Infrastructural Assessment : A Quantitative Tool within Business &amp; Economics

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Bachelor’s Thesis in Business Administration Faculty Advisor: Mats Bornvik

Examiner: Ulf Höglind Spring 2009 / 4 June 2009

Infrastructural

Assessment

A Quantitative Tool within Business & Economics

Authors: Emil Bergdahl (831114) Markus Kvarnlöf (850923)

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ABSTRACT

Traditional theories, models, and methods often address a general view of the environment including sociocultural, technological, political, and economic factors. However, there is a lack in infrastructural attention in these concepts which this thesis intends to contribute with by analyzing how regional specific infrastructural variables can be aggregated to one comparative measure and what that measure’s scope of use could be in the market analysis? Hence, the purpose of this thesis is to contribute to the strategic planning process research with a supporting quantitative tool, based on statistical metrics, for determining the market potential.

This thesis has an inductive approach and is primary based on documentary secondary data and the strategic planning process is the main theory of concern when evaluating the possibilities of infrastructural assessment. As a complement, the infrastructural concerns in the economics are also dealt with.

The empirics are compiled and calculated in a manner which allows an indexing and the finalized result is presented as an Infrastructural Status Index (InfraStat Index). Some of the utilities of this index are that it can be a complementary part of the PEST- and SWOT-models and a supporting tool in companies’ strategic planning processes. The index has both business and macroeconomic scopes of use and one of the summarizing conclusions is that further research within this concept should incorporate more variables in order to retrieve a more comprehensive result.

Keywords: Environmental Assessment; InfraStat Index; Infrastructure; Internationalization; Strategic Planning Process

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ACKNOWLEDGEMENTS

We would like to sincerely than

and assistance throughout the course of this thesis. A special gratitude

dedicated to the other groups in our tutoring sessions for their constructive feedback.

Moreover, we would like to specially thank Ann Swedish Business School at Örebro University for

Yours sincerely, Emil Bergdahl Örebro, May 2009 bergdahl.emil@gmail.com

ACKNOWLEDGEMENTS

We would like to sincerely thank our faculty advisor Mats Bornvik for his guidance and assistance throughout the course of this thesis. A special gratitude

dedicated to the other groups in our tutoring sessions for their constructive

uld like to specially thank Ann-Marie Flygare at the faculty of the Swedish Business School at Örebro University for her statistical consultation.

Markus Kvarnlöf Örebro, May 2009

bergdahl.emil@gmail.com markus.kvarnlof@gmail.com

vik for his guidance and assistance throughout the course of this thesis. A special gratitude is also dedicated to the other groups in our tutoring sessions for their constructive

Marie Flygare at the faculty of the consultation.

Örebro, May 2009

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1 INTRODUCTION ___________________________________________________________ 7

1.1 D

ISPOSITION

... 7

1.2 B

ACKGROUND

... 8

1.3 P

ROBLEM

D

ISCUSSION

... 10

1.4 P

URPOSE

... 12

1.5 T

HE

I

NTENTIONS OF THIS

T

HESIS

... 12

1.6 S

CIENTIFIC

A

PPROACH

... 13

1.7 D

ELIMITATIONS

... 14

2 METHODOLOGY __________________________________________________________ 15

2.1 R

ESEARCH

S

ETTING

... 15

2.1.1 C

RITICISM

–

R

ESEARCH

S

ETTING

... 16

2.2 D

ATA

C

OLLECTION

... 16

2.2.1 C

RITICISM

–

D

ATA

C

OLLECTION

... 17

2.2.1.1 Criticism – Sources ... 18

2.3 D

ATA

A

NALYSIS

... 19

2.3.1 C

RITICISM

–

D

ATA

A

NALYSIS

... 20

3 THEORETICAL FRAMEWORK ________________________________________________ 21

3.1 S

TRATEGIC

P

LANNING

P

ROCESS

... 21

3.1.1 M

ISSION AND

O

BJECTIVES

... 22

3.1.2 E

NVIRONMENTAL

A

SSESSMENT

... 23

3.1.3 I

NTERNAL

A

NALYSIS

... 25

3.1.4 M

ULTIPLE

C

RITERIA

D

ECISION

A

NALYSIS

... 26

3.2 I

NFRASTRUCTURAL

C

ONCERNS IN THE

E

CONOMICS

... 27

4 INFRASTAT INDEX ________________________________________________________ 30

4.1 T

RANSPORTATION

... 31

4.2 C

OMMUNICATION

... 33

4.3 P

OWER

D

ISTRIBUTION

... 35

4.4 I

NFRA

S

TAT

I

NDEX

... 36

5 UTILITIES OF THE INFRASTAT INDEX __________________________________________ 38

5.1 T

HE

B

USINESS

P

ERSPECTIVE

... 38

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6 CONCLUSIONS ___________________________________________________________ 42

LIST OF REFERENCES _________________________________________________________ 44

APPENDIX A ________________________________________________________________ 48

APPENDIX B ________________________________________________________________ 51

APPENDIX C ________________________________________________________________ 60

APPENDIX D ________________________________________________________________ 69

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TABLE OF ILLUSTRATIONS

FIGURES

FIGURE 1.1 TWO PATHWAYS OF INTERNATIONALIZATION _____________________________________ 9 FIGURE 1.2 EXISTING LITERATURE WITHIN THE RESEARCH OF ENVIRONMENTAL ANALYSIS__________ 12 FIGURE 3.1 THE STRATEGIC PLANNING PROCESS ____________________________________________ 22 FIGURE 3.2 THE PROCESS OF AN OBJECTIVE _______________________________________________ 22 FIGURE 3.3 THE ENVIRONMENTAL SCANNING PROCESS ______________________________________ 24 FIGURE 3.4 THE SIX STEPS OF THE MCDA __________________________________________________ 27 FIGURE 3.5 ECONOMIC EFFECTS OF TRANSPORT INFRASTRUCTURE ____________________________ 29 FIGURE 5.1 DIFFERENT WAYS OF MEASURING EFFECTS OF INFRASTRUCTURE ____________________ 40 FIGURE 6.1 UNDERLYING FACTORS AFFECTING INFRASTRUCTURE ______________________________ 43 FIGURE A.1 WORLD REGIONS ___________________________________________________________ 48 FIGURE D.1 POWER DISTRIBUTION INDEX RANKING _________________________________________ 69 FIGURE D.2 COMMUNICATION INDEX RANKING ____________________________________________ 70 FIGURE D.3 TRANSPORTATION INDEX RANKING ____________________________________________ 71 FIGURE D.4 INFRASTAT INDEX RANKING __________________________________________________ 72 TABLES

TABLE 3.1 CATEGORIZATION OF THE COMPANY’S INTERNAL VARIABLES _________________________ 25 TABLE 3.2 SOME POSITIVE CONSEQUENCES OF INFRASTRUCTURE INVESTMENTS _________________ 28 TABLE 4.1 DESCRIPTIONS OF VARIABLES __________________________________________________ 31 TABLE 6.1 UTILITIES OF THE INFRASTAT INDEX _____________________________________________ 43 TABLE B.1 COUNTRY DATA _____________________________________________________________ 59 TABLE C.1 INDEXED COUNTRY DATA ______________________________________________________ 60 FORMULAS

FORMULA 4.1 AGGREGATED TRANSPORT INFRASTRUCTURE PER CAPITA IN COUNTRY I ____________ 31 FORMULA 4.2 AGGREGATED TRANSPORT INFRASTRUCTURE PER SQUARE KILOMETER IN COUNTRY I _ 32 FORMULA 4.3 TRANSPORTATION STATUS IN COUNTRY I _____________________________________ 32 FORMULA 4.4 TRANSPORTATION INDEX FOR COUNTRY I _____________________________________ 32 FORMULA 4.5 COMMUNICATION STATUS IN COUNTRY I _____________________________________ 34 FORMULA 4.6 COMMUNICATION INDEX FOR COUNTRY I _____________________________________ 34 FORMULA 4.7 POWER DISTRIBUTION STATUS IN COUNTRY I __________________________________ 35 FORMULA 4.8 POWER DISTRIBUTION INDEX FOR COUNTRY I __________________________________ 35 FORMULA 4.9 AGGREGATED INFRASTRUCTURAL STATUS IN COUNTRY I _________________________ 36 FORMULA 4.10 INFRASTRUCTURAL STATUS INDEX (INFRASTAT INDEX) FOR COUNTRY I ____________ 37 EXAMPLES

EXAMPLE 4.1 TRANSPORTATION INDEX FOR THE REGIONS OF THE WORLD ______________________ 33 EXAMPLE 4.2 COMMUNICATION INDEX FOR THE REGIONS OF THE WORLD ______________________ 34 EXAMPLE 4.3 POWER DISTRIBUTION INDEX FOR THE REGIONS OF THE WORLD ___________________ 36 EXAMPLE 4.4 INFRASTAT INDEX FOR THE REGIONS OF THE WORLD ____________________________ 37

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1 INTRODUCTION

The introductory chapter starts with an outline of this thesis followed by a background discussion containing a review of the issues of internationalization and the core concepts of traditional environmental assessment for

about to enter new markets. This is followed by a problem

lack of methods for evaluating infrastructural factors which leads to the research questions of this thesis. The chapter also concerns the intentions, limitations, and scientific approach of this thesis

1.1 DISPOSITION

Introduction

•The introductory chapter contains a background discussion followed by a problem discussion stressing the lack of methods for evaluating infrastructural factors which leads to the research questions of this thesis. The chapter also concerns the intentions, limitations, and scientific approach of this thesis.

Methodology

•This chapter presents the research setting for this thesis and how the secondary data have been retrieved and a discussion about what alternatives that there are for retrieving satisfactory data. Furthermore, the selection of measurement in the data analysis is reviewed.

Theoretical Framework

•This chapter contains a review of previous literature concerning the initial steps in the strategic planning process with special attention to infrastructural issues. The infrastructural concerns within the literature of economics are also presented describing the relationship between infrastructure investments and economic growth and productivity.

InfraStat Index

•This chapter contains a presentation of a concept for measuring infrastructural variables with a full review of the calculations of the sub

concept is illustrated by four examples, one for each index category.

Utilities of the InfraStat Index

•This chapter declares the utilities of the proposed InfraStat Index by first explaining the general advantages followed by more specific advantages divided into utilities within both business and macroeconomics.

Conclusions

•In this chapter the conclusions of this thesis are declared and the research questions are being answered. An illustration is also made to show the influencing forces that have an impact on the infrastructural assessment.

Conclusions

•In this chapter the conclusions of this thesis are declared and the research questions are being answered. An illustration is also made to show the influencing forces that have an impact on the infrastructural assessment.

Emil Bergdahl & Markus Kvarnlöf

INTRODUCTION

The introductory chapter starts with an outline of this thesis followed by a background discussion containing a review of the issues of internationalization and the core concepts of traditional environmental assessment for companies that are

new markets. This is followed by a problem discussion

lack of methods for evaluating infrastructural factors which leads to the research questions of this thesis. The chapter also concerns the intentions, limitations, and

of this thesis.

The introductory chapter contains a background discussion followed by a problem discussion stressing the lack of methods for evaluating infrastructural factors which leads to the research questions of this thesis. The chapter also concerns the intentions, limitations, and scientific approach of this thesis.

This chapter presents the research setting for this thesis and how the secondary data have been retrieved and a discussion about what alternatives that there are for retrieving satisfactory data. Furthermore, the selection of measurement in the data analysis is reviewed.

This chapter contains a review of previous literature concerning the initial steps in the strategic planning process with special attention to infrastructural issues. The infrastructural concerns within the literature of economics are also presented describing the relationship between infrastructure investments and economic growth and productivity.

This chapter contains a presentation of a concept for measuring infrastructural variables with a full review of the calculations of the sub-indexes which together form the InfraStat Index. The concept is illustrated by four examples, one for each index category.

This chapter declares the utilities of the proposed InfraStat Index by first explaining the general advantages followed by more specific advantages divided into utilities within both business and macroeconomics.

In this chapter the conclusions of this thesis are declared and the research questions are being answered. An illustration is also made to show the influencing forces that have an impact on the infrastructural assessment.In this chapter the conclusions of this thesis are declared and the research questions are being answered. An illustration is also made to show the influencing forces that have an impact on the infrastructural assessment.

Page | 7 The introductory chapter starts with an outline of this thesis followed by a background discussion containing a review of the issues of internationalization and companies that are discussion stressing the lack of methods for evaluating infrastructural factors which leads to the research questions of this thesis. The chapter also concerns the intentions, limitations, and

The introductory chapter contains a background discussion followed by a problem discussion stressing the lack of methods for evaluating infrastructural factors which leads to the research questions of this thesis. The chapter also concerns the intentions, limitations, and scientific

This chapter presents the research setting for this thesis and how the secondary data have been retrieved and a discussion about what alternatives that there are for retrieving satisfactory data. Furthermore, the selection of measurement in the data analysis is reviewed.

This chapter contains a review of previous literature concerning the initial steps in the strategic planning process with special attention to infrastructural issues. The infrastructural concerns within the literature of economics are also presented describing the relationship between

This chapter contains a presentation of a concept for measuring infrastructural variables with a indexes which together form the InfraStat Index. The

This chapter declares the utilities of the proposed InfraStat Index by first explaining the general advantages followed by more specific advantages divided into utilities within both business and

In this chapter the conclusions of this thesis are declared and the research questions are being answered. An illustration is also made to show the influencing forces that have an impact on the In this chapter the conclusions of this thesis are declared and the research questions are being answered. An illustration is also made to show the influencing forces that have an impact on the

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Infrastructural Assessment – A Quantitative Tool within Business & Economics

1.2 BACKGROUND

Globalization makes it, through deregulations and the speeding information revolution, easier for everyone to more or less take advantage of both material and immaterial resources everywhere (Fregert and Jonung 2005). This opens a global market and further enables a specialized labor force and a more effective resource allocation (Fregert and Jonung 2005). These benefits are highly desired by companies since they give the companies market advantages and enable faster growth at a lower risk. However, globalization does not only bring benefits to growing companies; the free information flow derived from the globalization also makes it easier for companies to compete for customers on a global scale and thereby place local smaller companies in a vulnerable position.

Since growth, in order to utilize benefits of the globalization, is a common strategic goal and the fact that markets are not infinite, corporations will come to a point in their life cycles where the home market is saturated and it is either decline or recline. At this point there is often a need to utilize international market opportunities. When a company operates in two or more countries it is considered to be conducting international business and is consequently a part of an internationalization process (Daniels and Radebaugh 2001). Market saturation is not today’s only reason for going international; Deresky (2008) discusses both reactive and proactive reasons for corporate internationalization. Reactive reasons could be competitors’ internationalization, international demand, trade barriers that restrict exports to certain countries which provide incentives for overseas located manufacturing, and country regulations and restrictions that disfavor home-country manufacturing which might be a strong incentive for locating manufacturing overseas. When it comes to proactive reasons for going international, Deresky (2008) points out the incentives for economies of scale, cost effective resource utilization, incentives in form of, for example, tax reliefs which reduce risk and increase profit, and, as mentioned above, growth opportunities. Kotler and Keller (2009) state that when a company operates in more than one country it gains the advantages of access to new research and development opportunities, production alternatives, and financial benefits. When the decision to go international has been made the next step is to determine where and how to internationalize.

There are several ideas and developed theories regarding internationalization and two extreme pathways are illustrated in figure 1.1. The traditional pathway is associated with a lower risk since the company chooses to gradually internationalize its business by entering a market with relatively similar preferences as the home market or as a market on which it is operating and thereby has sufficient market knowledge about such factors as cultural and political differences (Hollensen 2007). This traditional strategy can be contrasted with the concept of the ‘born globals’ which often are smaller entrepreneurial managed companies and often with knowledge based unique products and processes (Bell et al. 2003). The ‘born globals’ view the world as one single marketplace with no borders and their internationalization process, aided by the advancements in information technology,

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advancements in information technology eradicate facilitate instant worldwide communication

the effects of globalization have

NAFTA, and the ASEAN, which have made it easier for companies to practice international business (Deresky 2008)

degree of uncertainty in the internationalization pro companies more often skip steps in the traditional pathway.

Figure 1.1 Two Pathways of the authors]

This thesis will address the challenges that companies face in the internationalization process and espec

market to enter. Regardless of the selection between companies will face similar challenges

the traditional point of view, entering a market with a distant psychical distance, such as market N in figur

there is a need to accumulate knowledge from earlier experiences understand how to operate in the distant market

‘born global’ approach the challenges will b

accumulated knowledge about psychically closer markets. This results in a faster internationalization process where knowledge is gained and implemented simultaneously.

As implied, all types of companies in an inter analyze the new market regardless of how they de

Traditional Pathway Home Market Foreign Market A Foreign Market B Foreign Market N Home Market Time Psychically

Most distant markets

is therefore directed to the whole world at the very beginning of their existence tional lower risk pathway becomes more and more obsolete

nformation technology eradicate geographic distance and facilitate instant worldwide communication (Hollensen 2007). In addition to this,

he effects of globalization have resulted in large trading blocs, such as the EU, the , which have made it easier for companies to practice (Deresky 2008). This development has eliminated some degree of uncertainty in the internationalization process with the result companies more often skip steps in the traditional pathway.

athways of Internationalization. Source: Bell et al. (2003:350) [modified by

will address the challenges that companies face in the internationalization process and especially the issues concerning evaluation of the Regardless of the selection between the two mentioned pathways companies will face similar challenges and must parry them in a similar

the traditional point of view, entering a market with a distant psychical distance, such as market N in figure 1.1, would be considered too great of a challenge there is a need to accumulate knowledge from earlier experiences

understand how to operate in the distant market. However, if the company has a approach the challenges will be faced and handled without the need of accumulated knowledge about psychically closer markets. This results in a faster internationalization process where knowledge is gained and implemented As implied, all types of companies in an internationalization mode have to analyze the new market regardless of how they decide to approach it practically;

Decicion to Internationalize

Born Global Pathway

Home Market Foreign Market A

Foreign Market B Psychically close markets

Most distant markets

Page | 9 at the very beginning of their existence. becomes more and more obsolete since the geographic distance and In addition to this, resulted in large trading blocs, such as the EU, the , which have made it easier for companies to practice . This development has eliminated some with the result that

2003:350) [modified by

will address the challenges that companies face in the evaluation of the the two mentioned pathways, a similar manner. In the traditional point of view, entering a market with a distant psychical distance, e 1.1, would be considered too great of a challenge and there is a need to accumulate knowledge from earlier experiences in order to However, if the company has a without the need of accumulated knowledge about psychically closer markets. This results in a faster internationalization process where knowledge is gained and implemented nationalization mode have to cide to approach it practically; Foreign Market Foreign Market

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McCarthy and Perreault (1990) define which factors to analyze as four major categories: Political, Economic, Sociocultural, and Technological (PEST). These categories affect if and how the company can enter the new potential market and they also set the framework for how to operate within the market. Within all of these categories lays a complex system of variables, with different degrees of organizational influence, that need to be analyzed and understood in order to support the managerial decisions. This analysis could either be quantitatively and/or qualitatively conducted, our opinion is that a quantitative measure enables comparison and more apprehensible information for the decision making, promoted by Beim and Lévesque (2006). Socioculture (in this thesis also referred to as culture), defined by Hollensen (2007:217) as ‘[…] the learned ways in which a society understands, decides and communicates’, has a profound impact on the internationalization decisions since it influences all parts of the society. Geert Hofstede (1983) attempted to quantify culture based on the four dimensions: power distance, masculinity, individualism, and uncertainty avoidance. Hofstede and Bond (1988) also identified a fifth dimension: time. The study resulted in an index value for each of the four dimensions spanning between 0 and 100 and has been considered one of the best and most thorough studies in understanding culture in a business perspective. Not just the cultural category has been quantified but also the political and economic categories have been subjects to quantitative analyses. One example is the Primary Risk Investment Screening Matrix (PRISM) which uses data from managers across the world and quantifies the data into two indexes, political and economic stability index, and economic desirability index (Erol 1985). Another quantitative measure for analyzing environmental factors is the Business Environment Risk Index (BERI) which considers political, economic and financial aspects of the country and is mainly directed to international corporate leaders, this index has a scale spanning from 0 to 100 including sub-factors that are measured on a scale between 0 and 4 (Hollensen 2007; BERI 2005). There are also examples of more specific quantitative sources of information to support the managers’ decision making regarding market analysis. Transparency International (2004) compiles annual reports concerning corruption throughout the world. In this compilation they present a corruption barometer where all countries are evaluated through several corruption sectors, e.g. police, customs, and business/private sector, and these are presented quantitatively in a scale between 1 to 5, where 5 is equal to ‘extremely corrupt’.

1.3 PROBLEM DISCUSSION

Corporate internationalization may be of higher importance in the business climate of the 21st_{century since the advantages of a global presence are more obvious}

nowadays. This statement is supported by the fact that an increasingly amount of companies around the world decide to expand their businesses to foreign markets which increases the global competition and intensifies the global and local rivalry (Hollensen 2007). In order to parry global competitors on the local markets, local

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© 2009 Emil Bergdahl & Markus Kvarnlöf Page | 11 companies are forced to consider and explore global possibilities. This could provide the local companies the same prerequisites in form of economies of scale, resource utilization, and international networks as their global rivals.

Due to this increasing internationalization trend, the need for an extensive and a corporate specific environmental analysis is growing among both local and global companies (Frankelius 2001). The environmental analysis is of great importance, first and foremost, for the purpose of creating an understanding of the surrounding environment and which threats and opportunities the company will be facing. The analysis is also an important part of the exploratory part of the internationalization process since it creates an understanding of how a new market favors or disfavors the entering company. This environmental analysis could, as mentioned above, be of quantitative and/or a qualitative characteristics and there are many areas to consider, e.g. the four PEST categories. When conducting an environmental analysis, one should not rely independently on one single method but rather considering both quantitative and qualitative elements in order to obtain both comparable and in-depth information (Hollensen 2007). Since companies have different objectives and purposes of their environmental analyses, it is of high importance to not only conduct wide-ranging analyses but also more narrowed and specific types of analyses, e.g. the corruption barometer by Transparency International (2004), in order to get more corporate specific and concrete information. The importance of, for the company, narrowed, specific and detailed information regarding environmental factors is highly emphasized by Per Frankelius (1997; 2001).

In the existing literature there are many methods and models regarding different specific environmental factors, however, we have found that the infrastructural factors have been not fully considered. The Council of Supply Chain Management Professionals (CSCMP) is conducting and compiling research about different countries’ infrastructure which they present in country specific reports, e.g. CSCMP global perspective - Ireland (McKevitt and Marshall 2008). However, these reports lack in comparable data between countries and regions since they are only presenting absolute values, e.g. kilometer of roadway, without regarding country size and population. This makes it hard to compare the infrastructural status of a country compared to other countries, both for entering companies and other stakeholders, such as governments. This indicates that there might be both a business and a macroeconomic interest in this type of information, there is even a commercial value in these types of specific analyses and are offered by companies like Business Monitor International (Business Monitor International 2009). In a business perspective, the infrastructural issues have a gaining influence due to the higher importance of an effective transportation system, such as the importance of Just-In-Time deliveries (JIT) and shorter order cycle times, and accurate decisions regarding facility location, such as the optimal number of and location for regional distribution centers (Ballou 2004). This statement is supported by a survey conducted by the KPMG in cooperation with the Economist Intelligence Unit which revealed that 80 percent of more than 300 executives worldwide believed that the importance of infrastructure will rise during the next five years (KPMG International 2009). The survey also revealed that 90 percent state that the availability of

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sufficient infrastructure will affect where and how to operate and facility location decisions (KPMG International 2009). Due to the macroeconomic interest in infrastructure and the proven rising importance of infrastructure in business, the importance of comparable analysis procedures and tools rises; this leads to the research questions of this thesis:

How can regional specific infrastructural variables be aggregated to one comparative measure?

What could be the measure’s scope of use in the market analysis?

1.4 PURPOSE

The purpose of this thesis is to contribute to the strategic planning process research with a supporting quantitative tool, based on statistical metrics, for determining the market potential.

1.5 THE INTENTIONS OF THIS THESIS

This thesis’s contribution to the environmental analysis literature is illustrated in figure 1.2.

Social/Cultural Factor X

Political Economic Technological Other

Infrastructure

Existing Literature

Area of Study

Figure 1.2 Existing Literature within the Research of Environmental Analysis. Source: the authors

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© 2009 Emil Bergdahl & Markus Kvarnlöf Page | 13 The intention is also, supported by the comparative tool, to compile an index which displays a cardinal ranking of countries enabling analyses of clusters and defined sub-regions. The final intention is to demonstrate the utilities of the tool in both a business perspective and a macroeconomic perspective. A clarification: the authors do not intend to present a complete or finalized method but they rather intend to present a concept of how specific quantitative infrastructural variables can be aggregated to one comparative measure.

The main target groups for this thesis are both academics within the business and macroeconomic fields and practitioners who are or are about to internationalize their businesses. The reader is expected to have prior basic knowledge in business administration and economics.

1.6 SCIENTIFIC APPROACH

Remenyi et al. (1998) mention that an epistemological stance of one who prefers to place more authority on working with an observable social reality, which can be generalized and preferably be presented in the forms of tables of statistical data, is referred to as a positivistic stance. When one tries to describe relationships between certain infrastructural variables and the potential effects those variables can have on business activity, as in this thesis, it is hard to neglect that the authors of this thesis might have been influenced by positivism to a certain extent. After all, the authors cannot change the fact that a certain country has a well developed railway system whilst another country does not have any railway in any degree. However, the authors of this thesis do not believe that everything is explainable solely on the basis of objective statistical data but do also share the point of view, stressed in the interpretivism, that the social world of business is very complex (Saunders et al. 2007) and that to get a rich insight into certain issues, including infrastructure, one cannot exclusively study statistical numeric data without regarding the fact of underlying factors influencing those numeric data. Even though the authors of this thesis are trying to present a structured method of evaluating infrastructure which facilitates replication, an indication of a positivistic research according to Gill and Johnson (2002), they do not claim themselves to be exclusively positivists, nor interpretivists. In practice, the authors find it quite unrealistic to position oneself to any single philosophy due to the individuality of one research compared to another. Tashakkori and Teddlie (1998:26) sensibly note that ‘[…] at some points the knower and the known must be interactive, while at others, one may more easily stand apart from what one is studying.’. This way of reasoning is referred to as pragmatism (Saunders et al. 2007) and argues that the research question is the determinant of highest importance. Thus, the authors of this thesis find it irrelevant to label oneself as having a stance in any specific research philosophy but rather focus on the research questions of this thesis and realize the fact that there are a number of potential ways for conducting this study and that either way has certain advantages and disadvantages.

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1.7 DELIMITATIONS

The empirical data have been limited by only including countries with populations of 500 000 or more since countries with small populations often have remarkably smaller country areas that do not require as comprehensive infrastructure as countries with higher populations and areas require. The majority of the countries that are excluded for this reason are insular nations in the Pacific Ocean and the Caribbean Sea.

Economic infrastructure is defined by Todaro (1981:526) as ‘[…] the underlying amount of capital accumulation embodied in roads, railways, waterways, airways, and other forms of transportation and communication plus water supplies, financial institutions, electricity, and public services such as health and education.’. However, the infrastructural variables included in this study have been limited to roadways, railways, airports, Internet users, telephone lines (main and cellular), and electricity consumption. This has been made since data on these variables are highly available. However, there are more variables of importance when it comes to infrastructural assessment, e.g. seaport accessibility, but due to the complexity in measuring certain variables the authors have let this issue to be for future research.

The time horizon for this thesis is limited to, what Saunders et al. (2007) label as, a ‘snapshot’ since the country specific infrastructural data are collected and analyzed at a particular time. Thus, an analysis concerning changes and developments over time will not be included in the scope of this thesis. However, such an analysis could be of interest for future macroeconomic research.

When it comes to theoretical delimitations, this thesis will concern infrastructural assessment in the context of the strategic planning process without concerning decisions regarding strategy implementation or evaluation.

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2 METHODOLOGY

This chapter presents the research setting for this thesis and how the secondary data have been retrieved and a discussion about what alternatives that there are for retrieving satisfactory data. Furthermore, the selection of measurement in the data analysis is reviewed.

First and foremost, it is important for us to express why and how we chose this subject in order to give the reader an underlying understanding of why this subject is interesting in the eyes of the authors. The authors found an interest in the subject while conducting a minor comparative study between the European and the African infrastructure. In that study the authors found that measuring infrastructural variables was difficult since there was limited research conducted within that area. This issue raised the idea of a comparative tool for evaluating the infrastructural environment. In order to investigate the utilities of a comparative infrastructural measure the authors consulted several recognized marketing experts who all supported the concept (the authors have chosen not to reveal the names of these marketing experts since they only have been consulted about the idea and not the results promoted in this thesis).

2.1 RESEARCH SETTING

The approach of this thesis resembles, what Saunders et al. (2007) mention as, an inductive approach since the authors collect data and from that data develop theory and understandings for how to interpret information. The inductive approach enables the researcher to interpret the social world without the need of a cause-and-effect relationship between certain variables. This is particularly valuable in this thesis since all factors in the environmental analysis are extremely complex and a cause-and-effect result would be too excluding.

It is of high importance for the authors of this thesis not to be limited by existing research in the field of environmental analysis in order to be as creative as possible with this research within the field of infrastructural assessment. Because of this, there are no intentions to base this study on any existing theory or model and from that state what is right or wrong with the results of this study. Since the authors have these intentions, an inductive approach appeared naturally. Another reason for the choice of this approach was due to the influence of Mr. Per Frankelius, Ph.D., who has, in a lot of his research, promoted a creative approach to research. With this in mind, the authors want to contribute with a creative addition to the already existing literature, see figure 1.2.

Saunders et al. (2007) describe three overlying purposes of why to conduct a study: exploratory, explanatory, and descriptive. However, a study is not limited to just one of these since the research question can give multiple answers and give

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the study multiple purposes. This thesis has an exploratory purpose since the authors have the intentions to seek new insights within the field of infrastructural assessment which, according to Robson (2002), indicate an exploratory purpose. The exploratory purpose also gives the study a flexible characteristic (Adams and Schvaneveldt 1991) which is important since there is a need for this particular thesis to be adaptive and to have no predetermined vision of how the final results will appear.

As a final point, the research strategy concludes the setting for this thesis. The research strategy for this thesis resembles, to some degree, what Saunders et al. (2007) describe as grounded theory which is promoted by Glaser and Strauss (1967) as a sound strategy for the inductive approach. The emphasis of this strategy is to develop and generate new understandings and theory. This thesis also has an archival research strategy since the main source of data has been collected through statistical records. These two strategies are combined in order to develop new understandings based on already existing data.

2.1.1 CRITICISM – RESEARCH SETTING

Instead of the inductive approach, this thesis could have had a deductive or combined approach. The deductive approach is a suitable approach for studies where there is a large amount of quantitative data and would thereby be appropriate for this thesis. However, the authors have no intentions to explain causal relationships between variables, which according to Saunders et al (2007) is one of the characteristics of a deductive approach, since that would be too limiting for the purpose of this thesis. Henceforth, since the deductive approach implies that the researcher should develop and test hypotheses, which limit the adaptiveness that is important for this specific thesis, it is not suitable with the authors’ intentions.

2.2 DATA COLLECTION

The primary data, on which this thesis is based, are of the type documentary secondary data which Saunders et al. (2007) define as written and non-written material already compiled by other than the researcher. The main source of the secondary data in this thesis is the World Factbook provided by the Central Intelligence Agency (CIA) of the United States of America. The CIA has in its turn compiled these data from several public and private sources, e.g. the US Transportation Command (Department of Defense, USA) and the Bureau of the Census (Department of Commerce, USA)1. Other sources that have been used in order to collect information are corporate and organizational websites, scholar

1_{See a more thorough list at}

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© 2009 Emil Bergdahl & Markus Kvarnlöf Page | 17 articles, and books. The corporate and organizational websites have been located through the search engine Google. The scholar articles have been located through the databases ABI/Inform and Emerald. The data that have been collected from the CIA are mainly of quantitative characteristics whilst the other sources are complementing qualitative data. According to Saunders et al. (2007), quantitative data are numeric or quantified data whilst qualitative data are numeric or non-quantified data. When collecting the data, the authors have been striving for using easy accessible sources of information in order to strengthen the trustworthiness, which is discussed below.

Reliability is defined by Saunders et al. (2007:609) as ‘The extent to which data collection technique or techniques will yield consistent findings, similar observations would be made or conclusions reached by other researchers or there is transparency in how sense was made from the raw data.’. This means that the researcher must declare how the research has been conducted and what sources of information that have been used and if these sources are reusable. The CIA’s World Factbook is a public source and all data, both current and previous, are stored and can be retrieved by anyone (CIA 2009a). This fact strengthens the reliability of this thesis.

Validity is defined by Saunders et al. (2007:614) as ‘[…] the extent to which data collection method or methods accurately measure what they were intended to measure.’. In order to strengthen the validity of this thesis a statistical advisor at the faculty of the Swedish Business School at Örebro University has been consulted in order to assure the accuracy of the mathematical formulas and calculations. Since the CIA compiles data from several sources one may assume that the information have been reviewed by several others before reaching the CIA and thereby contributing with objectivity, this fact also strengthen the validity of this thesis.

2.2.1 CRITICISM – DATA COLLECTION

Although this thesis primary is conducted as a quantitative study one may argue that a qualitative approach would be more valid since infrastructure differs in standard and quality. If this study had been conducted qualitatively instead of quantitatively the results could have displayed a more thorough understanding of the actual status of a country’s infrastructure. However, the disadvantages by conducting a qualitative study in this case are that the results would be incomparable and that the scale of the study would be too financially and timely consuming.

When it comes to the validity of this thesis there are some concerns. Since the specific infrastructural data that are collected through the CIA contain different levels of quality, e.g. paved and unpaved roadways and airports with paved and unpaved runways, it is hard to mathematically classify that data in the infrastructural tool promoted in this thesis. Besides from the constraints in the CIA’s information, there are also difficulties in evaluating the different levels, e.g.

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what is paved and unpaved? For example, paved roadway can differ significantly between regions and even within countries, e.g. the data make no difference between expressways and smaller paved country roads, which could have a significant impact on transportation activity. It is also difficult to take into account different airport classifications, e.g. runway length and width. Furthermore, in order to make every studied country comparable to each other the authors have excluded seaports from the study. This has been made since not all countries have any coastline and thereby are dependent on other countries’ seaport capacities. However, the authors realize the importance of seaports in international trade and hope that further research will find a functional way of including this variable.

2.2.1.1 CRITICISM – SOURCES

Since this thesis has a base in secondary sources, it is important to review the information critically. The authors use Rolf Ejvegård’s (2003) four quality requirements: (1) authenticity, (2) independence, (3) freshness, and (4) concurrency. The first requirement, authenticity, means that the sources must be authentic and the data presented must be accurately collected. For this thesis the main question is if the CIA’s data is authentic? There may be difficulties in retrieving information from specific countries, e.g. certain countries may have inadequate internal record keeping, which may affect the outcome of CIA’s country reports. There may also be difficulties for the CIA to interpret the retrieved data objectively since the USA has complex relationships with some countries which also may affect their reports. However, the purpose of the CIA’s World Factbook is to inform US government officials (CIA 2009a) which indicate that the CIA has the intention to supply accurate information. Another fact that gives this source credibility is that Statistics Sweden refers to the CIA’s World Factbook for international statistics (Statistics Sweden 2009). The second requirement, independence, means that information can be taken from its context in the gathering process and the information may be distorted due to long distances between the primary sources and the reports. However, this distortion may be minimized with complemented data. In this thesis there is a substantial amount of data that are being analyzed and there are no resources to complement all the data. Furthermore, since the data are mainly of quantitative characteristics the distortion is minimized due to the fact that there are limited sociocultural noises in interpreting numerical data. The third requirement, freshness, means that a new source is generally better and more complete than an older one since more updated research is included without excluding previous fundamental research and important information. Since the CIA updates the World Factbook once every two weeks the authors find the information to be fresh. The fourth and last requirement, concurrency, means that the collected data should be concurrent to the studied event, e.g. an article which is written closer in time to the event is more likely to give accurate information than an article written substantially later in time

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When it comes to the other sources, apart from the CIA, the authors have taken into consideration the relevance of each source but still trying to retain a sound combination of corporate and organizational websites, scholar articles, and books.

2.3 DATA ANALYSIS

The collected data have mainly been analyzed through quantitative methods which imply that the data have been processed in statistical procedures in order to create an understanding of the relationships in the categorization of the raw material. Saunders et al. (2007:406) state that ‘Quantitative data in a raw form, that is, before these data have been processed and analyzed, convey very little meaning to most people.’. That is the reason why this thesis presents the processed data in the forms of indexes. The authors of this thesis believe that presenting raw data in unprocessed forms, e.g. just presenting the kilometers of roadway in a country, do not provide much meaningful information since it excludes possible comparative elements. The detailed calculation procedures in this thesis are more thoroughly dealt with in chapter 4, however, the basic idea of these calculations is to make country specific raw data comparable in a cardinal manner.

The raw data are categorized into three types of infrastructure, transportation, communication, and power distribution, which enables to break up the infrastructural status in several levels. This gives the reader the ability to fully understand the stages of the calculations to the final result. When presenting the sublevel indexes and the final Infrastructural Status Index (InfraStat Index), it is important to describe the differences in the presented values and to describe how and why they differ from the average value (Saunders et al. 2007). To be able to develop indexes from the different categories there must be equidistance between the values. In order to achieve equidistance the authors have chosen to set all variables in relation to a common denominator, e.g. all countries’ railways per capita are separately set in relation to the aggregated railways per capita of the world. As a result of the equidistance between the values, the indexes presented in this thesis enable a cardinal ranking between the studied countries.

In order to explore the utilities of the developed InfraStat Index, referred to as the ‘tool’, the collecting and analyzing processes and the final results of the analyses have been qualitatively categorized into a business and a macroeconomic category. The potential applicability of the tool has then been scrutinized by reviewing existing literature about environmental assessment and infrastructural specific literature within both business and macroeconomics. Subsequently, a brainstorming by the authors of this thesis revealed several utilities, which are presented in chapter 5.

The promoted calculation concept, presented in chapter 4, enables generalizing, defined by Saunders et al. (2007:598) as ‘The extent to which the

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findings of a research study are applicable to other settings’, since the tool can be applied on not just countries but also in a both smaller and larger context, e.g. regions within countries can be measured in the same manner.

2.3.1 CRITICISM – DATA ANALYSIS

An alternative to the quantitative approach for analyzing would have been to qualitatively analyze the raw data. However, analyzing quantitative infrastructural raw data in a qualitatively manner would have resulted in an incomparable result were a cardinal ranking would not have been possible. A qualitative analysis, though, could give a more thorough understanding of the single country and its infrastructural status, e.g. one could include discussions about historical events which have influenced the current infrastructural situation in the country.

When it comes to the methodology of indexing, some may argue that it is difficult to verify the quality of an index since an aggregation conceals the individual elements of variables (Swedish Environmental Protection Agency 2002) and that the complexity of certain variables is concealed (Swedish Association of Local Authorities and Regions 2008), i.e. even the one with the highest ranking can have modest results within certain areas. However, the indexes in this thesis are fully declared and the fact that the indexes are degradable in several levels enhances the transparency.

The categorization of the raw data has been limited to including only three categories. This categorization could preferably include additional categories including more variables or the current categories in this thesis could be altered by interchanging the variables within those categories into a set-up preferred by the individual researcher. However, due to the given conditions of this thesis, the authors believe that the categorization that was made is regarded to be rational considering the characteristics of the variables included in this study.

When exploring the potential utilities of the tool, no experts within either business or economics were consulted. The authors took this into consideration but finally agreed on focusing on their own ideas based on their own discussions. The authors rather leave that topic open for further public discussions since various people might have opinions about the potential scope of use of the tool.

As a final comment in this chapter, some may argue that calculating the average, as made in this thesis, is not preferable due to possible occurrence of extreme values in the data set. A method for dealing with this issue would be to measuring the median value instead. However, the authors of this thesis do not regard any of the data as extreme values in that sense and therefore believe that the method used in this thesis is proper.

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3 THEORETICAL FRAMEWORK

This chapter contains a review of previous literature concerning the initial steps in the strategic planning process with special attention to infrastructural issues. The infrastructural concerns within the literature of economics are also presented describing the relationship between infrastructure investments and economic growth and productivity.

3.1 STRATEGIC PLANNING PROCESS

The strategic planning process (SPP) is a part of the strategic management process (SMP) with the objective of supporting a successful strategy implementation. The purpose of the international strategic process is to obtain correct and timely detailed data concerning the issues of geographic differences when it comes to Political, Economic, Sociocultural, and Technological (PEST) factors (McCarthy and Perreault 1990). Other factors that also should be included in the strategic formulation are the industry specific forces defined by Porter (1979) as threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and rivalry among existing firms. In many cases there are factors that have no direct obvious impact on the business but in specific circumstances could be of high importance. For this reason the SPP should also include more creative and innovative methods than those proposed by the traditional methods, e.g. the World mapping method (Frankelius 2001), in order to capture factors that would be neglected in the traditional methods. (Deresky 2008)

The following theoretical discussion throughout this chapter will only concern the SPP since the implementation and evaluation processes in the SMP are not consistent with the purpose of this thesis. The discussion will also be grounded in an internationalization context where entries in new potential markets are among the company’s main objectives.

In order to detect opportunities and to avoid threats, primary in the forms of environmental opportunities and threats, the SPP becomes critical. In an internationalization point of view, the design and practice of the SPP set the prerequisites for where and when to enter a new potential market. The process has its starting point in the definition of the company’s mission and objectives in order to assess the environment in a relevant manner. When the environment has been fully analyzed the process proceeds with an assessment of the business’s internal aspects. These assessments are then used as fundaments for the following analysis of different potential strategies. The final step in the SPP is to choose the optimal strategy to implement. This process is illustrated in figure 3.1 and is discussed more thoroughly below. (Deresky 2008)

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Infrastructural Assessment

The process illustrated in figure 3.1 is not often as simple as the figure implies, the stages are often intertwined

is devoted to the first three steps since

research questions. These three steps are discussed below with an infrastructural approach.

3.1.1 MISSION AND OBJECTIV

The absolute first step in the SPP is to define and clarify the mission whi state the company’s reason for being (Deresky 2008).

specifics in the mission as: which markets to operate target, what products or services to offer

development, and ethical issues. The purpose of clarifying the mission is to create a base for motivation and resource

creation of concrete objectives and to transfer the objectives into strategies. Objectives are defined by Mintzberg and Quinn (1996) as what the

to achieve, however, the objectives do not state how it is to be achieved. objectives should meet the

(2009) as: (1) Hierarchically The first criterion refers to

hierarchical attention from the most to the l

implies the importance of measurable quantified data in order to enable evaluation. The third criterion refers to that the objective must be derived from the real corporate prerequisites given by the environmental asses

criterion is that the objectives should

one cannot contrast low expenses versus an aggressive market expansion.

3.2 the process of an objective from the identification stage to the fulfillment stage is illustrated.

Figure 3.2 The Process of an Objective. Define/Clarify Mission & Objectives Assess the Environment Objective Identification Objective Communication

The Strategic Planning Process. Source: Deresky (2008:213) [modified by the

The process illustrated in figure 3.1 is not often as simple as the figure implies, the intertwined in a continuous process. The main focus of this thesis is devoted to the first three steps since those steps have a direct linkage

hese three steps are discussed below with an infrastructural

MISSION AND OBJECTIVES

absolute first step in the SPP is to define and clarify the mission whi ’s reason for being (Deresky 2008). Ax et al. (2005

specifics in the mission as: which markets to operate within, which customers to products or services to offer, the company’s intentions for corporate development, and ethical issues. The purpose of clarifying the mission is to create a base for motivation and resource planning; the purpose is also to enable the bjectives and to transfer the objectives into strategies. defined by Mintzberg and Quinn (1996) as what the company

to achieve, however, the objectives do not state how it is to be achieved. objectives should meet the four criteria, which is defined by Kotler and Keller

Hierarchically, (2) Quantitatively, (3) Realistic, and

The first criterion refers to that the different objectives must be given different hierarchical attention from the most to the least important. The second criterion implies the importance of measurable quantified data in order to enable evaluation. The third criterion refers to that the objective must be derived from the real corporate prerequisites given by the environmental assessment.

the objectives should be measured in the same way over time, one cannot contrast low expenses versus an aggressive market expansion.

3.2 the process of an objective from the identification stage to the fulfillment stage

The Process of an Objective. Source: Forsberg (2007:10) [modified by the authors] Assess the Environment Assess the Internal Capabilities & Needs Consider Alternative Strategies Objective Communication Objective Implementation Objective Evaluation

A Quantitative Tool within Business & Economics

Page | 22 ) [modified by the

The process illustrated in figure 3.1 is not often as simple as the figure implies, the The main focus of this thesis those steps have a direct linkage to the hese three steps are discussed below with an infrastructural

absolute first step in the SPP is to define and clarify the mission which should 2005) define the in, which customers to the company’s intentions for corporate development, and ethical issues. The purpose of clarifying the mission is to create a the purpose is also to enable the bjectives and to transfer the objectives into strategies. company wishes to achieve, however, the objectives do not state how it is to be achieved. The Kotler and Keller Realistic, and (4) Consistent. that the different objectives must be given different The second criterion implies the importance of measurable quantified data in order to enable evaluation. The third criterion refers to that the objective must be derived from the real sment. The fourth measured in the same way over time, e.g. one cannot contrast low expenses versus an aggressive market expansion. In figure 3.2 the process of an objective from the identification stage to the fulfillment stage

Source: Forsberg (2007:10) [modified by the authors] Choose Strategy

Objective Fulfillment

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A clarified mission and objective is important in order to define which type of infrastructural prerequisites the company needs in order to fulfill its operations. That is why this stage of the SPP is important for the purpose of this thesis since the discussion about the infrastructural measure’s scope of use, mentioned in the research question, will be based on the mission and objectives of the organization. Different mission and objectives demand different infrastructural prerequisites, e.g. one can presume that a telecom company desires a higher degree of developed communication systems whilst the physical transportation network might be of less importance.

3.1.2 ENVIRONMENTAL ASSESSMENT

Companies must be able to develop skills and attitudes that regard changes in the environment as something normal. They must be able to identify signals that notify about changes in trends and patterns and they must also be able to develop models for finding new and innovative ways to observe and interpret the environment. Observing the environment with the assistance of innovative models enables the company to imagine and create new opportunities. (Morgan 1999)

Deresky (2008) describes the observing and interpreting model as the environmental scanning process which is a part of the environmental assessment. The environmental assessment should also include a continuous monitoring which enables the ability to observe and response to potentially upcoming opportunities and threats. For the purpose of this thesis, it is mainly the environmental scanning process that is of interest since infrastructure is a relatively slow changing factor compared to, for example, changes in currency. The environmental scanning process is defined by Deresky (2008:214-215) as: ‘The process of gathering information and forecasting relevant trends, competitive actions, and circumstances that will affect operations in geographic areas of potential interest […]’. As illustrated in figure 3.3, the environmental scanning process includes evaluation of regional specific data and geographic narrowing in several stages which takes a starting point in a broad geographic region and results in a selection of a specific country or countries. The most immediate stage of the scanning process, for the purpose of this thesis, is of course the evaluation of the infrastructural constraints, highlighted red in figure 3.3. The results of the infrastructural evaluation are important as a foundation for the country selection and is often forgotten in traditional management and marketing literature. The traditional SWOT-model (Andrews 1971), that is often used for environmental assessment (Frankelius 2001), does not give the infrastructural assessment any specific attention and is therefore in need of complements. It is not only the SWOT-model that is vague when it comes to infrastructural assessment, also other established models and theories concerning environmental assessment, such as Porter’s five forces (Porter 1979), the PEST-model (McCarthy and Perreault 1990), Bates’ (1985) operational

Infrastructural Assessment : A Quantitative Tool within Business &amp;amp; Economics