AmAsia 3 Corporation. America East SBA Lenders Conference Exporting & SBA. August, 2012

Transcription

1 AmAsia 3 Corporation America East SBA Lenders Conference Exporting & SBA August, 2012

2 Introduction 2 Bernard Sweeney District Director Connecticut SBA District Office

3 Session Overview 3 Objectives Present an overview of the market opportunities, incentives, risks, rewards, and cultural challenges with exporting and funding businesses who want to do business in China. Provide practical advice and tips to mitigate financial and other risks and take advantage of services and programs available to insure success. Agenda Introduction Bernie Sweeney China Export Overview Michael Harton A Case for Exporting to China - Fengqi (Fergie) Zhang Meeting Challenges/Mitigating Risks John Ogle SBA Programs & Support - Bill Houck Q&A Close

4 China Export Overview 4 Michael Harton Co-Founder, Executive Vice President AmAsia 3 Corporation

5 China Overview 5

6 China Demographics 6 Regions 23 Provinces 5 Special Autonomous Regions 4 Municipalities 2 Administrative Special Economic Zones Population 1.3 Billion 348 Million under 18 Annual growth 0.9% Male 51%, Female 49% Urban 40%, 60% Rural 9 Years Mandatory Education National Examination System 85% Can Read & Write 1500 Chinese Characters

7 China Demographics Three Chinas 7 China is not one market but a collection of many local markets, each with its own practices, traditions, and methods of local protectionism. One Billion Customers by James McGregor.

8 Source: EIU The Economist Intelligence Unit 8

9 China Outlook Summary 15 China GDP Growth, % China GDP Growth, % GDP, current prices, billion $US GDP, current PPP dollars, bln. Real GDP Growth, % GDP, current US$ GDP, current US$ Source: International Monetary Fund

10 Exhibit 14. USA Exports, Imports, and Balance of Goods By Selected Asian Countries and Areas YTD 2012 Balance Exports Imports Select Asian Countries Year-to-Date 2012 Year-to-Date 2012 Year-to-Date 2012 Total Census Basis -300, , ,663 Pacific Rim Countries -145, , ,708 Australia 8,633 12,547 3,914 China -117,656 44, ,974 Indonesia -4,119 3,415 7,533 Japan -33,087 28,684 61,771 Malaysia -5,222 5,225 10,447 Philippines ,118 3,941 Newly Industrialized Countries (NICS) 6,722 57,223 50,501 Hong Kong 14,333 16,226 1,893 Korea -6,115 18,576 24,692 Singapore 4,033 12,412 8,379 Taiwan -5,529 10,008 15,537 Other Pacific Rim 158 1,785 1,627 Other Countries -26,232 25,030 51,261 India -8,040 8,369 16,409 Thailand -6,247 4,302 10,549 Other -11,944 12,359 24, Source: Foreign Trade Data US Department of Commerce

11 USD $ 11 China Outlook Summary US Trade With China Import Export Balance Source: Foreign Trade Data US Department of Commerce

12 12 Product label United States of America's USA exports exports to China to world Value in Value in Value in China %/Total USA Exports 10 year Growth Exports to China 2011 USA %/Total China World Imports All products % 99% 6% Machinery, nuclear reactors, boilers, etc % 98% 6% Oil seed, oleagic fruits, grain, seed, fruit, etc, nes % 95% 33% Electrical, electronic equipment % 98% 3% Vehicles other than railway, tramway % 100% 10% Aircraft, spacecraft, and parts thereof % 97% 47% Optical, photo, technical, medical, etc apparatus % 98% 6% Plastics and articles thereof % 99% 7% Pulp of wood, fibrous cellulosic material, waste etc % 97% 21% Copper and articles thereof % 97% 7% Organic chemicals % 99% 6% Aluminum and articles thereof % 98% 31% Cotton % 100% 18% Iron and steel % 98% 9% Minéral fuels, oïl, distillation product, etc % 100% 1% Source: International Trade Center

13 Source: International Trade Administration Department of Commerce 13

14 Trends Supporting Exports 14 Domestic GDP still trending above 8% 50,000 + additional miles of highways 15,000 new cars sold daily (half will be electric by 2020) 400 million people planned to move from rural to urban between 2000 to 2030, requiring supporting infrastructure: Buildings Energy Water 97 airports to be added by of world s top 10 ports Wages going up in 1st tier cities 20% to 50% Increases in discretionary income

15 China Demographics Changing Income 15 Source: McKinsey & Company Meet the Chinese Consumer of 2020

16 China Demographics Changing Income 16 Source: McKinsey & Company Meet the Chinese Consumer of 2020

17 China Demographics Changing Income 17 Source: McKinsey & Company Meet the Chinese Consumer of 2020

18 Strategy Check 18 AmAsia 3 Strategic Framework Copyright AmAsia 3 Corporation 2011 Commerce Regionally Focused Business Expansion Trans-Pacific Partnerships International Reach through Operations, Sales Channels & Supply Chains Company Transformation to a Global Enterprise Community Community-Centered Approach Local Community involvement & Sponsorship Community Based Marketing & Sales Execution Culture Social, Business & Personal Networks Trans-Asian Relationships & Connections Culturally Intelligent Communications & Action

19 A Case for Exporting to China 19 Fengqi (Fergie) Zhang Management Consultant AmAsia 3 Corporation

20 General Structure 20 12th Five Year Plan---As a Guidance Catalog for Guidance for Foreign Investment---Detailed analysis of encouraged and prohibited industries Entry models and major barriers Q & A

21 An Overview of 12 th Five Year Plan 21 Central Goal and Intention of Five Year Plan Controversial Interpretations Indications for Foreign Companies Reference: 12 th Five Year Plan (Chinese) McKinsey & Company--China

22 Catalog for Guidance for Foreign Investment 22 Why Refer to the Catalog The Trend for FDI in China Four Categories Major Changes Reference: Catalog for Guidance for Foreign Investment

23 Export to China 23 Indirect Export vs. Direct Export License & Contract Source and Screen Local Partners Current Particular Obstacles Available Government Incentives Reference: China Council for the Promotion of International Trade

24 Considerations 24 How to determine that there is a market for our product in China? Where do we start in a country of this size? How do we find a potential partner? How do we know how good that partner really is? Which is better - an agent or a distributor as means of China market entry?

25 Meeting Challenges/Mitigating Risks 25 John Ogle Senior Management Consultant AmAsia 3 Corporation

26 Challenges & Risks 26 Legal Logistics Financial

27 Legal - Challenges & Risks 27 Intellectual Property Patents Trademarks IP Attorney (expertise in Chinese and US law) Local legal representation Foreign Corrupt Practices Act Privacy

28 Legal - Ways to Enter the Market 28 Contractors Place of Business Branch Subsidiary Have the right people city by city Establish Guanxi Understand consumer behaviors

29 Legal - Challenges & Risks 29 Infrastructure Due diligence Difficult country to choose for first export

30 Legal Managing Employment Risks 30 CBAs / 13 th & 14 th month salaries Reserve your rights Employment agreement or staff manual Non-competes (ExPats) Have culturally intelligent and honest sales and marketing people Understand personal liabilities of US resident directors of foreign companies

31 Logistics - Challenges & Risks 31 Need workable supply chain. Customs clearance Delivery for the last mile Proper communication, quality & control process Hire reliable & experienced logistics firm Due diligence absolutely necessary US and China Preparing price quotes Terms of sale Insurance

32 Financial - CFO s Perspective 32 Legal (Legal system, choice of law, dispute resolution) Accounting (IFRS, Tax issues, local norms) HR Treasury Cultural Difficulties managing remote employees Time Zone Operational (localization, things work differently) Technical (connectivity, language) Tax management Compliance

33 Financial - Managing Credit Risk 33 Letters of credit Require prepayments Credit insurance Export/Import Bank Others Currency exchange risk

34 Financial - Repatriating Profits 34 Most common Dividends Interest Royalty Service fee Cost reimbursement & cost sharing Needs careful pre-planning, complex process Non-residents generally need to register for tax purposes Government notifications needed for repatriation of active and passive income

35 Resources 35 Export.gov US Commerce Service Consulting Groups Logistics Firms State programs Small Business Administration (SBA)

36 Bill Houck Regional Manager/International Trade Finance Specialist SBA Office of International Trade

37 US Export Assistance Centers - US Commercial Service - Small Business Administration - Export Import Bank of the US

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39 General Trade Finance in China Most common letter of credit issuing bank Bank of China China Development Bank China Construction Bank Industrial and Commercial Bank of China Bank of Communications Small Business Administration Ex-Im Bank s short term insurance experience Open accounts transactions becoming more common (mostly private buyers) China buyer limits requests exceeding other markets Open account losses in the last 5 years at or below overall loss ratio

40 SBA Export Financing Programs Export Express 90% guarantee for amounts up to $350,000 (for up to 7 years) 75% guarantee for amounts between $350,000 and $500,000 (for up to 7 years) Lender uses its own loan approval process and documents For financing of inventory, accounts receivable and export development activities Export Working Capital Program (EWCP) 90% guarantee for amounts up to $5,000,000 Use of funds similar to Export Express International Trade Loan Program 90% guarantee for amounts up to $5,000,000 For working capital term loans for financing and refinancing of fixed assets used for exporting (loan tenures up to 10 years for plant & equipment and 25 years for real estate)

41 Technical Information AR advance rate is 80% (90% for L/Cs or insured AR) Inventory advance rate is 75% Indirect export transactions are eligible Advances against purchase orders allowed (Ex-Im does not) No minimum underwriting ratios (Ex-Im has several) Military products are eligible (not at Ex-Im) Refinancing is allowed ABL and similar monitoring fees allowed under EWCP Robust secondary market (premiums can exceed 10%)

42 SBA Exporting Workshop 42 Q & A

43 AmAsia 3 Value Proposition 43 AmAsia3 fuses best practices from commercial operations with a deep knowledge of regional markets, local communities, and cultures, to bring products to market and into the hands of satisfied customers around the world. Senior consultants work to optimize global capabilities, create a cost-effective infrastructure, and solidify a local, dependable base of operations. This ensures a higher level of customer responsiveness and satisfaction, culturally intelligent products, and valuable insights into market conditions and opportunities for future growth. For Further Questions or Follow Up - Contact Michael Harton at or visit