AmAsia 3 Corporation America East SBA Lenders Conference Exporting & SBA August, 2012
Introduction 2 Bernard Sweeney District Director Connecticut SBA District Office
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
China Export Overview 4 Michael Harton Co-Founder, Executive Vice President AmAsia 3 Corporation
China Overview 5
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
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.
Source: EIU The Economist Intelligence Unit 8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 China Outlook Summary 15 China GDP Growth, % China 10 5 0 8.4 8.3 9.1 10.0 10.1 11.3 12.7 14.2 9.6 9.2 10.4 9.2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GDP Growth, % GDP, current prices, billion $US GDP, current PPP dollars, bln. Real GDP Growth, % 2012 7991.7 12387.0 8.2 2013 8777.2 13679.7 8.8 8000 6000 4000 2000 0 GDP, current US$ 2014 9641.9 15094.1 8.7 2015 10581.1 16670.1 8.7 2016 11599.0 18389.4 8.6 2017 12713.9 20336.1 8.5 GDP, current US$ Source: International Monetary Fund
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 -300,142 640,521 940,663 Pacific Rim Countries -145,394 156,313 301,708 Australia 8,633 12,547 3,914 China -117,656 44,318 161,974 Indonesia -4,119 3,415 7,533 Japan -33,087 28,684 61,771 Malaysia -5,222 5,225 10,447 Philippines -823 3,118 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 24,304 10 Source: Foreign Trade Data US Department of Commerce
USD $ 11 China Outlook Summary 500000 400000 300000 200000 100000 0-100000 -200000-300000 -400000 US Trade With China 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Import 102278 125193 152436 196682 243470 287774 321443 337773 296374 364944 399362 Export 19182 22128 28368 34428 41192 53673 62937 69733 69497 91881 103939 Balance -83096-103065 -124068-162254 -202278-234101 -258506-268040 -226877-273063 -295422 Source: Foreign Trade Data US Department of Commerce
12 Product label United States of America's USA exports exports to China to world Value in Value in Value in 2011 2001 2011 2011 China %/Total USA Exports 10 year Growth Exports to China 2011 USA %/Total China World Imports All products 19234430 103878414 1479730169 7% 99% 6% Machinery, nuclear reactors, boilers, etc 4068633 12213824 205210462 6% 98% 6% Oil seed, oleagic fruits, grain, seed, fruit, etc, nes 1031600 10659185 21179866 50% 95% 33% Electrical, electronic equipment 3433435 10139402 158865462 6% 98% 3% Vehicles other than railway, tramway 245482 6762415 119714335 6% 100% 10% Aircraft, spacecraft, and parts thereof 2448129 6392287 87532456 7% 97% 47% Optical, photo, technical, medical, etc apparatus 1247633 5727209 79053311 7% 98% 6% Plastics and articles thereof 847108 5115615 58617524 9% 99% 7% Pulp of wood, fibrous cellulosic material, waste etc 330062 3998034 10118482 40% 97% 21% Copper and articles thereof 289114 3767200 9597953 39% 97% 7% Organic chemicals 398848 3499541 45560681 8% 99% 6% Aluminum and articles thereof 291525 3037644 12970710 23% 98% 31% Cotton 51186 2647065 11102005 24% 100% 18% Iron and steel 459926 2571234 25278434 10% 98% 9% Minéral fuels, oïl, distillation product, etc. 93625 2010880 129496720 2% 100% 1% Source: International Trade Center
Source: International Trade Administration Department of Commerce 13
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 2020 3 of world s top 10 ports Wages going up in 1st tier cities 20% to 50% Increases in discretionary income
China Demographics Changing Income 15 Source: McKinsey & Company Meet the Chinese Consumer of 2020
China Demographics Changing Income 16 Source: McKinsey & Company Meet the Chinese Consumer of 2020
China Demographics Changing Income 17 Source: McKinsey & Company Meet the Chinese Consumer of 2020
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
A Case for Exporting to China 19 Fengqi (Fergie) Zhang Management Consultant AmAsia 3 Corporation
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
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
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
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
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?
Meeting Challenges/Mitigating Risks 25 John Ogle Senior Management Consultant AmAsia 3 Corporation
Challenges & Risks 26 Legal Logistics Financial
Legal - Challenges & Risks 27 Intellectual Property Patents Trademarks IP Attorney (expertise in Chinese and US law) Local legal representation Foreign Corrupt Practices Act Privacy
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
Legal - Challenges & Risks 29 Infrastructure Due diligence Difficult country to choose for first export
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
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
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
Financial - Managing Credit Risk 33 Letters of credit Require prepayments Credit insurance Export/Import Bank Others Currency exchange risk
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
Resources 35 Export.gov US Commerce Service Consulting Groups Logistics Firms State programs Small Business Administration (SBA)
Bill Houck Regional Manager/International Trade Finance Specialist SBA Office of International Trade
US Export Assistance Centers - US Commercial Service - Small Business Administration - Export Import Bank of the US
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
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)
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%)
SBA Exporting Workshop 42 Q & A
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 443-364-9141 or visit www.amasia3.com