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U.S. Market Entry Strategies:
The “Level Playing Field” for International
Companies
Presented by:
Eliot Norman , International Practice Partner
Williams Mullen
The Virginia Advantage
U.S. POPULATION DISTRIBUTION
• Central location along the Atlantic Coast
• Nearly 50 percent of the nation’s population and 50 percent of the manufacturing activity are within 1000 kilometers of Richmond
• Well-developed transportation system provides access to major markets: The 3rd largest state-maintained transportation network
• The 3rd largest container port on the U.S. East Coast & inland port provides an interface between truck and rail services for transfer of ocean-going containers
• Washington Dulles International Airport has nonstop service to almost 130 destinations
Virginia’s Strategic Location
Business Begins in Virginia!
Forbes.com: Best State for Business2006, 2007, 2008, 2009
Cable Channel CNBC:Top State for Business 2007 & 2009
Entrepreneur.com:Best State for Starting New Business2006 - #2
Pollina Corporate Real Estate Inc.:Top 10 Pro-Business States2004 - 2009
• Streamlined environmental permitting process
• Efficient Court System
• Training programs to help new businesses become operational faster
• Right-to-work law allows individuals the right to work regardless of membership in a labor union or organization
• AAA bond rating
• Ranked among the best in the U.S. Chamber of Commerce’s 2010 study for having the “Best Legal System”
Legal Advantages for International Businesses
Concierge Services: How to Keep it Simple
to Enter the U.S. Market
Support Services for Starting a Business in Fairfax County Virginia
• Virginia’s Concierge Legal Services Program
• How the program works
• What are the services offered?
• Result: another Virginia Advantage for your international business
Top 12 Concierge Services for “Start-up” of Your U.S. Company
1. Form U.S. company: corporation or limited liability company
2. Conduct trademark search and file trademark application
3. Reserve and apply for Internet domain name
4. Apply to Internal Revenue Service for Employer Identification Number for tax purposes
5. File local business license
6. Review lease for office
Concierge Services (cont.)
7. Assist with opening U.S. bank account, obtaining U.S. Social Security numbers
8. File for New Office L-1 or other visas for manager and family
9. Strategic Advice for Obtaining U.S. Government Grants, Contracts or Subcontracts
10. Advise on employment law
11. Advice on export of products to U.S.
12. Review distribution/agency agreements for selling products in U.S.
First Choice for Visas: New Office L-1
• The L-1A Manager
• The L-1B Specialized Knowledge
• Both allow transfer from German company to U.S. company
• The L-1 is a very useful temporary, nonimmigrant visa for starting a new office in the United States
L-1 Visas: Intra-Corporate Transfers
Energy RenewablesTechnologies
USA, Inc. FAIRFAX, VIRGINIA
Energy Renewables GmbH
Munich, Germany Managers, Executives
Engineers
Energy, LtdManchester, UK
IP Experts
Energy Technology, SA
Grenoble,FranceHydro Technical
Support Staff
Energy Systems, Ltd.
New Delhi, IndiaSoftwareProgrammers
L-1
Transfers
EnergyHolding
GmbHBerlin, Germany
67%
100%
Other Support Services
• Compliance and risk management– Products Liability—reducing risks – Energy Regulatory Compliance
• Advice on important contracts under U.S. law – license agreements– sales agreements– non-compete and confidentiality agreements– financing agreements
• Financial incentives under U.S. Recovery Act • Strategic Advice :M&A and joint ventures • Doing business with U.S. government
• Tax Planning
The “Level Playing Field” For U.S. Market
Entry
American Recovery and Reinvestment Act of 2009 (ARRA)
• Signed into law by President Obama on February 17, 2009
• Provides a total of $787 billion in funds• Unprecedented level of
funding designed to help create and save jobs, jumpstart the economy, and build the foundation for long-term economic growth
Follow the Money: U.S. Stimulus Act Allocations?
• “Shovel-ready jobs?”
• Roads and Bridges?
ARRA: Spending Provisions
• Funds designated to the following sectors:
– Energy and Environment: $98 billion– Transportation: Rail, roads and bridges: $49
Billion . Only 50% of Energy/EnvironmentOnly 50% of Energy/Environment.
– Defense and Security: $16.448 billion
– Agriculture and Rural Development: $15.986 billion
– Biomedical research $10 billion
3rd Generation Photovoltaic Cells
Can Foreign Companies Participate in ARRA Projects?
• Common Perception: Given the purpose of ARRA, and its Buy American Provisions, Stimulus Projects must be reserved for U.S. companies and U.S. manufactured products
• ARRA states: Any ”project for …public building or public work” can use Stimulus funds only if all the iron, steel and manufactured goods are produced in the United States.” Buy American?
• But ARRA also says that : “This section shall be applied in a manner consistent with U.S. obligations under international agreements:” WTO obligations apply.
• Reality: Significant exceptions to Buy American Provisions exist and can benefit foreign companies:
• Buy American Act Provisions not a major issue• Proof: Look no further than Iberdrola Renovables or SAFT/Johnson
Controls
“Buy American” provisions affecting Stimulus Act public construction projects do not prevent foreign company from being contractor or supplier when:
• Application of “Buy American” provisions would contradict U.S. obligations under international agreements.
• The United States and the company’s foreign country are signatories to the WTO-GPA.
• The WTO-GPA prohibits application of the BUY AMERICAN ACT to Stimulus Act procurements by federal agencies and 37 state or other government authorities.
Who Has Signed the WTO-GPA?• Parties and Date of entry into Force/Accession:
• Canada 1 January 1996
• European Communities with regard to its 27 member States: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom1 January 1996Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia 1 May 2004 Bulgaria and Romania 1 January 2007
• Hong Kong , China 19 June 1997 Iceland 28 April 2001 Israel 1 January 1996 Japan 1 January 1996 Korea 1 January 1997 Liechtenstein18 September 1997 the Netherlands with respect to Aruba25 October 1996
• Norway 1 January 1996 Singapore20 October 1997 Switzerland1 January 1996 Chinese Taipei 15 July 2009
• United States 1 January 1996
Example 1: U.S. Department of Transportation (but not Federal Aviation Administration) solicits bids for Stimulus Act project.
• Result: A Foreign WTO-GPA company is eligible to bid, because Annex 1 to GPA lists U.S. Department of Transportation (but not Federal Aviation Administration) among covered central government entities.
Example 2: Pennsylvania Department of Transportation (but not South Carolina Department of Transportation) solicits bids for project.
• Result: A foreign WTO-GPA company is eligible to bid, because Annex 2 to GPA lists Pennsylvania Department of Transportation (but not South Carolina Department of Transportation) among covered sub-central government entities.
Example 3: Port of Baltimore (but not City of Charleston) solicits bids for project.
• Result: A foreign WTO-GPA company is eligible to bid, because Annex 3 to GPA lists Port of Baltimore (but not City of Charleston) among other covered entities.
Additional Loopholes• Buy American” provisions affecting
stimulus-package public construction projects do not prevent a foreign company from being contractor when:– Company can obtain WAIVERS of Buy
American Provisions in Stimulus Act
– U.S. companies do not produce goods “in sufficient and reasonably available quantities” and of “satisfactory quality”; or
– Application would contradict “the public interest.”; or
– Application would increase project’s overall cost by more than 25%.
Remember: “International agreements” do not provide only exception to “Buy American” requirements
• Between 7 April 2008 and 17 September 2009, 18 Federal Register notices from U.S. government entities including Environmental Protection Agency, Department of Commerce and Department of Agriculture have granted: – 13 “unavailability” waivers; and – 5 “public interest” waivers.
Stimulus Act: Lets Assume That “Buy American” Provisions Apply
A foreign company can still participate in the procurement under the Stimulus Act if:
• There has been a “substantial transformation” of its products in the United States into a new or different “manufactured good distinct from the materials from it was transformed.”
• NOTE: “There is no requirement with regard to the origin of components or subcomponents in manufactured goods or products, as long as the manufacture of the goods occurs in the United States.”
• There are also “De minimis” exceptions: 5% of value for incidental products (EPA) = Blanket Waivers
• Summary: Each case has to be evaluated individually in terms of the products involved, the identity of the procuring agency, whether the Buy American Act provisions apply, and whether exceptions or waivers to the Buy American Act provisions exist
German Turbo-Generators for Waste-to-Energy Power Plants
German Turbo-Generators for Waste-to-Energy Power Plants
• We “Americanize” the supplier
• We qualify under Buy American
• We block Chinese competition
M&A: How to Accelerate U.S. Market
Entry
June 2010
M&A Considerations 1. Why Buy? Why Now?
2. Defining Your Acquisition Strategy
3. Valuation Issues
4. Due Diligence, Negotiations and Closing the Deal
5. Financing the M&A Deal
6. Cross-Cultural Issues
7. Post-Acquisition Operations/Risk Management
8. The Joint Venture Alternative
9. Special Issues: IP, Antitrust, Buying Government Contractors
10. Reducing Taxes
11. U.S. Immigration: recruiting/retaining global talent post-acquisition.
Make initial contacts with identified targets to explore potential strategies for partnership
Monitor websites that list businesses for sale, and reach out to investment banks and business brokers to learn about their existing sell-side clients
– Be prepared to execute the seller’s form of Confidentiality Agreement prior to receiving any detailed information
Review available information on the target, and request additional data, as needed
Prepare financial models reflecting the effects of the acquisition and quantify any available synergies. Sellers may request preliminary valuation feedback before proceeding to in-person meetings
If interest exists to move forward, visit the target’s headquarters to meet the management team and tour the facility. More detailed information is typically made available at this stage
Based on information obtained to-date and with support of shareholders and financing sources, prepare a formal, non-binding letter of intent to make the acquisition
Identifying TargetsAnd Initial Due Diligence
Internal Preparation
Define high-level acquisition strategy, including rationale(s) for acquisition, characteristics and deal size of ideal target, etc.
As possible, develop a list of potential targets, such as high-quality competitors, joint venture partners, other members of industry trade groups, etc.
Coordinate the assembly of a professional deal team, including experienced transaction attorneys, investment bankers/buy-side brokers, an accounting diligence firm, and other advisors
Begin assessing long-term capital needs, including meeting with bankers and expanding financial flexibility as needed
Closing the Transaction(8-10 weeks)
If agreement on transaction price and structure is reached, proceed to closing through multiple and simultaneous “work streams” (1):
1. Conduct confirmatory due diligence
– Financial/Accounting and Tax
– Operations
– Sales & Marketing
– Human Resources
– Legal and Risk Management
– Environmental
2. Negotiate Purchase & Sale agreement and disclosure schedules
3. Secure transaction funding (as needed)
Execute P&S agreement and close
Post-closing true-ups
Buy-Side M&A Process
(1) See next slide for a diagram of a coordinated buy-side due diligence and closing process.
Target Company
Operations /
Manufacturing
Sales & Marketing
Environmental
Legal & Intellectual
Property
Acquiring Company
Real Estate
Risk Manageme
nt
Accounting
Finance & Treasury
Human Resources & Benefits
Buy-Side Financial Advisor
HR and Benefits consultants, if appropriate
3rd party insurance
providers, if appropriate
Appraisal firms, if
necessary
Transaction services team,
if desired
Banks & Financial institution discussions
Outside Counsel
Consultant for market study, if appropriate
Environmental consultants, if appropriate
Tax work and review with
Auditor
Coordinated Buy-Side Due Diligence and Closing Process
Joint Ventures & Teaming
Arrangements:Alternate U.S. Market Entry
Strategies
Joint Ventures
• Often an excellent alternative to the M&A deal
• Factors for success
• When and why does it not work?
• How to structure: tax, legal issues
• Use in Government Contracting?
• Use in private sector projects
• Case examples
Government Contracting
• Standard Competitive Bidding model may not always apply to government contracts or subcontracts
• Alternatives: Teaming arrangements with Energy Company holding the General Contract – How does it work?
– Benefits
Inflatable Boat from GSA Schedule
• 27' Extreme Patrol/SAR Aluminum-Hull Rigid Inflatable Boat (A-RIB) with a 42oz polyurethane collar or Foam Hybrid Collar. Set-up for inboard(s) or outboard(s) machinery package. Select center console or full cabin configuration. See option ...Manufacturer: NORTHWIND MARINE INC.Contractor: NORTHWIND MARINE, INC. [GS-07F-0416N] (s) $113,622.00 EA 120 days delivered ARO
International Tax Planning Before You Cross the Atlantic
Other Inbound Investment Considerations:
Tax and Treaty Eligibility
Corporate vs. LLC form: Corporations do not have "flow through" tax treatment and hence are required to file tax returns. Limited liability companies, on the other hand, have "flow-through" tax treatment and are not required to file income tax returns; rather their parent companies must file income tax returns in the United States. Since most foreign companies do not want to file tax returns in the United States, the preferred form of entity for U.S. operations of foreign companies most often is the corporation.
Taxes
• Worldwide Income Taxation (subject to foreign tax credit regime)
– Income Tax. The revenue generated by the U.S. subsidiary or U.S. operations of a foreign business will be subject to taxation in the U.S. This tax is assessed at the federal and state levels.
– Federal Tax. Federal income tax rates are set depending upon many factors. Federal corporate tax rates range between 15% and 39%; the average tax rate is typically 35%.
– State Tax. State income tax rates are set forth on a state by state basis. The current rate for corporate income tax in North Carolina is 6.9%. This is lower than many other states, including California (8.84%) and New York (7.5%-9%).
• Accounting considerations (FIN 48; permanent establishment, etc.)
International Tax Planning
Permanent establishment: initial assessment of taxable presence;
• Transfer pricing:
– Where to direct profit:
• Profit Drivers:
– Capital;
– Function;
– Know how (and other intangibles);
– Risk
International Tax Planning
• Financing: debt-to-equity considerations (including section 163(j) restrictions);
• Treasury Management – repatriation planning
– Where a treaty is absent
• LOB provisions and treaty “shopping”
• Holding company planning techniques
Conclusion and Some Practical
Recommendations
Summary
• Keep it Simple: Concierge Services for “Start-up” of Your Company
• There is a “Level Playing Field”: You just need to know the Rules of the Game
• Broad range of opportunities under U.S. Recovery Act
• Special incentives for Renewable Energy and GreenTech Projects (large and small, R&D and manufacturing)
• Money not yet spent or allocated.
• Not too late , particularly if you find the right Teaming Partner
• Mergers & Acquisitions: Accelerate your Entry and Americanize your Company
• The Joint Venture/Teaming Arrangement Alternative, particularly in Government Contracts Field
• Be flexible, get advice early in the process
Steps for Success: U.S. Recovery Act Public Sector Projects
1. Feasibility Audit to best position your company
2. Identification of best opportunities under ARRA
3. Teaming Arrangements, JV or Strategic Acquisitions to maximize your access to Stimulus Act Projects
4. Legal guidance concerning application of WTO-GPA • Supply chain planning to avoid Buy American Act issues; or
• Representation of foreign companies in obtaining waivers of Buy American Act Provisions
5. Obtain advice after contract awards on compliance with government contract laws and regulations
6. Select advisory team to help your company finance, prepare for and close the deal if you are doing M&A, JV.
7. Consider support services for future business operations: financial, tax and accounting, legal, strategic.
Steps for Success: U.S. Recovery Act Private Sector Projects
1. Feasibility Audit to assess your company’s technologies and match opportunities under Stimulus Act
2. Advice on available tax credits, guaranteed loans, grants and other financial incentives. If project is in the clean energy sector, consider potential impact of Carbon management, financing and “cap and trade”
3. Decide on use of Teaming Arrangements, JV or Strategic Acquisitions
4. Obtain advice on application of any Buy American Provisions tied to Stimulus Act incentives
5. Formulate business growth strategy
6. Select advisory team to help your company finance, prepare for and close the deal if you are doing M&A, JV.
7. Consider support services for future business operations: financial; tax and accounting; legal; strategic.
Thank You & QuestionsThank You & Questions
Eliotg Norman , Esq.International Partner
Wiliams Mullen
200 South 10th St.
Richmond, VA 23219
www.williamsmullen.com/immigration
