Selecting an Overseas Local Partner
In Angola and Nigeria, where I have the most experience, it is not legally required to operate through an indigenous local company (a company with 51% of the ownership in the hands of residents of the country). Thus, it is possible to operate as a branch of a US company (“Foreign Company”). However, if you are really serious about working in West Africa you will need to have an indigenous local company (“Local Company”). There are a number of reasons for this. First, a Local Company is given preferential treatment over a Foreign Company in the awarding of business. In most cases, a Local Company can be 10% higher in its pricing over a Foreign Company, and still be awarded the contract. Angola and Nigeria, like many developing countries, are going through a significant push to increase local participation in the work and services being performed. By being a Local Company, a business awarding you contracts can treat your contract as local participation. This is extremely important to your customers, and in turn, you.
Once you have made the decision to operate your business through a Local Company the question becomes, "How do I chose a local partner?" After all, this individual or group of individuals is going to own 51% of the shares of the company. It is important to understand that just because a local partner owns 51% of the shares, does not mean they are entitled to 51% of the profits. The profit participation of the local partner is something that should be negotiated between you and the local partner and defined in the shareholders agreement. It has been my experience that the amount invested in the Local Company by the local partner is minimal, if anything at all.
I have experience with good and bad local partners. The bad local partners are the ones that have no ability to help you grow the business or facilitate your operations. Bad partners provide you with the ability to be a “Local Company,” and expect to be compensated. He/she has little interest in the success of your business, and are only concerned with collecting a check. A good local partner is one that has the ability to help you grow the business and facilitate your operations. Good local partners are very protective of their status in the business community, and do not want to be associated with a struggling or failed business. They understand that by helping ensure the success of the business their ultimate compensation as a local partner will increase.
A bad local partner can be found in a few weeks. It takes some time and effort to find a good local partner. One of the first conversations that you should have is with your clients. You need to determine if your clients have a list of local business persons they will or will not do business with. Second, as you are interviewing potential law firms to do your legal work (setting up the Local Company), you should also ask for recommendations as to who might be a good local partner. Your law firm may even volunteer to serve in that role themselves. I have worked with attorneys serving as the local partner. In one case, the attorney was a bad local partner because they did nothing to assist with the business. In another case, the attorney was well connected both in the business community and politically. He made introductions that assisted in arranging local financing for the business, and obtained new business. You should also make a visit to the US embassy to see who is on their list of local partners to work with, as well as those you should not. You do not want to enter into conversations with an individual about being your local partner only to find out that they are on a watch list for potential FCPA violations. Having to break off discussions with an individual regarding them being your local partner, for reasons you do not want to discuss with them, can be awkward and may result in you having a critic of your company.
Once you have a list of candidates for your local partner, you can begin your due diligence on them.
What businesses are they currently involved with?
What role do they play in those businesses?
How successful are those business ventures?
What are their reputations in the business community?
What, if any, are their political ties on a national and local level?
Do they hold any positions which would expose your business to potential FCPA violations?
Only once you have determined who your top candidate is, for your local partner, do you arrange a meeting with them to discuss your opportunity. You do not want to be having discussions with multiple individuals at the same time. If you were to have conversations with more than one candidate at a time, whomever you did not chose to be your partner will most likely become a detractor of your business.
A colleague of mine and I had many discussions regarding building and nurturing various professional relationships in West Africa. At some point in at least half of those conversations he would say, “In West Africa there are very few persons who can help you. But there are many who can hurt you.” Keep this in mind as you go through this exercise. You do not want to create a group of critics of your company in the process.
