Geoforum 92 (2018) 9–17

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Geoforum
journal homepage: www.elsevier.com/locate/geoforum

An intermediate step to resource peripheries: The strategic coupling of T

gateway cities in the upstream oil and gas GPN
⁎
Moritz Breul , Javier Revilla Diez
University of Cologne, Institute of Geography, Otto-Fischer-Straße 4, 50674 Cologne, Germany

A R T I C LE I N FO A B S T R A C T

Keywords: The actual extraction of natural resources is territorially tied to their geological occurrence. However, previous
Global production networks studies have shown that a direct strategic coupling with commodity source regions has become increasingly
Extractive industries uncommon in the context of the contemporary organization of extractive industries. Instead, extractive Global
State Production Networks (GPNs) create an ‘intermediate’ step and bundle their activities in so called ‘gateway cities’
Gateway cities
outside the resource periphery, from where they integrate the latter. Understanding the underlying rationales
Singapore
Indonesia
and the explicit functions that make these cities essential for the larger production network is crucial in order to
understand the spatial configuration of the GPN and the (limited) opportunities for resource peripheries. This
paper therefore explores the strategic coupling of two distinct gateway cities (Singapore, Jakarta) in the up-
stream oil and gas GPN. Based on 31 interviews the article highlights how varying state roles have shaped the
spatial configuration of this particular GPN. While the Singaporean state contributed to ‘holding down’ the GPN
by transforming its regional assets to the strategic needs of the industry, the ‘detour’ via Jakarta is a consequence
of the regulator and producer role of the Indonesian state as well as the spatially unequally distributed in-
stitutional capacities across Indonesia. Both influences inhibit opportunities for economic development in
commodity source regions.

1. Introduction
Global Production Network (GPN) research has contributed to a
better understanding of “how actors in various global production net-
works are anchored in different places and regions” (Coe and Yeung,
2015, p. 68). Despite its relevance, especially for regions in the Global
South, the study of extractive industries remains with few exceptions
(Bridge, 2008; MacKinnon, 2013; Stephenson and Agnew, 2015) a
blank spot in the GPN research agenda.
Existing studies reveal an enclave-like strategic coupling of different
resource peripheries (MacKinnon, 2013; Phelps et al., 2015). Simulta-
neously, the studies find extractive GPNs bundling their activities in
central city-nodes outside the resource periphery, predominantly the
capital cities of the respective country, from where they integrate the
commodity source region (see also Breul and Revilla Diez, 2017). These
existing insights indicate that a direct strategic coupling process with
commodity source regions – as has been the case in the past (e.g. the
emergence of today’s global city region of Gauteng) - is no longer
common, but creates an ‘intermediate’ step via so-called gateway cities
(Scholvin et al., 2017). The production linkages generated by the in-
tegration into extractive GPNs predominantly unfold in core regions
outside the resource periphery. Based on the key idea in research on
GPNs that regional development is an interdependent process (Coe and
Yeung, 2015), an understanding of the underlying rationales and the
explicit functions that make these gateway cities essential for the larger
production network is crucial in order to comprehend the spatial con-
figuration of the GPN and its potential for developmental outcomes.
This study therefore aims to explore the strategic coupling process of
selected gateway cities in a particular extractive GPN. To fully unpack
this strategic coupling, special attention has to be paid to the role of the
state in GPNs, as the findings of the existing empirical studies men-
tioned above suggest that states play a highly influential role in shaping
the spatial configuration of extractive GPNs (see also Stephenson and
Agnew, 2015). We apply a recently introduced differentiated under-
standing of states in GPNs (Horner, 2017) to highlight how varying
state roles have engaged in the strategic coupling process and have
thereby influenced the spatial configuration of the GPN.
This article examines how capital cities of resource-holding states,
here exemplified by Jakarta, and resource-poor Singapore are coupled
in the upstream oil and gas GPN. Despite Singapore’s gateway function
for upstream activities in Southeast Asia, the predominance of capitals
in the GPN (Breul and Revilla Diez, 2017) indicates that the integration

⁎
Corresponding author.
E-mail addresses: moritz.breul@uni-koeln.de (M. Breul), j.revilladiez@uni-koeln.de (J. Revilla Diez).

https://doi.org/10.1016/j.geoforum.2018.03.022
Received 21 December 2017; Received in revised form 16 March 2018; Accepted 19 March 2018
0016-7185/ © 2018 Elsevier Ltd. All rights reserved.
M. Breul, J. Revilla Diez
of commodity source regions requires a ‘detour’ via the capital city of
the respective resource-holding country. The comparison highlights
how different sets of ‘regional’ institutions - given through the varying
state roles of Singapore and Indonesia – have contributed to ‘holding
down’ the GPN and have thereby created gateway cities that are posi-
tioned between the resource peripheries and the transnational compa-
nies’ home countries.
2. State of the art
2.1. The strategic coupling between regions and GPNs
Since the 1990s various concepts have emerged (global commodity
chains, global value chains, global production networks) in order to
study the increasingly geographically dispersed and functionally frag-
mented nature of the global economy and its consequences for firms
and regions that become integrated into processes of economic globa-
lization (Gereffi, 1994; Gereffi et al., 2005; Henderson et al., 2002).
Among these resembling concepts, the GPN in particular has proven to
provide a suitable framework in order to explore how global industries
anchor in particular locations and how regions are shaped by their
articulation into global processes (Fold, 2014). The GPN framework
encompasses “complex intra-, inter- and extra-firm networks that con-
stitute all production systems, and explores how these are structured
both organisationally and geographically” (Coe and Hess, 2010, p.
130). In an endeavor to ‘globalize’ regional development, GPN scholars
(Coe et al., 2004) have developed the strategic coupling concept, which
connects insights from research on transnational inter-firm networks
(Gereffi, 1994; Gereffi et al., 2005) with the body of work from the ‘new
regionalism’ literature (e.g. MacLeod, 2001a, 2001b). The notion of
strategic coupling is “understood as the coupling process between re-
gional economies and global production networks that is mediated
through specific action and practices of key actors and institutions”
(Coe et al., 2004, p. 482). This interaction of territorial dynamics and
network dynamics only takes place when mutual complementarities
exist, i.e. regional assets (e.g. knowledge, skills, natural resources) can
complement the strategic needs of GPN actors (Coe and Hess, 2010; Coe
et al., 2004; Yeung, 2009). Regional development is driven by this in-
teraction and is expressed in the GPN framework by the creation, en-
hancement and capture of value (Henderson et al., 2002). The strategic
coupling process is characterized by three features. First, the process is
strategic since intentional actions from regional as well as global actors
are needed. Second, strategic coupling is dynamic and can change or
end over time (see Horner, 2014). Third, it transcends territorial bor-
ders as it connects actors across various spatial scales (Yeung, 2009).
The introduction of different modes (indigenous, functional, and
structural) and types (e.g. innovation hubs, global cities, logistics hubs,
commodity source regions) of strategic coupling (Coe and Yeung, 2015;
MacKinnon, 2012; Yeung, 2009) illustrates the variety of ways in which
regions are articulated into GPNs serving very different purposes in the
wider network and relying on differing rationales. This variety also
becomes apparent by taking a look at the broad range of case studies of
recent years (e.g. automotive industry in Germany and Thailand (Coe
et al., 2004); electronics in China (Yang, 2009); services in the Phi-
lippines (Kleibert, 2014); pharmaceutical industry in India (Horner,
2014)). Although it has been demonstrated that the GPN framework
provides great potential for understanding the configuration of ex-
tractive industries (Bridge, 2008), a study by MacKinnon (2013) has
only recently provided first insights on the strategic coupling of com-
modity source regions. In the following subchapter we will summarize
these first empirical insights and also consider additional findings from
other literature strands in order to point out a crucial aspect in the
strategic coupling process of extractive networks we address in this
article.
10
Geoforum 92 (2018) 9–17
2.2. Extractive GPNs, the strategic coupling of commodity source regions
and gateway cities
Contrary to other global industries that have been the focus of GPN
research, in extractive GPNs the primary regional asset that drives the
strategic coupling between a region and a lead firm is the geological
occurrence of the natural resource itself (Bridge, 2008; MacKinnon,
2013). The geography of commodity source regions is diverse, ranging
from the tropical rainforests of Papua New Guinea to the Gulf of Mexico
and the Russian Arctic. One feature most of these commodity source
regions have in common is their remoteness from main settlement
centers. Natural resource extraction is therefore often perceived as a
vehicle to the “regional development imaginaries” (Bridge, 2008, p.
390) of these remote regions, as the natural resource endowment
complements the strategic needs of lead firms and draws investment
from outside into the region.
In the past, there have been several cases where activities related to
the extraction of natural resources have contributed to the emergence
and growth of conurbations such as Johannesburg or the Ruhr area
(Robbins, 2013). New extraction projects in remote areas were gen-
erally accompanied by the establishment of resource towns (Storey,
2016). Since the 1980s, decreasing transportation costs and a growing
vertical disintegration, where lead firms outsource most activities to
specialized service companies (Morris et al., 2012a; Phelps et al., 2015),
have reshaped the spatial organization of extractive industries. Instead
of establishing long-term resource towns, extractive GPNs increasingly
organize their upstream activities at the sites of extraction through a
camp/commute model (Storey, 2016; Vodden and Hall, 2016). Several
empirical findings from different studies (Bloch and Owusu, 2012;
Breul and Revilla Diez, 2017; MacKinnon, 2013; Mjimba, 2011; Phelps
et al., 2015) indicate that these changes have created a spatial pattern
consisting of a “mining camp as an enclave coexisting with a measure of
industry agglomeration elsewhere” (Phelps et al., 2015, p. 135). By
concentrating activities in central city-nodes outside resource periph-
eries, extractive companies avoid large-scale upfront expenditures
which are necessary to establish entire resource towns. Moreover, they
are able to benefit from increasing internal economies of scale as well as
localization economies (e.g. Solheim and Tveterås, 2017).
For instance, MacKinnon’s study (2013) on Pilbara, Western Aus-
tralia indicates a structural coupling of the commodity source region
where intraregional material linkages with suppliers and service firms
are lacking and only account for an estimated 6% of the value added.
80% of labor is sourced from outside Pilbara via fly-in/fly-out systems,
of which 71% are located in Perth. This labor sourcing practice “re-
presents a key ‘rupture’ between the region and focal firms in GPNs
[…], enabling workers from the core region of Perth to extract some of
the economic rent derived from the resources of the periphery”
(MacKinnon, 2013, p. 134). The beneficial economic outcomes which
are connected to the articulation into extractive GPNs were pre-
dominantly reaped in core regions like Perth.
Phelps et al. (2015) observe a similar spatial configuration in their
study on the integration of the Chilean Antofagasta region into the
mining industry. The results indicate that the integration of the Anto-
fagasta region into extractive GPNs has not created any localization
economies in the commodity source region itself. Instead, a consider-
able concentration of mining companies has emerged in the me-
tropolitan area of Santiago/Valparaiso. National headquarters of lead
firms, multinational mining suppliers and services, as well as a domi-
nant share of the domestic mining service industry operate their busi-
ness at the sites of extraction from this core region.
A recent study by Breul and Revilla Diez (2017) corresponds with
the insights from the above studies. The study traces command and
service linkages from Southeast Asian oil and gas fields to the im-
mediate location from where these were provided. The findings indicate
that lead firms and service providers in the upstream oil and gas in-
dustry concentrate in so called ‘gateway cities’ (Scholvin et al., 2017)
M. Breul, J. Revilla Diez
from where they integrate operations at peripheral locations into the
GPN. Predominantly capital cities of resource holding states, such as
Jakarta, Kuala Lumpur or Bangkok serve as gateways to the resource
peripheries in their national hinterlands (see also Phelps et al., 2015).
Surprisingly, despite the highly territorial embedded nature of the in-
dustry (Stephenson and Agnew, 2015), the resource-poor city-state
Singapore also appears as a significant locational anchor point from
where transnational oil and gas companies integrate their upstream
activities in Southeast Asia through command and service functions
globally (Breul and Revilla Diez, 2017).
Regardless of the diverse contexts, all above-mentioned case studies
reveal a similar spatial pattern. The findings show that despite the
‘landed’ nature of regional assets, the strategic coupling is characterized
by a weak embeddedness between the commodity source region and
extractive GPNs. At the same time, extractive GPNs bundle their ac-
tivities in central city-nodes outside the resource periphery (e.g.
Santiago de Chile, Jakarta, Singapore), from where they integrate the
latter (see also Martinus et al., 2015). These case study-specific insights
from diverse contexts are also supported by Bridge’s (2008) general
observation that the spatial footprint of extractive global production
networks is characterized by two simultaneously occurring trends - the
geographical extensification of extractive activities and the spatial
concentration of certain activities in particular city-nodes. The above
insights indicate that the strategic coupling between extractive GPNs
and commodity source regions as diverse as East Kalimantan, Pilbara or
Antofagasta does not occur directly, but requires a ‘detour’ via so called
gateway cities.
The notion gateway city is used to refer to cities that articulate their
wider region1 into global production networks (Rossi et al., 2007;
Scholvin et al., 2017). Gateway cities connect their respective regions
with the global economy through the provision of various integration
functions (Ducruet et al., 2014; ESPON, 2013). While the application of
the term in world city research focuses explicitly on the integration
function of advanced producer services (Rossi et al., 2007), Scholvin
et al. (2017) conceptualize gateway cities with the aid of five functions:
transport, industrial processing, corporate control, service provision
and knowledge generation. This latter understanding of gateway cities
adequately reflects the insights gained from the above literature review
on extractive industries.
Based on the key idea in research on GPNs that regional develop-
ment is an interdependent process, meaning that development in any
given region cannot be understood without taking into account what
occurs at places linked to this region via GPNs (Coe and Yeung, 2015),
it is only logical, as a ‘next step’, to explore the strategic coupling of
these gateway cities. This article therefore shifts the focus from resource
peripheries to the gateway cities in a particular extractive GPN.
2.3. Multiple roles of states in the strategic coupling process of extractive
GPNs
The empirical studies presented above have also shown that states
play a highly influential role in the configuration of extractive GPNs.
The strategic coupling of the Pilbara region is primarily navigated from
higher scale institutions, particularly the state of Australia (MacKinnon,
2013). Stephenson and Agnew (2015) note that the strategic coupling
of resource peripheries in the Arctic have been directed by the centers
of political decision-making in the South of Canada, Norway and
Russia. And the predominance of capital cities of resource rich states in
Breul and Revilla Diez’ (2017) network analysis also indicates the
shaping force of states in extractive industries.
The GPN framework recognizes this crucial role of states within
global production which is incorporated under the pillar ‘regional’
1
The reach of gateway cities can range from a subnational scale to entire world regions
(Ducruet et al., 2014; ESPON, 2013).
11
Geoforum 92 (2018) 9–17
institutions in the strategic coupling concept (Coe et al., 2004). Whe-
ther, and in what manner, a strategic coupling is taking place in a
particular region critically depends on the arrangements of these ‘re-
gional’ institutions. This notion encompasses multi-scalar institutions,
ranging from local to extra-local institutions that influence activities in
a certain region (Coe and Hess, 2010). However, the variety of roles
states can assume in GPNs has been given limited attention (Horner,
2017; Smith, 2015). A differentiated understanding is crucial in order
to assess how the insertion of gateway cities into extractive GPNs takes
place, as above empirical examples have shown.
Horner (2017) identifies the state as a facilitator, regulator, pro-
ducer and/or buyer in GPNs, depending on its motivation and endow-
ment with regional assets. These various roles of the state are also
present in extractive GPNs (Bridge, 2008; Dicken, 2011; Kalvelage and
Breul, 2017). With regard to our following case study we refer to the oil
and gas industry.
In most countries, the state is the owner of the resources and is thus
at least formally in the position to dictate the conditions for operating
rights.2 These contracts typically encompass regulations on the usage of
local content, reporting requirements with the national regulatory body
or the requirement to establish a legal entity within the country
(Likosky, 2009). However, the ultimate power of resource-holding
states to dictate the conditions for operating rights is restricted and
depends inter alia on commodity prices (Bridge and Le Billon, 2013),
the negotiation experience of the extractive country with extractive
lead firms (Hosman, 2009), and geopolitics (Stephenson and Agnew,
2015). Besides their role as regulator, states can also be facilitators by
attracting foreign firms and/or assisting local firms to participate in
GPNs (Horner, 2017). Especially in cases where a state does not possess
the capacity to discipline firms - perhaps because the state is not in the
possession of natural resources, for example - facilitative measures
provide opportunities to engage in GPNs.
Furthermore, in recent decades resource-holding states have in-
creasingly turned to producers through national oil companies (NOCs),
such as Petrobras or Pertamina, which are engaged in the operation of
upstream projects (Tordo et al., 2011). Today about 90% of the world’s
oil and gas reserves are controlled by NOCs (Inkpen and Moffett, 2011).
Hand in hand with the producer role of states, the NOC’s procurement
behavior and the associated requirements for suppliers exert influence
on the configuration of the GPN.
The incorporation of this differentiated understanding of the role of
states within the conceptual pillar of ‘regional’ institutions provides a
helpful conceptual base in order to analyze how very different sets of
institutions have contributed to ‘holding down’ extractive GPNs and
created gateway cities that are positioned between the resource per-
ipheries and the transnational companies’ home countries.
3. The strategic coupling of gateway cities in the upstream oil and
gas GPN
In order to analyze the strategic coupling of Singapore and Jakarta
in the oil and gas GPN, interviews were conducted with representatives
of lead firms, multinational as well as domestic contractors and public
authorities (see annex 1). In total, we conducted 16 interviews in
Singapore in autumn 2016 and 15 in Indonesia in spring 2017. The
interviewees hold positions with regional oversight and responsibilities
and were identified via LinkedIn and by snowball sampling. The in-
terviews were based on a guideline that covers topics about the spatial
organization of companies, location (dis)advantages and the role of the
state. In the following we use codes to refer to the particular interview.
The first letter refers to the location where the interview took place
2
See Likosky (2009) for an overview on major contract types between resource holding
states and extractive companies (e.g. production-sharing agreement, concession, joint
venture, service contract) and its features.
M. Breul, J. Revilla Diez
(S = Singapore; I = Indonesia). The second letter provides information
on the origin of the company (D = domestic; F = foreign) and the third
letter refers to their role in the GPN (C = contractor; L = lead firm;
P = public authority).
3.1. Singapore in the upstream oil and gas GPN
3.1.1. Functions located in Singapore
There are no oil and gas fields located in the sovereign territory of
Singapore. However, Singapore has managed to position itself as a
gateway in the oil and gas GPN between the locations of global head-
quarters of oil majors and the surrounding resource-rich states. Lead
firms in the oil and gas industry require a variety of industry-specific
products and services for their upstream activities (Bridge, 2008). A
broad range of these services and products is provided from Singapore
and enables the integration of the remote and dispersed sites of ex-
traction in Southeast Asia and well beyond. The provided functions
range from mere spare part inventories to manufacturing of equipment,
provision of technical expertise, regional management functions,
training centers and research & development facilities.
Transnational oilfield equipment suppliers such as Halliburton,
Caterpillar and National Oilwell Varco have established spare part in-
ventories in Singapore in order to supply upstream activities of their
client’s all over Southeast Asia. Likewise, Singapore is used by
Southeast Asian companies “as a staging area when we bring our
equipment in from all over Asia or North America or Europe. It stays
there and then we determine where it goes: Brunei, Indonesia or
Myanmar from that point”.3
Beyond the mere re-exportation of these products, oilfield equip-
ment manufacturers have set up production facilities to serve their
clients’ operations in the region. A representative of a lead firm based in
Indonesia confirms that “if you need a wellhead, if you don't have a
wellhead here in Indonesia you would go to Singapore. You go to
Cameron or FMC - they have big workshops in Singapore. Gunvor or
Baker Hughes are over there”.4 Moreover, transnational oilfield service
companies send defect tools from the sites of operations to their
workshop in Singapore for repairs.5 Not only are the tools provided
from Singapore, but also technical expertise. For example, a transna-
tional drilling and production equipment supplier provides its services
for the Asia Pacific region from Singapore, having numerous engineers
based there who “fly out […] to Korea, to Australia, to wherever they
are needed”.6 Interviews with other service providers confirmed this
practice. Engineers are flown out for the provision of various tasks, such
as mooring services or the installation of specialized downhole equip-
ment on the rig.7
According to an interview with a representative of an offshore re-
search institute in Singapore, oilfield service companies that used to run
service and maintenance work from Singapore increasingly established
technology centers at their Singaporean entities.8 For instance, the
technical standards and classification company DNV GL established a
deep-water technology center in Singapore in 2012. The vice president
of DNV GL stated in an interview that the center was to “spread its
innovation genes instilled in [DNV GL] towards Asia” (Energy
Boardroom, 2014). An interviewee from the company explained that
the Singapore entity “is our knowledge hub basically where we have the
most specialized people. […] We have several hundred people here, we
have a lab here”.9 Besides the delivery of cross-regional services, the
center itself serves as a platform for joint industry projects between oil
3
IDC-1.
4 10
IFL-1.
5 11
IFC-1.
6 12
SFC1.
7 13
SFC2; IFC-1.
8 14
SDP-1.
9 15
SFC-3.
12
Geoforum 92 (2018) 9–17
and gas majors and equipment providers.
In concordance with Singapore’s general role as a regional com-
mand center (Yeung et al., 2001), the majority of the service and supply
companies we interviewed operate their regional management from
Singapore.10 Lead firms have established leadership teams with re-
gional decision-making competences in Singapore, at the same time
running business units in each country where they are engaged in up-
stream activities. For instance, one of the interviewed companies has
such business units tied to Singapore in Australia, China, Indonesia and
Malaysia; another in Australia, Brunei, China, Indonesia, Malaysia,
Myanmar, Papua New Guinea and Thailand. Instead of reporting di-
rectly to the global headquarters, each of these country offices reports
to Singapore, which, according to our interviewees, functions as a
“coordinator and partly a conveyor”11 between the global headquarters
and the local business units. The Singaporean offices “are partnering on
a daily basis in order that [country managers] can be comfortable to
take any decision and that the head office will be comfortable also”, as
an interviewee put it.12 In practice this means that, for example, a
drilling project somewhere in Indonesia is planned by the country office
which is located in Jakarta, but the decision of whether and how the
drilling will be carried out is taken at the discretion of the regional
headquarters in Singapore. Depending on the cost of the proposed
project, the approval of the global headquarters is required. In general,
these regional offices encompass only a small number of staff. Except
for one lead firm, which recently relocated its Asia Pacific exploration
team to Singapore, these offices serve purely command functions and
do not encompass technical staff.
3.1.2. Regional assets and the role of the state
In the following, we reveal which regional assets have driven the
strategic coupling process between the resource-poor city state and the
upstream oil and gas GPN. A central concern of all companies we in-
terviewed across the upstream segment for the establishment of activ-
ities in Singapore is the quality of institutions they could benefit from in
contrast to the countries in which actual upstream operations are taking
place. Transparency, predictability of the government, efficient bu-
reaucracy, and a rather limited extent of corruption were mentioned as
important location criteria.13 Equipment manufacturers in particular
pointed out the importance of the quality of the intellectual property
rights regime in Singapore, which enables them to manufacture high-
tech equipment.14 A further crucial regional asset that explicitly high-
lights Singapore’s gateway function is the connectivity by air and sea,
enabling the frictionless provision of highly time-sensitive oilfield
equipment, fly in/fly out practices of engineering teams, and a high
mobility of regional management staff to visit customers and opera-
tional offices in the surrounding resource-holding countries. For in-
stance, a representative of a transnational equipment and service pro-
vider with a production facility in Singapore praised the “zero time I
spend on shipping my goods or receiving my goods [here in Singapore].
Seventy percent of my time was spent [on these matters] when I was in
Saudi Arabia […]. If your inputs are coming in late, your products will
go out late. So then you will have to work with the customers on the
issues caused by the late delivery […]. That is a lot of money”.15 Sin-
gapore’s sophistication as a logistical node is largely the result of con-
stant efforts by the government. The Port of Singapore Authority, for
instance, constantly invests in port infrastructure in order to expand
capacities and improve efficiencies as the recent expansion phase of
Pasir Panjang Terminal illustrates (Lam, 2016). Moreover, the Singa-
porean government has introduced supportive regulations which
SFC-4; SFC-2; SFC-1; SFC-5; SFC-6; SFC-7.
SFL-1.
SFL-2.
SFC-4; SFC-3; SFC-8; SFC-7; SFC-2; SFL-3; SFL-1.
SFC-8.
SFC-8.
M. Breul, J. Revilla Diez
facilitate frictionless material flows. To give an example, the Inland
Revenue Authority of Singapore has introduced a Major Exporter
Scheme that suspends the goods and services tax on imported non-du-
tiable goods. This facilitates oilfield equipment suppliers to import
drilling equipment and subsequently export it to the commodity source
regions.16
Besides these rather cross-sectoral regional assets of the destination,
the interviewed firms stressed the significance of industry-specific as-
sets from which they benefit by being located in Singapore. These in-
dustry-specific assets encompass the access to qualified human capital,
knowledge and the proximity to specialized suppliers, service compa-
nies as well as clients.
The advantage regarding the access to qualified human capital in
Singapore was expressed in two respects. Firstly, the availability of
local talent in Singapore, especially in engineering, complements the
strategic needs of transnational companies in the upstream oil and gas
industry. A representative of a transnational drilling rig operator ex-
plained that “Singapore invests heavily in the offshore oil and gas
market in terms of education […]. And that just made it a very good
place for us to recruit and hire people”.17 The Singaporean government
actively contributes to ‘fitting’ regional assets to the needs of companies
in the upstream oil and gas GPN. To name an example, a Petroleum
Engineering Professorship Program was established at the National
University of Singapore in 2014, funded by the Economic Development
Board (EDB).18 Secondly, our interviews reveal that transnational
companies in the oil and gas industry appreciate Singapore for sourcing
talent from abroad. Some companies complement expertise which is not
locally available, others attempt to increase cost-efficiency by sourcing
cheaper labor from surrounding countries, and others highlight the
importance to circulate experts within the corporate network. These
practices are facilitated by the high standard of living and the ease of
receiving work permits, as various interviewees explained.19 Singa-
pore’s high living standards facilitate the attraction of foreign talent and
reduce the need to pay expatriate compensation packages: “when you
send people to Jakarta […] or to Malaysia, it’s a more complicated life
than in Singapore. So you need to find some kind of compensation. So it
is more costly for the company”.20 Indeed, a rather liberal immigration
policy as well as urban development policies aimed at attaining a highly
attractive living environment are part of a government-led strategy to
increase Singapore’s capacity to attract and retain a talent pool (Yeoh,
2013; Yeoh and Lam, 2016).
Another crucial regional asset that attracts transnational companies
across the upstream industry to Singapore is the “good ecosystem
[consisting of] construction-yards, supporting companies, equipment
suppliers”.21 This enables companies to “get everything done in a fairly
small space”.22 A worldwide leading manufacturer of completion
equipment, for instance, emphasizes the advantage of being able to
source a large part of the required inputs from specialized suppliers
based in Singapore.23 This supportive ecosystem has to be seen as the
consequence of an evolutionary process which dates back to the birth of
the nation state in the 1960s. Under pressure to create mass employ-
ment, the Singaporean government promoted shipbuilding and ship
repair as a central pillar of its industrialization program. Until 1968,
four marine firms were established under the tutelage of the Singa-
porean government (Yeung, 2016). This state-led development laid the
foundation for the emergence of an upstream service industry as “the
16
SFC-5; https://www.iras.gov.sg/irashome/Schemes/GST/Major-Exporter-Scheme–
MES-/.
17
SFC-7.
18
SDP-1.
19
SFC-1; SDL-1; SFC-3; SFL-2.
20
SFL-2.
21
SDC-1.
22
SFC-5.
23
SFC-8.
13
Geoforum 92 (2018) 9–17
shipyard operators expanded to build, convert and repair vessels and
rigs to meet the world’s rising demand for offshore oil” (Hoong, 2012,
p. 82). The national champions Keppel and Sembcorp emerged from
these initial marine firms which in sum covered 70–80% of the global
offshore jack-up rigs market in the period from 2006 to 2015 (Yeung,
2016).24 Their pioneering role in this particular market segment has
attracted both clients and suppliers to Singapore. A representative of
one of the companies explained “when the rig-building activities hap-
pened and then procurement of equipment happened here, so our
suppliers also moved down here - both in terms of supporting facilities
for the fabrication work, but also for the equipment as well as services,
for commissioning, and for repairs. So many of our major equipment
suppliers have also located facilities […] near our construction
yards”.25 Besides anchoring lead firm customers and transnational
suppliers in Singapore, the success of Keppel and Sembcorp has also
contributed to the rise of a supportive domestic industry (Hoong, 2012).
State agencies such as SPRING, EDB and IE Singapore fostered this
development. Supportive measures encompass, for instance, technology
subsidies or assistance in internationalizing operations of local com-
panies.26 Furthermore, the government is actively supporting the
creation of industry-specific knowledge in the upstream industry by
establishing various research facilities. In 2003, for instance, the Centre
for Offshore Research and Engineering (CORE) was founded in order to
research and develop offshore technology. CORE offers a platform for
various joint industry projects, in which transnational companies are
brought together with local enterprises and universities.27 Further ex-
amples are the launch of the Oilfield Chemicals Laboratory Program in
2016 (A∗STAR, 2017) or the upcoming opening of the Technology
Centre for Offshore and Marine (National University of Singapore,
2016). GPN-actors acknowledge these government efforts as a con-
scious ‘fitting’ of the regional assets to cater for their strategic needs:
“So they go and develop those small companies to support the big
companies, because if they don't get us to small companies we will be
out of here. It is not worth for us to be here. So there is a brain behind it
as I said. They are really orchestrating and making sure that we have
the supporters needed”.28 Transnational companies describe the rela-
tion to the Singaporean government and its various state agencies as a
‘strategic partnership’29 which they appreciate as a location advantage
on its own: “They know exactly what we are doing, what we are
thinking, they are encouraging us, and they are working with us. So it
would be a huge loss for us to move out of here”.30
In addition to these upstream related regional assets, the presence of
lead firms’ regional headquarters stems from a cognitive distant, but
organizational proximate development in Singapore – its emerging role
as a refining center for the region since the 1960s. The development of
five refineries (Shell, Maruzen, Mobil, Esso, Singapore Petroleum
Company) between 1961 and 1974 turned Singapore into a ‘Houston of
Asia’ (Hoong, 2012; Wang and Yeung, 2000) and gave the young
country creditability as an investment destination. Consequently, the
vertically integrated lead firms followed the already established
downstream activities and set up their E&P regional headquarters in
Singapore.31
In sum, the Singaporean state, represented by various state agen-
cies, played a facilitating role which was crucial for the strategic cou-
pling process with the upstream oil and gas GPN to occur. Despite the
24
For a detailed overview of the development of Keppel and Sembcorp see Yeung
(2016, chapter 5) and Hoong (2012, chapter 4).
25
SDC-1.
26
SDC-1; SDC-2.
27
A list of joint industry projects is available on the website http://www.eng.nus.edu.
sg/core/.
28
SFC-8.
29
SFC-7.
30
SFC-8.
31
SFL-1; SFL-4.
M. Breul, J. Revilla Diez
Fig. 1. The geographical distribution of crude oil reserves in Indonesia.
Source: own draft based on Ministry of Energy and Mineral Resources (2015).
lack of own natural resources Singapore has managed to position itself
in-between global headquarter locations of oil and gas companies and
the resource peripheries through constant efforts ranging from the
creation of qualified labor to the development of more cross-sectoral
regional assets.
3.2. Jakarta in the upstream oil and gas GPN
3.2.1. Functions located in Jakarta
Indonesia holds 2900 billion cubic feet of proven gas reserves and
3.7 billion barrels of proven oil reserves. In terms of production,
Indonesia ranks 10th in world gas production and is among the world’s
top 20 oil producers (pwc, 2016). The E&P of oil and gas is largely
dominated by foreign lead firms such as Total, Chevron and Ex-
xonMobil. Despite Singapore’s gateway function for upstream activities
in Southeast Asia, the integration of Indonesian commodity source re-
gions has created another intermediate step in the territorial config-
uration of the GPN. It requires a ‘detour’ via the Indonesian capital.
Although more than half of Indonesia’s proven oil reserves are located
closer to Singapore than to Jakarta (see Fig. 1), according to a re-
presentative of the regulatory body SKK Migas, all lead firms with up-
stream assets in Indonesia have established their Indonesian head office
in Jakarta.32 One lead firm we interviewed explained that all 14 Pro-
duction Sharing Contracts (PSCs) in Indonesia are managed from their
Jakarta-based entity. The entity encompasses procurement, develop-
ment, commercial and further support functions for upstream activities
in Indonesia. Moreover, it hosts the E&P team, which is sent out to the
sites of operation.33 A similar picture is revealed by interviews with
three other IOCs in Indonesia. Some IOCs do not fully concentrate their
range of activities in their head offices, but have established operational
offices in the commodity source regions.34 These entities however are
not self-reliant but depend on command and support functions from the
corporate entity in Jakarta. In contrast to Singapore, entities in Jakarta
are not responsible for the management of operations beyond national
borders in other Southeast Asian countries, but are restricted to op-
erations within Indonesia (see also Breul and Revilla Diez, 2017). Thus,
lead firms use Jakarta as a gateway in order to enable processes of value
creation in the Indonesian hinterland.
The head offices of multinational service firms and suppliers are also
concentrated in Jakarta. A representative of a lead firm explained
32
IDP-1.
33
IFL-2.
34
IFL-1.
14
Geoforum 92 (2018) 9–17
“Schlumberger, Halliburton, Baker [Hughes], they have offices [in the
commodity source region in Balikpapan,] but their offices are more
operational offices, offices where they keep their tools and equipment.
But the big boss is there in Jakarta”.35 The offices in Jakarta typically
encompass management, administrative support and supply chain
functions. Contracts about the provision of services or tools at In-
donesian oil and gas fields are executed in Jakarta.36 Interviews with
service firms also revealed fly in/fly out practices of technical staff from
Jakarta to operational sites like East Kalimantan or West Papua.37 What
is more, “most of the spare parts are not available in [the commodity
source regions] but in Jakarta”.38 With the exception of one multi-
national equipment supplier that established an engineering center in
Jakarta to serve entire Southeast Asia, activities of multinational ser-
vice firms and suppliers are restricted to operations within Indonesia.
3.2.2. Regional assets and the role of the state
Despite Singapore’s gateway function for upstream activities in
Southeast Asia, the global integration of Indonesian commodity source
regions does not occur immediately from there but requires a ‘detour’
via the capital Jakarta. What are the rationales that underlie this cou-
pling?
Like in most countries, mineral resources in Indonesia are owned by
the state.39 The execution of upstream activities in a particular working
area requires a Joint Cooperation Contract (JCC) between the operating
company and the Indonesian regulatory body for upstream oil and gas
activities SKK Migas (Law No. 22). Lead firms and the state thus stand
in an immediate contractual relationship. Only Indonesian branches are
allowed to enter a JCC (Company Law No. 40/2007), i.e. foreign E&P
companies are required to set up a permanent establishment in In-
donesia. This represents an institutional barrier and explains why lead
firms do not fully concentrate activities in a location like Singapore but
establish entities in Indonesia. However, it is not a sufficient explana-
tion for the crucial role of Jakarta in the GPN.
The JCC demands close consultation between lead firms and SKK
Migas. For instance, every process with a value greater than 500,000
US-Dollars requires approval by SKK Migas (pwc, 2016). SKK Migas and
other relevant institutions, such as the Ministry of Energy and Mineral
Resources, are located in Jakarta, whereas commodity source regions
35
IFL-3.
36
IFL-1.
37
IFC-2; IFC-1; IFC-3.
38
IDC-2.
39
Article 33 of the Constitution of the Republic of Indonesia, 1945.
M. Breul, J. Revilla Diez
lack institutional capacities.40 A representative of a lead firm empha-
sized the need to be in Jakarta in order ,to keep in touch very closely
with the authorities here. You need to be physically there. […] You
have to meet people daily from all departments”.41 The interviews with
lead firms also reveal that close relationships with state authorities are
essential in order to avoid bureaucratic-induced delays: “Sometimes if
[SKK Migas is] late we have some contact to a representative of the
ministry and say, 'Now from this day we start to lose money because we
cannot work’ and then it is going fast”.42 As a consequence, all lead
firms with upstream assets in Indonesia have established their In-
donesian head offices in Jakarta. An additional important location
criterion that draws lead firms to Jakarta is the headquarters of the
national oil company Pertamina, which appears as an operating partner
in most Indonesian upstream projects. Lead firms need to discuss the
various working steps with their operating partner. The co-location in
Jakarta facilitates these regular interactions.43 Further institutional
barriers, such as local content regulations (PTK 007) as well as re-
strictions on the usage of geological data (pwc, 2016) push lead firms to
fully equip these country offices in Jakarta with various functions as
described above.44
In contrast to lead firms, service firms and suppliers do not underlie
any immediate contractual relationship to the Indonesian government.
However, lead firms pass on the regulatory pressure to service firms as
their procurement activities are regulated by the PTK 007 procurement
guideline. In order to understand the procurement conditions, it is
important to know that the JCC specifies the lead firm to be in charge
for all operational expenditures. Only when the production of crude oil
or gas starts will the government repay this upfront payment. The cost
recoverability of the procurement of goods and services is linked to the
compliance with the PTK 007 guidelines. For instance, foreign service
firms or suppliers are required to establish a public limited company in
Indonesia and meet a certain threshold of local content usage to be
considered a qualified contractor. In order to ensure the cost recover-
ability of upfront payments, lead firms pay strict attention to the local
content of their contractors, as a representative of a multinational
service company explained: “the oil companies will push this very hard,
that means that we always have to partner with the local con-
sortium”.45 A high degree of local content increases the competitiveness
of contractors in tender processes.46 These regulatory pressures have
explicit consequences for the spatial configuration of the upstream oil
and gas GPN as a representative of a lead firm explained: “even though
[our contractors] are in Singapore, normally they will already have an
establishment in Jakarta. Because they know that we cannot deal di-
rectly with Singapore, unless it is a very different situation, like an
accident”.47
Again, these institutional barriers explain why multinational service
firms and contractors locate activities in Indonesia. The various inter-
views reveal that the concentration of these activities, particularly in
Jakarta, is caused by the need to be in geographical proximity to de-
cision-makers of lead firms: “Their head office for Indonesia is located
in Jakarta. That is why we have to stay in Jakarta so that we can meet
regularly, easily”.48 Thus, the empirical observations indicate that the
regulator and producer role of the Indonesian state in the oil and gas
GPN represents an ‘institutional trigger’ for the clustering process in
Jakarta. The immediate contractual relationship with SKK Migas an-
chors lead firms in Jakarta. It follows a self-reinforcing process, in
40
IFL-1; IDP-1.
41
IFL-2.
42
IFL-1.
43
IFL-4; SFL-3.
44
IDL-1; SFL-3.
45
SFC-3.
46
IDC-1.
47
IFL-3.
48
IFC-3.
15
Geoforum 92 (2018) 9–17
which the presence of lead firms attracts multinational service firms
and suppliers. The availability of these contractors in turn creates lo-
calization advantages for lead firms as well as for contractors in Ja-
karta.
In addition to these mechanisms, representatives of lead firms
named Jakarta’s connectivity, as well as the quality of life compared to
Indonesian commodity source regions as a regional asset that influ-
enced the strategic coupling.49
In sum, the empirical findings reveal that the Indonesian state has
significantly influenced the spatial configuration of how Indonesia is
integrated into the upstream oil and gas GPN. Its role as a regulator and
producer has significantly contributed to the development of Jakarta as
a gateway, from where Indonesian commodity source regions become
integrated. Interviewees denied that the Indonesian state played a fa-
cilitating role, as this interview with an Indonesian E&P company il-
lustrates: “If we would have done [research and development], it
wouldn't be done in Indonesia. […] It is not a regime that encourages
you to do research and development”.50
4. Discussion and concluding remarks
The case studies of Jakarta and Singapore confirm existing indica-
tions of the spatial configuration of extractive GPNs (Breul and Revilla
Diez, 2017; MacKinnon, 2013; Phelps et al., 2015) – the global in-
tegration of commodity source regions into extractive GPNs creates
intermediate steps via so-called gateway cities. Transnational compa-
nies concentrate a broad range of activities in these gateway cities,
outside the resource peripheries meant to serve operations at sites of
extractions. These activities range from command and control func-
tions, to the supply of spare parts and the provision of technical ex-
pertise via fly in/fly out practices of engineering teams. While Jakarta
and Singapore have a certain functional overlap, the results also show
functional differences. A main difference lies in the geographical range.
The activities of transnational companies in Singapore serve operations
across Southeast Asia and sometimes even across Asia Pacific. In con-
trast, activities in Jakarta are restricted to operations in the Indonesian
hinterland. Moreover, compared to Jakarta, Singapore succeeded in
anchoring R&D activities of the upstream oil and gas GPN.
The analysis of the strategic coupling of Singapore and Jakarta
shows that these are the territorial outcomes of distinct underlying
rationales. Very different sets of ‘regional’ institutions – given through
the varying state roles of Singapore and Indonesia in the oil and gas
GPN – have contributed to ‘holding down’ the GPN in Jakarta and
Singapore respectively. Singapore does not have the capacity to dis-
cipline firms, because the city-state is not in the possession of oil and
gas fields. Instead, it becomes engaged as a facilitator. The active en-
gagement in the transformation of regional assets (e.g. industry-specific
education programs, technology centers, measures to assist the devel-
opment of a supportive domestic industry) has created an attractive
environment that complements the strategic needs of the upstream oil
and gas GPN. It therefore serves as a more sophisticated alternative
compared to directly establishing upstream relevant activities in the
country of extraction. In contrast, the strategic coupling of Jakarta is a
consequence of the regulator and producer role of the Indonesian state.
While the strong influence of the state (e.g. through local content reg-
ulations) has led to increasing activities being performed within the
country, the spatially unequally distributed institutional capacities
within Indonesia have contributed to a concentration of the industry in
Jakarta. This provides an explanation why industry players in ex-
tractive GPNs do not establish their business units directly in the
commodity source region but require a ‘detour’ within the country of
extraction via the capital. While these insights are gained from the
49
IFL-1; IFL-2.
50
IDL-1.
M. Breul, J. Revilla Diez
Indonesian context, findings of studies on extractive industries from
different geographical contexts (Breul and Revilla Diez, 2017; Phelps
et al., 2015) suggest similar mechanisms.
Against the argument of some scholars, that plugging into extractive
GPNs creates opportunities for the creation of production linkages in
commodity source regions (Hirschman, 1981; Morris et al., 2012b), our
findings on gateway cities highlight the fact that extraction-related
activities largely unfold outside the resource peripheries. The strategic
coupling of Jakarta and Singapore demonstrate mechanisms that drive
production linkages away from the sites of extraction and thus prevent
commodity source regions from following regional development tra-
jectories of erstwhile extraction sites, such as Johannesburg or the Ruhr
area, where the extraction of natural resources has contributed to the
emergence and growth of conurbations (Robbins, 2013).
Apart from adding to a better understanding of the spatial config-
uration of extractive GPNs, the study contributes to the literature on a
conceptual level. The contrasting case studies illustrate that a differ-
entiated understanding of the role of states in GPNs, as recently sug-
gested by Horner (2017), is valuable in order to uncover the variety of
strategic coupling processes. It thus enriches the strategic coupling
concept. Furthermore, while implicitly mentioned in other GPN studies
(Kleibert, 2015; Meyer et al., 2009), this article has introduced gateway
cities as an important component to the debate on GPNs and regional
development. It depicts a crucial territorial component that explains
why “the strategic coupling process is not automatic and always suc-
cessful” (Yeung, 2015, p. 6).
More research is needed for assessing the implications of this in-
direct strategic coupling of commodity source regions via gateway ci-
ties. Future studies could investigate how relations between gateway
cities and resource peripheries change over time and identify the un-
derlying mechanisms of these dynamics in order to derive explicit
policy implications.
Acknowledgments
The authors wish to thank the financial support from the German
Research Foundation (grant number: 275355279). Moreover, we very
much appreciate the input from the reviewers of this journal as well as
constructive comments on earlier drafts of Ivan Turok.
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