Leasing’s Evolution – A Guide To Strategic Decision Making Part I

This article is written by Sudhir P. Amembal is Chairman & CEO of Amembal & Associates, the world's most highly respected lease training and consulting firm

LEASING’S EVOLUTION – A GUIDE TO STRATEGIC DECISION MAKING

Leasing is one of the most vibrant and dynamic industries in the world. It facilitates the financing of equipment and real property. It fosters economic growth, creates employment, and enhances tax revenues. It affects every sphere of our lives as it encompasses automobiles, furniture, airplanes, restaurant equipment, computers, telecom equipment, medical equipment, and more

THE SIGNIFICANCE OF LEASING
As vibrant as the leasing industry is, unfortunately, no one in the world accurately tracks the entire global leasing industry with reference to items such as annual volume, portfolio breakdown, types of asset leased, sectors leased to, performance measures and the like. However, unofficial statistics place annual volume in excess of US$ 1 trillion! Leasing, on a global basis accounts for more than 20% of all capital formation; in other words, approximately 20% of all capital investment in personal property (as contrasted with real property) is made through leasing. This is solid evidence that leasing helps fuel economic development.

The industry’s spectacular growth has been made possible not just because of the varied benefits offered by lease financing but because it has been managed and shepherded successfully by creative leaders who have continually introduced new products, expanded beyond their geographical boundaries, and displayed resilience to changing regulatory, legal and tax climates.

STRATEGIC DECISION MAKING
Individuals at the helm are continually faced with having to make strategic decisions such as choosing to specialize (as versus operating as generalists), choosing to introduce operating leases (as versus staying with finance leases), and choosing to forge foreign joint ventures (as versus staying on shore). Decisions, such as these and many others, are made based on many factors including how developed the industry is in the relevant country, how competitive it is, how saturated the market is and how sophisticated the customers are.

One of the factors mentioned above that impacts many a strategic decision is how developed the industry is in the country where the lessor is domiciled or where the global lessor plans on expanding to. This article is intended to offer insight into how leasing develops throughout the world and through such insight, it is hoped that some aspects of decision making will be facilitated. For those who are not faced with having to make strategic decisions, this article will provide insight into how leasing evolves in each and every country in the world.
Having had the privilege of visiting over 70 leasing economies over the past two decades, the author began to observe a commonality in the world of leasing having to do with leasing’s evolution and development.

THE EVOLUTION OF LEASING
Leasing’s evolution in some ways is no different than that of any other industry in the world in that leasing progresses from being newly born to becoming fully developed. The diagram that follows details the four obvious stages.
Leasing is, of course, nonexistent in some of the extremely under-developed and/or politically ravaged economies such as Iraq and Sudan. It has recently come into existence (nascent) in countries such as Rwanda. In most countries in the world it is evolving (emerging). These include countries in the Asian Pacific region, Latin America, Central and Eastern Europe and Africa. Maturity suggests a condition of full development. Leasing has matured in countries such as Australia, the U.K. and the United States.

To be continued in Part II