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THE RISING GLOBAL OFFSET CHALLENGE
GOCA SEPTEMBER 10, 2012
ADDRESSING THE HALF TRILLION DOLLAR QUESTION
Agenda
Introductions– Steve Ganyard, President, Avascent International – Jon Barney, Partner, Avascent – George Thompson, Senior Partner, Fleishman-Hillard
New Data: Big money, getting bigger
New Realities: Growing risk, demands for new thinking
New Opportunities: Three strategies for success
Who We Are: Avascent
The leading strategy and management consulting firm advising clients globally in government-driven markets • Offices: Washington,
Paris
• 25 years of experience and more than 3,000 assignments
• Core capabilities:Strategy and growthM&AAvascent International050 Data ProductOrganizationalCapture support
• Global network in Asia, MENA, and Latin America
Client Industries and Sectors
Aviation &Aerospace
Defense Systems
Global Development
Healthcare Intelligence
Logistics, Engineering &
Operations
Security & Public Safety
SpaceOutsourced
ServicesInformation Technology
• 80 offices delivering full scopeof communications services worldwide
• Global client base, including industry and governments
• Largest PR services provider to the U.S. government
• Largest B2G communications practice in D.C. — defense and technology market leaders
• Former PAOs, public-sector communicators
• FH International Advisory BoardGen. Barry McCaffrey (Ret.)
Sec. Tom Ridge
Adm. Vern Clark (Ret.)
Sec. Andrew Card
Sec. Mickey Kantor
Günter Verheugen
Who We Are: Fleishman-Hillard
Clients
Changing Offset Regimes
Offerors more sophisticated, aligning offsets with national development goals, stepping up enforcement
A&D Growth Is International
Increased volume of sales and focus will mean more offset obligations in future
Opaque Offset LandscapeLack of transparency in global offset obligations is hindering the ability of stakeholders to think strategically about offsets
Increasing pressure on governments to create jobs and skilled industries, be responsive, accountable to citizens
3 Drivers of Change
The Half-Trillion
Dollar Challenge
New Reality: With U.S. and European budgets in decline, new procurements are increasingly occurring in other countries
U.S.
$200
$300
$400
$500
$600
$700
$800
Rest of World
Flat Defense Budgets Growing Defense Budgets
Europe
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$-
$100,000,000
$200,000,000
$300,000,000
$400,000,000
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$-
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$600,000,000
050 SOURCE:
Countries included: Australia, India, Japan, Malaysia, Pakistan, Singapore, South Korea, Taiwan, Indonesia, Thailand, Saudi Arabia, Egypt, Iraq, UAE, Qatar, Kuwait, Jordan, Turkey Algeria, Morocco, South Africa, Oman, Mexico, Colombia, Chile, Brazil
+ All figures in Billions of USD
New Reality: International markets are growing and offsets impact sales in many of these large and fast-growing A&D markets
Proj
ecte
d D
efen
se S
pend
ing
Gro
wth
201
1-20
160%
$30B
5%-5
%
0Overall Defense Budget 2011
10%
15%
$60B
UAE
Singapore
Norway
SwedenNew Zealand
CanadaAustraliaChile
Qatar
ROK
Pakistan
Thailand
Taiwan
Colombia
Japan
Iraq
Saudi Arabia
UK
Israel
Spain
Malaysia
Poland
Turkey
India
Brazil
FranceGermanyDenmark
Offset Policy Active
Alternative Policy
050 SOURCE:
New Data, New Realities
How Big Are Offset Obligations?
www.strategicoffsets.com
How Big Are Offset Obligations?
www.strategicoffsets.com
To understand the magnitude of the offset challenge, Avsacent leveraged its proprietary 050 database to analyze global offset obligations
050
Data-driven market and competitor analytics with forecast
• Detailed database of global defense markets
• Visibility into market size, segmentation, forecasted growth, competitor market share, and opportunity space
• Scope spans the USA and 30 global countries, across C4I, Sensors, Weapons, Platforms, and Services
Offset Data & Methodology
• Group past and forecasted contractor sales by country
• Apply offset threshold for each country
• Apply country rules on amount subject to offset (e.g., 60% of total value)
• Adjust for exempt transactions (e.g., intra-EU sales) and local content provisions
• Bottom-up approach: obligations by year, country, and company
Obligations are growing worldwide, with MENA and Asia/Pacific representing the largest volume and LatAm the fastest growth
Latin America Obligations
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
9.6%
Europe & Canada Obligations
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
4.6%
Asia/Pacific Obligations
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
6.5%
MENA Obligations
9.0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
What does this mean?
New Risks, Missed Opportunities
Significant change to the business
Increased scrutiny = increased risk to reputation
Positive outcomes falling short
Now is the time to rethink how offsets are
constructed, communicated, and discharged
Three Strategies for Success
Imperative: Implement Business Fundamentals
Offset Authorities Local Partners Obligors
Evaluate concepts based on strong business fundamentals to bolster the chances of a successful offset venture
Align approval process for offset concepts to national development goals
Be proactive with investment choices and offer guidance to obligors from an early concept development stage
Integrate offsets into the sales strategy planning process
Engage before the sale is final to ensure offset risk mitigation is well understood
Design a portfolio approach to offset global obligations, rather than one-off, ad hoc approach
Develop a core competency in offset
Diligence concepts as if they were M&A targets
Choose business strategically to bolster the national development goals
Design a globally competitive approach for the offset venture to achieve success beyond the home country
Conduct independent assessment of the market potential for the offset venture
Implement best practices in partnering whether as a Joint Venture or another structure
Imperative: Deepen Involvement
Offset Authorities Local Partners Obligors
Educate government stakeholders about the potential of offset in the nation’s development
Communicate goals, not just policies to the obligor and partner community
Expand network to include non-traditional offset players in areas of development and strategy
Elevate offsets discussion to executive leadership of corporation
Broaden the network of offset partners and consultants to shape evolve an offset execution strategy in line with development goals of customer’s government
Contact obligors prior to sale to build reputation and evolve offset concepts
Research obligors to understand the range of available obligors, their obligations and what they can (realistically) offer
Broaden partnerships beyond obligors based on specific goals of the offset concept; this should be done as early as possible
New Reality: Visibility is Increasing
First entry: October 2008
400+ additions
and contributions
Last 90 days:
10,273 views
“defense offset agreement”
2001-2009 2010-2011 2012
100+*
66
22
Average number of mainstream media
articles on “defense/military
offsets”
*projected
Results for “defense offset”
TODAY
16 418
1.37M
Sept. 2004
to
Aug. 2005
Sept. 2009
to
Aug. 2010
Imperative: Communicate Strategically
Offset Authorities Local Partners Obligors
Communicate the role of the authority in supporting economic development goals
Offer clear guidance to companies, obligors: guidelines, policy objectives, focus areas, sample contracts
Build positive reputation for accountability, effectiveness –• Fact sheets• Annual reports• Speeches, interviews• Articles• Speaker series• Success stories
Use offsets to build reputation and strengthen business development
Enhance your brand through (past) offsets – highlight successes that have made positive contributions
“Sell” your offset approach up-front in your bid proposal
Be prepared to talk about offsets, clearly demonstrating connection between program/offering and benefit
Highlight your role and value in the offsets process
Market investment needs widely
Engage with multiple obligors pre-sale to facilitate post-sale implementation
Wrap-Up and Looking Ahead
Key Takeaways
– Growth and changes in offsets demand new thinking, strategic approaches
– Change brings new opportunities for forward-looking companies and governments – successful offset approaches equals competitive differentiation
– Basic market data on offsets remains largely absent from the discussion and hinders strategic planning
Actions
– Analysis of global portfolio obligations
– Integration of offsets into international sales/business development strategy
– Audit of communications and capture processes
– Deeper partner and offset concept due diligence
www.strategicoffsets.com
Fleishman-HillardGeorge ThompsonT: [email protected]
www.fleishman.com
AvascentSteve GanyardT: [email protected]
Jon BarneyT: [email protected]
www.avascent.com
Contacts
Thank you.
