Sustainable Operations in the Indorama Case Study
The term sustainable development describes events that ensure the satisfaction of consumers’ needs in the present while using the available resources, without compromising on the resources of future generations. The main agenda for sustainable development goals is not to protect environmental resources but to control their use to prevent degradation. In most instances, industrial projects are the leading cause of resource destruction. Therefore, current industries strive to ensure that their economic growth or profit-making while meeting consumer needs does not lead to environmental damage. The adherence to sustainable operations in a company’s supply chain is critical in resource protection from the adverse effects of human activities. The case study on Indorama Corporation helps in understanding the essence of sustainable supply chains, not only on the environment but also on its profitability and relationship with its neighboring communities.
Importance of Sustainable Operations in a Business
In a business setting, sustainability is the ability of an organization to create value longevity by assessing the impact of its operations on the social, ecological, and economic environment. According to Haanaes (2016), 62% of company executives are significantly embracing sustainability in their activities as they consider it necessary for global competition. The UN’s 17 sustainable development goals help align the organization’s strategies to environmental sustainability. Organizations must have clear sustainable goals to avoid making their sustainable actions fragile compared to their competitors (Haanaes, 2016). A study by MIT shows that 44% of investors divest from companies with weak or unstable sustainability goals (Haanaes, 2016). Therefore, organizations must strengthen their sustainable goals concerning productivity to avoid losing investors. Sustainable operation programs are critical in collaborations as companies would be more willing to partners with environmental-friendly organizations. Furthermore, transparency with the business’ community on its sustainable goals prevents hostility and increases consumers and willing local laborers.
History of Foreign corporations in the Niger Delta
Oil companies such as Germany’s Nigerian Bitumen Corporation, Shell Petroleum Company, British Petroleum, Mobil, Chevron, and Gulf oil tried and failed to penetrate the massive Nigerian oil industry in the Niger Delta. Traditionally, factors such as the lack of capital, demand, or efficient employees often led to the collapse of industries. However, the Indorama case study shows that the factors affecting business productivity have diversified significantly. Niger Delta is home to over 40 ethnic groups, with around 250 dialects (Kumar & Bhutiani, 2017). So many ethnic communities have different cultures that new entries in the location must respect. However, all these oil companies completely overlooked the cultural environment in the Niger Delta. They also brought in expatriates and hired minuscule numbers of Nigerian employees. Such factors only could have warranted conflict between the area’s residents and oil companies. However, Kumar and Bhutiani (2017) assert that these companies further brought harm to Nigeria, in terms of human rights violations, ecocide, and corruption.
The immense wealth that came from oil production only improved the lives of company owners and expatriates while causing extreme poverty in the Niger Delta. Exasperated locals, thus, created movements like the Movement for the Emancipation of the Niger Delta (MEND) and the Niger Delta Volunteer Force (NDVF) that lobbied for compensation for the health damages these companies caused due to pollution. Since these companies did not adhere to the needs of Niger Delta’s locals, MEND and other movements kidnapped their employees for ransom and to gain their attention. These companies made significant labor and financial losses. All these problems would have been averted if these companies had sustainable goals.
Reasons for the Failure of Foreign Corporations in the Niger Delta
Many industries pose significant harm to the environment due to chemical waste. However, there are many ecological ways to clean these waste products to avoid pollution. The Lowell Center for Sustainable Production (2020) created a set of principles that companies should follow to achieve sustainability in their supply chain. For instance, the Lowell Center states that companies must eliminate chemical substances or physical agents that could cause harm to human beings or the environment.
The case study shows that all these companies did not adhere to these laws. The locals in Niger Delta complained of adverse health impacts and the destruction of plant and aquatic life. Therefore, these foreign organizations should have created a waste minimization team that could strategize on the safest disposal methods (Ansari, 2016). These oil companies, like Shell Petroleum Company, failed to interact with its community in Niger Delta to understand their wants. It is challenging to achieve growth and stability without the support of an organization’s surrounding neighborhood.
Indorama’s Use of Sustainability Strategies
Indorama Corporation is one of Asia’s leading producers of polyethylene, spun yarn, fertilizers, medical gloves, and other industrial products. The company’s entrance to the Nigerian market was a significant risk since all the previous multinationals in the country’s oil industry had failed. However, Indorama was aware that the local communities would not tolerate exploitation from foreign companies (Kumar & Bhutiani, 2017). The Indorama Eleme Petrochemicals Limited (IEPL) succeeded in taking over the Nigerian oil industry due to its sustainability strategies.
Employment StrategiesA company’s sustainability and longevity in an industry largely relies on its employees. Kumar and Bhutiani (2017) state that before the takeover by IEPL, only six locals in Niger Delta had been employed to the oil plant while the rest were expatriates. However, IEPL embraced local workers as out of its 1600 employees in 2013, 594 of the permanent workers were locals (Kumar & Bhutiani, 2017). Watters (2018) contends that hiring from local employees is highly beneficial to business owners. Locals are more proficient with the needs of their homes. Therefore, organizations must not overlook the experienced domestic workers as they employ expatriates because these residents are more passionate about the productivity of their homes. Moreover, Watters (2018) contends that hiring locals ensures project longevity. The Indorama case study shows that previous foreign companies in Niger Delta were quickly overpowered by the locals and made substantial losses because they did not forge a good relationship with the area’s residents. Indorama’s oil supply volumes increased significantly from its entrance into the Nigerian oil industry in 2006 to 2014 because of its positive relationship with the locals (Kumar & Bhutiani, 2017). Employing locals also helps in the growth of their skills and knowledge in different sectors. It also eases the collaboration process with locals in times of crisis or need for a consensus. The figure below shows Indorama’s domestic employment patterns from the year 2006 to 2013.
Source: Kumar & Bhutiani (2017)
- Public-Private Partnership (PPP) Strategy
The company shared the Rivers State Plant ownership with the Nigerian National Petroleum Corporation (NNPC), the Bureau of Public Enterprises (BPE), and the Rivers State Government. Although Indorama held the largest share of the plant, 65%, it allowed Nigerian entities an opportunity to make some decisions on the company’s activities. Additionally, when the BPE wanted to divest its 15% share on the oil plant, IEPL planned to let the Niger Delta own these shares through a Public-Private Partnership (PPP) scheme to create good relations with the locals (Kumar & Bhutiani, 2017).
A PPP is a contract between governmental and private entities to ensure public benefits. In most cases, the private party often takes a higher or more significant portion of expected risks from the PPP. IEPL must, therefore, carefully consider the benefits and risks of a PPP. Kumar and Bhutiani (2017, p.1) state that a PPP would “secure the buy-in of local stakeholders, ensuring the security of investments.” Moreover, the company believed that the partnership and support from local investors would ensure successful operations in the long-run. The World Bank (2016) also states that PPP’s embrace sustainability as they bring private technologies and innovations closer to the public. They also help the public access resources quicker than if the government entirely controlled them. PPPs also increase favorable competition in an industry-leading to better quality productions and customer satisfaction (The Word Bank, 2016). Therefore, agreeing on a PPP would have a significant positive impact on IEPL, the Nigerian federal government, and the locals in Niger Delta.
- Corporate Social Responsibility
According to the case study, Indorama Corporation had a Corporate Social Responsibility (CSR) team based in Rivers State. The team’s objective was to ensure safe, secure, and sustainable operations in IEPL (Kumar & Bhutiani, 2017). The IEPL CSR team comprised of a Project Advisory Committee (PAC) that purposed on giving back to the Nigerian community. PAC had representatives from the six host communities in Eleme (Akpajo, Njuru, Okerewa, Aleto, Agbonchia, and Wakohu) to understand better the needs of the residents (Kumar & Bhutiani, 2017). Apart from employment generation programs, PAC ensured the construction of better roads and other infrastructure, provision of electricity to some communities, and the provision of scholarships for engineering students (Kumar & Bhutiani, 2017). The company also reaped benefits from these CSR programs in terms of community support and reduced cases of insecurity.
CSR’s unlike Philanthropic programs, do not primarily exist to help communities since the organizations also benefit from their results. Lanphear (2019) contends that CSR’s lead to a company’s sustainable development as they increase employee morale. A company that willingly helps its community and hires local workers is more likely to succeed. An organization that treats its community with respect would inadvertently gain dedicated and passionate employees engaged in their work. Lanphear (2019) also states that CSR’s also help gain loyal customers. In a Nielson study, 66% of the participants reported that they willingly paid more for products made by organizations that are conscious of their community’s needs. When a company gains attention for being socially committed to their communities, they attain positive publication, leading to its dominance in the industry.
Global organizations take significant strides to ensure that they maintain their relevance in their respective markets. According to Vartiak (2016), many businesses have become accustomed to CSR reporting. The chart below uses a survey by KPMG to illustrate the rapid growth of CSR activities in the global market. However, Vartiak (2016) states that organizations must focus on the quality of their CSR programs as only 59% of these companies incorporate social programs in their business strategies. Many mining and oil companies that embrace CSR programs, such as Indorama Corporation, show substantial promise in terms of longevity and profitability.
Source: Vartiak (2016)
Recommendations
Although IEPL has made significant strides to actualize sustainable productions, it need more ‘green’ initiatives. The use of PPP’s and CSR programs increases social responsibility but does not aid much in environmental hazards. Alayon et al. (2016, 694) assert that sustainable manufacturing practices are “initiatives and techniques that positively affect the environmental, social or economic performance of a firm.” Therefore, IEPL must ensure an all-round sustainable plan by using echo-friendly designs. The company’s sustainability principles should involve energy and wastes management products as most of the fossil fuels used in oil companies are hazardous to the environment. IEPL should, therefore, use renewable energy and optimize on energy and waste material through the initiation of recycling plants. Moreover, Alayon et al. (2016) contend that an organization could implement practices such as heavy metal filtration in waste water streams to reduce the presence of hazardous substances in the environment. IEPL could also use close-loop water systems to prevent waste leakage.
Additionally, Indorama could train its employees on oil leakage and waste treatment and management programs as a long-term measure against environmental degradation. All employees must also have adhere to ‘green’ policies as face severe consequences in instances where they disregard their waste management training. Although these measures may be time and capital consuming, they would skyrocket the company’s global credibility and gradually increase its competitive advantage and profitability.
Apart from using echo-designs, IEPL should also consider the acquisition of green brands to improve their competitive advantage. Unruh and Effenson (2020) states that cultural and strategically fitting acquisitions increase both company’s profits and sustainable goals. IEPL should look for a company in Niger Delta that deals with green substances such as healthy food or plants. After the acquisition, both companies should align their sustainability schemes to enhance their success. Indorama would inadvertently gain green credentials through the acquired company, leading to more substantial sustainability platforms.
Sustainable operations are critical in any business setting. These operations offset competition and lead to safer environments and higher productivity. The Indorama Corporation Case Study shows the essence of sustainable strategies in business operations. Foreign companies trying to tap the Niger Delta oil industry failed because they lacked sustainable strategies to help the community. IEPL, however, used viable CSR programs to increase the employment of locals and reduce the unsafe conditions brought about by industrial waste. The company was, therefore, successful in penetrating the Nigerian oil market since it set aside some of its capital for social responsibilities. Indorama, however, requires more ‘green’ projects to dominate the oil market and increase sustainability.
References
Alayon, C., Safasten, K., & Johansson, G. (2016). Conceptual sustainable production principles in practice: Do they reflect what companies do? Journal of cleaner production, 141. 693-701. http://dx.doi.org/10.1016/j.jclepro.2016.09.079
Ansari, S. (2016). Sustainable operations management green way to industrial development. Optumiz.https://www.researchgate.net/publication/308364620_SUSTAINABLE_OPERATIONS_MANAGEMENT_Green_way_to_industrial_development
Haanaes, K. (2016). Why all businesses should embrace sustainability. IMD. https://www.imd.org/research-knowledge/articles/why-all-businesses-should-embrace-sustainability/
Kumar, R., & Bhutiani, D. (2017). Indorama eleme petrochemicals limited: Beyond CSR for secure, safe, and sustainable operations in Nigeria. The Asian Business Case Center.
Lanphear, K. (2019). Three reasons why CSR is important for your business. U.S. Chamber of Commerce Foundation. https://www.uschamberfoundation.org/blog/post/three-reasons-why-csr-important-your-business
Lowell Center for Sustainable Production. (2020). LCSP principles of sustainable productions. https://www.uml.edu/Research/Lowell-Center/About/About.aspx
The World Bank. (2020). Government objectives: Benefits and risks of PPPs. https://ppp.worldbank.org/public-private-partnership/overview/ppp-objectives
Unruh, G., & Effenson, R. (2010). Growing green: Three smart paths to developing sustainable products. Harvard Business Review.
Vartiak, L (2016). CSR reporting of companies on a global scale. Procedia Economics and Finance, 39, 176-183. 10.1016/S2212-5671(16)30276-3
Watters, L. (2018). Why organizations need to stop hiring expats and start hiring more local staff. World Neighbors. https://www.wn.org/organizations-need-stop-hiring-expats-start-hiring-local-staff/