VALUSHAR’s areas of
expertise:
Our
areas
of
special expertise are: business model, strategy,
market entry, valuation, organization design and partnerships.
The diagram shows the interrelation between these elements and how they
create value. Note the feedback loops: when
there is a problem of execution, information must be fed back to allow
the
possibility of revising the strategy, or in extreme cases, even the
business model.
The business model that a company brings to China or Asia is critical to its success. Many companies make the mistake of not adjusting their business model to the realities on the ground in Asia (see Case Study). Companies that are successful in China or Asia generally must be adaptable and willing to change what they do at home, as well as to adjust their core thinking on an ongoing basis. This is much easier said than done, and why an objective perspective like that of VALUSHAR comes in useful.
Once
the
business
model has been determined to be suitable,
it must be backed up by a coherent strategy for China (Asia). Most “strategic plans” are little more than
elaborate financial models built up from unreliable data and riddled
with
wishful thinking, producing the classic “hockey stick”.
VALUSHAR will cut through to the essential
elements, validating the fundamental assumptions, and where necessary
acquiring
and validating pertinent data. Like
business models, strategic plans must be adaptable; what is not working
now is
not likely to work in future. Bottom
The
strategy
for
market entry is not necessarily the same as
what will be employed on a longer-term basis.
In Asia, building a market position generally takes time and
patience. If the company does not have
time but has capital, an acquisition can be the fastest route though it
carries
its own set of risks. If the company
does not have a lot of capital to devote to the Asian market but has
time, channel
arrangements (distribution and/or agency) should be considered at the
outset. Depending on the competitive
environment and the company’s own situation and objectives, either a
skimming or
penetration price strategy can be employed. Top
We
are
able
to advise on valuation of potential investments
including greenfield investments, acquisitions, joint ventures and
divestitures. A basic technique we
employ at VALUSHAR is the discounted cash flow
method, known for many
years
but popularized by McKinsey in the 1980s.
Discounted
cash flow looks at the net present value (NPV)
of a series of cash flows using a discount rate which should be
adjusted to reflect the risk of the investment under consideration.
Though a standard "corporate" discount rate is often used, for
investments in emerging markets like China, a risk premium may be
appropriate. The technique is conceptually superior to other
techniques in
common
use (e.g. book value, price earnings) but has the disadvantage of being
highly
subject to manipulation. VALUSHAR will
challenge and parameterize all the assumptions going into the model to
give a
realistic, risk-weighted view of the contemplated
investment. Bottom
Even with the right business model and strategy, being successful in a new environment can be very challenging. Local culture varies across Asia from very risk-averse to hyper-entrepreneurial (where employees often become entrepreneurs on company time) and from relatively Westernized cultures to ones that are hierarchical in several dimensions, i.e. with obedience relationships inside and outside the company. The right organization design is one which presents a consistent, local-friendly face externally while minimizing internal conflicts and making sense to employees. VALUSHAR recommends relatively simple organization structures coupled with the use of multifunctional teams.
At minimum, every business is in partnership with its customers, suppliers and employees. Sometimes it may make sense to formalize external partnerships in an agreement or alliance. There are also cases where a third-party partner (customer, supplier, distributor, or even competitor) is critical to achieving strategic objectives and it makes sense to create a joint venture partnership. The usefulness of such partnerships must be reevaluated as the business develops. Notwithstanding past value created together, often, after a certain period it will be preferable to dissolve an alliance. In addition to negotiating joint venture contracts, VALUSHAR has experience in sensitive, tactful negotiations for withdrawal from such arrangements which are in the best interests of both parties.
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