“Doing Business in Venezuela Challenges and Opportunities”

Universität St. Gallen

Carlos Pérez Rocholl More than one-third of the Venezuela’s population has never travelled in an “Elevator”. Imagine the opportunity for us! Doing Business in Venezuela Agenda

 Schindler Ltd.

 Schindler in Venezuela

 Doing Business in Venezuela

 Challenges and Opportunities

 Schindler Ltd.

 Schindler in Venezuela

 Doing Business in Venezuela

 Challenges and Opportunities

Plant 1900

Controller 1930 Drives 1954 Cars 1890

Lift boy

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 5 Elevator and Escalator Company We move one billion people every day Text may be inserted in either white, red or black on full- sized images.

Schindler 5x00 Schindler 3x00

Schindler 5300 Schindler 6x00 Schindler 2x00

Schindler 9500

Schindler 5300 Schindler 9300 Schindler 9700

Americas (North) Elevators: Europe North/South Schindler 330A Elevators: Schindler 400A Schindler 3x00 Schindler 500A Schindler 5x00 Schindler 7000 Schindler 2x00 Asia/Pacific Escalators: Schindler 6x00 Elevators: Schindler 9x00 Schindler 7000 Schindler 3300 Escalators Schindler 5300 Schindler 9x00 Schindler 7000 Escalators Schindler 9x00

Americas (South) Elevators: Schindler 3x00 Schindler 5300 Schindler 7000 Escalators: Schindler 9x00 over 48’000 employees – more than 100 countries

Escalator group Corp. R&D-HQ competence Vienna center Vienna Ebikon R&D-AP Ebikon Slowakia Shanghai R&D-NA Locarno Suzhou Randolph Hanover, PA Zaragoza Electronic Suzhou Clinton, NC Suzhou Shanghai; new campus Escalator under construction R&D-AP Step Pune Pune; new campus under construction R&D-SA São Paulo

Londrina

 Schindler Ltd.

 Schindler in Venezuela

 Doing Business in Venezuela

 Challenges and Opportunities

Main Branches in Barquisimento Boleita Caracas Prados del Este Sabana Grande Main Service points Barinas Maracaibo Portamar Puerto la Cruz Sao Paulo Puerto Ordaz San Cristóbal

Londrina Since 1949

More than 60 years of history © Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 12 Doing Business in Venezuela Agenda

 Schindler Ltd.

 Schindler in Venezuela

 Doing Business in Venezuela

 Challenges and Opportunities

. Starting a business with foreign investments . Investment promotion, intellectual property . Currency and Exchange controls . Foreign trade and Licenses . Choice of entity . Corporate taxation . Income Tax, value added Tax, excise Taxes, Municipal Taxes . Transfer pricing regime . Custom duties . Inheritance and gift taxes . Oil and Gal Industry taxation . Employing workers and labor regulations . Immigration

. Marrakesh Agreement = World Trade Organization (WTO)

. Latin-American Integration Association (LAIA)

. The Free Trade Agreement, Colombia, Mexico and Venezuela (G-3)

. Andean Community

. Central American Common Market (CACM)

. Venezuela and the Caribbean

. Venezuela and Chile

. Venezuela and MERCOSUR

. Foreign Investment areregulatedbyDecree 2.095 of February 13th, 1992.

. Following these regulations, all foreign investments are deemed approved and they are only subject to registration with the appropriate agency, provided that they do not contravene any provision of general applicability under Venezuelan legislation.

. The allowed proportion of foreign investment depends upon the sector in which the company is planning its activities, as there are some limited sectors reserved to national enterprises.

Doing Business in Venezuela requires to those new companies taking four different types of structure under the Venezuelan legal framework (Code of Commerce).

. General partnerships are characterized by the way in which obligations of the firm are guaranteed by the unlimited and joint liability of all the partners.

. In special partnerships, obligations are guaranteed unlimited and joint liability for some partners (general partners), and by limited liabilities for other partners (special partners). In both these partnerships, liabilities include all partners' assets.

. Business corporations' obligations are guaranteed by a specified amount of capital and the stockholders are liable only for their shares.

. The Language . Society & Culture . Family values . Hospitality and religion . Time and meals . Corporate culture . Business dress . Relations & Communication

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 18 . The language  The people of Venezuela speak Spanish (official), and numerous indigenous dialects. There are about 40 languages spoken in Venezuela but most of its people speak Spanish.

 In 1999 the Venezuelan constitution declared Spanish as the language spoken by indigenous people from Venezuela.

 An example of some languages spoken is Warao, Pemon, Mapoyo, Panare, and Pémono.

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 19 . Society & Culture  Venezuelans are proud of their country and heritage. Simon Bolivar, who liberated much of South America from the Spanish colonialists, was born in Venezuela.

 Their flag is a national icon and is respected and admired.

 There are four separate public holidays that commemorate independence, during which time flags are flown outside private houses as well as public buildings and there are street parades.

 The individual derives a social network and assistance in times of need from the extended family.

 In villages it is common for members of the extended family to live close to one another, often on the same block.

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 21 . Hospitality and Religion  Venezuelans pride themselves on their hospitality. They go out of their way to make guests feel welcome and comfortable.

 Venezuelan hosts cater to their every desire.

 Freedom of religion is guaranteed by the Venezuelan constitution. More than 90% of the population is Roman Catholic. Some indigenous people practice their traditional religions, but many have converted to Roman Catholicism.

 The host saying 'buen provecho' (enjoy or have a good meal) is the customary invitation for everyone to eat or wait for the toast before drinking.

 Always keep your hands visible when eating, but do not rest your elbows on the table. Moreover, it is considered polite to leave a small amount of food on your plate when you have finished eating.

 When shaking hands, always use the appropriate greeting for the time of day 'buenos dias', 'buenas tardes', or 'buenas noches'.

 When meeting groups always introduce yourself to the eldest person first. When leaving, say good-bye to each person individually.

 It will take several meetings to come to an agreement. Negotiation and time for consultation are important. Relationships are viewed as more important than business documents.

 Negotiations and decisions take a long time and on top, Venezuelans focus on long- term rather than short-term goals.

 Dress conservatively but with an elegant flair. Smart casual dress is usually acceptable.

 Men should wear good quality, conservative, dark colored business suits.

 Women should wear stylish suits or dresses. They should be elegantly dressed, including make-up, jewelry and manicures.

 As with many Latin cultures, Venezuelans are risk averse, which makes it important that they know and trust the people with whom they do business.

 Venezuelans prefer face-to-face meetings to doing business by telephone or in writing, which are seen as too impersonal. It takes time to develop relationships.

 Schindler Ltd.

 Schindler in Venezuela

 Doing Business in Venezuela

 Challenges and Opportunities

. Murderous crime rates . Soaring inflation 56% . Political gulfs . Foreign friends and enemies . Shortages . Oil barrels . Black market in dollars

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 29 Murderous crime rates  With guns prevalent, drugs rife and local militias often stronger than the police, the public security situation has reached alarming levels.

 Venezuela has become one of the most dangerous countries in the world after a nearly fourfold rise in murders since 1998.

 The prison system has become a training ground for criminals.

 With high costs, low incentives and poor management, there is little domestic production or investment. This leads to an unbalanced economy in which exports of anything other than oil have virtually dried up and expropriations of land and property have stifled businesses in other areas.

 Public infrastructure investment has also been weak, resulting in shoddy roads and inadequate transport systems.

 The opposition is hardly in a more stable position. It has long been fragmented, but managed to unite behind Henrique Capriles for last year's presidential election.

 Whether they can retain this unity in the post-Chávez era remains to be seen.

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 32 Foreign friends and enemies  Under Chávez, Venezuela realigned itself politically away from the United States, moved closer to China, Russia and Cuba, and spearheaded regional integration.

 Chávez – with Maduro as his foreign minister – has embraced Iran, Syria and Libya, and borrowed heavily from China, while also being credited with an influential role in the peace process that has eased tensions in conflict-torn Colombia.

 Maduro – who is close to Cuba – is unlikely to make any dramatic public change and started the post-Chávez era by expelling two US diplomats.

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 33 Shortages  One of the reasons Venezuelans have been protesting all over the country for weeks is because of mass shortages of food and other goods

 Consumer prices have risen 56% since Nicolas Maduro took power in 2013.

 This line gives you a pretty stunning impression of what that's like — of how many Venezuelans have to get in line for hours to feed themselves and their families every day.

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 34 Oil barrels  Imports from Venezuela to the U.S. are down to, on average, 900k barrels a day or less, and sometimes it drops substantially below that. So, the relative importance of Venezuela to the U.S. has changed.

 Even if America is less vulnerable than it used to be, however, Venezuela is still important to the global oil market.

 Any production outage would cause a significant price spike.

 While changing money on the black market is a crime, it is very easy to find a trader.

 The official exchange rate is currently 6.30 bolivars to the dollar. On the black market, the exchange rate is 10 times higher.

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 36 Conclusions and key issues to watch:  Venezuelan opposition leader will continue to challenge presidential election results. Opposition candidate Henrique Capriles Radonski has challenged the results of the 14 April 2013 presidential election.

 Arbitration rulings against Venezuela will be issued in the one-year outlook.

 Venezuela's withdrawal from the International Centre for Settlement of Investment Disputes will not affect the government's liability with regards to more than 20 pending cases.

© Schindler | Doing Business in Venezuela | Pérez Rocholl | Page 37 Conclusions and key issues to watch:  Venezuelan Energy sector risks will continue. The country is suffering from an electricity crisis that needs urgent attention. The investments made in the sector since 2010 will not be able to fully alleviate the problems, so the risk of shortages and power outages throughout 2013 and onwards remains high.

 Evidence from economic policy decisions made shows that President Nicolas Maduro is following the policy template established by Hugo Chavez in the past.

 Maduro lacks the popularity that Chavez enjoyed.

And good luck with your next trip to Venezuela.