Road Map to
International Growth


Todd Erwin           One Stop Parts Source
Jeremy Denton        AASA
Mike McKee        ...
Agenda

• North American Market Overview
  – Key Aftermarket Metrics

• Roadmap for International Growth
  – Country Risk ...
International Crisis
Looking Ahead – North American
Market Key Points
• North American aftermarket will face a dramatically
  different landsca...
North American Market
• North America
  – GDP (per capita) down 4% since 2007
  – VIO ~ 242 Million
  – Light Vehicle Sale...
North American Market –
Miles Driven

• Single most important factor for our sector in the short-
  term
• Annual growth i...
Projected Aftermarket Growth Trends
By Vehicle Age
 • Average age of vehicles is increasing
 • Consumers are keeping car l...
U.S. Average Age of Light
Vehicles
• The average age of light vehicles in the US is
  predicted to continue to grow for a ...
North American Vehicles in
Operation “VIO”
• Detroit manufacturers are losing market share to
  foreign competitors

     ...
Looking Ahead – Key Markets
•   China
     – GDP (per capita) up 16% since 2007
     – Light Vehicle Sales up 150% since 2...
Agenda

• North American Market Overview
  – Key Aftermarket Metrics

• ROADMAP FOR INTERNATIONAL GROWTH
  – Country Risk ...
Roadmap for International Growth


     Road Map for                                   Evaluation of   Understand
        ...
Country Risk Assessment

       Country           Natural
                     Resources &                      Competitio...
Country Risk Assessment

                                                                       Country
  Indicator       ...
Country Risk Assessment


                                                                             “Water, water, ever...
Country Risk Assessment


                                                                                Country
        ...
Country Risk Assessment



                                                                                               ...
Country Risk Assessment


                                                                                            Coun...
Country Risk Assessment


                                                                       Country


               ...
Country Risk Assessment

• Competition Analysis
  – Determine What Customers in the Country Need
    • What Vehicles Do Th...
Roadmap for International Growth


     Road Map for                                   Evaluation of   Understand
        ...
Operational Risk Analysis

       Operational    Physical
                                    Political   Currency
       ...
Operational Risk Analysis

• Physical Facilities & IT Risk
  – Physical Security
     • Natural Disaster
     • Terrorism
...
Operational Risk Analysis

• Political Risk
   –   Currency Inconvertibility
   –   Expropriation
   –   Political Violenc...
Operational Risk Analysis
Operational Risk Analysis
Operational Risk Analysis

• Currency Risk
  – Risk identification
     • Translation Risk
     • Transaction Risk
     • ...
Roadmap for International Growth


    Road Map for                                   Evaluation of   Understand
         ...
Market Entry Options

    Evaluate                                         Wholly-
                                       ...
Risk Analysis Matrix

                                  Country Risks
                                                    ...
Roadmap for International Growth


     Road Map for                                   Evaluation of   Understand
        ...
Understand Exit Strategies

                   Exporting
                                 • Stop
                         ...
Roadmap for International Growth


     Road Map for                                   Evaluation of   Understand
        ...
Market Entry

 • Keys to Success
   – Research, Research, Research
      •   Country-Based Research
      •   Competitive ...
Conclusion

   Perform Country Risk Assessment
   Perform Operational Risk Analysis
   Evaluate Market Entry Options
 ...
Thomas Friedman


“There was a time when America's semiconductors industry
  dominated the world, but then companies from ...
References
   Automotive Aftermarket Suppliers Association, 2009-2010 Automotive Aftermarket Status
    Report & World Mo...
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Roadmap For International Growth Final

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Team presentation at Leadership 2.0, University of the Aftermarket, Northwood University, April 15, 2010.

This presentation outlines a roadmap for international growth, with a general matrix for market entry decisions.

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Roadmap For International Growth Final

  1. 1. Road Map to International Growth Todd Erwin One Stop Parts Source Jeremy Denton AASA Mike McKee Federal-Mogul Debbie Vandecaveye Tenneco Leadership 2.0 (2009-2010)
  2. 2. 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
  3. 3. International Crisis
  4. 4. 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
  5. 5. North American Market • North America – GDP (per capita) down 4% since 2007 – VIO ~ 242 Million – Light Vehicle Sales down 38% since 2005 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 R A 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 SA 09 20
  6. 6. North American Market – Miles Driven • 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 Annual Miles Driven - U.S. 3,050 3,000 Billions of Miles 2,950 2,900 2,850 2,800 2007 2008 2009 SAAR Source: U.S. Dept. of Transportation; Federal Hwy. Admin.; Office of Hwy. Policy, May 2009
  7. 7. Projected Aftermarket Growth Trends By Vehicle Age • Average age of vehicles is increasing • Consumers are keeping car longer • Aftermarket “Sweet Spot” for repairs is flattening out Age “Sweet Spot” Flattens Out Source: IMR and RL Polk
  8. 8. U.S. Average Age of Light Vehicles • The average age of light vehicles in the US is predicted to continue to grow for a few more years Source: RL Polk
  9. 9. North American Vehicles in Operation “VIO” • Detroit manufacturers are losing market share to foreign competitors % Vehicles in Operation - North America 80% 74.0% 69.0% 63.0% 57.0% 60% 43.0% 37.0% 40% 31.0% 26.0% 20% 0% Foreign Nameplate Detroit 3 1998 2003 2008 2013(f) Source: Desrosiers Automotive Consultants, Ward’s Automotive, RL Polk
  10. 10. 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
  11. 11. 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
  12. 12. Roadmap for International Growth Road Map for Evaluation of Understand Country Risk Operational International Assessment Risk Analysis Market Entry Exit Market Entry Growth Options Strategies • COUNTRY RISK ASSESSMENT • Operational Risk Analysis • Evaluation of Market Entry Options • Understand Exit Strategies • Market Entry
  13. 13. Country Risk Assessment Country Natural Resources & Competition Risk Physical STEP Analysis Analysis Assessment Infrastructure • Country Risk Assessment – Natural Resources & Physical Infrastructure – STEP Analysis • Socio/cultural/demographic • Technical • Economic • Political – Competition Analysis
  14. 14. Country Risk Assessment Country Indicator China India Mexico coal, iron ore, petroleum, coal (fourth-largest natural gas, mercury, tin, reserves in the world), Natural tungsten, antimony, iron ore, manganese, Resource manganese, molybdenum, mica, bauxite, titanium Endowments vanadium, magnetite, ore, chromite, natural petroleum, silver, aluminum, lead, zinc, uranium, gas, diamonds, copper, gold, lead, hydropower potential (world's petroleum, limestone, zinc, natural gas, largest) arable land timber Self-sufficiency Renewable Water 2,829.6 cu km 1,907.8 cu km 457.2 cu km in Raw Proven Oil Reserves 15.55 billion bbls (13) 5.625 billion bbls (21) 10.5 billion bbls (17) Materials Proven Natural Gas (ranking) Reserves 2.46 trillion cu m (13) 1.08 trillion cu m (26) 372.7 billion cu m (35) Airports 482 (15) 349 (23) 1,744 (3) Infrastructure Ports 8 9 7 (ranking) 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
  15. 15. Country Risk Assessment “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? A farmer sits on the bed of the dried Niujiehe reservoir in Jiulong town, China Daily Updates Luoping county, Yunnan province. Since September, the region has been March 30, 2010 gripped by the worst drought in 100 years.
  16. 16. Country Risk Assessment Country Indicator China India Mexico Life Expectancy 71 years 66 years 76 years Access to Safe Water 88% 89% 90% Social, Education Spend/%GDP Cultural, & (year, ranking) 1.9 (1999, 170) 3.2% (2005, 140) 5.5% (2005, 49) Demographic Indicators School Life Expectancy 11 years 10 years 13 years Population 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
  17. 17. Country Risk Assessment Country Indicator China India Mexico Internet Users in Millions, 2008 (ranking) 298 (1) 81 (4) 23 (16) Technological Mobile Phones in Millions 634 (2008) 545 (2010) 75 (2008) Indicators 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
  18. 18. Country Risk Assessment Country Indicator China India Mexico 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% Economic Investment % of GDP, 2009 est. 42.6% (3) 32.1% (17) 20.8% (79) Indicators 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
  19. 19. Country Risk Assessment Country Indicator China India Mexico Political "Corruption Perceptions Index“ (ranking) 3.6 (72) 3.4 (85) 3.6 (72) Indicators Political Instability Index (1=low risk) 124 135 79 Sources: The Economist, Transparency International
  20. 20. 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
  21. 21. Roadmap for International Growth Road Map for Evaluation of Understand Country Risk Operational International Assessment Risk Analysis Market Entry Exit Market Entry Growth Options Strategies • Country Risk Assessment • OPERATIONAL RISK ANALYSIS • Evaluation of Market Entry Options • Understand Exit Strategies • Market Entry
  22. 22. Operational Risk Analysis Operational Physical Political Currency Risk Facilities & Risk Risk Analysis IT Risk • Managing Ongoing Operations – Set up risk management policies • Facilities and IT risk management • Political risk insurance • Currency hedging strategies – On-going monitoring country risks
  23. 23. 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
  24. 24. 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
  25. 25. Operational Risk Analysis
  26. 26. Operational Risk Analysis
  27. 27. 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
  28. 28. Roadmap for International Growth Road Map for Evaluation of Understand Country Risk Operational International Assessment Risk Analysis Market Entry Exit Market Entry Growth Options Strategies • Country Risk Assessment • Operational Risk Analysis • EVALUATION OF MARKET ENTRY OPTIONS • Understand Exit Strategies • Market Entry
  29. 29. Market Entry Options Evaluate Wholly- Joint Market Entry Exporting Licensing Owned Venture Options Subsidiary • Evaluating Market Entry Strategies – Exporting – Licensing/Franchising – Joint venture – Wholly-owned subsidiary
  30. 30. Risk Analysis Matrix Country Risks Country Risks Moderate Country Risks Unreasonable Favorable for Success Direct Exporting Should Limit Operational If Competitive Strategy is Risk; Review Insurance Options Consider All Market Entry Risks Favorable Favorable – Consider All Market for a Wholly Owned Subsidiary;2 Strategies Available for Success Entry Strategies Available JV’s and Franchises Remain Viable Options1 If Competitive Strategy is Review Operational Insurance Favorable, Review Operational Operational Options for a Wholly Owned Insurance Options for a Wholly Exporting Risks Moderate Subsidiary; JV’s, Franchises and Owned Subsidiary; JV’s, Franchises Recommended Exporting Remain Viable Options1 and Exporting Remain Viable Options1 JV with an Established Presence in the Market may Enhance Chances of Success while Limiting Operational Operational Liabilities;1 Exporting Exporting Risks Operational Risk Insurance Recommended Recommended Unreasonable Imperative for Wholly Owned Subsidiary; Franchises and Exporting Viable Options. 1 JV’s 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.
  31. 31. Roadmap for International Growth Road Map for Evaluation of Understand Country Risk Operational International Assessment Risk Analysis Market Entry Exit Market Entry Growth Options Strategies • Country Risk Assessment • Operational Risk Analysis • Evaluation of Market Entry Options • UNDERSTAND EXIT STRATEGIES • Market Entry
  32. 32. Understand Exit Strategies Exporting • Stop Exporting • Sell Licensing Licenses or Business Unit • Disengage Joint Venture from Partners Wholly- Owned • IPO or Seek Subsidiary Buyer
  33. 33. Roadmap for International Growth Road Map for Evaluation of Understand Country Risk Operational International Assessment Risk Analysis Market Entry Exit Market Entry Growth Options Strategies • Country Risk Assessment • Operational Risk Analysis • Evaluation of Market Entry Options • Understand Exit Strategies • MARKET ENTRY
  34. 34. 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
  35. 35. 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
  36. 36. 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
  37. 37. 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  Ward’s Automotive  Weckesser, Dr. Tim. “Doing Business in China,” Presentation at AAPEX, November, 2010  World Bank Development Diamond

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