The Rising Global Offset Challenge - addressing the half trillion dollar question
1. THE RISING GLOBAL OFFSET
CHALLENGE
ADDRESSING THE HALF TRILLION DOLLAR QUESTION
GOCA SEPTEMBER 10, 2012
2. 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
3. Who We Are: Avascent
The leading strategy and management consulting firm
advising clients globally in government-driven markets
• Offices: Washington, Client Industries and Sectors
Paris
Aviation & Defense Global
Healthcare Intelligence
• 25 years of experience Aerospace Systems Development
and more than 3,000 Logistics,
Security & Outsourced Information
Engineering & Space
assignments Operations Public Safety Services Technology
• Core capabilities:
Strategy and growth
M&A
Avascent International
050 Data Product
Organizational
Capture support
• Global network
in Asia, MENA,
and Latin America
4. Who We Are: Fleishman-Hillard
• 80 offices delivering full scope Clients
of 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 Board
Gen. Barry McCaffrey (Ret.)
Sec. Tom Ridge
Adm. Vern Clark (Ret.)
Sec. Andrew Card
Sec. Mickey Kantor
Günter Verheugen
5. 3 Drivers of Change
A&D Growth Is Changing Offset
International Regimes
Increased volume of sales Offerors more sophisticated,
and focus will mean more aligning offsets with national
offset obligations in future development goals, stepping
up enforcement
Opaque Offset Landscape
Lack of transparency in global offset
obligations is hindering the ability of
The stakeholders to think strategically about offsets
Half-Trillion
Dollar
Challenge
Increasing pressure on governments to
create jobs and skilled industries, be
responsive, accountable to citizens
6. New Reality: With U.S. and European budgets in decline, new
procurements are increasingly occurring in other countries
Flat Defense Budgets Growing Defense Budgets
U.S. Rest of World
$800 $600
$700
$600
$500
$500
$400
$400
$300
$200
$300
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$200
Europe $100
$400 $-
$300
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$200
$100 Countries included:
$- Australia, India, Japan, Malaysia, Pakistan, Singapore, South
Korea, Taiwan, Indonesia, Thailand, Saudi
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Arabia, Egypt, Iraq, UAE, Qatar, Kuwait, Jordan, Turkey
Algeria, Morocco, South
Africa, Oman, Mexico, Colombia, Chile, Brazil
SOURCE: 050 + All figures in Billions of USD
7. New Reality: International markets are growing and offsets impact
sales in many of these large and fast-growing A&D markets
15%
Iraq
SOURCE: 050
Projected Defense Spending Growth 2011-2016
Thailand UAE
10%
India
Singapore Brazil
Malaysia Turkey Taiwan ROK Saudi Arabia
5%
Pakistan Poland
NorwayColombia Israel
Chile Australia
Sweden Canada Japan
New
Qatar
0%
Zealand
Denmark
France
Germany
Offset Policy Active UK
Spain
Alternative Policy
-5%
0 $30B $60B
Overall Defense Budget 2011
9. How Big Are Offset Obligations?
www.strategicoffsets.com
10. How Big Are Offset Obligations?
www.strategicoffsets.com
11. To understand the magnitude of the offset challenge, Avsacent leveraged
its proprietary 050 database to analyze global offset obligations
Offset Data & Methodology
050 • Group past and forecasted
contractor sales by country
• Apply offset threshold for each
Data-driven market and competitor country
analytics with forecast
• Apply country rules on amount
• Detailed database of global defense
markets
subject to offset (e.g., 60% of
total value)
• Visibility into market
size, segmentation, forecasted • Adjust for exempt transactions
growth, competitor market
share, and opportunity space
(e.g., intra-EU sales) and local
content provisions
• Scope spans the USA and 30
global countries, across • Bottom-up approach: obligations
C4I, Sensors, Weapons, Platforms,
and Services
by year, country, and company
12. Obligations are growing worldwide, with MENA and Asia/Pacific
representing the largest volume and LatAm the fastest growth
MENA Obligations Asia/Pacific Obligations
$25 $25
9.0% 6.5%
Millions
Millions
$20 $20
$15 $15
$10 $10
$5 $5
$- $-
Europe & Canada Obligations Latin America Obligations
$25 $25
4.6% 9.6%
Millions
Millions
$20 $20
$15 $15
$10 $10
$5 $5
$- $-
13. What does this mean?
New Risks, Missed Opportunities
Now is the time to rethink how offsets are
Significant change to the business
constructed, communicated, and discharged
Increased scrutiny = increased risk to reputation
Positive outcomes falling short
15. Imperative: Implement Business Fundamentals
Offset Authorities Local Partners Obligors
Evaluate concepts based on Choose business strategically to Integrate offsets into the sales
strong business fundamentals to bolster the national development strategy planning process
bolster the chances of a goals
successful offset venture Engage before the sale is final to
Design a globally competitive ensure offset risk mitigation is
Align approval process for offset approach for the offset venture to well understood
concepts to national achieve success beyond the
development goals home country Design a portfolio approach to
offset global obligations, rather
Be proactive with investment Conduct independent than one-off, ad hoc approach
choices and offer guidance to assessment of the market
obligors from an early concept potential for the offset venture Develop a core competency in
development stage offset
Implement best practices in
partnering whether as a Joint Diligence concepts as if they
Venture or another structure were M&A targets
16. Imperative: Deepen Involvement
Offset Authorities Local Partners Obligors
Educate government Contact obligors prior to sale to Elevate offsets discussion to
stakeholders about the potential build reputation and evolve offset executive leadership of
of offset in the nation’s concepts corporation
development
Research obligors to understand Broaden the network of offset
Communicate goals, not just the range of available partners and consultants to
policies to the obligor and partner obligors, their obligations and shape evolve an offset execution
community what they can (realistically) offer strategy in line with development
goals of customer’s government
Expand network to include non- Broaden partnerships beyond
traditional offset players in areas obligors based on specific goals
of development and strategy of the offset concept; this should
be done as early as possible
17. New Reality: Visibility is Increasing
Average number
of mainstream media 100+* 1.37M
articles on
“defense/military
offsets‖ Results for
“defense offset “defense offset”
agreement”
66
First entry:
October 2008
400+
additions
22 and contributions
Last 90 days:
16 418
10,273 views
2001-2009 2010-2011 2012 Sept. 2004 Sept. 2009
TODAY
*projected to to
Aug. 2005 Aug. 2010
18. Imperative: Communicate Strategically
Offset Authorities Local Partners Obligors
Communicate the role of the Highlight your role and value in Use offsets to build reputation and
authority in supporting economic the offsets process strengthen business development
development goals
Enhance your brand through (past)
Offer clear guidance to Market investment needs widely offsets – highlight successes that
companies, obligors: have made positive contributions
guidelines, policy objectives, focus
areas, sample contracts Engage with multiple obligors ―Sell‖ your offset approach up-front
pre-sale to facilitate post-sale in your bid proposal
Build positive reputation for
implementation
accountability, effectiveness –
• Fact sheets Be prepared to talk about
• Annual reports offsets, clearly demonstrating
• Speeches, interviews connection between
• Articles program/offering and benefit
• Speaker series
• Success stories
19. 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
20. Contacts
Avascent Fleishman-Hillard
Steve Ganyard George Thompson
T: +202.280.6811 T: +202.828.9708
sganyard@avascent.com George.Thompson@fleishman.com
Jon Barney www.fleishman.com
T: +202.280.6812
jbarney@avascent.com
www.avascent.com
www.strategicoffsets.com