Presentation on theme: "Ormita Commerce Network Working together to transform under- utilised capacity into tangible assets."— Presentation transcript:
Ormita Commerce Network Working together to transform under- utilised capacity into tangible assets
1 2 3 Company Snapshot Our History Business Growth International Presence Media Recognition General Statistics Exporters Media Outlets Travel and Tourism Manufacturers Other Businesses Government Direct Barter vs Ormita The Role of a Barter Exchange Third Party Record Keeping Tax Issues Business Structure THE ROLE OF ORMITA WHY BARTER? COMPANY OVERVIEW TODAYS DISCUSSION
Jun 1998Jul 2001Feb 2002Oct 2009Jun 2007 Sept 2008 Dec 2011 OUR HISTORY Business Internet Services Ltd partners with ITEX barter exchange in New Zealand ITEX quits New Zealand. BIS directors start developing financia lservices application software Incorporated as XO Limited, the company begins to take on customers Owners sell assets of XO Limited and begin to acquire independent barter exchanges Owners sell assets of XO Limited and begin to acquire independent barter exchanges for rebranding under the name Ormita Ormita brand now operating in 6 countries UK Government publishes report on alternative financial instruments and barter, citing Ormita as the worlds largest global exchange network
> Multilateral Barter > Tolling > Counter-purchase > Offsets > Switch Trading > Compensation / Buyback > Venture Capital COMPANY SNAPSHOT Founded in 2001 as a financial services software provider Currently the world's largest non-cash (barter) trade house in based on annualised figures as of Dec, 31 2011 Operations across 17 countries (2011) Expanding to 21 countries (2012) Customers in 54 countries MARKET ACTIVITY MARKET SEGMENTS BY VOLUME
BUSINESS GROWTH GLOBAL TRADE VOLUME (millions of U.S. dollars) NATIONAL OFFICES
> AUSTRALIA > HONG KONG > MEXICO > SWEDEN > CANADA > INDIA > NEW ZEALAND > TURKEY > CHINA > INDONESIA > PAKISTAN > UNITED KINGDOM > EGYPT > IRAN > POLAND > UNITED STATES > ESTONIA > ITALY > ROMANIA > ZAMBIA > FINLAND > MACAU > SOUTH AFRICA > GERMANY > MALTA > SOUTH KOREA Existing Office (retail) Government Trade ) Launching 2012 Under Negotiation INTERNATIONAL PRESENCE
European Union Islamic Development Bank Cape Verde …trade clearing houses are exempted from rules on financial clearing houses. I would like to clarify that it is not our intention to subject entities such as yours.. to OTC derivatives and market infrastructure." On behalf of His Excellency, Mr Petro Pires, President of the Republic... Barter is viewed as a potential means of enhancing trade and promoting economic cooperation.
Kuwait To achieve a more equitable sharing of these potential long-term economic benefits, and support Kuwaits position in the globalization process, the Government of the State of Kuwait has decided to establish the Counter-Trade Offset Program (Offset Program), which is responsible for promoting collaborative business ventures between Foreign Contractors and Kuwaiti private sector businesses. Seychelles United Kingdom On behalf of the Minister of Local Government, Sports and Culture, Republic of Seychelles… Businesses often have excess capacity in their own goods, services or infrastructure, even more so when the financial cycle slows and credit tightens. Business people find that using capacity to source needed goods and services is an attractive alternative proposition to conventional sales and credit if it can increase sales, ease cash flow or reduce reliance on conventional credit.
USA World Bank When banks are under pressure, the capital needed for trade finance may be allocated elsewhere on balance sheets. With no secondary market to offload loans, balance sheets have been constrained. In addition, global currency volatility and more rigorous counterparty risk assessment contribute to higher cost of trade finance for importers, exporters and financial intermediaries. U.S. prime contractors generally see barter as a reality of the marketplace for companies competing for international sales. Several U.S. prime contractors have informed BIS that offsets are usually necessary in order to make these sales - sales which help support the U.S. industrial base. United Nations …transactions covered by the Legal Guide are those transactions in which one party supplies goods, services, technology or other economic value to the second party, and, in return, the first party purchases from the second party an agreed amount of goods, services, technology or other economic value.
2 General Statistics Exporters Media Outlets Travel and Tourism Manufacturers Other Businesses Government WHY BARTER?
70% of all fortune 500 companies 2 Eight out of ten media companies 3 65% of all New York Stock Exchange listed firms 4 More than 129 governments 5 Nearly 400,000 businesses in the USA 6 1.8 billion Swiss Francs each year in Switzerland 7 18% of the Argentina economy in 1995 8 Most start-ups boot-strap themselves with barter Frequent-flyer points 1. (2004)., Department of Commerce Fact Sheet. USA DOC. 2. Schmiddgall, R.S., Damitio, J.W. (1999)., Bartering activities of the Fortune 500 and hospitality lodging firms., International Journal of Hospitality Management 3. American Association of Advertising Agencies. (2003). 4. (2004)., Annual Report, National Association of Trade Exchanges. Fact Sheet, International Reciprocal Trade Association. 5. United Nations Commission on International Trade Law. Vol XIX. (Yearbook). A/CN.9/302 6. Stodder, J. (2007)., Residual Barter Networks and Macro-Economic Stability. Renselaer Polytechnic Institute at Hartford, Hartford CT. 7. Studer, T (1998)., WIR and the Swiss National Economy 8. Pearson, R. (2003)., Argentina's Barter Network: New Currency for New Times., Bulletin of Latin American Research MORE THAN 30% OF THE WORLDS TRADE IS NON-CASH BASED 1
Raymond O. Estioko CENTRAL BANK OF THE PHILIPPINES Reciprocal trade has allowed the country not only to recoup and preserve its foreign exchange but also enabled key industry sectors to develop and expand new markets and products for export, acquire sophisticated technology, obtain foreign direct investments, and avail of specialized technical/specialized training. "Countertrade Program of the Philippines", Philippine Government, 2002
BARTER FOR GOVERNMENTS Financially sound practice Preserves scarce hard currency Improves the balance of trade in the importing country Channel back of recoup foreign exchange spent on imported goods or services Reduces foreign currency exchange risks Expands international appetite for developing countries products Lesser developed countries can take advantage of the distribution and marketing networks of the companies they countertrade with to distribute their products. Technology transfer between buyer and seller Gain access to advanced technology and training, new foreign investments, research and development and related support for national development and modernization programs Promote mutually beneficial collaborative business ventures between local industry sectors and their foreign counterparts through joint ventures and industrial cooperation Promote export products and markets
Ahmad Mohamed Ali Al-Madani President ISLAMIC DEVELOPMENT BANK Barter is viewed as a potential means of enhancing trade and promoting economic cooperation. "Countertrade: Policies and Practices in OIC Member Countries", Islamic Development Bank, Seminar Proceedings No. 24, 2002
Recieve the highest rate of return By bypassing importers and wholesalers a manufacturer can recieve a higher profit margin for each item sold Provides an outlet to sell problem stock Returned stock Surplus items Improperly packaged stock / incorrectly branded stock Seasonal stock can be sold at retail market prices Opens new channels for direct sales Recieve immediate payment rather than 90 days credit Use barter to acquire needed goods and services Advertising Customer and/or staff rewards Uniforms, stationery, printing Equipment / equipment maintenance and repairs Lifestyle enhancing products or services BARTER FOR MANUFACTURERS
Robert A. Zoellick President WORLD BANK When banks are under pressure, the capital needed for trade finance may be allocated elsewhere on balance sheets. With no secondary market to offload loans, balance sheets have been constrained. In addition, global currency volatility and more rigorous counterparty risk assessment contribute to higher cost of trade finance for importers, exporters and financial intermediaries. "Trade Finance in Crisis: Market Adjustment or Market Failures?", Policy Research Working Paper 5003, World Bank, July 2009
Low Risk / Inexpensive Market Entry Allows a business to swap / exchange their own product or service for things they need Reduces the cash outlay of the business Every purchase is matched with a new sale Purchase of international advertising, trade shows, translation, legal and accounting services etc More sales result in more customer feedback and less cost for give-away samples Enables Market Entry in Restrictive Markets A method of repatriating profits frozen in a foreign subsidiary operations blocked accounts. If unable to repatriate its earnings, the firm will scout the local market for products it can successfully export to world markets. When the alternative is no trade at all firms may want to consider barter. BARTER FOR EXPORTERS
May Be Mandatory When Selling to Certain Countries Various countries place restrictions on currency exchange for the protection of the currency and to balance requirements between imports and exports Strengthens International Relationships Business relationships can be created by the willingness to accept the purchaser's domestically produced goods as payment. Lower Opportunity Cost During difficult economic times a seller may face high finance costs and slow movement of product - leading to surpluses and/or the need to reduce staff numbers and/or inventory holdings. There may be a lack of immediate opportunities to sell for cash. Finding a new cash-paying customer for goods involves a new investment in marketing, versus a low cost for countertrade (especially where marketing and entry costs are offset against new sales via bartering) BARTER FOR EXPORTERS
Eric L. Hirschhorn Under Secretary U.S. DEPARTMENT OF COMMERCE BUREAU OF INDUSTRY & SECURITY U.S. prime contractors generally see barter as a reality of the marketplace for companies competing for international sales. Several U.S. prime contractors have informed BIS that offsets are usually necessary in order to make these sales - sales which help support the U.S. industrial base. "Offsets in Defense Trade", U.S. Department of Industry, December 2009
Attracts New Customers Businesses who would otherwise be unable, or unwilling, to purchase for cash may be willing to undertake a barter deal Low Cost For High Returns Sometimes it is hard to attract new cash paying customers Once a media companys initial operating costs are covered every new sale comes at a very low cost People paying on barter are still offering something of value – barter credits and/or direct barter trades – meaning the media company is turning something lost into something potentially valuable. Get more cash referrals Successful clients can be used as case studies to attract new cash paying customers Word of mouth referrals are the best form of signing new clients BARTER FOR MEDIA OUTLETS
International tourism is part of the international trade in goods and services that occurs daily. Most international trade is facilitated by international payment mechanisms and acceptable hard currency mediums of exchange. However a considerable amount of trade is facilitated without such international mediums of exchange. These alternative trade mechanisms come under the heading of barter. Martin Ferguson Minister of Tourism AUSTRALIA GOVERNMENT "Countertrade and Tourism Development". The Journal of Tourism Studies, Vol. 7, No. 1,
Every unsold room represents lost revenue Turns previously unsold rooms into needed products and services Takes customers away from competing brands or locations Discounting rooms is not the answer If everyone discounts then the overall perception of the market price will go down Once a business becomes known for discounting it is very difficult to increase the price later Competitors with bigger pockets could win a discount war Turns empty rooms into needed products or services Allows a business owner to bank previously unsold room space for later use. Helps maintain advertising budgets regardless of cash sales Turns unsold rooms into a source of referrals for new cash sales Referrals create more credibility than advertising alone Travellers often view referral information online Builds consumer trust and may lead to additional cash business BARTER FOR TRAVEL AND TOURISM
Businesses often have excess capacity in their own goods, services or infrastructure, even more so when the financial cycle slows and credit tightens. Business people find that using capacity to source needed goods and services is an attractive alternative proposition to conventional sales and credit if it can increase sales, ease cash flow or reduce reliance on conventional credit. Excerpt from "Capacity Trade and Credit: Emerging Architectures for Commerce and Money". UKTI, BIS, City of London Corporation & ESRC Joint Report. Published December 2011. Launched by Lord Sassoon. Lord Sassoon Commercial Secretary UK TREASURY
BARTER FOR OTHER BUSINESSES Reduces existing cash outlay Buying using your own goods or services as payment is a lower-cost option than purchasing using cash Every purchase is offset against a new sale Attract new cash-paying customers Barter for advertising Have more people use your product or service Get more referrals Creates efficiencies in business Earn full value for overstocked, last season or end-of-line items Reduce storage costs No need to discount Helps expand (or maintain) market share
Goods acquired using barter are still counted as an increase in the assets of the business. Bank capital guarantees reduce available lines of credit - barter capital does not. Allows the organisation to meet assets and/or equity ratios for other (cash) subsidies and loans. Lets a business obtain future international lines of credit guaranteed by countertrading operations. BARTER CAN HELP TO IMPROVE THE BALANCE SHEET
3 Direct Barter vs Ormita The Role of a Barter Exchange Third Party Record Keeping Tax Issues Business Structure THE ROLE OF ORMITA
DIRECT BARTER IS DIFFICULT You may want something from someone but they do not want anything from you You want more from the other business than they want from you It is sometimes difficult to value the goods or services You want a product now but you can only repay in exchange later You do not have a direct relationship with the seller Agreements are difficult to document and enforce Hard to find sellers who will agree to exchange
ROLE OF THE BARTER EXCHANGE The Ormita platform serves several functions: Provides a multi-lateral matching system of wants and needs Helps source new customers Promotes existing participants (nationally and globally) Acts as a third-party to mediate between delivery of goods and services for the best price Finds alternative (non-cash) suppliers for you to make purchases from Records the values of transactions Issues account statements to show the transactions Ormita provides each member with an account which: Offers access to interest-free lines of credit Records the value of every purchase or sale Issues account statements
Ormita brings new customers These customers do not replace existing cash customers Customers come from competing businesses that are not members of the Ormita network These customers generate new revenue Ormita will never devalue your current cash market Ormita does not resell products for cash We do not discount products against the prevailing cash market price Ormita will only offer your service for exchange into markets where it does not currently exist and/or where there is low brand awareness Ormita does not resell products for cash We do not discount products against the prevailing cash market price Customers who acquire a product or service through barter are more likely to give positive feedback The cost to service an additional customer may be nominal versus what is gained in return BARTERING CREATES NEW OPPORTUNITIES
THIRD PARTY RECORD KEEPING Transactions are recorded in a centralized ledger which records the value of the items purchased (debit) and sold (credit) - much like a clearinghouse does for stocks, or a commercial bank does for checks. This ledger system utilises a trade credit as a method of accounting with 1 Trade Credit = $1. (NB. Trade credits are also referred to as Barter Dollars). Just like any brokerage firm, Ormita charges a cash commission on each transaction.
$0 $1,000 $2,000 $3,000 -$3,000 -$2,000 -$1,000 When a member sells, their Ormita barter account is credited for the value of the sale – just as if it had been sold for cash When a member buys their Ormita barter account account is debited
Barter is not a tax dodge Most countries have laws about barter For barter to be legal the price must be the same as the real cash market price. (This is why we account for barter transactions in the same way as cash and at the same price as the cash market price) Used correctly, bartering creates no major tax liabilities Income tax is paid on profit If you spend all the income that you earn you have no profit (and therefore no income tax) Sales tax / GST / VAT must be paid according to your government regulations TAX ISSUES
Media Buying Agencies Media buying agents purchase media for cash (at a 10-15% discount) and resell it for cash Ormita already acts as a media buying agency and aggregator of media for our customers (this is how we charge the customers a higher fee for media) Ormita benefits from bulk media buys (reduced cost per deal which can be turned into a barter dollar profit) Importers Unless an importer has excess stock, they offer no value add to the Ormita business model and are simply seeking a mark-up which would reduce manufacturers and exporters benefits of being involved in barter. Other Typically anything with less than a 30% profit margin is difficult to do on barter as the member must pay a commission when they buy of 7% cash. BUSINESSES WE EXCLUDE AS MEMBERS
STANDARDISED SYSTEM Ormita provides a uniform system of operation, so that consumers receive uniform quality; efficiently and cost- effectively. Ormita provides management assistance, including accounting procedures, personnel and facility management. The Company has credit control, IT, staff and risk management procedures similar to those used in the standard financial services industry. Operating to Bank Standards
ROBUST NETWORK ARCHITECTURE Ormita telehouses in various parts of its server network in geographically redundant locations: Belgium Canada China France Germany Spain United States Redundant Server Network
GLOBAL TELEPHONE NETWORK Redundant Voice-over-IP telephone PABX system Fully hosted and managed by Ormita Voicemail Conference Calling Servers hosted in 7 countries Integrated PABX System