Development of regional business cooperation: the experience of Northern Norway and how it can be applied to Russia

Northern regions of Norway and Russia have similar problems: new offshore oil and gas projects and coastal infrastructure are not only an opportunity but also a threat to medium and small enterprises. To join these projects, regional supplier enterprises need to develop their competencies and identify opportunities for group interaction. Otherwise, they are not competitive with larger or technologically advanced enterprises from other territories, incl. foreign enterprises. Thus, there is a problem of the local participation for the Northern enterprises. At the same time, the disclosure of potential and the development of the local industry is one of the necessary aspects of improving the social and economic security of territories and states. The experience of southern Norway revealed a balanced policy aimed at the interaction of interests of the state, national oil and gas companies, and local industry could bring amazing results. In the area, in 1970-1990, a cluster of suppliers with worldwide demanded competences appeared.

Currently, the problem of local participation in Northern Norway is being solved in the context of the State Policy for the Development of the North1: schemes of the interaction be-

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tween authorities, oil companies, their contractors, representatives of small and medium-sized businesses have been built. One of the platforms for joint development is the Petro Arctic Association used by oil and gas companies and their contractors to promote the involvement of local industry in the development of deposits in the Barents region. State programs to support cooperation of small and medium-sized businesses are also being implemented, and a network of supporting organizations — business incubators have been developed. One of the latest joint initiatives of the national oil and gas company Statoil and the Innovation Fund Norway is the program to develop business alliances among regional companies — potential suppliers for the oil and gas industry. This is the third phase of the LUNN (Northern Norway Supplier Develo p-ment) project started in 2008.

The article presents the results of scientific research of a local business alliance in one of the provinces of Northern Norway in 2010–2015. In addition to strong political and methodological support, the relationship culture of the Norwegian business environment played an important role in this process. The article considers the main stages and characteristics of the process, and also gives a critical assessment of the possibility of application of the “North-Norwegian model” of cooperation to the Northern Regions of the Russian Federation. Some recommendations on the application of the model in the Arkhangelsk Oblast and the Murmansk Oblast are formulated.

The context of the study — the project “Nordnet”

The studied business alliance was a result of the cooperation project “Nordnet” (pseudo-nym)2 with the support of Innovation Norway in the framework of “Network Business Interaction” program (Bedriftsnettverk). Project participants are local small and medium-sized enterprises interested in oil and gas service projects related to maintenance and modification of mining facilities, intelligence, and transport infrastructure. Even before the start of the project, these companies had experience of cooperation on the local market but had never worked together (and most of them had no chance to do it individually) in oil and gas projects with special complexity, high-quality requirements, duration and scale of work. The “Nordnet” project started in 2010 by several people — leaders of local companies. By the beginning of 2015, the number of participants was about 29 companies specializing in electrical installation, automation, installation and repair of steel structures, ship repair, waste treatment, logistics, isolation, vulcanization, etc. The purpose of this cooperation was to form an operational group of companies capable of offering 3a wide range of services to the customer. The emphasis was on improving the competencies of companies (certification) and personnel (training programs), internal harmonization of methods of commercialization of cooperation, and building relationships with major players (potential customers, financial, expert organizations, oil and gas companies, and authorities). Phases of the cooperation project “Nordnet” from idea to the market are in Table 1.

Table 1

Phases of the cooperation project “NORDNET”

Phase	2010: Discussion of the project idea and development of a feasibility study	2011–2012: Pilot project Market analysis, assessment of the level and lack of competences of participating companies, and building relationships with key players	2013–2015: Main project Collaboration to improve competencies, marketing, and search for ways of commercialization of cooperation	Autumn 2015: Entering the market Participation in the tender for service and technical works at the LNG plant “Melköya” (Hammerfest)
Participating Companies	2 to 7	approx. 14	20 to 29	29
Organizing collaboration	Informal interaction of the initiative group members	The Board of Directors included the initiative group members; A project coordinator was appointed; Informal membership of participating companies	The Association was registered; Formal membership of participating companies; Elected Board of Directors	The Association was preserved; several of its members became coinvestors in the newly formed project company. Acquisition of an executive company was planned

Research methodology

The object of research was the organization or the process of formation of a regional business alliance (on the example of “Nordnet”) in 2010–2015. According to some scholars [1, Ahrne G. and Brunsson N., p. 2], the following definition of organization is used: a social order established by the decisions taken and consisting of one or more elements, such as membership, hierarchy, rules, monitoring, and sanctions. This definition removes the dualistic contradiction that arises under the traditional understanding of the organization i.e., a separate formal legal system existing in a certain environment (market, region, segment industry, etc.), and thus separated from the environment by imaginary boundaries. Thus, the paper assumes that the formed business alliance was a continuation of the already existing social world order (environment), but as a result of its formation acquired special qualities, allowing this world order to diversify.

A longitudinal case study was used as a research strategy. Robert K. Yin defines case analysis as “empirical research aimed at the deep study of the modern phenomenon (case) in the context of the real world” [2, p. 16]. According to R.K. Yin, the boundaries of the phenomenon and the real world where it exists can be blurred. At the same time, empirical data are collected from several sources at the same time. In this paper qualitative methods of data collection from several sources were used (Table 2). The observations and data collection continued three and a half years (2012–2015).

Table 2

Methods and sources of data collection

Methods	Sources
Interview	“Nordnet” project manager, Board members, ordinary members Oil and gas industry experts, surrounding organizations (42 interviews with 26 respondents)
Observations	Meetings of “Nordnet” members (8 meetings) Official group email (about 100 messages) for “Nordnet” members
Text analysis	Power-point presentations, applications, and reports submitted to the Innovation Foundation, “Nordnet” Charter, member meetings abstracts,” Nordnet” website, and Facebook pages

The application of several synchronous data collection methods allowed for a multifaceted analysis of the organizational process being studied. The following were studied: mechanisms of process management from the position of management (manager and board of directors), actions of process participants (directors of companies included in the project and other associated organizations), and the formation of new organized structures. At the same time, the multiplicity of methods and sources allows increasing the reliability of the research, as the same topics are studied from different perspective.

Characteristics of the organizational process

THIS section presents the forming the alliance, which, on the one hand, were of key importance, and on the other hand, were quite atypical for Russian business.

“Egg in the nest”

The business alliance formed through the “Nordnet” can be compared to "an egg" placed in a favorable environment — "a nest", carefully entrenched from the interlocking ties of different stakeholders: the project is integrated into the already existing network of inter-organizational relations (Fig. 1), existing in the context of the National Strategy for the Development of the North. In this case, the main “participants” of the network were the Norwegian National Oil and Gas Company Statoil (in Fig. 1 — “Company TEK”), Innovation Norway Foundation (in Fig. 1 — “Innovation Fund” “), the Regional Business Incubator Enterprise (in Figure 1 — “Business Incubator”), as well as transnational enterprises — contractors (in Figure 1 — “Contractor”), which by then have already opened their offices in Northern Norway.

The Innovation Foundation and Statoil were co-founders of the training program under the above-mentioned LUNN project. Northeast companies, incl. “Nordnet” members, were actively involved in the program. Statoil is an industrial co-founder of Business Incubator, who coordinated the training program at LUNN and took over the project management in “Nordnet”. Contractors were involved in the LUNN program as co-hosts of seminars (e.g., based on contractual interaction in service projects). The Innovation Fund financed project management and co-financed opera- tions in “Nordnet”. A part of the operational activities was financed from the funds of the participating companies.

The role of contractors deserves special attention. In accordance with the Norwegian State Policy for the Development of the North, the national “TEK Company” gives preference to those contractors that attract local suppliers. At the same time, “Company TEK” provides contractors with information about local suppliers. Competing, contractors draw attention to North Norwegian suppliers, support cooperation projects between them and receive information on development plans from participants projects.

The engagement of a contractor

In the case of “Nordnet”, the contractors actively participated in technical consultations and informed about their plans and projects in Northern Norway. One of them was involved in a joint project to improve technological competencies. By 2015, an agreement was reached (fixed by the agreement of understanding) on joint participation in the tender for carrying out service and technical works at the LNG plant “Melkoya” (see Table 1). Under such a contract, in case of a win, the contractor undertakes to cooperate with the suppliers representing “Nordnet” (subject to the availability of all necessary certificates and qualifications). The possibility of participation of the contractor in the project company established by “Nordnet” in 2015 is also being considered (see Table 1) as a project management service provider. One more case in a successful alliance in Northern Norway.

Qualified mediator

The success of network projects involving many different participants depends largely on management. The existence of a common goal requires collective decision — making and organizational arrangements. Also, there are always individual goals and perceptions that may conflict with the collective objectives set for the project. At the same time, the project manager cannot use mechanisms based on power and direct control. Instead, the project manager should be able to negotiate with all project participants, build relationships between them, find and promote compromise solutions. Thus, the manager acts as an intermediary. In the “Nordnet” project, this task was entrusted to a person with the following qualities: wide outlook acquired through the experience of technological and economic activity outside the region; neutrality , i.e., the lack of commercial interest in the activities of individual project participants and locality , i.e., local knowledge, authority and sincere desire to contribute to the development of the region. This person was born, grew up and studied in Northern Norway. After many years of work in the oil and gas industry (the supplier company side) in southern Norway and in other countries (USA, Kazakhstan, and Russia), this person returned to hometown and joined the development of regional industry (through project activities in the “Business Incubator”). In the development of the “Nord-net” project, he was very useful for the extensive network of contacts, the ability to see the situation from different sides (regional and global aspects, as a customer and contractor, etc.), and the ability to build relationships. All the qualities mentioned above: outlook, neutrality, and locality formed the ground for comprehensive trust used by the mediator manager of the “Nordnet” project.

Evolution

It could be seen in table 1, forming a business alliance through the “Nordnet” project took a lot of time, i.e., 5 years. According to the participants, the project “took more time than it was expected”. Nevertheless, the study proved that such speed of the project was necessary for its balanced development. The project was not developed in a forced way, but in an evolutionary way, considering the existing limitations. It turned out that most of the participants (company executives) had acute time shortages, i.e., most of their attention was focused on managing the operations of their companies. At the same time, at the very beginning of the project, it was difficult to establish a common language and to agree on methods of joint work. The project manager and some participants noted the importance of “talking to each other many times over time”. Equality and diversity of partners were important for the development of the project, but it was also a limitation since its impossibility to force the project and to develop it in order. Therefore, the emphasis was placed on raising awareness among participants (e.g., oil and gas industry certificates and qualifications, complexities of contractual regimes). The task of the manager was to motivate participants to work together. And for this purpose, it was necessary to show them the advantages of cooperation and the disadvantages of isolation, to provide an atmosphere of mutual trust and understanding of the situation.

Another sign of the evolution of the process was its openness. All companies that believed that the project could be useful for them could participate. Even though about 29 companies participated in the project at the end of the project, it went through much more. Those who left the project (and some of them were the companies that started it and were a part of the initiative group 2010–2011) decided to do it themselves. They also had the opportunity to return later. Thus, the project proceeded relatively peacefully.

Another important sign of evolution was some uncertainty (or rather its acceptance) regarding the legal formalization of relations between the participants. These issues had been discussed continuously but had not been the main ones. The issues of building technological links, increasing competencies, building relationships with potential customers were put in the forefront. At the same time, given many participants, it would be difficult to organize themselves, i.e., to reach an agreement that would suit everyone. In spring and autumn 2015 the financial support of the Innovation Fund was close to an end; participants were invited to act as co-investors in the project and executive companies. At the same time, the management of the project (the board and the manager) understood that not all participants would become investors. Those who prefer more free participation, it is possible to remain a member of the regional association (see Table 1). “Nordnet” was organized like that before reaching the level of commercialization. In any case, the “Nordnet” project was not originally created “for someone” but was open to everyone who was willing to contribute to its development.

The North Norwegian Model in Russia: difficult but possible?

Everything discussed above will be called the “North Norwegian model”. The model has the following features: “egg in the nest”, engagement of the contractor, and qualified coordinator (with the following qualities: outlook, neutrality, locality) and evolution of the process (with signs of slowness, unenforceability, openness, uncertainty). Since we identified the key features of the “North-Norwegian model”, let us analytically consider the possibility of its application in the northern regions of the Russian Federation.

Considering the scientific research of the Russian business environment by Western scientists of the past 20 years [3, Puffer S., McCarthy D.], it is possible to assume that the application of such a model in Russia is difficult. One of the main characteristics given by Paffer and McCarthy for Russia is a strong imbalance between informal (interpersonal) and formal (regulated by law, inter-organizational) relationship mechanisms. Similar conclusions were made by Rose [4] and Ledeneva [5]. On the one hand, it is argued that relationships (incl. economic ones) are most often built at the interpersonal level. On the other hand, there is an institutional vacuum, i.e., underdeveloped formal mechanisms for regulating relations between economic counterparties or different organizations. This is the reason for weak inter-organizational relations. Thus, the condition of the North Norwegian model “egg in the nest” seems difficult to practice. The low efficiency of inter-organizational cooperation in Russia was also repeatedly noted by representatives of Norwegian business, who had personal experience in working with projects in Russia. Also, the excessive use of interpersonal relationships leads to the fact that the built inter-organizational schemes do not have time to institutionalize and are easily destroyed with a (frequent) change of political or market conjuncture (e.g., when appointing new people). Thus, the condition for the evolutionary introduction of the North Norwegian model is also difficult to fulfill. Indeed, with frequent changes in the environment, slow and unforced processes of establishing business linkages may simply fail to complete.

Another feature of Russia (as well as the countries of the former Soviet Union) is the low level of minimum trust between economic counterparties. According to the analysis of economists from the Institute of Development Studies of Sussex University [6, Humphrey J. and Schmitz H.], this leads to the impossibility of building long-term interdependent relations between different organizations. Namely, such relations are the key to the development of high-tech supply chains and industrial clusters. Thus, it is believed that Russian managers tend to use “old” proven links to solve new problems. While new problems (e.g., the development of regional industrial competitiveness is one such problems) call for new linkages. The latter seems unlikely because of a lack of confidence in the “strangers”. All this can lead to the construction of “closed” organizational structures or limited attraction of external resources. This means that the conditions of openness and acceptance of uncertainty in the North Norwegian model are also difficult to achieve.

The considered difficulties have a theoretical basis4. On the one hand, this foundation is built using scientific approaches developed in a “Western” context other than Russia. This means that the application of these approaches automatically contrasts the Russian and Western realities. Indeed, scientific research of the Russian business environment carried out by Western scientists, regarded Russia as a country with a “transition economy” — catching up or seeking to comply with the economic, social and political models of Western Europe and the US. Thus, Russia has initially seen as a country where something “not enough” or something else is being done “not as it should”. At the same time, the unique features of Russia were rarely considered. Perhaps the limitations of this approach were the result of the fact that a few years ago there was a decline in the research activity of the Russian business environment by Western scientists, i.e., they tried to understand Russia deeply but did not work, and no desire to learn from Russia appeared5.

At the same time, the presented theoretical arguments cannot be disregarded if the question of the application of Western models and technologies of cooperation in Russia is raised. In the case of direct surface copying of Western models in Russia, they will not work effectively for the reasons mentioned above: an unevenness of trust, an imbalance between formal and informal governance mechanisms, and rejection of uncertainty. Thus, it is necessary to consider the specifics of Russia and its regions, to look for a creative approach to applying the experience gained abroad, and to do so with caution.

According to the author, the ground for successful application of the North Norwegian Model exists in the Murmansk Oblast and the Arkhangelsk Oblast. The fact is that local industrial associations (“Sozvezdie” in Arkhangelsk, “Murmanshelf” in Murmansk) have been successfully functioning since 20066. These associations were established with the support of the Norwegian company Statoil in the framework of a cooperation agreement with the governments of the Murmansk Oblast and the Arkhangelsk Oblast. Statoil used the Petro Arctic Association established in Northern Norway as a prototype. It was mentioned in the introduction. Statoil's methods of development of suppliers in Northern Norway are described in the article [7, Andvik T.C.]. Methods and motives of the company in the North-West of the Russian Federation are briefly presented in the article [8, Mineev A.].

Although the initial methodological and financial support came from Norway. Russian associations were organized considering local specificities, values, and traditions. A great contribution to the development of the associations was made by representatives of the local authorities and business. Perhaps this was the key to the viability and further development of associations in Russia. The positive experience of Russian participation in this project in the Murmansk Oblast was presented in the study [9, Mineev A., Bourmistrov A.]. Today, both associations exist independently, without foreign support. Each of them has about 200 members, incl. Russian and foreign, regional and foreign, and large and small companies. Associations consider the interests and promote interaction between local companies, authorities and large businesses. Thus, these associations can play the role of a feeding environment for innovative business alliances in various sectors of the Russian industry. Also, a positive role should be played by the specificity of the northern territories, i.e., the culture of mutual benefit and transparency within society (due to the compactness of cities), contributing to a high level of mutual awareness and trust among people.

Recommendations for the cooperation project

Considering the experience of Northern Norway, the formation of business alliances in the North-West of Russia (the Murmansk Oblast and the Arkhangelsk Oblast) is recommended to be implemented in the form of cooperation projects. As a result of such a project, a group of interested companies should come to a joint technology-economic and commercial scheme of interaction, allowing to carry out high-quality service or production projects for the maintenance of the fuel and energy sector, infrastructure or related industries. Some of the critical points to be addressed are outlined below.

• 1.    A “qualified” coordinator should play a key role in the implementation of the cooperative project. In this case, qualification includes the above characteristics: wide outlook and business contacts obtained outside the region; neutrality, i.e. independence from the interests of individual project participants; locality, i.e., knowledge of local specificity, authority and wholeheartedly wish to contribute to the development of the region. It is important that the project will be a significant part of the core work of the coordinator (about 50% of the working time). At the same time, it is important for the coordinator to be involved in other related projects. The coordinator will be able to influence the formation of mutually beneficial relations between different organizations by participating.

• 2.    Public-private financing scheme is necessary for the balanced project. On the one hand, governmental support can be a stimulant for the participation of regional small and medium-sized businesses. On the other hand, the feasible financial contribution from the enterprises will guarantee their involvement and active participation in the project. E.g., the coordinator position and a part of the operational activities of the project can be financed through a federal or local program or innovation fund, and another part of operating activities — at the expense of membership fees. The experience of Innovation Norway may be used: Participants should provide a report on the number of hours spent on the project to access the fund. Every working hour of an individual participant “defrosts” the corresponding amount from the fund. The amount is then transferred to the overall budget of the project.

• 3.    Openness and integration are important aspects of the project organization. On the one hand, the project should be open to all interested companies who believe they can benefit from it. At the same time, conditions should be created to increase their motivation and to bring something positive to the development of the project. On the other hand, the project should be integrated into the relationship between authorities, potential customers (primarily contractors), research and education institutions. The openness and integration of the project will largely depend on the activities of the coordinator. Therefore, it is important to organize effective communication: the exchange of knowledge and information should be transparent and involve direct interaction between the member enterprises and between contractors and other organizations.

• 4.    A clear technological idea is important to sustain the course of commercialization of the project. All participating enterprises should understand their role in a common product or service. In other words, everyone must concretely imagine who to work with, whether it is increasing the volume of production through the cooperation of similar enterprises or expanding the range of services through the cooperation of technologically related enterprises. It is also necessary to monitor the demand for the joint technological solution in the market, to maintain contact with prospective customers. Examples of technological ideas for cooperation: electromechanics and automation units, energy efficiency, waste disposal,

• 5.    The question of choosing the legal form of interaction is important but should be considered as a matter of secondary importance. It should be discussed gradually, but with no hurry with its formalization. As the experience of the business alliance in Northern Norway shows, the participating companies and their executives must gradually “mature” to solve this issue (undergo a joint training process), that is, to establish a mutual understanding, improve the skills of the companies and employees, to understand the requirements of customers, opportunities and ambitions of each other.

thermal power engineering, ship repair, etc. The choice will depend on an analysis of existing and required technologies in the area.

Conclusion

The article presents the results of the study of the local business alliance formation in Northern Norway, and the analysis of the possible application of the North Norwegian experience in Russia. It is argued that from a theoretical point of view it seemed difficult due to such reasons as an imbalance between informal and formal mechanisms of relations and low level of minimum trust between economic counterparties. However, the ground for the successful application of the studied experience exists in the Murmansk Oblast and the Arkhangelsk Oblast. Two regional business associations have been established and successfully operate in these regions. These associations were based on Norwegian experience, but with the active participation of local industry and authorities, considering local specificities, values, and traditions. In this regard, some recommendations for the cooperation project in the North-West of Russia are formulated. It is proposed to consider the following: qualification of the coordinator, public-private financing scheme, openness and integration of the project, primacy of technological and secondary legal idea of building cooperation.

Acknowledgments and funding

The research was conducted by A. Mineev in 2012–2015 in the framework of the project “Management and Control in Developing Business Networks in the Barents Region” supported by the Norwegian Research Council (individual grant).