Local Value Creation

Maximising resilience in a time of uncertainty

Part 2 - Integrating localisation into public sector procurement

PwC Middle East’s Local Value Creation series aims to provide a clear localisation framework to government decision makers and stakeholders throughout the Gulf Cooperation Council (GCC) countries for designing, implementing, and managing their countries’ national localisation agendas. Through a series of papers that breakdown and explain each component of PwC’s Localisation Framework, we will lay the groundwork for the design of localisation programmes from top to bottom, covering the complete value chain from conceptual design to implementation across the public sector.

In the first edition of the series, we focused on defining the localisation vision as a first step of designing a successful localisation programme. We discussed the localisation imperative for the GCC countries and explained how governments can identify the key strategic objectives of their localisation programmes and build a localisation formula that allows them to stimulate value creation and capabilities development in key areas of strategic importance.

In this edition of the Local Value Creation series, we will shift our focus to the operational side of localisation; namely, Procurement Integration. We aim to provide the reader with a clear guide on what sectors stand to benefit the most from localisation, and how to achieve localisation objectives through the integration of the associated policies into public sector procurement.

Background

Supply chain resilience constitutes a key strategic objective and a national security concern for all countries. It is even more critical for resource-rich nations that are highly dependent on imports such as GCC countries. Supply chain risks can impact all stakeholders in the business cycle: the organisations, suppliers and customers. From the point of view of business continuity and risk management, it is important for governments to study the supply chain end-to-end to identify weaknesses and expected risks and be proactive when developing risk management strategies and crisis response plans.

The increasing global interconnection and trade, disturbances caused by natural disasters, pandemics, man-made events, and economic turmoil and risks have further weakened supply chains. Events such as the SARS outbreak in 2003, Japan’s Fukushima nuclear disaster in 2011, and more recently the COVID-19 pandemic in 2020 drew the attention to supply chain dependencies around the world and had far reaching consequences on a large number of people and companies. Such disruptions carry their effects from one component to another within the supply chain until their effect reaches the final consumer.

Localisation is among a number of key policies that can help in overcoming such challenges and build resilience in the local supply chain. A well-designed localisation policy achieves this through the following:

Enacting policies that facilitate and encourage local companies to reduce their import dependence and incentivize international companies to move some of their facilities locally. This contributes to the emergence of an effective economy that helps local companies focus on developing the necessary competencies and competitive advantages.

Assisting in the development of local suppliers. This in turn contributes to establishing a knowledge base and helps to stimulate innovation through access to goods and materials locally, as well as better coordination, dissemination of best practices and the ability to share resources between local suppliers.

Supporting the upskilling of the local workforce; especially, in professional disciplines such as science, technology and engineering, in addition to managerial positions. A highly educated workforce and an increased supply of skills have a major impact on building knowledge economy.

Promoting research and development to reduce costs, improve productivity and secure technological advancements. This accelerates the development of local products, as well as, enhances innovation and local capabilities.

Countries with well-designed policies for managing supply chain risks proactively will be better positioned to identify the impact of destructive events on supply chains allowing them to assess how best to respond to such matters in a quick fashion. This ultimately leads to achieving their sustainability goals, reducing the likelihood of supply chain risks, as well as, building a more resilient economy.

In the short and medium terms, GCC governments and organisations need to rethink their business models and put supply chain risk management as a top priority. Localisation, digital transformation and diversification of the supply base are some of the key initiatives governments can undertake to improve their supply chain resilience. While some of these changes may require investment, they are often compensated for by the savings achieved through improving production and shifting the balance of demand towards the local market.

PwC’s localisation framework

We have designed a localisation framework to help government officials and decision makers drive localisation across the public sector. The framework consists of the key elements required to execute a successful implementation strategy, including the following components:

Localisation Vision

A clear, unified localisation vision and strategy, identifying the strategic focus areas and targets, along with a formula tailored to each country’s unique social and economic objectives.

Localisation mission and objectives
Localisation formula and measurement
Localisation driver

Procurement Integration

An analysis of localisation potential across the public sector's procured goods and services categories, including design of a mechanism to incentivize procurement of local goods and services, and development of the tools and templates required.

Localisation opportunities
Localisation policy development
Tools and templates

Capacity Development

Initiatives to build the skills of the local workforce and develop the capabilities of local suppliers.

Local workforce capabilities development
Development of local suppliers
R&D, innovation, and technology localisation

Enabling Environment

A host of policies and initiatives that seek to improve a country’s business environment and enable localisation, including fiscal incentives, ease of doing business, and infrastructure.

Ease of doing business
Provision of land and world-class infrastructure
Fiscal incentives and financial support

Localisation Governance

Development of the localisation governance model, enabling technologies, and monitoring and evaluation approach.

Program operating model
Technology
Robust audit and certification mechanism

Integrating Localisation Into Public Sector Procurement

The following sections of this edition of PwC’s Local Value Creation series will focus on the second component of the Localisation Framework; namely, the Procurement Integration. The Procurement Integration answers the decision-makers’ question on what to localise and provides the policy that outlines the operational changes required for a successful implementation of a localisation programme. It entails several elements including the identification of localisation opportunities, development of the localisation policy and designing the required tools and templates.

1. What should GCC governments localise?

As resource-rich countries began to discover and extract vast amounts of valuable commodities from beneath their soil, policy makers in these countries have looked for ways to best utilise these finite resources and create lasting economic value to their nations. The use of a localisation policy to retain value in-country is hardly a new concept, as most of the oil producing countries around the world have developed local content policies of some sort. In the case of GCC countries, however, the introduction of such policies is more recent and is primarily focused on the Energy sector due to its large share of the local economies and the employment potential it has.

As governments now aim to extend their localisation agenda to include other sectors, a critical question arises: what should GCC governments localise? To answer this question, policy makers must determine the criteria for selecting the right sectors to focus their localisation efforts on, identify the potential opportunities within these sectors and define the key players that will support the implementation of the localisation policy.

2. How to carry out an effective localisation policy?

Designing the policy
Integration of the policy into procurement
Key policy considerations

Designing the policy

Carrying out an effective localisation programme is heavily dependent on comprehensive and carefully designed policies. Such policies need to address market deficiencies, improve the overall economy and be driven from the programme’s strategic objectives as well as its focus areas. As such, each country views its localisation programme differently and thus adopts different types of policies.

Integration of the policy into procurement

It is critical to integrate the defined localisation policies throughout the procurement lifecycle in order to build local supplier capabilities, increase supply chain resilience, and reduce long term costs. Once the policies are defined by the localisation driver, partnering entities should conduct an analysis to identify the key observations in the current procurement operations, opportunities for improvement and touchpoints to integrate localisation policies.

Key policy considerations

Localisation policies are part of large national programmes. They are led by governments with the participation of public sector organisations with varying goals and maturity levels, and involve a large number of suppliers from the private sector. Moreover, localisation policies aim to bring about major changes in government procurement processes, employment policies, training initiatives and investment within the country. Due to the complexities associated with such programmes, they will inevitably carry risks and challenges to implement. A few of the key considerations are:

Ease of doing business
Inflationary effect
Absolute target-setting
Coherence with broader economic development
Impact on trade

3. What tools are needed?

Designing the right tools
Performance management

Designing the right tools

Establishing a comprehensive toolkit is a key enabler for successful implementation of the localisation programme. These tools support the integration of localisation policies into the procurement lifecycle and include templates for capturing suppliers’ scores and data collection, forms, various contract clauses, and general instructions and guidelines.

All tools and templates should be accessible to all users, easy to understand for all concerned parties and structured in a clear and organized way to facilitate quick completion and easier certification and audit process. They should also be supported by a set of guidelines that provide clarity on filling and completing the templates.

Performance management

For a successful implementation of a localisation programme, or any programme for that matter, a set of Key Performance Indicators (KPIs) must be defined. By defining and monitoring these KPIs, the localisation driver can form an understanding of the barriers to reaching programme targets and gain deeper knowledge about the future improvements.

The use of KPIs helps to create a clear picture of the variables that affect the success of the programme and contributes to the decision-making and planning process. KPIs are usually identified by the localisation driver along with the primary stakeholders, and when applied effectively, they act as a compass to guide the strategy to meet the goals.

Conclusion

Despite government investments and diversification efforts, GCC countries continue to face many challenges pertaining to their supply chain resilience. These challenges will continue in the future if the appropriate actions are not taken and the adequate mitigations are not devised. Localisation can play a big role to ease the impact of supply chain future shocks, whether they are a result of economic downturns or natural disasters.

Localisation programmes with effective and comprehensive policies are the cornerstones to achieving national visions and objectives from building resilience in the local supply chains to the diversification of the economy and the creation of jobs. Developing and implementing a localisation policy, however, is a large undertaking and requires a careful design process, exhaustive impact studies and alignment between stakeholders.

In this edition of our Local Value Creation series, we have shed the light on how to design policies that meet the different needs of each country and explained the steps that the localisation driver must take to reach an effective policy in line with the strategic objectives of the programme. We further explained how to integrate these policies effectively into the procurement process of the various sectors identified and how to utilise the right tools to do so. In the coming editions, we will continue with the remaining elements of PwC’s Localisation Framework, starting with the capacity building side as an important pillar to a successful implementation of the programme.