BDO Ambition Survey 2011 - Global opportunities

BDO AMBITION SURVEY 2011Global opportunitiesSUMMARY OF GLOBAL RESULTS

BDO / Strategy OneSeptember 2011

BDO Ambition Survey 2011

METHODOLOGY

• All survey respondents and companies were required to satisfy specific criteria:- C-suite CFOs, FDs and other Heads of Finance - all reporting to the CEO- Have global revenues of between US $50m – US $1bn- Have international offices outside their headquartered country- Expect revenues representing the international side of their businesses to account for a

higher or about the same proportion in the next 3 years- Companies operating in one of the following sectors or industries: Financial services,

Manufacturing, Real estate & construction, TMT (Technology, Media, Telecommunications), Retail, Natural resources, Professional services, Tourism/ leisure/ hospitality, Transport and utilities

• 751 telephone interviews were conducted globally• Fieldwork was conducted between 23 May & 8 July 2011

KEY FINDINGSExpanding abroad: opportunities

• Despite the economic and regulatory challenges facing businesses, 95% of mid-cap CFOs are confident that their 3 year plans to expand internationally will succeed- CFOs’ business plans back their confidence: on average they expect 44% of revenue in

3 years’ time to come from international sources (up from 37% now)

• CFOs say they have no problem getting money to expand abroad, but finding the right people - skilled, trustworthy and cross-cultural - is a real challenge

• CFOs see China as having 3 times the business opportunity of Brazil, the UK or France. However, China is a gamble as it has the most reward and the most risk factors of any country- China, USA and Germany are the top 3 global investment destinations and sources


KEY FINDINGS CONTINUTEDExpanding abroad: making it happen

• The best sources of advice for CFOs on how to expand come from close to home - internal sources and trusted customers, along with accountants and tax advisers who understand their clients’ businesses

• CFOs are in a hurry to expand - they expect to open an office within a year of making a decision, which means that aligning customers, staff, partners, distributors, advisers and bankers is critical

• Most businesses act fast once a decision to open a new office is made• Internal sources and existing customers are the most trusted sources

when expanding• For external advice, accountants/ tax advisers are the most trusted

professionals• Most businesses will expand in their core sector, with existing products

and services


KEY FINDINGS CONTINUTEDExpanding abroad: good advice

• Key insights from CFOs: be prepared and invest in the right people- Do thorough research to improve your knowledge of the market- Recruitment of good staff is key to success- Find good partners in the region- Have a strong business plan- Make sure you understand the culture and language


BUSINESS OPPORTUNITIES AND CHALLENGES

CONDUCTING BUSINESS ABROAD HAS BECOME MORE DIFFICULT IN THE LAST 3 YEARS

Much more

difficult

France

Australia

UK

Japan

Germany

Canada

USA

China

Saudi Arabia

Russia

Netherlands

India

Brazil

Total

26%

20%

14%

12%

12%

4%

19%

20%

20%

20%

16%

30%

34%

19%

52%

50%

62%

48%

56%

66%

57%

33%

32%

34%

50%

40%

42%

48%

22%

22%

20%

18%

32%

26%

18%

42%

38%

30%

26%

22%

14%

26%

4%

12%

2%

4%

6%

2%

2%

3%

5%

6%

6%

6%

8%

10%

3%

Much easier

Easier

About the same

More difficult

Much more difficult


HIGH CFO CONFIDENCE IN COMPANY’S OVERSEAS EXPANSION

Much more

difficult

Japan

Russia

France

UK

Germany

Canada

Brazil

Netherlands

Australia

USA

China

Saudi Arabia

India

Total

4%

18%

22%

32%

34%

38%

38%

40%

44%

47%

48%

66%

68%

40%

58%

74%

74%

64%

66%

60%

58%

58%

52%

48%

48%

32%

32%

55%

12%

6%

2%

4%

2%

4%

3%

1%

3%

Very confident

Fairly con-fident

Not confident


COMPANIES IN ALL COUNTRIES SURVEYED EXPECT MORE FUTURE REVENUE TO COME FROM ABROAD

Much more

difficult

Saudi Arabia

China

Japan

Brazil

Russia

India

USA

UK

Germany

France

Australia

Canada

Netherlands

35%

35%

35%

37%

39%

40%

42%

46%

48%

51%

52%

58%

59%

30%

29%

29%

25%

27%

31%

35%

40%

42%

47%

42%

50%

56%

Current revenue

Expected revenue in 3 years' time


MOST COMPANIES ARE LOOKING TO EXPAND IN CORE SECTOR

Much more

difficult


70%5%

25%

Core sector

New sectors

Both

46%

9%

46%

Existing products and services

New products and services

Both

Existing products

New products

Both

Core sector 85% 50% 58%

New sectors

2% 23% 4%

Both 13% 27% 38%

MARKET SIZE AND GROWTH OPPORTUNITIES DRIVE INTERNATIONAL EXPANSION

Much more

difficult


Market size

Higher growth rates

Acceptable geo-political risk

Opportunity to be market leader

Efficient distribution networks

Cheaper labour rates

Familiar culture and language

Under-exploited demand for my company's products

Acquisition or merger opportunities

Domestic market saturation

60%

50%

46%

37%

28%

27%

24%

22%

22%

21%

20%

20%

20%

19%

16%

16%

16%

15%

10%

COMPANIES NAVIGATE A RANGE OF CHALLENGES IN INTERNATIONAL EXPANSION

Much more

difficult


Intensity of local competition

Red tape & Bureaucracy

Currency fluctuations

Cultural or language barriers

Finding the right local management

Geo-political country risks

Lack of brand awareness

Corruption or ethics

Regulatory interference

Start-up costs and time

Not enough internal company resources

Getting existing staff to relocate to this country

Insufficient legal and financial infrastructures

Ability to manage environmental risks

Foreign ownership restrictions

Raising finance

35%

34%

32%

25%

25%

21%

19%

16%

15%

15%

12%

11%

11%

11%

10%

8%

THE BIGGEST CHALLENGES RELATE TO RED TAPE AND FINDING THE RIGHT PEOPLE

Much more

difficult


Start-up costs and time

Raising finance

Geo-political country risks

Regulatory interference

Cultural or language barriers

Intensity of local competition

Currency fluctuations

Finding the right local management

Red tape & Bureaucracy

3%

5%

8%

5%

10%

13%

8%

11%

14%

4%

4%

4%

8%

7%

6%

9%

11%

13%

3%

3%

3%

4%

4%

5%

8%

11%

7%

First mention

Second mention

Third mention

• Red tape is a particular challenge to French and Russian companies, Retailers, and businesses expanding with new products & services

• Local people- Japanese businesses, Prof services/ Transport & utilities, and those expanding In India

• Currency- Chinese/ Brazilian/ German businesses, and those expanding in US/ Canada

• Competition- Chinese, German and French businesses, Retailers, businesses expanding with new products & services , and those expanding into Europe

• Culture/ language- Chinese/ Japanese/ Australian/ French businesses, and businesses looking to expand in India/ Brazil

INVESTMENT IN PEOPLE WILL BE A MAIN FOCUS OVER THE NEXT THREE YEARS

Much more

difficult


Outsourcing

Time

Service delivery

Acquisitions

Brand and marketing

Capital

Product development

Channels of distribution

People

3%

5%

5%

9%

8%

18%

12%

15%

19%

3%

5%

4%

7%

10%

10%

13%

13%

21%

3%

5%

7%

7%

11%

5%

10%

10%

12%

First mention

Second mention

Third mention

• People are a particular focus in all European countries, Australia, and Professional Services businesses

• Channels of distribution - German/ Brazilian/ Russian/ Chinese companies, Manufacturers and businesses expanding into Russia

• Product development - Brazilian & Chinese businesses, Manufacturers and businesses expanding into Western Europe/ US/ Russia

• Capital - UK/ Saudi, Real Estate and Natural Resources companies

• Brand & marketing - Companies from all BRIC countries + Japan, Financial services businesses and Manufacturers

• Acquisitions’ North American, German, French, and Australian companies

INTERNAL SOURCES AND EXISTING CONTACTS ARE THE MOST TRUSTED SOURCES OF ADVISE

Much more

difficult


Local business advisors

Media contacts

Suppliers/ distributors

Market research

Investment banks

Government agencies

Trade organisations

Management consultants

Local specialists

Law firms

Accountants/tax advisors

Clients/ customers

Internal sources

1%

3%

4%

5%

6%

5%

9%

6%

8%

9%

12%

28%

2%

4%

4%

5%

7%

7%

5%

8%

11%

17%

12%

9%

2%

5%

6%

4%

6%

7%

5%

9%

8%

6%

13%

8%

First mention

Second mention

Third mention

• European businesses are more likely to turn to internal sources (58%)

• German (62%), Chinese (53%) and Russian businesses (50%) put more trust in clients/ existing contacts

• Accountants/ tax advisers are most widely used in the UK/ Netherlands (52%), Australia (50%) and USA (46%)

• Australians and North Americans are more likely to turn to law firms (52% and 41%)

• German and Chinese businesses are far more likely to turn to trade organisations, etc (42%/ 33%)

• Chinese businesses are by far the most likely to turn to Government agencies (42%)

• Brazilian businesses show the greatest trust in market research (44%)

GAINING FUNDING FOR INTERNATIONAL EXPANSION IS NOT GENERALLY A COMMON PROBLEM

Much more

difficult


Japan

India

Australia

USA

Canada

Saudi Arabia

China

France

UK

Brazil

Germany

Netherlands

Russia

Total

8%

4%

22%

13%

24%

24%

8%

30%

6%

38%

26%

18%

16%

17%

92%

90%

62%

74%

64%

64%

80%

58%

74%

48%

60%

64%

54%

69%

2%

6%

8%

8%

8%

9%

12%

12%

14%

14%

16%

20%

10%

Yes- OftenYes- SometimesNo

Difficulty gaining funding?

LOCAL KNOWLEDGE AND PEOPLE ISSUES ARE KEY WHEN EXPANDING INTERNATIONALLY

Take advice from as many different sources as you can

Make several trips to the country concerned

Do a proper risk evaluation

Ensure have enough finance

Ensure the product itself is right

Make sure you have language skills in place

Have a strong business plan

Find good contacts/strong partners in the region

Recruitment of good staff is key

Improve your knowledge of the market in question/do thorough research

2%

4%

4%

5%

6%

9%

9%

15%

18%

36%


BDO GLOBAL MARKET OPPORTUNITY INDEX

GLOBAL MARKET OPPORTUNITY INDEXExplanation

BDO GLOBAL MARKET OPPORTUNITY INDEXThe index was created from CFOs’ stated intentions to expand in specific countries. The arithmetic mean of 100 is based around intention to expand to all 18 countries listed PROCESSCFOs’ stated intentions to expand into specific countries were based on the frequency of CFO mentions of expanding into a country, and the priority order of the country being mentioned, up to a third mentionWe correlated the ‘Specific countries that will be a focus for general expansion in the next three years’ against a pre-determined list of nineteen opportunity factors and sixteen challenge factorsThe 6 most important factors driving opportunity for expansion were: market size, ease of entry, people and culture, market potential, acquisition opportunities, and better opportunities abroad than at home


GLOBAL MARKET OPPORTUNITY INDEXExplanation continued

The 5 top challenge factors were: geo-political risks, finding the right local people, in-market competition, red tape and corruption, and having money and resources to expand. This enabled us to determine which countries offer the greatest opportunities in the foreseeable futureOverall Opportunity Index is based on intention to expand internationally in three years’ time and the number of CFO mentions of a given country being expanded intoOPPORTUNITIES TOP COUNTRIES

Market size China, Brazil, India

Ease of entryCanada, Australia,

Italy

People and cultureCanada, Belgium,

UK

Market potentialMexico, China,

Canada

Acquisition opportunities

Mexico, Brazil, Italy

Better opportunities abroad

China, India, Indonesia

CHALLENGES TOP COUNTRIES

Geo-political risksIndonesia, Russia,

China

Finding the right local people

Germany, Japan, Brazil

In-market competition Italy, Germany, UK

Red tape & Corruption Brazil, China, Mexico

Money & Resources USA, UK, Germany


CFOS SEE CHINA AS OFFERING THE GREATEST EXPANSION OPPORTUNITY: USA IS A CLOSE SECOND

CFOs see China as having THREE times the business opportunity of UK, Brazil or France

CountryOpportunity

Index

China 298

USA 279

Germany 200

India 145

Arithmetic mean

100

UK 97

Brazil 97

France 95

Russia 84

UAE 63

CountryOpportunity

Index

Canada 60

Australia 58

Ukraine 52

Mexico 50

Indonesia 49

Belgium 47

Czech Republic 44

Japan 42

Italy 40


OPPORTUNITIES AND CHALLENGES DRIVING EXPANSION


INTERNATIONAL EXPANSION PRIORITY LIST

10/ 10 Better opportunities abroad than at home, 7/ 10Market size, Acquisition opportunities Red Tape & Corruption

9/ 10 5/ 10Market potential, Market size, Ease of entry In-market competition

8/ 10 3/ 10Ease of entry, Market size, People and culture In-market competition

5/ 10 Better opportunities abroad than at home, 2/ 10Market size, Acquisition opportunities In-market competition

3/ 10 2/ 10Market potential In-market competition

6/ 10 6/ 10Acquisition opportunities, Market size Red Tape & Corruption

2/ 10 3/ 10Ease of entry In-market competition

3/ 10 Better opportunities abroad than at home, 7/ 10Market size Red Tape & Corruption

1/ 10 2/ 10Finding the right local people

4/ 10 3/ 10Ease of entry In-market competition

5/ 10 6/ 10Ease of entry, Market potential In-market competition

2/ 10 1/ 10People and culture Red Tape & Corruption

6/ 10 9/ 10Acquisition opportunities, Market size Red Tape & Corruption

2/ 10 5/ 10Better opportunities abroad than at home Finding the right local people

1/ 10 0/ 10People and culture

1/ 10 0/ 10Better opportunities abroad than at home

1/ 10 6/ 10People and culture In-market competition

18. Italy 2/ 10 10/ 10Ease of entry Red Tape & Corruption

OPPORTUNITIES CHALLENGES

1. China

2. USA

3. Germany

4. India

5. UK

6. Brazil

7. France

8. Russia

9. UAE

10. Canada

11. Australia

12. Ukraine

13. Mexico

14. Indonesia

15. Belgium

16. Czech Republic

17. J apan

CONTACT:International Executive Office, Brussels, BelgiumTel: +32 2 778 01 30

© Brussels Worldwide Services BVBA, September 2011

BDO Ambition Survey 2011 - Global opportunities

Business

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