Chinese Investment in Angola
How can construction firms become more
competitive in a foreign market
Authors:
Dao Tuan Hiep
Astrid Akoyoko
Tutor:
Dr. Joachim Timlon
Program:
Growth Through Innovation
and International Marketing
Subject:
Business Administration
Level and semester: Masterlevel Spring 2008
Baltic Business School
Acknowledgement
To be able to finally read our thesis and think, ‘It was hard but we did it’,
To be able to look back and see that what we gained was not only professional but also personal,
To be able to understand that this experience will serve us our entire life,
To be able to look at our peers and see the same growth in their eyes than in ours,
To be able to read in the smile of our tutor Dr. Joachim Timlon, ’Good job guys?”,
To be able to call our friends, family and roommate to thank them for their support,
To be able to look at our Master degree paper and think, ‘Hell yes, I deserve it’,
Are the reasons why our time in BBS was simply...priceless!
Abstract
Chinese construction firms like any other construction firms, have to face a lot of challenges when dealing with the African construction environment, but unlike the others their success is heavily related to the network they have with their government as well as the African local government. A successful project marketing couple with a good mapping network as well as a clear understanding of the African business environment will then be the tools to be effectively competitive in that market. The main problem arising is therefore how Chinese construction firms can use project marketing to achieve a tangible competitive advantage against their competitors.
Angola, an African country, was used as our single-case study. While relying on secondary data, we have discovered a country where most of the institutions were not fully established yet, and where the construction market was influenced to a certain level by the bilateral agreements between the Angolan government and the country of origin of the companies involved. Such bilateral agreements are closely related to the oil production of Angola. Our findings indicate that Chinese government is of great influence when it comes to the project marketing of Chinese construction firms before and after entering Angola but also that Chinese construction firms are already competitive in the market. Our conclusion on how a construction firm can be successful in African countries using project marketing is explained in a model that we have created for every company wishing to invest in the African construction market.
Africa countries are nowadays a profitable market for construction firms and the availability of funds from the bilateral agreements makes those construction projects affordable for the African government. That is why we came into the conclusion that not only a good understanding of the African environment may help the construction firms succeed but also a strategic use of project marketing.
Key words: Project Marketing, Mapping project network, Institutions, Bilateral agreements, Chinese construction firms.
ABBREVIATION
CCFs Chinese Construction Firms
CCCCA Chamber of Commerce for Chinese Companies in Angola
IMF International Monetary Fund
MNCs
Multinational companies
MPLA Movimento Popular de Libertacão de Angola (Popular Movement
For the Liberation of Angola)
PRC People Republic of China
SOEs State-Owned Companies
UNDP United Nations Development Programme
WB World Bank
Table of content
1. Introduction and Objective 7
1.1. Research background 7 1.2. Problematization 10 1.3. Research questions 14 1.4. Purpose 15 1.5. Delimitations 16 2. Research Methodology 17 2.1. Research approach 17 2.1.1. Research strategy 17 2.1.2. Research process 18 2.1.3. Case study 19
2.1.4. Case study design 20
2.1.5. Deductive and abductive approach 21
2.1.6. Quantitative and Qualitative research 22
2.2. Data collection 22 2.2.1. Secondary data 23 2.2.2. Primary data 23 2.2.3. Data processing 24 2.3. Quality of research 24 2.3.1. Validity 24 2.3.1.1.Construct validity 25 2.3.1.2.Internal validity 26 2.3.1.3.External validity 26 2.3.1.4.Reliability 27 2.3.2. The researcher 27 3. Theoretical Framework 29
3.1. The industry analysis from the institutional point of view 29
3.1.1. The product/service market network 30
3.1.2. The financial market network 31
3.1.3. The labour market network 32
3.1.4. The government network 32
3.1.5. Legal system 33
3.1.6. Political system 33
3.1.7. Education/training system 33
3.2. Business marketing of projects 35
3.2.1. Definition of project marketing 35
3.2.2. The intelligence network 35
3.2.3. The project network 36
3.2.4. Relationship and linkage strategies 36
3.3. The project marketing cycles 36
3.4. The theoretical synthesis 40
4. Empirical Study 43
4.1 The construction market in Angola from the institutional point of view 43
4.1.1. The construction market of Angola 43
4.1.2. The cooperation agreement between China and Angola 47
Government 4.1.3 The financial market 47
4.1.4 The labour market 49
4.1.5 Legal system 50
4.1.6 Political system 50
4.1.7 Education/training system 51
4.2 Chinese construction firms can use a project marketing strategy to compete on the market of Angola 52
4.2.1 The intelligence network 52
4.2.2 The project network 52
4.2.3 Relationship and linkage strategies 52
4.3 Chinese construction firms can improve their project marketing strategy in Angola 53
4.3.1 Mapping of the project network 53
4.3.2 The project tendering cycle of Chinese companies in respect of the Chinese-Angolan government corporation 53
4.3.3 Example of major construction projects 54
4.3.4 Logistic issues concerning the project cycle 54
4.4 Summary of empirical data 55
5. Analysis of Empirical Data 58
5.1 The construction market in Angola from the institutional point of view 58
5.1.1. The construction market of Angola 58
5.1.2. The financial market 61
5.1.3. The oil-backed loan agreement 62
5.1.4. The labour market network 63
5.1.5. The Chinese government 64
5.1.6. The Angolan government 65
5.1.7. Legal system 66
5.1.8. Political system 67
5.1.9. Education/training system 67
5.2. Chinese construction firms can use a project marketing strategy to compete on the market of Angola 67
5.2.1. The intelligence network 67
5.2.2. The project network 68
5.2.3. Relationship and linkage strategies 68
5.3. Chinese construction firms can improve their project marketing strategy in Angola 69
5.3.1. Mapping of the project network 69
5.3.2. Improving project marketing cycles 70
5.4. Summary of most important analytical findings 71
6. Conclusions and Recommendations 73
6.1 Conclusion 73
6.1.1 The construction market in Angola from the institutional point of view 73
6.1.2 Chinese construction firms can use a project marketing strategy to compete on the market of Angola 75
6.1.3 Chinese construction firms can improve their project marketing strategy in Angola 76
6.2 Model for main research question 78
6.3 Recommendation 79
CHAPTER I
INTRODUCTION AND OBJECTIVES
The purpose of this chapter is to explain the importance of the study subject based on most relevant literature review. Then the chapter continues with the description of various possible problems concerning the topic of the thesis. In the next step, we aim at presenting specific research questions that need to be answered based on our description of different possible problems arising from the subject. Finally, the purpose of the whole thesis will be given in short.
1. 1 Research Background
The actual “go abroad” policy initiated by Chinese government has promoted an increase of Chinese investment in foreign countries, especially in Africa. This is also to increase the collaboration between African countries and China. Indeed, the shifts of Chinese policy created new opportunities for Chinese investment in Africa during 1980s. But the intensive supports just introduced by the Chinese government since the beginning of 1990s:
In 1994, Beijing established the China Eximbank, which set up a fund for concessional loans to support industrial, infrastructure, and social welfare projects by Chinese enterprises. In the late 1990s, when Beijing announced the ‘Going Global’ policy, large firms, China’s ‘national champions’, began to expand their exploration of investment opportunities in Africa. (Deborah Brautigam, 2007)
Nowadays, the amount of Chinese firms operating in African markets has reached nearly one thousand. According to Deborah Brautigam, there were more than 800 mainland Chinese companies operating in Africa; some 700 of these were run by private individuals and the rest were medium to large state-owned firms by the early 2007. The increasing number of Chinese companies in African nations year by year has indicated the importance of this market toward
Chinese businessman. But which are the interests that attract these firms looking for business opportunities in the region of instable institutions and underdeveloped economies.
According to most economists, the reasons why Chinese companies investing in African countries are the incredible availability of natural raw materials which are able to nourish the huge economy of China: “Its own considerable territory notwithstanding, China is generally resource-poor and regards Africa as the cornucopia of the vital natural resources it needs to fuel its rapidly-growing economy” (“The new Chinese wave”, African Business, 2008). The large number of various natural resources such as copper, iron ore, coal, or timber could be found in Zambia, South Africa, Mozambique, Cameroon, etc. China also considers oil as its very important resource:
For oil, it is courting Nigeria, Angola, Sudan, and Equatorial Guinea. China is now the second-largest consumer of crude oil after the US and was responsible for 40% of the global increase in demand between 2001 and 2005. In 2007 it imported 25% of its crude oil from Africa (“The new
Chinese wave”, African Business, 2008).
In addition, the growing state of most African countries make them to be a potential market; the cost of investment is lower, the regulation of business environment is not so demanding in Africa if compared to the investment in America or European countries. Chinese companies are welcome in African nations not only thanks to the collaboration of between Chinese government and African countries government, but also due to its unconcern with the political influences:
Much of China's allure for African resource suppliers is its no-nonsense investment style: It agrees to terms quickly, settles in record time and does not mix business with politics. Its FDI comes with no ties or conditions involving ideology or governance (“The new Chinese wave”, African Business, 2008).
For us, it is interesting to discover how well China succeeds in this project by investing in more countries which are less developed but so rich in industrial raw materials. It is also necessary to examine how China facilitates its business operations in the region of Africa through different kinds of financial aid toward these countries.
Although the focus of Chinese investment is mainly on the industry of raw materials such as oil, gas, gold, copper, etc., Chinese businesses have been present in Africa in different industries such as textile, electric appliances, telecommunication, or construction:
China has now struck trade deals with 40 African countries--many without mineral riches. Construction and telecoms deals are widespread: Huawei, a Chinese telecoms firm, said last week that it had won contracts worth $400m to service mobile-phone networks in Kenya, Zimbabwe and Nigeria. (“A new scramble”, Economist, 2004)
The construction industry is a typical example. It is the fact that the Chinese contractors have been playing an important role in the construction industry of Africa. The reason which encourage Chinese construction firms (CCFs) looking for business opportunities in Africa is partly due to the increasing competition in the domestic market and liberalization of this industry after China’s admission into WTO (World Trade Organization). According to some reports, Chinese contractors are forecasted to overtake other international contractors such as French, American one and become the market leader in the next few years:
Table 1.1 The Growth of Market Share of Top International Contractors by Their Nationality in Africa (Chen et al, 2007))
Indeed, the graph shows the significant rise of the number of Chinese contractors from 2000 to 2005. While American construction companies, which are traditional players in this region started to lose its role in the market, especially from the year of 2003; then the market size of Chinese contractors increased quickly from this very time and overcame American players in just one year after. French construction firms, on the other hand, still maintain its leading role in African construction industry and continue to increase over the years. However, they need
to consider the Chinese players who are following them very closely. Therefore, we believe that it is necessary to study the development of the Chinese investment in Africa in general and the operation of Chinese construction firms in particular. This current phenomenon is also the concern of many researchers around the world who are interested in studying the increasing role of China in the world today, for example, in Africa.
1.2 Problematization
Problems arising from our subject
In the light of those different arguments it is obvious that Chinese investment in African construction industry is at the beginning stage and will continue to grow as time passes. However as point out by researchers like Corkin and Burke (2006), there are concerns arising regarding the lack of an institutional framework and government capacity to monitor and encourage Chinese direct investment. For some economists this is mainly due to the state of corruption and the poverty of African government where CCFs are investing, as well as the overall countries’ instability which makes these governments less able or inclined to manage the opportunities that represent those firms (“Mutual convenience”, the Economist, 2008). It can be interesting to see how Chinese constructions firms manage to make business under such circumstances.
In spite of the fact that our interviewee recognize that CCFs when looking for African Countries to invest on, are looking for countries with a certain economic stability at first, and the fact that Chinese constructions firms have taken this as an advantage over their competitors may explain their success (table 1.1); however these similarities are on some matters NGO as well as international institutions are worried about such as corruption, the lack of transparency on government management, the lack of environmental concerns and the political intrusion on business life (‘’Mutual convenience”, The Economist, 2008). It is therefore questionable to see if it is really a good strategy for those firms to construct their competitive position on such issues.
It has been pointed out by researchers such as Chen, Chiu, Orr and Goldstein (2007) that local barriers such as poor quality of local inputs, like labor and construction materials, have been overcame by Chinese investors in some manners that have raised questions. They point out the lack of skilled local managers among CCFs staffs, meaning the lack of African skilled
employees as well as the lack of trust of Chinese employers towards local labor. Their study shows that only 8% in total management source are African employees:
Figure 1.1 Management sources of CCFs in Africa (Chen et al, 2007)
As a result, CCFs have the tendency of bringing their own workers and therefore limit their interaction between them and the local labor market. For the authors, in long term there is no transfer of knowledge from Chinese companies to African community. However, for Corkin and Bulke (2006), there are evidences of the transfer of knowledge between two parties with the advantage towards the African side. It is also because the studied CCFs are using local workers for low skilled tasks:
Figure 1.2 Labor source of CCFs in Africa (Chen et al, 2007)
On the other hand, Chen and other authors (2007) also suggest that the language barrier may be one of the reasons why they prefer to hire Chinese workers. In spite of the fact that we can consider this as a strategy to overcome the institutional barrier created by the lack of skilled labor market in the industry, we still have some reserves when it comes to the institutional distance as well as gaining legitimacy towards the community.
On the other hand, the lack construction materials in the African construction industry are overcome by an importation of materials from China (Chen et. al, 2007). This is mainly possible due to the tax allowances thatAfrican countries are willing to give to Chinese firms. These tax allowances maybe part of the package of agreement between China and the countries involved. Many authors agree to the fact that the role of China is not very clear when it comes to such issues but they all seriously suggested that the lack of transparency in China’s agreement with the African countries are definitely the reason why we can witness these unclear issues.
Even though the effectiveness of Chinese companies lies on their competitive price combining with the level of the quality of construction projects and time efficiency, the lack of regulatory of support system in African countries make the actual quality of construction project not consistent at all (Corkin and Burke, 2006). It has been argued by these authors that the quality of Chinese construction works do not depend on their capacity but on whether or not there is
an institutional body (governmental or non-governmental) responsible for evaluating the quality of the work. There seem to be a link between the quality of work undertaken and the existence of regulatory body to monitor the work, and this may be a form of adaptation for the CCFs. According to our interviewee, this is one of the reason of the increase of Chinese investment, Chinese investor seem to consider the lack of regulatory system in this industry as an attractive incentive. But then the lack of regulatory system in an industry can be consider as not attractive at all specially when a firm goes to another country, it can be questionable to know whether this lack of enforcement is really an advantage for CCFs.
Chinese government has proclaimed to have no interest in the domestic affair of African state, and for a number of observers this has been one of the reasons why having China as a diplomatic partner is so attractive for African governments (The Economist). But as China involvement in international institution is growing a question arise to know how China’s own policies of non intervention and the international financial institutions’ conditional assistance will be resolved (Corkin and Burke, 2006). As pointed out by these authors, the non-intervention policy may continue to apply until Chinese interest in the region will be too important to ignore the political instability that may exist in those countries. But before reaching that state the question that is interesting here is how CCFs succeed in those countries where the political stability is not guaranteed at all.
We have already highlighted the role of the Chinese government on supporting Chinese companies go abroad, we sense that the support maybe financial as well as political (political network) but the linkages are not always apparent. Then it is possible that CCFs are supported by the Chinese government to go on specific countries that may not have been the first choice for them. Then do the financial and political aid are relevant when we see the level of risk as well as the different cost they have to face?
1.3 Research questions
Main Research Problem
Although Chinese constructions firms are recognized as being one of major players in the construction industry of Africa today, it may be interesting to identify and analyze what are factors which contribute to their success and whether they will help Chinese construction firms achieve a comfortable position in African countries in general and in Angola in particular. That is why our main research problem is:
How can Chinese construction firms become more competitive on the market in Angola?
This problem is further divided into three research problems:
Research problem 1: What does the construction market in Angola look like?
In the first research problem, we aim at analyzing the external environment where CCFs are operating in. Thus the construction industry of Angola will be taken into consideration in terms of competition situation, customers, suppliers, etc. In addition, the most relevant institutions of Angola will be discussed to see how they influence these companies.
Research problem 2: How can Chinese construction firms use a project marketing strategy to compete on this market?
In the research problem 2, it is necessary to study how a project marketing strategy is used by Chinese companies to compete on the market of Angola. Thus we will study most outstanding objectives of the project marketing strategy.
Research problem 3: How can Chinese construction firms improve their project marketing strategy in Angola?
In the last research problem, we aim at proposing some solutions to improve the project marketing strategy of Chinese companies in Angola. It is the fact that in order to beat other competitors and to win the tender/bid for projects, CCFs need to implement various effective marketing strategies.
Synthesis model of research questions
1.4 Purpose
The purpose of the thesis is to describe the current strategies of Chinese construction firms (CCFs) as well as their external environment which could influence these firms. The collected data of the subject then will be analyzed in order to examine and study these companies in respect to their surrounding environment. Also in the thesis, different theoretical frameworks will be used to study the practice. Finally we aim at providing recommendations that could promote the development of CCFs in Angola and in other African countries as well.
Main research problem
How can CCFs become more competitive on the market in Angola?
What does the construction market in Angola look like? How can CCFs use a project marketing strategy to compete on this market? How can CCFs improve their project marketing strategy in Angola?
1.5 Delimitations:
The industry that we are going to focus our analysis on is the Angolan construction industry.
In order to make analyzing the most relevant institutions of African nations, we decide to take Angola as an example into consideration.
Since most of our analysis is concentrated on main contractors, we are going to study a group of large-scale Chinese construction firms (CCFs).
CHAPTER II
RESEARCH METHODOLOGY
The objective of this chapter is to formulate the basic methodology that will be used in our thesis. The research approach thus is introduced firstly in order to determine appropriate research methods for our study. In any thesis, the data collection is an important step to gain necessary information for the writing process. Thus various issues concerning data collection and data processing are presented next to the research approach. The chapter will ends with the study for quality of the research.
2.1 Research approach
2.1.1 Research strategy
When it comes to research strategy Yin (2003) identifies some specific ones, namely: experiment, surveys, archival analysis, histories and case studies. That is why according to him different types of research strategy should be apply depending on the type of study we are aiming for; the right strategy will then be choose base on the type of information we are looking for, whether or not we need any control on the events and the type of problem that needs to be investigated.
Strategy Form of Research Question Requires Control of Behavioral Events Focuses on Contemporary Events
Experiment How, Why? Yes Yes
Survey Who, What, Where,
How many, How much?
No Yes
Archival analysis Who, What, Where, How many, How
much?
No Yes/No
History How, Why? No No
Case study How, Why? No Yes
For Yin (2003) the choice of the research strategy depends also on the purpose of the research; that is why he had identified three purposes of research which are: exploratory, explanatory and descriptive; as said earlier, the choice of the strategy will be base on the type of information we are looking for, and the problem to be investigated. Therefore the research strategy chosen for this thesis is case study
2.1.2 Research process
When we started working on our thesis we knew that we want to do a case study, that is having the opportunity to apply the theories that we have learnt during our master in a real life case; we knew that we want to apply as much as possible the theories about market analysis and business strategy but deciding upon the subject of our case study was a much more difficult task than what we thought it will be.
The idea of focusing our attention on Chinese investment came to us after some discussion with one of our professor at the Baltic Business School. During our program we had the chance to learn more about the particularities of the Chinese business environment as well as its growing FDI towards Europe and Africa, during our discussion, it then become obvious that the best way to combine our knowledge about institution analysis, business strategy and the Chinese business environment, was to focused on a case of the Chinese investment in Africa.
After that, we had an opportunity to make an interview to the CEO of an agency specialized in helping Chinese firms to invest in Africa; among those firms, there were some Chinese construction firms. We found this agency on the net. The agency is helping those firms by providing them with relevant information about African countries with the most secure environment as well as the tender available for them. In fact, the interviews with the CEO were really insightful. Although it was too early to have an exact idea on what to ask, they gave us some answers and more precise information how Chinese constructions firms operating in Africa as well as the possible links between the different governments involved.
Believing that the subject of study was too broad, we decided to narrow it to the construction industry of two specific countries. At first we wanted to consider some companies as case study but due the small time allocated to us for the thesis research, we were not able to establish any relevant contacts with the Chinese companies. Obliged to restrict ourselves to
secondary data, it was thereafter almost impossible to find relevant information about the activities of the mentioned companies in the mentioned countries. We then decide to focus only in Angola to meet the time limit as well as giving the most relevant and accurate information possible about our subject of interest.
The analysis of Angola makes us discover that the construction industry of the country is growing and a considerable numbers of Chinese construction firm are conducting activities in this area.
It was rather difficult to find information about Angola which were not closely related to the time when the country was on war, and it was difficult to find more precise information about the Chinese construction firms having some activities in that country.
2.1.3 Case study
Since the purpose of our research is to describe a current phenomenon, case study as a research strategy is therefore appropriate in order to observe and describe the relation between theory and practical case ; this choice make sense since our clear focus throughout this thesis is to gain an in-depth understanding of the situation and meaning for those involved (Merriam, 1998).There are many researchers consider using case study as tool to examine the interaction between phenomenon and its external context:
Learning from a particular case (conditioned by the environmental context) should be considered strength rather than a weakness. The interaction between a phenomenon and its context is best understood through in-depth case studies (Dubois, A. et al, 2002).
According to Yin (2003), case study is considered as an empirical inquiry that could investigate a contemporary phenomenon; the author goes further on by explaining that case study investigates within a real life context, when the boundaries between phenomenon and context are not clearly evident. According to the author the main advantage of the case study lies on the fact that we can focus our intention to be able to study more deeply the events as they occur.
But for some authors, case study as a research strategy is more recognized by its lack of representativeness and its lack of rigor in collection construction and analysis of the empirical materials that give rise to the study; according to them the lack of rigor is introduced by the subjectivity of the researcher. For Dubois and Gadde (2002), case studies which provide little basis for scientific generalization are too situation-specific. Even though , we have decided to take case study as our research strategy to confront the practical situation with the theory, and also because we think that only a case study will describe in the most efficient way the phenomenon which has attracted our interest.
2.1.4 Case study design
According to Yin (2003) there are single- case and multiple- case study, that is why it is important to decide whether the case study will have a multiple or a single case design. Yin has identified four different types of design for case study:
For Yin (2003), single-case studies are appropriate in circumstances where, for example, the case represent a critical case for testing a well-formulated theory, the case is an extreme or unique case, or the case provides a revelatory case for exploring certain aspects of phenomena previously inaccessible to scientific research. Single-case design provides a valid means to studies of explorative nature (Yin, 2003). While when using multiple-case study designs it is possible to replicate the case and thus make use of the research evidence gained from cross-analysis of all the multiple cases; on the other hand multiple cases studies require extensive resources and time beyond the means of an independent researcher. There are situations where the use of multiple cases is not possible ,as several alternative cases may be difficult to locate and get access to, so that real cross-analysis could be made between them (Yin, 2003)
For Merriam (1998) when it comes to quality research, the author suggests a non-probability research. The non-probability research can be described as purposeful sampling, that is, based on the assumption that the researcher wants to discover, understand and gain insight and therefore must select a sample from which the most can be learned (Merriam, 1998). Since we are writing about Chinese construction firms in Angola and how they can achieve and maintained a competitive position, we have chosen to use single-case design because of its explorative nature and it is impossible for us to do any multiple case designs. We also aim at approaching the research problem through non-probability sampling which is the method of choice for most qualitative research (Merriam, 1998).
2.1.5 Deductive and abductive approach
Since we have decided to conduct a case study as our research strategy, Dubois and Gadde (2002) suggest an abductive approach. The abductive approach, which is a kind of “systematic combining”, could merge and evolve theoretical framework, empirical fieldwork, and case analysis simultaneously (Dubois, A. et al, 2002). According to those researchers, the “systematic combining” is particular useful for development of new theories. This kind of system is characterized by two processes. The first is matching theory and reality, while the second deals with direction and redirection. Dubois (2002) describe the “systematic combining” as a nonlinear, path-dependent process of combining efforts with the ultimate objective of matching theory and reality. When the data collection is implemented, the search for useful theories and complementary to the general framework is on going.
The empirical fieldwork continues from a revised theoretical platform. Matching is, therefore, about going back and forth between framework, data sources, and analysis. The second process of “systematic combining” which play an important role to achieve matching is direction and redirection. Here, we bring up the impact of different sources of data and methods of data collection. Yin (1994) believes that multiple sources allow the investigator to address a broader range of historical, attitudinal, and behavioral issues. Moreover, multiple sources may contribute to revealing aspects unknown to the researchers, for example, to discover new dimensions of the research problem. The data collection activities need to be complemented by the efforts to discovery and this may result in redirection of the study. To conclude, in the “systematic combining” or adductive approach, the continuous interplay between theory and empirical observation is considered important (Dubois, 2002). The main purpose then is related to the generation of new concepts and development of theoretical models, rather than confirmation of existing theory.
We have therefore used an abductive approach throughout our thesis. We started by a deductive approach as we have looked for the suitable theories which we thought will be relevant for our main research problem. We ended up having a theoretical framework which is the basis of our data collection and study process; the study of the theories selected have made us modified them in order to obtain the summary of theories that we believe any Chinese construction firms willing to invest and succeed in Africa should follow. We have then shifted to an inductive approach where the theories developed by us were then tested on our case study and recommendations were elaborated based on our investigation.
2.1.6 Quantitative vs. Qualitative research
Merriam (1998) has identified two types of research approach namely the quantitative and the qualitative research; whereas qualitative research is considered as an inductive research strategy, quantitative research is considered as a deductive research strategy. For Merriam (1998) when the goal of investigation is to understand, to describe and to generate a hypothesis, like it is the case for our study, then qualitative research is useful. That is why we have decided to use qualitative research; we have made this choice also because, as we have stated before, we will use case study, which is for Merriam (1998) one of the different type of qualitative research
Merriam (1998) goes further by stating that the qualitative research can also be recognized by the type of research strategy that is used, in this case it is the inductive research strategy. For the author, during this type of research, there are no hypotheses that can be deduced from theory to guide the investigation. In our case there is a number of theories on the different players identified in the matter of our subject but there is no holistic theory about the subject as a whole to guide us. That is why for Merriam (1998), qualitative research is most common when there is a lack of theory or existing theory fails to adequately explain the phenomenon. In conclusion, we have chosen to use a qualitative research because a quantitative research would not help us solving the investigated problem.
2.2 Data collection
According to Merriam (1998) there is two ways of collecting data, namely secondary and primary data. For Yin (2003) using both primary data and secondary data can help to achieve a better validity, and for Merriam (1998) it is the most common strategy.
According to Merriam (1998), we recognize qualitative research by the fact that it usually involves fieldwork and therefore the usage of primary data, but in our specific research this couldn’t be done. Therefore most of our study was based on secondary data, meaning that written documents from secondary sources; but this didn’t affect our purpose since according to the author it is also possible to conduct qualitative study by that way. Because our case study is a country where it is impossible to go, we didn’t have much choice for the data collection but to rely on secondary data.
2.2.1 Secondary data
For Merriam (1998), secondary data are the data that have not been collected for your use because it has been published in an earlier context and for another purpose. According to the author, it concerns data such as articles, books, statistics, and so on. Merriam (1998) states that the researcher must decide where and when an observation should be done and who and what the observation should consist of. For Burns and Bush (2002) secondary data can generally be located quickly and inexpensively which is an advantage but on the other hand secondary data can be disadvantages also since they have been collected for purposes other than the problem at hand, their usefulness to the current problem may be limited in several important ways. But Sekaran (2002) considers the secondary data are really unavoidable when we consider situations such as the availability of data, accuracy of data, time span and cost factor of the study.
Our secondary data were mainly from articles, books; report and internet sources. It was rather difficult to analyze the collected data and decided on what information is more relevant than another one. The fact that Angola belongs to a category of countries which is not always studied by the media have made our study process more complicated; also the country has been only known for its lasting civil war, making the data collection process more complex.
2.2.2 Primary data
Primary data is information that has been collected for a specific purpose. According to Burns and Bush (2000), obtaining primary data can be quite expensive and time consuming but on the other side you can be assured that it is recent and has not been collected by someone else before. For Merriam (1998) there are several ways to accumulate primary data for the purposed of a thesis, but that interviews and observations are the most used. For Yin (2003), interviews are one of the most important sources of primary data; by using interviews we can get a deeper understanding of the situation we are currently faced with. However, interviews are really time-consuming.
The primary data for our study were obtained from the phone interviews of the CEO of the agency we mentioned before. Since the interviewee was in China, it was therefore impossible for us to make a face-to-face interview. We choose at first to have a structured interview but after the 1st interview we decided to conduct a semi-structured interview since it allows the
respondent to express itself more freely and it has given us the opportunity to discuss some questions in detail in order to get valuable input. The phone interview was only related to one of the issue of our thesis which was Chinese construction firms in Africa, but unfortunately the respondent couldn’t help us in the country of our interest because at that time we have not made our choice yet.
2.2.3 Data processing
As we have stated before, our data was collected from primary sources as well as secondary sources. Therefore, after collecting our data our next step is to analyze the data collected, that is, to arrange data into different category as explained by Merriam (1998).
Every interview was automatically transcribed in form of reading notes. The transcript obtained was then read very carefully and when necessary, note comments and observations were made in the margins as suggested by Merriam (1998). The notes made were then used as the basis for our analysis and made we grouped these comments together.
It is necessary to point out at this level that every documents were handle in the same manner, as suggested by Merriam (1998), we scanned every documents in the same way as outlined above, while keeping in mind the list of groupings that we have extracted from the first transcripts and checking to see if they were also present in the others documents we had. The lists of comments deriving from those secondary data then were merged with the first one obtained, which was used to start our classification system (Merriam, 1998). According to Merriam (1998), this first classification system is reflecting the recurring regularities or patterns in our study, which later on have become categories into which items are sorted.
When constructing the categories we have tried to respect at the maximum what Merriam (1998) considered as being the main characteristics of a good category construction, that is: categories should reflect the purpose of the research, should be exhaustive (all important data can be placed into a category), should be mutually exclusive, should be named as sensitive as possible (an outsider could understand) and at last should be general as possible.
2.3 Quality of the research
Validity is considered by Yin (2003) as one of the four tests that can be used to establish the quality of an empirical social research; it is clear that our study will be considered as qualitative only if it succeed in all the four tests designed for that purpose. The relevant tests are: construct validity, internal validity, external validity and reliability. The table below explains those relevant tests as well as the case study tactics apply to each:
Test Case Study Tatic Phase of research in which
tatic occurs Construct validity - Use multiple sources of
evidence
- Establish chain of evidence - Have key information review draft case study report
- Data collection - Data collection - Composition
Internal validity - Do pattern-matching - Do explanation-building - Address rival explanations - Use logic models
- Data analysis - Data analysis - Data analysis - Data analysis External validity - Use theory in single-case
Studies
- Use replication logic in Multiple-case studies
- Research design - Research design
Reliability - Use case study protocol - Develop case study base
- Data collection - Data collection
Table 2.2 Case Study Tactics for Four Design Tests (Yin, 2003)
2.3.1.1 Construct validity.
As stated by Yin (2003), it will involve for us to establish correct operational measures of the concept being studied. Since we have decided to focus on case study, Yin (2003) suggests that we should use multiple sources of evidence as well as establish a chain of evidence. We had insured the multiple sources of evidence by using documentation and interviews at the same time; this had allowed us to cross check the validity of our data. For Yin (2003) the chain of evidence is also used to increase the reliability of the study, that is, the reader must be able to go backward from the conclusion of our study and reach again the data used to obtain that conclusion. To achieve that we had made sufficient citation to the relevant portions of the case
study database as well as a clear explanation of the protocol used to collect and interpret the data.
2.3.1.2 Internal validity
For Yin (2003) it has to do with establishing a causal relationship but for Merriam (1998) it mostly has to do with how the research findings match the reality, that is knowing if we have interpret the reality correctly and if our empirical study is valid as an understanding of the reality. Then Merriam (1998) suggests the usage of six basic strategies: triangulation, member check, and long-term observation, peer examination, participatory mode of research and researcher’s biases. In our study we have used triangulation since it is more easily to have multiples sources of data that is not relying in the same sources of secondary data everytime. For peer examination, the discussion with our colleagues and professors help us; and we have also used researcher’s biases by providing the result of our study to an outsider’ view.
The internal validity could not be reached by long term observation since we didn’t have enough time for that, member checks was not also used for the same reason. We think we have also reached an acceptable internal validity through the theories used which has been relevant for the empirical part.
2.3.1.3 External validity
For Yin (2003) the researcher must established the domain to which the study’s findings can be generalized, that is external validity is concerned with the extent to which the findings in one study can be applied to other situations (Merriam, 1998). Here Yin (2003) suggests that in the multiple case studies we use the replication logic, but since we focus on single case study, the author argue that single case studies offer a poor basis for generalizing and therefore the usage of multiple case studies is encouraged by the author.
The external validity of a study is ensured if the research is conducted for another case study and one finds the same result. That is why according to Yin (2003) we should develop a rich theoretical framework which clearly states in what conditions we can find the phenomenon as well as under which one we can’t find it.
Our external validity was enhanced by the types of articles used as secondary data; those articles where mainly on general subject like investment in Africa, Chinese investment in the
world and in Africa, and Chinese construction firms in Africa in general. We think this has increased the generalization of our thesis. Also the model developed by us was made as general as possible so that any foreign construction firms could use it in different countries in Africa. The model has some limitations but since many African nations have the same economic situation as Angola, this has enhanced our external validity also.
2.3.1.4 Reliability
Here Yin (2003) states that it concerns demonstrating that the operations of the study can be repeated with the same results. To allow this Yin (2003) advocates a good documentation of the procedures followed as well as making each steps as operational as possible and ‘to conduct the research as if someone were always looking over our shoulder’
We acknowledge the fact that our subject of interest in this study is a recent phenomenon and it is important to design a study that is emergent and flexible, for Merriam (1998) also, these are necessaries characteristics of a relevant qualitative study.
The findings of this study are expected to be reliable because the data presented in the documentation are correct. They were collected from scientific studies and since were two researchers conducting the data collection this has made each person very critical on the findings of another in regard to the study. That is why we our findings are as clear and verifiable as possible. We believe that our analysis has been as objective as possible and that biased conclusion has been avoided.
2.3.2 The researcher
For Merriam (1998) in a qualitative study, the researcher is a valuable asset also:
The investigator is the primary instrument for gathering and analyzing data and, as such, can respond to the situation by maximizing opportunities for collecting and producing meaningful information. Conversely, the investigator as human instrument is limited by being human –that is, mistake are made, opportunities are missed, personal biases interfere .Human instruments are as fallible as any other research instrument. The extent to which a researcher has certain personality characteristics and skills necessary for this type or research needs to be assessed just as a rating scale or survey form would be assessed in other types of research (Merriam, 1998).
According to Merriam (1998) those basic facts about the researcher respond to what the qualitative researcher should have as characteristics that is, a high tolerance for ambiguity, enough sensitivity and the researcher should be a good communicator.
We believe each of us possesses those relevant skills; the level of ambiguity in this study has been very high since it has required for us a very high level of adaptation as well as a certain acceptance of lack of structure. The mere fact that during our research the possibility of changing the main research problem of our study as well as the players to be involved ,has been very high from the right beginning and throughout the process, didn’t drive us away from our main concern.
Merriam (1998) also states that the sensitivity of researchers is very important:
• Sensitivity towards the information being gathered that is knowing when enough data has been gathered, knowing when to stop an interview which was not a problem for us; • Sensitivity towards the data that is , knowing how to ‘read’ the data, something that
we learn to do through practice;
• Sensitivity towards the biases inherent in this type of research that is, recognizing that we are human and that all observations and analysis will be filtered through us. We think that the fact of working as a pair increased the accuracy of our description of the problem, giving not a one-side view but a view that will be the outcome of deep discussions and multiple interpretations of the identified phenomenon.
At last being a good communicator as a researcher for Merriam (1998) is very important also. That is why we have been able to put ourselves in the shoes of the different players involved in the phenomenon and we have been able to capture not only what was explicitly said but also what was implicitly said. We also think that the high level of trust among us as well as our open-mind capacity, have contributed on writing a thesis that is the true description of this adventure which was full of promise for discovery.
CHAPTER III
THEORETICAL FRAMEWORK
In this chapter, our purpose is to study various theoretical frameworks in order to obtain relevant answers to our different research problems. Firstly, the theory of industry and institution analysis is taken into consideration. The project marketing strategy theory comes after with the focus on the project marketing cycles and the mapping of project network. Finally, the theoretical synthesis will be produced to sum up the whole theory that we are going to use.
3.1 The industry analysis from the institutional point of view
We aim at approaching the construction market from an institution point of view. That is why the relevant institution theories will be explained with an emphasis on the ones we believe have direct influence on the construction market; but before that we will attempt to understand what are the forces influencing the major players in a market by using the theories in relation with the industry analysis as well as the institution analysis.
The basic networks model
According to Jansson (2007), emerging country markets are largely characterized by network or relationships societies, and therefore markets and societies from such countries should be viewed from a network perspective. Network in this case concerned inter-organizational relations, and their direction, spread and substance of these relations between organizations are determined by institutional factors (Jansson, 2007).Therefore knowing the most important institutions for the MNC is the first step before establishing any type of network. The basis of the model explain in this section is the basic network model as provided by Jansson (2007), the model illustrates international business marketing taking place through networks relations between the MNC network and some of its external parties in local market networks such as the product/service market network and the government network (Jansson, 2007). We will
therefore look upon the different rules in each institution that may influence the nature of the network among players.
3.1.1 The product/service market network
According to Jansson (2007), the Porter’s five forces model provides a number of rules for how the product/service market works in a given industry. Grant (2005) goes further on by saying that Porters’ model should be used to analyze any given industry. According to him, these five forces of competition include three sources of ‘horizontal’ competition: competition from substitutes, competition from entrants and competition from established rivals and two sources of ‘vertical’ competition, the bargaining power of suppliers and buyers. In relation to the different components of the product/service market network we can therefore identify which forces can be directly related to them:
Customers:
The most important force which considered here is the competition for substitute and the bargaining power. According to Grant (2005), the price customers are willing to pay for a product depends on the availability of substitute, for the author, the absence of close substitutes for a product as in the case of construction means that consumers are comparatively insensitive to price. In this case demand is inelastic with respect to price. When it comes to Bargaining power, Grant (2005) considers two factors: the buyer price sensitivity, that is, the greater the importance of an item as a proportion of total cost, the more sensitive buyers will be about the price they pay. The less differentiated the products of the supplying industry, the more willing the buyer is to switch suppliers on the basis of price. The more importance the product or the service is, the less sensitive of buyers to the prices. According to Grant (2005), the relative bargaining power rests ultimately on refusal to deal with the other party. The balance of power between the two parties in a transaction depends on the credibility and effectiveness with which each makes this threat.
Competitors:
For Grant (2005), the main Porter’ forces that need to be considered when it comes to competition in an industry are, the potential entrants and the industry competitors. When it comes to the potential entrants, we must know that when an industry earns a return on capital in excess of its cost of capital, that industry acts as a magnet to firms outside the industry
(Grant, 2005), but the opportunity to enter an industry will also depend on the different threats of entry. Therefore Grant (2005) identifies some threats of entry such as: the capital requirements, the economies of scale, the absolute cost advantages, access to channels of distribution and governmental and legal barriers.
The second force of Porter that can be considered relevant is the industry competitors. For Grant (2005), in most industries the major determinant of the overall state of competition and the general level of profitability is competition among the firms within the industry. Among the different factors identified by Grant (2005) and who play an important role in determining the nature and the intensity of competition between established firms, we have concentration, diversity of competitors, product differentiation, excess capacity and exit barriers, cost conditions ( scale economies and the ratio of fixed to variable costs).
Suppliers:
The force in charge here is the Bargaining power of suppliers. Now the firm is the buyer, for grant (2005) the key issues are the ease with which the firms in the industry can switch between different input suppliers and the relative bargaining power of each party.
3.1.2 Financial market network
According to Jansson (2007) the distinction has to be made between capital market-based and credit-based financial system. According to him, in the capital-market based system, we have to understand that financial intermediation is controlled by the market. Specialized financial agents compete for capital and assets through market transaction and the prices of financial assets are mainly set by market competition (Jansson; 2007). According to the author, financial transactions are impersonal and rather short-term; he goes further on by saying that this type of financial system is mainly found in Anglo-Saxon countries. In the credit-based financial system, Jansson (2007) states that financial intermediation to a larger extent takes place through long-term network relationships between banks and specific large borrowers. According to him we find this type of financial system in countries like Germany, South Korea and Japan.
When it comes to the financial market of a country, Jansson (2007) suggests that the rules regarding the way money is transferred in and out of the country is important since in some emerging countries those transfers are monitored by the government; according to him also
workers union can influence the company finances. It this subject, Jansson (2007) focus also its interest on the way sales tax are structured as well as the overall tax policy of a country regarding the industry where its operate. Jansson (2007) points out the fact that the efficiency of tax collection procedure influence also the way the firms organized its finance as well as the level of custom duties which is to be taken into account.
3.1.3 Labor market network
Jansson (2007) is making a distinction between market-based reward system and the organization –based reward system. For him in the market-based system, individual professional and craft competencies are more important and persons more aware of their market value. While in the organizational-based reward system, labor market issues are not so much decided by the market but more by individual organizations, either by the employer alone as in many Asian emerging country markets or through negotiations between employers and labor unions as in many West European markets.
Therefore, for Jansson (2007) trade unions are institutions that maybe very important since they may influence the reward system, the labor mobility and the work organization. It is also really important to analyze the labor regulations that are influencing the market. According to the author, when analyzing the labor market of a country we should focus on characteristics such as the availability of skilled labors ,the level of power distance between employers and employees as well as the level of trust between employers and employees.
3.1.4 Government network
It concerns all the official establishments the firms will be directly involve with such as government authorities (Jansson, 2007). The main interest will be on the enforcement regulation put in place to regulate different aspects of the MNC in the country it is operating. For Jansson (2007) issue such as the type of expectation the official bodies has on the firms should be acknowledged, expectations like the type of standard applied in the home country should be apply in the host country. Jansson (2007) perceives the relation between the MNC and the government as relation where the MNC has to gain legitimacy towards the government. Therefore while the basic value in the product/service markets is profitability, the common value in the government network is legitimacy; the main motive then for the MNC is then to insure every day operation respond to the policy in place. On the other hand, the government has to insure that policies are clear enough to respond to the everyday
practical issues of the MNC (Jansson, 2007) such as policies concern, environmental issues, labor forces and industry entry barriers as well as laws and regulations of the markets as a whole.
3.1.5 Legal system
For Jansson (2007), when it comes to legal system it is the enforcement mechanism that should request our attention as well as the laws and regulations put in place to monitor and control the MNCs. The way the legal system in the country protects for example property rights should be analyze as well as the level of efficiency of courts and the clarity of legislation in use. The MNC should comply with laws and regulations inherent to the host country (Jansson, 2007). The law may convert practical issue such as the labor forces and may relate to financial issues such as the tax policy.
3.1.6 Political system
It is important to know whether the system in place is a multiparty system or a unique party system in order to assess the political stability of the country of interest. For Jansson (2007) it is important to know if the political system encourages the establishment of basic constitutional rights to adhere to. For some MNCs the level of stability is insured by the type of political system used in the country of operation.
3.1.7 Educational/training system
A MNC may locate itself on a city within a country depending on the availability of skilled workers. More important, according to Jansson (2007) the existence of higher educational institutions in a country can insure a steady influx into the labor market of new skilled and qualified labor with the lasted knowledge .In anyway the educational system in a country is designed to support the labor demand.
Although the educational/training system is divided between the primary, secondary and tertiary education, MNC focus their attention on the tertiary education since its employees come directly from there. But things such as the level of literacy among workers can become a difficult problem to handle also. According to Madsen and Larsen (1998), a country will attempts to tie the educational system more closely to the labor market, so that education will be practically effective in the national environment level first of all, but the authors continue by saying that the main danger can be the lack of compliance to the international standards.
For Bock and Timmerman (1998), the matching process between education and employment in the labor market can be seen as a result of diverse forces: the demand for and the supply of qualifications needs. Those supply and demand forces are to be seen in a framework of social, economic, national and international trends; for the authors those forces constitute the institutional settings of the education system and of the labor market. Bock and Timmerman (1998) go further on by saying that even if the there must a close relationship between the educational/training system and the labor market, there is sometimes a situation where no linear matching exists between training occupations and the employment structure; for them this is mainly the case when uncertainties grow with regard to future qualification requirements in the labor market. We see such things in countries with a very recent market economic boom and market opening, where demand for new skills has ballooned, but the educational system has been ill prepared to meet the new requirements of the commercial sector.
Figure 3.1 The basic network model (Jansson, 2007), modified
Chinese Construction Firms
Customers Competitors Suppliers
Government network Societal Sectors Legal system Political system Education/training system Organizational Fields Financial market network Labour market network
3.2 Business Marketing of Projects
3.2.1 Definition of project marketing
There are many definitions of the term project; however the projects of project marketing literature always involve purchasing and selling organization (Maria et al, 2002). According these authors, a project is:
A complex transaction covering a discrete package of products, services and other action designed to create (capital) assets for the buyer over a certain period of time (Maria et al, 2002).
Hans Jansson (2007) also indicates that project marketing is a combination of products and services:
There are important differences between industrial marketing in general, which mainly concerns products, and project marketing, which is mainly concern a package of products and services. The complexity is larger in many ways (Jansson, 2007).
Since the substance of a project is the complexity, it needs a strategy that can manage variation and processes: “…International business marketing strategy processes are best studied for projects, especially for large projects, which are extremely complex and time consuming” (Jansson, 2007).
3.2.2 The intelligence network
According to Jansson (2007), the intelligence network is useful to map project networks. Moreover, this kind of network will help MNCs to obtain information about emerging business opportunities, for example a project, as early as possible so as to be able to start influencing the buyer cluster (Jansson, 2007).
An intelligence network consists of various groups and organizations which may provide relevant information regarding new projects. These organizations such as World Bank, UNDP, Aid organizations or foreign embassies can finance large projects as well as evaluate project proposals at very early stages (Jansson, 2007). In this network, there is an information broker who contacts with those organizations and information about suitable contact persons for interesting projects can brought from him/her. This network also linked to local information clusters at the regional offices which scan local organizations for possible future projects and
