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Conditions affecting projects in less developed countries
Conditions affecting projects in less developed countries Murray A Muspratt*
Projects in less developed countries (LDCs) are being seen as a roud to salvation thut might help redress the NorthlSouth wealth dispurities. However, the I-DC debt crisis has intervened to create uncertainty us to the most appropriate project portfolio, policy and posture, and Some issues that arise regarding capital, labonr and technology ure discussed. Keywords: internutionul OECD, projects
trade, less developed
LDC development
I i
I Capital
1 l l
.
1 Technology
Labour
I
I
LDC debt crisis Foreign risk assessment Triad financial culture
countries,
l l l l l
l
Religion Language Labour relations Women’s status Negotiation style Repatriation culture shock
. l
l
Triad consortia US-Japanese rivalry Technology transfer
a Region
Many less developed countries (LDCs) have not yet attained the level of self-sustaining growth. A critical growth factor in achieving this status is project development. Initial projects will be in developing the infrastructure for mining, agriculture, transportation and utilities; subsequently, as growth is stimulated, projects will be in construction for manufacturing, services and communications, as well as for domestic and institutional buildings. Foreign capital, skills and technology will be needed to shift the LDCs’ economies off dead-centre and generate and maintain critical economic mass. The time is opportune as Triad countries, USA, Europe and Japan, near zero population growth (ZPG) and indigenous construction seems to be levelling off, so LDCs are well placed to capitalize on the circumstances provided debt management policies can be effected (Figure l)‘,‘.
Department of Civil Engineering. Princeton University. Princeton. NJ 08543. USA Present addrcas: Chisholm Institute of Technology. PO Box 197. Caulfield East. Victoria, Australia 3115
Vol 5 No 1 February
1987
0263-7863/87/010045-09
Latin America
Africa
Contractors
$6 OOOM
$22 OOOM $33 OOOM
$16 OOOM
USA Europe Korea/Japan
27% 67% 3%
11% 54% 22%
39% 28% 22%
31% 28% 39%
$400M
$800M
$1 300M
$800~
44% 36% 4%
27% 53% 12%
40% 45% 1%
15% 67% 3%
Design
firms
USA Europe Japan/Korea
Middle
East
Asia
b
Figure I. Breakdown of construction in less developed countries: (a), LDCdevelopment; (b), LDCconstruction activity by international firms (19831, 1984 figures
CAPITAL LDC debt crisis While dual prime contracts for design and construction are popular in USA and Europe, development towards finance/design/construct for foreign project contracts in LDCs is apparent because these countries are experiencing a credit squeeze, resulting from the following.
$03.00 @ 1987 Butterworth
& Co (Publishers)
Ltd
4s
External debt service rates are high. They are locked into the US and European economic system of persistently high interest rates, large government deficits, trade imbalances with Japan. and escalated military spending. Tax increases and spending cuts to balance the budget are increasingly resisted by the clectoratc, so foreign credit is difficult to sell politically and has to compete with the need for domestic public funds. l The LDCs’ debt crisis has precipitated a large-scale withdrawal of commercial banks from LDC loan activity, as well as increased risk premiums, both of which further paralyse any recovery initiative. The only collateral for loans to a sovereign LDC is a promise to pay, together with a threat of exclusion from the world economic order on default. The LDC debt exposure has encouraged many commercial banks to quickly capitalize on deregulation to build reserves and water down exposure by diversifying geographically and functionally. However, the injected volatility has unleashed fierce rivalry, not only between banks. hut with stock brokers, insurance companies. mutual funds. and chain stores. l The lowest commodity prices since World War I1 have undercut export earnings, especially for smaller LDCs where a shift in economic emphasis is difficult. . A lcaurgcnt oil glut has seen a decline in the value of collateral of oil-exporting LDCs, while low domestic petroleum prices in some of these countries has also led to profligate waste. The trade imbalance of oil importers has however not been redressed as much as expected by the glut. l Some LDCs have suffered from inappropriate economic management, as well as excessive spending on nonproductive prestige pro,iects, and that fuels the fires of three-figure inflation and two-figure unemployment. The end result is political instability and further damage to credit ratings. l Some LDCs have borrowed on the basis of growth expectations that were never realized or were grossly distorted. l Protectionist tendencies in industrial nations, particularly in the face of a powerful domestic lobby by the agricultural sector. has imposed a squeeze on imports from LDCs, while retalliatory tendencies in LDCs only accentuate the problem by promoting inefficiency. One quarter of the world’s production is shipped across national borders, and the I979 General Agreement on Tariffs and Trade (GATT) Accord, although boycotted by many LDCs, cut world tariffs and preempted trade stagnation or an all-out trade war. In addition, protectionist philosophy is also outdated in that high-speed electronic international capital transfers are difficult to monitor. while capital and goods transfers via third-nation intermediaries can circumvent the intent of govcrnmcnt regulations. l One-party LDCs with government-owned industries may overemphasize the provision of jobs at the expense of productivity and profits. l
The LDC debt crisis is one of liquidity rather than solvency. and in fact some LDCs have superior growth rates and long-term potential to members of the Organisation for Economic Cooperation and Develop-
16
ment (OECD). LDC economic circumstances
response to the has included:
deteriorating
negotiation of loan rescheduling, and short-term bridging loans, until export prices recover, new economic initiatives are in place, or new projects become productive. 0 negotiation of floating interest rates to circumvent mismatched maturities. l undervalued currency to promote exports, and commodities bartering to buttress exports and penetrate new markets, l work through the United Nations Organisation (UNO) and related agencies: I World Bank: provides loans and technical assistance for economic development in LDCs, promotes confinancing (public or private, bilateral or multilateral) for long-term projects: not suitable for crisis management. 1:) International Monetary Fund (IMF): promotes international monetary cooperation and stability; financial support packages for debtor nations. International Finance Corporation: promotes private sector growth and capitalization in LDCs, ‘.) General Agreement on Tariffs and Trade: promotes free trade, and settles trading and tariff disputes. ‘_ World Intellectual Property Organisation: seeks to protect intellectual property and patents, while facilitating knowledge transfer, Labor Organisation (ILO): seeks to 3 International improve salary and conditions of LDC labour indentured to OECD multinationals, and advises on industrial climate expectations. However. the political climate at the UN0 often casts LDCs and OECD countries in adversary roles, and this tends to create wariness of UN0 agencies’ intent and policies or practices. Pivotal issues for rejuvenation of LDCs’ credit-worthiness are thus often seen as being at the mercy of forces beyond the LDCs’ control. The World Bank (WB) charter is also under scrutiny, in that it is specific for projects such as roads. dams, power stations, etc., but does not cater for broad-based policy and strategy development. The World Bank has I47 shareholder governments, but only allocates $15 OOOM p.a. in loans at a time when the LDCs’ debt is $700 OOOM, so it is not only limited financially, but has to find a middle path between the shareholders‘ differing opinions. The OECD would like the WB to encourage free enterprise in LDCs and to downgrade loans to large1 LDCs, such as China and India, with sufficient credit-worthiness to raise private capital, even at a period of high interest rates. International financial institutions, such as the World Bank, rn:fv also place restrictions on loans by requirin! compctltlve bidding for projects that favour dual prime contracts. However. efficiencv requirements may now favour design/ construct or i‘inanccidesignlconstruct contracts for LDCs in financial straits. l The increasing competition among LDCs for foreign project capital has sparked off a new era in invcstment incentives. including: matching grants/loans, tax-free holiday and accelerated depreciation. investment guarantees. subsidized energy, utilities and l
Project
Managcmcnt
transportation, rent-free land, waivers of pollution control, controlled raw material prices, and tranquil workforce with subsidized training programmes. Various performance strings may be attached, including: base-level quotas on job creation, exports and generation of foreign exchange, technology transfer and value-added project activities, local partnership and equity and content requirements. profit-reinvestment provisions; as well as difficulty in terminating nonprofitable projects when inflation is volatile, or redundant workers’ contracts as technology-intensiveness increases (mandated one year salary golden handshake is possible). Penalties may be levied for non-performance. Capital shortage and labour abundance has seen some shift from capital- to labour-intensive pro.ects. 4 but a range of different nroblems then emerge” : ’ lack 07 skills, unfamtltarity with construction materials and plant, poor quality work, low productivity, difficult to organize because of numbers and lack of tradition, poor nutrition, remoteness of some projects from labour supply, cyclical labour needs of agriculture may necessitate countercyclical construction planning. . Even local subcontractors and vendors have a minimum threshold level of sobhistication before economic dove-tailing into project activities can bc justified, although political considerations may play a decisive role in setting threshold levels. After the initial successes of the oil cartel by the Organisation of Petroleum Exporting Countries (OPEC) for redistributing the North-South wealth disparity, many suggestions were made as to the activation of similar cartels for scarce resources by LDCs. However, difficulty in maintaining solidarity among LDCs of differing political persuasions, technology’s scope for circumventing traditional resource dependency, massive resources indigenous to OECD countries, as well as the galvanizing effect on exploration, all contributed to undercut the viability of such cartels. Cartels may have a place in world trade, but are subject to severe checks and balances for the foreseeable future. 1
Historically, contractors have provided their own working and investment capital, with project finance being provided largely by sources outside the LDCs, such as the World Bank, IMF, commercial banks in industrial countries. etc. This finance was channelled through the LDC government for infrastructure, building and industrial projects. Some industrial and resource projects were also privately financed by OECD firms directly. Contractors rarely invested monev. but exported goods and services, so there was little’impact on the balance of payments or export of jobs. Today. the trend seems to be towards partial privatization of projects controlled by a consortium of LDC government, contractor, and OECD publicor private financier, the contractor having the key role of coordinating the finance, design and construct operations. Contracting in the future may be facilitated by controlling an inhouse bank, as Bechtel has attempted, but the bottom line is the ability to spread risk, provide collateral, and establish the consortium’s credit-worthiness.
Vol 5 No 1 February
1987
Politically-framed economic objectives in LDCs inject an uncertainty factor into projects that US contractors may have difficulty relating to’. and risk assessment assumes a decisively important role.
Foreign risk assessment Multinational construction firms, propelled ever deeper into the international market by relatively static demand at home, are increasingly aware of the necessity for foreign risk assessment. This trend is reinforced by an eroded OECD ability to master world events, together with a rapid politicizing of the UN0 and frequent changes in the balance of power. Revolutions in countries such as Cuba, Chile. Iran and Nicaragua have resulted in catastrophic losses in wealth. influence and opportunity; the 1973-74 Arab oil embargo, together with rapid escalation in oil prices, has caused a radical redistribution in the world’s wealth; high external-debt service ratios in countries such as Zaire. Poland, Chile and Mexico jeopardize world financial stability; while vigorous new competitors for the world’s construction market are emerging and syphoning off potential OECD activity. In the USA, the idealism of the Apollo 12 and Woodstock generation has yielded to the cynicism of post-Vietnam and -Watergate generation that is struggling to redefine the formulae for viable multinational construction, while at the same time being subject to the pressures of Japanese high technology innovation. A summary of possible risk factors for foreign construction is shown in Figure 2.
Triad financial culture The focal point of the US economy. and for many years the world economy, was Wall Street, with London playing a supporting role. Now, however, Hong Kong is the world’s third largest international financial centre, Singapore is the Switzerland of the Far East, and Japan has the second largest economy in the free world. The gravitation of financial activity to the Pacific rim was intercepted by the massive capital inflow to the Middle East in the 1970s during OPEC’s ascent, but the end result has been a restructuring of the world’s financial strengths: and its weaknesses too with the LDCs’ debt. OECD multinational contractors involved in foreign finance/design/construct contracts will need to be aware of emerging opportunities for bolstering their financial posture. and some issues may include the following. Foreign stockholders in OECD contracting firms reduce takeover vulnerability by diversifying ownership, provide good publicity for the firm should the stocks be listed/traded on foreign exchanges. and provide insider advantages for foreign market penetration. In fact stock purchase plans for foreign employees might be considered as an incentive scheme. Foreign equity will not only help reduce lead times for capitalizing on countercyclicity of OECD and foreign construction, but foreign stockholders tend to be long-term and less volatile in buy/sell impulses. Management quality, long-term plans, and risk-adjusted returns then assume more importance than the quarterly earnings per share. Opportunities for nonequity financing from commercial and central banks, as well as the World
37
Indigenous
risk factors
Foreign
1 Political l government/opposition party platforms . foreign aid, human rights, divestment pressure, embargoes, sanctions . shifts in public opinion and values . UNO, OECD, NATO
risk factors
l
boycotts,
UNO, alliances, balance of power, shifts in world opinion war: hot/cold, nuclear/conventional, local/regional/global, economic/ideological . terrorism, guerilla activity, riots, strikes (ILO) l Middle East instability, petrodollar markets l government: democratic, totalitarian (left/right), nationalism, sovereignty, diplomatic status l
2 Social l
l
l
l
ethics/crime affirmative action l safety . environment . open/closed shop industrial
. .
language/cultural barriers literacy/numerary rates local hiring laws, availability of skilled labour unleashed expectations (education/media)
relations
3 Economic . . .
unemployment, interest rates, budget deficit, GNP growth corporate taxes, antitrust laws exchange rates, balance of payments (trade surplus/deficit) l bilateral/mutilateraI trade agreements l expatriat taxes
. .
World Bank, free trade zones, resource cartels, GATT, IMF energy self-sufficiency, GNP/capita, inflation, external debt service rates, free/controlled market (price/wage control) . nationalization, appropriation, confiscation, discriminatory taxes, subsidized local construction, repatriation restrictions, currency inconvertability, import/export restrictions, tariff barriers l equity/reciprocity, joint venturing pressure . payments in hard/soft currency, in kind, commodities barter
4 Technological . . .
national industrial policy, sunrise industries, intensity productivity (time/cost/quality) export of strategictechnology, technological
Figure 2. Risk factors
in construction
high technology
.
espionage
. .
LABOUR
,justified in terms of a misinterpreted translation. Additional problems may arise in translating OECD technical literature. computer terminology. ,jargon, slogans, and advertising angles that do not match with local accepted practice. Expatriats might be advised to have some grounding in the native tongue if onlv to facilitate communications with taxi drivers or restaurant proprietors. . ,
clashes
Culture is the condensed wisdom of past experiences in the crucible of history. and even though international travel and communications are promoting some homogenization. marked differences still occur. Religion Religion, or lack of it, can bc all-pervasive, and problems that may arise include: l impact of dietary laws on construction site supplies, l work schedule for sabbath or holy days. l excavation near sacred site or native reserve. l tension between different religious groups in work crews. Language English is generally the lingua franca of technology. but OECD engineers tend to bc too uncompromising in its use. Subtlety and power of communication not only lose something on translation, but the translation process lends itself to game playing: confidential negotiations arc breached by third parties; the opposition, while fluent in English, may request an interpreter so as to gain an edge by having twice the response time; while default on an agreement may be
48
licensing,
engineering
Bank, will open up as the concept of Triad multinational consortiums evolves. but mismatched inflation rates and volatile exchange rates will make price-index multiplexing essential to maintain equilibrium.
Cultural
technology transfer requirements, local content, recognition of patents new competitors (Korea/Turkey/China) telecommunications, satellite links
Labour relations Construction is labour-intensive, and OECD construction managers are assertive, but attempts to USC the same style on LDC projects can cast the manager in the role of the ‘ugly’ forci!ner. When in Rome. do as the Remans do. seems advisable. The International Labor Organisation may also be able to advise on local policy regarding hiring laws, labour contract termination procedures. work stoppages. deportation. skills and availability of local manpower. etc., as well as information on religious and language norms, and the status of women. Women’s status OECD women today are liberated, assertive, confident. and are increasingly being inducted into the engineering workforce. However. as y.zft only I in 30 civil engineers art‘ women, the lowest hgure of all the engineering disciplines, civil having been seen as ‘dirty’ engineering. However, changes in stereotyping, more role models. development towards critical mass. as well as changes in the civil/construction scene itself, have resulted in many more engineering students being women. The future though still presents many problems for
Project
Management
liberated women from traditional roles. They have certainly come a long way since being granted suffrage, and their voice now has a decisive say as they represent over half of the population. However, women engineers working in LDCs may not have these benefits, the UN0 charter tends to be ambiguous on women’s rights, and the only legal certainty for women engineers working for OECD multinationals is that foreign countries cannot dictate sex discrimination for OECD citizens. Global media, particularly TV, are tending to break down barriers as cross-cultural exposure liberates the expectations of LDC women, and reconditions the expectations of LDC men and governments.
women engineers, and some of these are related to the increasingly international nature of engineering. Japan, the world’s ascendant technological nation, still casts a jaundiced eye on women in the professions, while some less developed nations still have difficulty in handling management or business negotiations with OECD women. Ironically, in the unskilled workforce on civil projects, such as road or building construction, a high proportion of women may be employed in these countries. In OECD countries, civil construction has been seen as a harsh, dangerous, physical occupation, and a significant number of construction workers are killed or seriously injured at work. Society once sought to protect women from such exposure. but improved safety requirements. replacement of physical activity with technology, shifting society attitudes, together with the demands of women themselves, have eroded this stance. Woman’s unique relationship with the family, however, cannot be denied, and policies on maternity leave, day care, flexitime, etc., are evolving to service these needs. Rapid developments in fertility control, domestic technology, and fast-food chains haie further
Negotiating
posture
1 Climate
Negotiation The
style
intensification
create
difficulties,
Figure
3.
of
international
some
of
transactions
which
are
Repatriation culture shock Expatriates returning to OECD countries confronted by unanticipated resettlement such as: _
OECD
LDC One on one, Chief Executive Officer
chairman,
(CEO) talks only to CEO and so on down the hierarchy, top man handles prestige projects, pecking order in terms of firm/ position/age/sex/college attended, hierarchical
2 Style
Impersonal, competitive, impatient, demanding, winners/losers, adversary, follow through as hard as possible
Establish rapport, personal relationship, patient, questioning, no losers, consensus, follow through may antagonize, give an inch to gain a mile
3 Strategy
Lay cards
Keep an ace up sleeve, expect to make concessions on ambit position, have fallback position; if want a loaf, ask for two
4 Veracity
of agreement
5 Dishonesty
on table,
open,
frank
A deal is a deal, legal recourse
factor
Bluff, deception, lies, threats, flattery, appeasement
on default
blackmail,
in
are often problems
Take on all-comers from 1 to R, from graduate engineer to board egalitarian, pragmatic
may
summarized
A deal may not be a deal if voided by headquarters/changed circumstances/ ‘misinterpretation’; renegotiate Feint, dissimulation, honesty defined differently, name dropping of powerful friends, rich OECD people can afford to
wv 6 Marketing
Hard/soft sell, talk in generalities, negotiators may have little technical knowledge
Suspicion of flamboyant negotiator, little patience if technical details are not specific, offended by blatant advertising
7 Mode
Informal,
Formal
8 Saying
of address
basis
‘No’
‘no’
9 Prolonged
first name
silence
title, follow
Negative signals or responses, embarrassed by direct answer
Negotiation
has broken
down
Thinking up next move, allowing opposition to change mind
10 Handshake
Firmness
11 Eye contact
Little eye contact individual
12 Position
Little meaning
Top
man
Ad hoc
Top
man first
at table
13 Entry/exit
Figure 3. Difficulties
in international
Vol 5 No 1 February
1987
protocol
indicates
sincerity
indicates
devious
time for
Firmness may indicate display superiority
an attempt
Prolonged eye contact attempt to stare-down
indicates an or intimidate
at head
or in central
to
position
negotiations5
39
loss of foreign perks, such as company house, car :rnd club memberships. as well as domestic servants in some countries; firms tend to regard expatriates as corporate standard bearers who should live as befits the corporate image. and certainly no worse than rival corporate employees, loss of celebrity status, and invitations to black-tic and jet-set social events that may be accorded OECD visitors. cultural realignment. such as the social position of women. readjustment to the OECD organizational framework, accountability routes. and responsibility requirements. TECHNOLOGY Business
aspects
OECD business leaders often have a corporate culture that is asymmetrical to the LDC modus operandi, and as internationalization of business intensifies, adjustments in style and substance will inevitably be required. Some issues that seem to be relevant arc discussed below. Triad consortia US, European, and Japanese firms are increasingly dominating the world’s technological markets, and have captured % of the total (see Figure 3). However. international consortia are ;I vehicle for cooperation. which pre-empt mutually destructive trade wars. spread risks. gain insider advantage, exchange technology and ideas. capitalize on economies-of-scale and circumvent national antitrust restriction, and strengthen negotiating posture, not only for insider penetration of Triad project mark&s but for projects in fourth countries where a political mismatch may exist with one of the Triad me’mbers. necessitates ;I stronger common Joint venturing the commitment. and may serve only to highlight
Less developed countries
Figure 4. The world of Triud construction
50
irreconcilabilities of cross-national corporate cultures. A tripartite consortium in construction (e.g. Bechtel/ Davey/Hitachi) seems remote at present. but successes in other fields, such as electronics and automobiles. have been encouraging,. The electronics consortia of Telantograph/ITT/Toshlba is an example of a mutually beneficial alliance. Of the Triad firms. US and European firms tend to have ;I marked similarity in corporate culture because of strong historical links, but the Japanese. increasingly the front runners in many areas of technology, are devreloping a unique corporate style. A comparison of US and Japanese approaches can be useful, and although related to industry in general and the high technology thrust, the implications for construction are growing. These implications relate to ;I perceived need for rapid upgrading of technological intensiveness, and to Korea. which 1s in the Japanese sphere with a look-alike economy, and is assuming the :rsccndant role in international construction, with Dong Ah Corporation as the standard bearer for the impending Japanese/Korean onslaught. Already Japan/Korea accounts for 20% of the world’s international contracting, and a marked characteristic is research intensiveness with worldwide fcclcrs. For cxamplc, the Japanese Shimizu Corporation has endowed $O.SM to Harvard University for establishment of a construction tcchnology laboratory that will act as a conduit for US ideas. US-Japanese rivalry The supremacy of US industry has recently been challenged 2111round the world, especially by the Japancsc in shipbuildinglstcclltcxtilcs/automobiles/consumer electronics. It is ;I challenge that would have been inconceivable 20 years ago and has led to an erosion of US strategic strength. a growing trade imbalance with Japan, a loss of US jobs, and a decline in relative living standards. A seige mentality has emerged with everyone having a checklist of economic horror stories”. Now, Japan has foreshadowed major new initiatives to capture the lcadcrship role in fifth generation computer technology and artificial intelligence, together with a parallel onslaught in aviation that could well see Boeing, Airbus and the Japanese ;IS the world’s only civil aircraft producers by IYYO. Many experts are seeking to plumb the depths of the Japanese success. :tnd all seem to have identified the close public/private sector liaison. symbolized by MITT (Japan’s Ministry of International Trade :ind Industry) ;IS the pivotal success factor, not only in Japan but also in other ascendant Pacific rim nations. such ;1s Koren. and Hong Kong, where variations Taiwan. Singapore, of the MITT philosophy are enshrined. Howcvcr, the centralized planning aspect of MIT1 has paradoxically hccn only marginally successful in both Western and Eastern European countries. So, what makes MIT1 so effective in the social, political. economic and technical context of Japan? In an attempt to evaluate the relevance of the Japanese experience to US and European needs, ;t comparison of the two systems is given in Figure 5. Technology transfer Technology transfer is seen by many LDCs as the fuel needed for rapid progress. Although basic low technology transfer is in train to 21greater or lesser extent.
Project
Managcmcnt
Characteristic 1 Political
environment
2 Government
bureaucracy
3 Authority
to target
4 Industrial
policy
winners
making
USA
Japan
Democratic, disparate power centres (3 branches and 3 levels of government, government/opposition, government/ management/unions,government/media)
Democratic, stable, consensus-oriented, dissident activity subdued
Low salaries, high turnover, continual reorganization, little continuity, many checks and balances to decision-making
High prestige, opinions respected, career tenure, best talent from Tokyo University, group rather bureaucratic dynamics
Corporate Chief Executive Officer’s authority distorted by political advocacy/ regulation which are ever changing and conflicting, $200 OOOM unpaid government guarantees has aspects of ‘lemon’ socialism
MIT1 (government/industry command-based distortion
Ad hoc, fragmented, highly politicized, evolves by stealth, preservationist, vested-interest oriented
Objective, formal, in national interest, seen as fair allocation of burdens/ benefits, widespread support, progressive, consensus oriented
consensus), of market
5 Economic
posture
Free trade, dollar as reserve currency for free world, threat of bad debts in LDCs, oil dependence
Mercantilism, protectionist, government procurement
6 Economic
status
Low long-term growth, moderate inflation/unemployment, trade deficit with Japan, price gouging when possible
Undervalued Yen, high long-term growth, low inflation/unemployment,
Strong venture capital market, but high interest rates, hostile takeover climate deflecting money from production (golden parachutes)
Japanese Development Bank provides low interest loans, tax/tariff/antitrust advantages over US industry, financial opportunism
Low/high-value added, to Japan: corn, soya beans, wheat, cotton, coal; jobs are exported when high-value added goods are imported
High-value added, to USA: cars, trucks, video recorders, motorcycles, oilwell casing
7 Financial
position
8 Exports
economic nationalism, resource dependence, preferential domestic
trade surplus with USA, investment/capitalization, maintain production
high rate of dumping to
9 Corporate
status
Planned obsolescence, cost/time overruns in defence contracts and little spin-off to commercial sector, conservatism in large firms
High productivity/quality, low inventory and set-up times, rapid innovation, durable manufacturer/supplier/customer relationship
10 Industry
targets
Preserve threatened basic industries (car/steel/textile), service industry growth (accounting/insurance/financial/ transportation), fifth generation computer, commercialization of space/ ocean, energy, genetics
Knowledge-intensive industries, fifth generation computer, civil aircraft, phase down low-value added industries, stimulate innovation in high technology feeder firms, energy, robotics
11 Defence
contracts
Massive appropriations to maintain military parity with USSR, inter-Service duplication, inefficiency, minimal spin-
Minimal,
rely on US military
umbrella
Off.
12 Innovation
management
Research isolationist posture and complacency stemming from stunning World War II successes, large, formalized research activity and MBA programmes, entrepreneur may be seen as ‘rocking the boat’ in large bureaucratic firms
Capitalize on foreign developments, spends 1/6th the US research budget, half of new ideas eminate from shop floor, quality circles, emphasize engineering rather than management skills, token MBA programmes
13
profile
Full spectrum of professional/ subprofessional workers, high turnover, technical skills lost on promotion into management, aloof/assertive managers management by objectives partly successful, resistance to effort/ uncertainty of change, puritan work ethic fading fast
Highly qualified in science/engineering even on shop floor, stable workforce with strong learning curve, participatoryllowkey management, acceptance of innovation/relocation, ethic of self sacrifice
Manpower
Figure
Vol
5. Comparison
5 No
1 February
of US and Japanese
19X7
systems
Figlcre 5 (continued) Characteristic
USA
Japan
14 Unions
Functional management/worker demarcation incites mutually destructive confrontations, self-indulgent featherbedding at expense of corporate viability occurs, unionists mainly subprofessional workers
Half of board members are former union leaders, high job security, many unionists have tertiary qualifications
Tense, adversary court proceedings, indemnity insurance, media exception reporting promotes divisions, try to project image of being a victim
Mediation, conciliation, arbitration, impartial advisory panel, ombudsman, little victimization, responsibility is accepted, 1/20th the lawyers in USA
Too many groupings, overlapping/fragmented, fertilization
Japanese Union of Scientists and Engineers (JUSE) promotes rapid interchange of ideas
15
Legal
climate
16 Professional
17
Religious
associations/activity
precepts
18 Psychological
status
high technology’ transfer greater productivity gains. affordable, but has been barriers such as: l l l
conflicting/ little cross-
Judeo-Christian, ancestors may be discredited as grist for the intense adversary political mill, can paralyse achievers today who may be tomorrow’s sacrifice, conquer Nature
Shintoism/Buddhism, live in harmony with
Threat of nuclear holocaust all-pervading, escape from present troubles into past industrial glories
Something to prove after WWII catastrophe, residue of anti-Japan feeling neutralized by Hiroshima, looks to future for vindication, threatened by resource vulnerability, homogeneous value system
has the potential for far and renders more projects inhibited by a number of
l
the World lntcllectual Property Organisation. which seeks to protect intellectual property and patents, national security and secrecy regulations in industrial nations, corporate retention of competitive edge in the market place. l
Some initiatives that may be useful transfer resistance are as follows.
in alleviating
this
a IMF and World 0
l l
l
52
Bank are to set aside 10% of budgets specifically for technology transfer. The World Intellectual Property Organisation is to study new formulae for balancing the needs of LDCs for technology transfer and the rights of owners. OECD governments are to consider new policies on technology transfer. LDCs with democratic political systems, free enterprise economic systems. and pluralistic social systems, seem best suited to foster technology transfer, not only because of the compatibility with Triad countries but because this balance has historically liberated a flood of energy that contributes to progress in a healthy way. The totalitarian technological world is a tired world, weighed down by the gravity of its own devising. LDCs are to study regional cooperation in establishing high technology research parks, possibly with the status of Silicon Valley in USA, Akalla in Sweden, or Kyushu in Japan. Multinational consortia might acquire a dual profile to facilitate ideas transfer.
l
ancestor Nature
worship,
LDCs could restructure incentives for high technology innovation and entrepreneurial activity, such as tax concessions and accelerated depreciation for high technology equipment, foreign training opportunities for key people. upgrading of licensing procedures and encouraging Triad firms to establish permanent subsidiaries, as well as subsidizing local subcontractors in bids for project work. Local professionals could also be encouraged to become involved in international associations and conferences that serve as a clearinghouse for new ideas”. Other possible LDC issues. such as explosive population growth, protectionist tendencies. military adventurism, crushing debt burden, etc.. all tend to generate dysfunctions in technology transfer. Local people involved in projects have advantages in assessing local conditions, as well as knowledge of local government bureaucracy, regulations, labour relations, materials suppliers. climate. etc., and can make a unique contribution. Codes of practice tend to be prescriptive rather than performance oriented, and framed for OECD conditions. Local standards associations might bc established to tailor existing codes for local use.
CONCLUSIONS Less developed countries, in seeking to promote development, might capitalize on the experience gained in industrial countries and adapt it to their needs. During the transitional period, however, LDCs must resolve their financial crisis, preferably against the framework of a democratic political system and a free enterprise economic system. The combination of capital/labour for fuelling the fires of national development, which has held currency since Karl Marx’s Das
Project
Management
Capitul. is now yielding to a triangular technology driving force.
capitalilabourl
ACKNOWLEDGEMENTS The author is indebted to Professor George Pinder for the opportunity to pursue this research at Princeton University, and to Jane Exell for help in preparation of the manuscript. REFERENCES Moavenzadeh, F and ROSSOW,J A ‘The construction industry in developing countries’ Tech. Adaptation Program Rpt, MIT, USA (Spring 1975) p 212 Frank, C R and Webb, R C Income distribution and growth in the less developed countries Brookings Inst., USA (1977) p 641 Muspratt, M A ‘Megaprojects and productivity’ Cost Eng. (AACE) Vol 26 No 2 (April 1984) pp 25-36 Muspratt, M A ‘The project manager, politics and litigation’ Eng. Manage. Internat. Vol 2 (1984) pp 113-121
Vol 5 No 1 February
1987
Muspratt M A ‘Corporation’s dilemma’ Technol. Society, Vol 7 No 4 (1972) pp 130-133 Muspratt, M A ‘The challenge for engineering’ ASCE Vol 104 No E14 (October 1978) pp 237-244 Muspratt, M A ‘Computers for the construction industry’ Proj. Manage. Quart. Vol 14 No 3 (September 1983) pp 45-52 Muspratt, M A ‘Construction research and education’ ASCE Vol 110 No ET1 (January 1984) pp 7-18
Projects in less developed countries (LDCs) are being seen as a roud to salvation thut might help redress the NorthlSouth wealth dispurities. However, the I-DC debt crisis has intervened to create uncertainty us to the most appropriate project portfolio, policy and posture, and Some issues that arise regarding capital, labonr and technology ure discussed. Keywords: internutionul OECD, projects
trade, less developed
LDC development
I i
I Capital
1 l l
.
1 Technology
Labour
I
I
LDC debt crisis Foreign risk assessment Triad financial culture
countries,
l l l l l
l
Religion Language Labour relations Women’s status Negotiation style Repatriation culture shock
. l
l
Triad consortia US-Japanese rivalry Technology transfer
a Region
Many less developed countries (LDCs) have not yet attained the level of self-sustaining growth. A critical growth factor in achieving this status is project development. Initial projects will be in developing the infrastructure for mining, agriculture, transportation and utilities; subsequently, as growth is stimulated, projects will be in construction for manufacturing, services and communications, as well as for domestic and institutional buildings. Foreign capital, skills and technology will be needed to shift the LDCs’ economies off dead-centre and generate and maintain critical economic mass. The time is opportune as Triad countries, USA, Europe and Japan, near zero population growth (ZPG) and indigenous construction seems to be levelling off, so LDCs are well placed to capitalize on the circumstances provided debt management policies can be effected (Figure l)‘,‘.
Department of Civil Engineering. Princeton University. Princeton. NJ 08543. USA Present addrcas: Chisholm Institute of Technology. PO Box 197. Caulfield East. Victoria, Australia 3115
Vol 5 No 1 February
1987
0263-7863/87/010045-09
Latin America
Africa
Contractors
$6 OOOM
$22 OOOM $33 OOOM
$16 OOOM
USA Europe Korea/Japan
27% 67% 3%
11% 54% 22%
39% 28% 22%
31% 28% 39%
$400M
$800M
$1 300M
$800~
44% 36% 4%
27% 53% 12%
40% 45% 1%
15% 67% 3%
Design
firms
USA Europe Japan/Korea
Middle
East
Asia
b
Figure I. Breakdown of construction in less developed countries: (a), LDCdevelopment; (b), LDCconstruction activity by international firms (19831, 1984 figures
CAPITAL LDC debt crisis While dual prime contracts for design and construction are popular in USA and Europe, development towards finance/design/construct for foreign project contracts in LDCs is apparent because these countries are experiencing a credit squeeze, resulting from the following.
$03.00 @ 1987 Butterworth
& Co (Publishers)
Ltd
4s
External debt service rates are high. They are locked into the US and European economic system of persistently high interest rates, large government deficits, trade imbalances with Japan. and escalated military spending. Tax increases and spending cuts to balance the budget are increasingly resisted by the clectoratc, so foreign credit is difficult to sell politically and has to compete with the need for domestic public funds. l The LDCs’ debt crisis has precipitated a large-scale withdrawal of commercial banks from LDC loan activity, as well as increased risk premiums, both of which further paralyse any recovery initiative. The only collateral for loans to a sovereign LDC is a promise to pay, together with a threat of exclusion from the world economic order on default. The LDC debt exposure has encouraged many commercial banks to quickly capitalize on deregulation to build reserves and water down exposure by diversifying geographically and functionally. However, the injected volatility has unleashed fierce rivalry, not only between banks. hut with stock brokers, insurance companies. mutual funds. and chain stores. l The lowest commodity prices since World War I1 have undercut export earnings, especially for smaller LDCs where a shift in economic emphasis is difficult. . A lcaurgcnt oil glut has seen a decline in the value of collateral of oil-exporting LDCs, while low domestic petroleum prices in some of these countries has also led to profligate waste. The trade imbalance of oil importers has however not been redressed as much as expected by the glut. l Some LDCs have suffered from inappropriate economic management, as well as excessive spending on nonproductive prestige pro,iects, and that fuels the fires of three-figure inflation and two-figure unemployment. The end result is political instability and further damage to credit ratings. l Some LDCs have borrowed on the basis of growth expectations that were never realized or were grossly distorted. l Protectionist tendencies in industrial nations, particularly in the face of a powerful domestic lobby by the agricultural sector. has imposed a squeeze on imports from LDCs, while retalliatory tendencies in LDCs only accentuate the problem by promoting inefficiency. One quarter of the world’s production is shipped across national borders, and the I979 General Agreement on Tariffs and Trade (GATT) Accord, although boycotted by many LDCs, cut world tariffs and preempted trade stagnation or an all-out trade war. In addition, protectionist philosophy is also outdated in that high-speed electronic international capital transfers are difficult to monitor. while capital and goods transfers via third-nation intermediaries can circumvent the intent of govcrnmcnt regulations. l One-party LDCs with government-owned industries may overemphasize the provision of jobs at the expense of productivity and profits. l
The LDC debt crisis is one of liquidity rather than solvency. and in fact some LDCs have superior growth rates and long-term potential to members of the Organisation for Economic Cooperation and Develop-
16
ment (OECD). LDC economic circumstances
response to the has included:
deteriorating
negotiation of loan rescheduling, and short-term bridging loans, until export prices recover, new economic initiatives are in place, or new projects become productive. 0 negotiation of floating interest rates to circumvent mismatched maturities. l undervalued currency to promote exports, and commodities bartering to buttress exports and penetrate new markets, l work through the United Nations Organisation (UNO) and related agencies: I World Bank: provides loans and technical assistance for economic development in LDCs, promotes confinancing (public or private, bilateral or multilateral) for long-term projects: not suitable for crisis management. 1:) International Monetary Fund (IMF): promotes international monetary cooperation and stability; financial support packages for debtor nations. International Finance Corporation: promotes private sector growth and capitalization in LDCs, ‘.) General Agreement on Tariffs and Trade: promotes free trade, and settles trading and tariff disputes. ‘_ World Intellectual Property Organisation: seeks to protect intellectual property and patents, while facilitating knowledge transfer, Labor Organisation (ILO): seeks to 3 International improve salary and conditions of LDC labour indentured to OECD multinationals, and advises on industrial climate expectations. However. the political climate at the UN0 often casts LDCs and OECD countries in adversary roles, and this tends to create wariness of UN0 agencies’ intent and policies or practices. Pivotal issues for rejuvenation of LDCs’ credit-worthiness are thus often seen as being at the mercy of forces beyond the LDCs’ control. The World Bank (WB) charter is also under scrutiny, in that it is specific for projects such as roads. dams, power stations, etc., but does not cater for broad-based policy and strategy development. The World Bank has I47 shareholder governments, but only allocates $15 OOOM p.a. in loans at a time when the LDCs’ debt is $700 OOOM, so it is not only limited financially, but has to find a middle path between the shareholders‘ differing opinions. The OECD would like the WB to encourage free enterprise in LDCs and to downgrade loans to large1 LDCs, such as China and India, with sufficient credit-worthiness to raise private capital, even at a period of high interest rates. International financial institutions, such as the World Bank, rn:fv also place restrictions on loans by requirin! compctltlve bidding for projects that favour dual prime contracts. However. efficiencv requirements may now favour design/ construct or i‘inanccidesignlconstruct contracts for LDCs in financial straits. l The increasing competition among LDCs for foreign project capital has sparked off a new era in invcstment incentives. including: matching grants/loans, tax-free holiday and accelerated depreciation. investment guarantees. subsidized energy, utilities and l
Project
Managcmcnt
transportation, rent-free land, waivers of pollution control, controlled raw material prices, and tranquil workforce with subsidized training programmes. Various performance strings may be attached, including: base-level quotas on job creation, exports and generation of foreign exchange, technology transfer and value-added project activities, local partnership and equity and content requirements. profit-reinvestment provisions; as well as difficulty in terminating nonprofitable projects when inflation is volatile, or redundant workers’ contracts as technology-intensiveness increases (mandated one year salary golden handshake is possible). Penalties may be levied for non-performance. Capital shortage and labour abundance has seen some shift from capital- to labour-intensive pro.ects. 4 but a range of different nroblems then emerge” : ’ lack 07 skills, unfamtltarity with construction materials and plant, poor quality work, low productivity, difficult to organize because of numbers and lack of tradition, poor nutrition, remoteness of some projects from labour supply, cyclical labour needs of agriculture may necessitate countercyclical construction planning. . Even local subcontractors and vendors have a minimum threshold level of sobhistication before economic dove-tailing into project activities can bc justified, although political considerations may play a decisive role in setting threshold levels. After the initial successes of the oil cartel by the Organisation of Petroleum Exporting Countries (OPEC) for redistributing the North-South wealth disparity, many suggestions were made as to the activation of similar cartels for scarce resources by LDCs. However, difficulty in maintaining solidarity among LDCs of differing political persuasions, technology’s scope for circumventing traditional resource dependency, massive resources indigenous to OECD countries, as well as the galvanizing effect on exploration, all contributed to undercut the viability of such cartels. Cartels may have a place in world trade, but are subject to severe checks and balances for the foreseeable future. 1
Historically, contractors have provided their own working and investment capital, with project finance being provided largely by sources outside the LDCs, such as the World Bank, IMF, commercial banks in industrial countries. etc. This finance was channelled through the LDC government for infrastructure, building and industrial projects. Some industrial and resource projects were also privately financed by OECD firms directly. Contractors rarely invested monev. but exported goods and services, so there was little’impact on the balance of payments or export of jobs. Today. the trend seems to be towards partial privatization of projects controlled by a consortium of LDC government, contractor, and OECD publicor private financier, the contractor having the key role of coordinating the finance, design and construct operations. Contracting in the future may be facilitated by controlling an inhouse bank, as Bechtel has attempted, but the bottom line is the ability to spread risk, provide collateral, and establish the consortium’s credit-worthiness.
Vol 5 No 1 February
1987
Politically-framed economic objectives in LDCs inject an uncertainty factor into projects that US contractors may have difficulty relating to’. and risk assessment assumes a decisively important role.
Foreign risk assessment Multinational construction firms, propelled ever deeper into the international market by relatively static demand at home, are increasingly aware of the necessity for foreign risk assessment. This trend is reinforced by an eroded OECD ability to master world events, together with a rapid politicizing of the UN0 and frequent changes in the balance of power. Revolutions in countries such as Cuba, Chile. Iran and Nicaragua have resulted in catastrophic losses in wealth. influence and opportunity; the 1973-74 Arab oil embargo, together with rapid escalation in oil prices, has caused a radical redistribution in the world’s wealth; high external-debt service ratios in countries such as Zaire. Poland, Chile and Mexico jeopardize world financial stability; while vigorous new competitors for the world’s construction market are emerging and syphoning off potential OECD activity. In the USA, the idealism of the Apollo 12 and Woodstock generation has yielded to the cynicism of post-Vietnam and -Watergate generation that is struggling to redefine the formulae for viable multinational construction, while at the same time being subject to the pressures of Japanese high technology innovation. A summary of possible risk factors for foreign construction is shown in Figure 2.
Triad financial culture The focal point of the US economy. and for many years the world economy, was Wall Street, with London playing a supporting role. Now, however, Hong Kong is the world’s third largest international financial centre, Singapore is the Switzerland of the Far East, and Japan has the second largest economy in the free world. The gravitation of financial activity to the Pacific rim was intercepted by the massive capital inflow to the Middle East in the 1970s during OPEC’s ascent, but the end result has been a restructuring of the world’s financial strengths: and its weaknesses too with the LDCs’ debt. OECD multinational contractors involved in foreign finance/design/construct contracts will need to be aware of emerging opportunities for bolstering their financial posture. and some issues may include the following. Foreign stockholders in OECD contracting firms reduce takeover vulnerability by diversifying ownership, provide good publicity for the firm should the stocks be listed/traded on foreign exchanges. and provide insider advantages for foreign market penetration. In fact stock purchase plans for foreign employees might be considered as an incentive scheme. Foreign equity will not only help reduce lead times for capitalizing on countercyclicity of OECD and foreign construction, but foreign stockholders tend to be long-term and less volatile in buy/sell impulses. Management quality, long-term plans, and risk-adjusted returns then assume more importance than the quarterly earnings per share. Opportunities for nonequity financing from commercial and central banks, as well as the World
37
Indigenous
risk factors
Foreign
1 Political l government/opposition party platforms . foreign aid, human rights, divestment pressure, embargoes, sanctions . shifts in public opinion and values . UNO, OECD, NATO
risk factors
l
boycotts,
UNO, alliances, balance of power, shifts in world opinion war: hot/cold, nuclear/conventional, local/regional/global, economic/ideological . terrorism, guerilla activity, riots, strikes (ILO) l Middle East instability, petrodollar markets l government: democratic, totalitarian (left/right), nationalism, sovereignty, diplomatic status l
2 Social l
l
l
l
ethics/crime affirmative action l safety . environment . open/closed shop industrial
. .
language/cultural barriers literacy/numerary rates local hiring laws, availability of skilled labour unleashed expectations (education/media)
relations
3 Economic . . .
unemployment, interest rates, budget deficit, GNP growth corporate taxes, antitrust laws exchange rates, balance of payments (trade surplus/deficit) l bilateral/mutilateraI trade agreements l expatriat taxes
. .
World Bank, free trade zones, resource cartels, GATT, IMF energy self-sufficiency, GNP/capita, inflation, external debt service rates, free/controlled market (price/wage control) . nationalization, appropriation, confiscation, discriminatory taxes, subsidized local construction, repatriation restrictions, currency inconvertability, import/export restrictions, tariff barriers l equity/reciprocity, joint venturing pressure . payments in hard/soft currency, in kind, commodities barter
4 Technological . . .
national industrial policy, sunrise industries, intensity productivity (time/cost/quality) export of strategictechnology, technological
Figure 2. Risk factors
in construction
high technology
.
espionage
. .
LABOUR
,justified in terms of a misinterpreted translation. Additional problems may arise in translating OECD technical literature. computer terminology. ,jargon, slogans, and advertising angles that do not match with local accepted practice. Expatriats might be advised to have some grounding in the native tongue if onlv to facilitate communications with taxi drivers or restaurant proprietors. . ,
clashes
Culture is the condensed wisdom of past experiences in the crucible of history. and even though international travel and communications are promoting some homogenization. marked differences still occur. Religion Religion, or lack of it, can bc all-pervasive, and problems that may arise include: l impact of dietary laws on construction site supplies, l work schedule for sabbath or holy days. l excavation near sacred site or native reserve. l tension between different religious groups in work crews. Language English is generally the lingua franca of technology. but OECD engineers tend to bc too uncompromising in its use. Subtlety and power of communication not only lose something on translation, but the translation process lends itself to game playing: confidential negotiations arc breached by third parties; the opposition, while fluent in English, may request an interpreter so as to gain an edge by having twice the response time; while default on an agreement may be
48
licensing,
engineering
Bank, will open up as the concept of Triad multinational consortiums evolves. but mismatched inflation rates and volatile exchange rates will make price-index multiplexing essential to maintain equilibrium.
Cultural
technology transfer requirements, local content, recognition of patents new competitors (Korea/Turkey/China) telecommunications, satellite links
Labour relations Construction is labour-intensive, and OECD construction managers are assertive, but attempts to USC the same style on LDC projects can cast the manager in the role of the ‘ugly’ forci!ner. When in Rome. do as the Remans do. seems advisable. The International Labor Organisation may also be able to advise on local policy regarding hiring laws, labour contract termination procedures. work stoppages. deportation. skills and availability of local manpower. etc., as well as information on religious and language norms, and the status of women. Women’s status OECD women today are liberated, assertive, confident. and are increasingly being inducted into the engineering workforce. However. as y.zft only I in 30 civil engineers art‘ women, the lowest hgure of all the engineering disciplines, civil having been seen as ‘dirty’ engineering. However, changes in stereotyping, more role models. development towards critical mass. as well as changes in the civil/construction scene itself, have resulted in many more engineering students being women. The future though still presents many problems for
Project
Management
liberated women from traditional roles. They have certainly come a long way since being granted suffrage, and their voice now has a decisive say as they represent over half of the population. However, women engineers working in LDCs may not have these benefits, the UN0 charter tends to be ambiguous on women’s rights, and the only legal certainty for women engineers working for OECD multinationals is that foreign countries cannot dictate sex discrimination for OECD citizens. Global media, particularly TV, are tending to break down barriers as cross-cultural exposure liberates the expectations of LDC women, and reconditions the expectations of LDC men and governments.
women engineers, and some of these are related to the increasingly international nature of engineering. Japan, the world’s ascendant technological nation, still casts a jaundiced eye on women in the professions, while some less developed nations still have difficulty in handling management or business negotiations with OECD women. Ironically, in the unskilled workforce on civil projects, such as road or building construction, a high proportion of women may be employed in these countries. In OECD countries, civil construction has been seen as a harsh, dangerous, physical occupation, and a significant number of construction workers are killed or seriously injured at work. Society once sought to protect women from such exposure. but improved safety requirements. replacement of physical activity with technology, shifting society attitudes, together with the demands of women themselves, have eroded this stance. Woman’s unique relationship with the family, however, cannot be denied, and policies on maternity leave, day care, flexitime, etc., are evolving to service these needs. Rapid developments in fertility control, domestic technology, and fast-food chains haie further
Negotiating
posture
1 Climate
Negotiation The
style
intensification
create
difficulties,
Figure
3.
of
international
some
of
transactions
which
are
Repatriation culture shock Expatriates returning to OECD countries confronted by unanticipated resettlement such as: _
OECD
LDC One on one, Chief Executive Officer
chairman,
(CEO) talks only to CEO and so on down the hierarchy, top man handles prestige projects, pecking order in terms of firm/ position/age/sex/college attended, hierarchical
2 Style
Impersonal, competitive, impatient, demanding, winners/losers, adversary, follow through as hard as possible
Establish rapport, personal relationship, patient, questioning, no losers, consensus, follow through may antagonize, give an inch to gain a mile
3 Strategy
Lay cards
Keep an ace up sleeve, expect to make concessions on ambit position, have fallback position; if want a loaf, ask for two
4 Veracity
of agreement
5 Dishonesty
on table,
open,
frank
A deal is a deal, legal recourse
factor
Bluff, deception, lies, threats, flattery, appeasement
on default
blackmail,
in
are often problems
Take on all-comers from 1 to R, from graduate engineer to board egalitarian, pragmatic
may
summarized
A deal may not be a deal if voided by headquarters/changed circumstances/ ‘misinterpretation’; renegotiate Feint, dissimulation, honesty defined differently, name dropping of powerful friends, rich OECD people can afford to
wv 6 Marketing
Hard/soft sell, talk in generalities, negotiators may have little technical knowledge
Suspicion of flamboyant negotiator, little patience if technical details are not specific, offended by blatant advertising
7 Mode
Informal,
Formal
8 Saying
of address
basis
‘No’
‘no’
9 Prolonged
first name
silence
title, follow
Negative signals or responses, embarrassed by direct answer
Negotiation
has broken
down
Thinking up next move, allowing opposition to change mind
10 Handshake
Firmness
11 Eye contact
Little eye contact individual
12 Position
Little meaning
Top
man
Ad hoc
Top
man first
at table
13 Entry/exit
Figure 3. Difficulties
in international
Vol 5 No 1 February
1987
protocol
indicates
sincerity
indicates
devious
time for
Firmness may indicate display superiority
an attempt
Prolonged eye contact attempt to stare-down
indicates an or intimidate
at head
or in central
to
position
negotiations5
39
loss of foreign perks, such as company house, car :rnd club memberships. as well as domestic servants in some countries; firms tend to regard expatriates as corporate standard bearers who should live as befits the corporate image. and certainly no worse than rival corporate employees, loss of celebrity status, and invitations to black-tic and jet-set social events that may be accorded OECD visitors. cultural realignment. such as the social position of women. readjustment to the OECD organizational framework, accountability routes. and responsibility requirements. TECHNOLOGY Business
aspects
OECD business leaders often have a corporate culture that is asymmetrical to the LDC modus operandi, and as internationalization of business intensifies, adjustments in style and substance will inevitably be required. Some issues that seem to be relevant arc discussed below. Triad consortia US, European, and Japanese firms are increasingly dominating the world’s technological markets, and have captured % of the total (see Figure 3). However. international consortia are ;I vehicle for cooperation. which pre-empt mutually destructive trade wars. spread risks. gain insider advantage, exchange technology and ideas. capitalize on economies-of-scale and circumvent national antitrust restriction, and strengthen negotiating posture, not only for insider penetration of Triad project mark&s but for projects in fourth countries where a political mismatch may exist with one of the Triad me’mbers. necessitates ;I stronger common Joint venturing the commitment. and may serve only to highlight
Less developed countries
Figure 4. The world of Triud construction
50
irreconcilabilities of cross-national corporate cultures. A tripartite consortium in construction (e.g. Bechtel/ Davey/Hitachi) seems remote at present. but successes in other fields, such as electronics and automobiles. have been encouraging,. The electronics consortia of Telantograph/ITT/Toshlba is an example of a mutually beneficial alliance. Of the Triad firms. US and European firms tend to have ;I marked similarity in corporate culture because of strong historical links, but the Japanese. increasingly the front runners in many areas of technology, are devreloping a unique corporate style. A comparison of US and Japanese approaches can be useful, and although related to industry in general and the high technology thrust, the implications for construction are growing. These implications relate to ;I perceived need for rapid upgrading of technological intensiveness, and to Korea. which 1s in the Japanese sphere with a look-alike economy, and is assuming the :rsccndant role in international construction, with Dong Ah Corporation as the standard bearer for the impending Japanese/Korean onslaught. Already Japan/Korea accounts for 20% of the world’s international contracting, and a marked characteristic is research intensiveness with worldwide fcclcrs. For cxamplc, the Japanese Shimizu Corporation has endowed $O.SM to Harvard University for establishment of a construction tcchnology laboratory that will act as a conduit for US ideas. US-Japanese rivalry The supremacy of US industry has recently been challenged 2111round the world, especially by the Japancsc in shipbuildinglstcclltcxtilcs/automobiles/consumer electronics. It is ;I challenge that would have been inconceivable 20 years ago and has led to an erosion of US strategic strength. a growing trade imbalance with Japan, a loss of US jobs, and a decline in relative living standards. A seige mentality has emerged with everyone having a checklist of economic horror stories”. Now, Japan has foreshadowed major new initiatives to capture the lcadcrship role in fifth generation computer technology and artificial intelligence, together with a parallel onslaught in aviation that could well see Boeing, Airbus and the Japanese ;IS the world’s only civil aircraft producers by IYYO. Many experts are seeking to plumb the depths of the Japanese success. :tnd all seem to have identified the close public/private sector liaison. symbolized by MITT (Japan’s Ministry of International Trade :ind Industry) ;IS the pivotal success factor, not only in Japan but also in other ascendant Pacific rim nations. such ;1s Koren. and Hong Kong, where variations Taiwan. Singapore, of the MITT philosophy are enshrined. Howcvcr, the centralized planning aspect of MIT1 has paradoxically hccn only marginally successful in both Western and Eastern European countries. So, what makes MIT1 so effective in the social, political. economic and technical context of Japan? In an attempt to evaluate the relevance of the Japanese experience to US and European needs, ;t comparison of the two systems is given in Figure 5. Technology transfer Technology transfer is seen by many LDCs as the fuel needed for rapid progress. Although basic low technology transfer is in train to 21greater or lesser extent.
Project
Managcmcnt
Characteristic 1 Political
environment
2 Government
bureaucracy
3 Authority
to target
4 Industrial
policy
winners
making
USA
Japan
Democratic, disparate power centres (3 branches and 3 levels of government, government/opposition, government/ management/unions,government/media)
Democratic, stable, consensus-oriented, dissident activity subdued
Low salaries, high turnover, continual reorganization, little continuity, many checks and balances to decision-making
High prestige, opinions respected, career tenure, best talent from Tokyo University, group rather bureaucratic dynamics
Corporate Chief Executive Officer’s authority distorted by political advocacy/ regulation which are ever changing and conflicting, $200 OOOM unpaid government guarantees has aspects of ‘lemon’ socialism
MIT1 (government/industry command-based distortion
Ad hoc, fragmented, highly politicized, evolves by stealth, preservationist, vested-interest oriented
Objective, formal, in national interest, seen as fair allocation of burdens/ benefits, widespread support, progressive, consensus oriented
consensus), of market
5 Economic
posture
Free trade, dollar as reserve currency for free world, threat of bad debts in LDCs, oil dependence
Mercantilism, protectionist, government procurement
6 Economic
status
Low long-term growth, moderate inflation/unemployment, trade deficit with Japan, price gouging when possible
Undervalued Yen, high long-term growth, low inflation/unemployment,
Strong venture capital market, but high interest rates, hostile takeover climate deflecting money from production (golden parachutes)
Japanese Development Bank provides low interest loans, tax/tariff/antitrust advantages over US industry, financial opportunism
Low/high-value added, to Japan: corn, soya beans, wheat, cotton, coal; jobs are exported when high-value added goods are imported
High-value added, to USA: cars, trucks, video recorders, motorcycles, oilwell casing
7 Financial
position
8 Exports
economic nationalism, resource dependence, preferential domestic
trade surplus with USA, investment/capitalization, maintain production
high rate of dumping to
9 Corporate
status
Planned obsolescence, cost/time overruns in defence contracts and little spin-off to commercial sector, conservatism in large firms
High productivity/quality, low inventory and set-up times, rapid innovation, durable manufacturer/supplier/customer relationship
10 Industry
targets
Preserve threatened basic industries (car/steel/textile), service industry growth (accounting/insurance/financial/ transportation), fifth generation computer, commercialization of space/ ocean, energy, genetics
Knowledge-intensive industries, fifth generation computer, civil aircraft, phase down low-value added industries, stimulate innovation in high technology feeder firms, energy, robotics
11 Defence
contracts
Massive appropriations to maintain military parity with USSR, inter-Service duplication, inefficiency, minimal spin-
Minimal,
rely on US military
umbrella
Off.
12 Innovation
management
Research isolationist posture and complacency stemming from stunning World War II successes, large, formalized research activity and MBA programmes, entrepreneur may be seen as ‘rocking the boat’ in large bureaucratic firms
Capitalize on foreign developments, spends 1/6th the US research budget, half of new ideas eminate from shop floor, quality circles, emphasize engineering rather than management skills, token MBA programmes
13
profile
Full spectrum of professional/ subprofessional workers, high turnover, technical skills lost on promotion into management, aloof/assertive managers management by objectives partly successful, resistance to effort/ uncertainty of change, puritan work ethic fading fast
Highly qualified in science/engineering even on shop floor, stable workforce with strong learning curve, participatoryllowkey management, acceptance of innovation/relocation, ethic of self sacrifice
Manpower
Figure
Vol
5. Comparison
5 No
1 February
of US and Japanese
19X7
systems
Figlcre 5 (continued) Characteristic
USA
Japan
14 Unions
Functional management/worker demarcation incites mutually destructive confrontations, self-indulgent featherbedding at expense of corporate viability occurs, unionists mainly subprofessional workers
Half of board members are former union leaders, high job security, many unionists have tertiary qualifications
Tense, adversary court proceedings, indemnity insurance, media exception reporting promotes divisions, try to project image of being a victim
Mediation, conciliation, arbitration, impartial advisory panel, ombudsman, little victimization, responsibility is accepted, 1/20th the lawyers in USA
Too many groupings, overlapping/fragmented, fertilization
Japanese Union of Scientists and Engineers (JUSE) promotes rapid interchange of ideas
15
Legal
climate
16 Professional
17
Religious
associations/activity
precepts
18 Psychological
status
high technology’ transfer greater productivity gains. affordable, but has been barriers such as: l l l
conflicting/ little cross-
Judeo-Christian, ancestors may be discredited as grist for the intense adversary political mill, can paralyse achievers today who may be tomorrow’s sacrifice, conquer Nature
Shintoism/Buddhism, live in harmony with
Threat of nuclear holocaust all-pervading, escape from present troubles into past industrial glories
Something to prove after WWII catastrophe, residue of anti-Japan feeling neutralized by Hiroshima, looks to future for vindication, threatened by resource vulnerability, homogeneous value system
has the potential for far and renders more projects inhibited by a number of
l
the World lntcllectual Property Organisation. which seeks to protect intellectual property and patents, national security and secrecy regulations in industrial nations, corporate retention of competitive edge in the market place. l
Some initiatives that may be useful transfer resistance are as follows.
in alleviating
this
a IMF and World 0
l l
l
52
Bank are to set aside 10% of budgets specifically for technology transfer. The World Intellectual Property Organisation is to study new formulae for balancing the needs of LDCs for technology transfer and the rights of owners. OECD governments are to consider new policies on technology transfer. LDCs with democratic political systems, free enterprise economic systems. and pluralistic social systems, seem best suited to foster technology transfer, not only because of the compatibility with Triad countries but because this balance has historically liberated a flood of energy that contributes to progress in a healthy way. The totalitarian technological world is a tired world, weighed down by the gravity of its own devising. LDCs are to study regional cooperation in establishing high technology research parks, possibly with the status of Silicon Valley in USA, Akalla in Sweden, or Kyushu in Japan. Multinational consortia might acquire a dual profile to facilitate ideas transfer.
l
ancestor Nature
worship,
LDCs could restructure incentives for high technology innovation and entrepreneurial activity, such as tax concessions and accelerated depreciation for high technology equipment, foreign training opportunities for key people. upgrading of licensing procedures and encouraging Triad firms to establish permanent subsidiaries, as well as subsidizing local subcontractors in bids for project work. Local professionals could also be encouraged to become involved in international associations and conferences that serve as a clearinghouse for new ideas”. Other possible LDC issues. such as explosive population growth, protectionist tendencies. military adventurism, crushing debt burden, etc.. all tend to generate dysfunctions in technology transfer. Local people involved in projects have advantages in assessing local conditions, as well as knowledge of local government bureaucracy, regulations, labour relations, materials suppliers. climate. etc., and can make a unique contribution. Codes of practice tend to be prescriptive rather than performance oriented, and framed for OECD conditions. Local standards associations might bc established to tailor existing codes for local use.
CONCLUSIONS Less developed countries, in seeking to promote development, might capitalize on the experience gained in industrial countries and adapt it to their needs. During the transitional period, however, LDCs must resolve their financial crisis, preferably against the framework of a democratic political system and a free enterprise economic system. The combination of capital/labour for fuelling the fires of national development, which has held currency since Karl Marx’s Das
Project
Management
Capitul. is now yielding to a triangular technology driving force.
capitalilabourl
ACKNOWLEDGEMENTS The author is indebted to Professor George Pinder for the opportunity to pursue this research at Princeton University, and to Jane Exell for help in preparation of the manuscript. REFERENCES Moavenzadeh, F and ROSSOW,J A ‘The construction industry in developing countries’ Tech. Adaptation Program Rpt, MIT, USA (Spring 1975) p 212 Frank, C R and Webb, R C Income distribution and growth in the less developed countries Brookings Inst., USA (1977) p 641 Muspratt, M A ‘Megaprojects and productivity’ Cost Eng. (AACE) Vol 26 No 2 (April 1984) pp 25-36 Muspratt, M A ‘The project manager, politics and litigation’ Eng. Manage. Internat. Vol 2 (1984) pp 113-121
Vol 5 No 1 February
1987
Muspratt M A ‘Corporation’s dilemma’ Technol. Society, Vol 7 No 4 (1972) pp 130-133 Muspratt, M A ‘The challenge for engineering’ ASCE Vol 104 No E14 (October 1978) pp 237-244 Muspratt, M A ‘Computers for the construction industry’ Proj. Manage. Quart. Vol 14 No 3 (September 1983) pp 45-52 Muspratt, M A ‘Construction research and education’ ASCE Vol 110 No ET1 (January 1984) pp 7-18