INTRODUCTION
This case study analyses the HR practices of oil and gas industries in West Africa and aims to provide recommendations for forming an effective HR policy which will focus on development of local workforce to take up skilled and managerial positions in the offshore drilling companies. It also aims at identifying implications of recommended HR policy and justifies the implementation of the policy by clarifying the benefits which the company may reap from it.
The oil and gas industry is a highly specialized area where experience is valued due to the operational efficiencies it delivers and also due to the high level of international standards and regulations that must be adhered in conducting drilling. Therefore employing experienced individuals in key decision areas is required. The analysis will be based on these facts.
ALTERNATIVE HR POLICY
Based on the above the current policy can be identified as ethnocentric in its approach. The alternative HR policy on the other hand will focus on a polycentric approach which will aim at gradually increasing the local workforce in the skilled and managerial positions with the long term aim of replacing a majority of expatriate workforce with local labour. It has to be noted that although the operations are to be managed locally, there will be need to retain expatriates who occupy key areas in compliance (Health & Safety, Finance), operations and administration in order to provide accountability to head-quarters as identified by PricewaterhouseCoopers. (http://www.pwc.com/en_LU/lu/hr/docs/hrs-062005.pdf)
In establishing an alternative HR policy, the company can follow guidelines set by CIPD for effective people and performance management (http://www.cipd.co.uk/subjects/hrpract/general/hrpolproc-which.htm?IsSrchRes=1). The main areas which are critical for the new HR policy in terms of CIPD viewpoint can be identified as below;
Recruitment & selection:
As research by Hauser (2003) and Forstenlechner (2010) suggests, employing local labour can mean fruitful mainly in terms of long term cost savings and avoidance of mobility issues. Therefore the new HR policy should focus on increasing the composition of locals in the workforce. Parameters which has to be adhered here is promoting of equal opportunities in recruitment and selection and avoiding “particularism” in favour of ethical lines as Debrah, Horowitz, Kamoche and Muuka (2004) suggests. This nepotism can be said to be existent as recruitment is exclusively done by the government labour bureau. Therefore another aim of the new HR policy will be to shift the recruitment sources from the government towards sources which the company can control such as recruitment agencies and institutions. These are discussed further in the next section.
Training & development:
The above policy leads to the next issue which is on training of the local workforce. If the company is to recruit local labour for highly skilled and managerial positions, they need to invest heavily in vocational training in areas of engineering. The main issue arises here as to whom should bear the costs of training and where it should be conducted as there are no tertiary educational institutions in the country. In addition, according to Jackson (1995), the learning styles globally differ in terms of receptivity to practical and theoretical learning which has to be considered in developing training programmes. Development of communication skills of locals and expatriates will be paramount in a multi cultured environment and need to be developed through training programmes. These will be discussed in the next section.
Culture & diversity:
In case of increasing the composition of local labour in the workforce, it is important for the companies to focus on formulating policies in managing a diverse workforce. There should be policies to manage diversity as CIPD report (2006) “Managing Diversity: Measuring Success” suggests. (http://www.cipd.co.uk/NR/rdonlyres/809E744B-5018-4592-9544-ADC2A311937F/0/mandiverca0306.pdf) Therefore it is important to undertake diversity programmes to build cultural awareness of all parties.
As Hofstede index for West Africa (http://www.geert-hofstede.com/hofstede_west_africa.shtml) suggests below, the cultural dimensions in work point towards collectivism which has to be taken in to account in planning work and training & development of local employees. It can also be noted that the feminist emphasis of culture will lead to emphasis on relationships which will help in developing workforce harmony. This, according to Herzberg (1968), constitutes a Hygiene factor which helps avoid dissatisfaction of employees.
Figure 1 – Hofstede Index for West Africa
Rewards:
In forming HR policy relating to pay, benefits and rewards, it’s important to understand the need for equality of all workers and the company has to ensure that policies are clear and simple to allow better understanding by all employees. According to White (2005), companies need to consider local labour market conditions in order to provide culturally fit benefits which are valued locally in order to avoid inefficient use of resources.
PRACTICAL TRAINING, DEVELOPMENT AND RESOURCING IMPLICATIONS OF THE NEW HR POLICIES
The new HR policy will focus on developing the local workforce and reducing reliance on expatriates, but there are issues that might arise after its implementation in areas of resourcing, training & development. Other oil & gas manufacturers which can be identified to have faced similar situations in the region are Petrobras & HESS Corporation.
The main implication of the new HR policy is deciding the sources to bring in qualified labour. In order to achieve the goal of increasing skilled local workforce, it can be suggested to establish vocational institutes to train local labour and offer placement in the company upon graduation. This can be followed by a foundation internship programme which will align the graduate’s skills with job functions. It would develop the human capital of the country which will be viewed as a corporate social responsibility helping to gain government approval and develop a better corporate image in the region. Petrobras adapted similar strategies in Nigeria by establishing training institutes and direct placement of graduates in regional operations. (http://www.petrobras.com/ptcm/appmanager/ptcm/dptcm?_nfpb=true&_pageLabel=petr_com_mundo_pais&idConteudoPrincipal=pais_00021)
The implication of such a policy is mainly in terms of cost. But it can be justified in terms of benefits the company will receive as the availability of skilled local labour reduces the need for maintaining a large workforce of expatriates who cost the company more in the long term (Myers, 1995). But there should be policies such as contracts which ensure retention of local employees as there is currently high demand in the region for skilled labour. The same policy will also result in the changes to the recruitment and selection procedure which will now focus on sourcing labour from the institutes instead of the labour bureau.
In addition, the new HR policy could outsource the task of hiring for managerial positions to global recruiters. Hess adopted a policy of using global agencies to find and hire local experts working in other projects around the world (http://hess.com/flash/2009csr/global-workforce.html). The same could be recommended for the company to bring in experienced nationals to take up managerial positions in the project. In order achieve a “fit” with the new environment, experienced professionals may be introduced into induction and leadership training programmes which strategically closes gaps in their skills in managing workforce effectively. This might help reduce the dependency on expatriates for managerial positions.
An implication in sourcing more locals in to the workforce is the risk of cultural collisions. Therefore, training programmes in creation of cultural awareness of workforce to organisational culture and ethnic values of other employees has to be implemented (Caligiuri, Lazarova & Tarique, 2001). Awareness of management in relation to traditions such as holidays and working hours (for example, Friday being considered as a day for prayers by Islamists who constitute 85% of Guinea population) need to be developed through cross-cultural and diversity training.
Proper communication is another success criterion for a diverse workforce. Therefore another implication would be developing the language skills of the local workforce to enable communication with the existing employees where a considerable proportion of whom consists of expatriates. These programmes have been implemented by corporates such as Hess where 69% of its total workforce is derived from the host country, Equatorial Guinea. (http://hess.com/flash/2009csr/global-workforce.html)
BENEFITS OF A SHIFT FROM USING EXPATRIATES TO LOCALS IN SKILLED AND MANAGERIAL POSTS
As with all initiatives, there is a trade-off between various alternatives. The main benefit of using expatriates in oil and gas industry is the expertise that they can deliver since it is a highly specialised industry. In addition to that transfer of employees between different assignments of the same company is administratively simpler compared to hiring labour at each location in the world. (Latta, 2003) it results in short term cost effectiveness and also enables meeting tax and legal compliance requirements around the world.
But Johnson (2005) and Bonache & Fernandez (2005) argue that the use of local workforce will be more beneficial to a company in the long term due to costs associated with integrating expatriates in different countries.
The main benefit for the company in using local workforce is from cost minimization. As per Briscoe & Schuler (2004), the costs associated with an expatriate will range from 3 – 4.5 times the cost for a local in the same position. They may be in terms of accommodation, transportation, etc which may not be required for locals. At the same time, it has to be noted that the cost of local labour will initially be high as training and orientation initiatives need to be undertaken to develop the skills in par with job functions. But these costs will comparatively be lower than expatriates in the long term. (http://www.som.cranfield.ac.uk/som/som_applications/somapps/contentpreview.aspx?pageid=13273&apptype=think&article=194)
Local employees may also be more beneficial in terms of less susceptibility to local conditions such as diseases which avoids disruptions to work. It can also be pointed out that there are less integration problems with locals such as family, communication, climate and culture shock which result in repatriation of expatriates. (Latta, 2003)
Due to the short term nature of expatriate assignments there is continuous need to repatriate them. It means efforts will be needed to familiarize the new expatriates who are sent as replacements to the local conditions which will require added costs. Employing local labour will be less costly and more sustainable in this aspect as they need not be rotated.
Other benefit of hiring of local workforce is the trust it can generate between the business and the local governments. Many governments see foreign controlled operations as suspicious and attempt to extensively regulate their activities. Hiring local managers who the governments see as responsible corporate citizens will help alleviate that status and build better relations with the governments. (Pothukuchi, Damanpour, & Choi, 2002)
REASONS FOR SELECTION OF CURRENT HR POLICIES/PRACTICES
In considering the current HR policies adopted by companies investing in Equatorial Guinea, it can be identified that they are mainly built around to fit expatriates who occupy the highly skilled and managerial posts at the oil companies constituting an ethnocentric approach.
The main reason for the current ethnocentric approach may be due to talent gaps existing in the host country with regard to the oil industry. Therefore the home country may be depending on expatriates to carry out the major tasks which require considerable skills and experience. But in doing that the firm is incurring large expenses in terms of accommodation, transport, healthcare for its expatriate workforce which is more costly than maintaining a local workforce.
The near exclusive use of parent country nationals in the skilled and managerial positions may also be due to the need of home country to maintain command of the operations, in terms of solidifying the company’s ownership interest in the venture. This may be detrimental in terms of blinding the company in doing business in an ethical way.
Saipem, an oil servicing firm in Nigeria was accused by local union of natural gas workers (NUPENG) for depending on expatriates and not providing equal opportunities for locals. (http://www.sunnewsonline.com/webpages/features/workforce/2010/feb/22/workforce-22-02-2010-001.htm) It resulted in massive protests and the introduction of Nigeria’s minimum content act which provides statutory guides for workforce composition. (http://www.internationallawoffice.com/newsletters/detail.aspx?g=2af5d157-e9e1-45ab-98fe-9b4d58199246).
The dependence on the labour bureau for recruitment purposes may be due to the home country’s lack of understanding and knowledge of the region and labour resources. But the issues associated with it are non-selection of right candidates and disallowing of equal opportunities due to nepotism of labour bureau.
In addition, there is less evidence of firm level training programmes which may be due to the company having expatriates to take up skilled and managerial positions in the firm and may be with the intention of avoiding expenses to be incurred on training and development programmes. But the firm has ignored developing the local workforce may be more beneficial as discussed in the previous section.
Overall, it may be identified that the reason behind selection of current HR practices may be due to misjudgement of local potential and based on short term cost effectiveness.
CONCLUSION
Through the above discussion it becomes evident that a policy which focuses on adaptation of practices such as that followed in a polycentric approach. Although it is important for expatriates to occupy the key decision areas in order to implement decisions from the head-quarters employing locals in other positions will be more beneficial in the long term. As corporates such as HESS has experienced in the real world, a polycentric approach to staffing is more beneficial and more cost effective in the long term. It may also be perceived currently as a corporate social responsibility of foreign companies investing abroad to develop local skills and contribute to development of human capital of host countries. Therefore these approaches need to be considered in more broad terms than it is currently viewed.
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