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Home > International Trade > Doing Business Abroad > Related Resources > Business Opportunities: Development & Humanitarian Aid Markets > Market Reports > Multilateral Development Bank (MDB) partnering guide

Partnering Guide for Canadians to Pursue Multilateral Development Bank (MDB) Projects

May 2009

Executive Summary

Partnering with local firms is becoming an increasingly critical component in winning MDB-funded projects. This report contains information on how to find a local partner. Furthermore it briefly examines local capabilities, MDB preferences and partnering options. The principal outcome of the research is a guide prepared for Canadian goods, works, and service providers on why and how to work with local firms.

One can attribute this trend partly to the MDBs preference for local enterprises for domestic goods and contractors. Generally there appears to be harmonization with respect to preference for domestic goods and contractors. Preference of local content in Technical Assistance work is more variable and appears to rely on a range of techniques. It seems that all MDBs encourage the development and use of local consultants and companies and have procedures which can be put in place to favour them. Some of these preferences are summarized in the table below. Other factors may be the increasing reliance on selection methods that give increasing weight to costs, and the strengthening capabilities of consultants, goods suppliers, and contractors in developing countries.

 WBADBIDBAfDBCDB
Preference awarded during evaluation for local content10 - 20%Tiebreaker and TA specs include strong local presence10 - 20%10% for local knowledge20% for local knowledge
Preference for domestic goods and contractors7.5 - 15%7.5 - 15%7.5 - 15%7.5 - 15%7.5 - 15%

African Development Bank (AfDB) / Local Capabilities and Preferences in Africa

Local preference schemes at AfDB for domestic goods and contractors range from 7.5% to 15% (details in Annex A). The AfDB has strong provisions to ensure that African technical and professional capabilities are strengthened. They permit selection of local consultants over non-locals in the event of equal qualifications. As well, they permit selection procedures for small assignments (less than approximately C$200,000 for individuals and C$700,000 for firms) to be directed at national or consulting firms or individuals. The AfDB also demands that borrowers provide counterpart staff and that consultants accept the obligation to include training of counterparts and other nationals in their project proposals. According to a 2003 report of Industry Canada, the AfDB provides 10 out of 100 technical points for 'knowledge of the country'.

Trends in local capabilities in Africa and contracts awarded to local firms by the AfDB
It is important to recognize that the borrowing member countries of the Bank constitute a major competitive challenge, with 76% of the total number of all contracts awarded to firms from the region in 2002. Whereas local and regional companies used to win mainly the smaller contracts, they are now becoming more competitive with the larger contracts as well. They now represent 54% of the total contract value. Accordingly foreign firms are establishing local companies, or entering into joint ventures and other strategic alliances with active local partners to establish market presence and enhance their chances of procurement. For civil works contractors in particular, associating with a local construction firm is an effective means of taking advantage of local expertise and lower labour rates.

Foreign Procurement: Borrowing vs Non-Borrowing countries (Project Loans, US$ million)
Foreign Procurement for Project Loan
 Status1998199920002001200220032004
AfDBBorrowing Countries466305185413581549451
 Non-Borrowing Countries617405315209330290450
 Total1083711501622911839901
 Percent by Borrowing Countries43%43%37%66%64%65%50%

Asian Development Bank (ADB) / Local Capabilities and Preferences in Asia

Local preference schemes at ADB for domestic goods and contractors range from 7.5% to 15% (details in Annex A). With respect to consulting, according to a 2003 report for Industry Canada, the ADB guidelines state that when all factors affecting the evaluation are equal, preference will be given to domestic consultants or to collaborations between developed and domestic consultants. In addition, the Bank in defining consulting assignments for international bidding will require substantial local consulting.

Trends in local capabilities in Asia and contracts awarded to local firms by the ADB
As indicated previously, borrowing countries are becoming more significant. A look at the share of procurement obtained by China and India is indicative of the strong present capabilities and general upward trend of Asian competitors. In 2004 Chinese companies brought in 19.5 % of ADB procurement of Goods and Related Services and Civil Works. This had risen to a full 29.8% in 2005. With regards to consulting services, the comparable figures are 2.2% for 2004 and 1.2% for 2005. In 2004, Indian companies won 17.1 % of procurement of Goods and Related Services and Civil Works. This slightly dropped to 16.0% in 2005. With regards to consulting services, the comparable figures are 6.3% for 2004 and 11.8% for 2005.

Foreign Procurement: Borrowing vs Non-Borrowing countries (Project Loans, US$ million)
Foreign Procurement for Project Loan
 Status1998199920002001200220032004
ADBBorrowing Countries3957242420621519247718442117
 Non-Borrowing Countries1969660546377289583389
 Total5927308526091897276524272506
 Percent by Borrowing Countries67%79%79%80%90%76%84%

Caribbean Development Bank (CDB) / Local Capabilities and Preferences in the Caribbean

Local preference schemes at CDB for domestic goods and contractors range from 7.5% to 15% (details in Annex A). Review of the Caribbean Development Bank 'Guidelines for Procurement 2006' did not identify any specific guidelines with respect to preference awarded for local content in consulting work. However, the total weight given to the local knowledge and language component in evaluations is significant, usually 20%. Furthermore, this weighting does not exclude the imposition of absolute requirements, for example linguistic imperatives.

Trends in local capabilities in the Caribbean and contracts awarded to local firms by the CDB
Data for the CDB was not available from the Canadian Competitiveness Study and, access to the IDB's procurement database is limited so, data to confirm the suspected upward trend in local consulting contracts was unattainable.

Inter-American Development Bank (IDB) / Local Capabilities and Preferences in Latin America

At the IDB, references suggest a domestic bidder price preference. The percentages of the preferences vary. Passage 8.3.1 of the 'IDB Borrowers Guide' (February 2006) contains a link to the 'margins of preference'.

Trends in local capabilities in Latin America and contracts awarded to local firms by the IDB
Again, borrowing countries are becoming more significant. In Latin America in particular Spanish capability is an important factor especially given its status as the IDB's principal operating language. The second table shows that not just the ratio of non-borrowing versus borrowing countries in general is decreasing, but also the ratio of foreign versus local companies.

Foreign Procurement: Borrowing vs Non-Borrowing countries (Project Loans, US$ million)
Foreign Procurement for Project Loan
 Status1998199920002001200220032004
IDBBorrowing Countries222296285389224245231
 Non-Borrowing Countries646586363320288221218
 Total869882649709512466449
 Percent by Borrowing Countries26%34%44%55%44%53%51%

Foreign & Local Disbursements (Project Loans US$ million)
 Status1998199920002001200220032004
IDBIDB Foreign869883649710513467449
 IDB Local3423378038953304353834012670
 Ratio: Foreign/Local25.4%23.3%16.7%21.5%14.5%13.7%16.8%

World Bank (WB) / Local Capabilities and Preferences

Local preference schemes at WB state that the borrower may, with the agreement of the Bank, grant a margin of preference in the evaluation of bids under international competitive bidding to bids offering certain goods manufactured in the country of the borrower. These preferences to domestic goods and equipment suppliers can be as much as 15%. For contracts for works to be awarded on the basis of international competitive bidding, eligible borrowers may, with the agreement of the Bank, grant a margin of preference of 7.5 percent to domestic contractors. In the interest of project sustainability or to achieve certain specific social objectives of the project, it may be desirable in selected project components to (a) call for the participation of local communities and/or NGOs in the delivery of services, (b) increase the utilization of local know-how and materials, or (c) employ labour-intensive and other appropriate technologies. In that case the procurement procedures, specifications, and contract packaging will be suitably adapted to reflect these considerations, provided these are efficient and acceptable to the Bank. World Bank preferences only favour national consultants, not regional. For small assignments the short list may comprise entirely national consultants. The dollar 'ceilings' for these small assignments are determined per project on the basis of a maximum per country (ranging from C$100,000 to C$500,000). The WB also allows a preference in the technical evaluation by suggesting that a small weighting be given to criteria such as 'transfer of knowledge' and 'participation by nationals'. The World Bank's 'Guidelines: Selection and Employment of Consultants by World Bank Borrowers' (May 2004 revised October 2006) allows up to 10 out of 100 technical points for use of national consultants.

Trends in local capabilities and contracts awarded to local firms by the WB
In general, the trend reflects growing capability and competition worldwide from borrowing countries. More specifically, the ratio of foreign versus local procurement disbursements is decreasing as well.

Two factors that contribute to the increasing significance of local and regional companies are:

  • Major western companies set up local offices in borrowing countries.
  • Not just local companies, but also NGOs and United Nations agencies established in borrowing countries are incorporated in the statistics. They play an important role, especially in large emergency response, which often are defined as consulting projects.
Foreign Procurement: Borrowing vs Non-Borrowing countries (Project Loans, US$ million)
Foreign Procurement for Project Loan
 Status1998199920002001200220032004
WBBorrowing Countries9361034960772727745878
 Non-Borrowing Countries3638315624421929206516901644
 Total4574419034022701279224352522
 Percent by Borrowing Countries20%25%28%29%26%31%35%

Foreign & Local Disbursements (Project Loans US$ million)
 Status1998199920002001200220032004
WBWB Foreign4574419034022701279224352522
 WB Local1011388559018850279597634n/a
 Ratio: Foreign/Local45.2%47.3%37.7%31.8%35.1%31.9%n/a

Subcontracting

Canadian firms are encouraged to explore subcontracting possibilities. A wide array of opportunities exists for Canadian firms of which the following are the most common:

  • A Canadian firm acting as a prime in a MDB project may wish to consider subcontracting to local firms to capitalize on the advantages explained above.
  • Canadian firms are equally encouraged to explore subcontracting opportunities with Canadian primes.
  • Finally, as more local firms gain contracts, Canadian firms are strongly encouraged to seek subcontracting opportunities with local primes.

Advantages of partnering

With respect to local partners, Exportsource emphasizes that most MDB bidding guidelines for contracting for services allocate points for use of local consultants or experts. Failing to have qualified, local participation on a proposed project team can be a significant competitive disadvantage.

Developing an in-country presence is essential to gaining subcontracting opportunities. Only the largest bid packages are completed through international competitive bidding. Smaller assignments are released through a variety of other methods, and subcontracting of major civil works is often done locally as well. Even though projects may be internationally financed, the final contracts are awarded locally.

Most of the Technical Assistance opportunities at MDBs require a great level of local content. In fact, the substantial responsibility for managing local performance in relation to the amount of direct work can be an issue for Canadian consultants. If the RFP does not require domestic consultants, Canadian consultants may not need a local presence, but only if the firm has significant depth of experience in the local market.

Local partners can facilitate and expedite market entry with their market knowledge and established network. Among many business cultures in developing countries, interpersonal relationships are a vital factor for successful business transactions. Local partners are accustomed to local business practices and requirements. In addition, local agents and distributors will take care of regulatory affairs, import permits, and so forth.

A British survey (unsubstantiated) suggests the importance and challenge in finding partners internationally. It finds that most important hurdles for potential exporters are:

  • Finding local partners 36%
  • Understanding the local market 21%
  • Financing export activities 16%
  • Defining local customer profile 11%
  • Language barriers 11%
  • Other 5%

Different Types of Partnering (from Industry Canada: Alliance Structure):

Partnering is used to describe strategic alliances, partnerships, joint ventures, teaming arrangements, business networks, and coalitions. Some of these arrangements will be one-off contract driven agreements, while others will be collaborations for longer periods of time.

  • A horizontal alliance includes firms of the same industry. They are less common in the service sector, but when they do occur, it is usually to achieve scale, to adjust for seasonal changes, or handle niche areas of expertise.
  • A vertical alliance is a relationship among organizations in different industries, collaborating to provide turnkey client solutions. This approach allows smaller service firms to combine their skills and compete with much larger and more diversified organizations.
  • A business network is a group of already successful small and medium-sized enterprises (SMEs) that cooperate and collaborate to seek new business opportunities. These SMEs group together in order to build critical mass to achieve the competitive advantages of scale, scope and speed, similar to larger, more diversified organizations.
  • A teaming agreement is usually a project-oriented effort where the firms work together at different points in a project, but have no further business commitment to each other.
  • A license agreement is a contract that grants certain use or production rights relating to a technology, or idea, to specified parties for particular uses, under agreed upon time frames.
  • A joint venture is an equity-based initiative between two or more companies that is given a corporate entity of its own. The new company is given a mission that requires the expertise from both (all) parents to fulfill.
  • A strategic alliance is a long term relationship between firms with complementary resources that decide to cooperate in equity or non-equity relationship, to bring about an objective that neither could accomplish alone. Alliances can be formed along product or service lines, or along functional lines, such as marketing, support, or distribution.
  • Public/private partnership: Canadian services firms in sectors such as engineering, architecture, construction, legal, and management consulting can provide cost-effective, innovative solutions for public infrastructure and services by way of public/private partnerships. Done right, P3s offer promising new business opportunities for Canadian services firms.
  • NGO partnerships may present special challenges. For example some experts hold that a higher level of trust exists in partnerships between organisations with similar capacity levels. A majority of local NGOs in developing countries are smaller and under-resourced in comparison with their international counterparts.

In the NGO sphere, too, due diligence is essential to understand potential NGO partners' programs and how they match Canadian objectives. Many NGOs (local and international) are not registered as NGOs, but as businesses, and many are not registered at all. Unlicensed organizations will have scalability problems, and may not be able to offer the same amount of local support. Being a force for change and organizational development by working closely with the organization in a capacity building role is one of the most important steps long term. Canada's International Development Research Centre has prepared a report addressing this issue in depth: 'Patronage or partnership: local capacity building in humanitarian crises'.

Finding a Partner

The basic steps to finding a partner include profiling the ideal partner, searching for and identifying prospective partners, contacting and meeting prospects, and assessing the identified best contender.

1. Profile the ideal partner to strengthen the bid or realize the project. Partners can be selected on the basis of:

  • Complementary skills and capabilities (includes human resources assessment, compatibility of organizational structures, quality of management, technical capability)
  • Knowledge of technology and of local market
  • Domestic and international experience
  • Financial strength
  • Personal chemistry

2. Search for prospective partners and explore various partnerships types. According to the ideal profile criteria, explore and assess various firms and NGOs. Make sure you explore and select an appropriate type of partnership. Remember that a partner relationship is a two-way street; your potential partner is interviewing you as well. Considering local firms are also interested in opportunities for themselves in Canada, for long term partnerships, select a partner whose expertise can also help you in your domestic market.

3. Contact and meet prospects. It is highly advised when meeting potential prospects that you try and schedule meetings to take place in their offices; this enables you to assess human resources, technical capabilities, etc. Establishing a good dialogue early on is essential to develop a strong partnership.

4. Assess the identified partner. A more thorough assessment is needed in order to confirm a given partner. Once you have selected a firm that meets your criteria, it is important to investigate and evaluate its credibility. Does this firm have any project experience, particularly in IFI-funded contracts?

5. Secure the partnership. Once a potential partner has been identified, it is critical to take the necessary steps to plan out the proposed partnership:

  • At the offset allocate enough resources (human capital and money) to run and manage the partnership itself.
  • Define objectives. They do not have to be the same, but they must be compatible and fully understood and supported by both parties. Agree on and document each party's expectations, roles, and responsibilities. Recognize and mitigate risks. Discuss and document contingency plans.
  • Sort out legalities at the outset.
  • Negotiate financial as well as non-financial benefits. Firms need to consider and document all benefits and costs. Often negotiations only focus on financial benefits. Firms should include non-financial benefits provided by one partner (such as training) to another in negotiations.
  • Finally, ensure a clear and concise agreement with all partners (exclusivity terms, MOUs, exit strategies, etc.) You may be able to protect yourself by entering into a limited-term trial agreement. If the foreign intermediary does not meet your expectations, you can find an alternative once the trial period is over.

6. Continue to communicate. Setting up a partnership is just the beginning. The actual partnership is a living collaboration, so communication is vital for its success.

Checklist: Before committing to a strategic partnership

  • Have we explored all the partnership options and the alternatives to partnership?
  • Have we selected a partnership or operational agreement that meets our corporate objectives?
  • Have we evaluated the history and credibility of our potential partner?
  • Have we taken the time to identify and get to know the right partner(s)?
  • Do we have good forms of communication, or are new or more frequent mechanisms needed?
  • Do we have proper technical advice, particularly on financial and legal details?
  • Can our partner provide advice on local networks, politics, language, opportunities etc?
  • Have we determined the expectations of our partners on the pace of the negotiation, the scale of benefits, and duration of the partnership? Are our expectations compatible?
  • Have we structured the financial deal to best share and manage the risk?
  • Have we identified non-financial benefits we can both gain?
  • Have we explored potential political factors that will affect the partnership?
  • With this partnership, can governmental support be enhanced or bureaucratic obstacles minimized?
  • Have we established the boundaries of the partnership?
  • Have we clearly established each participant's business?

Whom to Contact

Government sources. The best starting point is the Canadian Trade Commissioners in the developing country of specific interest. They can point the way to other good contacts. The Trade Commissioners at Canada's OLIFI are especially relevant for MDB work, as well as, the Provincial trade officials, notably the PSLO network. Participating in related trade exhibitions in the developing country can be a good way to meet potential partners, as can participating in Canadian trade missions.

The "Visit Information" section of the Canadian Trade Commissioner Service website (visit individual pages for each of our offices "Around the World") are highly useful. Although some of the tips provide generic, practical information, e.g. visa requirements, currency info, etc., some of them provide relevant information on the culture of the market and normal business customs. Furthermore, Industry Canada's Steps to Competitiveness, provides additional information on partnering.

Private Sector Sources. Chambers of Commerce, general industry associations like Canadian Manufacturers and Exporters, and specific business associations addressing Canada's trade relationship with the particular developing country(ies) are other sources. Canadian banks and Canadian legal firms with local representation can be useful sources of information. Canadian Commercial Corporation, Export Development Canada, and similar agencies can also be helpful.

MDB Sources. For MDB projects, officers at the Banks themselves can be a good source of information as well as, Canadian experts working for the Bank. In some cases, MDBs may have programs in place that can assist partnering development.

Explore the World Bank Contract Award Search database to determine potential partners. Other MDBs also have project information available online, notably the IDB's Project Gateway database. Talking with other Canadian exporters active in the market may be productive. DACON is a database of consulting companies used by several MDBs. Subscribers to dgMarket (subscription fee) can browse companies and access their registration profiles and information about their past projects. Searches for companies can be made by country, sector, size, and keywords.

ANNEX A. Details of Local Preference Schemes at MDBs for Domestic Goods and Contractors

Local Preference Scheme at AfDB: in accordance with the Bank's procurement rules, there are no special preferences, and firms from all member countries of the Bank are eligible to participate and compete for contracts. However, under International Competitive Bidding, in order to encourage the development of local firms, the Bank encourages its Borrowers to apply domestic preference margins. The maximum domestic preference margin that may be applied by the Borrower is 15% (of CIF) for goods and 10% for works while those for local preference are 10% (of CIF) for goods and 7.5% for works. However, this must be approved by the Bank's Board of Directors and must be clearly stipulated in the bidding documents. Where they are applicable, these margins are applied only during evaluation.

Local Preference Scheme at ADB: the scheme grants a margin of preference for domestically manufactured goods to be procured and domestic contractors to be engaged under ADB-financed projects. ADB's domestic preference scheme may be only applied in evaluating bids under international competitive bidding. Procurement through other methods such as shopping, national competitive bidding, and limited international bidding are ineligible for the domestic preference scheme. Regarding domestic preference for goods, the margin of preference is limited to 15% of the CIF price before tariffs on imported goods. A margin of preference may be applied to domestically manufactured goods in single responsibility turnkey contracts (including design-build), and large and complex contracts for goods and related services. Preference margins will not apply to the whole package, but only to locally manufactured goods within the package. Domestic preference for works contractors will only be extended to domestic contractors for civil works in countries with an annual per capita GNP that is less than a specified limit. The limit is set each year in consultation with the World Bank. The domestic preference of 15% also exists in civil works for Category I bids, but Category II suppliers receive a preference of 7.5%. Domestic preference for goods, turnkey contracts, and works will be applied only if: requested by the borrower; provision is made in the financing agreement (or through a separate exchange of letters); and bidding documents specify how the preference will be applied when comparing bids.

Local Preference Scheme at CDB: at the request of the Recipient of CDB Financing, and on conditions to be agreed and set forth in the Financing Agreement and in the bidding documents, a margin of preference may be provided in the evaluation of bids for:

  1. goods manufactured in the Commonwealth Caribbean member countries of CDB and other local member countries of CDB when comparing bids offering such goods with those offering goods manufactured in other eligible countries; and
  2. contractors for civil works from Commonwealth Caribbean member countries of CDB which are not resident in the country of the Recipient of CDB Financing when comparing bids from such contractors with bids from contractors from other eligible countries.

Where preference for locally manufactured goods or for contractors from Commonwealth Caribbean member countries of CDB is allowed, CDB may permit a margin of preference of 15% or the actual import taxes, levies and duties, whichever is less, for goods manufactured in Commonwealth Caribbean member countries of CDB, when comparing bids from those countries with bids from other countries. For goods manufactured in other local member countries of CDB, a margin of preference of 7.5% may be permitted.

ANNEX B. Sources of Information

Other Relevant Sources

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Date Modified : 2009-11-20
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