Local content practitioners—particularly those working in the sustainability, contracts, procurement, and supply chain departments of large companies—face enormous pressure from two sides: on one side, the pressing need to reduce costs in light of cratering economic activity across the board, and particularly in the energy sector; on the other side, the need—and increasingly the obligation—to engage with their local partners and carry them through this crisis. The challenge, by no means insuperable, is how to reconcile these two imperatives.

SMEs in the Supply Chain are Particularly Vulnerable

Local small- and medium-sized enterprises (SMEs)—and perhaps especially SMEs in the energy and mining industry—are inherently vulnerable in this and other times of crisis:

• First, most SMEs lack the banking facilities and scale to make cost-cutting and refinancing decisions comparable to those now being executed by big multinationals or other large companies.
• Second, they tend to be relatively new businesses that lack the industry experience and knowledge to have developed their own crisis or risk mitigation plans, which are essential to chart a path forward.
• Third, most do not have a diversified client base; a “single customer” company, but especially in the energy supply chain, finds itself particularly vulnerable today.

Multinationals Now Occupy a Critical Market Role for SMEs

Today, the onus is on multinationals—especially “forward leaning” multinationals in the energy and mining sector—to alleviate the pressure on their local supply partners. Why? Because these large companies often serve as single, trusted sources of market information, capacity building, and technical expertise for local SMEs. In today’s markets, this position as a de-facto mentor should be acknowledged either as a contractual obligation (ratified at a contractual level and/or at a legal or regulatory level through local content requirements) or as an implicit undertaking for sustainably minded multinationals with a long-term vision.

This mantle of trust means even more during a downturn. It is times of crisis that really test multinationals’ commitment to local SMEs and stakeholders, and will either give the lie—or give comfort—to the skeptics who see the progressive multinational as a contradiction in terms.

Photo: DAI.

The Cost vs. Trust Conundrum

But can even well-intentioned companies afford to sustain their SME development initiatives in the face of stringent cost-cutting? While it is not possible for multinationals to maintain their pre-COVID commitments, neither should the calculation be a straightforward either/or: spend-and-engage versus don’t-spend-and-abandon.

Instead, local practitioners should first acknowledge that COVID-19 presents a unique opportunity to reinforce the corporate value of and commitment to local content, SME development, and long-term partnership in their host communities. Communicating this simple yet powerful message sets the stage for engaging the local supply base through and beyond the immediate pandemic.

Low-cost Investments that Show Corporate Commitment and Maintain Local Engagement

Next, companies should look for low-cost solutions that bridge the gap until the economic tide turns and the waters of recovery start to flow through the supply chain. Here are four possibilities:

• AWARENESS: Synthesize and distribute briefs to your local suppliers that explain the market dynamics and contextualize market developments. This will help bring along your local suppliers and stakeholders through the process, educate them on the nuances of the market, and reduce anxiety by replacing uncertainty with facts.
• DIGITIZATION: Set up or leverage existing electronic portals, such as supplier registration portals, to make available toolkits SMEs can use to respond to the downturn. These toolkits might include additional resources on conserving cash and cutting costs, and link to possible banking facilities in the local market that can assist the SMEs.
• TRAINING: Run webinars and develop short and topic-specific online training (through online platforms like supplier registration portals) that address market conditions or help SMEs improve their competitiveness (for example, e-learnings on procurement, health and safety, and human resource policies).
• NETWORKING: Link experts with SMEs through online Q&As, on-demand call-down support services, and recorded market talks. Technology makes it fairly easy to create mobile apps that submit pop-up questions that can be fielded easily or push content to SMEs inexpensively and quickly.

None of these solutions replaces in-person engagement, collaboration, or more concrete support. But such efforts can be effective both in themselves and in demonstrating your commitment as a corporate partner. In a sector where time horizons are long and the social license to operate remains at a premium, this demonstration of goodwill will be weighed as more than a gesture.