While many of these questions could be directed to multiple parties, we have attempted to focus on a specific party and tailored the response accordingly. We will continue to add more questions each month. If you have a question you would like to ask, please contact us. We will post your questions of general interest to this page. To quickly access the group of questions that is most relevant to your situation, use the headings below. Or you can scroll down the entire list of FAQs at a more leisurely pace.
- Obligor
- Local Company
- Third Party
- Government Offset Authority
- “Partnering” Company
- General
- New Offset Participant
For the Obligor
Question:Why do you accept any offset obligation?
Answer: For every transaction, the buyer and seller must reach an agreement on what the product or service is and how much it is worth. Offset is just one element in this matrix. The obligor has a pretty good idea of what it will take to complete the obligation and the cost to do it. This is built into the cost sheet. Then the parties negotiate. A sale is made when both parties are satisfied with the entire transaction.
For the Local Company
Question: Do you understand how offset helps your company? Why don’t you rely on the marketplace to determine your future?
Answer: Local companies often don’t understand how offset works. Some think that there is a pot of money that they can have. Others think in is guaranteed orders. Or free technology. The intent of offset is to assist local companies in developing economies to get started. The other reason for offset is to allow the politicians to justify procuring a product from a foreign supplier. If the politician convinces his constituency that he is actually bringing jobs or benefit back into the country he is more likely to get re-elected.
For the Third Party
Question:It seems like a Third Party’s fee in any given transaction decreases the benefits that the participating companies might enjoy, how do Third Parties justify their involvement?
Answer:Generally a successful consultant should be able to improve the transaction by at least the amount of his fees. The Third Party’s network will find the best deal for his client, like a higher fee structure. In other cases, the consultant should assist the client in avoiding common pitfalls based on his past experience. Another benefit might be the professional support offered by the consultant with contracts, export licenses and financing options. Question: I am a US company expecting to do business internationally. Why should I go to a Third Party? I could go directly to an obligor. Answer: While approaching the obligor directly is an option, there are several issues that you should be aware of (1) The obligor will want you to focus on a country that he needs support, that may not be the best choice for you, (2) dealing with one obligor you will not have visibility to what the competitive benefits might be, and (3) a typical obligor may not have the desire or the resources to provide the assistance you need to be successful.
For the Government Offset Authority
Question:I have an ongoing relationship with a local company. I want to assist an obligor, but apparently only “new” work will be considered. Does this mean I must remove the work and later put it back to the local company in order to earn offset credits?
Answer: In most countries, the answer is ‘yes’. You must pull the work and then put it back in the next year in order to receive credits. The country wants additional work and often does not understand or accept the notion that each procurement the buyer has a competitive decision to make. Receiving an order for 2 years does not guarantee purchase orders for the third year.
For the “Partnering” Company (could be the seller or a third party that will do the activity)
Question:Is leveraging offset worth your effort?
Answer:Most companies find leveraging offset very worthwhile. It affords companies funding support to reduce their risk on a given transaction and valuable local government support. Leveraging offset does take more work than a typical commercial transaction and so each offset opportunity should be carefully evaluated. Consider all the offset incentives, both financial and non-financial, and then decide. Question: Wouldn’t be easier to just find a foreign partner on your own? Answer: The simple answer is if you know what to do and don’t want any financial incentives, then don’t leverage offset.
General
Question:Is Offset legal? It seems very strange how the process works. I don’t want to get into any trouble by supporting an obligor.
Answer:Yes offset is perfectly legal. Large respected Fortune 500 companies have been doing offsets for over thirty years. That doesn’t mean you can’t get into any trouble. Like all things you must obey the laws and be professional in your dealings. Newcomers should consider some sort of professional assistance, at least the first time. Seasoned players generally always utilize local consultants and others that have the skills to make the transaction successful.
New Offset Participants
Question: My company does not have obligations. How can I participate in selling credits to obligors? What is a typical profile of a third party company assisting an obligor?
Answer:GTS would like to work with those companies that are performing transactions, but do not have obligations (or in excess to their own obligations). GTS has solid experience linking obligors to third party companies. The typical company candidate would be buying at least a million USD in a given country, on an annual basis. This does not need to be placed with one local company. Please note that timing is critical. GTS and the obligor must request and receive pre-approvals prior to the POs being placed.
