FCIB’s 3 International Credit & Risk Management … FCIB Dubai 3-19-2007 Ver2 Final.pdf · – Indirectness • Hospitality ... – The web and the News ... Avoid bad Cs of credit

Copyright Eddy A. Sumar 2007

FCIB’s 3rd International Credit & Risk Management Conference in the

Middle East

March 19, 2007

Dubai, UAE

Copyright Eddy A. Sumar 2007

Risk Mitigation in the GCCAnd beyond

By

Eddy A. Sumar, MBA, CCE, CICE

ERS Consulting Services

Presents

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•Roots

•Relationships

•Risks

•Rewards

Understanding the Rs

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•RootsCultureHistoryReligionTraditionCustomsValuesBeliefs


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•RelationshipsRapportTrustHospitalityGenerosityEmotionStatusAge Seniority


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•Risks Customer contextLocal contextRegional contextGlobal context


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•RewardsIncreased market shareHigher sales and profitabilityEnhanced cash flowDiversified portfolioTruly global presenceAbility to compete


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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

– 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

– Understand the Values of Arab CultureWhat Japanese say [Elashmawi & Harris]

Roots

– Religion– Allah– Koran– Status– History

– Family

–Nationality

–Islam

–Moustache

–Gold

Researching the Rs

– 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

– 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

– 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

– 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

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

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


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”)


• 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

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


• 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

Understanding Risk &

Risk MitigationStart with credit Due-diligence

Researching the Rs Risks

Have a global mindset:

Understand the world

SWOTT PEPE

Think Global and Act LocalThink Local and Act Global

Understand Culture

Understand People


• Due Diligence• Strategic Assessment

– Determine the Country• Nature of environment• Environmental influences

– Building the CMCS I & II• Understanding the Options


• 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


Strategic Assessment

– Assess the nature of the environment– Audit the environmental influences

Assess the nature of the environment


0Certain

10Uncertain

Continuum of Risk


Con

fiden

ce High

Low


0Static

10Changing

Continuum of Risk


Con

fiden

ce High

Low


0Simple

10Complex

Continuum of Risk


Con

fiden

ce High

Low


0Stable

10Unstable

Continuum of Risk


Con

fiden

ce High

Low


Approaches to Make Sense of the Environment– Historical analysis– Forecasting– Scenario planning– Experience and learning– Decentralization of organizations



PEST Analysis

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

Audit the environmental influences


– 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]


– 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]


• Company Plans and strategic intent• Competitive forces• Business realities• Country Environment

Vital Considerations


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


• 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

• No International Options– country is sanctioned by the Int’l

Community. – closed– the options are prohibitive


• Local Options--Local Financing– local banks want to compete– special local programs


• L/C – Standard L/Cs– Standby L/Cs– L/C Discounting


• Forfait– based on bank aval or guarantee– 1-5 year terms– expeditious


• Export Credit Agencies (ECAs)– no liens and collateral– no local bank guarantee– Enhanced terms– based on the financial standing of the

customer


• 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

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

Dealing with the World

The Serpent & The EagleThe Fox & the HedgehogThe Sword of Damocles

--The ROUTE

Wisdom In ExecutionW

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]:

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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]:


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12.Communication

13.Cooperation

14.Collaboration

15.Courtesy

The interpersonal Cs [4 Cs]:


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16. Complacency

17. Carelessness

18. Competition

The negative Cs to avoid [3 Cs]:


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19.Compassion

20.Care

21.Concern

The positive Cs to practice [3 Cs]:


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"Insanity: doing the same thing over and over again and expecting different results." -

Albert Einstein

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.


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.


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.

ERS Consulting ServicesEddy Sumar, MBA, CCE, CICE, CEW7841 Leucite AvenueRancho Cucamonga, CA. 91730

[email protected]

Thank You!

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Documents

FCIB’s 3 International Credit & Risk Management … FCIB Dubai 3-19-2007 Ver2 Final.pdf · – Indirectness • Hospitality ... – The web and the News ... Avoid bad Cs of credit