Any form of business growth opportunity necessarily carries both systemic and project-specific risks.
Global companies become successful only when they learn to recognise opportunities and manage risks in a foreign environment. In this process it is important to know and take account of the international legal environment. This is precisely the reason why our firm is strategically positioned to guide you through the legal risks inherent in cross-border investment. Our experience is the cornerstone of our comprehensive international legal consultancy. Seasoned lawyers who feel at home working in the legal cultures of both the company and the investment location are crucial to successful international business ventures. The mission of GECA Global Consulting is to assist companies in seizing opportunities and managing risks tied to their expansion across borders. Our lawyers will guide you through the maze of international law in a variety of transactions ranging from the drafting of contracts to business acquisitions in over 50 countries across Africa. Our knowledge ensures international legal certainty: our legal experts provide comprehensive know-how in various areas of international legal consulting including but not limited to the following:
- Cross-border business transactions
- Treaty interpretation and forum shopping
- Company formation abroad
- Ongoing assistance in company law issues and management of foreign companies
- Drafting of complex contracts with your customers and partners abroad
- Labour law advisory to foreign companies and employee secondments
- Lease and real property projects abroad
- International distribution law
- International competition law
- Intellectual property protection
- International arbitration proceedings
- Securing and collection of receivables abroad
Strategic alliances are agreements between two or more independent companies to co-operate in the manufacturing, development, or sale of products and services or other business objectives. Some examples of strategic alliances upon which we have structured some deals for clients in the past are provided here below:
A joint venture is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. It is business agreement to develop, for a finite time, a new entity for the benefits, as well as the shared risks of all parties involved. Joint ventures, of which there are two kinds, solution joint ventures and platform joint ventures. A solution joint venture is where two or more companies, usually of similar size or value, form a new entity to exploit a business opportunity that neither could do alone. The teaming up between GE Capital and BankOne to create Monogram Credit Services illustrates a solution joint venture. A platform JV is one in which two or more partners realize that even together they are missing a critical core competency or competencies to meet their strategic cooperative objectives. In order to move quickly, they form a JV to purchase a company or a stake in a company that has the missing core competency. Platform alliances work best when the opportunity is very large and the window of time for exploitation is narrow. In other words, speed is of the essence. An example of a platform JV is the joint purchase of Midlands Electricity (UK) by General Public Utilities and Synergyociated tax planning issues.
Equity Strategic Alliance
An equity strategic alliance is created when one company purchases a certain equity percentage of the other company. If Company A purchases 40% of the equity in Company B, an equity strategic alliance would be formed. Equity alliances can be classified into two general types: The first one is partial acquisitions, where a company purchases a minority equity stake in another, such as Viacom purchasing a 35 percent stake in Infinity Broadcasting). The second type is cross-equity transactions, where each partner becomes an equity stakeholder in the other, such as the exchange of shares between EDS and Ariba.
Reasons for Strategic Alliances
To understand the reasoning for strategic alliances, let us consider three different product life cycles: Slow cycle, Standard cycle, and Fast cycle. The product life cycle is determined by the need to innovate and continually create new products in an industry. For example, the pharmaceutical industry operates a slow product life-cycle, while the software industry operates in a fast product life-cycle. For companies whose product falls in a different product life-cycle, the reasoning for strategic alliances are different:
In a slow cycle, the company’s competitive advantages are shielded for relatively long periods of time. The pharmaceutical industry operates in a slow product life cycle as the products are not developed yearly and patents last a long time. Strategic alliances are formed to gain access to a restricted market, maintain market stability (setting product standards), and establishing a franchise in a new market.
In a standard cycle, the company launches a new product every few years and may or may not be able to maintain their leading position in an industry. Strategic alliances are formed to gain market share, try to push out other companies, pool resources for large capital projects, establish economies of scale, and gain access to complementary resources.
In a fast cycle, the company’s competitive advantages are not protected and companies operating in a fast product lifecycle need to constantly develop new products/services to survive. Strategic alliances are formed to speed up the development of new goods or services, share R&D expenses, streamline market penetration, and overcome uncertainty.
Value Creation in Strategic Alliances
Strategic alliances create value by:
1. Improving current operations
2. Changing the competitive environment
3. Ease of entry and exit
Current operations are improved due to:
1. Economies of scale from successful strategic alliances
2. The ability to learn from the other partner(s)
3. Risk and cost being shared between partner(s)
Easing entry and exit of companies through:
1. A low-cost entry into new industries (A company can form a strategic partnership to easily enter into a new industry or geographical territory).
2. A Low-cost exit from industries (A new entrant can form a strategic alliance with a company already in the industry and slowly take over that company, allowing the company that is already in the industry to exit).
Our Strategic Alliance Network
If you are looking at setting up shops in Africa and would like to partner with a local company who is already a player in the industry, we encourage you to get in touch today and our experts will help you plan your business operations into the African market. We can look both at our in-house network of businesses looking for strategic partners, as well as scanning the African business landscape to identify a local partner that meets your strategic objectives. We will assist in carrying out the feasibility study and investment appraisal analysis, as well as deal with all the regulatory and associated tax planning issues.
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