Challenges

What is Driving Interest in Local Content?

In the oil and gas sector, GlobalData anticipate that 2010 will see US$798 billion of capital investment, of which $375 billion will be by National Oil Companies. In the mining sector, Global Mining Investments foresee approximately US$50 billion of global capital expenditure in new mining ventures. Of these expenditures, anywhere between 25% and 75% will be spent with contractors and equipment suppliers registered in the country hosting the investment.

In the current global economic climate, the role of this expenditure in stimulating jobs, skilling the workforce, growing supplier competitiveness and protecting or growing a nation's strategic industries is of keen interest to Governments. No longer do Governments look at extractive industries purely as a source of national revenues. Supply chain expenditure, and its impact on jobs and local industry, is becoming of comparable importance to royalty payments, production sharing and corporation tax. No surprise then that the local content and national sourcing expectations of Governments are getting tougher.

For example, in emerging economies, up to 40% of the weighting in the award of public concessions can be assigned to the quality of a bidder's proposal on local content. Further, when tendering for major contracts, state-owned companies are setting targets for selected services and equipment of anywhere up to 75% (eg for fabrication services) or even 100% (for banking and insurance). Private companies, either compelled by regulations or politics, or for reasons of market differentiation or risk managemnent, are assigning up to 20% of their award criteria to the quality of a tenderer's offer on Local Content.

In the EU, North America and Australia, where business is more strictly governed by competition and anti-discrimination rules, Governments need assurance that competent national workers and capable national suppliers are not disadvantaged by global sourcing and international framework arrangements. As part of economic recovery, many OECD Governments are also actively seeking inward investment that simulates job creation and supports strategic local industries. Capital projects must now deliver on these public expectations or otherwise risk a backlash from politicians and unions.

And anti-bribery laws (eg FCPA in the US and the new Bribery Act in the UK) and other ethical and sustainability considerations are reaching further into the global supply chains of companies. Effective corporate controls are needed to pin-point and mitigate these risks, whether within the procurement process itself, or within the operations of individual suppliers.

"What lies at the heart of effective local content management?" Read more »