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4 Strategies for local content success

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Local content is one of the most efficient means of aligning shareholder and community value. This publication examines constraints and success strategies.

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Published in: Business
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4 Strategies for local content success

  1. 1. Helping business to serve shareholders AND society SIMULTANEOUSLY Four Strategies for Local Content Success -by Wayne Dunn www.csrtraininginstitute.com/knowledge-centre
  2. 2. Local content has emerged as one of the most pressing issues facing business in emerging markets. Rightfully so. 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. Four Strategies for Local Content Success Planned and executed properly, local content is the most sustainable and the most cost-effective mechanism for delivering value into local communities and economies.
  3. 3. Four Strategies for Local Content Success Page 02 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.
  4. 4. Page 03 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. Four Strategies for Local Content Success Local residents desperately want opportunities to participate in the project’s economic activity through jobs or contracts.
  5. 5. Page 04 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. 1. Think Cap Ex when budgeting 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. Local content success strategies 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. Four Strategies for Local Content Success
  6. 6. Page 05 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. 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. 2. Development Corporations Four Strategies for Local Content Success Local content investment contributes value over the life of the project. Yet, it is seldom budgeted as a capital expense. This results in chronic underfunding
  7. 7. Page 06 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. Kitsaki Development Corporation is an successful example of a development corporation being used to overcome gaps and issues that inhibit local content success Four Strategies for Local Content Success
  8. 8. Page 07 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. 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. Four Strategies for Local Content Success 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.
  9. 9. Page 08 A key to the sustainable success of development corporations is a strategic approach that leverage’s 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. 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. 3. Pre-employment training Four Strategies for Local Content Success
  10. 10. Page 09 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. Four Strategies for Local Content Success 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.
  11. 11. Page 10 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. 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. 4. Invest in education and training institutions Four Strategies for Local Content Success Four Strategies for Local Content Success
  12. 12. Page 11 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. Four Strategies for Local Content Success 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.
  13. 13. Page 12 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). 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. Four Strategies for Local Content Success 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
  14. 14. Below are some recent articles and publications on Corporate Social Responsibility and stakeholder engagement that you may find interesting. Mining Schools Hi Tech in CSR CSR SWOT discover risk, value and more Eleven strategies for maximizing value from CSR CSR in Budget Crunch Times 12 strategies for success Multi-sector CSR Partnerships Natural Partnerships – Unnatu- ral Partners From Pariah to Exemplar Applying the 6 best practices Engaging Internal Stakeholders Seven proven strategies CSR Communications Eleven mistakes to avoid Stakeholder Engagement Six best practices Creating a CSR Program in eight self-serving steps Let’s be honest: Internal CSR Communication Sucks! CSR Metrics: You can’t measure temperature with a speedometer Stakeholder Engagement Five common mistakes CSR Value Continuum A unique perspective on Shared Value Smarter CSR Budgets 8 steps to connect budget to value 28 Expert tips On stakeholder engagement Don’t be an Altruistic Angel Be transparent about what’s in it for you 13 Mistakes that prevent & destroy Multi-sector CSR partnerships NHL Sustainability Report Good but incomplete. Four Strategies for Local Content Success
  15. 15. Professor Dunn brings a practical and realistic approach to CSR, blending theory and practice to develop realistic models and approaches to address real-world challenges Dr. Ellis Armstrong Former CFO, BP Exploration …coherent, thoughtful, stimulating and insightful… state of the art! The network of participants from the public, private and civil society sectors was incredible, some of the leading experts in the field.   Kojo Busia, Ph. D. Snr. Mineral Sector Governance Advisor United Nations Economic Commission for Africa/UNECA …pragmatic blend of theory and practice, very applicable to helping organizations meet real-world challenges. Frank McShane Manager, Corporate Responsibility Policy and Ethics, Talisman Energy … readily available to provide support to organizations like Amref that are seeking partnerships, and looking to bring about positive change in a collaborative and concrete way. Wayne and the CSR Training Institute helped us to identify and connect with potential partners and are always available. The training, the expertise, the network and the overall support are world-class. Onome Ako Director of Strategic Partnerships, Amref Health Africa “The program enhanced the CSR knowledge and strategic skills of our Kosmos Energy Ghana team, and offered the participants a platform for networking with professionals from other organizations across Africa and Ghana.”  Reg Manhas Sr VP Kosmos Energy Very much helpful Wayne; some of the tips and questions you gave will be an extremely helpful guide in the process of developing a CSR Strategy for my company. Emmanuel Aubynn Regional Social Responsibility Manager, Newmont Africa The CSR Program was excellent. A key aspect of my work is to encourage and support private sector development that contributes to Ghana’s overall socio-economic growth. The learning that I and my staff take away from attending this program will help us immensely with this responsibility. I highly recommend this program. Hon. Rashid Pelpuo (MP) Minister of State for Private Sector Development and Public Private Partnerships (Ghana) New and exciting insights into the theory and practice of CSR… great faculty and participants, very diversified. An excellent learning experience, very practical and useful. I’m very happy I was able to participate in it. Hon InusahFuseini (MP) Minister of Lands and Natural Resources (Ghana) WHAT OTHERS SAY ABOUT OUR WORK
  16. 16. Should Business Serve Helping business to serve society and shareholders, SIMULTANEOUSLY. Should Business Serve WAYNE DUNN, PRESIDENT AND FOUNDER SHAREHOLDERS? SOCIETY? IT SHOULD SERVE BOTH. Wayne Dunn is President & Founder of the CSR Training Institute and Professor of Practice in CSR at McGill. He’s a Stanford Sloan Fellow with a M.Sc. in Management from Stanford Business School. He is a veteran of 20+ years of award winning global CSR and sustainability work spanning the globe and covering many industries and sectors including extensive work with Indigenous Peoples in Canada and globally. His work has won major international awards and has been used extensively as ‘best-practice’ by industry and academia. He’s also worked oil rigs, prospecting, diamond drilling, logging, commercial fishing, heavy equipment operator, truck driver and underwater logging, done a couple of start-ups and too many other things to mention. Wayne’s career includes big successes, and spectacular failures. He hopes he’s learned equally from both. www.csrtraininginstitute.com

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