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Road Map to International Growth
Todd Erwin One Stop Parts SourceJeremy Denton AASAMike McKee Federal-MogulDebbie Vandecaveye Tenneco
Leadership 2.0 (2009-2010)
Agenda
North American Market Overview Key Aftermarket Metrics
Roadmap for International Growth Country Risk Assessment Operational Risk Analysis Evaluation of Market Entry Options Understand Exit Strategies Market Entry
International Crisis
Looking Ahead North American Market Key Points North American aftermarket will face a dramatically
different landscape in the next decade Historically the growing car PARC has been almost automatic; the rate of
growth that we experienced in the past may not return for another decade It is likely that we will not see the previous levels of vehicle usage for many
years to come The average age of vehicles will slowly change as people are keeping their
vehicles longer There is a shift towards smaller, more fuel efficient passenger cars and away
from light trucks The vehicle population is becoming fragmented with many different OEM
brands and orphaned older car makes North American aftermarket should remain stable for next decade at around
$210 billion annually (No collision) To achieve top lines sales growth, many companies will and have made the
decision to enter into emerging markets like China, India and Mexico
North American Market
North America GDP (per capita) down 4% since 2007 VIO ~ 242 Million Light Vehicle Sales down 38% since 2005
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
SAAR
North American Market Miles Driven
Annual Miles Driven - U.S.
2,800
2,850
2,900
2,950
3,000
3,050
2007 2008 2009 SAAR
Billi
ons
of M
iles
Single most important factor for our sector in the short-term
Annual growth in vehicle usage has stopped Vehicle usage now 200 billion lower than peak
Source: U.S. Dept. of Transportation; Federal Hwy. Admin.; Office of Hwy. Policy, May 2009
Projected Aftermarket Growth Trends By Vehicle Age
Source: IMR and RL Polk
Age Sweet Spot Flattens Out
Average age of vehicles is increasing Consumers are keeping car longer Aftermarket Sweet Spot for repairs is flattening out
U.S. Average Age of Light Vehicles
Source: RL Polk
The average age of light vehicles in the US is predicted to continue to grow for a few more years
North American Vehicles in Operation VIO
Detroit manufacturers are losing market share to foreign competitors
Source: Desrosiers Automotive Consultants, Wards Automotive, RL Polk
% Vehicles in Operation - North America
26.0%
74.0%
31.0%
69.0%
37.0%
63.0%
43.0%
57.0%
0%
20%
40%
60%
80%
Foreign Nameplate Detroit 31998 2003 2008 2013(f)
Looking Ahead Key Markets China
GDP (per capita) up 16% since 2007 Light Vehicle Sales up 150% since 2005 VIO ~ 40 Million
India GDP (per capita) up 11% since 2007 Light Vehicle Sales up 60% since 2005 VIO ~ 11 Million
Mexico GDP (per capita) down 6% since 2007 Light Vehicle Sales down 15% since 2005 VIO ~ 13.6 Million
North America GDP (per capita) down 4% since 2007 Light Vehicle Sales down 38% since 2005 VIO ~ 242 Million
Agenda
North American Market Overview Key Aftermarket Metrics
ROADMAP FOR INTERNATIONAL GROWTH Country Risk Assessment Operational Risk Analysis Evaluation of Market Entry Options Understand Exit Strategies Market Entry
Roadmap for International Growth
COUNTRY RISK ASSESSMENT Operational Risk Analysis Evaluation of Market Entry Options Understand Exit Strategies Market Entry
Road Map for International
GrowthCountry Risk Assessment
Operational Risk Analysis
Evaluation of Market Entry
Options
Understand Exit
StrategiesMarket Entry
Country Risk Assessment
Country Risk Assessment Natural Resources & Physical Infrastructure STEP Analysis
Socio/cultural/demographic Technical Economic Political
Competition Analysis
Country Risk
Assessment
Natural Resources &
Physical Infrastructure
STEP Analysis Competition Analysis
Country Risk Assessment
CountryIndicator China India Mexico
Natural Resource
Endowments
coal, iron ore, petroleum, natural gas, mercury, tin,
tungsten, antimony, manganese, molybdenum,
vanadium, magnetite, aluminum, lead, zinc, uranium,
hydropower potential (world's largest)
coal (fourth-largest reserves in the world), iron ore, manganese,
mica, bauxite, titanium ore, chromite, natural
gas, diamonds, petroleum, limestone,
arable land
petroleum, silver, copper, gold, lead,
zinc, natural gas, timber
Self-sufficiency in Raw
Materials(ranking)
Renewable Water 2,829.6 cu km 1,907.8 cu km 457.2 cu km
Proven Oil Reserves 15.55 billion bbls (13) 5.625 billion bbls (21) 10.5 billion bbls (17)Proven Natural Gas
Reserves 2.46 trillion cu m (13) 1.08 trillion cu m (26) 372.7 billion cu m (35)
Infrastructure (ranking)
Airports 482 (15) 349 (23) 1,744 (3)
Ports 8 9 7
Railways 77,834 km (3) 63,327 km (4) 17,516 km (16)
Roadways 3,583,715 km (2) 3,316,452 km (3) 356,945 km (19)
Sources: CIA World Factbook; World Bank Development Diamond
Country Risk Assessment
A farmer sits on the bed of the dried Niujiehe reservoir in Jiulong town, Luoping county, Yunnan province. Since September, the region has been gripped by the worst drought in 100 years.
Water, water, everywhere but
With about 1,000 rivers and lakes, Yunnan ranks third in China when it comes to water resources. It also wins bronze for its annual average rainfall. So in a region with such natural abundance, why are millions continuing to thirst as the southwest suffers its worst drought in 100 years?
China Daily UpdatesMarch 30, 2010
Country Risk Assessment
CountryIndicator China India Mexico
Social,Cultural, &
DemographicIndicators
Life Expectancy 71 years 66 years 76 years
Access to Safe Water 88% 89% 90%Education Spend/%GDP (year, ranking) 1.9 (1999, 170) 3.2% (2005, 140) 5.5% (2005, 49)
School Life Expectancy 11 years 10 years 13 yearsPopulation in Millions, 2009(ranking) 1.339 (1) 1.157 (2) 111 (11)
Adult Literacy 91% 61% 91%
Sources: CIA World Fact book; World Bank Development Diamond
Country Risk Assessment
Country
Indicator China India Mexico
Technological Indicators
Internet Users in Millions, 2008 (ranking) 298 (1) 81 (4) 23 (16)
Mobile Phones in Millions 634 (2008) 545 (2010) 75 (2008)Energy Consumption per Person (in Million BTU) 56.2 15.9 68.5
E-Readiness Rankings 56 58 40
Sources: CIA World Fact book; World Bank Development Diamond, The Economist, Energy Information Administration
Country Risk Assessment
Country
Indicator China India Mexico
Economic Indicators
GDP in $US Trillions, 2009 (ranking) $8.791 (3) $3.561 (5) $1,473 (12)
GDP Real Growth Rate, 2009 est. 8.7% 6.5% -7.1%Manufacturing Percent of GDP 27.2% 20% 34.5%Percent Employment in Industry 48.1% (2006) 14% 25.70%
Investment % of GDP, 2009 est. 42.6% (3) 32.1% (17) 20.8% (79)Unemployment, 2009 est. (ranking) 4.3% (38) 10.7% (119) 6.2% (59)Consumer Price Inflation, 2009 est. (ranking) -0.8% (9) 10.7% (194) 5.3% (146)Average Annual Inflation (ranking) 2.78% (131) 9.05% (192) 5.3% (148)
Operational Risk Index (1=low risk) 47 51 44
Sources: CIA World Fact book; World Bank Development Diamond, The Economist
Country Risk Assessment
Country
Indicator China India Mexico
Political Indicators
"Corruption Perceptions Index (ranking) 3.6 (72) 3.4 (85) 3.6 (72)
Political Instability Index (1=low risk) 124 135 79
Sources: The Economist, Transparency International
Country Risk Assessment
Competition Analysis Determine What Customers in the Country Need
What Vehicles Do They Drive? How Old is the Average Vehicle?
Research Competitors in the Market Quality, Price, Availability and Service Learn Who is Successful, Who is Failing, and Why
Determine if There is Room in the Market Based on Your Competitive Strategy
Roadmap for International Growth
Country Risk Assessment OPERATIONAL RISK ANALYSIS Evaluation of Market Entry Options Understand Exit Strategies Market Entry
Road Map for International
GrowthCountry Risk Assessment
Operational Risk Analysis
Evaluation of Market Entry
Options
Understand Exit
StrategiesMarket Entry
Operational Risk Analysis
Managing Ongoing Operations Set up risk management policies
Facilities and IT risk management Political risk insurance Currency hedging strategies
On-going monitoring country risks
Operational Risk
Analysis
Physical Facilities &
IT RiskPolitical
RiskCurrency
Risk
Operational Risk Analysis
Physical Facilities & IT Risk Physical Security
Natural Disaster Terrorism Theft
IT Security Virus Protection Hackers Data Theft
Intellectual Property Copyrights, Trademarks, Patents, Domain Names
Operational Risk Analysis
Political Risk Currency Inconvertibility Expropriation Political Violence Terrorism
Coverage Options Overseas Private Investment Corporation
No OPIC Agreement with China Coverage Options Available in India, Mexico
Export Import Bank of the US Multilateral Investment Guarantee Agency (Miga) World
Bank
Operational Risk Analysis
Operational Risk Analysis
Operational Risk Analysis
Currency Risk Risk identification
Translation Risk Transaction Risk Competitor Pricing
Hedging Techniques Forward Contracts Speculation Currency Investments or Borrowing Call or Put Options
Roadmap for International Growth
Country Risk Assessment Operational Risk Analysis EVALUATION OF MARKET ENTRY OPTIONS Understand Exit Strategies Market Entry
Road Map for International
GrowthCountry Risk Assessment
Operational Risk Analysis
Evaluation of Market Entry
Options
Understand Exit
StrategiesMarket Entry
Market Entry Options
Evaluating Market Entry Strategies Exporting Licensing/Franchising Joint venture Wholly-owned subsidiary
Evaluate Market Entry
OptionsExporting Licensing Joint Venture
Wholly-Owned
Subsidiary
Risk Analysis Matrix
Country Risks Favorable for Success
Country Risks Moderate Country Risks Unreasonable
Operational Risks Favorable
for Success
Consider All Market Entry Strategies Available
If Competitive Strategy is Favorable Consider All Market
Entry Strategies Available
Direct Exporting Should Limit Risk; Review Insurance Optionsfor a Wholly Owned Subsidiary;2
JVs and Franchises Remain Viable Options1
Operational Risks Moderate
Review Operational Insurance Options for a Wholly Owned
Subsidiary; JVs, Franchises and Exporting Remain Viable Options1
If Competitive Strategy is Favorable, Review Operational Insurance Options for a Wholly
Owned Subsidiary; JVs, Franchises and Exporting Remain Viable
Options1
Exporting Recommended
Operational Risks
Unreasonable
JV with an Established Presence in the Market may Enhance Chances
of Success while Limiting Operational Liabilities;1
Operational Risk Insurance Imperative for Wholly Owned
Subsidiary; Franchises and Exporting Viable Options.
ExportingRecommended
Exporting Recommended
1 JVs and possibly Franchises can increase your operational risks by opening up IP intelligence to other entities. Be sure you trust any potential partners.2 Consider a subsidiary in a friendly, neighboring country (if possible) for quick access to the market and IP protection.
Roadmap for International Growth
Country Risk Assessment Operational Risk Analysis Evaluation of Market Entry Options UNDERSTAND EXIT STRATEGIES Market Entry
Road Map for International
GrowthCountry Risk Assessment
Operational Risk Analysis
Evaluation of Market Entry
Options
Understand Exit
StrategiesMarket Entry
Understand Exit Strategies
Exporting Stop Exporting
Licensing
Sell Licenses or Business Unit
Joint Venture
Disengage from Partners
Wholly-Owned
Subsidiary
IPO or Seek Buyer
Roadmap for International Growth
Country Risk Assessment Operational Risk Analysis Evaluation of Market Entry Options Understand Exit Strategies MARKET ENTRY
Road Map for International
GrowthCountry Risk Assessment
Operational Risk Analysis
Evaluation of Market Entry
Options
Understand Exit
StrategiesMarket Entry
Market Entry
Keys to Success Research, Research, Research
Country-Based Research Competitive Market Research Pricing, Competitors Define Your Long and Short Term Strategies Learn Local Laws Concerning General Operations Understand Your Ongoing Operational Management Risks
Choose the Appropriate Market Entry Strategy Choose Trusted Partners (If Applicable)
Build Relationships With Partners Prior to Engagement Determine if Locals or Expatriates Should Manage
Operations
Conclusion
Perform Country Risk Assessment Perform Operational Risk Analysis Evaluate Market Entry Options Understand Your Potential Exit Strategies Use Insight Gleaned to Enter the Market
Wisely
Thomas Friedman
There was a time when America's semiconductors industry dominated the world, but then companies from other countries came along and gobbled up the low end of the market. Some even moved into the higher end. American companies were then forced to find newer, deeper specialties in the expanded market. If that weren't happening, Intel would be out of business today. Instead, it is thriving.
-Thomas Friedman, The World is Flat
References Automotive Aftermarket Suppliers Association, 2009-2010 Automotive Aftermarket Status
Report & World Motor Vehicle Market Report China Daily Updates CIA World Fact book Desrosiers Automotive Consultants The Economist Energy Information Administration Export Import Bank of the USA Friedman, Thomas. The World is Flat, 2005 Ginn, Dr. Jane. Global Business Strategies, Presentation for the Filter Manufacturers Council,
September 2008 Miga-EIU Political Risk Survey, December 2009 Overseas Private Investment Corporation R.L. Polk Transparency International U.S. Dept. of Transportation; Federal Highway Administration; Office of Highway Policy Wards Automotive Weckesser, Dr. Tim. Doing Business in China, Presentation at AAPEX, November, 2010 World Bank Development Diamond
Road Map to International GrowthAgendaInternational CrisisLooking Ahead North American Market Key PointsNorth American MarketNorth American Market Miles DrivenProjected Aftermarket Growth Trends By Vehicle AgeU.S. Average Age of Light VehiclesNorth American Vehicles in Operation VIOLooking Ahead Key Markets AgendaRoadmap for International GrowthCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentCountry Risk AssessmentRoadmap for International GrowthOperational Risk AnalysisOperational Risk AnalysisOperational Risk AnalysisOperational Risk AnalysisOperational Risk AnalysisOperational Risk AnalysisRoadmap for International GrowthMarket Entry OptionsRisk Analysis MatrixRoadmap for International GrowthUnderstand Exit StrategiesRoadmap for International GrowthMarket EntryConclusionThomas FriedmanReferences