Securing Your Transactions in Latin America and Mexico

transcript

ER$ Consulting Services

Presents for

NACM WRCC

Securing Your Transactions in

Latin America & Mexico10:30 AM – 11:45 AM

Las Vegas

The Palms Hotel

October 16, 2014Copyright: Eddy A. Sumar 2014

Securing Your International Transactions

Getting Paid in International Trade

Where Are We in the Region?

• Dealing with Change• Understanding the ROUTE

Uncertainty

Opportunity

ExplorationThreats

Dealing with Globalization

1. What are you exporting?2. Where are you exporting?3. Who will receive your item?4. What will your item be used for?

Have you answered these four questions?

Our Focus

1. The Framework or the Pattern2. The Resources and Human Connections

Understanding the Region [Global] Understanding the cultural & business context Core Values Role requirements

Understanding the Target Country [Macro] Knowing the prospect / Customer [Micro]From general to particular

….Region….Country….Prospect / Customer

Framework: Doing business in a particular country with a new prospect / customer

Continuum of RiskPEST AnalysisCMCS ICMCS IIThe MatrixThe Cs of Credit

….Region….Country….Prospect / Customer

Framework: Tools

• Strategic Assessment

– Assess the nature of the environment

– Audit the environmental influences

Requirement for Success

Doing Business with Latin America

0 Stable

10 Unstable

Continuum of Risk

0 Certain

10 Uncertain

Continuum of Risk

0 Static

10 Changing

Continuum of Risk

0 Simple

10 Complex

Continuum of Risk

A Strategic Approach in A Diverse RegionStrategic Assessment--Assess the nature of the environment

Approaches to Make Sense of the Environment

– Historical analysis– Forecasting– Scenario planning– Experience and learning– Decentralization of organizations

Based on Johnson & Scholes

Corporate Strategy (p. 101)

PEST Analysis

• Political factors• Economic factors• Sociocultural factors• Technological factors

– Block1: Understanding the environment for the country

– Block2: P: What is the political situation in the country?

– Block3: E: What is the economic situation?

– Block4: S: What are the socio-cultural factors?

– Block5: T: What is the technological state of the country?

– Block6: Assess the banking system and FDI

– Block7: Look at Country rating & IMF standing

– Block8: Listen to the news! Listen to the locals!

– Block9: Seek input from FCS, USEAC, State & Commerce

– Block10: What is your company strategy and appetite for risk

Building the CMCS I [Credit Manager’s Country Scorecard]

– Block1: 10Cs of credit (excluding Credit Insurance)

• Subjective (qualitative) factors [trade & bank references; forecast economic reports; history and country assessment]

• Objective (quantitative) factors [financial analysis; payment history; historical economic data]

• Mixed factors [credit reports; credit scoring]

– Block2: Avoid bad Cs of credit– Block3: Security instruments and guarantees– Block4: Trade financing– Block5: Credit insurance (Coverage)

Building the CMCS II [Credit Manager’s Customer Scorecard]

Willing

Unable

AbleApprove!!!

Unwilling

Think OutsideThe Box

Seek Alternatives

Work the DealProtect YourTransaction

Reject This

Applicant!!!

Classify your Customer---Character

Master the Matrix [Credit focus]

Master the Basic Cs of Credit

The 21 Cs

Open Account

Usance L/Cs

Documentary CollectionD/A or D/P

L/Cs At Sight

High Risk

Low Risk

Understanding the Options

Credit Terms

Knowing the prospect / Customer [Micro]AW MatrixThe Cs of Credit

Framework: Doing business in the World

Due Diligence:

Credit application Credit report Financial analysis Determine the needed documentation Decide on security instruments & payment mechanism Deciding on the credit limit Deciding on the credit terms Explore coverage [credit insurance] Explore trade financing

Framework: The Prospect or CustomerDoing business in the World

You got an order from a company in Mexico, how do you proceed? You never did business in Mexico..

Follow the framework….

Scenario

Understanding the Region

[The Latin America Context]

Framework: Doing business in Mexico

Understanding the Latin American Scene

• Area: approx.7,880,000 sq mi ;

3.9% of earth’s surface• Population: 588 million (est. 2013 )• GDP: USD 5.57 trillion (combined)• Language : Spanish, Portuguese, & English, French, Dutch• Regional diversity• Region rich in natural resources & commodities

Population: 7 countries above 15 million

1. Brazil:

2. Mexico:

3. Colombia:

4. Argentina:

5. Peru:

6. Venezuela:

7. Chile:

201,032,714

122,456,000

48,165,000

41,660,417

30,613,000

29,525,000

17,556,815

491.01 millions

1. La Fimilia (the family above all else)

2. Religion, Tradition, & Education

3. Relationship, Friendliness, & Trust

4. Hospitality & Helpfulness (where one eats, two share a meal)

5. Personalismo & Machismo

6. Authoritarianism (el Caudillo, el Patron)

7. Civility & Dignity

8. Wealth, Food, Soccer & Rhythm

Core Values of Latin America

– Culture

– History

– People

– Law & Bureaucracy

– Social status & Hierarchy

Understanding Latin America

– They leap before they listen– They seek harmonious relationships– They want long-term profit– They are interested in the current deal

When Negotiating with Latin Americans remember:

1. Extrovert

2. Impatient

3. Talkative

4. Inquisitive

5. Gregarious

6. Plans in grand outlines only

7. Does several things at once

A Multi-Active Culture: [30 points]

8. Works any hours

9. Unpunctual

10. Lets one project influence another

11. Changes plans

12. Juggles facts

13. Gets first-hand (oral) information

14. People-oriented

A Multi-Active Culture:

15. Emotional

16. Pulls strings

17. Gets round all departments

18. Seeks favors

19. Delegates to relations

20. Completes human transactions

21. Interrelates everything

22. Talks for hours

23. Rarely writes memos

24. Seeks out (top) key person

25. Has ready excuses

26. Confronts emotionally

27. Dialogue

28. Unrestricted body language

29. Interrupts frequently

30. Interweaves social/professional

Vital needs for Success

• Master the no fixed paradigm scene

• Acquire a Global Mindset

Latin America not a

Homogeneous Region

The Latin American Role Requirement• Become Global in your approach

• Learn to deal with uncertainty & change

• Master the ROUTE; keep the finger on the pulse

• Master Relationship-building

• Enter the Inner Circle (find your pituto = internal

connection; someone who will get your foot in the door)

• Learn the rhythm of body & soul

• Adapt & be Patient (there is always MAÑAÑA)

Economies are ranked on their ease of doing business, from 1 – 189. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country's percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2013.

1. Chile:

2. Peru:

3. Colombia:

4. Mexico:

5. Brazil:

6. Argentina:

7. Venezuela:

Understanding the Target Country [Macro]

http://www.export.gov/mexico/

• Strategic Assessment—Target Country = MEXICO

– Assess the nature of the environment

– Audit the environmental influences

Doing Business in Mexico

This page summarizes Doing Business 2014 data for Mexico. The first table lists the overall "Ease of Doing Business" rank (out of 189 economies) and the rankings by each topic. It also lists the economy's distance to frontier (DTF)** measure. The rest of the tables summarize the key indicators for each topic and benchmark against regional and high-income economy (OECD) averages.

Mexico

MexicoCountry Rating & Outlook

S&P: BBB+ Stable

Moody A3 Stable

Fitch BBB+ Stable

Closest Average Rating: BBB+http://en.wikipedia.org/wiki/List_of_countries_by_credit_rating

The Ratings:Doing business in Mexico

Mexico needs a pact of unity, which allows advancement with respect to the following fundamental matters: economic growth and a better distribution of wealth among Mexicans and updating the political and legal structure of the country. (mexicoreport.com)

P: Sovereign risk is low

Bureaucracy

Corruption (eliminating it high priority)

Criminal violence threat to country’s security

Kidnappings

Drug war

Political reforms is in progress

E: Growth linked to US factors

Government remains investment grade

Great dependence on oil (negative)

FX levels at records high of 177Billion14th largest economy in nominal terms (Source: IMF)

Second Largest in Latin America

Low labor cost

Multiple trade agreements

http://www.focus-economics.com/en/economy/reports/economic-indicators/country/Mexico

S: Income distribution unequal

Increased citizens' insecurity

Indigenous population not treated justly

Skilled labor availability

Mix of highly educated and low educated

Large population source of business opportunities

T: Mixture of modern & outmoded industry and agriculture

Infrastructure need modernization

Need to modernize seaports, airports, rail…

IT spending is growing but is below OECD level

Knowing the prospect / Customer [Micro]AW MatrixThe Cs of Credit

Due Diligence:

Credit application Credit report Financial analysis Determine the needed documentation Decide on security instruments & payment mechanism Deciding on the credit limit Deciding on the credit terms Explore coverage [credit insurance] Explore trade financing

Framework: The Prospect or CustomerDoing business in the World

Securing:

Acquire, build, & continually hone your credit & collection skills &fundamentals

Have a system. Adopt a framework & pattern

Acquire credit information Perform credit due diligence Banking & financing ECAs LCs & payment mechanisms Documentation & logistics The role of laws & regulations Trade associations Credit insurance

The Checklist for Resources and Human Connections

Getting Paid:

Acquire, build, & continually hone your credit & collection skills &fundamentals

Have a system. Adopt a framework & pattern

Acquire credit information Perform credit due diligence Banking & financing ECAs LCs & payment mechanisms Documentation & logistics The role of laws & regulations Trade associations Credit insurance

Internet Resources

• http://export.gov

• http://exim.gov

• http://www.edc.ca/en/Pages/default.aspx

• http://www.dfat.gov.au

• http://www.ukti.gov.uk/export/countries.html

• Etc………………………………………….

Internet Resources http://export.gov

Internet Resourceshttp://exim.gov

Internet Resources http://www.edc.ca/en/Pages/default.aspx

Internet Resources http://www.dfat.gov.au/

Internet Resources http://www.ukti.gov.uk/export/countries.html

The Credit & Collection Dept –Skills, Due Diligence

The Credit Professional

The Resources and Human Connections

From Securing your transactions to …………Getting Paid

Laws and Regulations

Credit Insurance

Credit Information

Banking & Finance

Documentation & Logistics

Your Credit Association

“The cave you fear to enter holds the treasure you seek.”— Joseph Campbell

Gracias Obrigado

Thank YouMerci

Dank, Bedankt Q&A

Maltiox

Rasyas

Pachi Paylla

Kúta'ùná

Dios bootiki'

Thank You!