Competing against scale –

the outlook of Sloveniancompanies competing toward

the global competition

Aim of the book:

Could Slovenian companies survive the global concentration process of industries?

Book summary:

Yes, they can successfully compete if they develop an appropriate strategic growth combination like Top-Performing Niche Players (TPNs).

3Andrej Vizjak, Introduction of the book ‘Competing against scale’

Key concept: The growth cube

Sustain TPNGrowth Profile

Adapt to IndustryConcentration

Change GrowthDirection

LeverageUniqueGrowth

Capabilities

Apply AppropriateGrowth Paths

Transform YourOrganization

4Andrej Vizjak, Introduction of the book ‘Competing against scale’

TPNs adapt according to requirements of the current industry concentration stage

Focus

Phase

Balance

Phase

Opening

Phase

Scale

Phase

5Andrej Vizjak, Introduction of the book ‘Competing against scale’

For the last ten years globally we were facing rapid concentration process of industries

Analysing requirements of individual phases of the industry concentration process

578

1.3992.072

9.259

6.583

10.000

1987-1991 1992-1996 1997-2001 2002-2006 Total in 25 years

1982-1986

The value of transactions (in million US$)

19.891

6Andrej Vizjak, Introduction of the book ‘Competing against scale’

On 31st December 2006, 500 global industry leading companies managed 54% of the total global market capitalisation

100%

3,8%7,3%

35,3%

53,5%

30.500

500

3.800

6.200

20.000

MC= market capitalization on 31.12.2005; 100% of MC represents 40.000 billion US$ and consists of 30.000 companies

Small (over 10 Million)and ‘little’ companies

from 200 million to 1 billion US$ of MC

Middle-size companies

from 1 to 15 billion US$ of MC

Large companies

over 15 billion of MCBig companies

less than 200 million US$ of MC

% of the total MCnumber of companies in

the category

Analysing requirements of individual phases of the industry concentration process

7Andrej Vizjak, Introduction of the book ‘Competing against scale’

Case 1: Market capitalisation of global food companies on 31.12.2006

10%

8%

7%

5%4%3%3%3%

2%

14%

38%

3%

25 %Top 3

23 %Top 4-10

Food and beverage producers

100% = 1.428 billion $(424 companies)

30%

7%

7%

7%

6%

4%3%3%

17%

10%

3%3%

44 %Top 3

Other 21-92

TOP 11-20

29 %Top 4-10

Food retailers100% = 639 billion $

(92 companies)

AmbevAnheuser-Busch

DanoneInbev

DiageoKraft Foods

Unilever

Pepsico

Coca Cola

Nestle

TOP 11-20

Other 21-424

KrogerAhold KoninklijkeWoolworthsMetroTengelmann

Auchan

Carrefour

HutchisonWhampoa

Tesco

Wal Mart Stores

Analysing requirements of individual phases of the industry concentration process

8Andrej Vizjak, Introduction of the book ‘Competing against scale’

Case 2: Market capitalisation of global automotive companies on 31.12.2006

Analysing requirements of individual phases of the industry concentration process

44 %Top 3

27%

9%

8%

8%

7%

6%

5%4%

3%

15%

5%

3%

Toyota

DaimlerChrysler

Honda

Nissan

Volkswagen

BMW

Renault

FiatGeneral Motors

Porsche

TOP 11-20

Other 21-44

36 %Top 4-10

Automotive producers100% = 661 billion $

(44 companies)

16%

11%

6%

6%

5%4%4%3%

11%

32%

3%2%

33 %Top 3

Robert Bosch

Denso

Bridgestone

Continental

MichelinSMCAisin Seiki

Other 21-151

ZF FriedrichshafenGenuine Parts

TOP 11-20Pirelli

24 %Top 4-10

Automotive suppliers100% = 304 billion $

(151 companies)

9Andrej Vizjak, Introduction of the book ‘Competing against scale’

Case 3: Market capitalisation of global banks and insurance companies on 31.12.2006

Analysing requirements of individual phases of the industry concentration process

21%

15%

11%

11%

10%

4%3%2%

7%

12%

2%2%

Investment banks100% = 797 mrd. $(123 companies)

TOP 11-20

Other 21-123

Bear StearnsCredit Suisse First Boston

Charles SchwabNomura

Merrill Lynch

Lehman Brothers

Goldman Sachs

Morgan Stanley

UBS

JP Morgan Chase

5%

5%

4%

3%

3%

2%2%2%

15%

2%2%

55%

Commercial banks100% = 5.223 bn. $(813 companies)

TOP 11-20

Other 21-813

BNP ParibasWachovia

Banco SantanderWells Fargo

Royal Bank of ScotlandChina Construction Bank

Mitsubishi

HSBC

Bank of America

Citigroup9%

8%

4%

4%

2%2%2%2%

13%

2%2%

50%

Insurance companies100% = 2.102 bn. $(253 companies)

TOP 11-20

Other 21-253

AllstatePrudential

MetlifeNippon Life

GeneraliManulifeAllianz

AXA

BerkshireHathaway

AmericanInternational

10Andrej Vizjak, Introduction of the book ‘Competing against scale’

The Endgame theory describes and predicts the concentration of all industries with 2-3 global industry leaders finally dominating more than 70% of the global market, …

… allowing only “Top Performing Niche Players (TPNs)” to compete in the residual 30%of a concentrated market.

The total market share

of three largest

companies on the global

market

Analysing requirements of individual phases of the industry concentration process

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

∅∅∅∅ 45%

-10 -5 0 5 10 15 20 25

CR31)

Years

Opening Scale FocusBalance/Alliance

Paper

Drugs

Natural gas liquids

Semiconductors

Telecom

BrewersRailroad

Insurance

Divers. ChemicalsUtilities

Automotive Supplier Restaurants & Fast Food

Steel Producer integrated Automotive Mfrs.

ConfectionaryTruck & Trailer Mfrs.

Shipbuilding

Distillers

Cigarette

Defense Electr.

Soft drinks

Aluminum Producers

Food Retail

Airlines

Integrated oil & gas

Ore Mining

Banks

Consumer Electronics

Divers. FoodRubber & Tire Mfrs.

11Andrej Vizjak, Introduction of the book ‘Competing against scale’

TPNs optimise continuously their operational capabilities for growth

Simple

Growers

Value

Growers

Profit

Seekers

Under-

performers

12Andrej Vizjak, Introduction of the book ‘Competing against scale’

47% of companies are not capable to balance their growth of revenues with the profit growth; therefore these companies will become an acquisition target

Sustain TPN Growth Profile

Long-term growth of revenues of 10.500 public companies world-wide larger than 200 million US$

of yearly revenues from different industries

Share of companies positioned in individual quadrants of the matrixx%

∅

industry

average

∅

industry average

Value Growers

RevenueGrowth

ValueGrowth

Profit SeekersUnder-performers

Simple GrowersQ3

Q4

Q1

Q2

Revenue Value

Revenue Value Revenue Value

19%47%

14% 20%

Revenue Value

13.8%

-2.7%

3.6%-3.6%

4.1%

12.8%

21.5%18.0%

13Andrej Vizjak, Introduction of the book ‘Competing against scale’

Among 10.000 companies we have selected 600 companies as TPNs which set the growth profile benchmarks to compete against scale

0

Maximaldeviation

of anindustry median

from themedian of

the 600 TPNsacross

industries

Long-termgrowth of sales

17%

Stabileprofitability

10%

High assetturnover

1,1

Healthyfinancialstructure

0,9

+75%

+50%

+25%

- 75%

- 50%

- 25%

Sales CAGR(2005/2000 in % p.a.)

EBIT intotal assets

(av. 2000-2005 in %)

Equity / debt(av. 2000-2005)

Asset Turn(average 2000-2005)

Critical mass1000 mil $

Sales revenuesin million $ 2005

Indicators of operational capabilitiesIndicators of strategic capabilities

Sustain TPN Growth Profile

Energy24%

Energy17%

Retail1,9

Chemicals1,2

Energy 2000 mil $

Electronic 13%Retail7%

Energy0,6

Mechanical engineering 0,7Raw material

suppliers 690 mil $

14Andrej Vizjak, Introduction of the book ‘Competing against scale’

Case 1: Growth analysis of the global food industry

Sustain TPN Growth Profile

Archer-Daniels-Midland

5% 10% 15% 20% 25% 30% 35%

Nestlé

CocaCola

Pepsi

UnileverKraft

Foods

Diageo

Inbev

Danone

Anheuser-Busch

Sabmiller

Heineken

CadburySchweppes

General MillsRegional food and beverage producers Wal Mart

StoresTesco

Hutchison Whampoa

Auchan

CarrefourTengelmann

Metro

Woolworths

Ahold

Regional retailers

-10%

0%

10%

20%

30%

Ambev

Food retailersFood and beverage producers MC 2006

Long-term

growth

Median ofglobal TPNs

of thisindustry

Long-term ROI

Median ofglobal TPNs

of thisindustry

Ø Slovenianindustry

Median of regional niche players

15Andrej Vizjak, Introduction of the book ‘Competing against scale’

Case 2: Growth analysis of the global automotive industry

Sustain TPN Growth Profile

EU niche suppliers

Asian niche suppliers

Pirelli

Genuine Parts

ZF Friedrichshafen

Aisin Seiki

SMC

Michelin

Continental

Bridgestone

Denso

Bosch

Asian automotive producers

Ford

Peugeot

Hyundai

Porsche

General Motors

Fiat

Renault

BMW

Volkswagen NissanHonda

DaimlerChrysler

Toyota

-10%

0%

5%

10%

15%

20%

5% 10% 20%

ProducersSuppliers

Mitsubishi

-5%

Suzuki

Mazda

Kia

Daihatsu

MC 2006 Ø Slovenian industry Median of regional niche players

Long-term

growth

Median ofglobal TPNs

of thisindustry

Median ofglobal TPNs

of thisindustry

16Andrej Vizjak, Introduction of the book ‘Competing against scale’

Case 3: Growth analysis of the global financial sector

Sustain TPN Growth Profile

Regional nicheplayers: Europeaninvestment banks

Lehman BrothersMerrill Lynch

Goldman Sachs

Morgan Stanley

UBS

JP MorganChase

Generali

Manulife Financial

Allianz

AXA

Berkshire Hathaway

American International

EU niche commercial banks

WellsFargo

Royal Bankof Scotland

ChinaConstruction

Bank

Mitsubishi UFJ Financial

HSBCBank of America

Citigroup

-5%

0%

5%

10%

15%

20%

25%

35%

0%

1% 2% 3% 4% 5% 6%

MC 2006 Ø Slovenianindustry

Insuran-ces

Commercialbanks

Investment banks Median of regional niche players

8%

Long-term

growth

Median ofglobal TPNs

of thisindustry

Long-term ROI

Median ofglobal TPNs

of thisindustry

Regional nicheplayers: European

insurances

17Andrej Vizjak, Introduction of the book ‘Competing against scale’

TPNs follow adequate growth directions

Regional

Multi-

Business

Niches

Global

Market

or

Niches

Regional

Product

Niches

International

Product

Niches

18Andrej Vizjak, Introduction of the book ‘Competing against scale’

Most TPNs compete either in regional niches or ininternational product niches

InternationalProductNiches(50%)

GlobalMarketNiches

(6%)

RegionalMulti-

businessNiches(25%)

RegionalProductNiches(19%)

Apply Appropriate Growth Paths

100% = 600 Top Performing Niche Players

InternationalizationRegion (domestic country)

Globalmarket

Regionalgroup

Product diversification

Product

Product group

IndustryMarket

Marketsegment

Niche

19Andrej Vizjak, Introduction of the book ‘Competing against scale’

Both regional product niches and regional multi-businessniches are not sustainable in concentrating industries

% Top Performing Niche Players (TPN)according to industry concentration phases (n=600)

Apply Appropriate Growth Paths

0%

20%

17%

63%Regional product niche

Regional multi-product niches

International product niches

Sustainable global market niches100% = 30 TPN

Opening phase

(CR3<20%)

6%

49%

20%

25%

100% = 437 TPN

Scale phase

(20%≤CR3<40%)

8%

60%

15%

17%

100% = 119 TPN

Focusphase

(40%≤CR3<70%)

15%

71%

7%

7%

100% = 14 TPN

Balancephase

(70%≤CR3)

20Andrej Vizjak, Introduction of the book ‘Competing against scale’

TPNs leverage their unique growth capabilities

Product

Related

Capabilities

GlobalEconomies

of Scale or

Counter Niches

Product

and/or

Regional

Focus

Market

Related

Capabilities

21Andrej Vizjak, Introduction of the book ‘Competing against scale’

Market split

Innovation

Other product or market capabilities

Counter Niches

Product and/or Regional Focus

100% = 119 TPN

100% = 14TPN

100% = 437 TPN

100% = 30TPN

90%

67%53%

21%

7%

21%

22%

36%

6%

16%

21%

5% 8%

14%

0% 3% 7%0% 1% 2%

For development of international product niches companies need innovativeness and other unique product and/or market related capabilities

% Top Performing Niche Players (TPN)according to industry concentration phases (n=600)

Leverage Unique Growth Capabilities

Opening phase

(CR3<20%)

Scale phase

(20%≤CR3<40%)

Focusphase

(40%≤CR3<70%)

Balancephase

(70%≤CR3)

22Andrej Vizjak, Introduction of the book ‘Competing against scale’

TPNs apply appropriate growth paths

Speed

NichesCooperations

Organic

GrowthAcquisitions

23Andrej Vizjak, Introduction of the book ‘Competing against scale’

100% = 119 TPN

100% = 14TPN

100% = 437 TPN

Organic growth

100% = 30TPN

Speed niches

Acquisition

Cooperations

60%44% 48%

23%

9%9%

21%

40%

23%24%

21%

24% 19%

35%

0%

0%

Cooperations and acquisitions represent an important growth path toward the TPN in a global market niche

% Top Performing Niche Players (TPN)according to industry concentration phases (n=600)

Apply Appropriate Growth Paths

Opening phase

(CR3<20%)

Scale phase

(20%≤CR3<40%)

Focusphase

(40%≤CR3<70%)

Balancephase

(70%≤CR3)

24Andrej Vizjak, Introduction of the book ‘Competing against scale’

TPNs align the organization according to the strategy

Decentralized

Product

Units

Decentralized

Product and

Regional

Units

Centralized

Functional

Units

Decentralized

Regional

Units

25Andrej Vizjak, Introduction of the book ‘Competing against scale’

More than 70% of TPNs reach the critical mass of 0,7 to 1,5 billion US$ revenues and apply the centralised functional organisation structure

71%

27%

2%

87%

13%

39%

61%

All 600 TPNs 70Regional

TPNs

64%

36%

85International

Product TPNs

11Global

Market TPNs

DecentralizedRegional

Units

DecentralizedProduct

Units

Partial Decentralisation

CentralizedFunctional

Units

DecentralizedProduct and

Regional Units

% of TPNs according to organisation and growth direction

Transform Your Organization

26Andrej Vizjak, Introduction of the book ‘Competing against scale’

The industry concentration process will affect the Slovenian companies as well

0 3 6 9 10 50 90 130 200 700450

0

3

6

9

10

50

90

130

200

700

450

Th

e v

alu

e o

f d

om

es

tic

co

mp

an

ies

a

cq

uir

ed

by f

ore

ign

co

mp

an

ies

The value of foreign companies acquired by domestic companies (according to the

country of origin)

The total value of international acquisitions(1.1.2000 – 31.12.2006 in billion US $)

PTBG

GR

GBD

UA

PL

FI

GDP

FI,DK

SLO

GDP

GDP

MK

CRO, RO

SK YU

TR

NO, IE

≥ 360 Billion $

≥120; <360 Billion $

The size of bubble represents GDP of individual countries (in billion US$)

<120 Billion $

D (Germany), GB (Great Britain)F (France), I (Italy), E (Spain)RU (Russia), NL (Netherlands),CH (Suisse), BE (Belgium), TR (Turkey)

S (Sweden), A (Austria), PL (Poland),NO (Norway), DK (Denmark), GR (Greece), IE (Ireland), FI (Finland),PT (Portugal), CZ (Czech Republic)

HU (Hungary), RO (Romania),UA (Ukraine), SK (Slovakia),CRO (Croatia), SLO (Slovenia),LU (Luxemburg), YU (Serbia),BG (Bulgaria), MK (Macedonia)

RU

A LUCZ

HU

BE,E,CHNO,S

NL

27Andrej Vizjak, Introduction of the book ‘Competing against scale’

If the trend of foreign acquisitions in the Eastern European will be ‘mapped’ into SEE the region will be ‘sold out’ in next five years

0 1 10 20 30

0

1

10

20

40

The color of the bubble indicates the time frame of the transaction

Countries of south-eastern Europe (SEE):RO, CRO, SLO, YU, BG, MK, A

1.1.1987 – 31.12.1991

1.1.1992 – 31.12.1996

1.1.1997 – 31.12.2001

1.1.2002 – 31.12.2006

Countries of eastern Europe (EE):CZ, SK, HU, PL

1)

1) Acquisitions ≥ 100 billion US$

30

40 50

50

1.1.2007 – 31.12.2011

?

SEE

EE

EE

EE

EE

SEE

SEE

The total value of international acquisitions(1.1.2000 – 31.12.2006 in billion US $)

Th

e v

alu

e o

f d

om

es

tic

co

mp

an

ies

a

cq

uir

ed

by f

ore

ign

co

mp

an

ies

The value of foreign companies acquired by domestic companies (according to the

country of origin)

28Andrej Vizjak, Introduction of the book ‘Competing against scale’

The growth of revenues of Slovenian companies is at the level of TPNs, however their limited size (in terms of revenues) would require their faster growth and higher profitability

1,021,113%13%82Median value of all companies

2,461,514%18%181Weighted average of all companies

3,211,434%17%63Weighted average of 109 smaller SLO companies (less than 100 million US$ revenues)

1,461,333%14%350Weighted average of 91 largest SLO companies (more than 100 million US$ revenues)

Asset turnover

Healthy financing

Stabile profitability

RevenueCAGR (2000-

2005 in %)

Revenue in mil US$ (2005)

Median value of TPNs from different industries

1000 17% 10% 0,9 1,1

Note: 1) Bank and insurance companies (11of 91 largest companies) are not included in the calculation of median revenues.The total assets median of Slovene banking and insurance companies was 3045 mil $ and the median of TPNs was 8194 mil $.

1)

29Andrej Vizjak, Introduction of the book ‘Competing against scale’

The implementation of the appropriate growth cube combinationrequires a comprehensive transformation program

30Andrej Vizjak, Introduction of the book ‘Competing against scale’

Case 1: TPN strategic growth combination in the food industry

The implementation of the appropriate growth cube combination

International

multi-product

niches

Organic growth with speed and

acquisitions

20122007 2017

CR3

20%

40%Sustainable

global market

niches

Cooperation

Innov-

ation

Innovation

International

brand

names

31Andrej Vizjak, Introduction of the book ‘Competing against scale’

Case 2: TPN strategic growth combination in the automotive industry (as automotive producer)

The implementation of the appropriate growth cube combination

International

product

niches

Organic growth with speed

2012

Target

customer

focus

2007 2017

CR3

40%

70%Sustainable

global market niches

Cooperation

Inno-

vation

32Andrej Vizjak, Introduction of the book ‘Competing against scale’

Case 3: TPN strategic growth combination in the financial sector (banks and insurance companies)

The implementation of the appropriate growth cube combination

Regional

product

niche

Acquisitions

20122007 2017

CR3

20%

40%

Regional

multi-product

niche

Organic growth with speed

Branding

Target

customer

focus