Business and Compliance Working Together to Re-Enter the Greater Khorasan Market
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Business and Compliance working together to re-enter the Greater Khorasan market This scenario has been prepared by with reference to fictional names of people and places. This document is subject to copyright and The Red Flag Group reserves its rights. This document has been sent out as an example only and should not be used by recipients other than to assess the services being offered by The Red Flag Group. Transator is a large multi-national manufacturer of power grid components and is headquartered in the USA. Transator has offices and production facilities in more than 15 countries in the USA, Brazil, the UAE, Europe, and China, 28,000 employees around the globe, and 52 Billion USD in revenues. Transator is known to be one of the two biggest power grid component manufacturers in the world with a market share of 28%. One of its biggest markets is the USA and it has a truly global workforce with executives from multiple countries. Since the beginning of 2016, Transator has been exploring the possibilities of re-entering the market of Greater Khorasan following the lifting of various sanctions. Historically, Transator dominated the Khorasanian market but its position was lost during the 10 years of sanctions imposed on Greater Khorasan to the benefit of Chinese manufacturers. Greater Khorasan is a Middle Eastern country, considered to be the last untapped market. The country is rich with natural resources including uranium, gold, oil, and natural gas. Its infrastructure is outdated and the industrial sector lags behind the West consequently to long years of sanctions. Greater Khorasan is the last possible battlefield for growth for Transator and its western competitors as local companies are desperately trying to get their hands on technologies and distribution rights of products made in the West, while the government of Khorasan is trying to attract much needed investment to upgrade the country’s industry and infrastructure. Greater Khorasan Khorasan City The Greater Khorasan business opportunity Since the end of the EU sanctions, foreign business delegations have flooded Khorasan City, the capital of Greater Khorasan. Companies are either looking for a new foothold or to re- enter the market that they had left years ago when the sanctions were imposed. With a population of over 80 million and an economy known to be the largest of the region, Greater Khorasan is a dream market for everyone. © The Red Flag Group; Group Exercise - Business opportunities in Greater Khorasan 2 Business feasibility studies conducted by Transator showed that re-entering this huge market will help boost its annual revenue by 10%. This will also mean that Transator can claim the global throne of its industry. Senior management are pushing the regional business development team to make the most of this historic chance. They hired a new business development manager named Vahid Hosseini, a French citizen with Khorasanian roots and over 20 years of experience at LMA Group, the second largest car spare part manufacturer in Europe with a history in Khorasan before the sanctions. As it is a legal requirement to partner with a locally established legal entity, the obvious first task for Vahid was to identify a local partner for Transator. Not only did the local partner need to be legally established in Greater Khorasan, but it also needed to have a local management team and a share capital with at least 60% of local capital. These conditions along with Transator’s own business requirements to have a partner with substantial experience in the power grid sector and existing market access to the main accounts of the power business left Vahid with a task that wasn’t easy to tackle. With his experience and personal connections, Vahid managed however to identify three potential high profile partners and presented them to Transator’s senior management team: 1. Khorasan Electronic and Electric Industries (KEEI): KEEI is located in Khorasan city, it is the largest and oldest manufacturer of power grid components in Khorasan and its clients include all major conventional power generation facilities as well as numerous companies involved in the extraction of oil from the oil fields of South Khorasan. Vahid and his team believe that creating a partnership with KEEI is a huge opportunity for Transator as it will help them dominate the market through locally manufactured products and also give them access to a list of a very prestigious and large Khorasanian clients. 2. Akbar Electric Tejarit Company (AET): AET is a private company based in Khorasan city and is considered to be the largest trader of power grid components in Greater Khorasan, with over 40 branches around the country. It also has subsidiaries in the UAE, Oman, Turkey, and China through which it sources products from these markets and export them to Greater Khorasan. AET is already known as the (former) distributor of Transator products. Transator ceased to sell any products to AET exactly 11 years ago when the international sanctions were introduced, but continued to supply products to AET through its distributor in the neighboring country Estaban for a year or two, which it also had to put an end to as the sanctions tightened. Vahid and his team believe that the partnership with AET is a good and safe option as it is a well-established entity and with a history with Transator. 3. Abadan Construction Company (APC): APC is a well-known and respected construction companies. It has been involved in the constructions of many large scale projects, including on the South Khorasan Oil fields and the Kish Petrochemical Industry Complex. APC has a list of prestigious clients including The National © The Red Flag Group; Group Exercise - Business opportunities in Greater Khorasan 3 Khorasan Electricity Company, Khorasan National Oil Company, Shaheed Mosavi Petrochemical Company, and Immam Ridha Engineering Company (the largest engineering group in Greater Khorasan, involved in the constructions of the nuclear reactor of west of Khorasan). Vahid and his team believe that a partnership with APC is a good option with a potential edge over the others as it may help Transator to qualify to support the first Middle Eastern Nuclear Power Plant (NPP), keeping in mind that many more NPPs will follow in the next decade or two. Finally, Vahid insisted that Transator should partner with a local, established corporation as quickly as possible as business intelligence revealed that Transator’s competitors are already negotiating with all of these companies. The three-hour meeting with senior management went relatively well, everyone was impressed with the potential business partners Vahid managed to engage with. However, Vahid was also asked several questions to which he couldn’t provide satisfactory answers to. He was so focused on identifying opportunities that he admittedly neglected the risks re-entering such a market may entail. • Jack Jackson, the newly appointed CFO asked Vahid about the ways in which the new Business Partner will provide financial guarantees and make payments for the Transator products they purchase. • Erni Bischoffshausen, the CEO and Gary Klor, the COO, both asked whether there are any restrictions on exporting Transator’s products to Greater Khorasan. They believed that the answer is ‘no’ as they had read in the newspapers that the sanctions were lifted. Gary was also worried that producing their products locally at the expected standards may take a long time to organise as he had seen the production capabilities in Khorasan with his own eyes 15 years ago and was very unimpressed. • Peter Burgdorf, the Sales Director, pointed out that he is concerned about whether they can ensure that Transator’s products are only sold in Khorasan through the appointed official Business Partner and not through other unofficial channels. He suspected Transator’s Estaban distributor to still supply the Khorasan market with Transator products as he noticed a sudden increase in sales from them 3 months ago. • Ella Spitzbühl, the CSR Director, reminded the management team that any market entry should be aligned with the UN Sustainable Development Goals and that any negative social and environmental impact has to be compensated for. • Hank Zimic the legal counsel, asked Vahid about the risks of sanctioned individuals being employed by the new Business Partner. He also noted that Greater Khorasan is a highly corrupt country. © The Red Flag Group; Group Exercise - Business opportunities in Greater Khorasan 4 You are the CCO and have been a part of the meetings to date. Discuss the legal and compliance risk areas you see in launching into this new market with your CEO. Risk area Describe briefly why you believe Risk of breaching Risk of breaching Transator should care about this local or foreign Corporate policies? risk area when deciding to re- legislation? (think of your own enter Greater Khorasan. corporate policies) Sample: Sample: Yes Yes Corruption Transator will conduct business No No with state owned or state controlled entities and should be prepared to deal with different types of corruption demands. Yes Yes No No Yes Yes No No Yes Yes No No © The Red Flag Group; Group Exercise - Business opportunities in Greater Khorasan 5 The team has conducted some basic due diligence on the proposed partners. Read and assess these reports at your table with a view to making a decision on the ‘best option’. © The Red Flag Group; Group Exercise - Business opportunities in Greater Khorasan 6 © The Red Flag Group; Group Exercise - Business opportunities in Greater Khorasan 7 © The Red Flag Group; Group Exercise - Business opportunities in Greater Khorasan 8 The business chose AET, and the below notes are the terms of the contract that they negotiated. They have now come to you to double check the contract and sign it.