Ormita export-assistance


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Ormita export-assistance

  1. 1. Opportunities For Development In The Current Global Economic CrisisThe Potential of Rapidly Developing Emerging Economies Author: Daniel Evans, Co-Founder & Principal, Ormita Commerce Network
  2. 2. Current Situation Liquidity for many businesses (and governments) worldwide is still an issue Interbank market has still not recovered yet Refinancing is harder to assure There is a danger of postponement, reduction or cancellation of existing sales Pressure on profitability of every transaction in a declining market Highly developed countries are coming under pressure from those with lower cost labour Traditionally profitable markets may be “drying up” as credit becomes harder to acquirewww.ormita.com
  3. 3. A Changing Sales Environment This was the biggest, but not the first, crisis The World Bank has identified 96 banking crises and 176 monetary crises in recent 20 year period Such crisis are a remarkably perennial Financial crisis in developing countries continue to happen despite very different regulatory systems, different governments, different development levels; and at very different times… Developed countries are finding it increasingly difficult to compete against lower-cost models from rapidly emerging markets There continues to be shortage of money in highly-developed countrieswww.ormita.com
  4. 4. Import Growth = Export Decline ? US is the world’s leader in gross domestic product (GDP), which is the monetary value of all goods and services produced in a country during one year. US % share of world exports has shifted downward over the past 25 years, while its % share of world imports has increased. Since 1975 imports to the US have significantly exceeded exports each year. Rapidly Emerging Markets (China, India etc) account for about half of the total US trade deficit.www.ormita.com
  5. 5. The Challenge For BusinessThe major challenge for businesses in a world characterised bygrowing financial imbalances and increasingly economic crisis is tofind a balance between… a prudent and finding new business responsible approach opportunities in a with existing capital changing market continuing with existing accepting risks despite relationships during global economic difficult times turbulenceBusinesses who do not change run the risk of market erosionand eventual financial collapse!www.ormita.com
  6. 6. Other Macroeconomic Issues The severe debt problems of a number of countries, along with the increasing fragility of the international financial system. The increasing use of barter and countertrade to support international transactions. The move toward market economies in formerly socialist countries along with rapid privatization of publicly owned companies. The rapid dissemination of global lifestyles. The gradual opening of major new markets, namely China, India, eastern Europe, the Arab countries, and Latin America.www.ormita.com
  7. 7. Porters “Diamond” of National Competitive Advantage Company strategy structure and rivalry •Number of companies in an industry •Intensity of competition •Public or private owner Factor conditions Demand conditions •Natural resources •Size of market •Education and skill levels •Sophistication of consumers •Wage rates •Media exposure of products Related and supporting industries •Existence of supplier clusterswww.ormita.com
  8. 8. We Are Living In A Changing World Changes Changes in Income in Income Economic Economic Development Development Inflation Inflation Labour Costs Labour Costs and and Recession Recession Regulatory Changing Changing Consumer Consumer Spending Spending Patterns Patternswww.ormita.com
  9. 9. Finding (New) Foreign Customers Firms that do not export and/or seek foreign customers loose out on huge opportunities for growth and cost reduction Large firms are often more pro-active in seeking foreign opportunities Medium and small-sized firms are often slow to respond Too busy with local side of business Ignorance of potential opportunities Lack of understanding of foreign trade mechanisms Intimidated by mechanics of exporting to a foreign countrywww.ormita.com
  10. 10. Market Types International Consumer Markets Markets Government Business Markets Markets Reseller Marketswww.ormita.com
  11. 11. The Trade Feedback Effect As a country’s exports increase, its national output and income increase, which leads to a increase in the demand for imports. Hence, imports affect exports and vice versa This Trade Feedback Effect is one argument for free trade among nations Emerging Markets are rapidly gaining more of the worlds wealth and can not be ignored Images: Shenzhen (China) 20 years ago and todaywww.ormita.com
  12. 12. Strategic Market EntryIncreasing global levels of Foreign Direct Investment (FDI) &Increasingly competitive world marketsCritical Markets: Markets that are profit sanctuaries for competitors Markets with volume Markets that are growing in size Markets with good marginswww.ormita.com
  13. 13. What Is An Emerging Market?• High-growth, high-potential markets• … in East Asia, Eastern Europe, Latin America; … China, India, South Africa, Turkey … etc• Engaged in rapid industrialization, market liberalization, privatization, modernization• An artefact of past three decades of global economic realignmentwww.ormita.com
  14. 14. The Economic Effects of Being an Early Mover High Possible Returns High Possible Returns High Uncertainty/Cost High Uncertainty/Cost (Advantage) (Advantage) (Disadvantage) (Disadvantage)Market Power: Uncertainty: Barriers to followers Regulatory environment Technical leadership Low government experience Product positioning New industry Operational Risks:Pre-emptive opportunities: Lack of supply inputs Marketing Lack of support infrastructure Early access to resources Unknown market structure Brand Recognition Extra Cost:Strategic Opportunities: Learning Curve Location selection Training cost Low competition Localisation www.ormita.com
  15. 15. The Promise of Emerging Markets Dynamic, rapidly transforming… Young demographics Middle class coming into its own Engaged in technological leapfrogging Low competitive intensity Less regulated Serve as export markets, investment destinations, and sourcing locationswww.ormita.com
  16. 16. Continuum of Entry ModesRisk & FDI RelatedReturn •Joint Ventures, Subsidiaries Transfer Related •Leasing, Licensing, Franchising, BOT Trade Related •Export, Subcontracting, Countertrade Organisational control and resource commitment Continuum of Cooperation Non-equity Technical Patent co-operative Equity Joint Training Licensing Franchising agreements Venture Extent of Interorganisational Dependence Negligible Moderate High www.ormita.com
  17. 17. Developing an Export StrategyRisks can be decreased by taking few steps: Work with an experienced export consultant to identify opportunities and deal with red tape Focus on a few markets to learn what is needed to succeed Enter on a small scale to reduce costs of any failure Invest time and managerial commitment in building export sales Build strong and enduring relationships with local distributors and customers Hire local personnel Keep option of local production open Cost-efficient economies of scale Greater market acceptancewww.ormita.com
  18. 18. Collaboration With Competitors Horizontal co-operation a window on each others capabilities: Opportunity to acquire other’s skills and technologies Strategic Alliances: Competition in another form Limited life span Learning from partners of paramount importance Mutual Gain is Possible Where strategic goals converge but competitive goals diverge Size & market power of both is modest compared with industry leaders each partner believes it can learn from the others whilst protecting its own skillswww.ormita.com
  19. 19. The Ormita Commerce NetworkFree Export Management Advice Provides assistance to a clients export marketing department Helps identify opportunities and avoid common pitfalls Helps develop reasonable start-up budget and matching new sales as offset methodologies to meet these costsCashless Procurement of Essential Services Allows a business to swap / exchange their own product or service for things they need Reduces the cash outlay of the business Every purchase is matched with a new sale More sales result in more customer feedback and less cost for “give-away” samples Improves the balance-sheet of the companywww.ormita.com
  20. 20. Helping Get Through The Layers Demographic Company Cultural Economic Publics Suppliers Customer Customer Competitors Customers Political Natural Intermediaries Technologicalwww.ormita.com
  21. 21. Available Products and ServicesOrmita can offer the following services on a no-cash(barter/swap) basis: Accommodations (Hotels etc) Advertising (Expos, Internet, Print, Out-of-Home, Radio, Television, Mobile) Equipment Purchase & Rental Fixed Asset Purchase Graphic Design Incorporation, Accounting & Audit Services IT Support Legal Advice, Contract Negotiation Localisation of Materials Marketing Advice Public Relations, Media Liaison, Strategic Negotiations Taxation Advice Telecommunication (Video Conference, VPN etc) Translationwww.ormita.com
  22. 22. Types of Media AvailabilitiesInternetBlogs • Email Blasts • Localisation • Newsletters • Online Advertising • Search Engine Placement •Social Media • Translation • Video • Website DesignPrintCampus • In-flight • Journals • Magazines • Newspapers • Trade PublicationsOut-Of-HomeAirport • Billboards • Bus • Cinema • Digital • Elevator • Expos • Kiosks • Mall Branding • Mass Transit •Metro Rail • Point of Sale Advertising • Signboards • Street Signs • TaxiRadioNetwork • Satellite • Spot Radio • Shadow/Metro Traffic • Talk ShowTelevisionCable • DTV • Network • Satellite • Spot TV • Spot CableMobileDirect Response Campaigns • SMS Advertisingwww.ormita.com
  23. 23. www.ormita.com
  24. 24. Emerging Market – Ormita Indiawww.ormita.com
  25. 25. Emerging Market – Ormita Chinawww.ormita.com
  26. 26. Other Countries Where Ormita Is Present Sweden Canada United Kingdom Poland Germany United States of Greece America Turkey Iran Egypt India China Mexico Hong Kong Australia South Africa New Zealandwww.ormita.com
  27. 27. Some Media Acknowledgementwww.ormita.com
  28. 28. Country ExperienceArgentina El Salvador Kenya PortugalArmenia Estonia Kosovo Puerto RicoAustralia Fiji Latvia RomaniaAustria Finland Lithuania RussiaBahrain France Luxembourg SamoaBangladesh Georgia Macau SeychellesBelarus Germany Malaysia SingaporeBelgium Ghana Maldives SlovakiaBosnia-Herzegovina Greece Malta SloveniaBrazil Guatemala Mexico South AfricaBrunei Hong Kong Nepal SpainBulgaria Hungary Netherlands Sri LankaCanada India New Zealand SwedenCape Verde Indonesia Norway SwitzerlandChile Iraq Norway ThailandCroatia Ireland Pakistan TurkeyCyprus Israel Panama: UKDenmark Italy Peru UzbekistanDubai Japan Poland USAwww.ormita.com
  29. 29. Entry To Restrictive MarketsOne of the major obstacles facing western companies is thatcustomers in the new markets may not have any valuablecurrency to exchange for goods and services.Various countries place restrictions on currency exchange for: the protection of the currency balance requirements between imports and exports statistical purposes combating financing of crime and money launderingwww.ormita.com
  30. 30. CountertradeCountertrade is an alternative means of structuring aninternational sale when conventional means of payment aredifficult, costly, or nonexistent Payment for goods (or services) with other goods (or services) The exporter usually receives the goods first and sells them for cash or exchanges them for something else of use May also involve switch trading, offset, tolling, counter-purchase, buyback or compensation The counter-trade agreement is a framework contract setting out matters such as which goods are suitable for counter-trade valuation of the goods (determination of price) modalities of payment of the balance (time, currency) (often through a clearing account) restriction on further sale credit security, etc.www.ormita.com
  31. 31. Why Countertrade?Advantages Disadvantages Avoidance of debt and May not totally eliminate exchange rate volatility all commercial risk Covert reduction of May mask dumping prices activities Circumvention of price Does not allow for and exchange controls multilateral settlements Increasing popularity of Trade is restricted to two bilateralism concept parties, each with A method of market entry specific goods to trade Stability for long-term May be seen as non- sales competitive Improves quality of transactionwww.ormita.com
  32. 32. Managing Payment Risk Countertrade offers a unique (and immediate) form of collateralization for payments to the supplier It is well-known that that one means of managing payment risk in purchase and sale transactions is through taking security on property. Barter or countertrade, depending on how the transaction is structured legally and financially, can serve the function of collateralization. The buyer acquires not a security interest or mortgage on the seller’s inventory but an actual property right in the inventory as the payment in the transaction. This may be cheaper than third-party financing as a bank has costs to verify the existence of the goods, establish risks of damage and deterioration, ascertain its market value etc.www.ormita.com
  33. 33. Preservation of Buyer & Seller Cash Countertrade preserves scarce hard currency and improves the balance of trade in the importing country. Lesser developed countries can take advantage of the distribution and marketing networks of the companies they countertrade with to distribute their products. Countertrade often results in a significant transfer of technology and know how from seller to buyer which upgrades the buyers manufacturing capabilities. For example, in a countertrade involving cola syrup for vodka, PepsiCo taught a German vodka maker how to make their vodka bottles more marketable through the use of screw caps and different labels. Global currency volatility and more rigorous counterparty risk assessment contribute to higher cost of trade finance for importers, exporters and financial intermediarieswww.ormita.com
  34. 34. Building Relationships Countertrade gives unique benefits and advantages to the seller of goods. A company willing to engage in countertrade can penetrate new markets and expand sales potential in existing markets. Business relationships can be created and strengthened by the willingness to accept the purchasers domestically produced goods as payment. Countertrade can be used to obtain a steady, long- term supply of raw materials. For example Occidental Petroleum obtained a reliable, low cost, twenty year supply of ammonia by entering into a countertrade agreement with the Soviet Unionwww.ormita.com
  35. 35. Lowering Opportunity Cost During difficult economic times a seller may face high finance costs and slow movement of product - leading to surpluses and/or the need to reduce staff numbers and/or inventory holdings. There may be a lack of immediate opportunities to sell for cash. Where liquidity is a challenge, goods can be sold "in kind" and this credit applied to fixed operational costs of the business (offsetting real cash expenses) Finding a new cash-paying customer for goods involves a new investment in marketing, versus a low cost for countertrade (especially where marketing and entry costs are offset against new sales via bartering)Countertrade represents an extremely low opportunity cost to generate new saleswww.ormita.com
  36. 36. Helping Manage Price Volatility The government of an importing country contemplating using its foreign exchange to buy additional imports may worry that it will not be able to generate sufficient exports to earn the needed foreign exchange. One way to shift the risk to others is to make imports contingent on offsetting exports. Hedging currency risks through countertrade rather than financial instruments may be desirable because purchasing financial instruments requires an upfront financial payment and thus drains liquidity. Financial instruments cannot hedge real exposures effectively because financial value changes with nominal exchange rates, not real exchange rates, and is based on interest earnings not inflation. A countertrade deal can help solve the real price problem. Because counter-trade involves the exchange of real goods, not financial instruments for real goods, it can solve the inflation risk involved in foreign currency procurements. Thus, it can sometimes provide a superior hedge to financial instruments.www.ormita.com
  37. 37. Improves The Balance Sheet Goods acquired through countertrade are still counted as an increase in the assets of the business. Bank capital guarantees reduce available lines of credit - barter capital does not. Allows the organisation to meet assets and/or equity ratios for other (cash) subsidies and loans. Lets a business obtain future international lines of credit guaranteed by countertrading operations.www.ormita.com
  38. 38. Countertrade May Be Mandatory EXAMPLESPhilippines Executive Order 120 directs all government agencies to adopt countertrade (C/T) as a supplemental tool to the importation of foreign capital equipment, machinery products, and goods and services over a certain dollar value.Kuwait Decision No. 694 which stipulates that all Foreign Contractors who meet certain criteria, should participate in the Counter-Trade Offset Program. The GATT, World Bank and DOC claim that countertraderepresents between 25% - 30% of all world financial activity and is growing. www.ormita.com
  39. 39. Classification of CountertradeDoes the transaction involve reciprocal commitments Straight Sales (other than cash payments)? No (cash or credit) Does the transaction extend over Does the transaction involve the Barter type long periods and involve a basketYes use of money? No No of goods? Counterpurchase, Yes Clearing Simple buyback or offset Yes Arrangement barter Is the reciprocal commitment Does the transactionlimited to the purchase of goods? No involve debt? Are third parties involved? No Yes Yes No Yes Counterpurchase and buyback Swaps Offsets Switch Clearing Trading Arrangements Are the goods taken back by the Yes Buyback exporter the resultant output of the equipment sold? No Counterpurchase www.ormita.com
  40. 40. Compensation The seller accepts goods as part payment, the rest is paid in cash. Example: A British computer firm sells computers to a Russian mining firm. The Russsian firm can only pay part of the price in money, but wants to pay the rest with titanium. The British firm does not need titanium so it contacts a metal trader in London who promises to buy the from the Russian mining firm titanium and pay the British computer firm.www.ormita.com
  41. 41. Counterpurchase Two linked contracts simple exchange of goods reverse reciprocity grants access to resources Trading parties maintain restricted-purpose drawing accounts for the deposits of their countertrade activities. Example: The Finnish airforce buys F18 fighter jets from McDonald Douglas Corp. For 2,5 b. The air force pays in dollars. In another but linked contact McDonald promises in return to buy Finnish goods for 2,5 b. dollars.www.ormita.com
  42. 42. Product Buyback A long term contract made between a firm which builds and runs a factory to buy the products made in the factory. One party purchases the output of another party that is derived from technology or equipment supplied by the purchasing party. Example: A German firm builds and runs a factory in an African country. The factory is owned by the local government but it has no money to pay for it and not skilled staff to run it. Part of the factories output goes to the firm that built and runs it at predetermined price as payment for the factory and as compensation for running it.www.ormita.com
  43. 43. Offsets Purchases by a governmental buyer are matched (offset) to investments by the seller in non-related industries in the buyer’s country. Example: The Spanish government buys fighter jest from a foreign corporation. The corporation promises in a separate but linked contract to manufacture the wings in Spain.www.ormita.com
  44. 44. Switch Trading Two Contracts Example: A British firm sells machine tools to a Polish firm. The Poles wanted to pay in goods only. The Brits did not need Polish goods but French goods. They find a French firm that needs Polish goods. The French firm receives the Polish goods and sends its own goods to the British firm as payment.www.ormita.com
  45. 45. Debt Swaps Debt swaps debt-for-debt swap debt-for-equity swap debt-for-purchase swap debt-for-nature swap debt-for-education swapwww.ormita.com
  46. 46. Countertrade Usage - By Type Barter/Swaps 6% Buyback 28% Counter- purchase 56% Offset 10%www.ormita.com
  47. 47. Ormita: Business AssistanceFour types of business-centric free services : Assistance in selection of export markets Provide analysis on various modes of market entry Work within budgetary constraints to create a broad-scale market entry plan which is offset against guaranteed new sales Develop media plans which are offset against guaranteed new salesFee-based services : Implementation of export strategy and budgetary expense offsets Implementation of media and PR campaigns in new markets Consulting on countertrade issueswww.ormita.com
  48. 48. Ormita: Countertrade Services Provides financial services to exporters and/or banks, allowing them the ability to offer their products on commercially attractive terms Offers a solution for insurance against the risk of debt losses for commercial and political reasons Allows governmental support of exports into various countries enabling: access to global markets business development in riskier, emerging markets Contributes to business competitiveness in a rapidly changing environmentwww.ormita.com
  49. 49. General Acceptance CriteriaEligibility for promotion Is the business particularly deserving of promotion? Is the product or service useful for the target market? Is the entry part of a long-term strategy?Justifiability of Risk Reasonable prospect for the smooth execution of sales by the supplier without the occurrence of a claimTerms of Contract Terms of payment in accordance with international rules and basic agreements for export businessBudget Is the budget suitable?www.ormita.com
  50. 50. Examples of Barter A major restaurant chain was faced with disposing $1 million worth of flavoured ground beef that had tested well but didnt sell well. The chain traded the meat in exchange for spot TV, while the barter shop sold the meat for cash, at a discount, to a state prison system. A beer company needed to destroy product that was past its sell-by date. It ended up selling the bottles to a barter shop, which then recycled the glass, in exchange for media credits. Excess guava puree was swapped for media credits through a barter company. The company eventually sold the puree to a beverage company that used it to make orange soda. Log-home kits, aircraft skeleton frames and poultry have all been swapped for a wide-range of media, including TV, digital, print and radio ads, in the U.S. and abroad.www.ormita.com
  51. 51. Examples of Government Countertrade The Philippine Government is embarking on a program to carry out a barter system for its coffee products with the products of lucrative markets. This will help them promote the exports of their coffee and in turn get defense equipments from former U.S.S.R. member nations like Romania. In 2009 Saudi Arabia agreed with Pakistan to swap oil for food. Israel barters Calcium Carbonate, Talc and Dolomite and other raw materials with the USA, UK and many European Union countries. The Thai Government recently traded fruits for Chinese-made locomotives, passenger buses, and armoured cars. Malaysia is currently supplying India with palm oil (from six state-owned companies) worth $121 million in exchange for a contract awarded to the Indian Railway Construction International Company. They will lay 31.5 km. of tracks in the southern Malaysian state of Johor. The Democratic Republic of the Congo and the China Railway Engineering Corporation (CREC) have entered barter. According to this barter the Chinese company will provide Congo the desperately needed infrastructure in exchange for a slice of Congo’s precious natural resources to feed its booming industries.www.ormita.com