Internationalisation - time to put our foot on the accelerator!

Kourosh Bassiti is an Aberdeen-based management consultant specialising in the energy industries. He has over 25 years of experience in the oil and petrochemical industries in the US , Middle East and Europe , and was previously Director of the Aberdeen Offshore Technology Park and Head of the Scottish Enterprise Energy Team.

Kourosh is one of the main speakers at the "Going Global - Securing Future Success" conference on internationalising Grampian's oil and gas supply and service companies. This half-day conference will be held in Aberdeen on 23 March - click here for details.

"After around 34 years of North Sea oil and gas, I think now is a very good time to consider exactly what we have done with this remarkable god-given asset.

It has transformed the North-east economy, that is for sure, creating world-class local skills and competencies. It has made us accustomed to consistently high employment. And, of course, at a national level, it has contributed around £160 billion to the UK treasury, in the process bank-rolling many of the activities and initiatives of successive governments.

But will future generations judge that we have used this remarkable windfall - the economic equivalent, almost, of winning the National Lottery - to invest wisely in our own future?

I believe some of things we do in the next couple of years will go a long way towards forming the definitive answer to that challenging question. Some brief historical analysis is first necessary, however, to re-trace our footsteps and establish exactly where we stand just now.

A bitter pill to swallow

The huge industry sea-change in the 1980s and 90s to reduce costs and become more competitive, with CRINE and all the other initiatives, was obviously necessary - North Sea oil companies were losing money, and that was unsustainable.

It was a bitter pill at times, and we lost some very good companies along the way. But we came out of it a lot stronger, with a new set of skills and managed to achieve remarkable reductions on our cost base, dropping from $12-15 to $5-8 a barrel.

We started to place less emphasis on "traditional" oil service skills - mechanical, fabrication, engineering and so on - and started to develop instead a really impressive new capability in "soft" skills - facilities management and supply chain management, for example. These are what I sometimes call the "glue" skills - they are, at the end of the day, what holds the whole industry together.

We had to do all of this because the UKCS cost base was so high - but I believe we didn't realise quite how much in demand these new skills would also be in new oil provinces like Russia , South America and even the ultimate low-cost production environment of the Middle East.

Even where extraction costs are as low as $2, oil producers are still looking to iron out inefficiencies. In many cases, they lack the indigenous management skills to achieve this - and they have increasingly started looking to Aberdeen for a lead in this process.

This is a wonderful opportunity for us - we have made inroads but perhaps, if we are honest about it, we have not yet quite tapped into it as much as we could.

Starting again from scratch

One simple set of statistics will confirm why that position simply has to change:

The CAPEX and OPEX in the UKCS is around £8.5 billion in 2004.

By 2008, it will have dropped to around £6.5 million.

By contrast, global CAPEX and OPEX will increase by somewhere between £15 billion and £45 billion in the same period.

So, like it or not, we have the reality of a home market which is shrinking - and shrinking significantly at that.

The home market is not only shrinking - it is changing, too, as new operators go looking to rejuvenate assets divested by the majors whom we have been supplying for decades now.

But this domestic challenge is, I believe, going to be really good for us in the long run. Domestically, many of us will have to think strategically about how we want to do business, along with reassessing our core skills and building up our reputations all over again with a fresh portfolio of customers who have to be convinced from scratch of our capability.

And the beauty of this exercise is that it prepares us to do exactly the same thing in other parts of the world where our reputation doesn't always precede us.

A truly global industry

We mustn't be intimidated by the international oil and gas market. As it expands, it is becoming surprisingly accessible. It is quite unlike other industries like food, where national preferences and cultures can present huge barriers to entry.

Oil and gas is truly a global industry. If you've done work for the major operators over here, you'll probably find you can do business for them in other territories. You'll have to cultivate them, for sure, and you may well have to adapt your service offering. But at least you will be pitching to people who can benchmark your reputation with one quick telephone call to an Aberdeen-based (or even ex-Aberdeen-based) colleague.

And what should be our motivation in all this?

A shrinking UK market by definition means shrinking companies and loss of jobs.

In the mid-90s, I had research carried out which showed that at least 30% of our regional oil and gas turnover had to be accounted for by exports by 2005, otherwise we would lose half our North-east workforce.

Times have changed, and I now believe the required target to be just over 20%. But it has to become 40% by 2010 or we will lose 10,000 oil and gas jobs - and run the risk of continuing to shrink and shrink.

And the key to achieving these targets, I believe, is quite simply down to how we manage our transferable skills.

A new kind of exporting

Until now, the trend has often been to view the overseas transfer of skills as inextricably linked to the export of key people. Once one of your individuals reaches the top of his field, transfer him out to Houston .

That's nice for him/her, and very possibly good for your company - but it undeniably makes him/her a net loss to our local economy.

What we've got to do instead (and what a number of progressive companies are already looking at) is building a hub of expertise here - a genuine centre of excellence to retain and further develop our resident expertise.

This is already happening within some of the larger companies - and I think we need to be very proud and encouraging of this development. When you find US-owned corporate giants servicing the "Eastern Hemisphere" in well engineering from its Aberdeen centre of excellence (and in the process sometimes also taking back expertise westerly to the Gulf of Mexico), then you know you're really on to something.

Making an impact

Perhaps we too often get hung up on corporate ownership when it is economic impact that really counts. Is the US company described above a global one, an American one, a Scottish one, or simply a multinational one?

It is obviously a frustration to hear nations like the Norwegians describe us as the best incubators we have. I've heard a number of Norwegian VPs say they really love Aberdeen - lots of clever SMEs turning over around £4/5 million and all primed to go global with just a little bit of fresh investment.

But, if new ownership activates increased internationalisation out of Aberdeen , then perhaps we can learn to swallow the good news along with the bad?

And we must never forget one of our main assets in attracting multinationals to operate out of Aberdeen - our quality of life. How many people do you meet in oil who would openly rather be here than anywhere else?

New ways of working

But we have to be clear about our competitive strengths when we assess new international markets. There is obviously no point in shipping vast lumps of steel out to the Middle East where they are probably better - and cheaper - at metal bashing.

Instead it's about finding and working in partnership with new overseas partners in innovative ways to make sure they get something out of it and so do we. In our case, that might be the design, the project management, the electronics or some of other high-margin, clever stuff.

So that's the theory.

But in practice, how exactly do we go about accelerating our internationalisation?

From my own experience, I would suggest that the public sector has already done a huge amount - and will continue to do so - in doing what it is good at.

In particular, that means opening doors through contacts and trade missions.

It also means taking away much of the early pain of internationalisation. It may cost £100k per year to establish even a basic overseas operation, and you may well get no tangible results out of that for a couple of years.

How many SMEs have the stamina for a scenario like that - especially against a background of imminently shrinking domestic sales?

That's where the public sector can ease the pain. When I was at Scottish Enterprise, we opened an incubator unit in Moscow for ten companies to share facilities and help them into the market for around £10k pa each.

Our audits showed this modest investment eventually realised sales in excess of £80 million. This model probably has to be updated now, but I believe the broad principle still applies.

The time for action

But, even more importantly, SMEs have got to show huge amounts of honesty, self-awareness and no little courage if they are to succeed. We already have many good early examples, but I'm not quite sure enough North-east entrepreneurs are really broad-minded enough to assess their true international potential.

It's not easy - for a start, you may have to redefine your vision, sharpen your focus and re-write your business plan.

But now is precisely the best time to be doing these things, when your North Sea clients are still strong - not in a few years' time when your backs are to the wall.

I have already suggested that international markets are not as challenging as you might think - as long as you are realistic about the processes you need to go through.

Don't look for the early order - it rarely happens.

Don't overlook the personal commitment needed. You will have to drink a lot of cups of tea before you sell! And, even in the era of video-conferencing, people still like to deal with people. Your customer will want to look you in the eye for evidence of trustworthiness.

And, whatever you do, don't go with an air of superiority (the dreaded colonial "exporting" mindset). Go as a proactive partner, offering skills and knowledge transfer as part of the aftercare package (and commanding a good price premium in the process).

In return, you'll find you develop a superior strategic mindset (with benefits to your domestic operations as well as your international). You may become clearer about what you are really good at; you may become better at problem-solving, and be able to apply local lessons globally: you might work out ways to make your products simpler, more robust and more marketable.

Once you know your strengths and capabilities in this way, you'll find the international market may open up for you. There's a whole world of opportunities out there - it's a question of assessing where your particular skills are most in demand (again, you may need public sector support for this phase).

Not a dirty word

So that's my rallying call.

I think the time for platitudes is well and truly over. Nobody wants to see 10,000 skilled, good people go out of this industry.

So we've got to accelerate our internationalisation process - and tell the world we are doing it at the same time.

Lobbying is not a dirty word. We've got to get our message across not only in Stavanger , Dubai , Baku and Houston , but also in Edinburgh , London and Brussels - and that's where the real challenge lies.

These are opinion-forming cities where, from my personal experience, oil and gas is not viewed anything like as seriously as it should be . but perhaps rising to that particular challenge is for another article!"

Kourosh Bassiti can be contacted at K Bassiti Associates, tel. +44 (0)1224 333399, www.bassiti.com, email kourosh@bassiti.com