How can multinational companies have a positive impact on developing countries? While the private sector’s traditional view has been similar to Milton Friedman’s argument that businesses do enough by providing goods and services to society, some companies are recognizing that they can increase their profits by engaging in development-focused business practices and investments. In particular, integrating local small and medium sized enterprises (SMEs) into corporate supply chains has both lasting economic growth impacts for developing nations and commercial benefits for corporations.
As mentioned before in this blog, multinational food and beverage companies like SABMiller and PepsiCo are already using local sourcing to cut down on costs and promote sustainable development. But how else is the business community becoming more “locally-conscious”?
The oil and extraction sector is also seeing the benefits of investing locally. Chevron has adopted the “local-content development” model into many of its world-wide operations. After 27-years of civil war ended in Angola, the government sought to revitalize its human capital by requiring oil companies to hire Angolans and source from locally run businesses. Yet local businesses lacked the necessary know-how to implement the activities the oil industry needed.
To address this capacity deficit, Chevron cooperated with other oil companies, NGOs, and the Angolan Ministry of Petroleum to help build develop local talent. The Centro de Apoio Empresarial, an enterprise development center, was established with the goal of creating a functioning and sustainable market of local SMES to meet the needs of the oil industry by improving the capacity of Angolan enterprises to serve as suppliers. This socio-economic initiative not only helped build the local economy by creating more than 3,000 jobs for Angolans, it also helped oil companies sustain and expand their operations in the country. Similarly, Total is aggressively building local-talent in Yemen and Nigeria as a way of sustainably enhancing skills and building industrial capacity in its operating countries. Total set up its own training centers in both nations, focusing on gas technologies and hands-on practical training. Leading international oil companies, therefore, are deliberately investing in local talent as part of a corporate strategy to expand their businesses and thus increase profits.
While skeptics see such social investments purely as a CSR/good advertising scheme for companies to increase sales, leading multinationals are challenging this notion. As more oil-rich nations, such as Brazil and Ghana, implement local content legislations, multinational companies will be legally required to integrate local employees and SMEs into their supply chains. As opposed to seeing this as a challenge, the private sector should view this as an opportunity for them to have a life-changing impact on the local economy by enhancing local talent and also improving their own bottom line over the long term.