In times when things are not going well for one company, it can be a good thing to have many similar companies nearby. It makes a region more resilient.
Associate Professor Bram Timmermans
The oil industry emptied the market of talent
‘It appears that the Norwegian oil and gas industry have snapped up all the talent from related industries, at the same time as putting their salaries under pressure,’ says researcher Bram Timmermans at NHH.
NHH research Bram Timmermans have studied the Norwegian oil industry in the period from 2004 to 2011, which was a period of significant growth in the industry. Growth was also seen in the oil-related companies, but not to the same extent.
Fierce competition
The result was a marked increase in the demand for labour, particularly engineers.
‘A fierce competition for resources ensued. Both the oil industry and companies in the related industries wished to attract the same type of expertise. As there are limits to the amount of new expertise that can be drawn from a single region, we expected the companies to attract talent from other industries.’
The study ‘Relatedness and the Resource Curse. Is there a liability of relatedness?’, shows that it is not always beneficial to have many companies with related activities in a small geographical area.
Flexible work force
By ‘industries related to the oil industry’, Timmermans means companies that are based on the same expertise as the oil and gas companies. In this particular case, they are referring to labour in the form of engineers, among other groups.
‘Having many companies with related activities close together increases mobility between them, which contributes to innovation and regional development. In times when things are not going well for one company, it can be a good thing to have many similar companies nearby. It makes a region more resilient.’
If an industry is going through a difficult phase, people can easily move from one company to another.
– Discover your inner entrepreneur!
The Research Council of Norway provides one million kroner for a good business idea. NHH researcher Bram Timmermans has the following message to the students: – Discover your inner entrepreneur and apply for funding, he says.
'In addition, it will help to strengthen innovation and regional development,’ the NHH researcher explains.
Tempted by money
Timmermans stresses that this is something that small regions should think more about when it comes to economic development.
'But it can definitely have a negative effect as well,’ he adds.
The oil industry largely took employees from companies in the oil-related industries.
‘The oil sector was more attractive because they were able to offer far higher salaries. During this process, it has emerged that they attracted some of the best employees from related industries,’ says Timmermans.
As the related industries were growing, they were in competition with the oil and gas industry and struggled to attract employees at the same level of expertise as the ones they lost.
During the period of growth in the oil sector, we have seen that the oil and gas industry became so big and dominant that it grew at the expense of the related industries.
Associate Professor Bram Timmermans
Something Norway can learn from
This situation created a pattern whereby the best human capital was transferred to the oil sector, and the related industries were left with the rest.
Timmermans believes it is relevant to look at the research when you look at Norwegian industry.
‘In order to ensure regional economic growth, the focus has been on having companies with related activities, but during the period of growth in the oil sector, we have seen that the oil and gas industry became so big and dominant that it grew at the expense of the related industries.’
The NHH researcher explains that it is beneficial to have companies with related activities until you reach a tipping point where one sector attracts too much.
‘We must be aware of potential negative effects too, such as when a sector becomes so dominant that they drain related industries of relevant employees.’
He also emphasises that this is something a region should try to avoid in order to facilitate the establishment of new industries.
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Oil prices dropped
Timmermans and Fitjar have looked at the effects during an economic boom.
‘The interesting thing will be to look at how the situation changes during periods when the oil prices drop and businesses have to downsize.’
Will people return to the related industries, and will these industries have the capacity to accommodate them?
‘We will probably conduct a follow-up study of a period of time when oil prices drop, but we are waiting for an update of the data to be able to answer this question,’ Timmermans concludes.