Building a Foundation Supporting Start-ups Accelerating Development

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1 Ladies and gentlemen, distinguished guests. Welcome to Brunei and to this APEC SME Business Forum. This morning we heard about the challenges and opportunities for SMEs in the current economic climate, and about the important role of government in supporting their development. I m going to build on these topics in my address today: Planting the seeds: How Brunei Shell helps to develop local SMEs Some of you may be sitting there thinking: what does someone from a company owned jointly by the Bruneian Government and a global corporation like Shell really understand about the needs of small and medium-sized businesses? Well, maybe I can contribute a little as I m very fortunate to lead a company that has spent more than 30 years working hard to help SMEs become a driving force at the heart of the Brunei s world-class oil and gas business. I ll be covering three key areas today: I ll start with a brief overview of Brunei Shell Petroleum, and the oil and gas industry here in Brunei Secondly, I ll explain the four building blocks to develop local SMEs Thirdly, I ll talk about future opportunities for other Bruneian industries to adopt this SME development model Brunei Shell Petroleum is a joint venture between His Majesty s Government and Shell. This year we are proud to celebrate the 80 th year of this strong partnership, which is possibly the longest in the oil and gas industry worldwide. BSP is one of the biggest energy companies in Asia, producing around 370,000 barrels of oil and gas equivalent every single day. We supply oil to many countries, including Indonesia, Korea, Japan, China, India, Australia, New Zealand and the USA. We are a major gas exporter in the region. One in five light bulbs in Tokyo is powered by Bruneian energy. Brunei Shell companies are also recognised as global technology leaders. We were the world s first producers and exporters of Liquefied Natural Gas. We also pioneered smart technologies to digitally monitor and control offshore operations efficiently from remote locations in real time. Today, 70 km offshore from here and 8km under the seabed, valve settings are changed via computers in our head office, which adjusts the 1

2 flow of oil and gas to maximise production and optimise reserves. That is an amazing achievement. BSP engineers also lead the world in developing innovative drilling methods for complex conditions. For example, we invented snake wells which are several kilometers in length and have the flexibility to produce from pockets of oil and gas that would otherwise be uneconomic to access. This leading edge technology has helped us consistently achieve our oil and gas production targets for the past three years. BSP has also emerged as the best safety performer in the Shell EP Group worldwide, and recently won the coveted Shell Chief Executive HSSE award for environmental performance. The significance of BSP in Brunei is huge. BSP contributes around 90% of Brunei s oil and gas revenues, which in turn accounts for over half of the country s GDP and 90% of total export earnings. BSP s spend with Bruneian companies has more than doubled from US$480 million in 2004, to US$1.2 billion in This represents three quarters of our total spend. We ve built this economic success by leveraging Bruneian talent both inside and outside the company. More than 90% of our 3500 staff are Bruneian, and Bruneian staff fill 60% of all management roles. If you take our 3500 staff plus the 8000 contractor staff, and the families who are supported by BSP it is around 40,000 people or 10% of the population of Brunei. To this can be added the important support from such as hotels, shops, food outlets, and others who benefit from our operation. But it wasn t always like this. As recently as the 1980s, the local oil and gas sector outside of BSP was virtually non-existent. At that time, the majority of the country s population were working as government employees and contractors, or in traditional industries. The approach we ve taken to develop SMEs has of course grown organically over years, but I would like to share with you four building blocks that we focus on to support local business development: Building a Foundation Supporting Start-ups Accelerating Development 2

3 Sustaining Competitiveness The first building block is Establishing a Foundation for SME Growth through Vision and Policy. The Bruneian Government has a clear vision for the development of local enterprise, and this is fully supported by the Shell Group. Both shareholders believe in the stability, growth and innovation that comes from having a vibrant SME sector, and invest to make it happen. Oil and gas industry SME programmes in other countries have relied more on formal government quotas and mandates. A key difference in Brunei is that Shell has been a pro-active corporate partner. For Shell, supporting local development is a core value, not just a compliance issue. The other key component for establishing a foundation for SME growth is of course policy. Formal SME development policies have been in place in BSP since the 1980s. Certain scopes of work were ring-fenced exclusively for local contractors, and bid criteria also favoured fledgling local companies using local labour. These criteria sometimes meant taking tough decisions to accept higher-cost local services in the short-term to achieve longer-term rewards gained through strong SME partnerships. Translating a new business idea into a workable reality is a major challenge. Statistics for start-up failures vary by sector and by country, but can be high. That s why the next building block is Supporting Business Start-ups. We work hard to help incubate businesses in two different start-up categories: the first is working with existing local businesses to start-up in new areas. and the second is planting the seeds for a new generation of SMEs. Contractor partnering is a very successful strategy that we ve applied for existing Bruneian businesses to enter new fields. It involves SME teams physically working alongside major international contractors on projects, to build know-how and experience. For example, Bruneian conpanies have successfully entered the scaffolding, construction, drilling arenas by teaming up with our large international contractors. The partnerships range from formal JVs, joint bids and sub-contracting deals through to simple job-placements. The partnering arrangements take time to develop, but do not have to last forever. Once local businesses have established their expertise, they can gradually reduce their reliance on international business. It s a 3

4 model that has worked well for both sides. The local contractor develops expertise from the best global players in that sector, and the large international company generates income, market access and experience of how to partner with local firms which is now a key criteria for operating in developing countries globally. Planting the seeds for new SMEs is also critical for sustaining growth. This is one of the Brunei Government s key aspirations, and is shared by all of us in the APEC region. BSP contributes to this goal through the LiveWIRE community development programme. LiveWIRE works as an incubator scheme offering information, advice and training for Bruneians who want to start a business in any sector, not just oil and gas. BSP has helped more than 2500 Bruneian men and women through this programme, which began in Two hundred of them have gone on to start up their own business, all SMEs. These exciting new enterprises have been set up in a range of sectors including food services; retail; financial services; tourism and travel. The Brunei LiveWIRE programme is the most successful of the 22 local programmes that Shell supports around the world. Once start-ups are established, the next building block is Accelerating Development through Skills and Performance Management. New skills not only improve the performance of a new business, but crucially help them qualify for a broader range of higher value BSP contracts. We have witnessed a massive expansion of training and development in Brunei in recent years. The cornerstone of this is Brunei s world-class education programme, which extends from pre-school right through to technical colleges and universities. Shell experts also provide a wide range of training courses to develop specialist technical skills. We also fast-track entrepreneurial and managerial capability development amongst our more advanced SME partners. This includes a coaching programme on how to run a business, taking in financial and commercial considerations, safety, HR, and procurement. Coaching isn t limited to vendors who have been successful in winning contracts. We also provide feedback on unsuccessful tenders. 4

5 We seek to pass on all of what we learn to our contractors because they are such an integral part of our business. BSP teams are currently working with SMEs to simplify processes and eliminate waste across the supply chain, to make our overall operation leaner and fitter. The significant cost reductions which are being achieved are not only important in the current climate, but will also enhance the long-term competitiveness of Brunei s oil and gas industry. As SME firms become more independent, we provide less hands-on support but focus more on performance management. Our vendors are encouraged to track and benchmark their own performance on key SME development criteria. We conduct Business Performance Reviews for contractors to provide an objective assessment of their achievements, and how to improve their delivery going forward. The fourth building block in our SME model is Sustaining Competitiveness of established contractors. A key element of this is helping SMEs build an international presence. There is no substitute for international experience to extend the capabilities of any business. This is particularly important because Brunei is a finite market. We need existing Bruneian firms to expand internationally to make way for the next generation of SMEs. You may well ask - what makes a company in Oman, India or Malaysia select a contractor from Brunei? What we re finding is that Bruneian contractors are winning work abroad on the back of capabilities they ve gained through BSP. The world-leading safety practices, performance management systems, quality control requirements and exposure to leading edge technologies, learned through working with BSP, are helping make Bruneian firms attractive partners to international companies. For example, one local company is carrying out highly specialised maintenance work in the area of integrity inspection in Australia and India. Another Bruneian company has teamed up with its joint venture partners to undertake work in the areas of scaffolding, insulation, catering, IT and manpower in Oman, India, Malaysia and Indonesia. 5

6 To show you just how far we ve come in developing SMEs through our four building blocks, let me take you through an example of how we build platforms at BSP now and in the past. This is a picture of our first Ampa offshore platforms installed in the 1970s, where there was limited involvement from local contractors. This is the latest BSP platform, Bugan, which is being built right now. It is 40m high and has a massive 1400 tonne topside. It is being built here in Brunei at our marine construction yard in Kuala Belait. In this project, we have maximised the use of Bruneian contractors for the work, right through the supply chain, from design, equipment supply, fabrication and installation. Many of the scaffolders, welders and electricians on the job were actually trained on the last platform we built in Brunei, called Mampak. These workers are now in demand for Bugan and other projects. So you can see how our investment in SMEs not only generates benefits for us, but also supports the Government s aspirations on jobs and skills diversification. Bugan is a truly made-in-brunei engineering marvel in every sense of the word. Bruneian firms employing Bruneian people will also undertake the maintenance work on this platform over the coming decades. When we started on our journey to develop SMEs, Brunei had very little physical infrastructure, very few people had advanced technical and commercial skills, and the technologies supporting business were simply not available. Brunei now enjoys worldclass infrastructure and education standards, and access to leading edge technology. With all these enablers in place, we believe that other industries can fast-track the development of SMEs by applying the building blocks that we use at BSP. SMEs have the potential to lead the way in the diversification of the industrial and commercial base of the Nation but it will only happen if larger players systematically nurture their development. This is the second time that I have had the privelege of working in Brunei. The first was in the early 1990s. I've seen tremendous progress made by Bruneians who started 6

7 companies at that time and have since grown them to become successful businesses in the international oil and gas industry. These companies have proved the sceptics wrong and now play an important role in the Nation's development. For it to become 'business as usual' for BSP to hire Bruneian contractors for highly specialist jobs is tremendous progress. I am very proud to have been a part of this achievement. It is also proof that even the boldest of SME aspirations can be achieved, if we truly believe in people's potential, and commit to action. In closing, I would like to share a fundamental learning from our SME development programme. The biggest potential for growth of the country and the industry lies not only in its hydrocarbon resources, but even more importantly in the talent of its people. Thank you. 7