Local content has emerged as one of the most pressing issues
facing business in emerging markets.
Rightfully so.
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| Planned and executed properly, local content is the most sustainable and the most cost-effective mechanism for delivering value into local communities and economies. |
It has the best local value to investment ratio (ROI) and even
when done poorly it can have significant positive impacts.
Effective local content strategies have two focus areas that
are common across industries and geographies.
These are employment and procurement.
Get them right and your project has the foundation for a
strong and resilient social license.
Local employment and procurement can also be a key component of your
project’s overall economic viability.
Get them wrong and your project will struggle with social
and community issues and, quite often, overall project viability.
Developing local employment and local procurement is one of
the best leveraged CSR investments that a company can make. Think about it.
The jobs have to be filled.
The goods and services have to be procured. If they aren’t procured locally then very
little of the money from them will circulate in the local economy.
If they are procured locally then virtually all of the money
circulates in the local economy and has a significant multiplier effect.
Even if local content creates additional costs the
socio-economic impact derived from those extra costs represent a significant
return on that investment because they are leveraged by the overall employment and
procurement spending.
And, often there aren’t extra costs or the additional costs
are front-loaded and the benefits last over the life of the project.
If a project isn’t maximizing local employment and
procurement then it will be bringing in more outsiders. This costs extra and can increase community
tension beyond the lost employment and contracts. (Think of an influx of single young men coming
to work at a project site and the impact on local families and communities).
Successful local content strategies can not only result in
strong local relationships, they can also help with a project and company’s
relationship with local and national governments and regulators as well as with
developmental and advocacy NGOs.
But, success is
not easy
Common constraints that must be overcome to have success
with local content include:
·
Projects are often based in remote locations
with little or no experience with industrial employment or even salaried
employment of any kind.
·
Levels of literacy are low and household
economies are often subsistence based.
·
There is little or no effective infrastructure
to provide training and support to assist potential workers with the transition
to industrial employment.
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| Local residents desperately want opportunities to participate in the project's economic activity through jobs or contracts. |
·
Local businesses and prospective entrepreneurs
lack the skills and experience to be effective providers of goods and services. This includes both technical skills and business
management skills.
·
There are no economic vehicles in the local
economy that can enable effective participation in the larger contracts and
opportunities.
Locally owned businesses lack the financial, operational and management
capacity to compete for larger contracts, even with extensive support and
assistance from the project/company.
The bulk of the overall value of contracts for goods and services cannot
be broken down to a size that can be digested by local businesses and
entrepreneurs.
This means that by default the local economy is effectively prohibited
from participating in the lion’s share of opportunities other than as
sub-contractors.
·
Programs to facilitate local content development
are under-resourced and focus on short-term impacts rather than the structural
issues that inhibit optimization of local content.
Below are four strategies that can help achieve local
content success.
They probably won’t all work all of the time. And some may have no applicability to your
particular project or venture.
But, you may find some useful, or they may stimulate you to
think of other strategies and approaches for optimizing local content.
1.
Think Cap
Ex when budgeting
Developing and implementing successful local content
programs isn’t cheap. Getting to success
often means overcoming significant gaps in skills and capacity, and sometimes
requires development of organizational and institutional infrastructure. This can be costly and time-consuming, yet
can provide valuable long-term results.
Investments in local content development pay back over the
life of the project. Yet most budgets
treat them as operating expenses, not capital expenses. Why?
In my experience it is mostly because nobody has challenged
finance and accounting on how they are treated.
But, it does make a difference.
And it should be treated as a capital expense. The payback is over time, generally over life
of project.
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Local content investment contributes value over the life of the project. Yet, it is seldom budgeted as a capital expense. This results in chronic under-funding.
|
When local content development is treated as an operating
expense it is generally under-resourced and focused too much on short-term
rather than life of project impacts.
There is a strong case to be made for including local
content development budgets early on in a project’s overall capital budget. This can provide the resources and the
time-frame to make it work effectively and will pay off handsomely over the
life of the project.
2. Development Corporations
The scale of most procurement opportunities is simply beyond
the financial, operational and organizational capacity of local businesses and
economic institutions.
Local businesses are simply unable to scale so as to take
advantage of the opportunities the project presents. And, if they were given them they would not
have the capacity to manage them effectively.
This was a challenge faced by many Indigenous communities in
Canada.
Development of major industries and projects on their
traditional lands meant that there were large contracting and business development
opportunities available to them. But,
their local businesses and economic structures did not have the scale to take
advantage of them. The opportunities and
benefits went to outside providers.
A development corporation model evolved over time and proved
to be very successful at enabling local capacity to bid on major contracts and
activities.
In the development corporation model geographic or tribal
based populations come together and form for profit development corporations
that are collectively owned. They are
able to operate at a scale whereby they can engage professional management and
be better able to meet the needs of modern industry.
In many cases development corporations would recognize that
the scale of the contracting opportunity was so large that they needed to bring
in additional operational and financial expertise. This was often accomplished via
joint-venturing with firms that could bring the missing pieces to the opportunity
and supplement the strategic local content advantage that development
corporations had.
Kitsaki
Development Corporation – Local Content Success Story
An early example of using a development corporation approach
is the
Kitsaki Development Corporation, a
business development vehicle created by the Lac La Ronge Indian Band in
northern Saskatchewan, Canada.
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| Kitsaki Development Corporation is an successful example of a development corporation being used to overcome gaps and issues that inhibit local content success |
The regulatory structure that was put in place to enable the
development of the Uranium industry in northern Saskatchewan sought to
facilitate local content development.
One of the ways it did this was to put in place a requirement that local
content providers be given a specific bid preference.
Kitsaki used this preference, along with a well-executed
joint-venture strategy to secure an initial contract. It has used that strategy across a range of focused
opportunities and created a venture with annual turnover in the ½ billion
dollar range (see details on their website
here.
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| The Lac La Ronge Indian Band used a Development Corporation (Kitsaki) and a strategic partnership approach to create NRT Trucking and capture a major transportation contract from a local mine. Using the same tactics they have grown Kitsaki into a substantial economic force, generating many hundreds of jobs and contract opportunities for band members and significant revenues and profit |
In the mid-1980s the bulk transportation contract was coming
up for Key Lake Mine. Kitsaki recognized
the opportunity and also recognized that while it had a local content advantage,
it did not have operational experience in the bulk transport business.
Kitsaki, which had astute professional management, sought
out a partner that could bring the missing pieces to the venture. It partnered with Trimac Transportation, the
largest bulk transport firm in North America.
The Jt Venture that was created,
Northern Resource Trucking,
which was 51% owned by Kitsaki, went on to become the largest bulk transport
business in Northern Saskatchewan and today provides services to industry and
communities across the region.
Kitsaki used a similar approach to take advantage of other
strategic opportunities in the local and regional economy. See more
here.
This development corporation and joint venture model has
proven very successful for many Indigenous communities and tribal organizations
across Canada and the United States.
A key to the sustainable success of development corporations
is a strategic approach that leverages local content advantages and meets the
needs of industry and other markets, often through partnerships and joint
ventures.
An equally important key is effective governance and
political management that give the development corporation operational space
and keeps it free from political interference and manipulation.
3. Pre-employment training
Advertise for entry level workers at a remote project and
you are overwhelmed with applications.
And, the process of sifting through them is inefficient, often bringing
in poorly suited applicants and leaving better suited ones off the list.
Some applicants find that the structure of industrial
employment and its impact on family and life simply doesn’t fit for them. In other cases, immersion in a structured
institutional setting can bring out traits that were not evident during the
screening and hiring process
Too often the end result is high turnover of employees and frustration on the
part of employees, managers and the company.
A well-structured pre-employment training program can
address these issues. It can
dramatically reduce turnover and provide the broader community with enhanced
life-skills and livelihood potential.
It works by establishing a short-term program (typically
6-12 weeks) where a pool of prospective employees are brought into a program
that prepares them for industrial employment and helps them to determine if
industrial employment is for them.
The program typically consists of a range of components that
are directly and indirectly related to the anticipated employment.
They include elements related to the lifestyle transition
that often accompanies a move from a subsistence lifestyle to salaried
industrial employment. Some of the
programming, such as household financial literacy and household economic
transition involve spouses and sometimes children.
At the end of the pre-employment training the trainees have
a much better sense of what all is involved in industrial employment and
whether that is a fit for them and their families.
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| Pre-employment training helps companies to know prospective employees better and to make smarter hiring decisions. It also helps prospective employees to understand whether industrial employment is a fit for them. Even those that don’t move into industrial employment leave the program with valuable life and livelihood skills. |
Pre-employment training gives employers the opportunity to
know prospective employees over a much longer time-frame and across broader
range of situations.
At the conclusion of the program those deemed the most
suitable for industrial employment go into a pre-screened pool that the company
can select from when it next needs to hire new workers. This pool can also be made available to
contractors and others, helping to improve secondary and tertiary level local
content success.
The end result is that those who are hired and brought on
board are much more likely to stay and succeed.
A big cost saving for the company, big value for the local economy and a
big frustration avoider for all!
Even those that are not brought into the pre-screened pool
benefit. They have learned new skills and are better positioned to secure other
employment or develop alternative livelihoods.
In many cases pre-employment training can be undertaken by
more than one project.
4. Invest in education and training
institutions
The skills, attitude and expertise gap between where local
workers are at and where they need to be can be huge.
Especially when the local content strategy is focused beyond
simply bringing in entry level workers and instead has a target of seeing local
employees at all levels and across all functions in the organization.
There is a need for effective education and training
programs to systematically bridge gaps and help both employees and employers.
While it may seem simpler to either do the training in-house
or bring in outside experts to do the training, this can be a short-sighted
approach with longer term costs.
Most times there are local polytechnics and other local
training institutions. And often they
don’t have the capacity to develop and deliver the type of training needed and
at the quality level required.
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| Investing in creating the local capacity to develop and deliver effective skills training can pay dividends over the life of a project. Partnerships between local skills training institutions and their more developed international counterparts can help ensure a steady supply of local workers with the required skills AND develop the capacity for the local institution to provide a range of other pragmatic skills and livelihood related programming. |
Local training
institutions are local content too.
Rather than simply pass by the local institutions in favour
of bringing in a qualified institution or instructor, or even doing it
in-house, companies should carefully consider investing in developing local
training capacity.
This would include facilitating partnerships between local
training institutions and international partners who can help them to both
develop and deliver effective programming to meet current requirements, and
develop the institutional capacity to do so in the future.
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| Facilitating partnerships between local training and educational institutions and highly experienced international counterparts can help create short term solutions AND put in place longer-term local skills training capacity |
While this may be slightly slower and more expensive in the
short term, the improved local capacity will pay many dividends, including
lower costs later on and an improved local capacity to train people for a range
of livelihoods and skills (thus reducing dependency on the dominant industrial
employer in a region).
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These four strategies are no guarantee of success. Local content is not an easy puzzle to
solve. But, following those strategies
that can apply effectively to your project can help improve your chances of
success, and can make a huge difference for local families and communities and,
ultimately, your shareholders.
