What you need to know when expanding beyond your core geography

30 September 2013

Page 2

Clarity on the rationale and strategy for expanding into new geographies is a critical starting point

Goal Strategic rationale

Meet customer needs ► Follow your customers and meet their needs in new geographic markets► Achieve higher penetration with existing customers and deepen those relationships

by being able to offer them services in all markets they require► Gain competitive advantage by preventing customers from working with different

vendors

Accelerate growth ► Deploy capital in a market growing faster than your existing market or is less competitive

► Diversify revenue to limit risk and exposure to one geography

Cost savings ► Achieve cost savings by producing products/services in lower cost location s► Improve operational efficiency in terms of logistics by being closer to end markets

Competitive edge ► Prevent competitor from gaining foothold in a given geography and interrupt their growth path

► Gain a new client base that competitors have less access to

Defining your goals and rationale is key in selecting the right criteria to use to select a new market to fit your strategic objectives

Page 3

Following your customer and accelerating growth are two of the most common

► AkzoNobel has announced plans to invest a total of more than €50 million in China to build new manufacturing facilities for its Powder Coatings and Decorative Paints businesses

► "As demand and volumes continue to rise… the new sites will enable us to better serve our customers whenever and wherever they need our products," – AkzoNobel CEO Ton Büchner

Follow your customer

Accelerate growth

► In 2011 Starbucks announced plans for major international expansion in its consumer packaged goods to achieve more than 200,000 points of global CPG distribution by 2015

► “Starbucks [is positioned] for the significant international opportunities ahead and the acceleration of our global growth strategy,” – Starbucks CEO Howard Schultz

► In the two years since the international expansion began, Starbucks’ consumer packaged goods segment has grown over 50%

Page 4

How do you start?

Which markets are most attractive based on

macro-economic factors important to your goal?

Are the key assumptions about product/service

value proposition valid in the market?

What is the competitive landscape and the relative

ease of achieving success?

1

2

3

Select Markets

Test market conditions

Competitive assessment

What is the impact of regulatory and financial considerations to business and operating models

and pricing approach?

4

Market entry strategy and development

► Leverage macroeconomic and industry indicators to evaluate a long list of potential markets and select ones that appear to have the most attractive indicators

►Understand the viability of your existing value proposition in the selected market and any potential issues around the proposed product/ service offering

►Evaluate customer needs, unmet demand and level of competitive intensity to understand the likelihood of success

►Develop a detailed business plan taking into account market, customer, regulatory and financial factors

Page 5

To put it in perspective – Case study

► A US Automotive supplier was considering an investment abroad in order to growth its revenue and meet its customer needs

► They are generally interested in the emerging markets due to the presence of their customers in those regions

► They have a variety of products and services including interior plastics and chrome auto parts, exterior plastics and chrome parts, painting services

► Their main clients are Automotive OEMs

Page 6

Approach to market prioritization and selection

What are the key macro-economics criteria to be used

based on your overall objective?

How do the priority geographic markets perform across key automotive industry factors?

I. II. How should a company prioritize and select the most attractive

emerging geographic markets to enter?

III.

Market analysis for key segment(s):►Co-develop a scorecard consisting of

relevant factors to evaluate market attractiveness

►Prioritize markets by their relative market attractiveness using scorecard

Ease of operation

Competitive intensity

Indicator values

Trends in indicators

Regulatory concerns

Brazil 1 ABC

China 3 DEF

Japan 10 GHI

India 5 JKL

Mexico 8 MNO

Market Rank Priority Rationale

Prio

ritiz

ed

mar

kets

Market GDP growth (%) Outlook Car density Outlook

Country 1 3.6% 11

Country 2 3.1% 12

Country 3 1.5% 6

Country 4 1.1% 3

Country 5 0.7% 2

Identify relevant macroeconomic metrics: ►Determine key macro-economic

metrics to evaluate regional markets

Identify relevant automotive industry factors and their metrics: ►Develop a list of industry specific indicators

to evaluate regional markets►Analyze the size and growth of each

market►Conduct competitive landscape analysisMarket size and growth

3,576

5,377 10.7%

Analyze regional markets using EY Growing Beyond Borders (GBB) tool:►Conduct extensive research on key

macroeconomic data on priority countries

►Analyze countries leveraging GBB tool

Compare attractiveness of regional markets based on automotive industry factors:

Competitive analysis

1Expedited by EY’s Growing Beyond Borders (GBB) tool

Select attractive markets1

Page 7

Assess geographic markets across key macroeconomics indicators that influence the Automotive industry

Category Macroeconomic Indicators Infrastructure& Logistics Indicators Ease of Execution Metrics

Weight 15% 15% 20% 20% 10% 10% 10%

GDP Growth Annual %

GDP Per Capita (US$)

Foreign Direct Investment

(US$M)

InfrastructureQuality Score

(7=Best)Logistics Score Ease Of Doing

Business

Property Rights

(10 = Best)

Chile 4.5% $ 16,444 $ 17,299 5.4 3 37 6.9

Uruguay 4.5% $ 15,894 $ 2,191 4 2.98 89 6.2

Mexico 2.8% $ 11,150 $ 19,554 4.4 3.02 48 5.8

Peru 5.3% $ 7,232 $ 8,233 3.4 2.91 43 6.6

Colombia 3.9% $ 7,872 $ 13,234 3.4 2.95 45 6.2

Brazil 2.4% $ 11,149 $ 66,660 3.4 3.12 130 5.7

Argentina 2.7% $ 11,134 $ 7,243 3.4 2.95 124 4.9

Paraguay 12.5% $ 4,116 $ 303 2.6 2.49 103 5.7

Ecuador 4.1% $ 5,923 $ 568 3.9 2.65 139 5.4

Bolivia 4.8% $ 2,786 $ 859 3.2 2.58 155 5.1

Venezuela -0.5% $ 11,062 $ 5,302 2.8 2.33 180 4.5

I.

Performs poorly on criteria

Source: EY Growing Beyond Borders

Performs well on criteria

Select attractive markets1

Page 8

Further refine and evaluate markets to understand the attractiveness of the automotive industry in those geographies

CountryInfrastructure

Spend ($ Millions)

Length of paved roads

(Km)

Car density per 1,00 adults

CAGR of # of Registered

Cars (’01-’11)# of OEM’s Transparency

of Car Market

Overall Automotive

Industry Outlook

Brazil $XX,xxx 212,798 146 9.9% XX XX

Mexico $XX,xxx 132,289 238 10.9% XX XX

Chile $XX,xxx 18,119 125 12.4% XX XX

Country 4 $XX,xxx 72 75 7.1% XX XX

Country 5 $XX,xxx 3,245 100 8.8% XX XX

Country 6 $XX,xxx 1,512 40 10.7% XX XX

Country 7 $XX,xxx 1,805 30 13.1% XX XX

Country 8 $XX,xxx 4,396 180 10.9% XX XX

Country 9 $XX,xxx 4,176 195 9.9% XX XX

Country 10 $XX,xxx 3,704 130 11.8% XX XX

Country 11 $XX,xxx 1,557 210 6.1% XX XX

Performs poorly on criteria Performs well on criteria

II.

Source: EY Growing Beyond Borders

Select attractive markets1

Page 9

Chile, Mexico, and Brazil appear to be the most attractive geographic markets due to macroeconomic and industry factors

Based on initial considerations countries in consideration were assigned rating and countries

significantly underperforming were eliminated from further analysis

III.

Source: EY Growing Beyond Borders

► Chile, Mexico and Brazil performed highest on key selection criteria such as FDI levels, infrastructure score, length of highways and car density

► Several countries including Venezuela, Bolivia, Ecuador and Paraguay performed very low across categories

Select attractive markets1

Page 10

Once attractive market has been selected it is still important to test the validity of your value proposition in the selected market

Test value proposition2

► Despite attractive macro factors in a given market your value proposition can be ineffective due to local market dynamics such as customer attitudes towards a given product/service

► High level local market scan is needed to ensure there is overall market acceptance for your product/service offering

► Understanding high level customer needs and likely future demand is key to identify potential red flags and opting for a different market

Ensure that attractive macro factors driving your market selection are also supported by high level local market dynamics and your value proposition is

viable in the selected market

Page 11

Detailed assessment of the market to understand customer needs and competitive landscape can better inform your market entry and ensure success

Some of the key criteria in selecting a provider include XX, XX, and XX; users did not seem XX to XX from their XX provider

3

Respondents were XX key criteria; however, one clear theme is the need to be XX’ XX and XX standing► Respondents want to be assured they will not have to cover claims costs in

cases of provider insolvency► “The number one criterion when deciding on a provider is the health of the

provider’s balance sheet.” – XX► “We require our administrators to have strong administrative criteria, and our

underwriters must be A-rated.” - XX

Source: EY Interviews (n=16)

Level of XX(1 = least satisfied; 10 = most satisfied)

Source: EY Interviews (n=13)

Key selection criteria (Respondents were asked to rank the importance of each criterion on a scale from 1 to 5, 1 = lease important, 5 = most important)

Long relationships among industry players appears to be a XX that mitigates XX

► "Dealers are hesitant to change providers because of long lasting relationships; however they will change if a provider messes up. Relationships are the single reason why there is very little change in this industry.” – XX Manager

► “[The reason we use multiple providers] is just the way our relationships have evolved over time. We have been with both providers for a long time and they both do a good job.” – XX

Training provided to sales representatives (as part of customer service) was not one of the higher-rated criterion for all respondents, but was viewed as very important to certain respondents ► “It takes time to train the sales network [to sell ancillary insurance products]

– selling financial services is a different ballgame and increases complexity for salespeople.” – XX

► “You have to bring a lot to the table to break into a dealership – training sales representatives would be a very important component of customer service.” XX

0123456789

10

8 9 10

Average Rating:XX

0 1 2 3 4 5

XX

XX

XX

XX

XX

XX

Aver

age r

ating

Understand key customer trends:►How do customers budget for this product/service? ►Who are the key decision makers selecting a vendor?►What are the key criteria when selecting a vendor (e.g.,

price, lead time, extent of relationship)? How important is each criteria?

Understand the competitive landscape:►How do competitors differentiate their offerings (e.g.

product/service offerings, pricing, reach, etc.)?►How do competitors perform on customer’s key criteria?►What are customer needs that are not currently met by

competitors?►What is the overall saturating of the market?

Leverage competitive and customer needs assessment to understand relative easy of entering and succeeding in the market given the competitive intensity

Competitive assessment3

Page 12

Consideration of the internal operating economics and regulatory conditions is critical as you consider market entry

► Key aspects are important to analyze key operating areas (e.g. labor cost, etc.) when assessing a new geography:̶ Labor cost and availability̶ Employment laws and related flexibility̶ Raw material inputs̶ Other key cost drivers and projections

► Existing and changing regulatory constraints need to be assessed as well:̶ Government controls and regulations̶ Tax rates and other financial implications (e.g., expatriation of funds)̶ Permitting and lead time required to set up operations

Market entry strategy and development

4

Page 13

After deciding to enter a market, it’s critical to develop business and operating plans for entry

► Develop a business plan understanding desired customer segments, needs and best competitive position in the market

► Consider desired operating model and value chain implications (use of direct sales force, distributors, partners)

► Establish pricing models and understand margin potential based on key inputs, regulatory requirements and competitive dynamics

► Develop pro-forma financials for new market operations based on customer segments, operating model and pricing implications

Develop operating model

Outcome Metric First Level Drivers Second Level Drivers Third Level Drivers

Revenue

High Road

Number of Plan MPS Customers

Dropped Customers

New Customers

Existing Customers

Pricing

Marketing Spend

Customer Experience

Low Road

Product TypePlatinum

Gold

Silver

Bronze

RegionNorthwest

Southwest

Midwest

Northeast

ScenarioBase Case

Scenario 1

Scenario 2

Scenario 3

High Road Customers

High Road Revenue

Channels

Develop pricing model Develop high level P&L financials

Market entry strategy and development

4

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

© 2013 EYGM Limited.All Rights Reserved.