GK News

GK Attending Hannover Messe 2018

Posted by on October 13, 2017 in Europe News, Front Slideshow, News Items, Trade Shows | 0 comments

Time is Money, don't Waste Time.

Time is Money, don’t Waste Time.

Global Kinetics is pleased to announce our participation at Hannover Messe 23 – 27 April 2018.  Hannover Messe Info

Our booth will be located in the U.S. Investment Pavilion.  Online Map

Rob Meyer, Executive Director & VP EMEA, will be offering FREE Brexit Stress Test for US Companies.

USA based companies with UK based European subsidiaries are cordially invited to obtain a – free Brexit Stress Test – during Hannover Messe. Set and strengthen your company focus for Europe/EMEA following a half hour free quick scan with the writer of the “Short -Term Impact of Brexit for US Businesses in Europe” article.

For more information or to set up your meeting today: rob.meyer@global-kinetics.com


 

FREE Brexit Stress Test for US Companies

Posted by on March 21, 2017 in Europe News, Front Slideshow, International News, News Items | 1 comment

Short term Impact of Brexit for US businesses in Europe

Hannover Messe:  April 24-28/2017
U.S. Investment Pavilion
Hall 3. Stand F04/8


Posted by Rob Meijer on March 21st, 2017


There were in recent European history, that ambition was lead by business competence and international political progress, currently the Brits seem to not rule that many waves -if any- much longer.

Following the initial ridicule dispute led by populist Farage (carrying the loss in his pockets of just the first trading day on the stock market in 1700 Billion Euro) through a mass of arguments that seem to have torn an entire British population apart, creating turmoil and chaos for all of Europe.

A complete political meltdown (Scots bailing out of the UK, social agitation leading to the murder on a member of parliament, nearly 4 million signatures to redo the referendum, a boy scout fight between Cameron and Johnson, the loss of two stars of its former triple A status, public terror towards Asian and Polish citizens in the UK) just to name a few of them.

 

Political turmoil

The costs involved with this so called victory (Farage June 28th in the EU parliament ”you are not laughing now”) are over twenty times higher than the total financial support for Greece up to its third stage only. Let’s not even calculate and interpret the costs involved with the fall of the pound over the past few months.

source; Sky News

source; Sky News

Shameless politicians? Yet more to come…

The result of last Years referendum seems to have separated the so called “new Nazi’s” from the “new populists heroes”.  As one of the first results a steep increase of racism and discriminating UK citizens openly.

Bearing in mind that the 48% voters in favor of Europe ahead of the referendum portrayed by Boris Johnson with the one and ultimate aim of the “European project to unite Europe under a single government, a dream with dark historical resonances.” “Napoleon, Hitler, various people tried this out, and it ends tragically,” “The EU is an attempt to do this by different methods.”

The so called future leadership (of what will be left) of the United Kingdom has spoilt more money over the past few months than Europe has practiced in decades. 

Bear in mind a vast majority of European countries are governed by parliaments with similar majorities as in the UK in favor of European cooperation, recent elections in the Netherlands show a vast majority opts to not just continue but build out the cooperation with the EU on both shorter and longer term.

 

Will GB resolve the current crisis?

Scottish Not British

Scottish Not British

That is a question we currently hear all the time. “How much further will the pound devaluate?” “How many more losses may banks be able to survive?” – Virgin -44%, Barclays -31,96, RBS -30,42, Lloyds -29,11). Well, Sociéte Générale (France) lost 27,61, Banco Popolare (Italy) -29,83%, Deutsche Bank (Germany) -19,53. – (Source: Bloomberg 28-06-2016)

The current crisis fueled by opportunists like Boris Johnson, Farage and the likes, is not just only to resolve in the UK as such, but requires a full new solid European overall response -including the safeguarding of current and future UK interests-. To achieve that we need different architects but definitely not those mentioned above. Nevertheless Theresa May appointed David Davis (Leave Campaigner) in charge of the Brexit as minister, Boris Johnson (leader Leave Campaign) in the position of foreign secretary and Liam Fox (Leave Campaigner) appointed International Trade Secretary.

This compares to Ken appointing Barbie Chief Design Officer Porsche because she enjoyed the last ride that much!

In reality next to securing UK’s exit from Europe without violating its own position (which is not going to become easier with the recent departure of Sir Ivan Rogers (January 2nd 2017) as Britain’s ambassador to the European Union; “In any negotiation which addresses the new relationship, the technical expertise, the detailed knowledge of positions on the other side of the table – and the reasons for them, and the divisions amongst them – and the negotiating experience and savvy that the people in this building bring, make it essential for all parts of UKRep to be centrally involved in the negotiations if the UK is to achieve the best possible outcomes.”

“Rapid resolution and multilateral negotiating experience is in short supply in Whitehall, and that is not the case in the European Commission nor in the Council”.

 

With both elections later this year in Germany and France, the leading ax of the European communion may face various changes in leadership. Not just the UK, but the entire European patchwork is in transition mode. So there isn’t much space to address a European crisis without bringing individual political futures at steak. No short term solutions should be expected, strong cooperation between GB and Europe is required, however the wrong UK-leadership is chosen to obtain that objective.

 

Strategies for US headquartered Companies with subsidiaries in the UK

Staffing

One of the most valuable parts of your company may be at risk; your staff.  Many expats are probably in shock. “Will I be able to carry on with schools for our children, the tax benefits, can we carry two passports, mortgages and loans, what about owning property?”  All nationals of other European countries living in the UK may from a legal point of view have an unchanged status, it may become quite an investment to convince them to not swap country within the next two years, (the lasting period of time UK will remain full member of the EC).

Inflation
The stock market is likely to repair itself from the blast of the past few months, the pound however is not likely to follow that path. On the long term that may lead to inflation. “Always look at the bright side of life”, but never ever forget that when the interest will go up under sustained inflation, it will therefore be more expensive to loan in GB than elsewhere. (On the positive side, if inflation leads to unemployment –and it will- the cost of employment will go down, meanwhile the quality and choice of labor supply may decrease.)

Time to Leave?

Time to Leave?

Sales

The benefit of the lower pound obviously is that your UK price list can create faster sales, but if interest will raise due to the inflation it becomes less likely the economy will grow as it did in the UK over the past decade and the trend will show lower sales. The EU has +500 million citizens, half of UK’s export will fall under the newly developed article 50 schedule. To secure and prevent exits from other EU members, do anticipate that current privileges will fall and new tariffs will be introduced. (On the positive side, in two years time from now, the UK will be in the position to trade with the fast growing countries outside the EU regulations. (TTIP –USA- and EUCTPII –China-).

Export/Import – “anticipate and rule”

Above all: do not abandon the great relationships you have been building in GB over the past years and obtain a strong and convincing position in rewarding your partners current difficult situation. The people and partners you have worked with this far have proven their flexibility and reliability and invested with a great confidence in your companies future sharing their own. That on itself creates the best bases for future success. Meanwhile your partners will perfectly well understand you have to anticipate all future scenarios.

Export/Import – “anticipate and rule”

  • US companies operating subsidiaries in- and importing through GB into the EU we advise to start working on alternative scenario’s and by example anticipate warehousing from EU countries into the EU benefiting from internal EU tax legislation models.
  • We advise to pro actively approach your EU channel partners and let them know you obtain their commitment to cooperate and provide input (rather to leave that with your competition).
  • Secure all newly released products will follow EU EORI number policies and prevent becoming a part of the tsunami of product acceptance scenario’s into the EU in the upcoming two years.
  • Secure your options through a revised stock planning abroad, anticipating the exact outcome and definition of the article 50 treaty.
  • Do not hesitate and evaluate your cash flow management abroad under the various scenario’s, also review your terms of product shipment and partner contracts and pro actively migrate within the agreed terms to prevent from minefields erected in two years time from now.
  • Tax management may require revision. Waiting until the execution of article 50 becomes activated can be very costly.
  • Recalculate your VAT position when moving from USA into GB to USA into EU, imply export to GB
  • Evaluate future Intellectual Property Tax Positioning when moving into EU.

C; Rob Meijer/Global-Kinetics/Global301

GK Attending Hannover Messe 2017

Posted by on February 27, 2017 in Europe News, News Items, Trade Shows | 0 comments

U.S. Investment Pavilion - Hall 3, Stand F04/8

U.S. Investment Pavilion – Hall 3, Stand F04/8

Global Kinetics is pleased to announce our participation at Hannover Messe 24 – 28 April 2017.  Hannover Messe Online Info

Our booth is located in the U.S. Investment Pavilion, Hall 3, Stand F04/8.  Online Map

Rob Meyer, Executive Director & VP EMEA, will be offering FREE Brexit Stress Test for US Companies.

USA based companies with UK based European subsidiaries are cordially invited to obtain a – free Brexit Stress Test – during Hannover Messe. Set and strengthen your company focus for Europe/EMEA following a half hour free quick scan with the writer of the “Short -Term Impact of Brexit for US Businesses in Europe” article.

For more information or to set up your meeting today: rob.meyer@global-kinetics.com


 

Avoiding Sky High Startup Costs

Posted by on October 4, 2016 in International News, News Items, USA News | 0 comments

Office space can prove detrimentally expensive for startups seeking to establish themselves in major cities worldwide. London’s Shoreditch district has been named the costliest creative district worldwide in a report by Knight Frank. Leasing and fitting-out a 600 sq ft office space there would cost $66,706 per year. Brooklyn was named the second most expensive creative district for startups while Mid-Market in Francisco rounded off the top three.

Infographic: Where Startup Costs Are Sky High | Statista
You will find more statistics at Statista

Global Kinetics Participates in Export Seminar

Posted by on August 24, 2016 in GK Events, News Items | 0 comments

Global Kinetics partners participated in a global Export Seminar on building proper Export Plans.

Global Kinetics partners participated in a global Export Seminar on building proper Export Plans.

Global Kinetics US partners participated in a Export Planning Seminar/Workshop Wednesday, August 24th.  The session was hosted by Kay Carrico and Stephan Helgesen, who guided companies from all over New Mexico through the entire export planning process.  The three hour session covered how you turn a export interest into a solid plan for export success. The session covered many of the points needed to prepare a plan a small business could take to the bank to obtain financing, or be used to convince investors the validity of the business and it’s growth opportunities. The session reviewed where to look to obtain important market research, how to choose a target market, how to find an agent or distributor and much much more. Ken Levandoski and Chris Gordon got to meet with many of the companies and enjoyed the presentation from UPS Regional office on the logistics offered for small businesses.

Short term Impact of Brexit for your business in Europe

Posted by on June 27, 2016 in Europe News, International News, News Items | 0 comments

There were in recent European history, that ambition was lead by business competence and international political progress, currently the Brits seem to not rule that many waves -if any- much longer.

Following the ridicule dispute led by populist Farage (carrying the loss in his pockets of just the first trading day on the stock market in 1700 Billion Euro) through a mass of arguments that seem to have torn an entire British population apart, creating turmoil and chaos for all of Europe. A complete political meltdown (Scots bailing out of the UK, social agitation leading to the murder on a member of parliament, nearly 4 million signatures to redo the referendum, a boy scout fight between Cameron and Johnson, the loss of two stars of its former triple A status, public terror towards Asian and Polish citizens in the UK) just to name a few of them.

Where does it leave your business?

The costs involved with this so called victory (Farage Yesterday in the EU parliament ”you are not laughing now”) are over twenty times higher than the total financial support for Greece up to its third stage only. Let’s not even calculate and interpret the costs involved with the fall of the pound over the past few days.

http://news.sky.com/story/1715003/leave-rejects-brexit-pound-plunge-warning

http://news.sky.com/story/1715003/leave-rejects-brexit-pound-plunge-warning

Shameless politicians? Yet more to come…

The result of last Thursday referendum seems to have separated the so called “new Nazi’s” from the “new populists heroes”.  As one of the first results a steep increase of racism and discriminating UK citizens openly.

Bearing in mind that the 48% voters in favor of Europe ahead of the referendum portrayed by Boris Johnson with the one and ultimate aim of the “European project to unite Europe under a single government, a dream with dark historical resonances.” “Napoleon, Hitler, various people tried this out, and it ends tragically,” “The EU is an attempt to do this by different methods.”

The so called future leadership (of what will be left) of the United Kingdom has spoilt more money over the past few days than Europe has practiced in years. They have no plan, not even something that looks like it.

With the horrible option to have someone like Boris Johnson as prime minister the future for investors, banks and businesses remains insecure for a longer period of time and is very unlikely to recover through the hands of the man who owned the regime splitting nations and classes apart.

Bear in mind a vast majority of European countries are governed by parliaments with similar majorities as in the UK in favor of European cooperation, also in other countries accidents may happen…

Will GB resolve the current crisis?

That is a question we currently hear all the time. “How much further will the pound devaluate?” “How many more losses may banks be able to survive?” – Virgin -44%, Barclays -31,96, RBS -30,42, Lloyds -29,11). Well, Sociéte Générale (France) lost 27,61, Banco Popolare (Italy) -29,83%, Deutsche Bank (Germany) -19,53. – (Source: Bloomberg 28-06-2016)

The current crisis fueled by opportunists like Boris Johnson, Farage and the likes, is not just only to resolve in the UK as such, but requires a full new solid European overall response -including the safeguarding of current and future UK interests-. To achieve that we need different architects but definitely not those mentioned above. Farage and Johnson should start working on their future statues.

With the elections next year in Germany and France, the leading ax of the European communion may face various changes in leadership. Not just the UK, but the entire European patchwork is in transition mode. So there isn’t much space to address a European crisis without bringing individual political futures at steak. No short term solutions should be expected, strong cooperation between GB and Europe is required.

 


The Impacts on your Company

Staffing

One of the most valuable parts of your company may be at risk; your staff.  Many expats are probably in shock. “Will I be able to carry on with schools for our children, the tax benefits, can we carry two passports, mortgages and loans, what about owning property?”  All nationals of other European countries living in the UK may from a legal point of view have an unchanged status, it may become quit an investment to convince them to not swap country within the next two years, (the period of time UK will remain full member of the EC).

Inflation
The stock market is likely to repair itself from the blast of the past few days, the pound however is not likely to follow that path. On the long term that may lead to inflation. “Always look at the bright side of life”, but never ever forget that when the interest will go up under sustained inflation, it will therefore be more expensive to loan in GB than elsewhere. (On the positive side, if inflation leads to unemployment –and it will- the cost of employment will go down, meanwhile the quality and choice of labor supply may increase.)

Sales
The benefit of the lower pound obviously is that your UK price list can create faster sales, but if interest will raise due to the inflation it becomes less likely the economy will grow as it did in the UK over the past decade and the trend will show lower sales. The EU has +500 million citizens, half of UK’s export will fall under the newly developed article 50 schedule. To secure and prevent exits from other EU members do expect that current privileges will fall and new tariffs will be introduced. (On the positive side, in two years time from now, the UK will be in the position to trade with the fast growing countries outside the EU regulations. (TTIP –USA- and EUCTPII –China-).

Export/Import – “anticipate and rule”
Above all: do not abandon the great relationships you have been building in GB over the past years and obtain a strong and convincing position in rewarding your partners current difficult situation. The people and partners you have worked with this far have proven their flexibility and reliability and invested with a great confidence in your companies future sharing their own. That on itself creates the best bases for future success. Meanwhile your partners will perfectly well understand you have to anticipate all future scenarios.

Export/Import – “anticipate and rule”

  • US companies operating subsidiaries in- and importing through GB into the EU we advise to start working on alternative scenario’s and by example anticipate warehousing from EU countries into the EU benefiting from internal EU tax legislation models.
  • We advise to pro actively approach your EU channel partners and let them know you obtain their commitment to cooperate and provide input (rather to leave that with your competition).
  • Secure all newly released products will follow EU EORI number policies and prevent becoming a part of the tsunami of product acceptance scenario’s into the EU in two years time.
  • Secure your options through a revised stock planning abroad, anticipating the exact outcome and definition of the article 50 treaty.
  • Do not hesitate and evaluate your cash flow management abroad under the various scenario’s, also review your terms of product shipment and partner contracts and pro actively migrate within the agreed terms to prevent from minefields erected in two years time from now.
  • Tax management may require revision. Waiting until the execution of article 50 can be very costly.
  • Recalculate your VAT position when moving from USA into GB to USA into EU, imply export to GB
  • Evaluate future Intellectual Property Tax Positioning when moving into EU.

C; Rob Meijer/Global-Kinetics/Global301

Process for International Expansion

Posted by on February 29, 2016 in Europe News, International News, News Items | 0 comments

How to navigate the search process for international expansion

Navigating the search process for international expansion

Multinational companies benefit from international collaboration, a global talent pool and access to innovation, while boosting trade and creating jobs across communities.

In addition, companies that expand internationally have the opportunity for faster growth by reaching new markets.

But with any growth come important decisions about tax and fiscal climates, workforce availability, infrastructure, quality of life and much more.

Executives are smart to consider the following points during their search for international expansion:

Worldwide Access and Infrastructure

The seemingly most obvious part of international expansion is location, location, location. In Europe, for example, there are pros and cons for all locations, from the islands and large countries dominating the coast to the smaller countries nestled between them. The Netherlands in particular provides easy access to Europe’s 500 million consumers, partially because it’s at the center of the three largest economies in Europe — Germany, the UK and France. Obviously, where a company ultimately decides to locate is crucial to its growth strategy.

Hand-in-hand with location is infrastructure. The way a country connects itself to trade partners of varying size and proximity can set it apart from competitors. Moving products with ease is a key component of business operations that can only be done successfully with an extensive network of roads, railways, seaports and airports. Companies such as Coca-Cola, Tommy Hilfiger, UPS, HP and IBM have all chosen to locate their logistics and distribution operations in the Netherlands. The country is ranked No. 2 in the world for overall logistics performance and is home to more European distribution centers than all other European countries combined.

Pro-Business Tools

Setting up your business abroad shouldn’t be more difficult than necessary. With a competitive statutory corporate income tax rate in Europe — 20 percent on the first 200,000 euros and 25 percent for taxable profits exceeding 200,000 euros — the Dutch tax system has a number of attractive features for international companies, for example. When comparing tax structures it is important to find a country with a wide tax treaty network, special benefits for highly skilled expats, and clarity and certainty for the future in terms of taxation.

Robust Talent and the Business Community

Finding English-speaking talent abroad is at the top of the wish list for many U.S. companies. Beyond speaking the “language of business,” many companies also hope to have multilingual employees that will further advance the company’s markets. The Netherlands has a nearly nonexistent language barrier, with 90 percent of the population speaking English.

Beyond talent, companies must also consider what other businesses make up the local economy. Diversity is often important — just ask Fortune 500 companies like Cisco, Heinz, Nike, Boeing, Intel, Amgen and more, all operating alongside a number of small to mid-sized businesses and creative start-ups in the Netherlands.

Thriving Local Lifestyle

If you’re going to expand your company abroad, there should be enthusiasm from your team about the growth. Even if only a fraction of your team will be moving abroad, it is imperative to make sure they will be happy, healthy and comfortable in a new environment. A thriving arts and culture scene, fresh food and welcoming neighborhoods should all be considered.

Commenting on the fashion company’s new European headquarters in Amsterdam, Fred Gehring, CEO of Tommy Hilfger Group BV, captured the sentiments of many executives who have relocated to the Netherlands: “Everybody speaks English here and you can cycle to work. Expats feel at home here almost instantly.”

Local education offerings are also an important factor of international expansion, whether for your employees to send their children to school or where to recruit talent. The Dutch higher education system — ranked No. 7 globally — is geared towards meeting the needs of today’s businesses.

In the Netherlands alone, there are thousands of multinationals including Coca-Cola, Cargill, Dow, Danone, Huawei, LG Electronics, Netflix and more. The Netherlands Foreign Investment Agency is always ready to assist companies exploring their international options.


Jan-Emile van Rossum is executive director of the Netherlands Foreign Investment Agency for North America (NFIA). He oversees operations for the five NFIA offices throughout the U.S., which assist companies as they expand their operations into Europe with a strategic location in the Netherlands. Van Rossum graduated from the University of Utrecht and now resides in Washington, D.C. with his family.

Business vs. Government? World Trust Levels

Posted by on February 17, 2016 in Europe News, International News, News Items | 0 comments

Do you trust your country’s business sector more than your government? Edelman’s 2016 Trust Barometer revealed that people in most nations worldwide put their faith in business rather than government. Mexico has struggled with alarming levels of drug-related violence, as well as political corruption and it comes as little surprise that it has a massive trust disparity between business and government.

This chart shows the % trusting government/business in selected countries in 2016.

Infographic: How Global Trust In Business Compares To Government | Statista
You will find more statistics at Statista

Defense Offsets: Competitive Weapon

Posted by on February 10, 2016 in Asia News, Europe News, News Items | 0 comments

Defense offsets: ‘Contractual Burden’ to Competitive Weapon

Western defense companies looking to new markets often view “offsets” as a burden in international sales. Yet there is value in these industrial compensation arrangements with foreign governments.

July 2014 – Kevin Dehoff, John Dowdy, and O Sung Kwon
All Rights Sourced From: http://www.mckinsey.com

Western defense companies now need to look outside their core markets for growth. In the aftermath of the global economic crisis and over a decade of engagement in southwest Asia, many Western countries have scaled back their defense budgets, favoring instead more targeted spending and austerity plans. In Europe, ministries of defense are downsizing their military operations and procurement programs, and in the United States, the effects of the Budget Control Act of 2011 and sequestration will restrict defense spending through 2021 absent congressional action. By contrast, many countries representing addressable markets in Asia, the Middle East, and South America are investing in defense-modernization programs and over the past few years have increased their defense spending at compound annual growth rates of between 5 and 10 percent.

The value of international deals for Western contractors can be significant. Recent competitions to supply fighter aircraft to the nations of Brazil, India, Japan, and South Korea have represented a combined $33 billion sales opportunity—equivalent to one or two decades of full-rate production for the entire fighter industry.1 India’s competition for more than 120 multi-role combat aircraft was the largest contract opportunity of its kind since the early 1990s, valued at around $12 billion (Exhibit 1).

Exhibit 1

Emerging and non-Western markets hold significant value for defense contractors looking to grow.


However, a comparison of export revenues among top-tier US defense contractors shows that most, on average, still earn less than a third of their revenues from foreign customers (Exhibit 2). Success in international markets requires robust strategies for growth and global sourcing, as well as affordable products. But as most defense contractors know, there is more to proffering a winning bid than just touting technology performance and cost positions; the stakes of international deals are too high not to consider other impacts as well.Exhibit 2

US contractors have headroom to grow internationally.

Primary among these are “offsets”—industrial compensation arrangements required by foreign governments as a condition of the purchase of goods and services from nondomestic suppliers. Some contractors have adopted the legacy view of offsets as “pay to play” instruments and sources of increased risk. No doubt there are costs and regulatory and ethical considerations that come along with the use of these contracted arrangements, but as we will describe in the following pages, offsets can also enable long-standing sales relationships in foreign markets.


How offsets can drive international growth

Offsets are contracted obligations that are typically regulated by ministries of defense or government partners, and they can take one of two forms. Direct offsets are agreements that are directly related to the defense products being sold. For instance, as part of its bid, Kongsberg Defence Systems agreed to subcontract work locally and transfer certain forms of technology to the Polish Navy to support the sale of its Naval Strike Missile Coastal Defense System. Indirect offsets are agreements that are not related to the defense products being sold. For instance, Sukhoi, one of Russia’s major aircraft manufacturers, transferred various space technologies to the Malaysian National Space Agency to fulfill obligations related to the sale of 18 Su-30MKM aircraft. Offset obligations are fulfilled through the proposal and award of “credits,” an accounting metric specific to these programs. In turn, those credits may be earned using a “multiplier,” or an investment incentive that reflects the customer’s desire to direct funding or services toward particular sectors or economic initiatives.

Although they are not usually reported in annual filings, offset contracts are increasingly becoming a C-suite agenda item. Over the past 20 years, US defense contractors have typically entered into an average of 30 to 60 offset agreements each year, representing between $3 billion and $7 billion in obligations per year. Lockheed Martin, the world’s largest defense contractor, reported $9.3 billion worth of outstanding offset agreements as of year-end 2012, and a recent analysis by the Financial Times and IHS Jane’sestimated that ten other companies have accumulated obligations in excess of $1 billion each.2

Offsets are a critical enabler for success in international markets for several reasons. First, customers take them very seriously; governments count on the local investments that offsets generate to justify the capital expenditures required for their defense upgrades and to correct imbalances in foreign trade. In fact, governments sometimes give offset packages equal or greater weight than procurement costs when evaluating competing bids. In Korea’s assessment of bidders for its F-X III fighter program, for example, proposed offsets and technology-transfer arrangements accounted for 17 percent of the total evaluation “score” while acquisition costs accounted for 15 percent. The government also considered a number of other factors, including mission capability of the aircraft (35 percent), technology compatibility (18 percent), and operational costs (15 percent).3

Second, offsets can help Western companies tap into markets that would otherwise be difficult to access. Relationships with local partners are part of the table stakes in major military-procurement competitions, so it is common for contractors to propose offset agreements aimed at developing industrial relationships through joint production or development. Israeli manufacturers have built a top global position in the export of unmanned aerial vehicles in part by cultivating robust local relationships, including joint ventures in Brazil and other emerging defense markets.

A number of Western defense contractors have already realized success in international markets, in part through sound offset strategies. For example, Lockheed Martin’s 2003 win in Poland’s Peace Sky fighter competition was enabled by a competitive offset package. Its unprecedented offset offer was valued at more than $9 billion and included 55 defense-sector programs and 49 programs benefiting the Polish economy overall. Trade journals and the military press cited Lockheed’s offset package as a major reason why its F-16 was selected over competing aircraft, and that deal set the bar for others that followed.4

Meanwhile, Boeing in 1985 established the Boeing Industrial Technology Group to fulfill offset obligations related to the sale of its Peace Shield land-based air defense system to Saudi Arabia. Through this entity, Boeing has participated in education and training programs in the region and has partnered with Saudi Arabia’s General Investment Authority as well as numerous other economic-development bodies in the Kingdom.5Over time, Boeing has deepened its business relationships in the region, selling F-15 fighters and AH-64 Apache helicopters, along with relevant upgrades and sustainment packages, to the Saudi Ministry of Defense.


The risks offsets pose

As these examples suggest, proposing the right offset package can yield tremendous gains. We have seen that successfully negotiated offset agreements can create win–win situations, generating economic impact or technological advantages for the purchasing country and profits for the contractor. If the process is not managed properly, however, offsets can also pose significant competitive, legal, and reputational risks.

Contractors that have acted improperly in fulfilling their offset obligations, or that have proposed programs that failed to produce the intended impacts, have been subject to any number of penalties—among them, congressional inquiries, reputational damage associated with broken contracts, inclusion on “black lists” of companies restricted from bidding on public procurements in specific countries, and investigations under the US Foreign Corrupt Practices Act and the UK Bribery Act.

Over the past few years, several nations have introduced reforms in their offset policies that are raising the bar for contractors’ industrial participation and prompting customers to judge bids and enforce offsets with refined criteria for success. India, for instance, recently created the Defence Offset Monitoring Wing to provide stronger oversight of and standardized performance reporting on offset programs. Among the new provisions are additional multipliers to provide contractors with an incentive to include investments in micro, small, and medium enterprises as part of their offset proposals. Meanwhile, the United Arab Emirates’ Offset Program Bureau (recently renamed the Tawazun Economic Council) in 2010 announced several reforms, including a detailed set of multipliers to target investments at priority investment areas, as well as penalties for underperforming programs—for example, payment of damages for partially fulfilled or unfulfilled offset obligations.

Another risk over the long term is increased competition from companies that have gained key capabilities through offsets. Italy’s Alenia Aermacchi and Brazil’s Embraer, for example, were both benefactors of offset contracts in their infancy. Through these arrangements, the companies gained technical and advanced manufacturing experience and are now strong players in the fixed-wing aircraft market, competing with global leaders.

These sorts of regulatory challenges and competitive pressures reinforce the need for a sound offset strategy.


How to develop a robust offset strategy

Our experience advising defense companies on a range of global sourcing, operations, and strategy issues suggests that to build successful offset strategies, leaders need to focus on the following core characteristics of these arrangements (Exhibit 3).

To build sound offset strategies, companies need to focus on six core areas.

Exhibit 3

1. Context. A successful offset strategy is based on an objective evaluation of methodologies that have proved successful in the past—both for the company and for its competitors. Indeed, some of the most successful international customer relationships are based on offset programs that have been built and iterated over years and decades. Lockheed Martin, for example, recognizes that its current successful collaboration with Korea Aerospace Industries on the T-50 trainer aircraft is based on the generous technology-transfer arrangements it forged through its association with the F-16 Peace Bridge program in the 1980s. A thorough case review can help reveal any gaps between the types of offset arrangements a company uses and the kinds of offset agreements that have been readily accepted in certain parts of the world. The companies that have developed a strong infrastructure and process for monitoring their offset programs will have an advantage in this regard. But there is still value in the review process for companies that have limited offset experience; over time, they will build up a historical record of the offset programs that have allowed them to mitigate risk, win bids, and fulfill obligations efficiently.

2. Alignment. Any proposed offsets should be consistent with the company’s overall international strategy. Contractors should avoid offset programs that may disrupt operations or limit opportunities in other parts of the company, despite any near-term benefits of winning a deal. Leaders must consider their offset proposals against a number of other variables, including the company’s existing growth initiatives, its global sourcing practices, and its manufacturing footprint. Offset-proposal teams are often organized as a support function for business development, but to keep lines of communication open and to ensure that the company’s offset strategy is consistent with overall strategy, team members must maintain constant interaction with individuals in other functional areas, such as manufacturing, purchasing, and finance.

3. Preferences. Most international customers have a vision for their domestic industries, which can include building self-sufficiency in defense production, securing their supply of military products, or encouraging general economic growth and employment. Poland, for example, prioritizes general economic growth and seeks offset packages that provide the highest possible economic impact. Korea prioritizes the development of its own defense industry and seeks out deals that include the transfer of technologies that would enable the local defense base. But in other parts of the world, government leaders’ vision for economic growth may not be as well articulated. In these cases, offset teams must perform due diligence to understand government priorities. This might require conducting a series of stakeholder interviews or a literature search on the development initiatives and offset arrangements that have proved successful in particular regions of the world.

4. Regulations. The types of contracts that are subject to offset obligations, the minimum percentage of offset requirements, and offset credit multipliers all vary by country. Leaders need to consider all these factors when trying to optimize a particular offset deal for a given country. India, for example, offers multipliers of up to 3x for technology with unrestricted domestic production and export—valuable and necessary information for Western contractors that are looking to gain a competitive edge. Leaders need detailed knowledge of local acquisition regulations in order to mitigate reputational and legal risks (claims of bribery and kickbacks, for instance). In some countries, the rulebook is not as straightforward as it may appear. Some regulations and procedures may be informal, and politics often plays a part. It is crucial for contractors to build and maintain transparent relationships with the members of international ministries and other governing bodies.

5. Prerequisites. Contractors must consider the buying country’s ability to absorb different types of offsets. This means conducting a thorough review of, among other things, the potential customer’s infrastructure, manufacturing base, labor force, and R&D capabilities. For example, a defense company’s offset proposal to Brazil could include provisions for local subcontracting and joint production, given Embraer’s global scale and established capabilities in fixed-wing aircraft manufacturing. The company’s offset proposals to Singapore, however, might benefit from technology transfer given Singapore’s science and technology competencies and labor force.

6. Engagement. It is critical for defense companies operating in international markets to understand who the most important stakeholders are and how to engage with them—for some customers in the Middle East, a select few people serve as the primary decision makers in defense acquisition, while in South Korea, approval from several government bodies is required for any major military procurement. Similarly, defense companies need to have a strong sense of the competitive landscape and how they can best differentiate themselves from rivals. Important questions for leaders to ask include, “What types of offset packages have our competitors offered?” and “What sorts of relationships do we already have in the area that we can leverage?” Companies may be able to take advantage of contacts that their colleagues in other business units (other than the one responsible for the original contract) might have in the region. Lockheed Martin included a military-communications satellite in its offset proposal for Korea’s F-X fighter program—drawing on resources from other parts of the company to more closely target its offer to the customer’s needs.

 As globalization in the defense industry continues, offsets will become an increasingly important strategic tool. Some contractors have adopted the view that offsets are a burden—a “tax” that has to be paid in order to play. From our perspective, offsets are a key enabler for international growth. Those players that follow a holistic, structured approach to defining their offset strategies will find them less a burden than a competitive weapon.

About the authors

Kevin Dehoff is a director in McKinsey’s New York office, John Dowdy is a director in the London office, and O Sung Kwon is an associate principal in the Southern California office.

The authors would like to acknowledge the contribution of Frank Coleman, Reed Doucette, Cody Newman, and Maggie Stringfellow to this article.

GK Executives Attend UNM Economic Development Forum

Posted by on June 26, 2015 in GK Events, News Items | 0 comments

EDF Attendees including Ken Levandoski and Chris Gordon from Global Kinetics

Principle members Ken Levandoski and Chris Gordon, attended the UNM Economic Development Forum Breakfast Meeting.  The meeting took place in the STP Auditorium, at the UNM Science & Technology Park, 800 Bradbury Dr. SE., Albuquerque, NM 87106.  STC CEO Lisa Kuuttila and New Mexico Angels’ President John Chavez teamed up to present at UNM EDF on how angel investors are filling the investment void for early stage technologies and companies spinning out of the University of New Mexico.

Title: Angel Fund-University TTO Partnerships: Case Study of the University of New Mexico’s STC.UNM and the New Mexico Angels
Presenters: Lisa Kuuttila(STC.UNM) and John Chavez(NM Angels)

The event was very informative and showed the continual growth and momentum that the entrepreneurial Tech Transfer community in New Mexico.  Great job all!UNM-Economic-Dev-Building