WORLD TRADE SOCIETY OF CHATTANOOGA

Advisory Board MeetingJanuary 18, 2012

11:30 a.m. – 1:00 p.m.

HOUSE KEEPING

Please eat during the presentation Please write your questions down

during the presentation Please ask the questions during our

Q&A session – we want your input! Please help us identify what are the top

3 – 5 immediate needs you have with which we can help

SITUATION

Company X must decide if it will expand its market globally,

however it does not have the internal expertise to do so.

Because of the wide range of decisions to be made it can be overwhelming to accomplish. Company X needs resources to guide it through the process.

WHY GO GLOBAL

Rich Burkemper, President, RJB Associates

  Market conditions offer expanded opportunity to:

  Increase sales opportunity Hedge domestic market fluctuations Take advantage of emerging markets Take advantage of Global and Regional trends Expand your knowledge base for use at home and

abroad

INTERNATIONAL DECISION DRIVERS

Tim Spires, President/CEO CRMA

CAGE:  Culture Administration Geography Economy

FINDING THE EXPERTISE

World Trade Society of Chattanooga – The resource for help on the following:

CultureLegal

AccountingLogistics

Market ResearchFinance

CULTURE

Ju-Hsin Lusk, Managing Director Corporate Training, Workforce Development & Continuing Education – Chattanooga State Community College

Cultural education is the preeminent success factor in doing business

overseas

LEGAL

Tom Hayslett, Member, Miller & Martin PLLC

Substantive Law Differences/Structural Differences in the skill sets within the foreign legal

system Differences in the expectations of the role of lawyers Differences in legal specific protocols, norms Differences in broader social assumptions that

impact how legal issues are addressed Differences in the soundness of the system

(corruption/political risk)

LEGAL

Law firms Address the Above Issues with the following:

Foreign Offices Membership Alliances

ACCOUNTING

Jennifer GoodmanAssurance Principal

Joseph Decosimo & Company

TAX CONSIDERATIONS - INDIVIDUALS

Generally US citizens and resident aliens pay US income tax on worldwide income regardless of where they live.

“Substantial Presence” may create tax issues for your employees.

Exclusions, deductions and credits may be available for foreign earned income, foreign housing and income taxes paid to a foreign country.

Tax treaties allow US citizens and resident aliens certain credits, deductions, exemptions and reductions in the tax rates of those foreign countries.

TAX CONSIDERATIONS - BUSINESSES

Risk: Your business will be subject to tax in another country by conducting activities in that country.

Permanent Establishment “PE” – fixed place of business which gives rise to income or VAT liability. You can have physical presence without PE. May also extend to agents rendering services on

your behalf. If you have PE you will need to consider

business entity and structure.

TAX CONSIDERATIONS - MISC

Financial accounts in a foreign country? Tell your CPA!

IC DISC – Big tax break for exporters Exports with a pretax margin of 8% and >

produce a tax benefit of $100K for every $1M of taxable income. Margins of <8% produce $8K benefit for each $1M of export sales.

***Includes manufactured goods which are incorporated in a product that is exported.

UTILIZE LOCAL PROFESSIONALS

Local expertise is needed to understand regional laws, regulations and policies. Ex. VAT liabilities

National firms and regional firms are a good resource to identify local expertise.

Decosimo is member of Moore-Stephens International connecting it to 314 other accounting firms with 638 office in 97 countries.

FINANCIAL REPORTING CHALLENGES

No single global accounting language. Foreign currency transactions.

Impact on the bottom line Hedging foreign currency risk

Lost in Translation” – difficulties communicating across language barriers when meanings between languages doesn’t match up. Translators MUST have a excellent knowledge of both

source and target languages AND accounting cultures.

LOGISTICS

Gary Shostak – Logistics Professional

Forwarder & Broker Evaluations Documentation Requirements/Cost Transport Cost (Ocean & Ground) Custom Clearance issues/Cost

LOGISTICS

Evaluating Freight Forwarders 

Top Freight Forwarders BDP International Pilot Freight Services *UPS *FedEx Trade Networks Expeditors Intl. Express Nippon Express USA Lynden Air Freight Kuehne + Nagel DB Schenker Wallenius Wilhelmsen Criteria: On-time performance Value, Information technology Customer Service, Equipment & Operations

You want to have a Freight Forwarder with an office in the destination country you are exporting to. Many times a smaller forwarder will utilize an agent in the destination country .

LOGISTICSLegal 

1. Giving the FF a power of attorney is a good thing. This allows the forwarder to clear shipments on your behalf.

2. Known Shipper.3. Fraud.

a. Customer requests. b.Foreign Corrupt Practices Act

c. Anti-boycott lawsd. Letters of Credit tied to shipping schedules

LOGISTICSGetting your product ready for export Classifying your commodity for Export: Why? 1. Customs and the Census Bureau require it

2. The Destination country requires it for tax evaluation RememberSchedule B – Export / Harmonized Tariff Schedule (HTS#) – Import Why is it important to have the correct number for your product? Example: Knives:   8211.92.0001-Knives with cutting blades, serrated or not (including pruning knives), other than knives of heading 8208, and blades and base metal parts thereof:- - Other:  - - Other knives having fixed blades Cutlery Table Cutlery: 8215.20.0000- Spoons, forks, ladles, skimmers, cake-servers, fish-knives, butter-knives, sugar tongs and similar kitchen or tableware; and base metal parts thereof: The taxes in one country may be higher or lower for one product than the other. Also there may be an issue at the customs agency at destination which might confiscate your cargo for improper categorization. Basically “Fraud”.

LOGISTICS Do I need a license to export? ITARIn most cases NO except when your product has a, ECCN, stands for Export Control Classification Number. An ECCN is an alpha-numeric classification used in the Commerce Control List to identify items for export control purposes. An ECCN is different from a Schedule B number, which is used by the Bureau of Census to collect trade statistics. It is also different from the Harmonized Tariff System Nomenclature, which is used to determine import duties.

All ECCNs will have 5 characters, for example, 1A001, 4B994, or 8D001. There are 10 categories on the Commerce Control List. The first number of the ECCN identifies the category to which it belongs, for example, 1 = Nuclear Materials Facilities and Equipment, 4 = Computers, 9 = Propulsion Systems, Space Vehicles and Related Equipment. NLR, No License required if you product falls under the EAR99,

Knives do not

LOGISTICSPaper Work or Electronic Submissions Everything now must be transmitted electronically (AES) Automated Export System. Prior to 2009 shippers needed to fill out a Shippers Declaration Doc. Most Shippers/Manufacturers do not have a Transportation Management Software program to create AES submissions. The forwarders do.  A forwarder may send you a PDF with all the necessary fields for you to fill out. They enter it into the AES systems with Customs. If you export a lot have the forwarder waive that fee. What you need to present to your Freight Forwarder. 

1. Packing List a)List the quantity of each product in detail b)total quantityc)Weight

2. Commercial Invoice, a)The heading must say Commercial Invoiceb)Schedule B numberc)Cost of the productd)(INCO Term), International Commercial Terms; (CIF) cost insurance and freight etc… e)DDU DDP Delevery and duties paid / Delivery and Duties Unpaidf)http://www.export911.com/e911/export/comTerm.htm

Shippers Dec info. Note: when shipping small parcel. Their system will transfer over what you type in. UPS/FedEx. Make a copy of the above information and send it to your customer overseas over night

LOGISTICS

Notifications

Air shipments must be electronically filed at least 8 hours prior to departureSea shipments must be electronically filed at least 24 hours prior to departure What you get in return from the FF, you get a copy of the waybill for tracking and traces purposes. Forward a copy to your customer

LOGISTICSYour shipment arrives overseas

The end user is responsible for clearing the shipment through customs and paying any duties and taxes on the shipment based on the value and the Schedule B number and making final delivery to their destination. Shipping DDU You can ship the cargo DDP Delivery and Duties Paid.

You will have to get the freight forwarder to contact the destination country and get the costs for the shipments duties and taxes for the specific country and local delivery charges. This may take up to 2 to 3 days based on time zones. This is easier to get if the FF you use has an actual office at destination.If you want to quote your customer, this is referred to the landed costs or all in costs.

LOGISTICSTypes of shipping 1. Small Parcel up to 70 lbs. 2. Ocean: Containers 20’, 40’,

Open Top, Dry, Racks, Roll On Roll Off (RO RO)RefrigeratedConsolidated

 3. Air: Whole Charter, & Small Parcel, Consolidated over 70lbs General Costs for Shipping: Unlike domestics Shipment it is very difficult to get quotes for more than 30 days, as the charges change according to Market shifts and capacity and the FF may have certain caveats for specific govt. charges BAF etc... The cost for exporting is quite less for exporting due to the commerce balance of the United States. Forwarders love to export!

LOGISTICSShipping Samples to a potential Customer:A Carnet or ATA Carnet (pronounced kar-nay) is an international customs and export-import document. It is used to clear customs in 71 countries and territories without paying duties and import taxes on merchandise that will be re-exported within 12 months. Carnet Merchandise Virtually all types of goods can be transported under the ATA Carnet: Commercial Samples Professional Equipment Goods for ExhibitionsExceptions:  Consumable items such as agricultural products, explosives, disposables and postal traffic cannot travel under an ATA Carnet

LOGISTICSSome Pitfalls:

Time zones, Language, Cultures, Days of the work week, Backlogs Ocean, missing flights, missing sail schedules. *Customers

Does the export location matter? You MUST Think Global! Have a professional on staff

MARKET RESEARCH

Lisa Goolsby, Associate Professor, Southern Adventist University School of Business and Management

Economic Conditions Product or Service needs Competitive Environment Customers Culture

MARKET RESEARCH

MARKETING

PRODUCTS

PLACE PRICEPEOPLE PROMOTION

RESEARCH

FINANCE

Talley Clower, SVP Cohutta Banking Company

Foreign Exchange Risk Payment – Open Terms or Letter of

Credit Credit Insurance on Foreign Accounts

Receivable Export – Import Bank of the United

States

WORLD TRADE SOCIETY OF CHATTANOOGA

Q&ANext Steps