fcib’s 3 international credit & risk management … fcib dubai 3-19-2007 ver2 final.pdf ·...
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Copyright Eddy A. Sumar 2007
FCIB’s 3rd International Credit & Risk Management Conference in the
Middle East
March 19, 2007
Dubai, UAE
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Copyright Eddy A. Sumar 2007
Risk Mitigation in the GCCAnd beyond
By
Eddy A. Sumar, MBA, CCE, CICE
ERS Consulting Services
Presents
R4
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•Roots
•Relationships
•Risks
•Rewards
Understanding the Rs
R4
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•RootsCultureHistoryReligionTraditionCustomsValuesBeliefs
Understanding the Rs
R4
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•RelationshipsRapportTrustHospitalityGenerosityEmotionStatusAge Seniority
Understanding the Rs
R4
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•Risks Customer contextLocal contextRegional contextGlobal context
Understanding the Rs
R4
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•RewardsIncreased market shareHigher sales and profitabilityEnhanced cash flowDiversified portfolioTruly global presenceAbility to compete
Understanding the Rs
R4
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– Understand the Values of Culture
Roots
– Look into Islam– Read the history of the Arab World and
the Middle East– Respect tradition, customs and local
beliefs
Researching the Rs
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– Understand the Values of American CultureWhat Japanese say [Elashmawi & Harris]
Roots– Personal life– Wealth– Fairness– One answer– Family
– Liberty
–Materials
–Education
–Time
–Success
–Dreams
–Freedom
–Directness
–Money
–Reasons
–Religion
–Power
Researching the Rs
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– Understand the Values of Arab CultureWhat Japanese say [Elashmawi & Harris]
Roots
– Religion– Allah– Koran– Status– History
– Family
–Nationality
–Islam
–Moustache
–Gold
Researching the Rs
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– Understand the Values of American CultureWhat Malaysians say [Elashmawi & Harris]
Roots– Success– Power– Adherence– Material Possessions– Openness
– Profit– Individualism
–Time
–Commitments
–Money
–Aggression
–Innovation
–Progress
Researching the Rs
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– Understand the Values of Arab CultureWhat Malaysians say [Elashmawi & Harris]
Roots– Family– Community– Wealth– Brotherhood– Respect
– Power
– Friendships
–Social grouping
–Religion
–Status
–Leisure
–Traditions
–Self-image
Researching the Rs
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– Understand the Values of American CultureCultural contrasts in value [Elashmawi & Harris]
Roots– Freedom/Independence– Self-reliance– Equality– Individualism/privacy– Competition– Efficiency– Time– Directness– Openness
–Aggressiveness
–Informality
–Future-orientation
–Risk-taking
–Creativity
–Winning
–Money
Researching the Rs
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– Understand the Values of Arab CultureCultural contrasts in value [Elashmawi & Harris]
Researching the Rs
Roots– Family security– Family harmony– Parental guidance– Age– Authority– Compromise– Devotion– Very patient– Indirectness
• Hospitality/ friendship
• Formal
• Past and present
• Religious beliefs
• Tradition
• Social recognition
• Reputation
• Family network
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Islam is a total way of life, encompassing the State, its laws, its social institutions, and its culture, and therefore it is not just a religion. This explains why the book Early Islam says that for over 600 years, “Islam was the world’s most challenging religion, its strongest political force and its most vital culture.”
Researching the Rs Roots
More Than Just a Religion
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Legal Structure• Based heavily upon religion authority which
draws upon 3 sources:– Shariah: principles derived from the Holy Qur’an
– Sunnah: procedures and rules based on teachings of Mohammed during his lifetime
– Ijtihad (or Ijma): consensus, the exercise of one’s independent judgement based on scholarly interpretation of questions not covered by just two sources
Researching the Rs Roots
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Cultural Orientation Framework
• Environment: constraint orientation -- It’s fate, Insh’allah
• Time: Multi-focus, high commitment to relationship-building rather than just task completion; insulting to hurry
• Action: ‘Being’ culture -- stress is on affiliations, character and personal qualities
• Communication: High-context, usually indirect• Space: Closer physical proximity (12” - 18”)
Researching the Rs Roots
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• Power: More tolerance for hierarchy, group and family connections important
• Individualism: Collectivist; loyalty is paramount
• Competitiveness: Midway between being competitive and cooperative
• Structure: Order -- seek to reduce ambiguity and make events predictable
• Thinking: Deductive and based upon ‘gut-feel’ / intuition
Researching the Rs RootsCultural Orientation Framework
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Understanding the Middle East• As in much of the world, tension exists between
modernity and secularism and between traditional religious beliefs and new cultural practices
• This debate sometimes is couched as Arab vs. the West, but more often it is categorized internally between secular powers and fundamentalists
• Middle Eastern culture and religion are inseparable. Most countries recognize Islam as their State religion
Researching the Rs Roots
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• Establish personal rapport
• Establish personal status/family context
• Express admiration; use flattery; be indirect
• Close distance and informal
• Long range
• Generosity and and hospitality
• Emotional support and harmony
Researching the RsRelationships
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Understanding Risk &
Risk MitigationStart with credit Due-diligence
Researching the Rs Risks
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Have a global mindset:
Understand the world
SWOTT PEPE
Think Global and Act LocalThink Local and Act Global
Understand Culture
Understand People
Researching the Rs Risks
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• Due Diligence• Strategic Assessment
– Determine the Country• Nature of environment• Environmental influences
– Building the CMCS I & II• Understanding the Options
Researching the Rs Risks
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• Due Diligence: Sources to Tap [partial list]– Your sales person– Your bank– Your broker– Your insurance company– Credit reports and credit reporting agencies– Country rating reports– FCIB and its members– Hans Belcsak Report, EIU– Embassies, State and Commerce depts.– Export Credit Agencies & Central Banks– The web and the News– Personal visits and talking to the locals and your customer
Researching the Rs Risks
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Strategic Assessment
– Assess the nature of the environment– Audit the environmental influences
Assess the nature of the environment
Researching the Rs Risks
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0Certain
10Uncertain
Continuum of Risk
Assess the nature of the environment
Con
fiden
ce High
Low
Researching the Rs Risks
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0Static
10Changing
Continuum of Risk
Assess the nature of the environment
Con
fiden
ce High
Low
Researching the Rs Risks
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0Simple
10Complex
Continuum of Risk
Assess the nature of the environment
Con
fiden
ce High
Low
Researching the Rs Risks
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0Stable
10Unstable
Continuum of Risk
Assess the nature of the environment
Con
fiden
ce High
Low
Researching the Rs Risks
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Approaches to Make Sense of the Environment– Historical analysis– Forecasting– Scenario planning– Experience and learning– Decentralization of organizations
Assess the nature of the environment
Researching the Rs Risks
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PEST Analysis
• Political factors• Economic factors• Sociocultural factors• Technological factors
Audit the environmental influences
Researching the Rs Risks
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– 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 sociocultural 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 Embassies, State & Commerce – Block10: What is your company strategy and appetite for risk
∑ Building the CMCS I[Credit Manager’s Country Scorecard]
Researching the Rs Risks
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– Block1: 10Cs of credit• 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
∑ Building the CMCS II[Credit Manager’s Customer Scorecard]
Researching the Rs Risks
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• Company Plans and strategic intent• Competitive forces• Business realities• Country Environment
Vital Considerations
Researching the Rs Risks
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Open Account
Usance L/Cs
Documentary CollectionD/A or D/P
CIA
L/Cs At Sight
High Risk
Low Risk
Understanding the Options—Credit Terms
Researching the Rs Risks
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• No International Options• Local Options--Local Financing• L/C Discounting• Forfait• Export Credit Agencies (ECAs)• Credit Insurance
Harnessing the PowerUnderstanding the OptionsRisk Mitigation through Trade Finance
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• No International Options– country is sanctioned by the Int’l
Community. – closed– the options are prohibitive
Harnessing the PowerUnderstanding the OptionsRisk Mitigation through Trade Finance
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• Local Options--Local Financing– local banks want to compete– special local programs
Harnessing the PowerUnderstanding the OptionsRisk Mitigation through Trade Finance
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• L/C – Standard L/Cs– Standby L/Cs– L/C Discounting
Harnessing the PowerUnderstanding the OptionsRisk Mitigation through Trade Finance
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• Forfait– based on bank aval or guarantee– 1-5 year terms– expeditious
Harnessing the PowerUnderstanding the OptionsRisk Mitigation through Trade Finance
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• Export Credit Agencies (ECAs)– no liens and collateral– no local bank guarantee– Enhanced terms– based on the financial standing of the
customer
Harnessing the PowerUnderstanding the OptionsRisk Mitigation through Trade Finance
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• Credit Insurance– An Ounce of Prevention better than a
Pound of Cure– Risk mitigating vehicle– Could be used in Forfaiting– Increase ability to obtain financing– Increase sales
Harnessing the PowerUnderstanding the OptionsCredit Insurance
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Harvesting the Benefits
• Increase export sales• Risk protection• Increase ability to obtain financing• Customer goodwill and loyalty• Meeting or exceeding the competition• Increase market share
Rewards
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Dealing with the World
The Serpent & The EagleThe Fox & the HedgehogThe Sword of Damocles
--The ROUTE
Wisdom In ExecutionW
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The Formula for success – 21 Cs
1. Character
2. Capacity
3. Capital
4. Collateral
5. Conditions
6. Computers
The Cs of Due-diligence [11 Cs]:
R4
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7. Country risk
8. Cultural risk
9. Currency risk
10.Common sense
11.Credit mitigation / Insurance
The Cs of Due-diligence [11 Cs]:
The Formula for success – 21 Cs
R4
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12.Communication
13.Cooperation
14.Collaboration
15.Courtesy
The interpersonal Cs [4 Cs]:
The Formula for success – 21 Cs
R4
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16. Complacency
17. Carelessness
18. Competition
The negative Cs to avoid [3 Cs]:
The Formula for success – 21 Cs
R4
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19.Compassion
20.Care
21.Concern
The positive Cs to practice [3 Cs]:
The Formula for success – 21 Cs
R4
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"Insanity: doing the same thing over and over again and expecting different results." -
Albert Einstein
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Middle East in Perspective
Quotes to be guided by
Your tongue is like a horse--if you take care of it, it takes care of you; if you treat it badly, it treats you badly.The fool has his answer on the tip of his tongue.
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Middle East in Perspective
Sayings to be guided by
“One step at a time” (literally, "Grapes are eaten one by one")A foolish man may be known by six things: Anger without cause, speech without profit, change without progress, inquiry without object, putting trust in a stranger, and mistaking foes for friends.Arrogance diminishes wisdom.
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Middle East in Perspective
An Arab Proverb
♞Eat whatever you like, but dress as others do.
♞No cure, no pay.♞What is learnt in the cradle lasts to the
grave.
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ERS Consulting ServicesEddy Sumar, MBA, CCE, CICE, CEW7841 Leucite AvenueRancho Cucamonga, CA. 91730
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