Industrial partnerships and local content
Adour International discusses the importance of industrial partnerships and local content in Nigeria. The following is an extract from a recent interview by Orient Energy Review with Christopher Townsend, Managing Director of Adour International. Orient Energy Review reports on local content issues in Africa and is particularly focused on Nigeria.
Could you provide us with an insight into Adour International and the unique value of your input in the partnering process?
Adour International helps companies identify their most appropriate partner companies which will enable them to meet technical specifications and Nigerian content requirements on work they can bid for together through an industrial partnership. We perform the required analysis and in-depth financial, operational and commercial due diligence on those companies seeking partners and on shortlisted companies identified as potential partners for them. We take into account tangible elements such as their manufacturing capabilities, commercial positioning and financial resources as well as less tangible elements such as their business strategy, corporate culture, etc. Once that work is completed we quantify and qualify the suitability of those companies in light of the specific partnership arrangement they could form together. Clients are then able to select with confidence the right company to partner with – the one that provides them with the required competitive advantage – amongst a number of shortlisted potential partners.
Why are industrial partnerships so important?
In my view two significant factors are driving companies to seek industrial partnerships – legislation and competition.
Legislation is now a key driver for foreign companies to explore partnership arrangements. Since 2010, the Nigerian Content Act legislation requires foreign companies to demonstrate how value to the required level will be added to the Nigerian economy in their product and service offerings. To meet those legal obligations, they are partnering with competent local companies who are adding value at various stages in the product value chain – in engineering, manufacturing, assembly, in-service support, logistics, etc. Those foreign companies understand the need to integrate appropriate levels of Nigerian content in order for their bids to be considered. Failure to meet acceptable levels results in bid disqualification by the Nigerian Content Development and Monitoring Board (NCDMB).
Competition is also driving increased partnering activity for both foreign and local companies. As competition increases, companies realise the advantages of pooling their resources and capabilities. Depending on the specific tender, this provides them with either economies of scale (lower unit cost) or a differentiated value proposal. Small and Medium Sized Enterprises (SMEs) in particular benefit from partnering. They often excel in one field of activity but lack capability breadth to meet the full scope requirements of a tender. Partnering with market leader SMEs in other fields enables them to fully meet requirements and often to propose more cost effective and competitive offerings than their larger peers.
What types of companies are increasing their Nigerian content and industrial partnering?
Generally speaking, most companies are keen to increase the overall value of Nigerian content in their supply chains. Take for example Oil & Gas operators and Engineering, Procurement and Construction (EPC) companies. They report to the NCDMB on measures taken which are increasing Nigerian content in their supply chains and on contract award spend with companies that add value to the national economy. Discussing with incumbent foreign suppliers how they can involve local companies to a larger extent in product and service value chains is an excellent approach. Foreign suppliers quickly realise that there are numerous advantages in using local capabilities and resources. Nonetheless, this requires spending time discussing with them what is currently available in country, understanding how their product value chain is constructed and where specific work tasks are best performed. After analysing various scenarios and taking a total life cycle cost approach, suppliers conclude that there are also monetary savings to be achieved by performing part of the work locally. The O&G operators, EPCs and tier one equipment manufacturers are the key players driving the increased need for industrial partnerships with the manufacturing and service companies in their supply chain.
Are local and foreign companies supportive of all this partnering activity?
Yes, very much so. Foreign companies realise that local content must be complied with by involving Nigerian companies. They understand the more they do so the stronger their proposals will be which in turn leads to more business being awarded to them. If they don’t the competition will! There is also the notion of first mover advantage – companies setting up industrial partnerships today are increasing their market share and securing competitive market positions. The percentage of work performed by foreign companies will reduce but through collaboration with Nigerian companies they will increase overall revenue by gaining access to a much larger market.
As we all know, the Nigerian energy industry is buoyant with plenty of new opportunities in various sectors – the recently privatised power sector, IPPs, new and upgrade refinery projects, gas projects and more deep offshore E&P activity to name just a few. Local and foreign companies will therefore continue to benefit from a close collaboration.
Can you give us some hints about what makes for a successful industrial partnership?
The number one rule is to understand how you and your partner company will create value by working together. That means going well beyond a basic analysis of their financial statements and whether they have complimentary resources and capabilities. One also needs to ensure there is alignment and compatibility of all the many intangibles such as business strategy, management style, corporate culture and values. That requires spending time on ground with operational staff and management to gain an insight into the many intangibles of a company.
Collaborating with companies in a partnership is extremely rewarding – from both a business and human standpoint. The challenge is finding the right companies that bring value in a partnership arrangement and specific market configuration. That requires a structured, analytical approach!