Effects of operators’ strategic approach to local content and in-country spending requirements on financial performance of upstream petroleum sector firms, Ghana

Abstract

Local content requirements and in-country spending mandates have emerged as crucial tools in the upstream petroleum sector, aiming to distribute socio-economic benefits derived from resource production to the general citizenry within the host economies. However, understanding how operators' strategic responses to these requirements affect firm financial performance remains limited due to data constraints. Consequently, drawing on resource dependence, social exchange, and linkage and spill-over effect theories, this paper develops a conceptual framework to elucidate the relationships among local content requirements, in-country spending, local linkage factors, operators' strategic approaches & business practices, and financial performance, including their implications. To address data limitations, a mixed-methods approach was adopted, combining content analysis of financial reports from 11 global upstream petroleum operators in Ghana and key informant interviews, with survey primary data collected via online questionnaires. This methodological triangulation enabled a comprehensive examination of how operators' strategic responses affect financial performance in the Ghanaian upstream petroleum sector. Analytical techniques used included factor analysis and Partial Least Squares Structural Equation Modeling (PLS-SEM) from SPSS and SmartPLS3, respectively. The study found that while local content requirements and in-country spending mandates do not significantly influence operator strategic approaches or financial performance, local linkage factors have a strong positive effect on strategic approaches, which in turn positively affect financial performance. Furthermore, local linkage factors partially mediate the relationship between local content requirements and strategic approaches, as well as financial performance. These findings underscored the importance of prioritizing investments in local linkage factors to stimulate industrialization and foster cross-sectorial outsourcing opportunities. The study contributes to resource dependence, social exchange, and linkage and spill-over effect theories by highlighting the role of strategic approaches and local linkages in promoting financial performance. It also offers insights for policymakers and industry practitioners, emphasizing the need to enhance competitiveness and capacity within the host economy. Additionally, the study confirms the predictive relevance of the model, indicating its robustness in explaining the dynamics of local content requirements and in-country spending mandates in the petroleum sector.