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In this guest post, Procurement Leaders invites Achilles' Adrian Chamberlain to look at the challenges around local content development rules and the impact on sourcing and supplier management strategies.
Amid crashes in both the price of oil and other key commodities, multinational firms are increasingly turning their attention towards emerging markets – countries which are home to a wealth of untapped natural resources and new business opportunities.
But with increasing global opportunity comes increasing risk, as scores of new territories introduce a raft of new local content development rules – where governments introduce strict criteria around the employment of local people, provision of training and investment in infrastructure. The consequences of non-compliance are potentially severe, with companies in extractives industries – such as oil and gas and mining - at risk of losing exploration and operating licences if they fail to deliver.
Local content development is an important step forward in creating shared value from contracts. But our belief is that industries will have to start thinking about it now in order to get up to speed with the new rules.
Local content development rules carry a requirement for firms to have accurate supplier data. For example, the Broad-Based Black Economic Empowerment (B-BBEE) Act in South Africa includes a requirement to report on the number of black and women-owned SMEs within supply chains. As a consequence, global firms have to have an accurate picture of their supplier base – with information on supplier diversity, as well as traditional company particulars and compliance and performance metrics.
Yet many global firms still have a void of information about their suppliers.
In a market survey by IFF, 45% of operators in the mining and oil and gas sectors admitted they were not confident that their data on suppliers was accurate.
Further, global corporations face an additional challenge – because centralised, ‘one size fits all' supplier management programmes will not have the required flexibility to accommodate the plethora of regional laws, regulations and language requirements.
The smartest businesses are working to implement a three-step programme to tackle local content development. First they are introducing a standardised pre-qualification questionnaire outlining clearly the business critical standards required of all suppliers, wherever in the world they are based.
Next they are using a flexible and configurable system which can capture region-specific details – such as the number of black and women-owned SMEs.
Finally, they are setting aside any perceived notions of ‘competition' in collecting mandatory supplier information.
We see successful businesses working together in collaborative communities – working together to collect non-commercial pre-qualification information from suppliers in all geographies. This enables them to quickly access a ‘pool' of credible and reputable suppliers, while adhering to local content requirements – wherever in the world they are operating.
Adrian Chamberlain is chief executive of Achilles, which works on behalf of 300 large oil, gas and mining firms across the world to manage information about more than 20,000 suppliers.
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.