The Rise of Business Process Outsourcing in Nigeria's Oil and Gas Industry and Implications for Industrial Relations

Abstract

Business Process Outsourcing can be aptly described as the process of forging a contractual relationship with external supplier for the provision of capacity that has been previously undertaken within an organization. In the global oil and gas industry, Business Process Outsourcing (BPO) has emerged in contemporary times as a potent tool in their operational mix. This is particularly hinged on the imperatives to find a delicate balance between rising global demand, diminishing reserves in some of the world's major oil fields, while managing distribution and operating costs. The collapse of crude oil prices from US$100.00 in May 2014 to about US$30.00 and even below in early 2016 has reinforced outsourcing. Empirical studies reveal that outsourcing of non-core activities may result in 25% cost saving associated with on-/near-site operations and as much as 50-75% for offshore operations compared to the cost of engaging in same activities in-house. Apart from cost-cutting, other benefits associated with BPO include a stronger focus on core competencies; improved regulatory conformity and compliance; as well as access to a larger talent pool and novel technologies. The oil and gas industry has emerged as the cornerstone of Nigeria's economy, accounting for about 70% of annual government revenue and more than 90% of the nation's foreign exchange reserves. Since the 1990s, outsourcing has assumed an increasing dimension in the nation's oil and gas industry. Empirical studies reveal, for example, that up until the early 1990s, employees in the oil industry comprised about 70% and 30% of permanent and temporary employees, respectively. The temporary employees were initially focused on non-core activities. However, in recent times core activities are increasingly contracted to service providers, reversing the structure of employment in the industry by 2010, with 40% of permanent employees, while 60% were permanent employees. The increasing replacement of permanent employees with temporary ones has fueled concern in the industry, led by labour unions, which have expressed concern about the sub-standard welfare of contract workers. This development has led the Federal government of Nigeria to issue guidelines on staff contracting and outsourcing in the Nigerian oil and gas industry.