Beyond Exporting… Options for International Growth John Dearing Capstone July 24, 2009.

Beyond Exporting… Options for International Growth

John DearingCapstoneJuly 24, 2009

Agenda• Introduce and discuss international growth

options

• Overview of challenges and how to address them

• A brief synapses of a systematic and proactive process

• Q&A2

About Capstone

•A “growth engineering” firm

•External growth specialists

•Growth strategy development

•Process-focused, industry agnostic

•International experience

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What are your international growth options?

The Strategic Overview

4

Start with strategic planning and objectives

Build the Foundation

5

The Opportunity MatrixExisting Markets New Markets

Consolidation – Partner with competitors in current market

Capture additional market share

Distribution – Bring services and/or competencies to new

markets

Identify attractive new markets

Breadth – Offer complementary services to current markets

Expand services to add more value to customer

Facilitate cross selling of products/services in existing markets

Diversification – Offer new services to new markets

RISKY !

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• Do you have a strong domestic core business?

• Have you prioritized the countries and regions in which to move - undertaking a rigorous process to identify profitable markets for expansion?

• What is the best way for your company to enter foreign markets: Build – Borrow – Buy?

Pre-entry International Checklist

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Effectiveness Frankework

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International Growth Options

Transactions Direct InvestmentLocated domestically & administratively controlled

Foreign located & contractually controlled

Foreign located & administratively controlled

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What are the challenges of going international?

…and how do we deal with them?

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Types of Challenges

Pre-entry Ongoing/Post-entry•Internal resources•Financial risk•Government/legal•Strategy development•Market research•Company pre-due diligence

•Business practices

•Enforcing contracts/ accountability across borders

•Political instability•Information asymmetry•Geographical distance•IP protection•Infrastructure•Cultural differences

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Overcoming the ChallengesPre-entry Ongoing/Post-entry•Reputable market expert•Use of networks; develop long-term relationships

•Third-party resources•Government•Development organizations

•Systematic process•Build support structure

•Incentive design•Monitoring•Development of relational norms

•Maintain support structure and third-party relationships

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Make sure your teams are in place•Gather internal team

▫Commitment from stakeholders▫Coordinator – focus on driving the process▫Consensus committee

•Gather external partnership team▫Financial – capital partners and accounting▫Legal – market specialist and tax experts▫Due diligence – technical and cultural

experts13

Value of Third Party Resources• VEDP

▫ Network of preferred service providers▫ In-country consultants▫ Resources for up-to-date market info

• “Growth Engineering” consultants▫ Experience with the process▫ Help maintain objectivity

• Commercial Databases▫ Lexis-Nexis, OneSource, D&B, etc

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What are some tools I can use to develop and implement an international growth plan?

A brief overview

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Market driven approachSample Markets

SampleCapabilities

IT/ India

Industrial/ China

Market PlayersPartner

Candidates

Management

Customer Service

Company D

Candidate A

Candidate B

Candidate C

Manufacturing

Sales Channels

Military/ UK

Company A

Company B

Company C Human Resources Agriculture/ Brazil

Medical/ France

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Goal: Establish a large pool of possibilities based on your criteria• Leverage your contacts… PLUS

• Use your internal resources to compile a comprehensive list, then expand/sort the list by searching among various parameters:

• Products • Markets• Capabilities

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Market Criteria Matrix

Criteria Metric Weight Rating Score

Growth• Stable, non-cyclical• 5% + inflation/yr

35%

Solution• Complementary and understandable product dynamics• Sophisticated, high technology/ need for unique

product capabilities25%

Size• $50M-$100M• Segment size – available to client

20%

Segment• Global market• Established, niche potential

10 %

Customer Concentration

• At least X potential customers• B2B vs. B2C

10%

??? • Others TBD -- %

Ratings are from 1-10

Score = weight x rating

100% Total:

“Clearly Define What You Want”

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Why a Market Driven Process?

• Numerous options for growth are available

• Proactive strategy more effective than reactive

• Objective evaluation of options is better than myopia/ getting emotional

• Build your pipeline and funnel down

• Reach new customers worldwide!

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How would this work in practice?

A real world example

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Case Study: Food Service Business (FSB)

Situation Goals Issues•Slow growth in mature markets

•Customer and competitor consolidation

•Desired to expand presence into new geographic markets in Europe and South America, following client demand

• Identify, research, and negotiate with international acquisition prospects offering competing services in new markets

• Buy a top-tier player with the ultimate objective of becoming the #1 player in new target markets

•Limited knowledge of the target market dynamics

•Sophisticated acquirer but did not have detailed knowledge of new markets or acquisition prospects

•Lacked internal resources to conduct in-depth research on multiple foreign markets and acquisition prospects simultaneously

•Desired to maintain its anonymity in highly concentrated marketplace

Division of multinational contract services company

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Food Service Business: Results

•FSB eventually acquired minority positions in two market-leading competitors – one in Europe and one in South America

•Capstone identified roughly a dozen highly attractive acquisition prospects in several markets and moved the client into negotiations

•Capstone’s research revealed critical cultural hot buttons to be considered prior to negotiations

•Advised client on alternatives to outright acquisition, such as joint ventures and minority investment

•Capstone researched and profiled institutional contract services markets in 17 countries in Europe and South America

•Capstone compiled a database of key players in each market, prioritized the targets based upon client’s criteria, and created profiles of the most attractive prospects

•Capstone held a kickoff meeting to develop FSB’s market and acquisition prospect criteria

•Capstone established a proactive plan for researching several new markets and prospects simultaneously

2121720+

AcquisitionsPrioritized Prospects

Markets Selected for Further Evaluation

Markets Identified

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Take-Away

•Understand your specific strategic reasons for going international and focus

•Align reasons with organization’s goals•Overcome challenges by leveraging your

internal and external supporting teams•Be proactive and market focused in your

process

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Questions?1620 I Street, NW, Suite 701

Washington, DC 20006Phone: 202.776.0500Fax: 202.776.0583

E-mail: [email protected] Blog: www.mergersandacquisitionsdaily.com

Website: www.capstonestrategic.com

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