GLOBAL TRADE SOLUTIONS, INC

OFFSET OVERVIEW

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OFFSET DEFINITIONS

• THE OEM OBLIGATOR AND ITS SUPPLIERS’ BUSINESS TRANSACTIONS WITH FOREIGN INDUSTRY RELATING DIRECTLY TO THEIR PRODUCTS

DIRECT OFFSETS

• THE OEM OBLIGATOR AND ITS SUPPLIERS’ BUSINESS TRANSACTIONS (THIRD PARTY PRODUCTS, TECHNOLOGY TRANSFER, TRAINING, INVESTMENT) WITH FOREIGN INDUSTRY

INDIRECT OFFSETS

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WHAT IS OFFSET?

A TRANSACTION WHEREIN A CONTRACTOR (OEM) PROVIDES A PRODUCT TO A FOREIGN COUNTRY, AND IN RETURN, ACCEPTS AN OBLIGATION TO PROVIDE THE FOREIGN COUNTRY WITH INDUSTRIAL COMPENSATION EQUAL TO:

(1) AN AGREED-UPON PERCENTAGE OF THE ORIGINAL CONTRACT PRICE(2) A SPECIFIED DOLLAR AMOUNT

OFFSET IS ALSO CALLED:

• INDUSTRIAL COOPERATION• CO-PRODUCTION• COUNTER PURCHASE/COUNTERTRADE• COMPENSATORY TRANSACTION• BUY BACK• SWAP• BARTER

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RESOLVING OFFSET OBLIGATIONS

-MANUFACTURING

-INDIRECT PROJECTS

-TRADING CREDITS

-PARTNERS’ ACTIVITIES

-PARENT CORP PURCHASES

-NON-PRODUCT PURCHASES

-TECHNOLOGY TRANSFER

-PRODUCT SUPPORT

-SOFTWARE APPLICATIONS

MULTIPLE PATHS CAN BE PURSUED

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STRATEGY

CAPTURE WHAT YOU ARE DOING

• LINK ALL PURCHASES, ACTIVITIES, AND INVESTMENTS TO LOCAL INDUSTRIAL COOPERATION PROGRAMS (ICP) OR OFFSET OBLIGATIONS.

• IF NOT, THEN OBLIGORCOMPANIES WILL EXPEND ADDITIONAL RESOURCES TO MEET OBLIGATIONS THAT COULD HAVE BEEN SATISFIED BY OTHER TRANSACTIONS…….AND THIRD PARTIES LOSE POTENTIAL REVENUES BY NOT ASSISTING THE OEM OBLIGATOR.

FBJ94-65

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GTS MISSION - OFFSET

• THAT MANY OF COMPANIES HAVE THE POTENTIAL TO EARN OFFSET CREDITS BASED ON THEIR CURRENT ACTIVITIES AND FUTURE STRATEGIES

• THAT GTS CAN BRING VALUE TO BOTH THE OEM OBLIGATOR AND THE COMPANY DOING QUALIFIABLE INTERNATIONAL ACTIVITIES.

ASSUMPTIONS

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OFFSET RECOGNITION PROCESS

TIMING IS EVERYTHING

LOCAL PARTNER SUPPORT

SCREENINGPROCESS

NON-DISCLOSUREAGREEMENT

EXCHANGE OF DATALOI OR MOUAGREEMENT

BUSINESSPLANDEVELOPMENT

TIME

NEWCO

PREAPPROVALREQUEST

FINAL APPROVALS

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CLASSIC TRADING SCENARIO

THIRD PARTY ACTIVITIES ASSISTING OEM

GTS COORDINATINGWITH THE COUNTRYOFFSET AUTHORITIES, AND BOTH COMPANIES

COMPANY Y HAS NO OBLIGATION, BUT IS DOING AN ACTIVITY THAT WOULD EARN CREDIT

COMPANY X NEEDS CREDITS,BUT CANNOT PERFORMTHE OBLIGATION

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HOW MULTIPLIERS WORK

• EACH COUNTRY TARGETS DESIRED ACTIVITIES AND APPLIES INCENTIVES ( OR MULTIPLIERS ) TO ENCOURAGE THOSE ACTIVITIES

EXAMPLES (EACH COUNTRY IS DIFFERENT)

1 to 1 FOR PROCUREMENTS

1 to 3 FOR TRAINING

1 to 5 LOW TECH XFERS

1 to 7 LOCAL INVESTMENTS

1 to 10 HIGH TECH XFERS

COUNTRIES VALUE ACTIVITIES DIFFERENTLY

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WHO HAS OFFSET OBLIGATIONS ??

• US DEFENSE

BOEING, GENERAL ELECTRIC, LOCKHEED MARTIN, UNITED TECHNOLOGIES, NORTHROP GRUMMAN, BAe SYSTEMS, HARRIS…….

• TIER ONE AND TWO SUPPLIERS TO THE OEMs

• MANY EUROPEAN COMPANIES

MOSTLY FORTUNE 100 COMPANIES

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STRATEGIC BENEFITS

• CREATES NEW CORE BUSINESS OPPORTUNITIES

• OPENS NEW GLOBAL CHANNELS

• BENCHMARK INTERNATIONAL COMPETITION

• SUPPORT CURRENT RELATIONSHIPS

MORE THAN JUST OFFSET

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COUNTRIES DOING OFFSET

• UK

• SPAIN

• NETHERLANDS

• GREECE

• NORWAY

• SWEDEN

• DENMARK

• BULGARIA

• POLAND

SOME OF THE MOST ACTIVE

• TURKEY

• UAE

• ITALY

• CZECH REPUBLIC

• ISRAEL

• TAIWAN

• S. KOREA

• ROMANIA

• S. AFRICA

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OFFSET TRANSACTION

UNIQUE SOURCE OF REVENUES

YOUR

COMPANY

GTS

REVENUES

CREDITS

OBJECTIVE - TO LEVERAGE YOUR BUSINESS DEALS TO

DEVELOP NEW RELATIONSHIPS OR PROFIT

OEMs

BUSINESSACTIVITY

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HOW TO LEVERAGE OFFSET

ASSUMING THAT THE PARTIES CAN DETERMINE A COURSE OF ACTION…….

• A STATEMENT OF WORK IS DEVELOPED• YOU PRICE OUT THE EFFORT• CALCULATE THE CORRESPONDING AMOUNT OF OFFSET CREDITS TO FUND PROJECT• PROPOSE TRANSACTION TO THE COUNTRY• LINK OBLIGOR TO THIS OPPORTUNITY

GAINING OFFSET CREDITS

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PROCUREMENT TRANSACTIONS

• PROCUREMENT ACTIVITIES

• MARK ALL POs

• STRATEGIC RELATIONSHIPS

• SUPPLIERS

• CUSTOMERS

• MISC COMPETITIVE INITIATIVES

DO WHAT MAKES SENSE

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COUNTRY CRITERIA FOR CREDIT

• INCREMENTAL…new or increased work?

• CASUALTY…is the link to the obligor clear?

BOTTOM LINE:

COUNTRIES BELIEVE THAT U.S. COMPANIES WILL NOT PLAY HARDBALL FOR OFFSET CREDIT RECOGNITION

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CAPTURING CURRENT EFFORTSMARK PURCHASE ORDERS FOR OFFSET

----------- MAY USE ALL OR ANY PART OF THEVALUE OF ITS PURCHASE ORDER(S) WITHSUPPLIER FOR OFFSET PURPOSES; INCLUDINGBUT NOT LIMITED TO, (1) FULFILLING ----------’SOFFSET OR INDUSTRIAL BENEFIT OBLIGATIONS,(2) TRANSFERRING OFFSET CREDITS GRANTEDAS A RESULT OF SUCH PURCHASE ORDER(S)TO THIRD PARTIES, AND (3) RETAINING CREDITSGRANTED FOR USE IN SATISFYING FUTURE OFFSET OBLIGATIONS

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DOING INTERNATIONAL BUSINESS

INCREMENTAL PROCESS

INVOLVEMENT

MARKETSURVEY

EXPORTING

DISTRIBUTORSHIPBILATERALMANUFACTURING

JOINT VENTURE

MULTIPLECOUNTRYOPERATIONS

TIME

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SUPPORT AVAILABLE

• GTS INTRODUCTIONS TO OTHER COMPANIES THAT MAY OFFER NEW OPPORTUNITIES FOR YOU.

- TECHNOLOGY

- MARKET

- COUNTRY SPECIFIC INTERESTS

GTS CAN HELP

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OPPORTUNITY SELECTION

• GTS CAN ASSIGN OFFSET CREDITS TO OTHER COMPANIES IF YOUR ACTIVITIES CAN BE IDENTIFIED AS QUALIFYING FOR CREDIT.

• ANY ACTIVITY MUST MAKE GOOD BUSINESS

• NEVER DO ANYTHING JUST FOR OFFSET CREDITS

CREDIT TRANSACTIONS

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SUMMARY LEVERAGING OFFSET

• OPPORTUNITIES ARE INCREASING

• NOTHING IS EASY

• NEED STRATEGY AND FOCUS

• MUST ASSESS BOTH RISKS AND REWARDS

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FOR MORE INFO

CONTACT

FRED JOHNSON

GLOBAL TRADE SOLUTIONS, INC.

office 615-541-2523

fax 615-469-4563

email fbjj@earthlink.net

on the web at www.gtsworldwide.com

OR QUESTIONS

PROCESS  

1.    Client provides documents 2.    Obligor submits for their offset obligation.  3.    GTS negotiates credits 4.    Fee paid to Client

PROCESS  

1.    Client provides documents 2.    Obligor submits for their offset obligation.  3.    GTS negotiates credits 4.    Fee paid to Client

 Obligors

 Obligors

 GTS

 GTS

Country Offset Authorities

Country Offset Authorities

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3

3

Procurements Procurements

2 2

1 1

1 1

4 2

4 2

 

Typical Offset Transaction

  PRODUCT DELIVERIES

  PRODUCT DELIVERIES

QUALIFY SUPPLIER  BID OPPORTUNITIES  PLACE ORDERS

QUALIFY SUPPLIER  BID OPPORTUNITIES  PLACE ORDERS

Global Procurement Process

 LOCAL COMPANY

SELECTION

 LOCAL COMPANY

SELECTION COUNTRY SELECTION

OFFSET CREDITS OFFSET CREDITS

 DEVELOP

STRATEGY

 DEVELOP

STRATEGY CURRENT SUPPLIERS

CURRENT SUPPLIERS

  

Foreign Company

Obligor

Local CompanyLocal Company

Third Parties

Offset Authorities

OFFSET RELATIONSHIPS