A great location…

Identifying the optimal location for a business’s first steps on the US market, is a crucial decision in the business development process.

Earlier blogs (read location…location…location) described how foreign direct investors should search for the right mix of elements. Take into account where customers and competition, but also vendors are located; what incentives and support are offered; what caliber of employees can be found, without forgetting about time zones, cost of living, legislation, climate and connectivity.

This made Renuka Rayasam’s article on Atlanta a great read, defining it as a great location to work and live. We can confirm. She also points to the recent influx of major companies who have recognized this by relocating to the Big Peach. Daimler-Benz’s recent announcement attracting most of the headlines. We are certain more are to follow.

Read the article here: http://www.bbc.com/capital/story/20150331-beyond-the-worlds-busiest-airport

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U.S….What’ s up doc?

The food industry is largely dependent on consumer spending and economic growth. Therefore, this is valuable to have an overall understanding of the current trends before investing.

The two most widely followed indicators of consumer confidence jumped to the highest levels in seven years last week. The Conference Board reported Tuesday November 4, 2014 that its Consumer Confidence Index climbed to 94.5 in October, the strongest reading since October 2007 before the economy entered the Great Recession.
The solid increase suggests consumers largely dismissed concerns about slowing global growth and have ignored the sharp swings in financial markets in October. Instead, greater hiring and lower gas prices are boosting their outlook.
US consumer confidence rebounded strongly in October, hitting a 7-year high as solid job gains and falling gas prices raised expectations for economic growth. This came despite slowing economic growth in Europe and China that has fueled volatility in financial markets.

Then on Friday October 31, the University of Michigan’s Consumer Sentiment Index rose from 84.6 in September to 86.9 in October, the highest level since July 2007. It was the third consecutive monthly increase in this Index. Respondents to both surveys cited expectations of better economic growth and job gains in the coming months, along with falling gasoline prices, as reasons for their optimism.

On Thursday, October 30th advance report on 3Q Gross Domestic Product came in at a better than expected 3.5% instead of 3% following the 4.6% showing in the second quarter. According to the advance report, the increase in GDP in the 3Q primarily reflected positive contributions from consumer spending, exports, nonresidential fixed investment, federal government spending and state and local government spending…
The Fed has also taken the decision to end quantitative easing (QE) last Wednesday. A further analysis of the official statement released after the policy meeting yields more clues as to when the Fed might start raising interest rates finally.
Second, as for US inflation, which is running below the Fed’s target of 2%, the Fed noted that falling energy prices are the main reason inflation has retreated as of late. They expect inflation to increase modestly when energy prices bottom out.

Yet at the same time, the latest polls on the Direction of the Country show that a 66.0% of Americans believe the country is headed in the wrong direction with only 27.8% who believe the nation is moving in the right direction. There is a huge disconnect between these measures of consumer confidence versus how Americans feel about the direction the country is headed.
So the question is, how can consumer confidence be at a 7-year high when two-thirds of Americans believe the country is headed in the wrong direction?
As always, the economic signals are mixed. However, the headline numbers over the last year support the public’s optimism.
It is true that a big increase in defense spending and a drop in oil imports accounted for a good part of the stronger growth in GDP this year. Moreover, true, too, spending on business equipment (+7.2%) and by consumers (+1.8%) grew more slowly in the 3Q than in the previous quarter, but at least such spending did expand.
The Fed has done its part, arguably, by holding short-term interest rates near zero for the last five years and buying trillions of dollars of long-dated Treasury bonds and mortgage-backed securities to keep long rates low. While the Fed did end its QE bond-buying program as promised, it committed to keep short rates near zero for a considerable time.

Then there are those anecdotal statistics that are useful supplements to the more closely followed government reports:
o Gasoline prices are plunging as new supply exceeds shrinking demand, putting cash into consumers’ pockets just as the holiday season starts. The rule-of-thumb is that every 1-cent-per gallon price decline adds $1 billion to consumer purchasing power.
So the 30-cent drop in the past month gives consumers $30 billion more to lavish on toys, apparel, and, of course, iPhones. In addition, economists estimate that every $1 decline in gasoline prices is associated with a 10% increase in sales of cars and trucks, especially of highly profitable SUVs and light trucks.
o Hundreds of thousands of holiday jobs are available. The seven largest retailers have 400,000 openings that are proving so difficult to fill that employers are “bombarding customers’ inboxes and Twitter feeds with help-wanted ads,” according to the Wall Street Journal. Many retailers ring-up between 25% and 50% of their annual sales in the next few months.
o Profits of leading corporations are up, and after some violent gyrations, the S&P 500 Index is up over 10% from the record level reached at the end of last year. This is good for investors and suggests a strong holiday shopping season.
o Finally, Apple’s iPhone 6 and 6Plus accounted for an estimated 10% of all recent US economic growth, adding 0.3% to overall GDP. Innovation is always a good thing.

Taken together, the economic news does explain the uptick in consumer confidence, although that confidence is dampened somewhat by gloomy economic news from Europe, China, Brazil, Russia, and other countries, as well as by stagnant middle-class incomes, and a job market that could be stronger. The improving economic outlook marches in parallel with a largely bipartisan fear that the institutions of government are just not fully working.

The legislative branch, Congress, is dysfunctional. Democrats are split between moderates appealing to independent voters and the left that is rallying the party’s “core” to remain on a “progressive” path to the 2016 presidential election. Republicans are afraid to speak out on politically sensitive issues and are divided by the Tea Party that sees compromise as weakness.
Other institutions are also in ill repute. The Centers for Disease Control, once the most widely respected government agency, fumbled its response to Ebola, unnerving a public that once looked to the CDC for guidance when faced with a health scare. The Department of Veterans Affairs is unable to deliver adequate healthcare to the nation’s veterans. .
All of this has to be a big part of why two-thirds of Americans believe the country is headed in the wrong direction long-term, even as confidence in the short-term is riding high.

However…Consumer Confidence Hit a 7-Year High in October!

 

Reference: Gary D. Halbert and Investors Insight.

U.S. gas export boom

It would be difficult to replicate U.S. shale boom, expert says

The shale boom will remain uniquely American for years to come, thanks to the combination of capital, talent, legal system, infrastructure and market that cannot be easily replicated, geopolitical strategist Peter Zeihan said. “This is not something that your average state-run thug can do.” He added.

I spent a full week attending the 2014 OTC Show (In Houston) early this month on behalf of a client distributing its offerings in the energy sectors. I have been quite impressed by the industry dynamics and how big is the boom. The past ten years has seen the global offshore industry bring on stream some of the largest and most complex projects ever attempted. (See more)

The International Energy Agency (IEA) and other expert sources expect oil to remain the fuel of choice up to at least 2035, with a 27% share (down from 33% today) whereas gas is expected be the only fossil fuel to increase its share. Global demand for natural gas is to grow by 64% by 2040. At the same time natural gas prices are to remain strong evidenced by a near term price increase, settling to $4.38/mmBtu in 2020, in the long term prices are expected to rise to $7.65 by 2040. Importantly, the US is projected to become a net exporter of LNG by 2016, spurring the development of new LNG terminals – currently 6 have been approved and 22 are under evaluation.

Whereas the market for Exploration and Production of fossil fuel is recognized to be very much an offshore operation, recent push towards both smaller and more remote fields have seen the growth of floating production systems: 154 new FPSO (Floating Production Storage and Offloading) ships have been identified as well as 5 FLNG (Floating Liquefied Natural Gas) projects that are fully financed.

Furthermore, LNG facilities that have been traditionally built onshore are moving offshore – under pressure of cost – with the increased use of Floating Storage and Regasification Units (FRSUs) located just offshore and connected by pipeline with the distribution facilities. This option is up to 50% cheaper than current onshore solutions.

It is important to note that the use of LNG has grown much faster outside of the US than it has domestically, therefore much of the research and development, design and testing activity has occurred in other countries. Consequently, the international standards applied to LNG operations – wherever they are located – have been heavily influenced by policies and regulations of countries such as Japan, South Korea and some European Nations. In the US LNG is regulated at a federal, state and local level, as well as by non-governmental regulators and standards organizations.

The market for the design and build of the FPSO and FLNG is dominated by a relatively small (but still …) number of players (KBR, TECHNIP, JGC, SBM Offshore, Modec, Bechtel, Teekay, Technip, Samsung, …) who are capable of delivering complex projects of this size, often operating as a consortium. Although often vertically integrated these FEED (Front End Engineering and Design) and EPIC (Engineering Procurement Installation Commissioning) capable companies rely on engineering specialist companies to actually deliver all the specific systems.

See you at OTC 2015!

Please contact me with any questions you might have,  phil.jafflin@cognegy.com

Competitive Manufacturing

Summary
How things change… A new BCG study released on April 25, 2014 throws away out-of-date perceptions on which countries have the lowest manufacturing costs. If China is still ranked #1 in terms of global competitiveness, its position is now under pressure with the United States a close second. The world is not divided anymore between “low cost” emerging countries and “expensive” advanced economies.
What does it mean for investors and decision makers? Where should your next production plant be located?

Manufacturing Cost Competitiveness (MCC)
BCG’s study tracked 25 major exporting countries, accounting for close to 90 percent of global exports of manufactured goods. Their MCC index is built on four pillars of manufacturing competitiveness: wages, productivity growth, energy costs and currency exchange rates. Adjustments were made to take into account other drivers influencing a nation’s competitive position, such as available infrastructure, security issues, ease of doing business, corruption level…

Ranking and evolution
Apart from China and the USA, the final Top Ten MCC ranking includes the U.K. (4), the Netherlands (6), Belgium (9) and France (10) but this “photo finish” doesn’t tell the full story. A clearer picture is offered when classifying the countries in four categories, reflecting the trend of their competitive position. Highlights:

   Under Pressure: Rapidly deteriorating competitiveness affects Brazil, Russia, China, Poland, Czech Republic…
   Losing Ground: High cost countries coping with rising energy costs, high wage costs and no productivity gains. Belgium, France, Italy, Sweden…
   Holding Steady: Countries maintaining their position relative to the global leaders: Netherlands, U.K., India, Indonesia.
   Rising Stars: Increased competitiveness with gains in all four index components: U.S.A., Mexico

Click here for the press release on the BCG study.

What are the implications for business leaders?
The first message is that decision makers need to keep track and adjust to dramatic and rapid changes. Old (as in ten-years-old) perceptions stand in the way of new realities. “Overall costs in the USA are 10 to 25 percent lower than those of the world’s ten leading goods-exporting nations other than China”, the report says, and on par with Eastern Europe.
Entrepreneurs do not move their production facilities based on the latest trend or hype. Such a move has huge implications, is very costly and requires an economic horizon of at least one, usually two decades. This is true for medium sized firms as much as for global corporations.
This is why managers and investors should base such a strategic decision on solid cost structure evidence and the analysis of long term trends. Just like when buying shares on the stock exchange, if you follow the mainstream opinion, your late move is likely to end up in painful losses.

Where should your production plant be located?
Whether looking at added capacity or transplanting production, the decision of where your new plant should be built is obviously the subject of a careful strategic analysis. You will make a first selection of countries where wages, energy costs, productivity and currency all point in the right direction, and where the other drivers (ease of doing business, infrastructure, stability, rule of law…) are consistently positive.
Each firm is however a unique case, only partially influenced by macroeconomics. After all, your first concern is with your market, your customers, your people and your identity. This is why you will also want to consider a broad range of company-specific criteria, such as:

  • Competitive sourcing and efficient supply chain
  • Location and dynamics (growth, innovation) of your main markets
  • Availability of skilled labor and qualified specialists
  • Ease of adjustment to the local culture
  • Global market prestige and local market access
  • Access to local funding.

Building a production plant in a distant, foreign country, is a major strategic decision, one that might ensure growth and profitability for decades to come, if done right. When deciding where to move, take a new look at today’s evidence and tomorrow’s evolution, not at yesterday’s performance.

Flemish exports reach record height in 2013

According to an article in the Flemish newspaper De Tijd exports from Flanders – one three regions in Belgium, the others are Wallonia and Brussels – grew in 2013 to a new record height. In comparison with the previous year exports increased by 1.64% to 294 billion euro. Flanders represents 83% of all Belgian exports. All the numbers originate from Flanders Investment and Trade.

Aside from all these positive macro-economic data, COGNEGY itself has seen a growing interest for the US market by many Belgian SMEs. More feasibility studies than ever before are being run, and more client businesses are enjoying our support with the execution of their growth strategies on the US market.
Another notable positive trend is the realization by many entrepreneurs that such a market entry has to be well prepared. Far more than in the recent past, they recognize the importance of early identification of ‘hurdles‘ and ‘springboards‘ (the opposite of a hurdle, an accelerator) and the understanding of competitive environments, which leads invariably to a stronger value proposition and in turn to more successful customer acquisition.
The original text was published in De Tijd – and can be found here http://www.tijd.be/r/t/1/id/9484774.
All numbers quoted originate from FIT – Flanders Investment & Trade.

 

Georgia #1 state for business

Georgia – that is the state in the US and not the country – has been named #1 state for business by the Site Selection Magazine.

In a press release by the office of Governor Nathan Deal, Site Selection editor Mike Ahrend was quoted saying:

“Executives at companies investing there regularly point to its many logistics advantages, cutting-edge workforce training programs, particularly Quick Start, and proactive economic developers on the state and local levels who understand the business requirements of today’s capital investors.”

Read the full press release here: http://gov.georgia.gov/press-releases/2013-11-04/georgia-named-no-1-state-us-business

So, just like Ray Charles you should have Georgia on your mind!

what is business development?

This blog has never been about us… but any good rule should have an exception.

Over time many people have asked me: ‘what do you do?’  I tell them: ‘…business development…’ And nine out of ten the reply comes: ‘so, you are a sales person, right…?’

Well, yes in a way, but actually no, not really…

Many people erroneously adhere to the idea that ‘business development’ is just another fancy name for selling. They see sales people as ego-hungry creatures, who are continuously looking to put something ‘new and improved’ on their business card. First they were simply sales guys, who then evolved into account managers and now have to be addressed as business development managers…

Or could ‘business development’ actually mean more than sales?

Sure, because others will tell you that business development is essentially the activity to forge new partnerships, alliances, joint ventures or even acquisitions, allowing the organization to grow non-organically.

Others again, will favor the concept that business development is in fact the opening up of new product – market combinations, and preach that actually its lifeblood lies within the R&D and new product development teams.

So, who is right? And, what do I actually do…?

In fact all of the definitions are accurate in a way – because business development is an effort that combines all of these elements and a couple more.

For us business development means ‘…leading the concerted efforts of a company’s profitable growth into new markets, new relationships and new business activities that typically take place outside the realm of its current day-to-day business…’

And that is what I enjoy doing – take businesses into unknown territory!