Through the Tiers of a Supply-Chain: Survey-Based Evidences about the Brazilian Local Content Policy in the Oil & Gas Sector

In the course of about the last decade and half, Brazil experienced a revival in its industrial policy efforts. New institutions and forums were created to increase coordination between government and business sectors, while traditional developmental institutions experienced a considerable increase in their budgets in order to fund modernization, internationalization and R&D activities of companies. In parallel to these initiatives, the government adopted protectionist measures in different sectors. To date, the best known policy has been the local content requirements (LCR) in the oil and gas sector. Launched in 1998, LCR has since 2003 evolved to cover a broad array of equipment and services based on a rationale of securing demand and creating new opportunities for firms operating in Brazil. Despite government claims that the LCR policy has been crucial for the maintenance and creation of thousands of jobs – particularly in the shipbuilding industry – there is little systematic evidence about how LCR has effectively contributed to the consolidation and strengthening of links between oil companies and the different tiers of suppliers operating in the sector. Beyond producing in Brazil, it is important to know how companies have been producing. Particularly in highly internationalized and technology-intensive sector such as offshore oil exploration & production and development, the relationship between operators and firms in different segments of the supply chain defines the room and rules for upgrading and innovation in production systems. Therefore, it is crucial to know whether the incentives created by LCR are either allowing for new collaborative partnerships or just reproducing historical hierarchical patterns between domestic and foreign firms. Aiming to fill in this gap, the paper analyzes data from a survey conducted with directors and managers of 600 firms in the Brazilian O&G sector. Its main goals are to identify and map: 1) to what extent and conditions firms agree that the LCR policy has contributed to entering the O&G sector and/or to the upgrading of their production systems, and 2) the patterns of relationship (e.g. collaborative or conflictive) between the different links of the supply chain in the O&G sector.