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Aventine Scenarios Pres May09

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Presentation concerning the use of scenarios as a way to generate and evaluate ideas for new business opportunities amidst the economic crisis.

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Aventine Scenarios Pres May09

  1. 1. + Jerry Hughes, Managing Partner The Upside to the Downturn Placing Strategic Bets in a Time of Extreme Uncertainty
  2. 2. + “How I learned to stop worrying and love the crisis.” Copyright 2009 Aventine Partners, LLC 1
  3. 3. + Core ideas  Attitude: Optimism!  Tools: Scenarios  Content: Euromerica, Lever Lever Land, Back to Basics, Do-Over Copyright 2009 Aventine Partners, LLC 2
  4. 4. + We’ve moved from a period of variability to extreme uncertainty Professional Forecaster Forward GDP Growth Probabilities 2006 2008 50% 40% Mean Probability 30% 20% 10% 0% < -2% -2 to -1 to 0 to 1 to 2 to 3 to 4 to 5 to > 6% -1% 0% 1% 2% 3% 4% 5% 6% Source: Philadelphia Federal Reserve Bank Forward GDP Growth Copyright 2009 Aventine Partners, LLC 3
  5. 5. + The bad news: Your traditional markets will never exist again  Consumer demand patterns are changing, possibly permanently  The government will be driving more supply, demand, and regulation than in the past  Many buyers, both business and consumer, are actively reevaluating their supplier relationships  The fact of the economic crisis will change priorities and the way decisions are made for the foreseeable future Copyright 2009 Aventine Partners, LLC 4
  6. 6. + The good news: Your competitors’ traditional markets will never exist again  Your competitors face the same challenges  The downturn will weed out competition in many markets  The incumbent’s advantage is greatly diminished  Fiscally conservative companies with tight operations will survive  The benefits of hunkering down are greatly diminished Copyright 2009 Aventine Partners, LLC 5
  7. 7. + The really good news: Brand new markets with no incumbents will emerge  Public sector investment in certain industries will outstrip current supply, necessitating the entry of new competition  The price of entry to new markets will in many cases be low  Existing businesses that have related assets, know how, or relationships to leverage will have an advantage Copyright 2009 Aventine Partners, LLC 6
  8. 8. + Three pieces to successful transition to new businesses  Avoid catastrophic losses  Survive to your future  Tightly manage legacy businesses  Fund your future  Gain exposure to high-upside sectors  Be there when the future happens Copyright 2009 Aventine Partners, LLC 7
  9. 9. + “Ninety percent of life is just showing up.” Copyright 2009 Aventine Partners, LLC 8
  10. 10. + Scenario planning is an effective tool for addressing extreme uncertainty  Popular business tool in 1980s and 1990s, but fell out of favor  Theillusion of quantifiable risk and Monte Carlo simulations  Identify areas of greatest potential change and uncertainty  Think of the consequences of a variety of extreme outcomes Copyright 2009 Aventine Partners, LLC 9
  11. 11. + Four scenarios driven by levels of government activity and consumerism High Government Activity High Consumerism Low Low Copyright 2009 Aventine Partners, LLC 10
  12. 12. + Examples for some of our scenarios already exist, but not for others Sweden France Finland Italy Netherlands Brazil Russia Britain Spain New Zealand Germany Poland Australia Romania Japan USA Switzerland South Africa South Korea Turkey Argentina Mexico China India Malaysia Taiwan Copyright 2009 Aventine Partners, LLC 11
  13. 13. + Examples for some of our scenarios already exist, but not for others Sweden France High Government Finland High Government Italy Involvement Involvement Netherlands Moderate High Consumerism Russia Brazil Spain Consumerism Britain Germany New Zealand Poland Australia Romania Japan USA Switzerland South Africa South Korea Turkey Low Government Low Government Argentina Involvement Involvement Mexico Moderate High Consumerism China India Consumerism Malaysia Taiwan Copyright 2009 Aventine Partners, LLC 12
  14. 14. + The current path seems to be toward a European model Key Themes: • Public trades affluence for EURO-MERICA security • Heavy state involvement in High Government Involvement investment projects, regulation Moderate Consumerism and social safety net • Sector-specific support and protectionism • Dampened consumer demand keeps inflation in check • State capitalism increases political friction among nations and blocs • Protectionism and import substitution policies reverse 2009 Aventine Partners, LLC Copyright 13 trade imbalances
  15. 15. + The temptation to simply kick-start the consumer economy may prove strong Key Themes: LEVER LEVER LAND • Government manages financial sector to resume credit-driven High Government Involvement growth High Consumerism • Political pressures lead to explicit policy of socializing debt • Rekindled demand sparks inflation, weakened dollar, and renewed financial crisis • Trade collapses due to locking up of international financial system • Second crisis is worse than 2008/2009 Copyright 2009 Aventine Partners, LLC 14
  16. 16. + Society may adjust steadily, giving the market economy time to right itself Key Themes: • Steady rebalancing of consumer demand enables market mechanisms to handle adjustment • Greater emphasis on work and leisure balance moderates workforce shocks and drives productivity gains BACK TO BASICS • Government maintains increased regulatory activity in Low Government Involvement selective sectors, particularly Moderate Consumerism health care • Market- and state-led developments reduce income2009 Aventine Partners, LLC Copyright 15 disparities
  17. 17. + Resilient foreign markets may provide the fuel to re-stoke consumer demand Key Themes: • The saving/spending relationship between East and West resumes • Off-shoring trends continue, as does the increase in foreign ownership of Western business • Raw material prices resume DO-OVER upward trajectory • Controls on consumer debt Low Government Involvement levels are maintained, leading to High Consumerism an inability for many to resume past consumption levels • Loss of international prestige and reduced standard of living Copyright 2009 Aventine Partners, LLC 16 fuel political and social unrest
  18. 18. + Finding opportunities and areas of resiliency LEVER LEVER LAND EURO-MERICA High Government Involvement High Government Involvement High Consumerism Moderate Consumerism DO-OVER BACK TO BASICS Low Government Involvement Low Government Involvement High Consumerism Moderate Consumerism Copyright 2009 Aventine Partners, LLC 17
  19. 19. + Recap  The crisis will produce winners  Incumbents will be de-throned, but having existing customers, assets, and knowledge creates advantages  Place strategic bets based on possibility of high upside Copyright 2009 Aventine Partners, LLC 18
  20. 20. + Acknowledgements and Further Reading  Shell on scenarios (www.shell.com/scenarios)  Finnish Global Scenarios (www.eva.fi)  Scenarios and Strategy (scenariosandstrategy.wordpress.com)  UmarHaque on Capitalism 2.0 (blogs.harvardbusiness.org/haque/)  Niall Ferguson on The Great Unwinding (http://thebankwatch.com/2009/02/04/the-great- unwinding-part-1-2009-2012/)  Spengler’s Critique of “Lever Lever Land” (http://www.atimes.com/atimes/Global_Economy/JL25Dj02 .html) Copyright 2009 Aventine Partners, LLC 19

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