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As growth opportunities diminish in domestic markets, companies in developed countries are increasingly shifting their attention to Africa and other emerging economies, which are touted as the markets of the future.
According to management consultant McKinsey & Co, Africa currently offers the highest rates of return in the developing world and companies that enter the continent early will have great opportunities to create markets, establish brands and long-term relationships.
Joint ventures are on the rise as global companies refocus on expansion plans that were shelved following the global economic crisis. The upswing in this mode of market entry, according to auditing firm KPMG, is expected to continue.
With Africa's vast natural resources, commodities and huge market remaining the overwhelming attractions, the most popular mode of entry for investors venturing into Africa today is a unique hybrid form defined by the spike of foreign direct investment from China.
We are now seeing a growing trend of private Chinese entrepreneurial and investment activity in several African countries. Brazil, Russia and India – the BRIC countries along with China – have emulated the Chinese model of investing in Africa.
Establishing a joint venture can spread risks and provide valuable insight into a new market. A good example of this is the developments in the mobile telecommunications market where many operators are forming joint ventures to share networks, thereby reducing risk and financing costs.
In Africa, the telecommunications sector is undergoing tremendous transformation brought about by the convergence of telecommunications, financial services and information technology.
A prime example is the partnership between Kenya's mobile phone operator Safaricom and Equity Bank in delivering the M-Kesho product that allows users to operate interest earning bank accounts on their cell phones.
Companies that want to enter markets with attractive growth opportunities but lack capital can also opt to take the joint venture route. In some countries and strategic sectors, establishing a joint venture is a formal regulatory pre-requisite to do business at all.
Trust between partners is crucial for an area such as due diligence and it’s advisable to build it right from the start.
The most fundamental criteria firms must adhere to are a financial and strategic fit in order to create a win-win relationship. However, extensive experience with alliances and joint ventures tells us that cultural coherence and the partners’ prior alliance experience are major factors predicting success. Every company entering a joint venture must be aware of the control it chooses to share.