Monday, June 12, 2017

Lessons in risk management from Igor Akrapovič

During today's visit, I was struck by how much care Igor Akrapovič takes in managing the risk of his business. Here are a few of the things I noticed.

Avoid exclusive distribution or agent agreements
The team did not give details on their past experience, but it is clear that they suffered a sour exclusive deal in China at some point in the past. When these deals go sour, you have no viable way of selling in that market until the exclusive deal has expired. We were also told that they do not have any interest in having multiple distributors or agents in any particular market, they just don't want to be stuck. I suspect this lesson is additionally painful when learned in non-European markets, as your distributor is holding their inventory.

Avoid dependency on OE contracts
We were told that Akrapovič tries to maintain a 50/50 mix of OE and After-Market business. This is key to them being sustainable in the long term. If they allowed themselves to become too dependent on the OE contracts, they would inevitably be unable to resist the terms of their OE customer. In an industry with typically weak supplier force, it is impressive to see a supplier displaying such strong force on their buyers.

Avoid picking short run models
During the factory tour, I asked Igor about the challenges related to picking which bike and car models they choose to make after-market parts for. He shared that they can lose money if they develop parts for a model that has a short production run, but if they wait too long after a model is announced they lose market-share and first mover advantage. Unfortunately, there is no hard and fast rule to know which models will get a long run, but as Igor put it, "if the magazines don't like it, we don't build for it".

Avoid sharing your Intelectual Property
The most important risk mitigation the team shared today was their zealous protection of their IP. This came up in a couple of ways. They refuse to cross license their technologies with the OE customers. They refuse to outsource production activities. They refuse to produce anything in China (or any other country at this time). They distribute the knowledge among a large team of workers. They in-source as much as possible. All of these actions lower the risks to the company, and most of them come at costs to the company too.

Overall, I was very impressed by Igor and his team. I believe they have another 25 years ahead of them as the leader in their field.

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