………………………………………………………………….08 -Political Profile…………………………………………………………………………….10 -Economic Profile………………………………………………………………………….11 2. Key Sectors & Market Opportunities a. Aerospace & defense……………………………………………………………….20 b. Automotive …………………………………………………………………………….24 c. Heath Sciences…………………………………………………………………………28 d. Power (Cleantech & Utilities)……………………………………………………32 3. India-US Trade…………………………………………………..36 4. Conclusion: Doing Business in India…………………..42 3
  5. 5. Geographical Profile• Total Area : 3.3 million sq. km.• World‟s 7th largest nation• 28 states and 7 union territories• Bordering countries: China Nepal, Bhutan, to the north, Afghanistan and Pakistan to the north-west, Myanmar and Bangladesh to the east and Sri Lanka to the south. 5
  6. 6. Geographical ProfileClimate Broadly classified as tropical monsoon. The country has four seasons-summer (March-June), monsoon(June-September), post-monsoon (October-November), winter (December-February)Natural Coal (fourth largest reserves in the world),resources manganese, bauxite, iron ore, mica, chromites, diamond, limestone, titanium ore, natural gas, petroleum, and arable land 6
  7. 7. Geographical ProfileFlora and More than 47,000 species of flora and faunafauna and more than 89,000 species of fauna are found hereMajor Ganga, Yamuna, Brahmaputra, Godavari,rivers Krishna, Cauvery, Narmada, TaptiCoastline The coastline comprises of 7,517 km encircling the mainland, the Andaman, Nicobar and Lakshadweep islands. 7
  8. 8. Geographical Profile Transportation Railways 108,706 km Roadways 4,200,000 Km Waterways 14,500 km Number of airports 454 8
  9. 9. Demographic ProfilePopulation 1.2 billion (urban:30%, rural: 70%) Worlds 2nd most populous nationPopulation 1.6% per annumgrowth rateBirth rate 20.97 (births/1,000 population)Death rate 7.48 (deaths/1,000 population) 9
  10. 10. Demographic ProfileLife expectancy 66.8 yearsSex ratio 940 females per 1,000 malesLiteracy rate 74.04%(male: 82.1%, female: 65.5%)Languages Hindi is the official language of India. Apart from Hindi, there are 21 official languages in the country.Religions Hinduism, Islam, Christianity and Sikhism are the four main religions in India. Other religions are Buddhism, Jainism, Judaism and Zoroastrianism. 10
  11. 11. Political Profile• India is a secular state and the largest democracy in the world with a parliamentary form of government.• The President of India is Smt. Pratibha Patil• Currently, the Government of India is led by the United Progressive Alliance (UPA) under Prime Minister Dr. Manmohan Singh. Government of India Legislative Executive Judiciary Rajya Supreme Sabha President Court (Upper House) Vice High Courts President Lok Sabha (Lower Prime District House) Minister Courts 11
  12. 12. Economic ProfileEconomic reforms began in1991. Today, the Indianeconomy is characterized by:• Liberalized foreign investment and trade policy.• Significant role being played by the private sector and deregulation. 12
  13. 13. Economic Profile • India has grown to become a trillion dollar economy : - Self-sufficient agricultural sector. - Diversified industrial base. - Stable financial and services sector. 13
  14. 14. Economic Profile• The Economy of India is: - 9th largest in the world by nominal GDP $1.846 trillion - 3rd largest in PPP terms at $4.469 trillion• GDP has been growing at an average rate of 8.6% for the last 5 years.• The countrys per capita GDP : -Nominal was $1,527 -PPP was $3,703 in 2011, making it a lower-middle income economy. 14
  15. 15. Economic ProfileDomestic consumption fuelling economic growth:• India has been and continues to be relatively insulated from external shocks due to its strong domestic consumption pattern• Consequently, India was relatively unaffected by the global recession in 2009, recording a GDP growth rate of 6.8% 15
  16. 16. Economic ProfileDomestic consumption fuelling economic growth:•Increasing urbanization and modern technologyhave brought about a remarkable change in thelifestyles and consumption pattern of Indians.•Private domestic consumption accounts for morethan 50% of the country‟s GDP and is one of the keyfactors driving overseas investments in the country. 16
  17. 17. Economic Profile Indias GDP is 8.5% for FY11 and is projected to be 8.7% for FY12 17
  18. 18. Economic ProfileFDI in India:• India is the second-most attractive destination forFDI (after China) in the world. Source: UNCTAD‟sWorld Investment Prospects Survey 2010-2012 31.5% 18
  19. 19. Economic Profile• Mauritius has been the largest source ofFDI inflows into India for many years. 19
  20. 20. Market Opportunities in IndiaKEY SECTORS 20
  21. 21. Aerospace and DefenseSector Overview:•India is the world‟s 9th largest civil aviation market in theworld and ranks 4th in domestic passenger volumes (45.3million)•India‟s national budget for 2011-12 pegged the defenseoutlays at US$ 36.54 billion. Of this capital expenditure,which primarily caters to acquisition of defense hardwareand modernization requirements of defense services,accounts for US$ 15.38 billion. 21
  22. 22. Aerospace and DefenseSector Overview:•The Indian military is expected to spend roughlyaround US$ 80 billion over the next four to fiveyears.•It ranks among the top 10 countries in the worldin terms of military expenditure.•India is one of the largest users and importers ofconventional defense equipment. 22
  23. 23. Aerospace and DefenseForeign direct investment:The policy for foreign direct investment (FDI) inthe defense sector is up to 100% for Indianprivate sector participation, with FDI permissibleup to 26%, both subject to licensing and GoIapproval. 23
  24. 24. Aerospace and DefenseOutlook:Aerospace and Defense Industry growth isdriven by factors:• Progressive policy changes initiated by the Government of India (GoI) to modernize and develop its aerospace and defense industry• Cost advantages• Talent base• IT competitiveness 24
  25. 25. AutomotiveSector Overview:• India is the world‟s largest three wheeler, second-largest two-wheeler and seventh largest car market inthe world.• The Indian automobile industry is estimated to have atotal turnover of US$ 73 billion for the year 2010-2011.•In 2010-2011 the total number of vehiclesmanufactured in India were: 17,916,035.•Exports of vehicles have grown at a CAGR of 25% overthe period 2007–11. 25
  26. 26. AutomotiveSector Overview:•India proximity to the south-east Asian and Africanmarkets makes it an ideal location for small vehiclemanufacturing.• India ranks fifteenth in the world in availability ofengineers and scientists.•The cost of manpower is also 20%–40% cheaper thancounterparts in America.•Automotive OEMs, tier-I suppliers are viewing India as asourcing base with more than 35 International PurchasingOffice in the country operated by various multinationalplayers and component suppliers, to source components. 26
  27. 27. AutomotiveForeign direct investment:•FDI of up to 100% is allowed under the automaticroute.•200% weighted deduction on R&D expenditure.•Most state governments offer additional incentives tovehicle manufacturers, in order to encourage them toset up manufacturing units in their respective states. 27
  28. 28. AutomotiveOutlook:•India is the second-fastest growing vehicle market in the world:-Primarily due to the rising personal disposable income and agrowing middle class.-The number of households in the middle income group is expected torise to 170 million by 2015 providing immense scope for growth inthe passenger car density, which is currently 11 per 1000 people-The increasing working population, favorable government policiesand availability of low cost finance were the key drivers of domesticmarket growth.-India is poised to become one of the top five vehicle producingnations. - By 2020, vehicle production is set to treble from 2009 levels and the size of the component sector is set to grow from US$ 30 to US$ 110 billion. 28
  29. 29. Heath SciencesSector Overview:•The Indian life sciences industry has evolvedtremendously, with pharmaceutical, biotechnology andhealth care domains driving growth in the sector.• The growth of the country‟s healthcare sector in therecent years is due to: - Large population - Evolving patient demographics - Increasing healthcare expenditure -Growing urbanization - Increasing disposable income -Private sector participation 29
  30. 30. Heath SciencesSector Overview:• India is the 3rd-largest pharmaceutical market in the world in terms of volume and 14th in terms of value.• The domestic pharmaceutical market size is estimated at US$ 12.76 billion in 2010 and is expected to grow at a CAGR of 9.5% till 2015.• Indian biotechnology sector was valued at US$ 4 billion in 2010- 11.• The Contract Research and Manufacturing Services(CRAMS) sector is valued approximately at US$ 7.6 billion in 2011-12 and has grown at a CAGR of 47.2% from 2007 to 2012• The Indian medical equipment and supplies market in 2010 was estimated at US$ 3.6 billion and is estimated to reach US$6.41 billion by 2014 at a CAGR of 15.5% 30
  31. 31. Heath SciencesOutlook:The key factors contributing to the growth of the Indian healthcare market are:• Rise in the number of middle class households with increasing levels of disposable income• Demand from the urban middle class for better healthcare services• Changing disease patterns: It is estimated that by 2012, 50 percent of the spending on in-patient beds would be on lifestyle related diseases associated with the increasing levels of urbanization 31
  32. 32. Heath SciencesOutlook:• Substantial demand from high quality and specialty healthcare from tier II and tier III cities.• Increase in Government spending on healthcare: The Union Government has allocated US$ 5.6 billion in 2011-12 on healthcare, an increase 11% from the previous fiscal year. 32
  33. 33. Power (Cleantech & Utilities)Sector Overview:• India‟s power generation capacity, as on 31 May 2011 isestimated at around 174.9 Giga Watt (GW) (excluding captivepower generating capacity of 19.5 GW), with the privatesector contributing just over 21.8% of the installed capacity.Source: Ministry of Power - Coal, gas and diesel fuel-based thermal power plants form a major portion (65%) of the installed capacity, accounting for nearly 113.9 GW of the total installed capacity in the country. - The share of renewable energy in the installed capacity increased from 3% in 2002 to around 11% in 2010. 33
  34. 34. Power (Cleantech & Utilities)Sector Overview:•The total quantum of power generated in thecountry has increased from 704.5 billion units (BU) inFY07–08 to 788.4 BU in FY2010–11, recording agrowth rate of 3.8% in the last four years.•At the end of FY11, the total electricity peak demandmet was only 110.26 GW, resulting in a peak deficit of9.8%, while the electricity energy availability was788.4 BU, which has resulted in an energy deficit of8.5% 34
  35. 35. Power (Cleantech & Utilities)Foreign direct investment:• The power sector enjoys a favorable regulatoryenvironment.•FDI of up to 100% in all power sector segments(excluding nuclear) 35
  36. 36. Power (Cleantech & Utilities)Outlook:• The sector recorded highest ever capacity additions in 2010-11of around 16 GW. These additions were made mainly acrosshydro and thermal projects• The Government of India released US$ 889 million towardAccelerated Power Development and Reform Program (RAPDRP). -Out of these around US$ 867 million will be disbursed to state utilities as loans and the remaining will be given out as grants.• The government‟s independent transmission projects initiative,along with related state initiatives, is expected to open newopportunities in the transmission BOT sector, thereby attractingboth Indian and international developers. 36
  37. 37. Prospects for Export GrowthINDO-US TRADE RELATIONS 37
  38. 38. US-India Bilateral Trade• Bilateral trade grew at a CAGR of 11.69% between 2006-10• Indo-US trade of all products amounted to US$ 44.7 billion in 2010 and US$ 57.7 billion in 2011 India-US Bilateral Trade 2009-2011 (figures in US$ billion) 70 60 57.78 50 44.78 36.16 40 37.6 Exports to 25.53 India 30 21.16 19.25 21.62 16.44 Imports from 20 India 10 Total Bilateral Trade in Goods 0 2009 2010 2011• Bilateral trade of products and services is expected to touch a record US$ 100 billion in 2012 38
  39. 39. US-India Bilateral Trade (US Exports) 39
  40. 40. US-India Bilateral Trade (US Imports) Percentage Share of Major Items Exported from India to USA Iron & Steel Products, Electrical 3.4% Machinery, 4.0% Machinery, 4.8% Textiles, Organic 17.7% Chemicals, 5.1% Pharmaceutical Products, 8.6% Precious Stones & Metals, 22.0% Mineral Fuel, Oils, 10.9% 40
  41. 41. Ohio-India TradeGrowth in Ohio’s Exports•India emerged as Ohio‟s 12th largest export market in2010•Ohio‟s exports to India have grown by almost 50%from US$ 380 million in 2009 to US$ 566 million in2010 41
  42. 42. Ohio-India TradeOhio’s Top Exports to India•Industrial Machinery: $ 253 million•Electric Machinery: $ 49.4 million•Optic/Medical Instruments: $ 41.2 million•Plastics and Articles thereof: $ 36.5 million•Aircraft and Spacecraft: $ 29.4 million•Pearls, Stones, etc.: $ 24.2 million•Miscellaneous Chemical Products: $ 17.1 million•Articles of Iron or Steel: $ 14.8 million•Iron and Steel: $ 13.3 million•Dye, Paint, etc.: $ 8.8 million 42
  43. 43. India: An Growing Market for Ohio CompaniesCONCLUSION 43
  44. 44. Conclusion• Purchasing power growth in India along with advances in technology and an increasing focus on quality are factors which make India a favorable market for overseas players• India has emerged as the 12th largest market for Ohio‟s exports• Growth in spending in Indian sectors such as healthcare and medical equipment, aerospace and defense and clean energy provide good export prospects for Ohio companies 44
  45. 45. Report prepared by:Ohio India Office 45Date: 23-02-2012
  46. 46. Understanding the Indian Culture: Hofstede Framework & Study Abroad ExperiencePresented by: Adrian Inkrott, Amanda Purdy, AndrewGlotfelty, Cory Miles, Jacqueline Fries-Gomez, JeremyEspinoza, Lauren Mathias, Sakiko Okuma, Shoayb BascalFaculty Advisor: Dr. Ghose and Professor Gamba
  47. 47. About UFThe University of Findlay (UF) is one of the largest and most diverse private educational institution’s in Northwest Ohio• UF’s College of Business has partnership programs with local corporations – Unique emphasis on international business majors – MBA program that draws students from different countries; i.e. India• Top tier of U.S. News & World Report’s “America’s Best Colleges” in the Midwest• “Best Midwestern College” by the Princeton Review for the past four years• Professionally qualified professors - Real-world international experience
  48. 48. Governor’s ‘Excellence in Exporting’ Award• Recipient of 2009 (e-award)• UF is the second private university to have won the E-Award• UF is one of only five organizations in Findlay, OH to have received the award
  49. 49. Hofstede Framework Theory pioneered by Dr. Geert Hofstede • The most comprehensive studies of how values in the workplace are influenced by culture • Paradigm used by numerous researchers Model of cultural dimensions (five sub-categories) • Hofstede analyzed a large data base of employee values, scores collected by IBM between 1967 and 1973 covering more than 70 countries - The results found clear patterns of similarity and difference amid the responses along these dimensions Cultural differences • Between nations are found on the deepest level; i.e. on the level of values • Among organizations are identified on the level of practices *Source:
  50. 50. Power Distance – U.S. vs. India India – 77  United States – 40 • High ranking • Low ranking • Large gaps • Equality among ranks - Compensation - Supervisors - Authority - Employees - Respect Not reflected as an objective difference in power distribution, but rather the way people perceive power differences.
  51. 51. Individualism  India – 48  United States – 91 • Focus on long term • Highly individualistic relationships • Look after ones self and • Low job turnover immediate family • Often hire based on friends • High graphical mobility and family • Not shy • Prepare to be asked personal • Employees take initiative questions • Merit based hiring and • Reward and recognize the promotion entire team, not just individuals
  52. 52. Masculinity vs. Femininity India – 52 United States – 62 High ranking, high degree of gender differentiation. Males dominate a significant portion of the society and power structure. A low ranking, low level of differentiation, discrimination between genders. Females are treated equally to males in all aspects of the society.  Masculinity  Femininity • Competition • Cooperation • Achievement • Modesty • Heroism • More consensus-oriented • Material reward for success
  53. 53. Uncertainty Avoidance  India – 40  United States – 46 Low UA societies (India and United States) •More relaxed attitude to uncertainty and ambiguity •More tolerance for a variety of opinions Uncertainty Avoidance dimension is the degree to which the member’s of a society feel uncomfortable with uncertainty and ambiguity.
  54. 54. Long-Term vs. Short-Term Orientation  India – 61  United States – 29 • Enduring culture • Short term oriented • Thrifty and persistent • Focus on traditions and filing social obligations • Sense of shame in regards to status • Measure performance on short term basis • Remain at one job much of life time - Quarterly profit/loss • Quick results • Absolute truth
  55. 55. Ohio Energy Industry Largest Industry is Oil and Gas related • Contributed $1.5 billion to gross state product in 2008 More than 7,500 employed by advanced energy manufacturers Leading the U.S. as component supplier for wind turbine original equipment manufacturers Lucky number 7 • 7th largest coal reserves in the U.S. • 7th largest producer of biomass and biofuel related goods in the U.S. 2nd largest solar manufacturer in the U.S. • 1,500 employed in our solar energy industry *Source:
  56. 56. Ohio Aerospace Industry• “Birthplace of Aviation”• Accounts for 15,200 employees in manufacturing• Over 120 companies involved in the industry• Top leader in aircraft engine manufacturing• Top leader in educating highly skilled workers – 11 schools of engineering in Ohio *Source:
  57. 57. India’s Energy Demand (Current) Ranks 3rd in the world of energy consumption • Over a third of the populous has no access to the grid Coal meets more demand than any other resource at 40% • India is the 3rd largest producer of coal in the world • Coal imports rose roughly 20% in 2010 Oil meets roughly 25% of Indian energy needs Is the 5th largest market for wind energy in the world Per capita energy consumption is still low compared to developing countries
  58. 58. India’s Energy Demand (Future) Government hopes to reduce reliance on imports • Projected to reach 53% of the supply of energy in India (currently at 30%) • Encouraging more efficient supply sources - Particularly nuclear, planning to start build 18 nuclear plants by 2025 55% of rural population has no access to electricity • Government-led initiative is called REC Government is also encouraging alternative sources of energy • Primarily wind and solar through the use of tax breaks • Projected to move from 10th to 3rd in G20 countries in clean power investments • 100% FDI is possible in renewable energy sector
  59. 59. India’s Aerospace Demand Like the rest of India, industry is growing rapidly • Civil aviation has grown at a rate of 41% • Boeing has projected demand for $100 billion worth of commercial aircrafts • Estimate growth in repairs and parts market expected to grow at 10% annually Government support • There is no duty on imports of aerospace related products • Current cap of 26% on FDI in defense sector but this appears to be loosening
  60. 60. 60
  61. 61. Preparing for Success in India – A Legal Perspective Presented by Vinita Bahri-Mehra, Esq. February 23, 2012 w w w . k e g l e r b r o w n . c o m
  62. 62. w w w . k e g l e r b r o w n . c o m
  63. 63. Why India?• India is the 4th largest economy in the world as measured by purchasing power.• India has a consumer base of 1.2 billion people.• The youngest population of the world – hence sustainable, long term growth is assured.• Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies.• Rapid growth in the number of middle class consumers.• Eager and savvy consumer market with growing buying potential. w w w . k e g l e r b r o w n . c o m
  64. 64. India’s FDI Regime• 100% foreign investment permitted in most sectors on automatic basis except: – Banking (74%). – Telecom services (74%). – Civil Aviation (49%). – Insurance (49%). – Retail trading: New – Single Brand up to 100% . Multi-Brand – Not allowed. – 100% FDI is allowed in cash and carry wholesale formats, B2B sales.• Certain sectors where FDI is prohibited: – Atomic Energy. – Lottery business, Gambling and Betting. – Agriculture – Railway Transport – Arms and Ammunition – Coal and Ignite• Certain sectors where there are minimum capitalization requirements: – Non-banking financial services activity (certain activities – fee based and fund based). – Real estate construction and development projects. w w w . k e g l e r b r o w n . c o m
  65. 65. Potential Investment OpportunitiesInformation Technology  Software and Services - $50 billion  IT-enabled Services - $17 billion  E-Commerce - $8.9 billionBiotechnology  $4.5 billion by 2010Retail  $300 billion by 2010Healthcare  $16 billion potentialEnergy w w w . k e g l e r b r o w n . c o m
  66. 66. Markets with Significant Export Potential Airport and Ground Handling  Mining and Mineral Process Equipment Equipment Computers and Peripherals  Oil and Gas Field Machinery Education Services  Pollution Control Equipment Electric Power Generation,  Safety and Security Equipment Distribution and Transmission Equipment  Telecommunications Equipment Machine Tools  Textile Machinery Medical Equipment  Water Treatment w w w . k e g l e r b r o w n . c o m
  67. 67. Structuring Investments – FDI Liaison Office Operate as a Foreign Company Branch Office Strategic Investor Project Office Operate as an Indian (FDI) Company Joint Ventures Private Acquisition of Wholly owned shares/business Subsidiary assets of an existing PublicInvesting Indian Company in India Invest in a U.S. company with a services fulfillment subsidiary in India Invest in a Caymans or Mauritius company Financial Investor with a services fulfillment sub in India (FII or FVCI) Direct investment in an India company from outside India (Mauritius/Singapore subs) Direct investment in an Indian company from outside India through a venture capital fund registered with the SEBI w w w . k e g l e r b r o w n . c o m
  68. 68. Other Entry RoutesA. Direct Sales from U.S. (using freight forwarder). Key considerations: •Use accurate Incoterms 2010 for international sale or, even better, spell out in detail who is responsible for what. – Most common terms: – EXW, FOB, CIF, DDU, DDP •Payment Terms • NOT Incoterms! • The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid. • Do not confuse liability with responsibility. w w w . k e g l e r b r o w n . c o m
  69. 69. Other Entry Routes• Payment Terms – Usually determined in the purchase contract – Major options, based upon increasing risk • Paid in advance (if exceeds 100,000 additional criteria to be fulfilled and imports to be made in 6 months). • Letter of credit (must adhere to UCPDC). • Documents against payment. • Open account (remittance against imports should be completed no later than 6 months, except for payments withheld for guarantee performance, disputes, etc.) • Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time. w w w . k e g l e r b r o w n . c o m
  70. 70. Other Entry Routes• Decide on-Who is the “importer of record”?• Exporting directly can suit high value products or services. However, winning new customers is likely to require significant investments in building relations and several visits. w w w . k e g l e r b r o w n . c o m
  71. 71. Other Entry Routes• Import/Export Process and Timeline: (Assumption: standard container of goods to a large city port in India.)• India stands at 109 ranking of 183 economies on the ease of trading across borders.• Indicator. – Number of Documents to export (e.g. bill of lading, export declaration forms, commercial invoice): 8 – Time to Export: 16 days – Cost to Export: $1095 per container.• Procedures to Export – Document Preparation: 8 days – Custom Clearance: 2 days – Ports and Terminal Handling: 3 days – Inland Transportation: 3 days w w w . k e g l e r b r o w n . c o m
  72. 72. Other Entry RoutesKey Considerations: All U.S. exports are subject to U.S. export control regulations.• BIS/EAR 2011 rules and regulations implementing changes to Export Controls on India (“Final Rule”) – Final rule adds India to country group A:2; the group consisting of countries adhering to Missile Technology Control Regime. – Results in elimination of license requirements to export or re-export certain controlled products (i.e., classified as EAR99) to India. – However, no unlicensed exports to prohibited parties or for prohibited end-users. – Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act. w w w . k e g l e r b r o w n . c o m
  73. 73. Other Entry RoutesKey Considerations: Labeling and Marking Requirements• Labeling is an important element for products being exported to India. All packets or even containers should carry pertinent declarations.• English or Hindi is the favorable language for labeling.• Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption. w w w . k e g l e r b r o w n . c o m
  74. 74. Other Entry RoutesKey Considerations: Import Tariffs• Peak rates reduced from 350% (June 1991) to an average 10% currently for some products.• India‟s tariffs still very high --– range from 0% - 150% based upon classification of goods in accordance with Harmonized System or HS.• Exports to India are zero-rated for VAT. All import and export of goods to/from India are exempted from sales tax.• Types of custom duties: w w w . k e g l e r b r o w n . c o m
  75. 75. Other Entry Routes – Basic Customs Duty (BCD): This duty is levied either as 1) a specific rate based on the unit of the item (weight, number, etc.), or more commonly, 2) ad-volorem, based on the assessable value of the item. In some cases, a combination of the two is used. – Additional Customs Duty (ACD): This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD. It is payable only if the imported product is such as if produce in India it would be liable for an excise duty. – Special Additional Customs Duty (known as Special CVD): Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input). It is levied at the rate of 4 percent of the BCD and the ACD on all imports. – [Anti-dumping Duty: This is levied on specified goods imported from specified countries, including the United States, to protect indigenous industry from injury. – Safeguard Duty: The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry.] w w w . k e g l e r b r o w n . c o m
  76. 76. Other Entry Routes – Customs Education Cess: Effective, 2004, India introduced a new education cess (duty) assessment. The current rate is 3 percent of BCD and ACD. – Customs Handling Fee: The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty. – Total Duty Payable = BCD + ACD + Special CVD + Education Cess + Customs Handling Fee. w w w . k e g l e r b r o w n . c o m
  77. 77. Other Entry Routes – Associated Taxes• Dividends declared can be repatriated freely through an authorized Indian bank.• Dividends are tax-free in the hands of shareholders. – A distribution tax of 16 % is payable by company.• Corporate income tax rate for foreign companies is 41.2%. For domestic companies, 30.99%.• Withholding tax on royalties/technical fees/interest income. – Domestic tax law – 10%. – Indo-US DTAA – 10% for right to use of any industrial, commercial or scientific equipment. – 20% in any other case. w w w . k e g l e r b r o w n . c o m
  78. 78. Taxation in India• The tax rate provision of domestic law could be utilized as it is less than DTAA.• Service tax rate is 10.3%. – Computed on the “Gross Amount” charged by the service provider.• Sales tax rate (CST & VAT). Varies from state to state, depending upon classification of goods. Varies from 0% to 12.5%.• Tax incentives are available during a limited time for 100% Export- Oriented Unit, under Software Technology Park Scheme and Special Economic Zones Units, etc. w w w . k e g l e r b r o w n . c o m
  79. 79. Taxation in India• Elaborate Transfer Pricing Regulations• These rules govern minimum profit margin to be maintained by the Indian companies in transaction associated enterprises. w w w . k e g l e r b r o w n . c o m
  80. 80. Other Entry RoutesB. Technology Collaborations and Trademark License • Foreign entities can provide technical know-how and/or license their trademark to Indian companies against payment of fee and royalty. • Key considerations. • Protection of Intellectual Property. • Registration of trademarks, copyrights and patents (“first to file” – jurisdiction). • Trade Secrets: No statutory protection of trade secrets or confidential information. However, several court precedents enforce confidentiality agreement through mandatory injunctions. • Indian IP laws do not provide for automatic assignments. • Advantage of lower withholding taxes on royalty income stream. w w w . k e g l e r b r o w n . c o m
  81. 81. Other Entry RoutesC. Agency Relationship: • Creation: – Relationship between Agent and Principal is primarily contractual in nature and governed by terms of contract entered into between them. – The Indian Contract Act, 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract. – NO WRITTEN CONTRACT---- One may be implied, provisions of Chapter X of the Act (i.e. agency law) will provide the framework for governance of performance of the relationship. – Agency contract should contain limitations, termination events, territory, products or goods, commission structure and time of payment. – Depending upon conduct of the parties----exclusivity can be presumed. w w w . k e g l e r b r o w n . c o m
  82. 82. Other Entry Routes • Termination: – If Agency is fixed for a term, it can be terminated before the expiring of the term in accordance with an express reservation in the contract or for sufficient cause. – Reasonable notice must be given of termination without case. – Right to indemnity and/or the right to compensation to the Agent in the event of termination of the agency contract is subject primarily terms and conditions of the agency contract. – Unless the contract provides payment or full indemnity, the indemnity payable to the Agent is generally equitable. – No limitation on amount of indemnity/compensation to which an Agent is entitled – it is the Court, which determines the amount of indemnity/compensation that may be paid. – However, Agent needs to prove he has actually incurred a loss or that loss is eminent. w w w . k e g l e r b r o w n . c o m
  83. 83. Other Entry Routes– Right to indemnity under agency law entitles an Agent to the following:  Commission remuneration and all expenses incurred.  Right to lien over Principal property – received by Agent, until amount due to Agent for commission, disbursements and services in respect for same has been paid.– Statute of Limitation:  Agent must bring a suit for claiming compensation and indemnity within a period of 3 years from the date of cause of action. w w w . k e g l e r b r o w n . c o m
  84. 84. Other Entry RoutesC. Distributor/ Franchisee Relationship:• Relationship between Distributor/Franchisee & Principal is contractual in nature and governed by the terms of the contract.• No specific law in India which governs the payment of indemnity/compensation to the Distributor/Franchisee and it is open to parties to determine the conditions and amount of compensation.• Avoidance of Permanent Establishment (“PE”) status is critical.• Restrictive Covenants (i.e. non-compete and non-solicitation) difficult to impose post-termination/expiration of the agreement. w w w . k e g l e r b r o w n . c o m
  85. 85. Contract: Enforcement In India• Legal Jurisdiction: Drafting choice of law and forum provision is crucial.• Remember, certain issues may be subject to a law different from one agreed upon by parties. For example: IP transfer, registration, protection in vendor territory, real estate, labor laws, bankruptcy, enforcement of foreign judgment/award.• If the parties want to quickly end disputes arising from the contract, an arbitration clause is necessary to avoid lengthy civil procedures. w w w . k e g l e r b r o w n . c o m
  86. 86. Contract: Enforcement In India• Practical Tips: – Negotiations: Contract negotiations can be expected to go more slowly in India – particularly if dealing with India bureaucracy. – Different Approach to Communication: Indian parties may not disagree with you directly about contractual issues. Instead, they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response. – Flexibility: It is recommended that U.S. companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted. – Believe: Relationships and respect. Building a lasting and trusting relationship is very important for a successful business venture in India. w w w . k e g l e r b r o w n . c o m
  87. 87. Practical Advice: Identify the Obstacles• There are some internal barriers that might provide obstacles in doing business or establishing business in India. It is necessary to be cognizant about them in order to be well prepared. For example: – Corruption. – Infrastructure mess. – Surfacing of stringent Corporate Governance/Corporate Social Responsibility. – Slow Reform Process. w w w . k e g l e r b r o w n . c o m
  88. 88. Things to Ponder• Have knowledge of Indian business and market – Evaluate Product Strategies and related Pricing.• Analyze and identify the region/state most appropriate for your business needs.• Do Business in India…the Indian Way: „Think Global, Act Local‟ – The Indianized Chinese – Kelloggs – no to cold cereals? – KFC – Tandoori Chicken preferred to the „KFC experience‟ – McDonalds – „McVeggie Burger‟ & „McAloo Tikki‟ – Domino‟s – „Pepper Paneer‟ & „Chicken Chettinad‟ – Pizza Hut/Pizza Express – spicing it up• Due Diligence is the Key. w w w . k e g l e r b r o w n . c o m
  89. 89. Legal Advice• This presentation is designed to provide an overview of a number of legal principles and considerations.• As each legal issue is fact dependent, this presentation should not be used or viewed as legal advice, and your legal counsel should be consulted on the application of your particular factual situation to the current law.• Copyright: 2012 Kegler, Brown, Hill & Ritter LPA w w w . k e g l e r b r o w n . c o m
  90. 90. Thank YouVinita Bahri-Mehra, Esq.Kegler, Brown, Hill & Ritter Co., L.P.A.65 E. State Street, Suite 1800Columbus, Ohio 43215, USADirect Dial: 1 614 225 5508Fax: 1 614 464 2634Email: vmehra@keglerbrown.comFirm Web Page: www.keglerbrown.comGlobal Business page: w w w . k e g l e r b r o w n . c o m
  91. 91. w w w . k e g l e r b r o w n . c o m
  92. 92. Financing Your Future in IndiaC O N F I D E N T I A LA N DP R I V A T EST R I C T L Y JPMorgan Chase Bank, N.A. Member FDIC © 2010 J.P.Morgan Chase and Co. All rights reserved.
  93. 93. 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 aC O N F I D E N T I A L 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.A N D 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-relatedP R I V A T E 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.ST R I C T L Y 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. © 2010 J.P.Morgan Chase and Co. All rights reserved. 93
  94. 94. Trade Factoids and Notes December 2011 Trade Figures: Bureau of Economic Analysis of the United States Department of Commerce  US exports increased $265.5 billion to $2,103.1 billion in 2011. Goods were $1,498.2 billion and services were $604.9 billion.  US exports have been growing at a pace greater than the 15 percent required to double exports by 2015. C O N F I D E N T I A L US exports to India grew from $19.3b in 2010 to $21.6b in 2011.  India is ranked 17th as an export market for US goods and services.  India is witnessing an unprecedented consumption boom. India is growing at approximately 8% per year, the second fastest growing economy in the world - leading to a population of over 300-350 million middle-income Indians with high disposableA N D incomes. This group continues to fuel the consumption demand in India.P R I V A T EST R I C T L Y © 2010 J.P.Morgan Chase and Co. All rights reserved. 94
  95. 95. Economic Climate – It All Swirls Together Recent Trade Environment  Recent 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 global 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 transactionsC O N F I D E N T I A L 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.A N D  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 longerP R I V A T E repayment terms.  By Product - Increased demand for US Ex-Im and Export Credit Agency financing in the marketST R I C T L Y © 2010 J.P.Morgan Chase and Co. All rights reserved. 95
  96. 96. Country overview Overview Key statistics  Located in South Asia, it is seventh largest country by Land Area  1.1 million square miles (One third the size of the U.S.). geographical area and the second most populous country  World’s twelfth largest economy at market exchange rates Languages  Hindi (National language), English (2nd language), 14 other official languages  India is the world’s largest democracy Religions  Hindu (80%), Muslim (13%)  Fourth largest economy in the world on purchasing power basis after USA, China and Japan  Strong legal system with a fair and independent judiciary. Currency  Indian Rupee (Symbol: INR or ) Largely based on English law  Well developed capital markets — Bombay Stock Exchange is Fiscal Year  April 1st–March 31st O LANN ID CC O NN R YI D I E C H TB IO A K Asia’s oldest stock exchange  Strong domestic consumption with a personal disposable Economy  12th Largest in terms of GDP of $1.089 trillion P T N income growth CAGR of 13.8% (2009-14E) size  4th largest in terms of PPP  Important cities in India: Time  5 hours 30 minutes ahead of GMT OU TF  Mumbai (Key commercial center / financial capital)  New Delhi ( Political capital) Dec-09 Dec-10 Dec-11EI D A  Bangalore, Hyderabad, Chennai, Pune and Calcutta (other Population (mm) 1,198 1,214 1,231 important cities) Unemployment Rate 9.5% 9.5% 9.3% Nominal GDP (US$bn) 1,221 1,495 1,745P R I V A T E  These cities account for over 80% of business GDP per capita (US$) 1,019 1,231 1,418 establishments in India Real GDP growth rates (%) 6.6% 8.1% 8.2% WPI (%) 2.2% 8.9% 7.0%  There are over 3,000 MNCs operating in India including a CPI (%)¹ 10.9% 13.6% 10.2% number of small companies in the IT/BPO space INR/US$ 48.4 45.5 44.58ST R I C T L Y 10 year Treasury yield 7.0% 7.9% 8.0%  Indian banking sector was not affected during the recent Current Account Balance (US$bn) (26.3) (42.4) (52.9) credit crisis and has emerged much stronger and efficient Current Fiscal deficit (%) (6.7)% (5.5)% (4.8)% than before Source: JPMorgan © 2010 J.P.Morgan Chase and Co. All rights reserved. 96
  97. 97. Political and economic overview Country Overview Real GDP growth of India (% y-o-y)  11th largest economy in terms of GDP. 4th largest on PPP basis 12% 11% after US, China and Japan V-Shaped recovery 10%  Stable and institutionalized democratic political system 9% 8% 8% 7%  Established administration, commercial, legal, accounting & 6% banking systems 5% 6.1% 4%  Third largest English speaking manpower base in the world 3% 2%  R&D base for over one hundred Fortune 500 companies 1% 2010E 2011E 2012E 2013E 2014E 2015E 2001 2002 2003 2004 2005 2006 2007 2008 2009 O LANN ID CC O NN R YI D I E C H TB IO A K  Vibrant capital market with more than 5,000 listed Companies Source: JPMorgan P T N Domestic demand remains the key driver for GDP growth …but exports have become increasingly important OU TF GDP (US$bn) Domestic demand % GDP The vast majority of manufacturing output is now exported 106% 3100 107% 108% Export Domestic MarketI D A 2600 106% 28% 2100 103% 104% 48%P R I V A T E 73% 1600 101% 101% 2,920 102% 1100 100% 72% 1,495 52% 600 98% 27% 813ST R I C T L Y 368 468 100 96% 1995A 2000A 2005A 2010E 2015E 1991 2001 2009 Source: Global Insight, IMF Source: RBI © 2010 J.P.Morgan Chase and Co. All rights reserved. 97
  98. 98. Financial landscape & banking sector Capital market and Foreign direct investment (FDI) Banking sector  Equity market indices: Sensex (Bombay Stock Exchange) and NIFTY  Over 55,000 bank branches of total 70,000 branches support (National Stock Exchange) electronic clearing  4,900+listed companies–Equity market cap of over US$1,200bn  Base rate: Each bank declares a regulatory mandated base rate  1,698 FIIs & 4,800+sub-accounts which is the lowest rate at which a bank can offer loans to any of its  Quantum of FDI permitted varies by sector; Sectors such as customers technology & power generation allow 100% FDI while real estate & Types of clearing systems agriculture prohibit FDI – Net FDI in 2009-10 was US$19.7bn (US$17.5bn in 08-09)  Real Time Gross Settlement System (RTGS) Debt markets  High value, urgent electronic clearing (within 2 hours)  Fixed income–G-Sec, T-Bills, Corporate bonds, CPs  National Electronic Funds Transfer (NEFT)  Corporate bond markets under developed and low volumes.  Low value electronic clearing Appetite only for AA rated and above paper  MICR  Average daily turnover: Corporate Debt: $250mm; G Secs: $4bn  Paper-based clearing O LANN ID CC O NN R YI D I E C H TB IO A K  Evolution of payments landscape Foreign exchange  Volumes still pre-dominantly led by paper based clearing (~80%) P T N but moving rapidly towards electronic modes  INR freely convertible on current account  Capital account convertibility not in the short term agenda OU TF  US$ weakness and domestic fundamentals (relatively strong growth & improvement in trade deficit and strong US$ flows) support a 80% of clearing by value has shifted to electronic systems stronger rupeeI D A Key regulatory bodies Physical Electronic End State Reserve Bank of India (RBI) Account Checks Funds TransferP R I V A T E  Monetary Authority: Formulates, implements & monitors monetary NECS/NEFT/RTGS policy EFT Demand Drafts  Regulator/Supervisor: Prescribes parameters of banking operations  Foreign Exchange Management, issuer of currency and banker to the Corporate Checks NEFT Government and other banks Check Truncation FIPB and SIAST R I C T L Y PAP Checks ECS  The Foreign Investment Promotion Board (FIPB) and Secretariat for Industrial Assistance (SIA) are responsible for overseeing and approving, as required, any foreign direct investment into India © 2010 J.P.Morgan Chase and Co. All rights reserved. 98
  99. 99. Bilateral funding options  Working capital funding (i.e. 364 days or lesser tenors)  Short term loans: Can be availed for various tenors up to 1 year (e.g. 1 week, 3 months, 9 months etc)  Overdrafts: Dynamic funding account to meet temporary cash flow mismatches Local currency  INR term loans  To meet capital expansion or project funding needs. Typically from 3-7 years  Regulated form of foreign currency borrowing for Indian companies  Refers to commercial loans in specified forms availedproducts and Term Funding  Short Term Loans, Overdraft from non-resident lenders, including parent company  Forms of ECB: Bank loans, buyers’ credit, suppliers’ credit and securitized instruments (e.g. floating rate notes and  Can be availed from local financial institutions fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares)  Minimum average maturity of 3 years for amounts up to US$20mm and 5 years for amounts above US$20mm and up to US$500mm External O LANN ID CC O NN R YI D I E C H TB IO A K Commercial  Subject to Reserve Bank of India (RBI) guidelines & restrictions on aspects such as end use, amount ($500mm per year) Borrowings and tenor (ECB)  ECB proceeds can be used for P T N  Investment in certain sectors, overseas direct investment in Joint Ventures (JV)/ Wholly Owned Subsidiaries and is also permitted for first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public OU TF  Use of ECB proceeds not permitted for on-lending, investment in capital market or acquisition of a domestic company, working capital, general corporate purpose and repayment of existing Rupee loans. Also cannot be used for real estate sector and issue of guarantees / SBLCsI D A  Buyer’s Credit (Post Import Financing) : Up to 364 days for raw materials and 3 years for capital importsP R I V A T E  Pre & Post Shipment Export Financing: Up to 364 days Trade finance  Negotiation & Discounting of Export LC Bills (both local &  Letters of Credit / Bank Guarantees foreign  Receivables Purchase: Both with and without recourse to the seller currency)ST R I C T L Y  Domestic Supply Chain Financing  Structured trade finance © 2010 J.P.Morgan Chase and Co. All rights reserved. 99
  100. 100. J.P. Morgan in India Why J.P.Morgan?  J.P. Morgan is one of the oldest international banking powerhouses in India  Historical presence in India  Operations since 1930; Present in India through heritage emblems J.P. Morgan, Chase Manhattan and Jardine Fleming  Over 15,000 employees in India including the Global Mumbai Service Center which supports 5 lines of business Branch Office  J.P. Morgan is a full service wholesale bank in India with 1 O LANN ID CC O NN R YI D I E C H TB IO A K branch in Mumbai (financial capital of India) JPM is a fully International Coverage Officer – U.S. Based registered Authorized Dealer with Reserve Bank of India P T N Vasudha Saxena  Provides all types of onshore lending, credit and rates Executive Director business, debt capital markets, asset management, Treasury New York, NY OU TF Services besides corporate finance & advisory, ECM, DCM and (212) 622-4961 Equities & F&O Multi-National Bankers – AsiaI D A  JPM has a capital base of US$1.3bn in India across its various Coco Chung entities Managing Director -APAC Hong KongP R I V A T E  Total capital of JPM Chase Bank in India is ~ US$800mm. +852 28001816  Strong coverage of local corporates & U.S. subsidiaries Deval Vyas Executive Director operating in India IndiaST R I C T L Y +91 22 61573762 © 2010 J.P.Morgan Chase and Co. All rights reserved. 100
  101. 101. Access to Capital and Borrowing Costs  Banks in India are subject to Base Rate system, which became effective July 01, 2010.  Base Rate shall include all those elements of the lending rates that are common across all categories of borrowers.  Banks may choose any benchmark to arrive at the Base Rate for a specific tenor that may be disclosed transparently.C O N F I D E N T I A L  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 suppliers financing cost in general, financiers tend to address the medium tierA N D  When financing their receivables, companies in these markets could pursue local ECAP R I V A T E (Export Credit Agency) coverage when available, and the cost for that coverage is subject to the buyers credit rating, which is an additional cost (generally 50-100bps)ST R I C T L Y © 2010 J.P.Morgan Chase and Co. All rights reserved. 101
  102. 102. 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 C O N F I D E N T I A L 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 yourA N D provider(s)P R I V A T EST R I C T L Y © 2010 J.P.Morgan Chase and Co. All rights reserved. 102
  103. 103. Global Trade Finance – Tools and Solutions Classic Trade Solutions Structured Trade Solutions  Imports  Receivable and payable financing  Letters of credit (LC)  Export Credit Agency (ECA) backed structured  Documentary collections trade: Ex-Im Bank in the USA  Exports  Pre-import/export financing structures  Letters of credit  Private credit insurance and political risk  Documentary collections insurance (PRI)C O N F I D E N T I A L  Standby letters of credit (SBLC)  Financing sales of capital equipment with  Bank guarantees terms greater than one year  Issuance of standby letters of credit to support bid, performance and payment bondsA N D  Financing of export-related accounts Specialized Trade Solutions receivable and inventoryP R I V A T E  Supply chain finance  Purchase order management (open account)ST R I C T L Y © 2010 J.P.Morgan Chase and Co. All rights reserved. 103
  104. 104. Export Finance Life Cycle Trade Cycle Financing Pre- Shipment: Shipment: Post-Shipment: Negotiating the Sale Shipping Documents Transacting the Payment and Terms of Payment Title Transfer Financing the Receivable Arranging Working Capital Financing Financing the BuyerC O N F I D E N T I A L Working Capital Financing Foreign Buyer Financing Bid & Performance Standby L/Cs Letters of Credit and Bankers Acceptance Financing (generally, up to 180 days) Export Letters of Credit Non-LC SolutionsA N D Non-LC Solutions Documentary Collections and TA FinancingP R I V A T E Ex-Im Bank or SBA Working Capital Guaranteed Loan Program A/R Credit Insurance Discounting BAs and Foreign A/RST R I C T L Y Ex-Im Bank: Direct Buyer Financing © 2010 J.P.Morgan Chase and Co. All rights reserved. 104