Understanding your risks

Jan. 1, 2020
In a study by Booz & Co. for AASA, Booz stated that the ability "to adjust and capitalize on [globalization] is separating strong companies from weak ones."

In a landmark study produced by Booz & Co. for the Automotive Aftermarket Suppliers Association, AASA Aftermarket Outlook 2020, Booz stated that the ability “to adjust and capitalize on [globalization] is separating strong companies from weak ones.” This should not come as a surprise to anyone if you have seen the modest predictions for aftermarket growth in the US over the next 10 years.

While many understandably see globalization as a threat due to intellectual property (IP) infringement and competition from low-cost countries, they must also recognize the immense sales opportunities by entering emerging markets with your products – be they manufactured at home for export or strategically manufactured abroad in the domestic market where you are trying to gain market share. Thomas Friedman succinctly states in The World is Flat, “three United States would be better than one, and five would be better than three.”

Without a doubt, those leveraging emerging markets can plan for greater top-line sales growth than those focused solely on mature markets.

There are a number of ways to enter emerging markets, and the best method for your business will likely be based on your competitive position, your growth plans and the foreign markets that fit best within these strategies. Many small companies wisely choose to rely on export management companies to help push their products into strategic markets before making more risky brick-and-mortar investments. Others license products or utilize reps entrenched in the region to expand globally while limiting investments and risk associated with operational costs.

If you choose to rely on these market-entry options, as well as direct export yourself, it is necessary to understand the following risks, among others, associated with moving your products into the region:

• Stability of infrastructure necessary to move your products from point A to point B;
• Market corruption;
• Currency inconvertibility and profit repatriation (currency mobility); and
• IP protection for copyrights, trademarks, patents and domain names

PAGE 2

Intellectual property infringements could be limited through wholly-owned foreign subsidiaries with staff on the ground that can address violations in a timely manner and within the governmental framework of the country in which you operate. Setting up operations in a foreign country, however, brings new concerns – such as operational and political risks – that the options above allow you to avoid.

In 2009, the Multilateral Investment Guarantee Agency cited political risk as the single-largest major constraint on foreign investment in emerging markets, and recognized the potential for breach of contract to be the largest concern within this category over the next three years.

If you choose the brick-and-mortar route, you will likely need to understand at least the following risks in addition to those noted above:

• Access and availability of natural resources and raw materials to produce your product;
• Skills, availability and cost of the work force;
• Infrastructure quality, including communications and IT infrastructure, transportation and logistics infrastructure and power generation;
• Security of facilities;
• Tax issues, structure, incentives and subsidies;
• Method of entry – wholly owned vs. joint venture vs. partner; greenfield vs. acquisition; and
• Macroeconomic attractiveness and stability, including stability of the local currency, gross domestic product (GDP) growth rate, investment as a percentage of GDP, unemployment and inflation

PAGE 3

There are a number of sources you can use to help find information on these risks: associations like AASA and its Overseas Automotive Council; government entities like the CIA and the Department of Commerce; international organizations like the World Bank and Transparency International; and industry sources like Aftermarket Business World.

You can hedge your bets against many of these risks with targeted insurance products through organizations like the Export-Import Bank, the Overseas Private Investment Corporation, the Multilateral Investment Guarantee Agency and reputable insurance firms, such as Zurich.

Proper research will limit the risks you face, or at least help you better understand and prepare for them when utilizing emerging markets to support your global growth plans.

In a landmark study produced by Booz & Co. for the Automotive Aftermarket Suppliers Association, AASA Aftermarket Outlook 2020, Booz stated that the ability “to adjust and capitalize on [globalization] is separating strong companies from weak ones.” This should not come as a surprise to anyone if you have seen the modest predictions for aftermarket growth in the US over the next 10 years.

While many understandably see globalization as a threat due to intellectual property (IP) infringement and competition from low-cost countries, they must also recognize the immense sales opportunities by entering emerging markets with your products – be they manufactured at home for export or strategically manufactured abroad in the domestic market where you are trying to gain market share. Thomas Friedman succinctly states in The World is Flat, “three United States would be better than one, and five would be better than three.”

Without a doubt, those leveraging emerging markets can plan for greater top-line sales growth than those focused solely on mature markets.

There are a number of ways to enter emerging markets, and the best method for your business will likely be based on your competitive position, your growth plans and the foreign markets that fit best within these strategies. Many small companies wisely choose to rely on export management companies to help push their products into strategic markets before making more risky brick-and-mortar investments. Others license products or utilize reps entrenched in the region to expand globally while limiting investments and risk associated with operational costs.

If you choose to rely on these market-entry options, as well as direct export yourself, it is necessary to understand the following risks, among others, associated with moving your products into the region:

• Stability of infrastructure necessary to move your products from point A to point B;
• Market corruption;
• Currency inconvertibility and profit repatriation (currency mobility); and
• IP protection for copyrights, trademarks, patents and domain names

PAGE 2

Intellectual property infringements could be limited through wholly-owned foreign subsidiaries with staff on the ground that can address violations in a timely manner and within the governmental framework of the country in which you operate. Setting up operations in a foreign country, however, brings new concerns – such as operational and political risks – that the options above allow you to avoid.

In 2009, the Multilateral Investment Guarantee Agency cited political risk as the single-largest major constraint on foreign investment in emerging markets, and recognized the potential for breach of contract to be the largest concern within this category over the next three years.

If you choose the brick-and-mortar route, you will likely need to understand at least the following risks in addition to those noted above:

• Access and availability of natural resources and raw materials to produce your product;
• Skills, availability and cost of the work force;
• Infrastructure quality, including communications and IT infrastructure, transportation and logistics infrastructure and power generation;
• Security of facilities;
• Tax issues, structure, incentives and subsidies;
• Method of entry – wholly owned vs. joint venture vs. partner; greenfield vs. acquisition; and
• Macroeconomic attractiveness and stability, including stability of the local currency, gross domestic product (GDP) growth rate, investment as a percentage of GDP, unemployment and inflation

PAGE 3

There are a number of sources you can use to help find information on these risks: associations like AASA and its Overseas Automotive Council; government entities like the CIA and the Department of Commerce; international organizations like the World Bank and Transparency International; and industry sources like Aftermarket Business World.

You can hedge your bets against many of these risks with targeted insurance products through organizations like the Export-Import Bank, the Overseas Private Investment Corporation, the Multilateral Investment Guarantee Agency and reputable insurance firms, such as Zurich.

Proper research will limit the risks you face, or at least help you better understand and prepare for them when utilizing emerging markets to support your global growth plans.

Sponsored Recommendations

Best Body Shop and the 360-Degree-Concept

Spanesi ‘360-Degree-Concept’ Enables Kansas Body Shop to Complete High-Quality Repairs

ADAS Applications: What They Are & What They Do

Learn how ADAS utilizes sensors such as radar, sonar, lidar and cameras to perceive the world around the vehicle, and either provide critical information to the driver or take...

Banking on Bigger Profits with a Heavy-Duty Truck Paint Booth

The addition of a heavy-duty paint booth for oversized trucks & vehicles can open the door to new or expanded service opportunities.

Boosting Your Shop's Bottom Line with an Extended Height Paint Booths

Discover how the investment in an extended-height paint booth is a game-changer for most collision shops with this Free Guide.