CHAPTER ONE

INTRODUCTION

Outsourcing, dates back to the Romans, notably with the sourcing out of tax collection, regained popularity in the eighteenth-century England and has been in continuous use in a variety of forms ever since (Dutta, 2005). Outsourcing gained greater impetus in the 1970s, when large and diverse corporations were considered to be underperforming, a trend that became even more pronounced in the early 1980s with the onset of global recession (Kakabadse&Kakabadse, 2000).

The desire for profitability and efficiency has caused contemporary organizations to specialize in limited, but core areas of their operations. Consequently this has pushed these organizations towards outsourcing.

The world has embraced the phenomenon of outsourcing and companies have adopted its principles to help them expand into other markets (Bender 1999).

The traditional outsourcing emphasis is on tactical benefits like cost reduction (for example, cheaper labour cost in low-cost countries), have more recently been replaced by productivity, flexibility, speed and innovation in developing business applications, and access to new technologies and skills (Greer, Youngblood, and Gary 1999; Bacon 1999)

Customarily outsourcing was reserved mainly for peripheral activities like cleaning, catering, security, but it is now been exploited for core and specialised operations of organisations. Activities such as design, fabrication, exploration, marketing, distribution, logistics, procurement, human resources management and Information communications technology are now being outsourced.

The concept of outsourcing became popular in Nigeria in the 1990s and it has become a prevalent practice of spinning off unnecessary work in order to focus on the core operations of the organisation.

In order to capture the nitty-gritty of the trends in outsourcing, attention is given in this study to examining the reasons for outsourcing, the functions and activities outsourced, the nature of the sourcing arrangements, and the impact of outsourcing on employees.

This research will also ascertain the relationship between outsourcing and organisational efficiency and also find alternative reasons that drive organisations towards outsourcing other than cost reduction.

The Oil and Gas sector in Port Harcourt, Nigeria was chosen as the scope of this survey, because it has overwhelmingly adopted outsourcing as a key operational strategy.

1.2     Background

The Nigerian oil and gas sector has been vibrant since oil was discovered in Nigeria in 1956 at Oloibiri in the Niger Delta after half a century of exploration. The discovery was made by Shell-BP, at the time the sole concessionaire. Nigeria joined the ranks of oil producers in 1958 when its first oil field came on stream producing 5,100 bpd.

After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies. In 1965 the EA field was discovered by Shell in shallow water southeast of Warri.

In 1970, the end of the Nigerian civil war coincided with the rise in the world oil price, this attracted other companies from Europe and America to venture into oil exploration in Nigeria. This trend continued until the early 1990s when Nigerian companies began to make a foray into the industry. Local participation was boosted with the implementation of the Nigerian Content Directives issued by the Nigerian National Petroleum Corporation (NNPC) about a decade ago, and eventually, by the promulgation of the Nigerian Oil and Gas Industry Content Development (NOGIC) Act (The Act) in 2010. The Act seeks to promote the use of Nigerian companies/resources in the award of oil licenses, contracts and projects.

 In terms of structure, the industry is broadly divided into:

•        Upstream sector,

•        Downstream sector, and

•        Services sector.

The mid-stream operations are usually included in the downstream sector. However, a distinction is now being made between the two sectors. Mid-stream covers the processing, storage, marketing and transportation of crude oil, gas, gas-to Liquids and liquefied natural gas.

Ø    Upstream sector: This sector is characterized by exploration and production of crude oil and gas (petroleum operations).

Ø    Downstream Sector: The key segments in the downstream sector are:

Transmission and Conveyance

This involves the transportation of oil and gas to the refinery and gas stations. There is a pipeline network from the wellhead to the refinery or plant. Tankers and purpose-built vessels are also used for this purpose

Refining

Nigeria has four refineries: two situated in Port-Harcourt and one each in Warri and Kaduna. The refineries are all wholly owned by the NNPC.

Ø    Distribution and Marketing

Distribution and Marketing of refined petroleum products are complementary activities. Distribution involves the transportation of refined petroleum products from the refineries through pipelines, coastal vessels, road trucks, rail wagon etc., to the storage/sale depots.

Ø    Oil Service Sector

The classification of services under this sector is summarized in the table below:

Exploration

support services

-Seismic data acquisition

- Processing and interpretation

- Logging

- Fishing

- Cementing

Drilling services -Welding services

-Well drilling

-Cementing

-Logging

-Fishing

Production support services

Wireline services

-Work over services

-Production testing services

-Construction of oil & gas facilities

Downstream services

-Wireline services

-Refinery maintenance

-Pipeline/depots construction

-Petroleum products haulage

-Petroleum product marketing

Others

-Banking services,

-Catering services

 -Communication services

Elliolt and Torkko   (1996) define outsourcing as “a conscious business decision to move internal work to an external supplier.”  Although the early players of outsourcing in the Nigeria oil and gas sector started around thirty years ago. But before then, various business interests were involved in outsourcing related activities. It was just that they did not call it outsourcing.

Outsourcing was designed to enhance efficiency. It is a way of carrying out one’s business in a manner that you don’t own totally all the resources you require to provide value to all your customers. The era of doing business and wanting to own everything and undertake every function internally is extinct, decades ago in Nigeria when the oil exploration began; we had companies that had oil wells, filling stations, petrol tankers, etc. But over time, these organizations have realized that, business cannot be efficiently run this way. You cannot possibly own everything that you need in your value chain. Business Organizations have now changed their model and began to concentrate on their core competencies. You look at the spectrum of things you require to provide value to your customer, you look at the very core to that business and concentrate on that while you allow other people that have expertise in the so-called non-core areas to provide those non-core area capabilities to augment your own core areas to provide value to your customers. Outsourcing started from total obscurity to now gaining attraction in Nigeria. Individuals and organizations are now beginning to know what outsourcing is and the business model is beginning to gain its rightful place in the economy. If we examine the various sectors of the economy, we will realise that outsourcing plays a major role.

1.3     Statement of Problem

The oil and gas sector is very crucial to the economy of Nigeria, according to information obtained from OPEC Nigeria. Oil and gas accounts for about 35 percent of the gross domestic product (GDP), and petroleum export revenue represents over 90 percent of total exports revenue.

The recent decline in oil revenue as a result of the drop in oil price since 2014 has made it essential for organizations operating in this sector to look for strategies of remaining profitable and efficient. Also due to progressive globalization and standardization of product, organizations are faced with the task of making complex product development with limited and increasing time frame.

Statistical data from the United States centre and management development (CMD) raise concerns about job satisfaction, low productivity, succession planning problems, decrease in profitability, career development and training, skilled manpower, risk and other challenges facing human resources managers.

Outsourcing has had a proven impart on all of these problems especially in Europe and America, where outsourcing has been accepted as a management strategic tool, although it’s now been accepted worldwide because of its inherent strengths and advantages. Outsourcing has not only had a proven positive impact on the problems advocated above, but has “impacted on the bottom line” of organizations who adopted it as a strategy for efficiency and profit maximization.

However the concept of outsourcing has not received a lot of attention, when we consider its importance in the growth and remarkable performance of the oil and gas sector in Nigeria.

 Also the effects of outsourcing on firms’ performance are not completely clear. Previous outsourcing studies show contradictory results; while some claim a positive relationship between outsourcing and performance outcomes, others report no significant or even negative effects. (Rothaermel and Deeds (2001). Outsourcing without proper management control could sometimes result in job losses, According to Ghodeswar and Vaidyanathan (2008) a large number of employees whose organizations outsource their business activities may have similar problems to those employees that have undergone downsizing, while organizations claim that the basis for outsourcing is to increase business efficiency. however employees who are lucky to remain in the company after outsourcing effects believe that the possibilities of them staying in the company is low, because they could be the next in line to lose their jobs. Hammer (2001) posits that in situations where the outsourcer is not satisfied with the service, it could be difficult to break the contract because outsourcing contracts usually require a stipulated period. It will be costly to reverse the situation and return the services in-house.

Nevertheless, existing literatures and observed online interviews of business executives have shown that the positive outcome of outsourcing is higher than that of its negative effects in Nigeria oil and gas sector. The study intends to highlight the effects of the concept of outsourcing and whether business process outsourcing help oil and gas companies to reduce cost of operation in their businesses. The study also tend to find out how outsourcing affect customers relationship and examine whether outsourcing helps to increase productivity of employees. Finally,to determine whether outsourcing strategies adopted by the Nigeria oil and gas sector had increase efficiency and profitability. It naturally agitates the mind of the researcher to find out whether there is a conscious application of outsourcing in the oil and gas sector in Port-Harcourt, in the light of its positive return on investment.

1.4     Research Questions

In this research study, the following questions were posed.

l.        To what extent does the oil and gas company in Port-Harcourt apply outsourcing as a management Strategy?

2.       What are the major constraints in the application of outsourcing among oil and gas companies in Port-Harcourt?

3.       To what extent is outsourcing effective in the oil and gas companies in Port-Harcourt?

4.       To what extent do environmental factors militate against outsourcing in the oil and gas companies in Port-Harcourt?

5.       Is there any difference in the use of outsourcing between small oil and gas companies and big oil and gas companies in Port-Harcourt?

1.5     Objective of the Study

The objective of this study is to examine outsourcing as a strategy for organizational efficiency in the oil and gas sector it is also to uncover new facts or to add to existing knowledge.

The specific objectives of this research work include;

1.                 To determine the extent to which outsourcing is used by oil and gas companies in Port-Harcourt.

2.                 To determine the constraints and effectiveness in outsourcing among oil and gas companies in Port-Harcourt.

3.       To determine the extent to which environmental factors influence outsourcing in the oil and gas companies in Port-Harcourt.

4.       To determine whether outsourcing is more used in small oil and gas companies than in big oil and gas companies in Port-Harcourt.

1.6     Significance of the Study

This research study justifies the need for examining outsourcing; A strategy for organizational efficiency. The study is a survey of selected oil and gas companies in Port-Harcourt, Rivers State, Nigeria. It is hoped that the study will have a quality of bridging the gap created in various areas of outsourcing in oil and gas companies.

Structurally, it will create awareness to the public, government and business firms.

To academics this research study could be useful, as it shall open new areas of further research interest. It will also pose a challenge to on coming research.

The findings will give students, researchers and lecturers guidelines on what and where to readdress and sought for improvement in the quality of outsourcing services offered to customers.

1.7     Statement of Hypotheses

Hypotheses are tentative propositions that arc given to explain facts that are causing problem. The following hypotheses were formulated;

H01:   There is no significant relationship between outsourcing and organizational efficiency in oil and gas companies in Port-Harcourt.

H02:   There is no significant relationship between outsourcing and environmental factors in oil and gas companies in Port-Harcourt.

H03:   There is no significant difference in the use of outsourcing between smalland big oil and gas companies in Port-Harcourt.

1.8     Justification of the Study

Outsourcing is a conscious application, in an attempt to achieve profitability and efficiency in a business concern. This has always been the ideal projection of efficiency in the oil and gas industry. This study therefore highlights the dimensions of outsourcing as a strategy for organizational efficiency in the oil and gas sector. Outsourcing strategies can be positively manipulated to upgrade the oil and gas industries in Port-Harcourt to bring about the desired excellence in the industry.

1.9     Scope of the Study

This study examined outsourcing; a strategy for organizational efficiency. The study is a survey of oil and gas companies in Port-Harcourt.

The study examined various current literatures and future opportunities in the pursuit of outsourcing in oil and gas companies. It also examined the advantages and disadvantages of outsourcing.

It is believed that the sample size so selected will guarantee an adequate representation of the target population.

1.10   Definition of Terms

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