CIB5911

International Symposium on Globalisation and Construction AIT Conference Centre, Bangkok, Thailand 17-19 November, 2004 Proceedings CIB W107 (Construction in Developing Economies) and CIB TG23 (Culture in Construction) Joint Symposium Sponsored by Edited by Stephen Ogunlana Chotchai Charoenngam Pannapa Herabat B. H. W. Hadikusumo Copyright © 2004, CIB-SCE, AIT. All rights reserved. ii Published by: School of Civil Engineering Asian Institute of Technology P.O. Box 4, Klong Luang Pathum Thani 12120, Thailand Mail: [email protected] and The International Council on Innovation and Research in Building and Construction-CIB Rotterdam, The Netherlands Mail: [email protected] ISBN: 974-8208-56-7 November 2004 Copyright 2004 by the School of Civil Engineering, Asian Institute of Technology, Klong Luang, Pathum Thani 12120, Thailand and The International Council on Innovation and Research in Building and Construction (CIB), Rotterdam, The Netherlands. All rights reserved. No part of this work may be reproduced in any form or by any means - graphic, electronic, or mechanical without the written permission of one or other of the copyright holders. This not withstanding, the author of a paper may reproduce a part or parts of the document in the course of his or her normal professional or academic activities, provided a complete reference to the source is given. Deposited as required by law, at the National Library of Thailand, Samsen Road, Bangkok 10300, 2004. iii CONTENTS Table of Contents Preface Acknowledgement Organising Bodies iii xiii xv xvii 1 Construction in a Global Economy 1 China’s construction industry after WTO accession: opportunities, challenges, and strategies R. A. STEWART and Z. JIANG International development: cultural impositions? RICHARD FELLOWS 3 15 Creating and sustaining competitiveness of small and medium-sized construction enterprises in China 25 DAVID A. S. CHEW, S. YAN and CHARLES Y. J. CHEAH The impact of globalization on urban spaces in Arab cities MAHMOUD A. HAGGAG Meeting the challenges of change for building professionals of Hong Kong JULIE K. W. MO Wining Construction contracts in developing countries in South East Asia FLORENCE Y. Y. LING Globalization: A challenge to the Tanzanian construction industry BONIFACE MUHEGI and JOSEPH MALONGO Globalization and trends in the international construction industry: a Malaysian perspective J. V. B. TORRANCE Comparison of some aspects of the construction industry of Nigeria and the republic of Benin O. S. OYEDIRAN, M.O. DADA and ZANNOU, S. D. H. Globalization and private infrastructure investment in emerging markets LUCY CHEGE and OBAS J. EBOHON Framework for public procurement system reform under “Globalization” T. WATANABE 35 47 57 69 81 91 103 111 iv Regional initiative as a competing strategy in the global construction market B. NGOWI, E. PIENAAR, A. TALUKHABA and J. MBACHU Health and safety on global projects in developing countries towards good Practice P. D. BUST; A. G. GIBB and C. L. PASQUIRE 123 135 2 Human Resource Development and Management 143 Established learning organization of Chinese building design profession to meet the challenge of entering WTO ZHANG WEI The power-based project leadership approach ANITA LIU and KE-WEI TANG Education for the sustainable built environment or just educating? P. M. D. RWELAMILA Some empirical evidence of inadequate representation of women in the construction industry in Nigeria A. Y. ADEYEMI, S. O. OJO, O. O. AINA and E. A. OLANIPEKUN Motivation Perception of construction workers and their supervisors in Indonesia ANDI Enhancing the employment of skilled women in the South African construction industry JANE ENGLISH and JAMES SOMMERVILLE Motivating craft workers: a case study with Nigerian workers BENJAMIN O. UWAKWEH Investigation ‘Unsafe Act’ and ‘Decision to Err’ factors of Thai construction Workers THANET AKSORN and B. H. W. HADIKUSUMO Relational contracting, culture and globalization STEVE ROWLINSON and FIONA Y.K. CHEUNG Multiskilling as a response to globalization PAUL W. FOX and ROSEN W. S. YUEN 145 153 165 185 195 205 217 227 239 249 v Investigating the key of knowledge creation process among Thai construction Projects managers W. TEERAJETGUL and C. CHAROENNGAM 261 3 Construction Industry Development 273 Registration of construction firms: good practice to enhance its benefits GEORGE OFORI Local capacity and capability: a probable determinant for promotion of construction exports ARUN BAJRACHARYA and GEORGE OFORI Promoting formation of alliances as a contributor to the development of the Construction service sectors: a Malaysian case study AHMED USMAN AWIL Strategic planning in small and medium construction firms J. K. SSEGAWA International technologies, knowledge flows, and technological capabilities in building in developing countries EMILIA. L. C. VAN EGMOND – DE WILDE DE LIGNY 275 287 297 307 323 Procurement strategy for promoting small scale contracting in rural infrastructure provision: A case study of Indonesia 335 K. S. PRIBADI Contractor development models that meet the challenge of globalization –a case for Developing management capability of local contractors 347 W. S. DLUNGWANA and P. D. RWELAMILA An assessment of risk in construction in the Nigerian construction industry HENRY A. ODEYINKA, ADE A. OLADAPO and JOSHUA O. DADA Enterprises towards environmental excellence: a modified life cycle model SAMMY KIN MAN, WAN and DAVIS TAT CHIU, LIU Local problems in the construction industry of Yemen BASEL SULTAN and STEPHEN KAJEWSKI Readiness assessment of the construction of global trade in services: the Indonesian experiences A. SURAJI, D. PARIKESIT AND A. T. MULYONO 359 369 379 389 vi Stakeholders’ awareness and deposition to the use of integrated project procurement method in some selected states of Nigeria M. O. DADA, O. S. OYEDIRAN and S.O. OGUNLANA 401 The third party’s attributes that influence the perceived fairness the process for handling claims and dispute AJIBADE AYODEJI AIBINU Establishment of foreign construction companies in Korea and the Korean construction industry in a foreign perspective TILLMANN SACHS, TIONG LEE KONG, ROBERT and KOO JA-KYUNG Modernizing a globalization construction industry: changing the way of changing? I. R. WILCO TIJHUIS Construction: a colonized industry BOB HINDLE 409 421 433 441 4 ICT and global construction 453 Supply chain management in construction: diagnosis and application issues ALFREDO SERPELL and BORIS HEREDIA Electronic project management information systems for construction projects in developing countries P. NITITHAMYONG, M.J. SKIBNIEWSKI and B.Y. RYOO Information and knowledge management for international projects: a study of external provision HEDLEY SMYTH 455 467 475 An investigation of ICT diffusion issues in an Australian construction contractor company using SSM 485 TAYYAB MAQSOOD, DEREK H. T. WALKER and ANDREW D. FINEGAN Top-down and bottom-up construction industry development M. M. KUMARASWAMY, S. T. NG, E. PALANEESWARAN, M. M. RAHMAN, O. O. UGWU and E. K. K. SZE Constraints on the ICT diffusion within large Australian construction firms V. PEANSUPAP and D.H.T. WALKER Strategic management of information technology in construction industry: the Indonesia perspectives MUHAMMAD SAPRI PAMULU and CHANDRA BHUTA 497 509 521 vii 5 Construction Economics 531 Analysis of performance measurement of construction projects in Malaysia ROSHANA TAKIM, AKINTOLA AKINTOYE AND JOHN KELLY Strategic data for employers’ construction claims KONGKOON TOCHAIWAT and VISUTH CHOVICHIEN 533 547 6 Real estate business and housing 557 Low cost high quality housing E. Z. TATSA Financing property development in Nigeria through unitisation methods: prospects and challenges OLALEYE ABEL, ALUKO BIOYE TAJUDEEN and AMIDU ABDUL-RASHEED Development of construction quality management and the related systems in Hong Kong RAYMOND T. AOIEONG and S. L. TANG 559 569 579 An evaluation of post-reclamation management of land reclaimed for housing in Lagos metropolis, Nigeria 591 O. O. AINA, A. Y. ADEYEMI, I. J. IKPO and S. O. OJO Problems of land delivery for housing development in Lagos state, Nigeria ALUKO, BIOYE TAJUDEEN; OLALEYE, ABEL and AMIDU, ABDUL-RASHEED 601 Mortgage financing in Nigeria: challenges and the search for strategies aimed at achieving global competitiveness 611 OLOYEDE, S. A. Meeting housing delivery targets in development countries: the project managers’ contribution Ghana 619 D. K. AHADZIE, D. G. PROVERBS and P. OLOMOLAIYE Modelling the determinants of the demand for housing construction in Nigeria A. O. WINDAPO, O. E. OGUNSANMI and R.O. A. IYAGBA The load-bearing service core: a hybrid & optimal residential building system ROGER-BRUNO RICHARD 631 647 viii Globalization, secondary mortgage banking and challenges before Nigeria OGEDENGBE P. S. 657 Housing policy and strategy to remove people and communities from flood plain in Ubonratchathani 667 SDHABHON BHOKHA The demand for accuracy in valuations: the case of Nigeria valuation accuracy in Nigeria OLUSEGUN ADEBAYO OGUNBA Globalization and risk management in development appraisal: challenges before Nigeria OLUSEGUN ADEBAYO OGUNBA 679 689 7 Infrastructure development and management 701 An assessment of the emergency job creation projects in Palestine ADNAN ENSHASSI, S. A. TAHA and P. E. MAYER Country risks facing IPP projects in Indonesia ANDI Dam removal: a study on unfavourable effects of dam projects P. SUTHEERAWATTHANA and T. MINATO Public-private partnerships in infrastructure development: on value, risk, and negotiation CHARLES Y. J. CHEAH 703 715 725 735 A study on stakeholder satisfaction with a BOT project: the case of the Bangkok Mass Transit System 747 W. TANGKITSIRI and S. O. OGUNLANA Evaluation and comparison of concession projects ALISON McCOWAN and SHERIF MOHAMED Challenges on procurement in the oil and gas industry: developing new strategies M. F. MOHAMMAD and A. D. F. PRICE 759 771 ix 8 Project management 781 Factors affecting architectural space programming for UAE public healthcare projects S. AL-ZAROONI, A. ABDOU and J. LEWIS Applied dynamic strategic planning for construction decisions under uncertainty V. LIKHITRUANGSILP An investigation into the management of environmental risks on international construction projects MELISSA M. M. TEO and MARTIN LOOSEMORE The effect of globalization on safety in the construction industry in Nigeria G. I. IDORO Critical success factors of project management SHAMIL NAOUM, DANIEL FONG and GARY WALKER A prototype of risk and uncertainty management process in multi-party environment and its application T. WATANABE and J. PIPATTANAPIWONG Cost variances of construction activities with multiple tasks S. WONGWITDECHA and R. I. CARR Issues related to coordination caused by custom in international joint venture contracting MASAMITSU ONISHI, KHAIRUDDIN ABDUL RASHID and KIYOSHI KOBAYASHI Importing technology, constructing identity in a global world: Kuala Lumpur international airport (KLIA), Malaysia HARPREET MAND Coping with cognitive-cultural, normative and regulative institutional asymmetry on global projects R. J. ORR The impact of culture on project communications: two case studies from South East Asia R. M. SKITMORE, K. TONE, and D. TRAN Strategic project selection in governmental organizations S. PUTHAMONT and C. CHAROENNGAM 783 795 807 817 827 839 849 859 871 879 889 899 x Project finance systems in Toll road projects in Asia K. A. K. DEVAPRIYA, S. GENZ, and H. W. ALFEN 909 9 Ethics and social responsibility 919 Globalization, corporate governance and the construction industry LLEWELLYN VAN WYK and LUCY CHEGE Development of global infrastructure for environment protection KEIZO BABA Ethical behaviors in the construction procurement process MARCUS JEFFERIES and ADRIAN KIRK 921 931 941 The roles of non-government organizations in development projects: experiences from Thailand 951 EKTEWAN MANOWONG and S. O. OGUNLANA Environmentally sustainable practices in the development of the Maldivian construction projects IBRAHIM SHAHEEN, C. CHAROENNGAM 965 10 Research and development 975 A computer software tool for tender evaluation J. PONGPENG The dynamic construction waste generation behavior among subcontractors in Singapore K. H. LIM and G. OFORI Building material industries for the delivery of housing BERNARD G. LEFEBVRE Regional rainfall substituted for toilet water design of Taipei elementary school toilets TSAI-CHUNG WENG, SHIH-HSIN LIN and SHYH-MENG HUANG The engineering properties of motor, sandcrete blocks, and concrete produced with erosion sand K. O. OLUSOLA and I. J. IKPO Performance measurement systems for benchmarking in the Brazilian construction industry DAYANA B.COSTA, HELENIZE R. LIMA, CARLOS T. FORMOSO 977 987 997 1009 1019 1029 xi Concept of strategic asset for sustainability of Thai consulting firm P. VORASUBIN and C. CHAROENNGAM 1041 A Comprehensive practice of pre-allocation of total float in the application of a CPMbased Construction contract 1043 JESUS DE LA GARZA and APIRATH PRATEAPUSANOND Author Index Keyword Index CIB Information Industry Sponsors 1059 1063 1069 1075 xii xiii GLOBALISATION AND CONSTRUCTION: Meeting the Challenges, Reaping the Benefits PREFACE The international symposium on Globalisation and Construction is a joint symposium of CIB’s Working Commission W107 – Construction in developing Economies and TG23 – Culture in Construction. The symposium was initiated by the Working Commission W107, as a follow up to the highly successful joint international symposium, Knowledge Construction, organized by the Department of Building, National University of Building, Singapore (22-24 October, 2003). Globalisation refers to the increasing integration of economies around the world. It is a term that has become emotive in the last few years due to its promises and consequences. Opponents and proponents agree on the following: Globalisation is happening and it is difficult to stop it; The benefits are unevenly distributed; and Most countries likely to lose-out are developing economies. Since globalisation cannot be stopped, it is important that developing countries prepare to meet the challenges of globalization and to reap benefits from it. The symposium is not designed to argue the case for or against globalization as a process. An important consequence of globalisation is the continuing integration of cultures. Hence, the organizers decided to invite TG23 to join the symposium. The objectives of the CIB W107 2004 symposium are the following: Explore the potential effects of globalisation on the construction industries in developing countries. Explore the challenges of globalisation to professionals, firms and countries. Explore what developing countries should do in order to reap the benefits of globalisation. Present and demonstrate how research innovations can be used to help companies and countries in a global economy. The symposium brings together an international audience of construction educators; researchers; company and project managers; owners and managers of construction facilities and government officials. I believe the deliberations here will be useful in helping developing countries to prepare their industries to meet the challenges of globalisation and reaping the benefits. Stephen O. Ogunlana Chair, Organising Committee Global Construction 2004 xiv xv ACKNOWLEDGEMENT This symposium is the fruit of international cooperation. On behalf or the Organizing Committee, I would like to that the following for their support: The Joint Coordinators of W107, Professor George Ofori and Professor Alfredo Serpell, for their encouragement and support. The coordinators of TG23: Culture in Construction, Dr. Richard Fellows and Dr. Wilco Tijhuis, for encouraging their members to join W107 in arranging this symposium. Members of W107 and TG23 for participating enthusiastically. The former Dean of AIT’s School of Civil Engineering, Professor Worsak Kanok-Nukulchai, for encouraging us to start. The acting Dean of the School of Civil Engineering, Professor Chongrak Polprasert for his support. Members of the Local Organising Committee, National Advisory Board, International Advisory Board, Scientific Advisory Committee and the Scientific Review Committee for their encouragement and valuable suggestions. The authors of the various papers, reviewers and participants at the symposium who have contributed to the success of the symposium. Our keynote speakers for taking the time to prepare and to be with us. The companies who made financial contribution to the symposium, namely: Bangkok Metro Company Limited and Preuksa Real Estate Company. The Second Bangkok International Airport, Preuksa Real Estate Company and Habitech Center, AIT, for arranging the Site visits. Faculty in the Construction, Engineering and Infrastructure Management field for the excellent teamwork. Our current and former students who have volunteered to help in arranging things and facilitating at the venue. Mr. Kyaw Thu, for his excellent coordination of all the activities. I am glad you came in at the right time. Miss Khaing Khaing Oo for helping out with the work. Khun Pranee for providing secretarial support for all the activities. The staff of the AIT Conference Center for making all the arrangements. The International Council on Building Innovation and Research, under whose umbrella this symposium has been arranged. All other persons and organizations, too numerous to mention here who have contributed to this symposium. My family for their prayer and support. - - - - Stephen O. Ogunlana Chair, Organising Committee Global Construction 2004 xvi xvii CIB 2004 Working Commission W107 Construction in Developing Economies International Symposium on GLOBALISATION AND CONSTRUCTION Meeting the Challenges, Reaping the Benefits W107 Construction in Developing Economies With participation by TG23 Culture in Construction November 17-19, 2004 Bangkok, Thailand Organizers CIB International Council for Research and Innovation in Building and Construction Asian Institute of Technology AIT BACKGROUND AND SCOPE Globalization refers to the increasing integration of economies around the world. It is a term that has become emotive in the last few years due to its promises and consequences. Opponents and proponents agree on certain aspects 1. 2. 3. Globalization is happening and it is difficult to stop it The benefits are unevenly distributed; and Most countries likely to lose out are developing economies. The symposium is premised on the assumption that globalization cannot be stopped. Therefore, it is important that developing countries prepare to meet the challenges of globalization and to reap benefits from it. It is not designed to argue the case for or against globalization as a process. OBJECTIVES The objectives of the CIB W107 2004 symposium are the following: Explore the potential effects of globalization on the construction industries in developing countries Explore the challenges of globalization to professionals, firms and countries in the developing world xviii - Explore what developing countries should do in order to reap the benefits of globalization Present and demonstrate how research innovations can be used to help companies and countries in a global economy SYMPOSIUM THEMES There seems to be general agreement on the factors that are serving as the drivers of the globalization process: 1. Improvements in technology of transportation and communication have reduced the costs thereby transforming the world into a global village where goods, services and factors of production can be moved at greater speed and cheaper cost. 2. Tastes have changed generally to favour taking advantages of the opportunities created by the decrease in costs of transportation and communication. 3. Public policies have influenced the character and pace of globalization. The symptoms of globalization are best seen through: (1) human migration; (2) trade in goods and services; and (3) movements of capital and integration of financial markets. The effects of globalization are very much apparent in the construction industries in developing countries of Asia and the Middle East. It is not difficult to find large construction sites with professionals and workers from 20 different nationalities in countries like Singapore, Taiwan, Saudi Arabia, Qatar, Bahrain, Kuwait, etc. Increasingly, design and construction are being done in multiple countries. Build operate transfer projects are being financed by as many as 50 banks from several countries. The symposium will deliberate on several sub-themes including but not limited to the following: 1. Construction in a Global Economy: Understanding the trends and challenges. The opportunities and winning processes 2. Human Resources Development and Management: HRM within and across borders. Gender and Construction. Training and Empowerment. Knowledge as an important capital asset 3. Construction Industry Development: Contractor development. Technology Transfer. New procurement strategies 4. ICT and Global Construction: Virtual organisations. Innovative applications. Implications for knowledge management 5. Construction Economics: The economics of global construction. Total life cycle costing 6. Real Estate Business and Housing: Strategies for housing delivery in a global economy. New technologies for housing. Risk management in an international context. Valuation principles and methods 7. Infrastructure Development and Management: New approaches to infrastructure delivery in urban and rural areas. Public-Private Partnerships. Infrastructure design and construction for the oil and gas industry. Case studies xix 8. Project Management: Managing projects in a global context. Meeting the unique challenges of large projects. Culture and construction. Sensitive/military projects. Emerging issues in project management 9. Ethics and Social Responsibility: Transparency and ethical issues in capital project implementation. Measures of Accountability. Environmental and social corporate responsibility 10. Research and Development: Innovative materials, design and construction processes. Total life cycle management. Research agenda and research management SPECIAL SYMPOSIUM FEATURES The perspective of the symposium, the integration of markets across countries and the improvement of the abilities of construction companies in developing countries to compete, is linking the achievements of research and development to the actual business. Thus, the symposium is expected to gain considerable interest among industry practitioners. For them the symposium shall provide new knowledge and information from leading experts and research institutions worldwide on different aspects of globalizing businesses and operations. For scholars from the research community the symposium shall provide a stimulating and comfortable event where thorough presentations and discussions are held on specific topics of interests. The presence of industry professionals will be an excellent opportunity for receiving valuable feedback and contacts. This symposium is addressed to the different working commissions and task groups of the CIB relevant to construction industry development. ORGANISING BODIES CIB is the world’s foremost organization for construction researchers and practitioners. With its headquarters in Rotterdam, CIB is an international body dedicated to the research and documentation of the building industry. It brings together professionals from a broad spectrum of building organizations worldwide. The unrivalled collection of expertise of the more than 600 members is organized through a network of working commissions whose subject matter extends over every area of building and construction. AIT - The Asian Institute of Technology is an international graduate institution of higher learning with a mission to develop highly qualified and committed professionals who will play a leading role in the sustainable development of the region and its integration into the global economy. AIT is supported by more than 50 governments, international agencies and business organizations. An international community of teaching faculty and research staff fosters the exchange and dissemination of advanced technological knowledge expertise at the Institute. xx Local Organising Committee Prof. Stephen Ogunlana, School of Civil Engineering, AIT Dr. Chotchai Chareonngam, School of Civil Engineering, AIT Dr. Pannapa Herabat, School of Civil Engineering, AIT Dr. Bonaventura Hadikusumo, School of Civil Engineering, AIT Dr. Wisut Chovichien, Chulalongkorn University, Thailand Dr. Wannawit Taemthong, King Mongkut Institute of Technology, North Bangkok, Thailand Dr. Wutthipong Muongnoi, King Mongkut University of Technology, Thailand National Advisory Board Prof. Worsak, Kanok-Nukulchai, Asian Institute of Technology, Thailand Mr. Supot Jiamjaratrangsee, Engineering Institute of Thailand, Thailand Dr. Nattawuth Udayasen, ITD Corporation, Thailand Mr. Wichien Wilaingam, MAA Consultants, Thailand Mr. Graham Dryden, UNOCAL, Thailand Mr. Mike Sypsomos, UNOCAL Thailand International Advisory Board Prof. Carlos Formoso, Federal University of Rio Grande do Sul, Brazil Prof. Elisha Tatsa, Techion, Haifa, Israel Prof. Keizo Baba, Kochi University of Technology, Japan Prof. Masahiko Kunishima, University of Tokyo, Japan Mr. S.O. Agada, Ministry of Housing and Urban Development, Abuja, Nigeria Prof. Rueben Iyagba, University of Lagos, Nigeria Prof. Raymond Nkado, University of the Witwatersrand , South Africa Mr. Spencer Hogson, Construction Industry Development Board, South Africa Mr. Boniface Muhegi, Contractors Registration Board, Tanzania Prof. Paul Olomolaiye, University of Wolverhampton, UK Scientific Advisory Committee Prof. Alfred Ngowi, University of Botswana, Botswana Prof. Alfredo Serpell, Pontifica Universidad Catolica de Chile, Chile Dr. Mohan Kumaraswamy, University of Hong Kong, Hong Kong Dr. Richard Fellows, University of Hong Kong, Hong Kong Prof. Steve Rowlinson, University of Hong Kong, Hong Kong Dr. Ir. Emilia L.C. Van Egmond –De Wilde De Ligny, Eidhoven University of Technology, The Netherlands Prof. Akintola Akintoye, Glasgow Caledonian University, Glasgow, Scotland Prof. George Ofori, National University of Singapore, Singapore Prof. PD Rwelamila, University of South Africa, Pretoria, South Africa Prof. Stephen Ogunlana, Asian Institute of Technology, Thailand xxi Prof. Timothy Michael Lewis, University of the West Indies, Trinidad & Tobago Dr. Obas Ebohon, De Montfort University, UK Dr. Issaka Ndekugri, University of Wolverhampton, UK Prof. David Langford, University of Strathclyde, UK Prof. Ben Uwakweh, University of Cincinnati, USA Scientific Review Committee Dr. Deepak Bajaj, University of Technology Sydney, Australia Dr. Sherif Mohammed, Griffith University, Australia Dr. Derek Drew, Queensland University of Technology, Australia Dr. Florence Phua, University of New South Wales, Australia Mr. Abdul Samad (Sami) Kazi, Technical Research Centre of Finland (VTT), Finland Dr. CM Tam, City University, Hong Kong Prof. Heng Li, Hong Kong Polytechnic University, Hong Kong Dr. Koshy Varghese, Indian Institute of Technology, Madras, India Dr. Krishna S Pribadi, Institut Teknologi Bandung, Indonesia Dr. Andi, Petra Christian University, Surabaya, Indonesia Dr. Peter Kaming, Atma Jaya University, Yogyakarta, Indonesia Dr. Takayuki Minato, University of Tokyo, Japan Dr. Tsunemi Watanabe, Kochi University of Technology, Japan Dr. Abdul Rashid, Universiti Sains Malaysia, Malaysia Dr. Wilco Tijhuis, University of Twente, The Netherlands Prof. Adnan Enshassi, University of Gaza, Palestine Dr. Vasantha Abeysekera, UNITEC, New Zealand Prof. Francisco Ribeiro, Instituto Superior Tecnico, Portugal Prof. Ananda Jayawardane, University of Moratuwa, Sri Lanka Prof. Ting Ya, National Central University, Taiwan Dr. Chotchai Chareonngam, Asian Institute of Technology, Thailand Dr. Bonaventura Hadikusumo, Asian Institute of Technology, Thailand Dr. Pannapa Herabat, Asian Institute of Technology, Thailand Dr. Francis Edom-Fotwe, Loughborough University, UK Dr. David Proverbs, University of Wolverhampton, UK CHINA’S CONSTRUCTION INDUSTRY AFTER WTO ACCESSION: OPPORTUNITIES, CHALLENGES AND STRATEGIES R. A. STEWART and Z. JIANG School of Engineering, Griffith University, PMB 50 GCMC, Queensland, Australia 9726, [email protected] ABSTRACT The Gross Domestic Product (GDP) of China has been growing at an average of seven to nine per cent per annum since economic reforms were introduced more than two decades ago. China has the second largest construction market in the world, only after the United States. This sector is one of the most significant components of China’s industry and accounted for nearly seven per cent of the country’s GDP in 2002. After China joined the World Trade Organisation (WTO) in November 2001 after almost 15 years of negotiation, the Chinese construction industry has become more open to world markets. In an attempt to understand the impact of WTO accession on China’s construction industry this paper aims to identify the significant opportunities and challenges for China’s construction industry after WTO accession and provide effective and practical strategies to overcome significant barriers. To achieve the above-mentioned research objectives, a questionnaire survey approach was adopted. The questionnaire targeted both private and government owned companies from a variety of qualification grading, representing the minimum capital requirements of projects: (1) Super-grade; (2) Grade A; (3) Grade B; and (4) Grade C. In total, 307 questionnaires were sent to Chinese construction firms and 47 responses were received, representing a response rate of 15.5 per cent. The research outcomes of this project are a concise list of barriers to effective WTO accession and recommendations for the Chinese government and the construction industry. Keywords: China, World Trade Organisation, Opportunities, Barriers, Strategies CHINESE CONSTRUCTION INDUSTRY China has one of the fastest growing economies in the world. China’s rapid economic development over the past twenty or so years has lifted millions out of severe poverty and propelled many into extraordinary wealth. China has emerged from virtual isolation to become the seventh largest trading nation and the sixth largest economy in the world. Since 1978, China’s GDP has had a sustained growth rate of over 9% per year. As one of five key “backbone” industries (construction, automobiles, electronics, machinery, and petrochemicals), the construction sector has been assigned very high priority in the most recent economic plans. The contribution of the construction industry to GDP has grown steadily from 4% in 1978 to 7% in 2002. China is the building site for countless new residential and commercial buildings, gleaming industrial parks, record-breaking public 2 Stewart and Jiang infrastructure projects, and is expected to soon be home to the world’s tallest building. According to the Ministry of Construction, over the next five years, five billion square metres of new housing projects are to be built, this amounts to 10-35 million housing units annually (compared to less than two million annually in the U.S.). Infrastructure improvement is a key priority in the 10th five-year plan (2001 - 2005) with up to 400 billion USD being set aside for roads, harbours, railways, airports and power stations. 25 billion USD in construction is related to the Beijing Olympic Games in 2008. Since 1979, the Chinese government has invested heavily in the construction of urban infrastructure facilities, including public utilities, parks and other green areas, urban roads, public communications, water- and gas-supply facilities, and treatment of urban garbage. The enterprises that constitute China’s construction industry are officially divided into four distinct categories: State-owned Enterprises (SOEs), Collective – Owned Enterprises (COEs); privately owned enterprises and self-employment (we address the two together as private enterprises hereafter) and other types of enterprises. China's state-owned enterprises account for the majority of China's industrial output and represent China's key industries. It is necessary for any construction enterprises in China to apply for a construction enterprises skill certificate, whereby, construction enterprises are classified into contractors, specialised contractors, and subcontractors. Contractors are further divided into 12 qualification categories with four grades – Super Grade, Grade A, Grade B and Grade C, while specialised contractors are further divided into 60 qualification categories with two to three grades. Subcontractors are further divided into 13 qualification categories with one to two grades. According to the Regulations, the assessment conditions for qualification include minimum registered capital requirements, average annual revenue requirements, staff’s qualifications, equipment requirements, etc. WTO ACCESSION PLEDGES Before China joined the WTO any international construction enterprises that wanted to enter China’s construction industry had taken the umbrage about restrictions on their market access, the absence of a level playing field and the lack of transparency [Schaub et al., 2003]. These firms were only permitted access to China’s market through Sinoforeign joint ventures (JVs), or by obtaining a Qualification Certificate from the Ministry of Construction (MOC) or provincial-level authorities on a project-by-project basis. In addition, various limitations existed in respect of minimum registered capital requirements for Sino-foreign joint ventures (i.e. Grade A = US$ 10 million; Grade B = US$ 5 million; and Grade C = US$ 1.6 million). After accession to the WTO in November 2001, China agreed in its Protocol of Accession to the WTO to gradually eliminate a number of existing restrictions on foreign investment in the construction sector, with perhaps the most notable commitment being the elimination of the prohibition on wholly foreign – owned enterprise (WFOE) construction companies by December 11 2004, which means WFOE will be permitted direct access to China’s construction market. Hence international construction companies soon have more options available to establish operations in China. Full details of pledges in the construction domain are too numerous to mention herein. China’s Construction industry after WTO accession 3 OPPORTUNITIES (BENEFITS) China’s construction industry will benefit in many aspects after WTO accession. However, there are four main areas where opportunities should arise: (1) construction market; (2) management and technology; (3) employment; and (4) laws and regulations. These areas are discussed in the following paragraphs and detailed in Table 1. Huang et al. (2000) pointed out that with less trading limitations and industry barriers, more international enterprises would enlarge their direct investment and set up factories in China to utilise their resource superiority. Moreover, Chen (2001) described that over the long-term, the investing environment would be improved by implementing ameliorated regulations and laws. With the adoption of enlarged investment channels, many financing approaches may be widely used for funding infrastructure construction projects [Guo (2001)]. The Chinese construction sector is still an extremely labour-intensive industry. Also. Chinese construction enterprises are mostly operating with low returns. One of the main reasons is because of their high labour requirements, low level of technology and low labour productivity [Liu (2000)]. Foreign contractors typically have strong management skills, good funding and advanced technology. These qualities can be transferred to the local industry over time. Finally, an enlarged foreign investment in construction activities should stimulate an increase in employment opportunities for China’s construction enterprises [Huang et al. (2000)]. Entry into the WTO requires China to implement the basic, principles of General Agreements of Tariffs and Trade (GATT). They include principles of most favourable treatment, transparency, market access, national treatment and gradual liberalisation. With the implementation of these principles, some local regulations protecting Chinese construction customs have to be abolished gradually [Liu (2000)]. One principle of the WTO is the construction of law and the transparency of law. After WTO accession, it is the responsibility for China to ameliorate the laws and regulation to fit the international customs. Meanwhile, the tendency towards economic globalisation also necessitates for China’s regulations to accord with international regulations. CHALLENGES (BARRIERS) Although China’s WTO accession may provide its construction industry with more opportunities, these benefits will come at a cost. China is required to make unilateral concession as its entry fee and is expected to observe the WTO agreements. One of them is to reduce the prohibitions and barriers for foreign enterprises’ entry to China’s market. Therefore, competition with foreign construction enterprises is one of the biggest challenges for local enterprises. Chinese enterprises still lag behind those in developed countries in both scientific research and operational practices. In order to delve into the strategies to improve the competitive ability of Chinese construction enterprises the barriers to their development are discussed in the following sections. Barriers have been categorised into internal and external barriers. 4 Stewart and Jiang Internal Barriers China’s construction enterprises are still labour-intensive and have low labour productivity. According to the China Statistical Yearbook 2003, there were 47,500 construction enterprises, which employed 21.29 million workers, which means an average of nearly 450 employees per enterprise. This is far greater than that of construction enterprises from developed countries. Many Chinese contractors' business activities have been constrained by their small business scale, low competence in applying advanced technologies, lack of management expertise, inadequate financing capacity, and human resource deficiency [Li and Mao (2000)]. The relative lower labour cost, therefore, becomes their only comparative advantage. However, as Chinese labour costs have increased nearly 20 times since the early 1980s Chinese contractors are gradually losing their comparative cost advantage [Zhao (2001)]. Additionally, Chinese contractors are generally short of working capital, and have a weak financing capability [Zhao (2001)]. Though 34 China-based enterprises were included into the top 225 international contractors, their share in total revenue was only 4.1%, which was less than Bechtel Group Inc. (USA) (5.9%). The largest Chinese contractor, China State Construction Engineering Corp., only acquired a share of 1.1%. Moreover, the experienced managerial and professional staff of engineering, procurement and construction (EPC) enterprises, most in their late thirties and forties, have had little chance to receive formal professional training in international commercial management as part of their tertiary education. The challenges of finding suitably qualified project management staff has been widely reported [Huo (2000)]. The enterprises are short of professionals with rich knowledge of, and experience in, international contracting practices. In addition, foreign enterprises can provide much better salaries, working conditions and training opportunities than their local competitors. Once more foreign enterprises enter into China’s construction market, the talented workers will be attracted by these conditions [Chen (2001), Research Group (2000)]. External Barriers One feature of Chinese clients is that they tend to use improper, sometimes illegal practices when managing their projects. Because the open tender system is not wildly applied, corruption is pervasive in China’s construction industry. It is common for clients to ask for “kick-backs”, or insist on using certain poor quality building materials. Their behaviour has not yet been regulated effectively due to the problems in the enforcement of various regulations. Deferred payment is another very common barrier preventing construction enterprises to develop themselves. Government intervention and local protectionism is a very common phenomenon in the Chinese construction industry. Unlike western countries, where there is only limited capacity for the government to intervene in the market to influence or regulate demand. The role of government in China is still all-pervasive. It acts as a client, financier, and regulator as well [Chen (2001)]. This kind of multidimensional intervention has resulted in many drawbacks such as serious local protectionism, ambiguous power, less consciousness of competition, etc. However, with WTO accession, all these local protective regulations have to be abrogated gradually. China’s Construction industry after WTO accession 5 Lan and Jackson (2002) analysed the Chinese contracting system and claimed that the relationship between contractors and subcontractors in China was problematic. The Chinese government is now concerned about over-subcontracting with many contractors and designers seeking profits by illegally leasing their licences or by subcontracting their jobs to unqualified firms. Lack of an established contractor-subcontractor system not only hinders the development of specialisations amongst construction firms in a full contractual chain, but also increases the competition among contractors and subcontractors, which can have a deteriorating effect on the performance of most construction enterprises [Lan and Jackson (2001)]. Tables 2 and 3 detail a summary of the internal and external barriers facing the industry. COPING STRATEGIES Firstly, the government should establish and ameliorate the system of laws and regulations in the construction industry. As Research Group (2000) pointed out, the government should draft new construction laws and regulations, which matches WTO operational standards within three to five years. In addition, the government should constitute essential policies with the aim to open the Chinese construction market. The government should also offer financial support such as bank loans, guarantee funds and insurance mechanisms to facilitate the development of construction enterprises [Cui (2001)]. Moreover, they should take measures to promote those enterprises that have comparative advantages, or are leading the industry. These measures include organising and providing market information services, facilitating technology transfer and strengthening professional training through collaboration between Chinese and foreign educational organisations [Cui (2001)]. In order to improve labour productivity and reduce project costs, China’s construction enterprises should attach importance to the reform of management and technology through collaboration with educational institutes, universities and research departments and set up effective technology transfer systems [Chen and Mohamed (2002)]. Meanwhile, as the tariffs are reduced with the accession of the WTO, the cost for some advanced materials and equipment, which needs to be imported, will be reduced. In order to acquire new technologies and international management expertise, Chinese construction enterprises can undertake project-based joint ventures or other forms of alliance with international firms [Li (2001)]. For those comparatively small-scale enterprises, being specialised and developing though mergers are good ways to survive in the fiercer competitive market after WTO accession. Moreover, in order to resist the challenges from WTO accession, China’s construction enterprises should enlarge their investment in technical research and implement international standards and management systems [Research Group (2000)]. Table 4 details a summary of coping strategies to enhance the development of Chinese construction enterprises after WTO accession. RESEARCH METHOD To achieve the above-mentioned research objectives, a questionnaire survey approach was adopted. The questionnaire targeted both private and government owned companies from a variety of qualification grading, representing the minimum capital requirements of 6 Stewart and Jiang projects: (1) Super-grade; (2) Grade A; (3) Grade B; and (4) Grade C. In total, 307 questionnaires were sent to Chinese construction firms and 47 responses were received, representing a response rate of 15.5 per cent. The survey aimed to determine the significance of a set of benefits and barriers to WTO membership. Additionally, respondents were required to link barriers to a number of coping strategies and rate the effectiveness and practicality of these strategies. DATA ANALYSIS AND RESULTS Respondent Profile The respondents’ position description was divided into five distinct categories with the following breakdown: site engineering (36%), project manager (26%), design engineer (21%), architect (13%) and principal engineer/director (4%). The respondents’ organisations’ ownership profile was categorised into four categories. As expected, Stated-owned enterprises provided the largest response rate (36%), followed closely by Collective-owned (27%), Share-holding (23%) and Private (14%) making up the remainder of the respondents. The majority of respondents were from the Grade A (42%) and B (30%) category, followed by Super Grade (15%) and Grade C (13%). Opportunities (Benefits) The benefits collated in the literature review were gathered into the questionnaire survey and the respondents were asked to rate their significance on a scale of ‘1 = insignificant’ to ‘4 = very significant’ (see Table 1). According to the rank shown in the Table 1, it can be seen that although fierce competition exists between China’s construction enterprises and foreign ones the desire to attract more foreign investment was ranked as the best opportunity. Additionally, Chinese enterprises seek more infrastructure projects and want to implement advanced equipment and environmentally friendly materials. Surprisingly, the respondents did not rate policies and internationalisation as an important benefit but this may result from their lack of understanding of the essentialness of effective policy. China’s Construction industry after WTO accession 7 Table 1. Significance of Opportunities (Benefits) Code 1. 1a 1b 1c 1d 1e 2. 2a 2b 2c 3. 3a 3b 4. 4a 4b Benefits Description Enhance the construction market Attract more foreign investment More infrastructure projects Stimulate the demand for non-residential building Enrich financing methods Less barriers to enter overseas markets Revolutionise management and technology systems Implement international standards (quality, environment, etc) Import new design ideas and construction methods Import advanced equipment and environmentally friendly materials Provide more employment opportunities Enable more foreign companies to enter the market Increase the number of projects and joint ventures Accelerate the amelioration of policies and regulations Internationalisation acceptance Consult with other WTO members’ policies and regulations Mean Significance 3.19 3.15 2.83 2.81 2.74 2.89 2.94 3.06 2.81 2.72 2.68 2.38 Rank 1 2 6 7 9 5 4 3 7 10 11 12 Challenges (Barriers) Barriers were categorised as either internal or external. Internal barriers refer to those defects and shortages that are preventing Chinese construction enterprises to develop and be competitive in the international market (see Table 2). Low labour productivity and a lack of experienced professionals were rated as the most significant internal barriers for China’s construction industry after China joined the WTO. Respondents also listed some other internal barriers, which they remarked as being significant, namely, low competence in applying technologies, human resource deficiency, ambiguous ownership rights, and the lack of a competitive consciousness. External Barriers are concerned about macro barriers such as those that derive from the government and environment in which the industry operates (see Table 3). The respondents rated malignant competition in China’s construction industry as the highest ranked external barrier. Moreover, the respondents stated some other external barriers that they perceived to be important, namely, supply exceeds demand, lack of channels to receive international information, and disorder in the construction market. 8 Stewart and Jiang Table 2. Significance of Internal Barriers Code a h b c j i e d g f Barriers Description Low labour productivity Lack of experienced professionals Small business scale Poor management expertise Brain drain because of low salary and limited opportunities Confusion over WTO rules Lack of international project management experience Inadequate financing capacity Unfamiliarity with international market operations Lack of credibility in the international market Mean Significance 3.45 3.21 3.02 2.98 2.98 2.79 2.77 2.68 2.64 2.60 Rank 1 2 3 4 4 6 7 8 9 10 Table 3. Significance of External Barriers Code o k m l n Barriers Description Malignant competition among trade workers Government intervention and local protectionism Deferred payment Ineffective regulations Lack of working specifications Mean Significance 3.36 3.17 3.13 2.89 2.87 Rank 1 2 3 4 5 Linking Barriers to Coping Strategies This section of the questionnaire asked respondents to link the internal and external barriers to a series of suggested coping strategies. Additionally, the respondents were required to rate the effectiveness and practicality of these coping strategies. In Table 4, Column (1) and (2) detail the coping strategies and their respective codes. Column (3) details the barrier codes and the percentage of respondents who considered that the particular coping strategy could overcome specific barriers. For example, k (47%) means that 47% of the respondents linked barrier k to coping strategy one (CS.1). Column (4) details the mean significance of the barriers as stated in Tables 2 and 3. Column (5) and (6) details the mean effectiveness and practicality, respectively. Column (7) describes the ‘usefulness’ of the coping strategies through the summation of Column (5) and (6) (i.e. Table 4: for the CS.1–k link (2.62 + 2.77) = 5.39). In order to identify the most useful coping strategies to overcome the significant barriers to efficient WTO accession, a refinement process was conducted. The refinement steps and the appropriate limits are detailed as follows: (1) remove barriers with a mean significance less than 2.5; (2) remove links where less than 20% of respondents linked barriers to coping strategies; and (3) remove barrier to coping strategy links that have a mean usefulness less than 5. After refinement, each link is ranked according to the significance of the barrier and the ‘usefulness’ of the coping strategy. For example, for the link CS.1 - k (47%), the importance of the link is determined by multiplying the mean significance by the usefulness score (i.e. 3.15 × 5.39 = 16.99). China’s Construction industry after WTO accession 9 Table 4. Refined Linking of Barriers to Coping Strategies Mean Practicality (6) Mean Effectiveness (5) Mean Significance (4) Barriers Code and link (3) Usefulness (7) Importance (8) = (4) (7) Code (1) × Coping Strategy Description (2) CS.1 Ameliorating policies and regulations CS.2 Collaboration with educational institutes Developing through mergers Being aggregative and special The government gives more financial help such as bank loans, guarantee funds and insurance Cooperation with project-based joint ventures or other forms of alliance with multinational companies Provision of training in international project operations Using advanced equipment and materials Implementation of IT systems Implementation of international management systems Enhancing employee training CS.3 CS.4 CS.5 k (47%) l (100%) m (94%) n (83%) o (91%) a (45%) h (98%) i (32%) b (100%) d (43%) b (100%) b (28%) d (100%) c (38%) e (100%) f (74%) e (100%) g (34%) a (100%) a (100%) a (81%) j (55%) a (81%) h (89%) 3.15 2.89 3.13 2.87 3.36 3.45 3.21 2.79 3.02 2.68 3.02 3.02 2.68 2.98 2.77 2.60 2.77 2.64 3.45 3.45 3.45 2.98 3.45 3.21 2.62 2.77 2.73 2.59 2.44 2.67 2.70 2.67 2.98 2.45 3.09 2.85 3.21 3.06 2.87 2.97 3.09 2.56 3.21 2.89 3.08 3.12 3.32 2.67 2.77 2.64 2.77 3.08 2.63 3.24 2.74 2.87 2.81 2.80 3.19 2.69 2.87 2.44 2.74 2.71 2.30 2.50 3.17 2.60 3.03 2.52 3.61 3.42 5.39 5.41 5.50 5.67 5.05 5.91 5.44 5.54 5.79 5.25 6.28 5.54 6.09 5.50 5.61 5.68 5.39 5.06 6.38 5.49 6.11 5.64 6.93 6.09 16.99 15.63 17.22 16.27 16.97 20.39 18.49 15.46 17.49 14.07 18.97 16.73 16.32 16.39 15.54 14.77 14.93 13.36 22.01 18.94 21.08 16.81 23.91 19.55 11 18 10 17 12 4 8 20 9 23 6 14 16 15 19 22 21 24 2 7 3 13 1 5 CS.6 CS.7 CS.8 CS.9 CS.10 CS.11 From Table 4, it becomes obvious that CS.11: Enhancing employee training (23.91), CS.8: Using advanced equipment and materials (22.01), CS.10 Implementing international management systems (21.08), and CS.2: Collaboration with educational institutes (20.39) are imperative to overcome barrier a: Low labour productivity. Another interesting observation is that ameliorating policies and regulations is essential to overcome external barriers such as protectionism, competition, payment etc. Surprisingly, respondents did not rate joint ventures and training in international operations as one of the most important coping strategies. The respondents perceived that they needed to modify their internal system before adopting technology transfer initiatives. RESEARCH OUTCOMES The main outcomes derived from this research project were: Opportunities (Benefits) • General: attracting more foreign investment for infrastructure projects. Rank (9) 10 Stewart and Jiang Super-grade enterprises: fewer barriers to enter overseas markets and enrich financing means. • Grade A enterprises: more interested in the benefits of having more infrastructure projects and importing new design and construction methods. • Grade B and C enterprises: interested in the benefits of having more infrastructure projects as well as importing advanced equipment and materials. Challenges (Barriers) • Industry: low working efficiency and malignant competition. • Super-grade enterprises: lack of international project management experience, lack of credibility of domestic firms in the international market, government intervention and local protectionism. • Grade A or B enterprises: lack of experienced professionals and project managers. • Grade C enterprises: small business scale, brain drain and deferred payment. The following recommendations resulted from this study: Government • Ameliorate policies and regulations through consultation with other WTO members. • Provide increased financial support such as bank loans, guarantee funds and insurance mechanisms to encourage and facilitate the development of construction enterprises. Individual Enterprises • General: enhancing employee training and using advanced equipment and materials are effective and practical ways to improve productivity. • Super-grade enterprises: undertaking project-based joint ventures or alliances with multinational companies should enrich international project management experience and increase the credibility of Chinese construction firms. • Grade A, B or C enterprises: collaborating with educational institutes, implementing international management systems, developing through mergers and being aggregative or specialised can overcome the lack of experienced professionals and small business scale. • CONCLUSION This research identified the most significant opportunities and challenges for the Chinese construction industry after WTO accession and provided some recommendations for China’s government and construction industry. In order to achieve these research aims, a questionnaire survey was developed after an extensive literature review. The aim of the questionnaire was to gauge the perceptions of China’s construction enterprises as to the opportunities and challenges to effective WTO accession and link these barriers to a range of coping strategies. Using information collected from 47 responses, the significance and importance values of these opportunities, challenges and coping strategies were calculated and ranked using a structured refinement process. Key research outcomes were derived from the process and presented for the Government and for different grades of construction enterprises. In summary, the adoption of training and advanced equipment and technology in association with more transparent government policies were seen as essential enablers for effective WTO accession. China’s Construction industry after WTO accession 11 REFERENCES Chen, B G (2001) Analysis of the impact on the construction industry after WTO accession. Tongji University (in Chinese). Chen, L and Mohamed, S (2002) China’s foreign economic cooperation development: exporting Chinese construction services, Griffith University, Queensland, Australia, pp. 348-353. Cui, M M (2001) Change government functions and support enterprises in foreign economics cooperation development. International Economic Cooperation, Ministry of Foreign Trade and Economic Cooperation publication, May, pp 68. Guo, L (2000) Recommendations to Chinese international contractors on how to integrate business with market by learning from ENR’s top 225. Ministry of Foreign Trade and Economic Cooperation, October, p. 13. Huang, C, Li, Q and Shen, L (2000) Analysing the influence of WTO on China’s construction industry. China Jiangsu International Group, Hong Kong Polytechnic University, Southeast University (in Chinese). Huo, J Y (2000) Remarks on project management of overseas contracting business and international economic cooperation. Ministry of Foreign Trade and Economic Cooperation, November, p. 47. Lan, P and Jackson, J T (2002) Current characteristics of the main stakeholders in the Chinese construction industry. School of Marketing and International Business, Queensland University of Technology, Australia, April. Li, J and Mao, L (2000) The impact of China’s accession into the WTO on the construction sector and recommended strategies. Ministry of Foreign Trade and Economic Cooperation, April. Li, S R (2001) Construction management: an important subject subsequent to China's WTO accession. International Economic Cooperation, Ministry of Foreign Trade and Economic Cooperation, November. Liu, S (2000) Construction and WTO, www.tdctrade.com [accessed 30 April 2003]. Research Group (2000) The impacts on China’s construction enterprises after WTO accession and countermeasures research, www.cnhuafas.com [accessed 20 March 2003] (in Chinese). Schaub, M Chen, Q J and Shi, E (2003) China’s Big Bang in Construction: Adapt or Perish. King & Wood Publishers, Shanghai, pp. 2-5. Zhao, S B and Hu, J Y (2001) How to further promote the development of China’s international engineering constructing business in the new economic situation. Ministry of Foreign Trade Economic Cooperation, pp.14-16. 12 Stewart and Jiang INTERNATIONAL DEVELOPMENT: CULTURAL IMPOSITIONS? RICHARD FELLOWS Department of Real Estate and Construction, the University of Hong Kong, Pokfulam Road, Hong Kong, China [email protected] ABSTRACT In the modern context of globalization, with the inherent increase in inter- and multinational exchanges, interactions of cultures is inevitable. However, despite rhetoric of such interactions yielding benefits, power struggles, impositions and increasing structures of reliance may result. Such actions contain inherent issues of ethics, in particular the interfacing and interactions of ethics of the host country and the suppliers. A further aspect is the notion of organisational citizenship behaviour which, in many aspects, reflects the concept of joint venturing and the inherent advantages of ‘technology transfer’. This paper explores the cultural issues which are embedded in international development projects to investigate how such issues may be dealt with and with what consequences. As such, it has potential impact for the CIB initiative of “revaluing construction” through asking “whose values”? Keywords: Culture, ethics, globalisation, organisational citizenship, power, values. INTRODUCTION The construction industry has long operated across borders of many types. Today, attention commonly focuses on national boundaries for financial and political reasons but, as is demonstrated continuously, national boundaries tend to be rather arbitrary and, hence, quite transient. That transience is not just a feature of ‘development’, as in Asia and Africa, nor just of restructuring, as in Europe and the former Soviet Union, but may reflect extending imperialism, albeit apparently democratic, as in USA. What emerges beyond doubt, and irrespective of the reasons for the changes in national borders, is the continuing remixing of cultures. International exchanges and trading take ever more diverse forms; exchanges of goods, although the oldest form and most common are vital to sustain modern activities. Exchanges of services are following a similar trend and, commonly, constitute the focus of attention for economic and social advance in ‘developed’ countries. Nowadays, much attention is switching to exchanges of information, especially since the launch of the internet and its moving towards ubiquitous free, or low cost, access. The foci do tend to accentuate the more physical and everyday aspects of exchanges across various boundaries (indeed, one may argue that for there to be an exchange, at least in terms of economics, movement of the subject matter across a boundary, of whatever form, is 16 Fellows essential, by definition!). However, it seems that other, underlying and, often, more enduring exchanges operate in less ‘visible’ ways – such as exchanges comprising crossborder ownership of the means of carrying out (economic) activities with the consequence of cross-border influence on behaviour and all its constituents. World trade statistics from the World Trade Organisation [WTO (2002)] indicate that the 2002 world level of trade in merchandise comprised exports of US$ 6455.0 billion and imports of US$ 6693.0 billion; both showing a 4% increase over 2001 (merchandise excludes services and construction). For commercial services in 2002, exports totalled US$ 1570.0 and imports US$ 1545.0; increases of 6% and 5% respectively over 2001. Thus, goods represent just over 80% of world trade and services, just under 20%. In almost all regions, 1990-2002 witnessed fairly steady increase in trade. GLOBALISATION Globalisation, as envisioned by Kenichi Ohmae [Ohmae (1999)], comprises five, progressive stages – exporting; localisation of sales and marketing; localisation of production etc.; localisation of headquarters activities – personnel, financing etc. (insiderisation); complete globalisation to give overall identification to the total firm. The globalised result comprises world-wide branding, coupled with logically centralised functions (such as financing), together with locally-specialised features. Thus, globalisation results in combinations of common and diverse elements, leading to the combination perspective, asserted to be essential for success, ‘glocalisation’. Whether globalisation is causal of changes in the level of trade, or is only a model to aid understanding of modern trading mechanisms seems, as yet, indeterminate. What is apparent is that globalisation, internationalisation and other forms of cross-nationalborder business activities are occurring increasingly and in ever more diverse forms. Clearly, a primary purpose of globalisation is expansion of the business through capturing share of expanded market. Expansions occur both horizontally and vertically in seeking economies of scale, economies of scope, and enhanced control in supply chains (rather than participation in supply networks). Again, the construction industry seems caught in a dichotomous situation – generally, design activities are increasingly diverse and specialised between business units but ‘integrated’ practices are extending too; construction is executed by subcontractors but joint ventures, concession contracting are increasing; further, design and construct arrangements and partnering are more common. Whilst many models of marketing specify the objective to be satisfying customers’ needs through matching supply to those needs, that criterion does not accord with the imperatives of capitalist free market operations. In such markets, suppliers must be concerned with demand – yes, underpinned by need, want, desire etc. but, vitally, supported by both the ability and the preparedness to pay the price to make the demand effective – sufficiently attractive in terms of suppliers’ performance objectives to generate sufficient supply. It is commonly asserted that, for globalisation to take place, Japan is often used as the exemplar – automotive, electronics, optics, construction industries etc., – there needs to be a strong domestic base (one might suggest a saturated domestic market base) on which International Development 17 expansion into foreign markets can occur; perhaps as the only way in which expansion can occur profitably. Thus, it appears that two related forces must apply for international expansion – first, the supplier must have an extensive domestic base to yield sufficient resources (internal and/or external) to facilitate the expansion; second, the international market must offer sufficient (perceived) potential net gains in terms of the supplier’s business objectives (identity, quantum and probability) within the supplier’s decision (time) horizon. Of course, ‘loss leader’ approaches may be adopted in the short term to enable a long term gain to be realised; indeed, given the variety of international business activity and differing performance requirements (short term) amongst competitors, such approaches may be essential. Further issues arise over trading protectionism – the measures employed by governments to isolate domestic activities from international competition – which may be imposed for good domestic reasons but still give rise to questions concerning economic efficiency and what constitutes ‘fair’ competition; the ‘ideal’ of the perfect market operates uncontrolled but requires many, individually tiny actors in both supply and demand camps. The real economic world does not operate as a perfect market and so, imposed controls are based on value judgements, many of which are politically influenced. Whilst globalisation is discussed most usually in connection with private sector activities, there are hugely important public sector global activities too. Those activities concern international financing, whether administered by governments themselves or through international agencies, such as the World Bank and its associated organisations. Due to risk aversion and consequent recourse requirements, much of the funding occurs as ‘country financing’ – whereby the funds are loaned to the government of the country which, then, itself, advances the money to finance the project; commonly, the funding agency will carry out extensive scrutiny of the proposal and audit the project execution and operation. More project-oriented involvement may be realised through facilities such as export credit guarantees under which suppliers obtain payment guarantees by their home government in respect of 70 – 80% of the value of their (export) supply – a form of international default payment bond, for which the organisation obtaining the guarantee must pay a premium (presumably, evaluated to be a lower financial cost than the risk without the guarantee). ‘…to invest abroad, firms must find it more profitable, or strategically worthwhile, to engage in foreign rather than domestic production’, [Dunning (1993)]. At the more general level of international trading activity, the World Trade Organization (WTO), the successor to GATT, seeks to enhance trading conditions around the world by requiring member countries (after negotiation) to adopt agreed trading conditions which seek to foster unified and equitable trading terms. The expressed objective is to foster free trade internationally whilst assisting developing countries [WTO (2004)]. It is sometimes apparent that the way forward to foster development is the removal of trading barriers (quotas, tariffs etc.) so that the developing economy must compete directly (given a few initial years of reducing concessions – protection measures – progressively). Dunning (1993) uses a framework of ownership factors (O), location factors (L) and internationalisation configuration factors (I) to provide a context for analysing competitive elements, somewhat analogous to the transaction cost paradigm of examining 18 Fellows configurations of firms and hierarchies for economic efficiency in effecting transactions (through cost minimisation). The operation of the variables in the model and the resultant indications of appropriate business configurations are subject to multinational business activities (MBA), governments’ policies and initiatives and chance events as well. Given the global increasing incidence of various forms of capitalism, pursuant of the dominant performance imperatives of profit(ability), size (turnover, market share) [Baumol (1959)] and non-decreasing distributions of income to owners (dividends) [Hutton (1996)], the nature of financial control over organisations has changed quite rapidly; in UK, institutional investors’ holdings of shares increased from 18% in the early 1950’s [Sawyer (1985)] to 80% by 1990 [CBI (1990)]. That change seems inconsequential prima facie, however, it is the institutional investors which are active investors (and are well-known to shape the urban commercial property markets by their activities in financing developments) and so, are dominant in dictating the forms and levels of returns which their investments must yield. Thus, the incidence of savings in societies and the nature of savings institutions, impacts on the financial influence of such societies globally via the international financial markets. Further, the impact that the external financiers can exert is determined by the financial structuring of the organisations in which they may invest (arguably, determined by costs of the available forms of financing and taxation). Additionally, financial institutions are highly knowledgeable about the operation of financial markets and the returns available which, coupled with the large sums they wield, results in effective control over organisations through relatively small percentage shareholdings (as, normally, the percentage of an organisation’s equity traded per period is small). Combining that context with extending arrangements by which the financing of construction activities is an increasingly important element in project awards and that procurement arrangements are increasingly ‘concession form’ – requiring greater inputs of equity by participating constructors – the importance of requirements of external financing agencies is clear. ETHICS The Oxford English Dictionary provides a variety of definitions of ‘ethics’, all concern morals (e.g. “the whole field of moral science”). Perhaps the most pertinent definition is, “The moral principles or system of a particular leader or school of thought; the moral principles by which any particular person is guided; the rules of conduct recognized in a particular profession or area of human life”. Clearly, ethics are both collective and individual constructs which can be adopted or imposed. (Whether imposition of ethics is, itself, ethical is questionable; and can anything can be imposed without the acquiescence of the target?) “Ethics refers to the system of moral values by which the rights and wrongs of behavior … are judged” [italics added] [Rosenthal and Rosnow (1991)]. Values signify enduring beliefs in particular ways of behaving or preferences for states in the future [Rokeach (1972)]. Not only does ethics relate to values but, in order to secure operation, regard must be given to principles and standards of behaviour. That necessity raises questions of whose values are employed in deciding the standards and related issues of judgement. International Development 19 Morals involve judgement of right and wrong, good and bad behaviour, and so on. Values are central as are the other components of cultures. The issue of context dependency must be addressed – a reflection of the cultural dimension of UniversalParticular [Trompenaars and Hampden–Turner (1997)]. Can any action, belief etc. be good or bad, right or wrong universally? That is not to dismiss objectivism for relativism but to acknowledge the pluralism of human existence. Moral ethos, which may be a strong force to encourage or constrain action, is, “…the social climate predisposing members of an organization toward adopting and enacting some particular ethical standards and deflecting them away from others” [Snell (1995)]. Morals are first order beliefs and practices about what is good and what is bad which guide behaviour; ethics are second order, reflective consideration of moral beliefs and practices [Hinman (1997)]. Variant definitions and perspectives have generated four primary paradigms for ethical analysis [Leary (1991)]. In deontology, a universal moral code applies. In skepticism, (relativism; subjectivism) ethical rules are arbitrary and relative to culture and to time; that view is extended in ethical egoism where ethics become a matter of the conscience of the individual (as the arbiter of ethics). Thus, egoism concerns pursuit of self-interest and so, can be related to common business criteria (notably, profit maximisation). Teleology constitutes a utilitarian approach (utilitarianism; consequentialism) where ethics are dependent upon the (anticipated) consequences – that suggests a cost-benefit view, perhaps invoking the judgmental criterion of “the greatest good for the greatest number” which, itself, is likely to necessitate subjectively determined weightings. Objectivism asserts that there are definitions of what is right and what is wrong which are accepted generally (either universally or more locally). Professional Ethics A “professional is an agent who freely makes a public promise to serve persons … who are distinguished by a specific desire for a particular good” [Koehn (1994)]. The relationship embodies the essentials of the professional’s desire to do good for the client and to mould the good to the specific needs of the particular client. Thus, there is a necessary duty of care towards the client – customer which is not present elsewhere – notably, in business relationships (except due to law etc.). Hence, “members of service industries can be experts, but they are not professionals…. Immoral business is as possible as moral business … Immorality in a professional … necessarily involves ‘being unprofessional’” [Pritchard (1997)]. Professional ethics is a system of behavioural norms [Bayles (1988)]. Such norms involve the employment of particular knowledge and so, focus on the relationship between experts and ‘lay’ persons. Generally, the behavioural rules seek to ensure that advantage is not taken by the expert due to the knowledge differential – the application of ‘customer protection’ through (professional) self-regulation. Commonly, the issue of disclosure of interests arises – the professional must disclose own interests in the subject matter of the relationship to the client. Continuity of the relationship is on the basis of ‘informed consent’ by the client. However, an ‘ethical residue’ remains over the extent to which a client can appreciate the potential consequences of the (full) disclosure, unless appropriately advised by the professional (or other members of the profession)! 20 Fellows Knowledge standards for membership are determined, standards of behaviour in applying the knowledge are set (both self-policed) and means for developing the knowledge – of individual practitioners (continuing professional development, CPD) and of the totality of the knowledge – are established by the professional institutions. Most obviously, ethics relate to the level of knowledge required and the practices of using the knowledge. In UK, the law has set tests for judging the adequacy of knowledge applications – the ‘normal practitioner’ [skill and care liability] (Bolam v. Friern Barnet Hospital (1957)1); where a required result (performance) is made known to the professional practitioner, that result must be realised – [fitness for purpose liability] (Greaves v Baynham Meikle, (1975)2). Ethical codes provide guidance for professionals in their determining appropriate action – they aid consistency and stability in deciding moral issues [Reeck (1982)]. However, ethical codes do not, themselves, solve moral dilemmas but do help to raise levels of awareness and so encourage ethical practise [Henry (1995)]. Engineering is a ‘pseudo – profession’ because true professions must possess an internal good – a value which no-one could question [Airaksinen (1994)]. Engineered products may not be good necessarily; the internal values of engineering are desirable but are incidental rather than intrinsic. A similar perspective may be adopted for architecture and other ‘professions’ of the construction industry. BUSINESS RELATIONSHIPS – JVS ETC. The nature of business relationships and their regulation seem frought with issues and problems, usually founded in the necessity for value judgements to be made. Therein lies the essence of culture and, consequently, ethics. Morals, equity, corruption and transparency are all germane to examinations of the processes of production and trading under desires for (economic – resource utilisation) effectiveness and efficiency. The domain of transaction cost economics has much to contribute in informing of economic consequences of various market/firm structures, given a holistic perspective as advocated by, e.g., Dietrich (1994), who notes that, concerning development, “…economic units are not pre-given and exogenous to economic processes: rather, they can be transformed to further the objectives of economic agents”. Transaction cost approaches concern examination of effecting economic activities through firms and markets [Coase (1937), Williamson (1985) etc.]. Firms are individual business units which execute economic activities, the management and execution of production and distribution, whilst markets are linkage structures between producers and consumers. People make decisions and, hence, behave under bounded rationality as information is both complex and uncertain; further, in striking bargains (effecting transactions), information is asymmetric ex-ante and ex-post. Transaction cost theory 1 2 Bolam v Friern Barnet Hospital (1957) 1 W.L.R. 582. Greaves v Baynham Meikle (1975) 1 W.L.R. 1095. International Development 21 argues that economic institutions will evolve to minimise transaction costs; those costs, the costs of running the economic system [Arrow (1969)], arise due to bounded rationality, opportunistic behaviour, and asset specificity [Williamson (1985)]. The perspective leads Williamson to the view that “…transaction costs are always assessed in a comparative institutional way, in which one mode of contracting is compared with another. Accordingly, it is the difference between rather than the absolute magnitude of transaction costs that matter”. Thus, it is advisable to separate transaction costs from operational costs (the costs of running an organisation). Many institutional impositions, both as formal organisations and as system processes, have been devised to constrain opportunism, often through employment of the rhetoric of preventing ‘unfair’ competition and promoting ‘fair’ competition. Such measures apply to anti-trust legislation, construction work allocation procedures (including single stage selective tendering), and requirements for local content in foreign direct investment activities, international construction joint ventures in developing countries, etc. However, there are costs of enforcement of both statutes and contracts which are notably more extensive internationally than domestically (enforcement is notoriously problematic in both situations). Concurrently, variants of relational contracting are gaining ground (notably, partnering) in which behaviour founded on trust between participants is emphasised [Bennett and Jayes (1995)]. The widespread belief that Japanese and other (particularly, Asian) countries industries, in which relationships between organisations are less rigidly grounded in contract law, are founded on trust is dismissed by Womack, Jones and Roos (1990) who state that, “The relationship between suppliers and assemblers in Japan is not built primarily on trust, but on the mutual interdependence enshrined in the agreed-upon rules of the game”. Although trust may ensue from continuing business relations, the market-driven, operational requirements for continuously improving performance emphasise the importance of the recognition of (mutual) interdependence and of accepted behaviour (noting the limits as in the concept of ‘rules of the game’). Thus, “The development of opportunistic or trusting behaviour will be dependent, in part, on the extent to which governance structures generate convergent perceptions of the world” [Dietrich (1994)]. “…the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies…is also about the organization of work and the delivery of value.” [Prahalad and Hamel (1990)] ORGANISATIONAL CITIZENSHIP (BEHAVIOUR) (OCB) Organisational behaviour remains a topic of academic debate concerning whether a organisation can exhibit behaviour independent of the persons who constitute the organisation – its members rather than the more extensive stakeholders. Such concerns are, of course, germane to the issues of organisational culture and climate so that it becomes consistent to argue that if one exists, then so do the other two. Given that perspective, the dimensions of influence are persons – organisation, organisation – persons, and organisation – organisation. Whilst organisational citizenship could refer to the behaviour of an organisation as a member of society, that is usually considered as organisational ethics or corporate social responsibility; organisational citizenship 22 Fellows behaviour concerns, “…employee behaviour that is above and beyond the call of duty and is therefore discretionary and not rewarded in the context of an organization’s formal reward structure” [Konovsky and Pugh (1994)]. In the context of the construction industry, identification of the organisation, especially in the context of major projects, is difficult leading to fuzzy perceptions in which formal and informal organisation may intermingle within the TMO. Further, which members are likely to execute OCB and the forms the OCB will adopt are varied. Finally, one may question whether behaviour remains OCB once it has become a norm in the organisation under a relational contract. Both ethical corporate (socially responsible) behaviour and OCB are asserted to improve organisational performance on the more traditional, notably, financial, measures. Whilst the former, external activities seem, prima facie, to be cost increasing, a longer term result could well be reduced costs through enhanced reputation etc, leading to less promotional requirements, better inter-organisational relationships, improved quality and ‘smoother’ QA certifications etc. OCB, as internal behaviour involving greater inputs by employees should lead immediately to process and output enhancement (i.e., improvements in both efficiency and effectiveness). Researchers [e.g. Konovsky and Pugh (1994)] have found that fair treatment by superiors encourages / enhances OCB, effects which are extended by reduced close monitoring of subordinates [Niehoff and Moorman (1993)] – that involves development of autonomy and trusting relationships. Further, regarding the formal system, procedural fairness is a source of trust in superior – subordinate relationships [Lind and Tyler (1988)]. Examination of job specifications and job contents (what is done in the normal execution of jobs) is, commonly, subject to progressive differences at different levels in the organisational hierarchy. Generally, at higher levels of a hierarchy, jobs become less task-specific and more fuzzy, perhaps due to increasing process orientation and individual autonomy. That suggests that higher level jobs are more likely to generate OCB and may even require that for their operation, thus, the formalised result is that for such jobs, the specifications are open-ended and it is difficult to distinguish in-role performance and OCB [Organ (1988)]. CONCLUSIONS In any construction project, power is distributed unevenly. The distribution varies by stage of the project, nature of the (source of) power, and manner in and extent to which the power is wielded. Project structuring, through procurement processes, financing arrangements and technical resources are highly material. In the increasingly capitalistoriented global markets, it is not only opportunism which, morally, may merit constraint but also the structures of dependence which provisions of developmental construction projects may foster – hence, the desirability of projects of sustainable technology for developing host countries rather than ‘leading edge’ (or redundant) technology. That desirability is, to a significant extent, founded on the failure of ‘technology transfer’ in project provisions and operations in the past. International Development 23 Culture, manifested in attitudes, behaviour and ethics, is fundamental in determining power structures and their consequences. Dominance, by one participant or group, seems to be inevitable, although not necessarily immediately predictable, due to the constant evolution of project TMOs and the interactions of formal and informal social systems. Globalisation brings cultures into greater and closer contact, thereby enhancing the impacts of differences – both boundary and overlap management is required to resolve the ensuing conflicts. Given that we can identify cultural similarities and differences, as well as resource distributions (the source power and differentials), questions surround what changes projects effect and how such changes occur – usefully, focussing on outcomes. The issues seem to be epitomised in the current dichotomy of project control perspectives on a spectrum of transparency (the entire gamut of legal etc. measures to enforce predetermined fair dealing, pre-determined by the legislators in power) to trust (the ‘relational contracting’ approaches which endeavour to be based on morality). Irrespective, control (of power) is enforced (by power) either externally of by the self. Even in the most ‘ideal’ of cases – whatever one believes that to be – the essential issue of “whose values’ should apply remains. Pragmatically, recognition of mutual interdependence seems to offer a way forward but that, of course, may be too long term to be fully effective. REFERENCES Airaksinen, T (1994) Service and Science in Professional life, In Chadwick, R. (Ed.) Ethics and the Professions, Aldershot: Avebury, 1-13. Arrow, K. J. (1969) The organization of economic activity: issues pertinent to the choice of market versus nonmarket allocation, In Joint Economic Committee, The Analysis and Evaluation of Public Expenditure: the PPB System, Vol. 1, Washington DC: Government Printing Office, 59–73. Baumol, W.J. (1959) Business Behaviour, Value and Growth, New York, Macmillan. Bayles, M. D. (1988) The professional – client relationship, In Callahan, J. C. (Ed.), Ethical issues in professional life, Oxford: Oxford University Press, 113-119. Bennett, J., Jayes, S (1995) Trusting the team: the best practice guide to partnering in construction, Reading: Reading Construction Forum. Coase, R. (1937) The nature of the firm, Economica, 4, 386-405. Confederation of British Industry (1990) A nation of shareholders, CBI News, November, 8-10. Dietrich, M. (1994) Transaction Cost Economics and Beyond: towards a new economics of the firm, London: Rout ledge. Dunning, J.H. (1993) The Globalisation of Business, London: Rout ledge. Henry, C. (1995) Introduction to professional ethics for health care professionals, In Henry, C., Jane, P. (Eds.), Professional Ethics and Organizational Change in Education and Health, London: Edward Arnold, 13. Hinman, L. M. (1997) Ethics: A Pluralistic Approach to Moral Theory, Orlando: Harcourt Brace Jovanovich. Hutton, W. (1996) The State We’re In, 2nd Edn. London: Vintage. Koehn, D. (1994) The Ground of Professional Ethics, London: Rout ledge. 24 Fellows Konovsky, M. A., Pugh, S. D. (1994) Citizenship behaviour and social exchange, Academy of Management Journal, 37 (3), 658-669. Leary, M. R. (1991) Introduction to behavioral research methods, Belmont, Calif.: Wadworth Lind, E. A., Tyler, T. R. (1988) The social psychology of procedural justice, New York: Plenum. Niehoff, B. P., Moorman, R. H. (1993) Justice as a mediator of the relationship between methods of monitoring and organizational citizenship behaviour, Academy of Management Journal, 36, 527-556. Ohmae, K. (1999) The Borderless World: Power and Strategy in the Interlinked Economy, New York: Harper Business. Organ, D. W. (1988) Organizational citizenship behaviour: The good soldier syndrome, Lexington MA: Lexington Books. Prahalad, C. K., Hamel, G. (1990) The core competence of the corporation, Harvard Business Review, May-June, 79-91. Pritchard, J. (1997) Acting Professionally: Something that business organisations and professionals both desire? In Davis, P. W. F. (Ed.), Current issues in Business Ethics, London: Rout ledge, 87-96. Reeck, D. (1982) Ethics for Professions: A Christian Perspective, Minneapolis: Augsbury Publishing. Rokeach, M. (1972) Beliefs, attitudes and values: a theory of organization and change, San Francisco: Josey Bass. Rosenthal, R., Rosnow, R. L. (1991) Essentials of Behavioural Research: methods and data anlaysis (2nd edn.), Boston, Mass.: McGraw-Hill. Sawyer, M. C. (1985) The Economics of Industries and Firms (2nd edn.) London: Croom Helm. Snell, R. (1995) Psychic Prisoners? Managers facing Ethical Dilemmas: cases from Hong Kong, In Stewart, S., Donleavy, G. (Eds.), Whose Business Values, Hong Kong: Hong Kong University Press, 143-163. Trompenaars, F., Hampden – Turner, C. (1997) Riding the Waves of Culture: understanding cultural diversity in business (2nd edn.), London: Nicholas Brealey. Williamson, O. E. (1985) The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting, London: Macmillan. Womack J. P., Jones D. T., Roos, D. (1990) The Machine that Changed the World, New York: Rawson Associates. WTO (2004) http://www.wto.org/wto/english/res_e/doload_e/inbr_e.pdf (accessed 15 June 2004) CREATING AND SUSTAINING COMPETITIVENESS OF SMALL AND MEDIUM-SIZED CONSTRUCTION ENTERPRISES IN CHINA DAVID A. S. CHEW, S. YAN and CHARLES Y. J. CHEAH Nanyang Technological University, 50 Nanyang Avenue, Singapore 639798 [email protected], [email protected], [email protected] ABSTRACT The small and medium-sized enterprises (SMEs) in the Chinese construction industry have witnessed progressive development since the late 1990s. As an important participant in the Chinese construction market, SMEs are confronted with the tasks of keeping themselves competitive which concern their survival and future growth after China’s accession into WTO. This issue has increased in significance with China’s gradual transition from a planned and centralized governing system towards a market-oriented economic setting. The increased openness of the Chinese economy signals additional strategic concerns due to globalization, as SMEs now find themselves the need to compete and collaborate with foreign players who are largely more efficient and resource-rich. As the SMEs assume a greater role in the Chinese construction industry, this paper will examine the theories concerning their development. The competitive environment pertaining to construction SMEs will be analyzed through questionnaire surveys and interviews with founders, managers and engineers of construction and related enterprises. Finally, overall competitive strategies for Chinese construction SMEs will be discussed and a conceptual model is postulated to create and sustain their competitiveness in China. Keywords: Construction SMEs, competitiveness, WTO, development strategy. INTRODUCTION The development of small and medium-sized enterprises (SMEs) was strictly limited under the traditional central planned economy in the early years of modern China. Since 1978, the government started to provide guidelines for reform and development of the agricultural economic system, which led to the legalization of small market-oriented businesses in the rural areas (Leo, 1999). In the Chinese construction industry, construction SMEs have enjoyed rapid development since the late 1990s with progressive adoption of reforms and opening-up policies. The SMEs have grown to be an important force in promoting the development of the Chinese construction industry. With China’s WTO accession in 2001, the Chinese government is committed to open up the construction market to foreign companies. The entrance of foreign capital, advanced technology and management expertise will have a profound socio-economic impact on 26 Chew, Yan and Cheah the Chinese construction market, which brings forth opportunities and challenges to the development of construction SMEs. Under such a historical backdrop and the emerging market environment, there is a huge prospect for the development of construction SMEs in China. As an important participant in the China construction industry, SMEs are confronted with tasks of keeping themselves competitive which concern their survival and future growth. As the SMEs assume a greater role in the Chinese construction industry, this paper will examine the theories concerning their development. The competitive environment pertaining to construction SMEs will be analyzed through questionnaire surveys and interviews with founders, managers and engineers of construction and related enterprises. Finally, overall competitive strategies for Chinese construction SMEs will be discussed and a conceptual model is postulated to create and sustain their competitiveness in China. ROLES OF CONSTRUCTION SMEs IN CHINESE CONSTRUCTION Although commonly used, the term ‘small and medium-sized enterprises’ (SMEs), is nevertheless vague, suggesting mainly the idea of a firm which is not large, without being more specific (Goss, 1991). In China, the new Tentative Classification Standards on the small and medium-sized enterprises (SMEs) were published by relevant government agencies with the approval from the State Council on February, 2003. The new standards were designed in accordance with the SMEs Promotion Law published by the National People's Congress (NPC) on June 2002. According to these SMEs standards, medium-sized construction enterprises employ between 600 and 3000 people with annual revenue between RMB 30 million and RMB 300 million. Small enterprises, on the other hand, employ less than 600 people with annual revenue less than RMB 30 million (SETC, 2003). Construction SMEs in China have made several major contributions to the Chinese construction industry. First, construction SMEs constitute the major driving force in this industry. Compared with typical state-owned enterprises (SOEs), construction SMEs are small in size and numbers of employees. However, their flexible mechanisms adopted and lower capital investments have enabled them to respond to changes of market demand quickly. Second, construction SMEs constitute the major channel for creating jobs and are the basic absorber of the urban and rural labor force. China, as a developing country with a huge population, is always under great pressure over demand for employment. In the course of its economic development, the country has faced a series of problems and difficulties, such as a shortage of financial resources and a need to improve efficiency and create job opportunities. Construction SMEs are able to replace capital with labour to the maximum extent as a result of their small investment levels. Thus they can provide or create more job opportunities than large enterprises. Third, construction SMEs constitute the basic force for facilitating industry restructuring and market revitalisation. The large majority of construction SMEs, in order to survive and develop, has to exploit their own potential to the maximum, actively participating in market competition and contending with large enterprises for the market share. The Competitiveness of Chinese Construction SMEs 27 competitive nature of construction SMEs has enabled them to play a positive role in promoting the growth of the domestic market. Fourth, construction SMEs constitute a cradle for professional entrepreneurs and entrepreneurship. The pressure on SMEs to seek survival and development, together with their independence and competitive nature, has prompted them to shake out losers in market competition. That pressure has also resulted in development and cultivation of a group of talented people, expanding the pool of entrepreneurs by means of bold exploration, great aggressiveness and constant innovation. SWOT ANALYSIS ON CHINESE CONSTRUCTION SMEs In China, SMEs have flourished in the construction industry as ideological barriers have fallen. For a long time, a lot of attention has been directed towards examining the reform and development of SOEs (Chen, 1998; Flanagan and Li, 1997; Lan and Jackson, 2002; Wang and Yang, 2002), with little attention given to the difficulties facing SMEs. Furthermore, few academics and professionals, in their analyses of the construction industry, assess the impact of external and internal factors on the survival of construction SMEs. Moreover, operating within a WTO framework, Chinese construction SMEs will face a dynamic and competitive environment. Hitherto, little research has been undertaken to systemically analyze the challenge and opportunity posed by China’s WTO accession, which would give rise to an effective and integrative strategy for construction SMEs to compete in the Chinese construction market. SWOT analysis is concerned with the analysis of an organization’s internal and external environment with the aim of identifying internal strengths in order to take advantage of its external opportunities and avoid external threats (Langford and Male, 2001; Male and Stock, 1991; Porter, 1980). In consideration of the variety of Chinese construction SMEs with regard to size and ability to attain national resources, the authors contend that the SWOT analysis concept could be used to investigate Chinese construction SMEs’ market position. Although Chinese construction SMEs are not identical, they share many things in common such as organizational culture, ongoing enterprise reform, and the need to face competition from domestic and foreign contractors. The strengths, weaknesses, opportunities, and threats facing Chinese construction SMEs are pilot-studied using a survey of 15 construction enterprises based in Beijing, Tianjin, Shanghai, Guangdong province and Hebei province. Among the 15 construction enterprises, there were six large SOE contractors, seven SME contractors, and two SME design institutes. The respondents consisted of consultants, designers, project managers and senior managers. Interviews were also conducted with founders, managers and engineers of construction and related SMEs. The interviewing and survey results are summarized in Tables 1 and 2 and presented as follows: STRENGTHS • Flexible and market driven. From the outset, construction SMEs had to rely on markets for sourcing supplies and selling products. Most construction SMEs were small and autonomous compared with SOEs, and thus had flexibility to respond to market changes quickly. Their management was also more market-oriented. 28 Chew, Yan and Cheah • Effective decision making. Communication channels between construction SMEs’ managers tended to be both shorter and simpler compared to those for the SOEs, thus engendering greater efficiency. Furthermore, the greater flexibility and autonomy in management has meant that inter-firm alliances have produced a ‘networked’ approach to industrial production. The locally initiated transformation of SMEs into ‘shareholding cooperatives’ in recent years is a case in point. This feature has enabled construction SMEs to move closer to improved practices in corporate governance. Flexible talent mechanism. Many construction SMEs have put special emphasis on human resources and product quality. With their autonomous and flexible systems, it is common for them to recruit highly competent engineers and technicians from construction SOEs, pay them attractive salaries and pursue technology improvement and innovation actively. Low running expense and cost. Construction SMEs possessed lower cost structures than SOEs because their managers historically had to rely on retained earnings and loans instead of government grants. Wages in rural areas are also significantly lower than in cities where most SOEs are located. Construction SMEs also do not have thousands of retirees for whom they are liable for pension payments; they do not have to offer welfare benefits like healthcare and social security insurance to their workforce. • • Despite these favourable characteristics, many construction SMEs still suffer from a number of weaknesses. WEAKNESS • Limited funds. Although the Chinese government now implemented favourable loan and taxation policies to support SMEs, it did not directly invest in SMEs as it did with SOEs. State-owned banks also prefer lending to SOEs than SMEs. Therefore, construction SMEs found it difficult to access bank finance, and they seldom benefited from low-cost supplies through the central plan system. Low level of employees’ education. One of the major problems in construction SMEs is the employees’ low level of education. The average profile of employees of construction SMEs is made up of mainly unskilled workers who are previously farmers with no proper training in construction. Lack of resources and low competitiveness to compete in large projects. Most construction SMEs are made up of a small workforce undertaking residential building and other small, simple projects for the local community using limited plant and equipment. Sometimes they acted as sub-contractors on bigger projects. Due to limited funds, poor equipment and lack of highly skilled manpower, most construction SMEs could not compete with large SOEs in bidding for large projects. • • Table 1 The strengths and weaknesses of SMEs in Chinese construction industry Rank 1 Strengths Flexible and market driven Weaknesses Limited funds Competitiveness of Chinese Construction SMEs 29 2 3 4 5 Effective decision making Flexible talent mechanism Low running expense and cost Efficient company structure Low level of employees’ education Low competitiveness in obtaining large projects Difficult to access finance Lack of risk management Table 2 The opportunities and threats of SMEs in Chinese construction industry Rank 1 2 3 4 5 Opportunities Improvement in market mechanisms Policies and regulations to support SMEs Cooperation with foreign-funded enterprises with WTO accession A continuing construction market boom A broadened approach in financing Threats Intense competition among domestic enterprises Lack of differentiation in production and service Uncertainty in economy Uncertainty in politics Entry of foreign construction firms in domestic market OPPORTUNITIES The WTO accession by China affords numerous opportunities for construction SMEs. Under the market-oriented system within the WTO framework, construction SMEs could obtain greater autonomy and secure most of the resources such as construction materials, equipments, and labour. Foreign direct investment will provide further stimulus for economic growth, and help construction SMEs to become part of the supply chain for foreign multi-national construction firms under cooperative premises. With changes in the regulatory system and the introduction of SMEs Promotion Law, coupled with the growth of national fixed capital investment, construction SMEs could envision a better position for their future development. THREATS Following the entry of more foreign-funded enterprises into Chinese construction market, the competition among subcontractors, who are mainly the construction SMEs, will be intensified. Most construction SMEs pursued labour-intensive projects and provided low value-added to clients as subcontractors, with little differentiation in product and service quality. They did not possess effective skills or innovative capability to create a new service and offer a unique product. The uncertainty in economy and politics further affect the growth of construction SMEs. 30 Chew, Yan and Cheah DEVELOPMENT STRATEGIES TO CREATE COMPETITIVENESS FOR CONSTRUCTION SMEs AND SUSTAIN Competitiveness of a firm may generically be its capacity to achieve its targets. Such targets would typically take full account of competition (Porter, 1980). To create and sustain the competitiveness of construction SMEs, new markets and new strategies are urgently needed. Arising from the SWOT analysis, a conceptual framework is postulated by the authors for the development strategies for Chinese construction SMEs, which comprises strategic alliances, innovation and differentiation strategies (Figure 1). Development strategies Strategic alliance Domestic partners Foreign partners Innovation strategy Innovation in technology High-performance organization Culture change Differentiation strategy General differentiation Focus differentiation Figure 1 A conceptual framework for development strategies of Chinese construction SMEs STRATEGIC ALLIANCE Strategic alliances refer to a form of lateral working relationship between a firm and its competitors in one or more aspects of marketing (Li, 1998). The premise of this strategy is based on resource dependence and interorganizational exchange perspectives, which hold that organizations seek to reduce environmental uncertainty by exchanging resources for mutual benefits. In order to take advantage of opportunities and cope with challenges facing the construction SMEs, strategic alliance is a promising strategy. • Alliances with domestic partners. To cope with the competition from larger SOEs, construction SMEs can adopt alliance as a flexible strategy, partnering with those SOEs as a form of “co-petition”, where competition and cooperation co-exists simultaneously. Alternatively, construction SMEs can also pursue backward (vertical) integration and alliance with the clients to reduce the bargaining power of the buyers. Alliances with foreign partners. The WTO entry of China affords foreign contractors more opportunities to enter the Chinese construction market. SMEs can form alliances to become subcontractors for these international contractors, either on a project-specific or long-term strategic basis. The alliance would benefit Chinese construction SMEs in the form of technology transfer. More importantly, the • Competitiveness of Chinese Construction SMEs 31 progressive management style of international contractors, which is customer-focused rather than product-oriented, would have a positive influence on Chinese construction SMEs. INNOVATION STRATEGY An important feature of the Chinese construction industry is the increasingly fast pace of change in product and service markets. Coupled with rapidly declining product life cycles in the information technology, there are growing competitive pressures for construction SMEs to respond quickly to the market environment. Thus the capacity for innovation is a critical factor for construction SMEs’ success. Innovation can be accrued to construction SMEs externally and/or internally. External innovation would entail developing new products and/or services. Internal innovation can encompass new processes, organizational structures and culture. For construction SMEs, innovation lies in three aspects as follows: • Innovation in technology. New technology can create value-added product and services, contributing to higher productivity and growth. One key technology is the deployment of e-commerce. Through the use of the internet and online transactions, e-commerce may create new business opportunities for construction SMEs, such as developing new channels, maintaining close relations with both upstream and downstream companies and improving service quality. High-performance organization. To achieve high performance, the organization of construction SMEs should emphasize on specifically designed jobs, using flexible work roles to reduce the gap between decision-making authority and workers, improving teamwork and design of sustainable governance structures. Life-long learning and empowerment for the workforce are features of such an organization. Culture change. To underpin the innovation strategy, there must be a drastic change of culture from one that is risk averse to risk taking. Mindset change is a pre-requisite for technology and organizational innovation. The founder or top management of construction SMEs should lead by example and inculcate an entrepreneurial culture throughout the entire organization. In addition, forming partnership with foreign contractors also helps to change the organizational culture. • • DIFFERENTIATION STRATEGY Differentiation is concerned with creating the perception that something is seen by buyers as being unique (Male and Stock, 1991). Differentiation strategy is attractive when buyer preferences and/or requirements are diverse. In China, construction industry encompasses a wide range of activities, from the construction of residential dwellings and urban development to commercial and industrial building, and the infrastructure associated with air, sea and road transportation, telecommunications, mining and energy. Given the limited resources in terms of finances, human expertise and production process, it is appropriate for construction SMEs to adopt a differentiation strategy, either in 32 Chew, Yan and Cheah general differentiation or focus differentiation. General differentiation is a particularly important strategy for most SMEs in a huge and rapidly growing China’s construction market, which is likely to remain buoyant in the foreseeable future (Chen, 1998). For those specialty construction SMEs with few employees, focus differentiation may be the only viable strategy for their target market. Successful differentiation would allow SMEs to put a price premium on their products, increase sales and gain buyer loyalty. CASE STUDY To illustrate the conceptual framework and suggested strategies, the authors conducted a case study. The case study company is known as the Guangsha Group in Zhejiang province of China. In 1992, the company employed about 1,000 employees, with a total output value reaching RMB125 million. Guangsha has grown from a medium-sized construction company to a diversified group over the past decade. At present, Guangsha has attained first class national qualifications for construction and installation of building, foundation work, building decoration, and earthwork. The rapid growth of Guangsha is the outcome of innovation. The chairman, Mr. Lou Zhongfu, has spelt out the vision of Guangsha as a market-oriented and customer-driven corporation. Through organizational restructuring, Guangsha was able to achieve self-development, self-control and an enhanced mode of communication. Guangsha continued to improve its technology and equipment through systematic adoption of new methods, materials, and management techniques. In 1994, Guangsha established a research institute of architecture and construction, which was the first research institute owned by a private enterprise in the Chinese construction industry. Culture plays an important part for Guangsha’s success. Mr. Lou envisioned and developed a unique brand of “Guangsha Ren” (the Chinese version of Guangsha people). The core of “Guangsha Ren” is to focus on both the economic objective and social morality. In summary, the culture in Guangsha is sincerity, brand, and people-orientation. Guangsha has streamlined the product and service chain by using differentiation and alliance strategy. Guangsha practices partnering with clients and consultants in creating a win-win environment where trust, commitment, and shared vision are achieved and benefits of all partners are maximized. Guangsha is not only active in the construction of private residential, commercial, institutional and industrial buildings, but is also active in design and supervision projects. As a summary of what has been achieved in the past ten years after implementing the development strategy, Guangsha has formulated a new mission statement and its motto now is “To focus on multi-culture, scale and internationalization”. At present, the range of construction works of Guangsha involved all sectors within the field. In 2002, the group owned about 50 subsidiary companies with 20,000 employees, and the total output value reached RMB5.5 billion. Compared with 1992, the output and profits of Guangsha had increased 4,400% and 3,850% in 2002 respectively. This section describes the implementation of potential development strategies within Guangsha. Guangsha’s actions in adopting innovation, differentiating the production and service, and collaborating with clients and consultants affirm the propositions made by the authors. Competitiveness of Chinese Construction SMEs 33 CONCLUSION Due to the country’s institutional changes and its accession to the WTO, China’s construction SMEs are in a transition period. To maintain their competitiveness in the rapidly changing environment, new strategies are needed. Based on the pilot survey and interviews, the strengths, weaknesses, opportunities, and threats of construction SMEs have been identified. Drawing from the SWOT analysis, a conceptual framework for the development strategies for Chinese construction SMEs is postulated by the authors, which includes strategic alliances, innovation and differentiation. This framework is illustrated by a case study of a prominent Chinese construction corporation which was formerly a construction SME. It should be noted that the development strategies proposed in this paper are only possibilities construed by the authors following a preliminary SWOT analysis. The development strategies through alliances, innovation and differentiation have been found to be effective through the case study. However, Chinese construction SMEs are not identical, even as they share certain common characteristics. Therefore, the strategies suggested in this framework serve mainly as general approaches for Chinese construction SMEs. Research into the different grades of construction SMEs in China are needed in future to formulate more specific development strategies to meet their objectives. REFERENCES Chen J.J.G. (1998) The characteristics and current status of China’s construction industry”, Construction Management and Economics 16, pp. 711-719. Flanagan, R. and Li, S.R. (1997), International Construction: a perspective of China, the Chartered Institute of Building, UK. Goss, D. (1991) Small business and society, London and New York: Routledge. Lan, P. and Jackson, J.T. (2002). “Current characteristics of the main stakeholders in the Chinese construction industry”, International Journal for Construction Marketing, volume 1, issue 1. Langford, D. and Male, S. (2001). Strategic management in construction, Oxford: Blackwell Science. Leo, P.D. (1999) “Small business as a supplement in the People’s Republic of China (PRC)”, Journal of Small Business Management, Vol.37 No.3, pp. 76–80. Li, H.Y (1998) Market strategies and new venture performance in China’s transition economy, Ph.D. dissertation, City University of Hong Kong. Male, S. and Stock, R. (1991. Competitive advantage in construction, ButterworthHeinemann, Stoneham, Mass. Mayo, R.E. and Liu, G. (1995) “Reform agenda of Chinese construction industry”, Journal of Construction Engineering and Management, Vol.121, No.1, pp. 80-85. Porter, M. (1980) Competitive Strategy: Techniques for analysing Industry and Competitors, The Free Press, New York. 34 Chew, Yan and Cheah State Economic and Trade Commission (SETC) (2003) Tentative Classification Standards on the Small and Medium-sized Enterprises, the 143th Joint Ordinance of the State Economic and Trade Commission, the State Development Planning Commission, Ministry of Finance and National Statistics Bureau, 19 Feb 2003. Wang, M.J. and Yang C.J. (2002) WTO and Chinese construction industry (in Chinese), Chinese Construction Material Publishing House, Beijing, China. Impact of globalisation on urban spaces of Arab cities 35 THE IMPACT OF GLOBALIZATION ON URBAN SPACES IN ARAB CITIES MAHMOUD A. HAGGAG Department of Architectural Engineering, College of Engineering, UAE University, P.O. Box 17555 Al-Ain, UAE. [email protected] ABSTRACT Over the past few decades, Arab cities have been subject to dramatic external interventions and western influences. The colonization, and associated cultural imperialisms of Arab and European, and more recently the rapid modernization have all transformed and internationalized cultures, conceptualization, and planning ideologies which affected the spatial development and the pattern of urban spaces. The aim of this paper is to look at the spatial pattern of urban fabric in Arab cities and how they change under the impact of globalization. This transformation is examined in relation to the global city of Dubai, the second largest city in the United Arab Emirates. Dubai has been chosen as a case study because it has been a subject of colonialism, and has been significantly shaped by various imported ideologies: Arab, Persian and British; particularly with regard to contemporary planning policies. In addition to that, the fast urban development that followed the 1971 federation completely changed the character of the city. Keywords: Arab cities, colonization, Dubai, globalization, urban space, urban pattern. INTRODUCTION Cities are part of larger society that their spatial form is inter-related with the economic, social, cultural, political, and environmental structure of the society. Urban spaces are further influenced by developments and decisions on higher spatial levels. Architects and planners agree that the transformation of urban patterns in the Arab cities change as a consequence of the interaction of individual decisions with variety of structures and developments on different special levels. The reasons of that change can be traced back to the impact of the colonialism as well as to the urban development that take place, regarding nationally and globally. The later is generally classified under the concept of globalization. It comprises many processes, including the spatial integration of economic activities, movement of capital, migration of people, and development of advanced information and communication technologies. This paper looks at the spatial pattern of Arab cities and how they change under the impact of globalization. The study focuses on the impact of globalization on the transformation pattern of urban spaces. To achieve the aim of this paper, the study introduces a framework of globalization as urban development process. The role of information and communication technologies as main driver of globalization that 36 Haggag accelerates challenges in changing urban form is highlighted. The impact of western models on urban development in Arab cities and the conflicts between traditional and western forms are considered. Information about the United Arab Emirates is summarized. The transformation pattern of Dubai and its spatial development are discussed as a case study. The impact of globalization on urban spaces in Arab cities is reflected in the last section. URBAN DEVELOPMENT AS A PROCESS All processes have one thing in common; they involve a variety of components that generate products. Urban development process is defined as the activities of a group of people (clients, developers, professionals, contractors, suppliers, financiers, etc.) acting with their resources (finance, skills, materials, etc.) to produce a particular building environment and urban spaces. These are influenced by political, economical, social and environmental aspects, which are the main drivers of globalization (see figure 1). The role of the participants may vary according to changes in socio-economic and political circumstances and cultural development of the society. The impact of globalization on the urban pattern in Arab cities varies, according to the circumstances of the above aspects. The fact that modern urban space is distancing itself from traditional/vernacular urban patterns is a warning aspect of globalization. These will be discusses later in this paper. WHAT IS GLOBALIZATION? Globalization can be defined as the unfolding resolution of the contradiction between expanding capital and its national political and social formations [Henry and Springborg, 2001]. It refers to the growing interaction in word trade, national and foreign investments, capital markets, and ascribed role of governments in the national economies. Globalization seeks to encompass all countries in one economic unit, possibly without governments or borders [Peter and van Kempen, 2000]. Globalization is an extension of an internationalization of economic activity that has been going on since history began, marked by a radically increased mobility of capital and international integration of production and control, facilitated by advances in communication and transportation technology. Globalization operates without geographic boundaries, as if the entire world were a local marketplace. Globalization is one of the forces determining the spatial of cities, and a force not coming into play for the first time in the recent period. It must be seen as the extension of forces already present over a much longer period of time [Henry and Springborg, 2001]. The process of globalization touches all cities and involvement in that process is not a matter of being either at the top or the bottom of it, but rather of the nature and extent of influence of the process. Impact of globalisation on urban spaces of Arab cities 37 Environmental Impacts Spatial development - Urban order - Image of urban space Labour process – Contracting process - Management process Professional process Political Impacts Figure 1: Factors impact urban development process and the main drivers of globalization Globalization itself is an image, an idea, and an ideology. The idea that globalization is inevitable and that it is linked to laissez-faire economic policy has been a powerful force in itself (Newman and Thornley, 2002). There are also countervailing interpretations of globalization, which emphasis its critique. These ideological uses of the concept of globalization are themselves rapidly transmitted around the world and became part of the power politics of actors on the international scale. That globalization allows the rapid spread of alternative ideas as has been demonstrated in the rapid growth of opposition to the activities of the World Trade Organization [Thoenley and Rydin, 2002]. GLOBALIZATION AND URBAN DEVELOPMENT CONTEXT Cities are not powerless in the face of globalization, but, through good governance and in effective partnerships, they can play an important part in mediating and directing their consequences for economic and human development in positive way. The challenge is to develop and implement policies that support not only the function of cities as engines of economic growth, but also their role as agents of social change. This challenge is highly accelerated by Information and Communication Technologies (ICTs). Globalization has placed human settlements in a highly competitive framework of inter-city linkage and networks with a geographic context only by planetary boundaries. This new constellation of globally networked cities implies that a city may have more relations with some faraway place than with its hinterland and that such cities act as energy nodes in a global force field. These are processes with considerable potential, and the urban strategies of many governments are now moving towards providing an enabling environment for human settlement to compete on the international stage [Sen, 1999]. ICTs are often presented as 'liberating'; emancipating society from spatial constraints imposed by the limitation of yesterday's technologies. They enable businesses to develop global markets and allow people to form communities of interest that are based on shared values [Wellman, 1999]. However, while ICTs enrichment to some, they leave others insolvent. ICTs are increasing global urbanization in three major ways: ICTs allow specialist urban centers to extend their powers, markets and control over ever-more distant regional, national, international and global hinterland. ICTs support the accelerating and increase contacts, transactions; communication flow and interaction that help bind, integrate and add economic energy to the vast, extended and multi-centered urban settlements, spaces, corridors and regions of our age [Bunnell, 2002]. Economical Impacts Land process – Building materials & Construction process Financial process - Technological process Social Impacts 38 Haggag Within the global economy, the growing speed, and complexity of innovation in all sectors seems to demand a parallel concentration in the cities with the assets to sustain on-going competitiveness. Demand for ICTs is highly driven by the growth of metropolitan market. Large global cities are of inconsistent importance in driving ICTs investment and innovation [Graham and Marvin, 1996]. This is mainly because of cities' cultures of modernization, their concentrations of capital, their relatively high disposable income and their concentration of internationally oriented firms and institutions. The complex interaction of human settlements and ICTs is helping to build new urban space and new landscapes of innovation, economic development, cultural interactions, political dynamics and social inequalities within cities and urban regions. THE OMPACT OF WESTERN MODELS ON URBAN PATTERNS IN ARAB CITIES In the west, industrialization reached a first climax in the second half of the 19th century. The transmission of this new civilization to the Arab countries was filtered through Europe's colonial development activities. Western countries and the Arab world have a long history of encounters, exchanges and conflicts, which saw the two opposites in changing roles. During the early Middle Age, Western countries had much to learn from the highly developed Arab culture [Clark, 1998]. During the Renaissance, Western countries started drifting towards different horizon of cultural development and discovered other spheres of interest. The main reason for this change, as pointed out by Bianca, [2000] was that the age of discoveries gave these countries the possibility of bypassing the core regions of the Arab world. By 1920, large parts of the Arab world were in western hands. Western-type apartment houses and public building started lining the street fronts of new districts. French and Italian squires and open spaces were also established in many Arab cities. Western architects and planners were commissioned to do important architectural and urban projects. This trend also influenced provincial capitals such as Alppo, Damascus or Baghdad, where the Ottoman administration established new western-type municipalities to supervise urban development. Saad Zaghloul street in Alexandria, a shopping constructed before the first World War, is reminiscent of western colonial architecture as shown in figure (2). The new independent nations were more or less forced to continue their pre-established economic patterns, which had become dependent on international trade structures and were geared to the application of modern western technology. Rapid industrialization may not have been the only alternative at the time, but it was hard to escape its pressures, considering the superior living standards of western nations. The cleavage between "West and East" was thus introduced into the very social body of new Arab nations [Henry, and Springborg, 2001]. The dynamics of the socio-economic changes produced by the industrial age found their physical expression in the radical transformation of existing traditional Arab cities. Whereas during previous centuries, changes in the architectural fabric and urban spaces had always occurred as part of a natural evolutionary process, the new development was of a different nature, mainly because of the record speed and the massive scale of new construction. Impact of globalisation on urban spaces of Arab cities 39 The French squire, Alexandria, Egypt Saad Zaghloul street, Alexandria, Egypt Figure 2: Western urban fabric in Arab cities. The physical development of most traditional Arab cities was predicated on the approach chosen by the colonial powers in setting out their reconditions, the geopolitical importance of the site and the cultural choices of the administrators responsible and their architects. The possible range of urban interventions was defined by two extremes [Bianca, 2000]. One consisted in superimposing the new city on the old historic fabric by cutting out large new roads and sites for major public buildings. The other one consisted in setting up completely new colonial cities on virgin land, without seeking any interface with ore-existing urban structures. This urbanization policy could be found in Cairo, Baghdad, and Damascus. CONFLICTS BETWEEN TRADITIONAL AND WESTERN URBAN FORMS It has been argued that the two most reliable indicators of good urban form are the degree of integration of individual architectural components and the successful interaction between buildings and open spaces within the overall built environment. With the rise of modern movement, urban form in the traditional sense ceased to be a concern. Many of its urban design schemes resemble mere blow-up of abstract master plan diagrams, and therefore transmit the corresponding limitations to the built environment. This can be seen in Le Corbusier's concept of the "Radiant City" which was to find many followers all over the world. Its characteristics are deceiving in terms of urban form qualities: contextual values and human-scale interrelations between buildings and open spaces are neglected. Massive traffic arteries disrupt potentially connected urban components. Geometrically arranged skyscrapers float as unrelated objects in this loose open space. On the other hand, the urban form of most traditional Arab cities follows rules which are diametrically opposed to those of "Rodiant City". The formation of the urban structure based on an incremental or organic aggregation process, originating in the definition of socially relevant micro-spaces which are connected into larger unites [Bianca, 2000]. Open spaces and pedestrian movement systems are integrated into the various components of the urban structure. Close linkages with other buildings ensured the integration of single units into larger clusters, producing a cohesive urban environment. Available open spaces were allocated to and often integrated with specific architectural units, such as Mosques, Suk, and Khans. The streets became subsidiary to the cellular urban structure and were often transformed into narrow internal corridors. The city was conceived as closed universe, and man was enveloped by multiple architectural shells embodying and reflecting his cultural values. In addition to that, the circulation system 40 Haggag helped implement increasing degrees of privacy, ensuring that every section of the network matched the character of the space and the social needs of its users. Modern planning interventions, in traditional Arab cities tend to disregard the traditional urban system and to emulate the Western approach, cutting axial road systems into the organically grown city and dividing the formerly coherent fabric into isolated blocks. Modern highway schemes are the first step of a much wider erosion process and trigger off a number of subsequent steps of destruction. Bianco, [2000] emphasized that the redevelopment opportunities arising from increased vehicular accessibility creates speculative pressures develop along the fringes of new roads, and new street-oriented blocks are built according to the foreign typology. The modern buildings often overshadow the ancient structure. As a result, the remaining fragments of historic fabric lose their physical, functional and semiotic context. According to the interaction of socio-cultural and urban forms of the city, there are two distinct patterns: orthogenetic and heterogenic. Orthogenetic cities develop upon a local base and their role is to carry forward into systematic and reflective dimensions an old culture. They transform the implicit little traditions of the local culture into an explicit and systematic great tradition. The heterogenic cities reflect the influence of other areas and cultures. They represent technical orders and different ideologies of the local culture. In such cities, the priority comes to be given to economic growth. These two opposite patterns are well recognized in most traditional Arab cities, particularly with the growing presence and influence of dominant western cosmopolitan communities. In these cases, western concepts and ideologies have been adopted and implemented, which to some extent contradict the traditional way of life. Local traditions are increasingly covered up in favor of typical western architectural style and occidentalized urban and planning techniques. In most modern cities of Arab countries, western planning ideologies have been adopted. This adaptation might contradict the traditional way of life. The conflicts arising from this situation have rarely been seriously debated. There is almost complete rupture between the structure of the traditional urban fabric and the imported western style environment. Due to the record speed of development, there was no chance for an evolutionary process to emerge, where new technologies and building methods could be tested and adapted in accordance with the laws of the original cultural system [Bianca, 2000]. Accordingly, modern environmental planning techniques and concepts have taken over, with the effect that they have overthrown the authentic traditional pattern of Arab cities. In most Arab cities, the pretended dominance of the foreign model has been taken for granted. Therefore, large-scale development projects have been imported and implemented without taking into consideration the cultural context and environmental conditions. As a result, many traditional urban fabrics have been left to decay, while modern western style patterns have been built at an amazing pace to replace them. Skyscrapers, curtain wall and glass facades, highways and tunnels now characterize most traditional Arab cities. THE UNITED ARAB EMIRATES: HISTORICAL PERSPECTIVES Prior to the discovery of oil, the economy of the UAE cities depended on fishing, pearl hunting and trades. The economy was capable of supporting small settlements located mainly on the Gulf shores. In 1971, the UAE came into existence as an independent Impact of globalisation on urban spaces of Arab cities 41 nation, merging seven sheikdoms (Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Qaiwan, Ras Al-Khaimah, and Fujairah). Until that time, most of population was of Arab tribal origin. They had controlled the deserts, cultivated date palms in the oases, fished along the coastline, and collected pearls. Some had settled permanently in the small towns along the coast and engaged in maritime trade. Merchants from southern Iran and Indian arrived in the early 20th century. In 1950s, other immigrants came from the northern Arab states. Nevertheless, the population remained small: 100,000 in 1960, and 180,000 by 1968 [Higgins, 1995]. The fast urban development that followed the 1971 federation completely changed the character of the traditional cities of the UAE. Workers from Asia, Europe and the USA arrived, increasing the population to 2.8 million by 1998 [Ministry of Planning, 1999]. The dynamism of the UAE economy, boosted by vast oil revenues and relieved by the end of conflict in the Gulf, is likely to continue to attract immigrants. The traditional architecture of the UAE cities was the result of the hot and humid climate. High-density buildings were constructed close together, creating narrow alleys, which were shaded most of the day. The main traditional architectural features are the courtyards and the wind-tower. This pattern is well recognized in Shindaghah and Bastikia settlements in Dubai. Modern urban development in the UAE destroyed much of the local urban character. Such development altered the lifestyle of the people and caused a redistribution of the population among the emirates. Most cities of the UAE turned to international planning ideologies that paid little or no attention to local traditional structure, as shown in the case study of Dubai. DUBAI AS A GLOBAL CITY Dubai has been significantly shaped by various imported ideologies: Arab, Persian and British; particularly with regard to contemporary planning policies. The fast urban development that followed the 1971 federation completely changed the character of the city. The rapid transformation of Dubai and its wider urban region during the last few decades demands greater critical analysis than it has so far attracted. Three issues in particular motivate this profile. First, an overarching theme is the Emirate of Dubai as an international trading center "globalizing city". Since 1970s (followed the United Arab Emirates' federation), Dubai has undergone a reorientation from federal city to national "node" in global networks. A second motivation concerns the dramatic nature of the development of the city. Population increase, spatial expansion and economic growth over several decades are part of this motivation. Urban landscape and open spaces have also been a story of the ascendance of "spectacular space". The most spectacular of all is the development of the centre of Dubai (Sheikh Zayed Street), which includes one of the world's fames tallest buildings, Emirates twin towers. The third theme demanding attention in Dubai is its emerging status as an urban region. Much urban development, including Rashid Port, Jabal Ali Industrial Center, the Free Zone, and other projects have, on the one hand, added to increased trade activities in Dubai, and on the other, accelerated open-door policies of urbanization. Urban development process, in Dubai, can be divided into the traditional process, the conventional process, and the modern process. In the traditional process, the changes are usually slow and minor, participants are limited and often have multiple tasks, and the techniques used are primitive. The modern process is usually concerned with highly 42 Haggag specialized techniques and sophisticated interrelations between its participants. The conventional process, however, is considered as intermediate between traditional and modern processes using intermediate technologies. The traditional process in Dubai reflects architectural and planning ideologies of the premodern era. Up to the 1950s, Dubai was confined to three traditional residential quarters surrounding the creek: Deira, which was made up of Arabs, Persians and Baluchies; AlShindaghah, a former residence of the ruling family, made up of Arabs only; and Bur Dubai, which was dominated by Persian and Indian merchants (see figure 3 ). Figure 3: Traditional urban pattern of Al-Shindaghah, Dubai. Figure 4: The modern urban centre of Dubai (Sheikh Zayed Street). The modern process was established in Dubai during the second half of the 19th century, with fast urban development following the discovery of oil. Therefore, the demand for occidental buildings and western planning ideologies increased. In 1954, a British firm was commissioned to improve port facilities and deepen the creek entrance. Few years later, a new municipal council was established and dominated mainly by foreigners. One of the most important roles of the municipality was the active participation of establishing the Dubai Town Planning Scheme, which was carried out in 1971. This plan had an impact on the growth of the city and especially the provision of an efficient network linking both sides of the creek through constructing Al-Maktoum and Garhoud bridges as Impact of globalisation on urban spaces of Arab cities 43 well as Al-Shindaghah tunnel. It also covered the necessity of upgrading the building and planning regulations. In 1972, an enormous project "Rashid Port" was constructed. A few years later, an enormous international industrial center, "Jabal Ali Centre" was established. These projects have, on the one hand, added to increased trade activities in Dubai, and on the other, accelerated open-door policies for globalization. These policies attracted a huge number of immigrants to come to the city. During this period of rapid development, the building industry and urban fabric had been strongly affected by two factors. First: the import of building materials as well as the establishment of foreign factories in Dubai. Second: planning organization was based mainly on occidental codes and dominated by foreign professionals. Therefore, mostly western architects controlled the architectural profession in Dubai. Meanwhile, the traditional contracting system was replaced by a modern system with the participation of western professionals in order to cope with the new standards and technologies provided by foreign consultants. The spatial development pattern of Dubai shows that, during the last 40 years, most of the participants of the urban development process, such as developers, professionals, contractors, and suppliers were foreigners. Meanwhile, both foreigners and local professionals, mainly graduates from western universities and institutions, controlled the resources of the development process. This system, in addition to the use of ICTs, had a great influence on the development process. These influences can strongly be recognized in the occidental architectural style and urban spaces, particularly in the central area of Dubai (see figure 4). A number of enormous mega-projects are now under constructions, including Dubai Marina project (a master planned community for 40,000 people located in the centre of Jumeirah), the Palm project (city within a city, with estimated cost of 0.6 billion US$), Burj Dubai (the World's Tallest tower with one of the largest retail spaces in the world), and Mall of the Emirates (with estimated cost of one billion US$). In conclusion, the impressive skyline of Dubai is built on the foundations of advanced infrastructure and thriving economy. More and more multinationals have based their headquarters in Dubai, attracted by the investor-friendly atmosphere, cosmopolitan lifestyle and one of the highest per-capita incomes in the world. This trend has a significant positive impact on the global orientation of the city. CONCLUSION There is a rapidly changes in the urban form in most of the Arab cities, according to their economic, political and cultural circumstances. Globalization has affected the fabric of the urban spaces, in positive as well as negative ways. The major urban impacts of globalization on urban spaces, as products of spatial development, are summarized in the following. The use of advanced communication and transportation technology enables the concentration of wealth in the hand of a few. The increasing mobility of capital has resulted in an increasing concentration of wealth at the top and increasing gap between the holders of that wealth and the poor. Such aspect has strong impacts on the shape of the cities. An especially striking urban related of globalization is the expression of inequality in pattern of segregation of people and land use. Inequality has been 44 Haggag extensively documented as worldwide phenomena known as polarization (Musterd et al, 1999). Globalization has significantly increased both our technical and our social knowledge. This knowledge is being shared, allowing learning about, if not transfer of, successful policies and programs. We have the scientific knowledge to avoid and to control environmental degradation; we have the planning competence to improve urban design, to plan cities well, to equalize educational opportunity and to open the doors to a better quality of life for all of the residents of cities. Habitat has provided the lead in the documentation of best practices. Best practices often illustrate only the best that can done under existing national policies and decision-making process; what is further needed is a set of "best policy" and "best decision-making processes" for wider distribution. Citizen participation in planning and local government has been on the increased almost everywhere in the world. It has rightly been a major thrust of Habitat's efforts over the years. How far participation will develop to change decision-making depends on the existing relationship of power, which globalization has served to reinforce. Decentralization of powers from national governments to cities is ambiguous in this regard, particularly in the Arab cities; since the resource base of national economies is not effectively controlled at local level. Impact of globalisation on urban spaces of Arab cities 45 REFERENCES Bianca, S (2000), Urban Form in the Arab World: Past and present, Thames and Hudson, London. Bunnell, T (2002), 'Cities for Nations? Examining the City-Nation-State Relation in Information-age Malaysia' International Journal for Urban and Regional Research Vol. 26, No. 2, pp.284-298. Clark, D (1998), Urban World – Global City, Routledge, New York. Graham, S and Marvin, (1996), Telecommunications and the City: Electronic Spaces, Urban places, Routledge, London. Henry, C and Springborg, R (2001), Globalization and the Politics of Development in the Middle East, Cambridge University Press, Cambridge. Higgins, K (1995), The Emirates. Reading, UK. Garnet Publishing Ltd. Ministry of Planning, UAE, (1999), Annual Statistical Abstract. Issue no 24. Abu Dhabi. Musterd, S et al, (1999), 'Towards Undivided Cities: The Potential of Economic Revitalization and Housing Redifferentiation', Housing Studies, Vol. 14, No. 5, pp.573-584. Newman, P and Thornley, A (2002), 'Globalization, World Cities, and Urban Planning: Developing a Conceptual Framework' in Thornley, A and Rydin Y. (eds), Planning in Global Era, Ashegate, Hampshire, pp. 13-26 Peter, M and van Kempen, R (1999), Globalizing Cities: Is There a New Spatial Order? Blackwell, Oxford. Sen, A (1999), Development as Fredom, Knof, New York. Thoenley, A and Rydin,Y (2002), 'Globalization, World Cities, and Urban Planning: Developing a Conceptual Framework' in Thornley, A and Rydin Y. (eds), Planning in Global Era, Ashegate, Hampshire, pp. 1-12. Wellman, B (1999), Networks in the Global Village: Life in Contemporary Communities, Westview Press, Boulder. 46 Haggag MEETING THE CHALLENGES OF CHANGE FOR BUILDING PROFESSIONALS OF HONG KONG JULIE K.W. MO Division of Building Science and Technology, City University of Hong Kong 83 Tat Chee Avenue, Hong Kong [email protected] ABSTRACT Building professionals, like other professionals such as doctors and lawyers, are facing many challenges under the rapid change of the modern world. In the particular context of Hong Kong, the poor quality of buildings found in some recent projects has shaken the public’s confidence in building professionals, calling for reforms of the building industry. Works of the building professionals are subjected to closer public scrutiny as public resources are diminishing and the local political climate changing. Globalization has also rendered competition keener among the professionals, both internal and external of their discipline. In addition, the complexity of modern buildings, new technological innovations, and environmental concerns have all made building procurement more sophisticated, demanding higher abilities and greater attention of the building professionals. Under these circumstances, building professionals need to review their way of working and adopt a new paradigm of practice in order to cope with the demand on their professions. In this paper, four issues that need to be addressed in the changing mode of practice for the building professionals of Hong Kong will be discussed: 1) the social and political demand for accountability and performance, 2) technological advancement and knowledge expansion, 3) the cultural and environmental concern, and 4) globalization and market competition. Some recommendations will also be made in the attempt to enhance the performance of the building professionals in meeting the challenges for better quality buildings. Keywords: accountability, changing mode of practice, environmental concern, globalization, technological advancement INTRODUCTION Since the turnover of Hong Kong’s sovereignty to the People’s Republic of China by the British in 1997, there have been quite some changes in the territory. Although a ‘one country two systems’ regime was introduced to maintain ‘status quo’ for Hong Kong, Hong Kong would have to undergo change inevitably. Apart from having to adapt itself to the new political and social settings, Hong Kong being an international city is affected by the dynamics of change in the world, as could be seen by the effect of Asia’s economic 48 Mo crisis in the late 90s. The building industry playing an important role in the social and economic development of Hong Kong has certainly been affected by all the changes and in turn, influencing the practices of its building professionals. Hugh (1959), Larson (1977), Hoyle & John (1995) describe professionals to have monopolized special knowledge, established elite bodies, negotiated autonomy, claimed exclusive right of practice, and enjoyed high status and remuneration in society. This also applies to the building professionals of Hong Kong such as architects, engineers and surveyors. However, such privileges of professionals have become a subject of public’s interrogation under the new political, economic and social environment of the present Hong Kong. With no exception, the building professionals are also faced with having to be more accountable for, and effective in, their performance under intensified public scrutiny and dwindling public resources. The poor construction quality found in some recent building projects has aggravated the situation further by drawing the public’s attention to many inadequacies of the building industry, resulting in an outcry for its major reform. The Construction Industry Review Committee was hence formed in April, 2000 by the Hong Kong Special Administrative Region (HKSAR) Government to undertake a comprehensive review of the operation of the construction industry and to make recommendations for measures to improve the quality of construction works in Hong Kong. In addition to the public demand, reform of the building industry and its relevant professional practices has been necessitated by a number of other causes. The structure and operation of the building industry in Hong Kong has been quite substantially affected by the rapid increase in size, number and complexity of building projects in the 80s and 90s. These developments, together with new technological innovations, have made building procurement more sophisticated, requiring higher abilities of the professionals. During this same time, Hong Kong like other places in the world witnessed a rapid advancement in information technology. This has facilitated easy access to all kinds of knowledge, challenging the claim for ownership of special knowledge by the building professionals on the one hand, and demanding high IT skills on the other. The loud call for sustainable developments has also been heard in densely populated Hong Kong, demanding great attention from the building professionals to deliver building projects that are environmental friendly. The effect of globalization and the gradual opening up of Chinese Mainland’s market, coupled with the economic downturn in Hong Kong in the late 90s, have driven the building professionals to extend their services beyond the boundary of the Region, and hence they need to be more competitive. Under the above mentioned circumstances, the knowledge base, role and function of the building professionals of Hong Kong have to be revisited in order to meet with all the challenges. In this paper, the changing mode of practices for the building professionals of Hong Kong will be addressed under four issues, which are essentially issues that professionals have to deal with in our contemporary world. These are: 1) the social and political demand for accountability and performance, 2) technological advancement and knowledge expansion, 3) the cultural and environmental concern, and 4) globalization and market competition. Some recommendations will also be made in the discussion for enhancing the performance of the building professionals. Meeting the challenges of change for building profession 49 THE SOCIAL AND POLITICAL DEMAND FOR ACCOUNTABILITY AND PERFORMANCE The conception of a profession is, as pointed out by many writers, a negotiation of social recognition for status and monopoly of expertise by an occupation with the state (Freidson in Larson, 1977:xii-xiii; Rueschemeyer, 1983:41; Collins in Bottery, 1998:4). In Larson’s (1977:xii) notion of profession, the distinctive autonomy of a profession depends upon the power of the state and its privileged position is secured by their influence of the elite who sponsors it. Cooper et al (quoted in Macdonald, 1995:34) also suggests that profession is probably best phrased by the term ‘the regulative bargain’. In this connection, Macdonald (ibid) further states, “…the style of ‘the regulative bargain’ will be strongly conditioned by the ‘political culture’ (Burrage, 1988; Joppke, 1992) or the ‘political power network’ (Mann, 1986, 1993), and this must be seen as an everpresent feature of the world in which the profession has its being.” Indeed, the social political changes in Hong Kong have reopened the dialogue of ‘regulative bargain’ for professions. With Hong Kong progressing into its modern democratic state, politicians elected by the lay public have become a powerful body dominating decisions over legislative matters. Although this change has given more right and opportunity for people from different walks of life to participate and contribute in public affairs, it has also generated a climate of politicization. Under such a climate, professional practices that affect public interests are under close scrutiny of the social eye, and the issues of ‘accountability’ and ‘performance’ have become much more critical (Dent, M. & Whitehead, S., 2002:2, 7-9). As such, building professionals need to reconsider their modes of practice in light of this new social political culture. During the period from late 1998 to early 2000, 3 housing projects of the Hong Kong Housing Authority located in the area of Tung Chung, Yau Tong, and Shatin respectively, were reported to have serious foundation problems of inadequate pile depths and noncomplying founding materials. Substantial remedial strengthening works were required as a consequence; and in two of the worse blocks, demolition had ultimately to be carried out. This had resulted in a need to review the adequacy of some 364 housing blocks under construction to ensure the structural safety of these blocks by the Authority in order to regain public confidence. There were much public debates over the scandal; the Chairman of the Housing Authority was eventually forced to resign, and other government officials and professionals reprimanded. This was only one of the many examples illustrating the changing social and political scene in Hong Kong, demanding high accountability and performance of professionals. As far as accountability and performance are concerned, the building professionals of Hong Kong are faced with having to cater for the increasing demands of clients, of the politicians and of the government authorities all at the same time. Just as Bottery (1998:12) comments, professionals’ autonomy is attacked from ‘below’ in terms of the need of professionals to respond in all sorts of ways to consumers of their services, and from ‘above’ to answer to the increased demand for accountability by legislation. While building professionals are pressed hard by building owners to design and build for the best of the latter’s interests (commercial or otherwise) with minimum fees, politicians and government authorities representing the interests of the public have viewed the professionals in an increasingly skeptical manner, imposing new legislations, which 50 Mo resulted in greater difficulties and heavier responsibilities for the building professionals in providing services. In the report ‘Construction for Excellence’ prepared by the Construction Industry Review Committee mentioned in the Introduction (2001:2), the building industry was urged ‘to seek continuous improvement instead of just meeting the minimum requirements set by the clients and regulatory authorities’. To address this social political demand, professional bodies should prescribe codes of practice not just for ‘self-regulating’ but also for ‘self-projecting’ form of practices so as to gain public’s trust while maintaining autonomy for the building professionals. To improve building performances in meeting the heightened societal expectations on building professionals’ services and to overcome increasing regulation of professional activities, building professionals through the coordination of their professional institutes have to be proactive in collaborating with the government authorities on establishing better design standards so as to improve peoples’ living, instead of being subjected passively to rules and regulations imposed by the officials. As MacDonald (1995:35) argues, though the actions of professional bodies are self-seeking, the professions must be able to persuade the public and the legislators that there is a reasonable quantum of altruism and public spirit in their motivation. To further gain the public’s support, codes of professional ethics to be observed by the building professionals need also be strengthened to account not only for the interests of the clients, but also those of the users and the community of Hong Kong at large. Schon (1987:7) points out that when professionals fail to recognize or respond to value conflicts and public problems, fall short of ethical and performance standards, they are increasingly subject to expression of disapproval and dissatisfaction. Low (1996:5) also remarks, “Professionalization requires a detachment to maintain equilibrium between the universal and the particular.” Indeed, building professionals should strike a balance between the interests of the public and the clients. It is imperative for them to maintain a professional role in shaping a quality living environment instead of merely delivering a building to suit the requirements of the clients only. As Thorne & Cuthbert (1996:183) state that professionals value autonomy and expect high degrees of personal discretion in defining the nature of their role, building professionals should make use of their given autonomy to uphold their ethical role as professionals. TECHNOLOGICAL ADVANCEMENT AND KNOWLEDGE EXPANSION According to Larson (1977:40), the standardization or codification of professional knowledge is the basis on which a professional ‘commodity’ can be made distinct and recognizable to the potential public. Doyle (in Hoyle & John, 1995:46) refers professional knowledge to the research-validated knowledge about which professionals, through specialist and usually long periods of training, are taught to understand and to apply constructively and intelligently. However, in the contemporary world, the so acquired ‘professional knowledge’ is apparently insufficient to meet the competencies expected of professionals. Particularly in this computer age, when information is made easily available to people, ownership of the professional knowledge as described is no longer exclusive to professionals. As Haug (1973:201) puts it, academic knowledge on which professionals’ credentials are largely based is amenable to computer input and hence is commanded over not because one knows it but because one knows how to get it. Meeting the challenges of change for building profession 51 Apart from the ease of access to knowledge base, the growth of innovations in science and technology has brought with it new technical knowledge, concepts and ideas, threatening old ones and rendering them obsolete (Dubin, 1990:17). In the case of building construction, Soubra (1993:205) also comments, “The spread of computer-aided design and drafting together with the diffusion of innovation in construction methods and materials, particularly in the industrialized countries, is altering the technological intensity of the industry.” The impact of technological advancement on professional practices is getting greater, warranting some close attention of the building professionals of Hong Kong particularly if their practices go international. As knowledge is so readily available, building professionals need to distinguish themselves by strengthening their abilities in the abstraction, construction, and application of specialized knowledge and techniques to design and to solve practical building problems, which do not usually present themselves as well-informed structures (Abbott, 1988: 9; Schon, 1987:4). Furthermore, as building projects are getting more and more complex, good technical knowledge and strong design skills of the building professionals are also required. It is hence imperative for the building professionals of Hong Kong to keep themselves up-to-date with the ever-expanding knowledge base and latest technological development. As Bottery (1998:165-166) in his idea of ‘epistemological realizations’ argues, ‘professionals cannot act as disseminators of unchallengeable information as in many situations they cannot be certain what is fact and what is still opinion in their spheres of expertise’ and ‘the solution to a problem is not readily apparent but must be constructed’. To address the issue of technological advancement and knowledge expansion, the building professionals through the facilitation of their professional institutes should undertake continuous professional development seriously in order to maintain their professional competencies. For effective continuous professional development, the scope should cover a whole range of design, technical, legal and administrative areas. All major building-related professional bodies in Hong Kong, such as the Hong Kong Institute of Architects (HKIA), the Hong Kong Institution of Engineers (HKIE), and the Hong Kong Institute of Surveyors (HKIS) have some form of mandatory continuous professional development (CPD) programs. To encourage continuous professional development, there has been a gradual increase in the number of CPD events in these institutes over the past few years. To illustrate, the approximate no. of events has increased from 25 in 2001 to 85 in 2003 for HKIA, and from 220 to 290 over the same period for HKIE. However, it is noted that the no. of participants has not been increasing proportionally. There has only been a slight increase of some 100 participants for HKIA, and even a drop of some 700 participants in the case of HKIE in the same period. The onus of continuous professional development has to lie with the professionals themselves while professional institutes serve to facilitate through organizing seminars, workshops etc. As suggested by Farr & Middlebrooks (1990:202), it is more effective if the professionals themselves are selfmotivated to enhance and maintain professional competence. In continuous professional development, the sharing of experiences among, and the undertaking of research by, building professionals are also effective means to enrich professional knowledge and strengthen technical skills. This culture has yet to be developed in Hong Kong although some promotion by the professional bodies and 52 Mo research work by the academia has been undertaken. A lot of the expert knowledge of professionals comes through practice, where practitioners acquire experience through having to deal with ‘actual’ issues and to come up with suitable means in arriving at an optimal solution (Eraut, 1994:106). In order to utilize this expert knowledge in promoting building excellence and in maintaining competence, there should be a stronger link between practice and research. Hence, the building professionals of Hong Kong should actively engage themselves in reflecting on their practices (as Schon’s description of ‘reflection-on-action’ 1 and Eraut’s ‘metaprocess’ 2 ) and in participating in research activities; they should also be obligated to devote time and effort in disseminating the knowledge and experience so gained through forums and publications. THE CULTURAL AND ENVIRONMENTAL CONCERN Low (1996:85) remarks, “Good architecture is an expression and embodiment of culture or cultural conditions…Unfortunately, not all architectural work offers opportunities for cultural enrichment (Gutman, 1988).” It is very true that building professionals, and in particular architects, play an important role in enriching the culture of a particular time and place through their involvement in shaping of the living environment. They also influence the way the historical development of a human habitat can be appreciated through the effort to preserve the old while creating the new. What make a particular place different from the others are the great pieces of work done by building professionals that contribute towards civic pride and environmental interest of that locale. Low (ibid) specifically comments, “They (architects) can create environments which truly affect the lives of people in positive ways, even improving their living standards, sense of wellbeing, security or attitudes.” Fitch (1965:231) also explains, “…he (the architect) hopes like all artists to resolve the contradictions between form and content in such a fashion as to produce a work of high esthetic value…” Apart from having a duty to enrich culture and to beautify landscape of the human living environment through their building designs, architects together with other building professionals are also charged with a responsibility to contribute towards the sustainable development and protection of the natural environment for the benefits of the future generations. Building professionals of Hong Kong are faced with even more contentious cultural and environmental issues in that the scarcity of land resources and rapid growth in population of the region has generated much controversy on what to build and how to build. A balance between cultural environmental concerns and economic considerations has often to be struck in making land use and development decisions. The conflict between social benefits and commercial interests has generated endless heated debates in society, as in the case of the Hopewell development in the Wanchai district. Dissatisfaction of the public has also been mounting, as demonstrated in the fight over the seafront reclamation in Central district between the public and the Government. Building professionals assuming a professional role in contributing towards the well being of people’s living and the environment have to take an active part in responding to all these issues. Reflection-on-action is the post factum assessment of one’s professional activities which may take forms ranging from a more-or-less intuitive judgment of a mental replay of a lesson, through to the objective, formal and summative evaluation. (Hoyle &John, 1995:125) 2 Metaprocess is the term used to describe the thinking involved in directing one’s own behavior and controlling one’s engagement in the various processes undertaken by the professionals (Eraut,1994:115). 1 Meeting the challenges of change for building profession 53 To address the cultural issues, professional bodies should promote for a strong commitment of members towards upholding cultural values. To uphold cultural values, building professionals should be sensitive to the effects of new development on the culture and history of the place where their building projects are to be situated. Every effort should be made to convince clients to maintain the characteristics of the place and to preserve historic buildings where suitable. A thorough study conducted to collect the views of the users and the public would certainly be useful to the professionals in the delivery of their building projects. Unnecessary criticisms of the public on the professionals’ work could then be avoided. As Abbot rightly (1988:16) comments that professions legitimate their control by attaching their expertise to values with general cultural legitimacy, building professionals would gain confidence of the public by respecting their views and culture. To show concern for the environment, the building professionals of Hong Kong should actively involve themselves in affairs relevant to environmental protection and sustainability. Professional bodies should initiate deliberations with, and facilitate dialogues among building professionals, government bodies, interest groups and the public to address environmental and related matters, and to help resolve arguments between different parties. Building professionals should also enhance their knowledge and skills through participating regularly in workshops, forums and conferences (local and international) to learn, to share ideas, and to seek solutions for environmental problems. In addition, building professionals of the various disciplines should closely collaborate with one another in working towards more environmental friendly constructions and sustainable developments for Hong Kong and the world. GLOBALIZATION AND MARKET COMPETITION The global economy, coupled with the rapid advancement of computing technology and electronic communication, has both facilitated and necessitated the development of international professional services for many professions. Baden-Fuller (1993:102-104) comments that becoming international is no longer a marginal but central activity for professional firms. However, international activities are neither universally profitable nor easy to manage. It is essential for professionals to understand how to cope with the critical forces of internationalization and the dynamics of the market place in order to be successful. Fladmoe-Lindquist (1993:144, 152) also points out that the problems of uncertainty, information asymmetry, and bilateral negotiation etc. with the globalization of professional services are often complicated by cross-cultural communication. Furthermore, there are often issues of mutual recognition whereby professional bodies would have to look into regulatory compatibility across borders, and to facilitate members’ regulatory learning in rendering their professional services competitive (Nicolaidis, 1993:64). In Hong Kong, apart from the drive of globalization, the recent economic recession resulting in a drastic drop of the local property demand and the opening up of the Chinese Mainland market have forced the building professionals to look for job opportunities abroad and across the border. In a survey carried out by HKIA in early 2004, 104 out of 307 member respondents indicated that they have projects in Chinese Mainland in the 54 Mo year. Reciprocal professional qualification recognition has been under rigorous preparation by the major local professional bodies with their Chinese counterparts. The intention of the reciprocity is to facilitate the building professionals of Hong Kong to be able to set up practices in Chinese Mainland. Under the changing mode of operation and fierce competition in sharing of the pie among building professionals, building professionals of respective disciplines are subjected to the pressure of having to diversify and expand their scope of work, while maintaining edge as experts of their discipline. The outsourcing of building works by the Hong Kong SAR Government with the aim to reduce public expenditure has also led to a new form of job offers, demanding the building professionals perhaps to review their traditional way of practices. All these economical factors have posed new challenges to the building professionals and might even at times be conflicting with the values that the public expects of them. To address the issue of globalization and market competition, building professional practices would have to be forward looking in facilitating for the enhancement of the professions’ competitiveness. To enhance competitiveness, as Sennett (1998) remarks, a constant search for advantage or edge is essential for one to keep ahead and to avoid the ever-present threat of being left behind. For successful operation in the global economic market, new managerial and business skills would have to be acquired and professional expertise strengthened by the building professionals of Hong Kong, with the aim to achieve best practices and to attain international standard of services. In the case of venturing into the Chinese Mainland market, building professionals need to be well equipped with knowledge of the legislations, ways of working and culture of the people there. These can only be acquired through gaining cumulative practical experience by active involvement in the China projects. In responding to the fierce market competition, building professionals can enlarge their scope of services through collaboration or joint ventures with one another; they should also actively participate in design competitions and international projects. Professional institutes should allow members to promote their professional services more flexibly as long as the basic principles of professional conduct are upheld. CONCLUSION With the fast evolution of the world and the ever-mounting societal expectation on the accountability and performance of professionals, building professionals of Hong Kong have to spontaneously respond to the challenges that are posed on their professions. While there are continuous pressure from clients to build fast and cheap, public call for higher standard of health and safety, environmental protection and sustainable development is also exceedingly demanding. Globalization of professional services requires new ways of operation as well. The mode of practices for the building professionals has to change as a consequence of all these changing demands. It is hence necessary for professional practices to be more adaptable to different business environments, with the building professionals responding fast to political, economic, and social situations. In the era of rapid knowledge expansion and technological advancement, building professionals have to equip themselves constantly with a wider pool of knowledge, skills and techniques through continuous development and research Meeting the challenges of change for building profession 55 work, and be able to apply them to produce quality buildings in an efficient and effective manner. To earn public trust and confidence, building professionals should also be both self-projecting and self-regulating, with full commitment to continuous enhancement of professional competence and upholding of professional integrity. As advocated by the Hong Kong Housing Authority, ‘partnering approach’ in an attempt to improve the quality of building projects promotes collaboration and risk sharing. This is certainly a good way forward. However, for such approach to be successful, collegial teamwork spirit of the design and building team is vital. In this connection, building professionals could provide support through having greater respect for each others’ expertise, and by upholding fairness and sharing responsibilities in facilitating the smooth procurement of building projects. A culture of commitment to quality building and taking pride in delivering excellent work could only be developed with the collective effort of all the building professionals before an ‘integrated workforce’ as suggested by the said Construction Industry Review Committee (2001:3) could be formed. After all, a lot of the project delivery conflicts stem not from technical matters but from human relationship and communication problems. REFERENCE Abbot, A. (1988) The System of Professions – an Essay on the Division of Expert Labor, Chicago and London: The University of Chicago Press. Baden-Fuller (1993) ‘The Globalization of Professional Service Firms: Evidence from Four Case Studies’ in Aharoni, Y. (ed.) Coalitions and Competition – the Globalization of Professional Business Services, London: Routledge. Bottery, M. (1998) Professionals and Policy: Management Strategy in a Competitive World, London: Cassell. Cooper, D., Lowe, A., Puxty A., Robson, K. and Willmott, H. (1988) ‘Regulating the U.K. accountancy profession: episodes in the relation between the profession and the state.’ Paper presented at Economic and Social Research Council Conference on Corporatism at the Policy Studies Institute, London, Jan. 1988. Dent, M. and Whitehead, S. ‘Introduction: configuring the ‘new’ professional’ in Dent, M. and Whitehead, S. (eds.) Managing Professional Identities – Knowledge, Performativity and the “New” Professional, London: Routledge Dubin, S.S. (1990) ‘Maintaining Competence through Updating’ in Willis, S.L. and Dubin, S.S. (eds.) Maintaining Professional Competence – Approaches to Career Enhancement, Vitality, and Success throughout a Work Life, San Francisco and Oxford: Jossey Bass Inc. Eraut, M. (1988) ‘Knowledge Creation and Knowledge Use in Professional Contexts’, Studies in Higher Education, 10, (2), pp117-32. Eraut, M. (1994) Developing Professional Knowledge and Competence, Lewes: the Falmer Press. Farr, J. and Middlebrooks, C. (1990) ‘Enhancing Motivation to Participate in Professional Development’ in Willis, S.L. and Dubin, S.S. (eds.) Maintaining Professional Competence – Approaches to Career Enhancement, Vitality, and Success 56 Mo throughout a Work Life, San Francisco and Oxford: Jossey Bass Inc. Fladmoe-Lindquist, K. (1993) ‘The Impact of Bargaining and Negotiation on the Globalization of Professional Service Firms’ in Aharoni, Y. (ed.) Coalitions and Competition – the Globalization of Professional Business Services, London: Routledge. Fitch, J. M. (1965) ‘The Profession of Architecture’ in Lynn, K (ed.) and the other editors of Daedalus The Professions in America, USA: Beacon Press. Haug, M. R. (1973) ‘Deprofessionalization: an Alternative Hypothesis for the Future’ in Halmos, P. (ed.) Professionalisation and Social Change, The Sociological Review Monograph 20, the University of Keele, Staffordshire. Hoyle, E. and John, P. (1995) Professional knowledge and Professional Practice, London: Cassell. Hughes, E. (1959) ‘The Study of Occupations’ in Merton, R.K., Broom, L. and Cottrell, L.S. Jr. (eds) Sociology Today, New York: Basic Books. Larson, M. (1977) The Rise of Professionalism – A Sociological Analysis, California: University of California Press. Low, L. (1996) Professionals at the Crossroads in Singapore, Singapore: Times Academic Press. MacDonald, K. (1995) The Sociology of the Professions, London: SAGE Publications Ltd. Nicolaidis, K. (1993) ‘Mutual Recognition, Regulatory Competition and the Globalization of Professional Services’ in Aharoni, Y. (ed.) Coalitions and Competition – the Globalization of Professional Business Services, London: Routledge. Report of the Construction Industry Review Committee (2001) Construct for Excellence Environmental, Transport and Works Bureau, The Government of the Hong Kong Special Administrative Region. Rueschemeyer, D. (1983) ‘Professional Autonomy and the Social Control of Expertise’ in Dingwall, R. and Lewis, P. (eds) The Sociology of the Professions: Lawyers, Doctors and Others, London: Macmillan, pp38-58. Sennett, R. (1998) The Corrosion of Character, New York: W.W. Norton. Schon, D. (1987) Educating the Reflective Practitioner, San Francisco: Josey Bass. Schon, D. (1996) The Reflective Practitioner, Basic Books, Inc. Soubra, Y. (1993) ‘International Competitiveness and Corporate Strategies in the Construction Services Sector’ in Aharoni, Y. (ed.) Coalitions and Competition – the Globalization of Professional Business Services, London: Routledge. Thorne, M. and Cuthbert, R. (1996) ‘Autonomy, Bureaucracy and Competition: the ABC of Control in Higher Education’ in Cuthbert R. (ed) Working in Higher Education, Buckingham: SRHE and Open University Press. WINNING CONSTRUCTION CONTRACTS IN DEVELOPING COUNTRIES IN SOUTH EAST ASIA FLORENCE YEAN YNG LING Department of Building, National University of Singapore, 4 Architecture Drive, Singapore 117566. [email protected] ABSTRACT Architectural, engineering and construction (AEC) firms are expected to venture into foreign locations to undertake construction projects because of the need to increase sales and profitability. The objective of this paper is to identify the more significant factors that help foreign AEC firms clinch construction projects in developing countries in South East Asia (SEA). Factors that hinder firms from winning contracts are also identified so that firms can find ways of overcoming these barriers. The research is based on a questionnaire survey of Singapore and US AEC firms that had undertaken construction projects in developing countries in SEA. It is found that firms need to pay more attention to the market and working conditions in SEA to properly understand the foreign market. To win projects in SEA, foreign AEC firms should help clients reduce their financial burdens. Offering high quality specialized services is found to be a key factor among the firms studied. Firms should also have high quality inputs and maintain an excellent track record. Specific suggestions on how to win construction contracts in SEA are also discussed. The findings are useful to foreign AEC firms as they may help them win projects in the SEA construction industry. Keywords: international construction, procurement, strategies, South East Asia. INTRODUCTION There are many reasons why architectural, engineering and construction (AEC) firms should undertake projects outside their home countries. These include slow growth at home (Leonidou, 2001), high growth in foreign countries, the advantages associated with developing an external wing of an economy (Westhead et al., 2002), and globalization. South East Asia is often viewed as the most international of regional global markets, and even though it is a disparate group of nations, they are often lumped together as a single market. (Mawhinney, 2001). With globalization, investors are expected to ‘set up shop’ in foreign locations, including South East Asian countries (SEA). This translates into higher demand for constructed products such as factories, manufacturing plants and offices. Foreign AEC firms will thus have increased demand for their services. To realize this additional demand, they must first secure the contracts. But foreign AEC firms may not fully understand the factors that will help them secure work in SEA. 58 Ling The objective of this paper is to identify the significant factors that can help foreign AEC firms win design and construction projects in SEA. In this paper, the projects investigated were based in developing countries in SEA (host countries). The projects were executed by foreign AEC firms. These firms have headquarters outside the host countries. The ‘host country’ is the nation where the project is based, in this case, SEA. The home country is the nation where the foreign AEC firms’ headquarters is based. ENABLERS AND HINDRANCES IN EXPORTING AEC SERVICES AEC firms should be prepared to compete in increasingly globalized markets because of trade liberalization through the World Trade Organization (WTO) membership and bilateral free trade agreements (FTA). Porter (1990) emphasized that firms must extend their home-based advantages by competing globally to ensure continued growth. International success can be obtained by a combination of home base advantages and locating selected activities in foreign locations. No nation can be competitive in (and be a net exporter of) everything. The ideal is to deploy a nation’s limited pool of resources in the most productive uses possible (Porter, 1990). Within a company, managers should attempt to cultivate a spirit among employees that doing business overseas is vital for securing profitable sales and achieving long-term viability (Robson et al., 2002). Bernard and Jensen (1999) found evidence that: exporters are better than non-exporters; good firms become good exporters; and both growth rates and levels of success measures are higher after undertaking export activities. Workers benefit from exporting in the form of higher pay and better future employment prospects. Firms benefit from exporting because they diversify risk, increase innovation, and improve survival chances. However, it is likely that AEC firms have difficulty securing projects in a new foreign location. Moreover, SEA has many problems such as poorly planned investments, government intervention, inflexible economies, lack of transparency in corporate governance, lack of long term thinking, and shortages of skilled labour forces (Mawhinney, 2001). This research therefore investigates the factors that can help AEC firms win construction projects in SEA. RESEARCH METHOD This paper is part of a major research project investigating the performance levels, enablers, barriers, strategies, aims and benefits of international construction projects. The research method is a structured questionnaire survey. The questionnaire comprised a list of possible factors that may help foreign AEC firms secure a project, identified earlier by Ofori et al. (2001). Respondents were asked to indicate the extent to which each of the listed factors helped secure a specific international project outside their home countries, using a seven-point Likert scale, where 1 represented ‘big hindrance’, 4 meant ‘neither help nor hinder’, and 7 stood for ‘great help in helping a firm secure the project’. Winning construction contracts in developing countries 59 The population frame for this study comprised AEC firms that had undertaken and completed projects outside their home countries. As there is no world registry on AEC firms that export their services, the size of the population is not known. A research decision was made to limit the study to Singapore and the US. Therefore, the sampling frame comprised AEC firms which have headquarters in the USA or Singapore, and had undertaken international projects. The USA samples comprised all USA-based international contractors and international design firms ranked by the Engineering News Record in 2001 and 2002. Altogether, there are 150 such firms. The Singapore sample size was also set at 150, to avoid bias. In Singapore, all the Building and Construction Authority listed top 30 firms that export AEC services were selected. Due to a lack of published data, another 120 firms were randomly selected from the registry of Singapore Contractors Association (SCAL), Singapore Institute of Architects (SIA) and Association of Consulting Engineers Singapore (ACES). A pilot study was conducted and this led to a few minor adjustments to the questionnaire. The finalized questionnaire was then distributed by post to the selected samples in August and September 2002. The questionnaire was self-administered, which precluded verification of responses. DATA SAMPLE CHARACTERISTICS Questionnaires were sent to 300 AEC firms. 71 responses were received (24% response rate). This paper focuses on the 25 firms that had SEA experience. The projects reported were based in Cambodia, Indonesia, Malaysia, Myanmar, Philippines, Thailand and Vietnam. Details of the respondents and projects are given in Tables 1 and 2 respectively. Most respondents are from the top management and have more than 10 years of industry experience. 40% of the firms have more than 10% of their revenue derived from overseas projects. Table 1 Characteristics of respondents and their firms Characteristics Designation Top management Middle management Professionals Revenue (USD) Up to $50 million $51- $100 million > $100 million Information not provided Mean Median International Revenue 1-10% of total revenue 11-20% of total revenue 21-30% of total revenue Number 16 6 3 9 2 4 10 $136.6 million $20 million % 64 24 12 36 8 16 40 Characteristics Years in Industry 1-10 years 11-20 years > 20 years Mean Median Respondents’ home country Singapore USA Nature of firm (predominant) Design and consultancy Construction and management Workforce 10-100 employees 101-200 employees 201-500 employees Number 5 10 10 19.04 yrs 20 yrs 17 8 14 11 6 7 4 % 20 40 40 68.0 32.0 56.0 44.0 24 28 16 4 3 3 16 12 12 60 Ling Characteristics >30% of total revenue Information not provided Mean Median Number 4 11 28.1% 22.5% % 16 44 - Characteristics > 500 employees Information not provided Mean Median Number 6 2 771 200 % 24 8 - The majority of the projects are private sector. This is not surprising as governments in SEA may prefer to award public projects to indigenous AEC firms. A large percentage of the projects is general building, and based on design-bid-build system. The majority of the foreign AEC firms were awarded the contracts through selective bidding and negotiation. This underscores the importance of developing business relationships in SEA rather than relying on open bid invitations. As the 25 data-sets comprised projects from seven different SEA countries, analysis of variance (Anova) was first undertaken to check whether there is significant difference between the performance of projects in the different countries. The Anova result showed that there is no significant difference (p ≤ 0.05) between the performance of projects in different SEA countries undertaken by foreign AEC firms (see Table 3). Therefore, it is appropriate to put the projects together for further data analysis. Table 2 Project characteristics Characteristics Location Cambodia Indonesia Malaysia Myanmar Phillipinnes Thailand Vietnam Procurement method Design-bid-build Design-build Management Bidding procedure Open competitive bidding Pre-selection Negotiation Number 1 6 6 3 2 3 4 % 4 24 24 12 8 12 16 Characteristics Contract Sum (USD) Up to $5 million $6 - $20 million $21-50 million > $50 million Unknown Mean Median Types of project General building Manufacturing Power Industrial process Petroleum Transportation Ownership Public Private Number 7 6 4 4 4 $213M $16.7M 13 1 3 1 1 6 10 15 % 28 24 16 16 16 52 4 12 4 4 24 40 60 17 6 2 68 24 8 3 10 12 12 40 48 Table 3 Project performance Project performance Cost performance Time performance Technical quality Functional quality Workmanship quality Architectural quality Equipment quality Mean 4.12 3.16 4.80 5.12 4.80 4.80 4.80 Minimum 1 1 2 3 2 2 3 Maximum 7 7 7 7 7 7 7 F value 0.322 0.464 0.680 0.869 1.951 2.518 1.421 Sig. 0.917 0.826 0.668 0.536 0.127 0.060 0.261 Winning construction contracts in developing countries 61 Owner satisfaction Profit level of your firm 5.24 4.68 3 3 7 7 0.743 0.834 0.622 0.559 RESULTS Table 4 shows the results of the survey on the enablers that helped foreign AEC firms secure projects in SEA. Overall means were calculated. The higher the mean, the greater the variable’s contribution in helping a foreign firm secures a project. The rankings (Rank) and frequency of usage (N) are also indicated in Table 4. Table 4 Enablers and hindrances for securing projects in SEA Rank (1) I 24 33 31 29 32 28 27 21 18 II 26 19 22 16 12 13 III 8 3 17 23 5 1 6 4 IV 9 7 15 10 30 V Enablers and hindrances (2) Understand the foreign market The host country government Protectionism by host country Laws and regulations in host country Culture of host country Sentiments of host country firms Project risks Associations and other groupings Good network in host country Information of host country market. Help clients reduce financial burden Bankers and financial resources Financial strength Ability to offer financing Ability to structure a financing package Price competitiveness Size of firm Offer high quality specialized services Ability to understand the client’s requirements Product &/or service quality Marketing strategies Ability to create demand with aggressive marketing Technical expertise Ability to handle complex projects Specialty in a certain field Project level efficiency and productivity Source for high quality inputs Management quality Ability to get competent staff to manage the overseas project Ability to find good suppliers, contractors and/or subcontractors Ability to get skilled workers staff Material supplies, logistics and infrastructure in host country Maintain a good track record N (3) 19 19 21 23 23 25 17 23 24 18 18 10 10 24 24 25 25 23 18 25 25 25 25 24 24 20 22 23 Mean (4) 4.684 3.684 3.762 4.174 3.739 4.28 4.471 4.826 5.042 4.556 4.944 4.800 5.1 5.542 5.417 6.24 6.44 5.087 4.722 6.36 6.68 6.32 6.36 6.167 6.292 5.25 5.818 3.957 F value (5) 0.872 0.091 2.184 1.528 0.507 1.215 0.770 1.699 0.878 0.633 0.678 1.391 1.375 0.853 3.919 0.319 0.418 0.563 0.777 0.453 0.627 1.685 0.880 0.196 0.858 0.965 0.388 0.791 Sig (6) 0.542 0.996 0.107 0.232 0.794 0.344 0.610 0.185 0.532 0.702 0.671 0.333 0.361 0.548 0.012 0.918 0.857 0.753 0.604 0.833 0.707 0.182 0.529 0.974 0.544 0.485 0.875 0.590 T value (7) 2.822 -1.143 -1.558 0.940 -1.030 1.273 2.426 2.824 4.714 2.755 3.449 1.922 2.400 5.592 6.818 12.101 18.751 5.791 4.075 13.005 28.146 13.608 20.752 11.577 9.106 4.626 6.775 -0.170 Sig. (8) 0.006 0.866 0.933 0.179 0.843 0.108 0.014 0.005 0.000 0.007 0.002 0.043 0.020 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.567 62 Ling 25 14 2 20 11 The home country government Home country clients Track record in the home country Track record in the host country Track record overseas 17 16 23 22 23 4.647 5.313 6.565 4.909 5.609 0.760 1.290 1.534 0.789 0.194 0.617 0.351 0.230 0.592 0.974 2.864 3.882 15.617 3.578 7.169 0.006 0.001 0.000 0.001 0.000 Another Anova was carried out, to check whether there is significant difference in the degree to which a variable helped or hindered a foreign AEC firm in different countries. Except for ‘Size of firm’ (to be discussed later), the Anova results showed that there is no significant difference (p ≤ 0.05) between the degree to which a variable helped or hindered foreign firms in different countries (see Table 4, columns 5-6). Therefore, it is appropriate to discuss the enablers and hindrances without differentiating which country the project was based within SEA. The statistical t-test results show that out of 33 variables, 27 (shown in bold font) of these helped foreign AEC firms secure projects in SEA. The three most important are: • • • The foreign firm’s ability to handle complex projects (mean= 6.68) The foreign firm’s track record in its home country (mean= 6.57) The foreign firm’s product &/or service quality (mean= 6.44). Six variables did not pass the t-test (p ≥ 0.05). Among these, four variables have negative t-values (shown in italics), indicating that these are significant hindrances. It is recommended that foreign AEC firms pay close attention to these, and try to overcome these hindrances, so that they are more likely to be successful in clinching jobs in SEA. DISCUSSION The 33 variables are grouped into five components for further discussion. These are: understand the foreign market; help clients reduce financial burden; offer high quality specialized services; source for high quality inputs; and maintain a good track record. These factors are now discussed. Factor 1: Understand the foreign market Nine variables are grouped under the first factor: Understand the foreign market. To secure projects in SEA, AEC firms need to have very detailed information and knowledge of the market of the SEA country which it is entering. It should also form associations and networks. Networks of contacts provide access to people and information of potential value (Daft, 1986). The results show that certain conditions in the host country are barriers that hinder foreign firms from winning the project. The host county’s protectionist policies, it legislations, and local sentiments are barriers which prevented foreign AEC firms from winning projects in SEA. Foreign firms should therefore pay more attention to these barriers, and find ways to overcome them. Winning construction contracts in developing countries 63 It is recommended that foreign AEC firms form joint ventures with local firms who are knowledgeable and have the right connections. The potential local partner must show evidence of his extensive connections and network. Besides forming foreign-local joint venture, powerful local politicians may be invited to be partners of the AEC firm. These politicians can help in speeding up the government approval process. A good understanding of the foreign market can also be achieved by setting up physical office and staffing it with senior employees from the head office. This is better than just having the relevant professionals fly into the foreign country every once in a while. The senior employees who are based in the foreign location can gain a good understanding of the system and learn first hand about the laws and regulations relating to foreign exchange control, administrative and bureaucracy matters. They will also know the new regulations that are being introduced, which may delay the project or approval processes. Preventive steps can then be taken early. Factor 2: Help clients reduce financial burden Six variables relating to financial matters help foreign AEC firms win projects in SEA. Firms must find ways to help clients reduce their project financial burden, either through offering very competitive bids, offering project financing, or help clients to structure financing packages. Offering competitive bids are important because SEA market is very competitive, and most clients in SEA still award contracts to the lowest bidder. The fiercest competitors are firms from China, especially her state-owned firms that may have very strong financial backing from the Chinese government. The survey results show that clients in SEA often expect foreign AEC firms to be able to offer financing or to assist in structuring such packages. This is consistent with Tiong and Yeo’s (1993) study which found that structuring a financing scheme for clients from developing countries is one of the most important ways of winning bids for projects that are funded by international funding agencies. Attractive financial package can tip the scales in favour of an otherwise uncompetitive tenderer (Stallworthy and Kharbanda, 1985). AEC firms may also provide financing or take an equity in the project through build-operate-transfer arrangement (Wang et al., 2000). They can only do this if they themselves have financial strength and muscles. Alternatively, they can team up with bankers. Unfortunately, some banks are too cautious and are reluctant to offer financing to firms venturing overseas. Being able to offer good financial terms means that foreign AEC firms need to have financial strength, which usually comes with being large in size. The Anova showed that there is significant difference in the role that the size of firm played in helping to clinch projects in different countries. Being large sized help foreign firms win projects in Philippines and Vietnam, but not the rest. It is wondered if being ex-colonies of the USA had a role in making these countries welcome big firms more. While being price competitive helps firms secure projects in SEA, it is cautioned that foreign firms should be wary of non-payment or late payment by some SEA clients. 64 Ling Advance payments and letters of credit may be used to ensure that payment would actually be made. Factor 3: Offer high quality specialized services Eight variables are grouped under one component labelled as ‘offer high quality specialized services’. The findings emphasize the need to offer superior products or service. To do this, firms could adopt differentiation strategy (Porter, 1990). Foreign firms should have superior technical expertise, specialty in a certain field, and ability in handing complex projects. This involves having a core competence that competitors cannot easily match or imitate (Hamel and Prahalad, 1994). In international construction, AEC firms must provide specialty or niche services or products that indigenous firms could not. The service or product should also have superior quality or delivered in a shorter time. Regardless of the adopted business strategy, great attention in satisfying the clients’ needs is essential (Kangari and Lucas, 1997). The results also show that AEC firms need to embark on aggressive marketing to create demand when trying to win projects in SEA. This may be because some clients in SEA are not sophisticated enough to identify a good business opportunity. Therefore, foreign AEC firms need to highlight this to clients, and then persuade them to employ the same AEC firm to supply the constructed facility to undertake the business operations. Factor 4: Source for high quality inputs Five variables are grouped under ‘source for high quality inputs’. For firms to be able to offer high quality and specialized services, they should first conduct an internal capability assessment (Howes and Tah, 2003). Where shortfalls occur, then it is necessary to establish what internal measures are necessary. The firms must be able to employ competent professionals and skilled workers or technical staff to handle the overseas project. It is recommended that only excellent and self-motivated staff should be posted to overseas This staff, if from the head office, could train a local counterpart so that the latter can eventually handle the operations. The downside of this strategy is that the incountry counterpart may move to a competitor because such people are in short supply. Foreign firms should also be able to find good suppliers, contractors and subcontractors to help them execute the project. The respondents also felt that the material supplies, logistics and infrastructure in SEA impeded them from securing projects. This finding indicates the potential for foreign firms to supply SEA with more services and technology in these areas. Winning construction contracts in developing countries 65 Factor 5: Maintain a good track record Five variables are grouped under ‘maintain a good track record’. AEC firms that have good track record at home, in SEA and in other countries are more likely to win projects in SEA. A good track record indicates that the firm has good reputation. Clients award contracts to firms with good reputation because they are less likely to exhibit untrustworthy behaviour and could be expected to deal honestly (Granovetter, 1985) because they do not want to damage their reputation and risk alienation (Provan, 1993). According to Hill (1990), individuals who have good reputations do not exhibit opportunistic behaviour which yields only short-term benefits but a long-term cost because of lack or loss of trust. The results also show that home country clients are more likely to engage them to construct their facilities when these clients venture into SEA. AEC firms should therefore continue to network with their home country clients. With its good reputation, the home country government is more likely to help the AEC firm win contracts in SEA through lobbying and official representations. CONCLUSION The objective of this paper was to identify factors that can help foreign AEC firms win projects in SEA. It was achieved through a survey of foreign AEC firms with SEA experience. The results of this study show that to win projects in SEA, foreign AEC firms need to understand the SEA market thoroughly and be able to help clients reduce their financing burdens. They need to have price competitiveness and provide superior products or services. This suggests a doubly demanding dual task of implementing both differentiation strategy and low-cost strategy simultaneously. It was found that in essence, to secure projects in SEA, AEC firms need to have very detailed information and knowledge of SEA, and form associations and networks. They need to get support from both the host and their own home country governments. AEC firms also need to have sound marketing strategies, and form alliances with clients from their home countries who are investing in SEA. As for project financing, clients in SEA often expect AEC firms to be able to offer financing or to assist in structuring such packages. The most important variables all point to the need for AEC firms to offer high quality niche services. AEC firms need to focus internally on their own operations and strengthen themselves to ensure that they offer superior product or service at competitive prices. This research has shown that expertise in a specialized sub-market and in a technical discipline helps firms win projects in SEA. One of the limitations of this study is the small number of responses received. Due to time and cost constraints, another limitation is that the responses were obtained from Singapore and US AEC firms instead of more nationalities. More sets of data will be collected to make the findings generalizable. The findings in this study are pertinent and helpful to international AEC firms in several 66 Ling ways. With increased globalization, AEC firms would undertake more projects overseas to survive. Effectively addressing the factors that have been identified in the study can help them win projects in SEA and perform profitably. They could strengthen their firms’ capabilities in the areas which have been found to help foreign AEC firms clinch projects in SEA. They could also focus on the more important attributes (those ranked higher) to help them secure projects in SEA. In addition, they may want to pay attention to the areas which are found to be impediments in winning projects in SEA, and look at ways of overcoming these barriers. REFERENCES Bernard, A.B. and Jensen, J.B. (1999) Exceptional exporter performance: cause, effect, or both? Journal of International Economics, Vol. 47, No. 1, pp. 1-25. Daft, R.L. (1986) Organization Theory and Design, 2nd ed, West Publishing, St Paul, New York. Granovetter, M. (1985) Economic action and social structure: the problem of embeddedness. American Journal of Sociology, Vol. 91, No. 3, pp. 481-510. Hamel, G. and Prahalad, C.K. (1994) Competing for the Future, Harvard Business School Press, Boston. Hill, C.W.L. (1990). Cooperation, opportunism, and the invisible hand: implications for transaction cost theory. Academy of Management Review, Vol. 15, pp. 500513. Howes, R., and J.H.M. Tah (2003) Strategic Management Applied to International Construction, Thomas Telford, London. Kangari, R. and Lucas, C. L. (1997) Managing International Operations: A Guide for Engineers, Architects, and Construction Managers, American Society of Civil Engineers Press, New York. Leonidou, C.L. (2001) Factors stimulating export business: an empirical investigation. Journal of Applied Business Research, Vol. 14, No. 2, pp. 43-68. Mawhinney, M. (2001) International Construction, Blackwell Science, Oxford. Ofori, G., Goh, B.H., Zhu, J., Ting, S.K., Tiong, R., Alum, J., Wong, S.C.L., Wong, H.Y., Koh, L. J., Das, J. and Toh, E. S. (2001) The potential of developing worldclass Singapore construction and construction-related firms with strong export capability, Unpublished research report, Department of Building, National University of Singapore, Singapore. Porter, M. E. (1990) The Competitive Advantage of Nations, Free Press, New York. Provan, K.G. (1993) Embeddedness, interdependence and opportunism in organizational supplier-buyer networks. Journal of Management, Vol. 19, No. 4, pp. 841-856. Robson, M.J., Leonidou, L.C., Katsikeas, C.S. and Constantine, S. (2002) Factors influencing international joint venture performance: theoretical perspective, assessment, and future directions. Management International Review, Vol. 42, No. 4, pp.385-418. Winning construction contracts in developing countries 67 Stallworthy, E.A. and Kharbanda, O.P. (1985) International construction, Gower, Aldershot. Tiong, R. and Yeo, K. T. (1993) Project financing as a competitive strategy in winning overseas jobs. International Journal of Project Management, Vol. 11, No. 2, pp. 79-86. Wang, S.Q., Tiong, R.L.T., Ting, S.K. and Ashley, D. (2000) Evaluation and management of foreign exchange and revenue risks in China’s BOT projects. Construction Management and Economics, Vol. 18, pp. 197-207. Westhead, P., Wright, M., and Deniz, U. (2002) International market selection strategies selected by ‘micro’ and ‘small’ firms. Omega The International Journal of Management Science, Vol. 30, pp. 51-68. 68 Ling GLOBALISATION: A CHALLENGE TO THE TANZANIAN CONSTRUCTION INDUSTRY BONIFACE MUHEGI and JOSEPH MALONGO Contractors Registration Board, P. O. Box 13374, Dar es Salaam, Tanzania [email protected], [email protected] ABSTRACT The impact of knowledge based economies and globalisation on construction industries in developing countries is evidenced by the decreasing market share of the local players in the industry. Developing countries need to institute radical reforms in their development agenda in order to leapfrog, and bridge this difference. The paper discusses problems faced by construction industries in developing countries in the advent of globalisation. It begins by case studying the Tanzanian construction industry which, as in most developing countries, is characterised by low and unreliable rates of profitability, negligible investments in research and development, low investments in human and financial capital, domination by foreign contractors and consultants. The paper acknowledges that in a globalised economy the construction industry is no longer a localised industry and developing countries cannot be safe in their own local markets. The paper proposes a paradigm shift from the traditional capacity building in small and medium contracting firms which target the lower value market segment and, instead fast track the development of “large” local contractors who are better placed to compete with foreign firms and mitigate the threats of globalisation to construction industries in developing countries. Keywords: Construction Industry Development, Globalisation, Market Share, Paradigm Shift INTRODUCTION The Construction Industry (CI) creates and maintains the built environment, which is the cornerstone for the socio-economic development for any nation and a reflection of a nation’s development. Unfortunately most construction industries in developing countries are in very poor shape, Rwelamila (2000) summed up the status of the African construction industries as having low and unreliable rates of profitability; negligible investments in capital, and research and development; training in these industries is falling apart and too many clients still equate price with cost by selecting contractors and 70 Muhegi and Malongo consultants purely on the basis of the tendered price. To put it simply the African construction industries are under siege due to poor performance. The advent of globalisation and the transformation of leading economies into knowledge based economies will further marginalise the construction industries in developing countries if appropriate measures and initiatives are not taken to reverse this status quo. Ofori (2000) outlined these to include a fundamental and comprehensive review of all aspects of each construction industry in a developing country. This review should provide the basis for the formulation of initiatives to attain progress on a broad front throughout the industry. The review should aim to enable the industry to face the challenges, which will be posed in its domestic market as well as wider issues of an international nature. The process should involve the main stakeholders of the industry although government can play a leading role. This paper conducts an analysis of the challenges facing the Tanzanian construction industry. It reviews previous construction industry development initiatives in the country and draws from deliberations conducted in four consultative meetings convened to chart out strategies for mitigating the threats posed by globalisation to the local construction industry. The paper draws on emerging trends in the construction industry worldwide and recommends initiatives for adoption. CONSTRUCTION INDUSTRY IN DEVELOPING COUNTRIES – The Case of Tanzania. Profile of the Construction Industry in Tanzania The construction industry in Tanzania is guided by a Construction Industry Policy (2003) whose Vision is to have a dynamic, efficient and competitive local construction industry that is able to undertake construction projects of any magnitude and participate effectively in providing services in the regional and global marketplace. The construction industry in Tanzania is regulated by 3 main bodies; Contractors have to be registered by the Contractors Registration Board (CRB). Local contractors are registered in seven classes depending on their capacity and competence as specified in the Procedures and Criteria for Registration of Contractors (1998). Foreign contractors are restricted to register in Class I as specified in the By Laws of the Contractors Registration Act 1999(Amended in 2004).Currently there are 3084 registered contracting firms with 97% of the firms being local and 3% foreign. Furthermore 95% of the local firms are in small to medium sized enterprises in classes 5-7. Consulting engineers and engineering firms are registered by the Engineers Registration Board (ERB).Currently there are 90 engineering consulting firms of which 79% are local. Globalisation: A challenge to Tanzanian construction industry 71 Architectural and Quantity Surveying firms are registered by the Architects and Quantity Surveyors Registration Board (AQRB) .The Board has 89 registered architectural firms of which 93% are local and 33 registered quantity surveying firms of which 97% are local. The registration of consultants is not classified therefore there is no threshold as to the complexity or maximum contract value that these firms may undertake. These regulatory bodies which were all established by acts of parliament in 1997 are also charged with the responsibility of developing the respective firms / professionals registered with them. Performance of the Industry The performance of the local construction industry can be measured using several indicators. In Tanzania the industry contributes 4.7% of the countries GDP and 47.3% of the Gross Fixed Capital Formation (GFCF). Furthermore, significant portion of the government’s development budget (about 60%) is also spent on construction projects. The industry has recorded steady growth from 8.7% in 2001, to 11% during 2002 and 15% in 2003. This growth is attributed to continued Government investment in infrastructure. Also, the economic reforms carried out during the past decade have attracted a significant increase in donor, private sector and foreign direct investment in infrastructure developments. Despite the increase in investment and growth, the market share of local players both consultants and contractors remains very low. Foreign contracting firms managed to get 80% (by value) of all contracts during 2003 leaving only 20% for the locals. Since approximately 85% by value of most construction works entails the procurement of a contractor, the paper will now focus on issues facing Contractors in Tanzania. The Contracting industry is characterised by two distinct market segments, the high end, high value, complex projects segment which is dominated by foreign contractors owing to their superior technical and management expertise and access to financial resources and, about 5% of the local construction firms which are in Classes I to III. The other segment is the low end, low value projects segment serviced by 95% of purely local contractors. This market segment is “overcrowded” by small family based contractors. The ensuing competition for the jobs in this segment leaves at least 19% of these contractors unable to win a single contract every year. Data analysed by the Contractors Registration Board from Contractors Annual Returns for the year 2003 as summarised in Table 1 below shows that civil works get the biggest contract values followed by building works. The value of projects awarded to small contractors in classes V-VII is at best on a subsistence level with a contractor getting an average of 3 small contracts per annum. 72 Muhegi and Malongo Table 1. Average contract values for Contractors during 2003 Type/Class of Contractor Building Civil Electrical Mechanical I 2,769 8,391 110 1,662 II 285 437 III 175 156 47 IV 144 224 16 V 162 112 9 VI 34 33 13 2.9 VII 27 16 4 0.9 Value In Million Tanzanian Shillings (TShs) [ 1000 TShs = 1US Dollar] Source: CRB Contractors Annual Returns 2003 In the higher classes the scenario is not any better. A typical Class I Tanzanian contractor is allowed by law to undertake works of unlimited value. The data extracted from annual returns for the past three years indicates that the largest contract executed by a local contractor was in the region of USD 8.0 million. By and large a Class I Tanzanian Contractor is a small to medium sized enterprise by International Standards. Between 1995 and June 2004 a total of 41 road and bridge construction projects have been completed in the country. These projects with a total value of 998.8 billion Tanzanian Shillings (about 1 billion US Dollars) were executed by foreign construction firms. Local firms could not qualify due to a myriad of reasons including, donor conditionalities, not having the requisite experience and financial turnovers and unfamiliarity with the required delivery methods e.g. design and build. The scenario depicted in the Tanzanian industry is not very different from other developing countries, Drewer (1980) attributed this to the fact that most of the construction projects that developing nations require for their socio-economic development are beyond the capability of their industries to undertake owing to the size, novelty and complexity of those projects. Major Constraints Facing the Tanzanian Contracting Industry Through data analysed from Annual Returns for year 2003 on a sample of 638 Contractors “the Supply Side” and 31 major Clients “the Demand Side”, the Contractors Registration Board has identified major constraints affecting the development of capacity and competence in the local industry from the Contractors Perspective and from the Clients perspective as tabulated in Table 2 and 3 below ; Table 2: Major Constraints – The Contractors Perspective Problem Area 1 Work Opportunities Skilled Personnel Finance Type of Problem Stiff competition / few work opportunities Difficult Bid / Tender conditions Corruption, Favouritism, bureaucracy Available but difficult to keep during idle times Demand too high salaries / No ability to pay Some skills not available at Technician level Limited / small capital base Delays in payments from clients % Respondents 47 23 6 11 7.5 3 50.62 25.8 2 3 Globalisation: A challenge to Tanzanian construction industry 73 Difficulty in assessing loans / credit facility Not readily available / High hire rates Insufficient plant hire facilities No ability to purchase Poor condition of hired equipment High prices 5 Materials Low quality High Taxes for imported material / Bureaucracy in clearances Source: CRB Contractors Annual Returns 2003 4 Equipment 14 30 16 12 3 28 9 7.5 Table 3: Major Constraints – Clients Perspective No 1 2 3 4 5 Problem Lack of Equipment Lack of qualified staff Lack of Capital Poor knowledge of tendering Poor Financial and project management % Respondents 67.7 51.5 32.5 20 6.5 Source: CRB Clients Annual Returns 2003 In summary these results identify problems on the “supply side” (Contractors) of the industry as being; Poor corporate management of local firms Resources Constraints – access to finance, knowledge and skills, plant and equipment Stiff Competition /Access to work opportunities And, problems on the “demand side” (Clients) as being; Bureaucratic procurement procedures, contract award and administration Inadequate funding for infrastructural projects The results form a basis for determining where development initiatives of the Construction Industry in Tanzania should be focussed. In this case, improvement of the delivery system of contractors - “supply side” is a priority in order to enable the local contractors gain the requisite capacity and competence to claim a significant market share of the investment that is being channelled into infrastructure development. This conflicts with Milford et al’s (2000) argument that “supply side” development initiatives may not necessarily be the most important focus in developing countries and rather advocated for increased infrastructure investment as a strategy to develop the construction industry in South Africa. This is not surprising, as earlier noted by Ofori (2000) a fundamental and comprehensive review of all aspects in each construction, industry in a developing country is of paramount importance prior to formulating strategies, implying, that there are no “one size fits all” solutions in CI development. 74 Muhegi and Malongo Previous Contractor Development Programs in Tanzania There have been several initiatives aimed at developing the Construction Industry during the last two decades. These include ; Improving Access to Work Opportunities by; Packaging projects in sizes that local companies can undertake, improving procurement procedures by enacting the Public Procurement Act which gives a margin of preference to local suppliers and reducing Government involvement in actual construction activities by contracting most of the works to the private sector, Improvement of the Business Environment by; Providing Bid Bond and Advance Payment Guarantees to contractors through the Contractors Assistance Fund (CAF), establishment of government owned plant and equipment hire companies and Tax reforms. Providing Training and skills development through; Establishment of the Sustainable Structured Training Program (SSTP) for contractors and Training for Labour Based Contractors. As in most developing countries, these initiatives have been government led and were geared to the development of small and medium size contractors. The justification for directing most developmental initiatives in the construction industry to SME’s has been that since small and medium scale enterprises tend to be relatively labour intensive and utilise low levels of technology, a strategy commensurate with the development of this sector is consistent with employment creation, poverty alleviation and income distribution objectives, which, is ideologically correct for any developing country. Although these initiatives have borne significant progress in the Tanzanian construction industry, most local firms are still unable to undertake large and technically complex projects. A major shortcoming in these strategies is that “large” local contractors have been left out from most developmental initiatives and have thus failed to provide any formidable competition to their foreign compatriots for the high value projects as the market share indices show. Emerging Trends in the Construction Industry in Developing Countries. Emerging trends in the construction industry worldwide provide a test case as to whether the traditional approaches in CI development adopted by most developing countries are still adequate. When reviewing the developments in the construction industry in Asia Raftery et al (1998) identified three major trends ; (a) Increased private sector participation in infrastructure projects, (b) Increased vertical integration in the packaging of construction industry projects which are growing larger, (c) Increased participation of foreign construction firms Globalisation: A challenge to Tanzanian construction industry 75 They attributed these trends to “the globalisation and deregulation of markets necessitated by fiscal technological and managerial constraints.” These trends have also permeated into the Tanzanian industry and the effects are already visible with the disadvantages heavily outweighing the advantages. For example, while the increase in public and private sector investment in infrastructure projects corresponds to an increase in construction demand, local construction companies are not experiencing a corresponding increase in their market share of the industry due to lack of the requisite competitive edge over foreign companies. Furthermore the increase in private sector funded projects reduces the impact of regulatory frameworks which offer margins of preference to local contractors during procurement since these policies are not applicable to the private sector. It is therefore inevitable that foreign contractors shall continue dominating the high value complex project market segment. It can be argued that the presence of foreign construction firms could offer scope for the development of the Tanzanian industry. Several authors have conducted studies on the technology transfer potential from foreign contractors, Moavenzadeh and Hagopian (1984) see foreign contractors as the sole factor influencing the development of construction industries in developing countries. This model is criticized by Ofori (1996) who notes that the objectives of foreign contractors and host developing countries differ. Carrillo (1994) shows that foreign firms are not keen to effectively transfer their technology since that is a means of nurturing their future competitors. However, Ofori (1996) notes that both local and foreign firms can benefit if systematic efforts are made by the later to develop the former. In Tanzania there are no institutional mechanisms to ensure that there is technology transfer from foreign firms to local firms hence, the impact of foreign firms in developing the local capacity has been insignificant. New trends are emerging in project delivery requirements imposed by clients which are a departure from the traditional procurement and project delivery methods in Tanzania. For example ; The Central Tender Board is adopting Design and Build (D&B) mode for the construction of most major road works. Therefore contractors winning such contracts will have to assume a complex role of managing engineering, quantity surveying and construction services. The Tanzanian national road agency TANROADS is embarking on a Performancebased Maintenance and Management system for Roads (PMMR) whereby contractors will enter into Service Level Agreements with the Client as opposed to the traditional Works Contracts. Under PMMR Contractors will have to determine the type and extent of maintenance to be done to meet the service level agreed. Payments to the contractor will be based on outputs of attaining the service level rather than inputs from the Bills of Quantities. The proposed Kigamboni Bridge which links Dar es Salaam City with Kigamboni peninsular shall be constructed on a Build Operate Own Transfer (BOOT) basis, These examples signal a new change in Clients requirements in Tanzania. Local construction firms will have to undergo a business process re-engineering, re-structure their establishments, unlearn traditional delivery methods and establish strategic alliances 76 Muhegi and Malongo with stakeholders in the supply chain so as to cope with these new customer requirements. In view of the above there is a need to critically review the development initiatives to be applied to match these new trends. A logical question would be ; Is the current focus on developing small and medium sized enterprises still a viable option to mitigate the threats of globalisation in Tanzania? The answer is NO for two basic reasons. The net impact of increasing the local market share through the low value market segment which is the domain of these firms is negligible. The structure and resources within these firms do not allow them to transform into firms that can offer competition to foreign contractors, Furthermore, these firms are not attractive for joint ventures and strategic partnerships with more advanced foreign firms. Proposed Strategic Interventions for the Tanzanian CI If the Tanzanian construction industry is to survive in the globalised CI arena, there has to be a paradigm shift in the CI development agenda to match these new trends in procurement and delivery of projects. This entails embarking on deliberate efforts to fast track the development of “large” local contractors to international levels. This is a major departure from contractor development policies in most developing countries. As Seng’enge (2004) coined it, we can no longer count on our traditional small, family based practices to face the challenges ahead of us. This is not a matter of engineering or politics; it is a matter of fact. The Contractors Registration Board is planning to initiate a 5 year pilot mentorship program for the development of 12 – 15 Civil Works Contractors in classes I to III with the objective of improving their capacity and competence in order to increase their participation in high value construction projects and compete competitively with foreign contractors. The justification for selecting Civil Works as a priority development area is based on the premises that ; Civil works account for 50% in value of the market share in the Tanzanian Construction Industry. Most Civil works carried out are Government or Donor funded, hence the program is more likely to get government support as opposed to privately funded projects. Currently there are 33 registered civil works contractors in classes I – III. The selection of contractors to participate in this program could be daunting and subject to criticism. A broad based selection team with representation from contractors associations and other stakeholders will be set up to deal with the selection. Transparent selection criteria will be clearly spelt out. Government will be requested to ; Globalisation: A challenge to Tanzanian construction industry 77 Set aside at least 500km of planned paved road works for the program. These shall be broken down in packages of 30km and the participating contractors shall be requested to bid for these packages. Waive the requirements of the Public Procurement Act which requires open tendering for all government funded projects Provide a tax exemption (including VAT) over the five-year period for all capital plant and equipment for the project. The Contractors Registration Board in collaboration with a steering committee comprising of members from the National Construction Council, Engineers Registration Board, Ministry of Works and other stakeholders will provide the Management of the Program whereby participating firms will be ; Evaluated to identify specific requirements of each participating firm. The firms will be restructured as appropriate and assisted in identifying and employing competent managerial and technical staff and setting up management systems for the sustainability of the companies. Provided with training in the construction technology and equipment operations for paved roads. This training shall be accompanied by trial contracts for each participant whereby all works shall be closely monitored for quality assurance. Specialized training sessions shall also be conducted in identified need areas such as Pre- Contract Practice, Contracts Management, Project and Financial Management. Assisted in obtaining the necessary bonds and guarantees for the purchase of the plant and equipment. The cost of the plant and equipment provided under this program would be deducted from payment certificates for work done Provided with opportunities to bid for work packages within the 500km set aside for the project and also be accorded preferential treatment when bidding for other major works during the program period. This will enable them to acquire the necessary experience and turnovers required when bidding for major projects in International Competitive Bidding Requested to sub-contract at least 20% of the works given to them over the program period to other contractors as a way of encouraging them to embrace partnership, associations and joint ventures. and also encouraged to diffuse knowledge and skills to small and medium local contracting companies. Expected Outputs of the Program At the end of the program it is anticipated that the local industry shall have at least 12 contractors who have • the necessary experience and internationally accepted production rate for the construction of paved roads • the necessary financial turnovers required when bidding for such jobs in the open market under International Competitive Bidding • the required complement of skills, plant and equipment for complex road works. 78 Muhegi and Malongo Challenges in Implementing the Program Capacity Building of the Construction Industry in Tanzania is a National Issue (Seng’enge, 2004) due to its multi-sectoral nature. The Contractors Registration Board cannot handle such a program singularly. Key stakeholders including the Government have to be brought on board during the inception of the program to enable them to “buy in” the concept. Bearing in mind the nature and structure of the local construction industries. Owners of these firms will have to be convinced that the benefits in participating in the program outweigh the risks. They will have to accept professional advice on re-structuring their firms and investing in proposed areas for their capacity building. As the old maxim says, they will have to “think global and act local”, Botha et al(2004) summarised it that in a couple of years there will only be two types of CEO’s who will exist……those who think globally and those who are unemployed. CONCLUSION In conclusion the challenges bought about by globalisation necessitate a change of strategy in the Construction Industry development agenda in developing countries. While efforts in developing small and medium sized enterprises which is the domain of most local construction firms are appreciated, there is a need for a paradigm shift which entails building capacity the capacity and competence of “large” contractors who participate in the complex, high value projects market segment where a greater impact on the CI contribution to the local economies can be achieved. The success of the pilot project in Tanzania will re define the overall strategy of CI development in developing countries in this era of globalisation. REFERENCES Botha, H. and Campbell. W. Globalisation in Africa: A Foreign contractors Perspective. Proceedings of CRB Annual Consultative Meeting 2004, Dar es Salaam, Tanzania. CRB, Contractors and Clients Annual Returns 2003 Drewer, S. (1980) Construction and Development: A new perspective. Habitat International, Vol5 Milford R.V, Hodgson S and Chege, L. (2000), Construction Industry Development: The need for Infrastructure Investment. Proceedings of the CIB W107 1st International Conference .Stellenboch South Africa. Moavenzadeh, F and Hagopian F, (1984) The Construction Industry and Economic Growth. Asian National Development June/July 1984. Murray M, Appiah-Baiden, J. (2000) Difficulties Facing Contractors from Developing Countries: Problems and Solutions. Proceedings of the 2nd International Conference of Construction in Developing Countries. Gaborone, Botswana Ofori G. ( 2000) Challenges of Construction Industries in Developing Countries : Lessons from Various Countries. Proceedings of the 2nd International Conference of Construction in Developing Countries. Gaborone, Botswana Globalisation: A challenge to Tanzanian construction industry 79 Ofori G. (1996). International Contractors and structural changes in host-country construction industries: Case of Singapore. Engineering, Construction and Architectural ManagementVol.3, No.4. Raftery J, Passadilla, B, Chiang, Y. H., Hui, C.M and tang B. S.(1998). Globalisation and Construction Industry Development : Implications of recent developments in the construction sector in Asia. Construction Management and Economics. Rwelamila P.D. (2000) African Construction Industries in Turmoil ?. The implications for NEPAD. Proceedings of the CIB W107 1st International Conference. Stellenboch South Africa. Senge’nge, R. (2004), Capacity Building in preparation of globalisation competition. Proceedings from the CRB Annual Consultative Meetings 2004, Dares Salaam, Tanzania. 80 Muhegi and Malongo GLOBALISATION AND TRENDS IN THE INTERNATIONAL CONSTRUCTION INDUSTRY: A MALAYSIAN PERSPECTIVE J. V. B.TORRANCE Faculty of Architecture, Planning and Surveying, Universiti Teknologi MARA (U.i.T.M), Shah Alam 40450, Selangor, Malaysia, [email protected] ABSTRACT This paper discusses the origins and effects of globalisation, its influences upon the international construction industry, including the increasing importance of cross-cultural management. The major effects of large scale demographic changes on the structure of international trade are considered and their potential impacts upon construction markets including Malaysia’s responses to W.T.O and A.F.T.A. Furthermore, the effects of privatisation on changing client types and changing methods of project procurement are reviewed. How the development of the Knowledge Era particularly Malaysia’s strategy, coupled with the influences of I.C.T. and Malaysia’s Multi Media Super Corridor (MSC) have changed the pattern of education for construction professionals, particularly construction managers at all levels, is emphasised. Consequently, these are, or should be, improving the structure and the management of the supply chain, in Malaysia applications of Ecommerce are being developed. Keywords: Clients, culture, demographics, globalisation, knowledge, supply chain. BACKGROUND The last twenty years have seen unprecedented change. As is often necessary, we must examine where we have come from to understand where we currently are and where we may be going in the future. With regard to globalisation and the changing shape of international interactions, the beginning must be the retreat of centralized, atheistic communism and the rise of free market economics. The end of the Cold War some 20 years ago brought the removal of the Iron Curtain, the break up of the U.S.S.R., the disappearance of the Bamboo Curtain and the collapse of the Berlin Wall. These were not only potent symbols of changing political and economic climates but they opened gateways to a surge in trade liberalization and rapid commercial growth The General Agreement on Tariffs and Trade (G.A.T.T.) had previously been making major achievements but the World Trade Organisation gave international trade a huge push forward. The Asian Development Bank, World Bank and the International 82 Torrance Monetary Fund may also be viewed as double edged weapons. However imperfect though those three organizations may be, they have made possible changes that would not otherwise have been accomplished to the same extent. Foreign direct investment is powering growth in the Asian economies. “History is clear on this point”, said the then President of Mexico, Ernesto Zedollo, “in every case where a poor nation has significantly overcome its poverty, this has been achieved while engaging in production for export markets and opening itself to the influence of foreign investment, goods and technology – that is by participating in globalisation (speech to World Economic Forum, Davos, Switzerland, January 2000). The term Globalisation was probably given its real meaning, first of all, by Theodore Levitt in his book entitled “The Globalisation of Markets: Challenging the Myth of Industrial Obsolescence” (1985). However, the Greek urban planner Constantin Doxiadis in 1959 (in Papaioannou, 2000), suggested that global views of world interdependence had developed, inevitably, due to the increased growth and urbanization of the world population, enticed by the technological dynamism. In his view of human settlements he did not use the word globalisation explicitly; the urban transition from Metropolis patterns to Megalopolis then to the Ecumenopolis, or the universal city, were strongly outlined within his framework of the 5-Ekistic Elements. He was writing at a time when the world population was around 3 billion. The world population has, of course, more than doubled, to over 6 billion in the intervening time. Over the last few years India itself, with now over one billion people, has produced an average of 35,000 new births every day. That is the equivalent of a small new town to be built every day. South East Asia sits between the world’s two great populations, India with one billion and China with 1.3 billion. Indonesia, the fourth most populous country in the world lies just south. What a set of challenges and opportunities for the region’s construction industries. Wiseman (1996) viewed globalisation as an unstoppable force that moves towards a global economy, leaving governments and corporations with no alternative but to be innovative and to readjust and implement new policies. Malaysia has vigorously done this over the last 25 years. As Byran and Farrel (1996) noted, whether we like or not, we are becoming citizens of the world with dual cultures, but representatives of our original culture. The Japanese are a singular example of this. Seen as a process (Dickens et al 1997) it moves towards a world of mobile and footloose capital. It is viewed that the trans-national corporations have become the powerful change agents, dominating the world market forces whilst tending towards homogenizing the social, political and economic conditions. As a consequence of all this the whole sustainability movement, particularly Urban Sustainability, has had to be brought to the top of the international agenda. One only needs to consider what the surges this year in the economies of India and, particularly, China have done to the availability and prices of world commodities (particularly oil) to feel the urgency in the need for better management of resources and the environment. Globalisation and trends in international construction industry 83 MASS COMMUNICATION Those who have lived through the transformation from analogue to digital technology have witnessed the force of change and have felt the effects of a shrinking world. Cheap, speedy international travel has made any part of the globe easily accessible. The advent of the container ship revolutionised the movement of mass cargoes. But it was the transistor which led to satellite radio communication which opened up the “wireless age”. Satellite TV has provided instant access to news from anywhere. The Internet is less than 10 years old but now we can S.M.S across the world and can carry out our business transactions by E-commerce. But this is a whole set of subjects on their own. However, the construction industry has yet to grasp the full potential of E-commerce and electronic business. Not only in its daily operations but in ways that could transform its major business operations. Winch (1996) has described the construction industry as the ultimate networking framework. But it has only just begun to realize this and the potential for future change. Supply chain management is, at last, receiving serious efforts at modernisation as construction organisations have a dawning recognition of the importance of the supply chain and the need to manage it much more efficiently. THE KNOWLEDGE ERA Many of us who entered academic careers in higher education some 40 years ago felt the force of change, and knew the need for it, especially in the professions of the construction industry, as university education began to rapidly expand. But it was Peter Drucker (Flaherty, 1999) who first comprehended the enormity of the Knowledge Revolution and the coming of the Knowledge Economy and the Knowledge Worker. Malaysia has rapidly expanded its higher education sector and has accelerated its Knowledge Economy strategy, as part of its “Vision 2020” plans to be a fully developed nation by 2020. Figure 1 illustrates Malaysia’s economic leapfrog from an industrial to post-industrial advanced industrial society. Figure 1. Malaysian Knowledge Era a 84 Torrance However, in those early days, a major weakness for the construction industry was the existence of very few post-graduate courses in construction project management. Indeed, the construction industry had only recently begun to receive any significant numbers of university and polytechnic graduates with an adequate education in management. This under supply of suitable graduates continued for many years and was only assisted, at least in the U.K., by the Finneston Report (1980) with the creation of the M. Eng degree as a management extension to engineering education. In preparing this paper, one report revisited was entitled Construction Management in Building, Present and Future (CIOB, 1965). This refers to only a trickle of graduates entering construction management at the level of contract management, site management and project management but makes no reference at all to post-graduate qualifications or training. Since then there has been a huge expansion in the number of available masters degree programmes in construction management. Project management is, or ought to be, a central and major focus of such post-graduate programmes, whether they call themselves M.Sc. in Construction Management or M.B.A in Construction Management or M.Sc. in Integrated Construction Project Management (i.e. at U.i.T.M) or whatever. In Malaysia there has been a parallel rapid growth, and it can be certain that growth will continue, sometimes with franchising or twinning arrangements in collaboration with foreign universities or, probably with increasing effect, through the internet. Whatever they are called and however they are packaged and delivered, the products of such post-graduate courses must understand the widest possible picture and this must now, of course, be global. These new knowledge workers must perceive the relationship between the Market and the Client with the Industry, the Business, the Project, the Supply Chain and the Project Manager. Client organisations, on a broad front, have become increasingly dissatisfied with the fragmented and disputations character of the construction industry. At a recent public forum, a senior representative of a major Malaysian public sector client organization stated that what they wanted was to get “the CON out of Construction and Contractor”. The Knowledge Era, with expanded higher education, is providing us with the means to achieve this, so we must recruit and develop the best university graduates and postgraduates for the industry and put the best and the majority of them into management; managing the business and managing the project. They must not only be competent in HRM and OB but in Strategic Planning and Strategic Project Management, Risk Management, I.C.T & E-commerce, Value Management, Business Management, International Management and Conflict Management through A.D.R.. Cross-cultural and Multi-cultural Management must also be high on their agenda together with good business ethics. They must master the inter-connectivity and complexity of the whole picture, the whole operational framework, globally within the internet driven, W.T.O. enabled free market. Indeed, they must be masters of their own destiny within the coming Knowledge Era and understand how to lead it. They must provide strategic leadership and professional operational competence. The client organisations, both in the public and private sectors, do, indeed, passionately, want to get the “CON” out of construction. The need is not for more CON-sultants but to get the best brains with the necessary intellectual and professional competences into the construction companies and in command of construction project management. Globalisation and trends in international construction industry 85 In Malaysia the Construction Industry Development Board (C.I.D.B.) is making strenuous efforts to get the “CON” out of Construction Project Management, particularly following some recent embarrassing incompetences. Its preparations of means by which to regularise, and even register, the operations of Malaysian P.M. Consultants and practitioners is now at an advanced stage. When that has been achieved, it is hoped that the routes to competence will not only be established for construction project managers but also for construction managers and site managers. The author has worked to established construction project management as a multi-skilled Supra-Profession. That is, beyond the narrowly focused, single disciplined existing construction professionals who are, far too often, caught inside their “mental boxes”. This has been caused by being isolated from one another during their university education and largely during their professional development. In education, the growth in new knowledge has driven change continuously. In the early 20th century an honours degree in U.K universities was only of the comparable intellectual standing and content of the present school leaving certificate. Figure 2. Hierarchical Structure of Knowledge Many reports of the 1960s, including the American Society for Engineering Education (Goals of American Engineering Education ASEE 1968) and the Robbins Report (Robbins, 1962) on U.K. higher education development helped to lay the foundations for the coming of the Knowledge Economy. Lord Robbins in his report stated “graduate expectations will need to fall” and so they have. Until that time, until the rapid expansion of higher education, with access made available to 15%, then 25% then 35% and soon, 50% of all school leavers (i.e. “the age participation ratio”), graduates had been scarce, in short supply and any motivated graduate with a good honours degree could well expect to rise to a high level in his or her profession. Now they will need a masters degree plus a sound professional training and, particularly, effective experiential learning (Figure 2, Faridah, 1998). In the near future, more and more will need a doctoral degree. Indeed, again as predicted by the A.S.E.E. in the 1970s, there has been a surge, over the past 15 years or so, of men and women completing Ph.D degrees in construction management. 86 Torrance Those with a “weak” first degree, or a less focused career development path, can expect to fit into one of the supporting roles in administration or in technical support – all of which are, of course, essential to the functioning of the organisation. Indeed, the bachelors degree has simply become the end of the basic education process for the middle class in every developed society. One of the areas in which the construction industry has been heavily criticized for poor performance, including in the U.K and in Malaysia, is supply chain management. (Winch, 1996). Not so the Japanese. Their culture, both national and organizational, takes a much more responsible and integrated approach to supply chain management. This is characterised by networks of tiered, interlocking supply relationships, known as “keiretsu”. Firms at the top of a keiretsu will often have long-term relationships with key suppliers and may even hold an equity stake in some of them. Taking Shimizu as an example (Cox and Townsend,1998), there are approximately 500 companies within the Shimizu Keiretsu, known as the “Kanekikai” – the name given to the family of subcontractors. This group includes between 65 – 70,000 skilled workers. One of the primary suppliers is Kaneko Corporation, a specialist steel erector and sub-contractor to Shimizu for over 110 years. Using the Japanese construction industry as an important benchmark may allow significant insights. However, in different cultural circumstances, other solutions may be necessary or more appropriate. In the west, the move is now to classify, treat and interact with sub-contractors as “Specialist Contractors”. That, in effect, is what they are, carpenters, plumbers, plasters, glaziers, are specialists in their businesses and make essential contributions to construction projects. With the continuing growth in tertiary level education of those professions destined, primarily, to function within the construction project and the construction company, the supply of first degree holders is likely to reach that stage, as predicted by Robbins, where graduate expectations will fall. More responsible positions and functions will be held by those with post-graduate qualifications. Those with less well developed qualifications will need to look for wider fields in which to develop their careers. This author’s hope and expectation is that many more of them will find their way into managerial and senior managerial functions within the supply chain. We should have graduates managing the Specialist Subcontractors. This, together with greater standardisation, modularisation and compatibility of connection systems, alongside greater use of mechanisation and mechanical tools, and aids, would lead to greater off-site component manufacture and systematic on-site assembly, much needed in Malaysia. So, let us get the “CON” out of sub-contracting. CLIENT ORGANISATIONS With the changing economic environment, with the development of free market economics has come the Private Finance Initiative (P.F.I) and Public/Private Partnering (P.P.P.). Privatisation has brought change to the way that the construction industry carries out its business. B.O.O.T and B.O.O. (this author’s own favourite is the privatisation of prisons), partnering, government sector/private sector alliances, other forms of strategic alliances (with strategic networking), particularly Joint Ventures, have Globalisation and trends in international construction industry 87 proliferated in the last 10 years. These changes together with new forms of procurement have irreversbly altered the way that the construction industry operates. Clients, particularly when they are Multi-National Corporations (M.N.C.), have become much more sophisticated and demanding in their dealings with the Construction Industry. Partnering has grown out of mutual respect and mutual involvement in the partners’ businesses for their collective benefit. These clients have a global spread in their businesses and they expect their construction companies to have a global reach. The Japanese have had global partnering with their major client organisations for the past 50 years. Although other major construction companies have been active in the international market over the same time, they are now having to restrategise their business operations. Bovis is a singular example of this, with operations in over 30 countries across the globe (Lampl,1999). SOME ISSUES IN GLOBALISING CONSTRUCTION Although there have been a number of publications in recent years in which international markets and the process of globalisation have been explored from the point of view of individual countries and their construction companies, little has been written on the Asian construction market. One singular exception is provided by Raftery (1998) who considered recent developments in the Asian region and demonstrated three trends: A) a larger private sector participation in infrastructure projects. B) increasing vertical integration in packaging construction projects. C) increased foreign participation in domestic construction. Figure 3. 88 Torrance These three factors are impinging on the Malaysian construction industry but it is adapting, growing, maturing and exploiting these changes. With some back-up from the Ministry of Works and the C.I.D.B., the Malaysian construction industry has rapidly grown in its home market, has embraced privatisation and has vigorously spread out into international markets across the globe. From a past count, Malaysian construction organisations were active in 36 different countries (CIDB,1998). The value of the work being carried out at that time is illustrated in Figure 3. Raftery’s Trend B is certainly becoming established. With mergers and acquisitions worldwide producing bigger and bigger organisations, the construction industry will be no exception. Added to the large scale business risk and opportunities are the increasing size and complexity of construction projects. Consequently, the prediction is that by 2015 there may be only be 10 large construction companies in the world.(Faizul, 2001) CROSS CULTURAL MANAGEMENT Governments and national economies are being steadily merged into large economic and trading blocks, such as the E.U., NAFTA, ASEAN, EAEG and APEC. This is explored in the writings of authors such as Wiseman (1996) and Dickens (1997), Globally, intercultural comparisons and analyses are being carried out in support of international business and social interactions. The first and probably the most important work was by Geert Hofstede whose research lead to the publication of his important books “Culture’s Consequences”(1980) and “Culture and Organisation” (1991) which are foundation works in the quest for greater inter-cultural understanding. But much more remains to be done. Together with the growing international activity in construction there has been an increasing awareness of the importance of better understanding cross-cultural management. A great deal of study and research has been done into this important area in recent times which has increased our understanding of such topics as the work ethics of different cultures and the management of multi-cultural teams. Whereas East Asian cultures are strongly related to Collectivism, Abbas Ali (2001) showed that the Islamic Work Ethic is strongly related to Individualism. However, it has been well known for many years that the best project managers are those who “can cross cultural boundaries”. DEMOGRAPHIC CHANGE The, so called, “demographic time bomb” has been the subject of serious close scrutiny for many years as population growth has dropped and the aging population has increased in major trading countries such as Japan, Singapore, the U.S.A and Europe. This will bring about major changes in world trade and commerce. In a recent analysis (Economist 11/10/2003 ref. Figure 4) it was predicted that by 2036 the combined economics of Brazil, Russia, India and China (BRIC) will surpass the economics of the G6 nations. The most striking result is that by 2009 the annual increase in total dollar spending in the BRIC group could be greater than in the G6. By 2025 spending could be increasing twice as fast in BRIC. Globalisation and trends in international construction industry 89 Figure 4. BRIC Drucker (1998) identified seven major forms of change, each a source of entrepreneurship opportunity in its own sight. The four most important of these changes all reside within the enterprise itself, be that a business, an institution or a service sector: • • • • The first is the unexpected success (or failure) or unexpected outside event. The second is the incongruity between what actually happens and what is supposed to happen. The third is the inadequacy in an underlying process that is taken for granted. The fourth is changes in industrial and market structure that catch everyone by surprise. Drucker’s three other well-springs of innovation that occur outside the enterprises are: • • • Changes caused by new knowledge. Changes in perception; how do we get people to see things differently? Changes in demographics (the need for vision and strategic thinking). Although economic predictions need to be viewed with some caution, the forces of demographic changes, economic growth, particularly in China and India, and the rapidly growing regional co-operation through AFTA, EAEG, APEC and bilateral trade agreements with Japan and China are undeniable. South East Asia, in particular, is facing unprecedented opportunities. The question is, are we, particularly in construction, doing enough to prepare for the associated challenges and opportunities? 90 Torrance REFERENCES Abbas Ali (2001) Scaling an Islamic Work Ethic. Journal of Social Psychology, 128(5),575-583. Bryan, L and Farrel, D. (1996) Global Capital Revolution, Markets Unbound, Unleashing Global Capitalism. Wiley, New York. Chartered Institute of Building (1965) Construction Management in Building – Present and Future. Mortimer, London CIDB(Malaysia) News. March 1999. Cox, A. and Townsend, M.(1998) Strategic Procurement in Construction. Telford, London. Dickens, P., Peck, J. and Ticker, A.(1997). Unpacking the Global. Geographies of Economies, London. Drucker, P.F.(1998) Management’s New Paradigms. Forbes, 5th October. Economist (2003) Follow The Yellow BRIC Road, 11th October,76. Faizal Abdullah (2001). Rethinking Construction to Adopt Changing Trends. Unpublished thesis, Universiti Teknologi Mara, Malaysia Faridah Yusuf (1998) The Development of Knowledge Organisations. National Seminar on Construction Management. UiTM, Shah Alam, Malaysia. Finneston, M. (1980) Engineering Our Future. H.M.S.O., U.K. Flaherty, J.E. (1999) Peter Drucker – Shaping the Managerial Mind. Jossey-Bass/Wiley, San Francisco. Hofstede, G.(1980) Culture’s Consequences. Sage Publications. Hofstede, G.(1991) Culture and Organisation – Software of the Mind. McGraw Hill, London. Lampl, F. (1999) Building the Future of Bovis. Construction Management, May. Levitt, T.(1985) The Globalisation of Markets: Challenging the Myth of Industrial Obsolescence. Wiley, New York. Papaioannou, J.G.(2000) Environment and the Role of Ekistics. Athens Center of Ekistics. Raftery, J.et al. (1998): Globalisation and Construction Industry Development – Implications of Recent Developments in the Construction Sector in Asia. Construction Management and Economics,16,772-737. Robbins, L.(1962) Report of National Committee of Enquiry Into Higher Education. H.M.S.O.,U.K. Winch, G.(1996) Thirty Years of Project Management - What Have We Learned. British Academy of Management, Aston, U.K. Wiseman, J.(1996) Life on the Global Racetrack, the Nature and Implications of Globalisation. Journal of Just Policy, No.6. COMPARISON OF SOME ASPECTS OF THE CONSTRUCTION INDUSTRY OF NIGERIA AND THE REPUBLIC OF BENIN O. S. OYEDIRAN and M. O. DADA University of Lagos, Department of Building, Nigeria [email protected] S. D. H. ZANNOU Almega B.T.P, OSB. P9061, Republic of Benin ABSTRACT The study sought to identify the various types of procurement methods, tendering approaches, contract types and factors determining them in each country. Employing both data and opinion-based information gathering method commonly used in studies in international construction, a purposive sample of 12 construction industry consultants drawn from the two countries each (N24), the study was able to observe very close similarities in these aspects of the construction industry. The authors believe that transfer of construction services across the international borders of these two neighbouring countries is imminent as a result of the structural similarities in the contract types, tendering methods and procurement systems, now that the geographical regional is advancing towards economic integration. Key words: Procurement methods, tendering approaches, construction industry in Nigeria and Benin Republic INTRODUCTION The world has become a global village with the advent of information technology (IT). This has affected transfer of services and products across international borders. The construction industry is not left out. Strassman (1989) has indicated the value of studying international construction practices. Studies of Edmonds and Miles (1984), Wells (1986), Fox (1990), Walker (1990), Ogunlana,. Promkuntong & Jearkjirm (1996) are few examples of research undertaken in the field of international construction. There is recent renewal of interest in the study of international construction. European Construction Institute (ECI) is an example of a body, which makes available, information on construction activities and services in the European community. The studies are of value in international construction business deals, in the European community. 92 Oyediran, Dada and Zannou The Economic Community of West African Countries – ‘ECOWAS’ as a regional economic block can also draw lessons from such initiative. The starting point is to undertake crosscountry comparison of the construction industry. An earlier study by the author has identified some general areas of similarities and peculiarities between the Nigeria and Benin Republic’s construction industry (Oyediran, 1998). The study pointed out the need for detailed study of several aspects of the industry, within the industry with the view of enhancing technological learning, transfer of construction resources and labour. It is an accepted fact that construction project initiation and realization is a worldwide activity (Flanagan, 1994; Crosthwaite, 2000; Raftery, Pasadilla, Chiang, Hui & Tang, 1998; Ofori, 2003). As a development process, it brings together methodology, technology and procurement procedures. Technology is essential for the execution to projects, however the process of securing and procuring the project is very fundamental and important. Every businessperson will be interested in how to secure jobs that will keep the business organisation in operation. Thus this study is concerned with the understanding of the tendering, contractual and procurement types available in these countries, as essential factors in business strategy for securing jobs. Factors responsible for the adoption and usage are also brought to the fore. The operations in the construction industry of both countries stand to benefit from such a study, as it is capable of initiating transfer of construction technology and services. It could also open up areas of research for researchers interested in international construction across the West African Coast. It was discovered that in Francophone countries “the bureaux d’etudes carried out the structural design and another firm (control et surveillance) is appointed to supervise the works on site. The architect prepares all contractual details leading to the selection of the contractor. He also selects the Structural Engineer. The client does not deal with the Structural Engineer, but rather the “Ingenieur Counseils”, whose it is to carry out the control and supervision (Emile 1979; Renaud and Letertre 1995; Ordonance n0 96/04, 1996; Bayon 1996 and Dumas 1982). In Nigeria, as well as in most other English speaking countries, the architect has been the traditional head of the design and consultant team. He may or may not recommend the appointment of other consultants. There is no independent consultant controlling construction and supervision at the post contract stage, aspects as we have in Republic of Benin. (Otobo, 1985; Iyagba and Idoro, 1995; Ayeni 1998, 1997). Objective of the Study The study aims at identifying the various types of procurement methods obtainable in both countries. Thus we examine the methods of tendering available for various categories of client groupings and also the contract types obtainable. The study further seeks to identify those factors, which dictate the choice of the tendering methods and the contract types. The outcome of the study will indicate the differences and similarities existing in procurement methods and processes in the two countries. Comparison of Nigerian and Republic of Benin construction industry 93 METHODOLOGY The two countries are located in the sub-Saharan Africa, also in the West-African subregion. The two countries gained independence in 1960, though from different colonial masters, which apparently accounts for structural variations in governance and commerce. Politically the two countries operate democratic system of government. Nigeria is a leading producer and exporter of crude oil, which constitutes the largest share of her revenue earnings. The two countries are located on the same limestone belt, thus providing raw materials for their industry. Nigeria ranks 10th while the Republic of Benin ranks 103rd in the world population. Studies in international construction have been adopting approaches used by Freeman (1982), Edmonds and Miles (1984) , Strassman (1989), Skitmore and Marsden (1988) and of recent by Oyediran (1998). This study relies heavily on opinion-based information. This opinion-based information is obtainable from the consultants in the industry. The study also benefited from the combined resources of the researchers, in data collection and knowledge of each the countries (one being a Nigerian and the other a Beninoise), thereby minimizing the problem of communication due to language barrier. The information used for the study was obtained from two leading economic and commercial centers of both countries (Lagos in Nigeria and Cotonou in Republic of Benin). The study used purposive sampling method. The sample was drawn on 13 architectural consulting firms in Cotonou and 12 consulting firms in Lagos. In all, 24 of the firms returned admissible response and these where used for the analysis of the study. A major instrument of the research design is a three-part, eighteen items questionnaire. The parts are: Part 1:General – This part seeks general information that will enable the researcher determine the admissibility of the respondent’s information, and Part 2: This part seeks information on the methods of tendering, contract type, factors responsible for the choice and criteria for adoption of a particular contract type across a spectrum of three broad types of clients. Ordinal scaling was used adopting “Always”. ‘Mostly”, “Sometimes”, “Rarely” and “Never” as the ranking intervals. Part 3 deals with project-specific information. This is to corroborate the opinion-based information of part 2. It adopts an adapted Likert method to measure the relevant responses. Relevant index was obtained using. Ii = ∑ 4 i =0 kini nk Eqn.(1) where ki = Ranking of event I, and ni = Frequency of event i The following events were attached the corresponding ranking: “Always” – 4; “Mostly” – 3; “Sometimes” – 2; “Rarely” – 1 and “Never” – 0. The indices were further used to determine the similarities or otherwise of the subject in question between both countries. The spearman rank correlation coefficient, rs is employed to determine the correlation of the variable between the countries. This is given as rs = 1- 6∑ d 2 n (n 2 − n ) Eqn.(2) 94 Oyediran, Dada and Zannou Where rs = Spearman Rank Correlation Coefficient; d2 = Squared difference between the two ranks; n = Number of objects being compared and 1 and 6 are theoretical constants. Project specific questions were analyzed using descriptive statistics. RESULTS, ANALYSIS AND DISCUSSION Our attempt at studying the various types of procurement methods obtainable in the two countries dwelt on finding out information on types of tendering and contract types. The tendering types were also examined on three broad categorization of client types: Government (Public) Clients; Private (Companies) Clients and Individuals (Private) clients. Literature itemizes three commonest forms of tendering: Open tendering, Selective tendering and negotiated tendering. Oyediran (1995) identified a variant of open tendering, while Ayeni (1997) discussed other variants of selective and negotiated tendering. Table 1.0: Use of Open tendering by Clients. INDEX OF FREQUENCY OF USE TYPES OF CLIENT Nigeria Benin Republic 0.75 (1)* 0.81 (1)* Government (Public) 0.29 (2)* 0.48 (2)* Corporate Bodies (Private) 0.27 (3)* 0.31 (3)* Individuals (Private) Average Index 0.53 0.44 rs = 1, *The figure in Parenthesis indicate the position There is a perfect positive correlation (+1) between the uses of open tendering as a tendering method in both countries. For all categories of clients, the indices for Nigeria are higher than Benin Republic’s. It is obvious also that the public sectors of both countries have very strong preference for open tendering as a means of initiating the procurement process of their construction projects. Table 2.0:Use of Selective Tendering by Clients in both Countries INDEX OF FREQUENCY OF USE TYPES OF CLIENT Nigeria Benin Republic 0.54 (2) 0.50 (2) Government (Public) 0.63 (1) 0.71 (1) Corporate bodies (Private) 0.33 (3) 0.44 (3) Individuals (Private) Average Index 0.55 0.50 rs = 1 Comparison of Nigerian and Republic of Benin construction industry 95 Government uses selective tendering, but not pronounced as corporate bodies in both countries. The Spearman ran correlation coefficient of +1 is an indication of perfect positive association or similarities in both countries. The index obtained from the Nigeria data is averagely higher than that for the Republic of Benin. The result also indicates that private clients in both countries are not as disposed to using selective tendering as the corporate bodies and the government. In both countries the index of the frequency of use is below the average (0.50). Table 3.0:Use of Negotiated Tendering by Clients in both Countries. INDEX OF FREQUENCY OF USE TYPES OF CLIENT Nigeria Benin Republic 0.10 (3) 0.29 (3) Government (Public) 0.54 (2) 0.52 (2) Corporate bodies (Private) 0.71 (1) 0.73 (1) Individuals (Private) Average Index 0.51 0.45 rs = 1 Table 2.0 indicates that individual (private) clients have an index of frequency of the use of negotiated tendering higher than any other categories of clients. These individuals (private) clients prefer negotiated tendering to any other forms of tendering. As expected, public clients (Government) in both countries appear not to favour the use of negotiated tendering in their construction projects. The index of the frequency of use of negotiated tendering is far below the average in each country. It is apparent also that the pattern of use of negotiated tendering in both countries follow the same direction prompted by the need for accountability, public clients commonly use open tendering methods to obtain tender for their proposed projects in both countries. It was desirable to know, from the experience of the respondents, what they considered as the most commonly used tendering methods for various categories of clients they have been involved with over the years. Table 4.0 shows the distribution. Table 4.0: Distribution of the most commonly used Tendering methods. Percentage of the most Commonly used Rendering Method TYPES OF CLIENT Nigeria Republic of Benin Open Tendering (100%) Open tendering (100%) Government (Public) Selective Tendering (84%) Selective Tendering (75%) Corporate bodies (Private) Negotiated (75%) Negotiated (58%) Individuals (Private) Table 4.0 indicates the similarities in tendering methods for both countries. We also examined the respondents on on-the-job project information. Table 5.0 shows that open tendering is the commonest type of tendering in both countries. There appears to be no significant difference between the percentage values obtained for selective tendering and Negotiated tendering in Nigeria. For Benin Republic, the percentage values obtained for selective and negotiated tendering are not the same but are close by less than 10%, to suggest 96 Oyediran, Dada and Zannou that there is no significant difference also. As tables 1.0-4.0 all combined suggest, government as is generally known to be the largest client of the construction industry, employs open tendering in most of her projects. In Nigeria the index for open tendering is 0.81, 0.71 for selective tendering and 0.73 for negotiated tendering. The corresponding values for Republic of Benin are 0.75, 0.63 and 0.71 respectively. Table 5.0 On-the-Job Project Information on Tendering Method PERCENTAGE TENDERING TYPE Nigeria Republic of Benin 42.00 50.00 Open Tendering 25.00 25.00 Selective Tendering 33.00 25.00 Negotiated Tendering The criteria for the adoption of a tendering method were also of relevance. Table 6.0 shows that ranking index for the specified criteria. Table 6.0: Criteria For Tendering Method Adopted INDEX OF RELEVANCE CRITERION Nigeria Republic of Benin 1 Knowledge of Design Team 0.75 0.56 about available contractors. 2 Time Frame 0.80 0.47 3 Imput from Contractor 0.36 0.83 4 Mode of Construction 0.08 0.14 rs = 0.5 While time is of essence in the choice of tendering method in Nigeria, input from the contractor is of essence in the Republic of Benin. Time criteria is a characteristic of private sector project, while knowledge of the design team about available contractors favours both open and selective tendering methods. The input from contractor criteria tilts towards negotiated tendering. Even though the spearman rank correlation coefficient is positive, it is not high enough to suggest strong similarities between the two countries criteria for choice of tendering method. Going by this result, variants of open tendering and negotiated tendering are practical options that practitioners may be adopting. PROCUREMENT METHODS Going by Skitmore and Marsden (1988) and Frank’s (1984) review of procurement methods being used in the construction industry, we undertook to discover which of them are being used in both countries and the degree of their use (see Table 7.0). Other procurement methods common to the Nigeria Construction market is the labour only by individual private clients and direct labour by public (government) clients. However, attention was not given to them due to the fact that external consultants are seldom involved in such projects. Comparison of Nigerian and Republic of Benin construction industry 97 Table 7.0 clearly shows that the traditional method, which is based on standard forms of contract, with minimal contractor’s input from inception, is the commonest in both countries. There is high degree of similarities between the procurement methods in the countries as the high spearman rank correlation coefficient of 0.95 indicates. These similarities offer prospects for transfer of construction services in both directions. Table 7.0: Procurement methods in both Countries PERCENTAGE PROCUREMENT Nigeria Republic of Benin 58.00 42.00 Traditional method 25.00 25.00 Design and Build 0.00 0.00 Turnkey/Package Deal 17.00 25.00 Management Contracting 0.00 8.00 Construction Management rs = 0.95 . CONTRACT ARRANGEMENT How do clients and construction allocate their construction desire and business risks? The risk allotment is indicated by the contractual arrangement methods adopted. The picture painted in table 80 is indicative, while table 10.0 shows the result of the opinion of the consultants on the frequency of their adoption. Table 8.0 Contractual Types of On-going Projects in Both Countries. PERCENTAGE TYPE OF CONTRACT Nigeria Republic of Benin 17.00 25.00 Lump Sum 83.00 42.00 BOQ Contracts 0 8.00 Schedule of rates contracts 25.00 Cost Reimbursable contractors Table 9.0Frequency Contractual types on Construction Projects in Both Countries. PERCENTAGE TYPE OF CONTRACT Nigeria Republic of Benin 0.58 0.54 Lump Sum 0.67 0.56 BOQ Contracts 0.42 0.33 Schedule of rates contracts 0.36 Cost Reimbursable contractors rs = 1. Cost reimbursable contracts seem to be unknown in the Republic of Benin. As table 8.0 and 9.0 indicate, there are similarities between the contractual types used in the two countries as corroborated by the value of the spearman rank correlation coefficient (rs= 1). 98 Oyediran, Dada and Zannou Companies prospecting transfer of their services may be interested on what determines the selection of contractors for award of contracts. Our finding is shown in the following table 10.0 Table 10.0 . Govt. project 0.82 0.90 0.44 Nigeria Companies (Private) 0.56 0.85 0.32 Criteria for Selection of Contractors for Contract Award INDEX OF IMPORTANCE Republic of Benin Individuals (Private) 0.81 0.68 0.29 Gov. Project (Public) 0.82 0.68 0.71 Companies (Private) 0.77 0.50 0.77 Individuals (Private) 0.67 0.35 0.57 AVERAGE Niger ia 0.83 0.81 0.35 Rep. Of Benin 0.75 0.51 0.68 Tender Sum Contractor’s reputation Prime Financial position Completion period Previous business relationship Personal connection 0.51 0.43 0.56 0.31 0.67 0.33 0.43 0.27 0.45 0.15 0.02 0.58 0.58 0.35 0.30 0.33 0.39 0.61 0.67 0.08 0.37 0.82 0.55 0.42 Table 11.0 Criteria for Selection of Contractors on Samples of On-going projects NIGERIA REPUBLIC OF BENIN 0.83 0.90 Tender sum 0.70 0.55 Contractor’s Reputation 0.55 0.32 Prime Financial Condition 0.32 0.72 Completion Period 0.07 0.00 Previous Business Relationship 0.53 0.52 Personal Connection rs = 0.60 As shown in tables 11.0 and 12.0, there are two most important criteria for selection of contractor for award of contract in Nigeria. These criteria are (1) Tender Sum and (2) The Contractor’s reputation. However, in the Republic of Benin, the two most important criteria are (1) Tender sum and the Contractors Prime Financial position. The Spearman rank correlation is positive. However the similarities between the criteria for selection adopted by each country is inconclusive. It is noteworthy to observe that personal business connection ranks very high in individual (private) client project. Comparison of Nigerian and Republic of Benin construction industry 99 SUMMARY The study has revealed the following: • The tendering approach in both countries has very strong positive correlation, thereby implying similarities in their tendering approaches. The public sectors adopt more of open tendering, while corporate clients adopt more of selective tendering, while private clients adopt more of negotiated tendering. • In each country, open tendering constitutes the highest percentage of tendering types. This may be due to the fact the Government is the largest employer of construction services. • There is no enough evidence to suggest strong similarities in the criteria used by both countries in the adoption of tendering methods. The two most important criteria for Nigerian clients are Time frame and knowledge of Design Team about available contractors. These two factors tilt towards open and selective tendering. The two most important criteria for Beninoise clients are Input from contractors and knowledge of Design Team about available contractors. These two criteria seem to suggest preponderance of negotiated tendering. • Both countries adopt similar procurement methods • Both countries exhibit similarities in contractual arrangement. They both use Bill of Quantities contracts above all other forms of contract. This is not unexpected because of the well-established merit of BOQ contracts especially for contract administration • The criteria for contract award in both countries are not strongly similar. Both countries give high preference to the project cost. This is in consonance with other earlier studies. Nigeria gives preference to contractor’s reputation. This suggests desire for technological ability. The Republic of Benin clients give preference to the contractor’s financial standing. These seem to show that each of the countries attaches different criteria for the expected performance of their selected contractors. CONCLUSION Transfer of construction services between the international borders of these countries may not pose much problem to practitioners. The learning period may not be long, by reason of the observed similarities. However cultural factors and economic environment seems to play key roles in the criteria for selection of contractors. This study has not probed into the legal environment for entrance into the market of each country. This may be a subject of further research. The possibility of ease of transfer of construction services between the international borders of Nigeria and Republic of Benin is high. However, further examination of the effect of cultural and economic environment on contractors’ business strategy need to be carried out. 100 Oyediran, Dada and Zannou REFERENCES Ayeni, J. O. (1998) “Procurement arrangement for rehabilitation project”, Builders’ Magazine, Vol. XIII, No. 1, 5-8. Ayeni, J. O. (1997). Principles of Tendering and Estimating, 2nd edition, Lagos: Builders’ Magazine. Bayon, R. (1996). Appel d’offre du batiment d’habitation, preparation et redaction du devis, 5th edition, Paris: Dunod. Crosthwaite, D. (2000) The global Construction Market: a cross sectional analysis. Construction Management and Economics. 18, 619 – 627. Dumas, A. (1982). L’octroi des projects de construction, 2nd Edition, Paris Dunod. Emile, O. (1979). Techniciens de la construction, Paris: Enterprise Modeme d’Edition. Edmonds, G.A. and Miles D.W.J. (1984), Foundations for Change, London: IntermediateTechnology Publications. Flanagan, R. (1994) The features of successful construction companies in the internationalconstruction market. In A Warzauski and R, Navon, (eds.). Strategic Planning in Construction: Proceedings of the A.J Eekin International Seminar on Strategic Planning in Construction Companies, Haifa Israel, 8-9 June, pp. 304 – 318. Fox, P.W. (1990) “International Comparison of Construction Industries Using Parameters Based on GNP” Proceedings of International Construction Conference in Australia. 109-120. Franks, J. (1984) ‘Building procurement systems: A guide to project management’, Journal of Chartered Institute of Building, September, 4-22. Freeman, I. L (1982) “Comparative Studies of the Construction Industries in Great Britain and North America a review”. Construction Papers, 1 (3), 65-78. Iyagba, R. and Idoro, G. I. (1995. An overview of Direct Labour constructions in the declining Economy of Nigeria, Journal of the Federation of Building and Civil Engineering Contractors in Nigeria 10(4), 2-13. Ofori, G. (2003) Frameworks for analyzing international construction. Construction Management and Economics. 21, 379 – 391 Ordonance n0 96/04 (1996) Code des Maches Publics, January 3rd. Ogunlana, S.O. Promkuntong, K and Jearkjirm, V. (1996) “Construction delays in a fastGrowing economy: Comparing Thailand with other economies”. International Journal of Project Management,14(1), 37-45. Ogunsanmi, O.E. and Bamisile, A. (1997, 1998) “Factors Affecting The Selection Of Project Procurement Methods” Builders Magazine, XII(1), 11-15 ,XIII(1), 18-20 Otobo,, G. (1985) ‘Tender and award of Contracts in Nigerian’s Construction Industry, Journal of the Federation of Building and Civil Engineering Contractors in Nigeria, 2(2), 40-45. Oyediran, O. S. (1995) ‘Comparative analysis for the criteria for the award of contract in pubic and private sectors of the Nigerian construction industry’, Journal of the Federation of Building and Civil Engineering Contractors in Nigeria, 10 (4.) ,14-23. Comparison of Nigerian and Republic of Benin construction industry101 Oyediran, O.S. (1998) Construction Industry Scenario in Nigeria and Benin Republic. Unpublished Seminar paper, department of Building, University of Lagos Raftery J.; Pasadilla, B. Chiang, U.H. Hui, E.C.M and Tang, B. (1998). Globalisation and Construction industry development: implications of recent developments in the construction sector in Asia. Construction Management and Economics, 16, 729 – 737. Renaud, N. and Letertre, F. (1995) Terminologies des dossiers dapple d’offre, Paris: Foucher. Strassmann, W.P. (1989) “The Rise, fall and Transformation of Overseas Construction Contracting”World Development, 17(6), 738-794. Skitmore, R.M and Marsden, D.E (1988) “Which Procurement System? Towards a universal Procurement Selections Technique”. Construction Management and Economics, 6(1), 71 – 89. Walker A (1990) “Management of Urban Construction in Developing Countries – China’s Experience” Proceedings of International Construction Conference in Australia. 225 – 243. Wells, J. (1986) The Construction Industry in Developing Countries: Alternative strategies for Development, London: Groom Helm. 102 Oyediran, Dada and Zannou GLOBALISATION AND PRIVATE INFRASTRUCTURE INVESTMENTS IN EMERGING MARKETS LUCY CHEGE CSIR Building and Construction Technology, P.O. Box 395 Pretoria 0001, South Africa [email protected] OBAS JOHN EBOHON Developing World Built Environment Research Unit, School of Architecture, De Montfort University, Leicester, LE1 9BH, United Kingdom [email protected] ABSTRACT The budgets of many emerging economies are overstretched by competing claims on the available resources, with major implications for infrastructure and service delivery. This is a serious predicament particularly in poorer emerging economies where inadequate infrastructure imposes huge constraints on sustainable development. To augment the public sources of funding for infrastructure investment, several of these countries are developing various schemes that will enable the utilization of private financing from both domestic and international investors. Domestic sources of financing may be limited in these countries, and globalisation appears to offer a window of opportunity for tapping private capital for infrastructure investment. Despite the above benefit, it is argued that globalisation has brought a mixed basket of hope and disillusionment to emerging markets. On the one hand, there is the euphoria that comes with increased private capital inflows and market access, and on the other, there is disenchantment with the negative consequences of certain forms of foreign investment. The financial crises that occurred in Asia and Latin America are cases in point. These apparent contradictions have severely heightened the fears of globalisation harboured by emerging markets. Nevertheless, it is argued that globalisation can have a positive impact and that the onus lies on emerging economies to develop and adopt the strategic measures necessary to manage the process of globalisation to their advantage, subsequently to benefit from increased capital flows into infrastructure investments. Keywords: emerging markets, FDI, globalisation, private infrastructure investments. BACKGROUND There is a critical need for an alternative model for infrastructure financing in emerging economies. This need is predicated upon the urgent desire for effective and efficient infrastructure and service delivery sufficient to make material differences to the lives of many impoverished citizens. Given the low domestic capital base of many emerging 104 Chege and Ebohon economies, caused by a very low savings rate, foreign direct investments are increasingly seen as a possible bridge. This is particularly the case given that the rapidly unfolding process of globalisation seems to have reduced the world to a global village, minimising the incidence of externalities and market failures. Access to information and goods and services has increased. The resultant global competition has positive impacts on economies of scale, to the benefit of consumers through lower overall costs. Whilst unfair trade practices and catastrophic financial crises have been closely associated with the globalisation process, there is the belief that the process can be effectively managed towards desirable objectives. For the emerging economies, globalisation has presented daunting challenges. The volume and volatility of capital flows has increased the risks of banking and currency crises, as well as costs (World Bank 1999 in Yusuf, 2001). Examples of currency crises were seen in Latin America and Asia. Production and trade is increasingly dominated by transnational corporations using the options afforded by globalisation to their own best advantage (Yusuf, 2001). The subject of globalisation has attracted numerous emotional responses, and eminent scholars such Joseph Stiglitz, the winner of the 2001 Nobel Prize in Economics, have raised some serious concerns. The main source of discontent can be found in the pressures mounted on the developing countries by the developed countries to dispense with trade barriers and other restrictive trade practices under the guise of globalisation and free trade, while imposing formidable trade barriers on exports from developing countries. Stiglitz (2003) discusses the latter issue in some detail. Developing countries have been denied access to markets through sophisticated tariff structures and administrative measures. The results are increasing dependence on multilateral financial assistance. The exorbitant proportion of gross domestic product devoted to debt servicing has heightened the suspicion of developing countries and fuelled resistance to globalisation. Nevertheless, it has become apparent that the process of globalisation is unstoppable, which means that developing countries have to adopt policies that will enable them to benefit from it while minimising the drawbacks. INTRODUCTION The construction industry plays a significant role in any economy, but it is dependent on other sectors of the economy which are susceptible to the globalisation process. As a result, the construction industry is affected by globalisation in varying ways that may not have been fully explored. In a review of globalisation and construction industry development, Raftery et al (1998) argue that some of the possible negative implications of globalisation are that: • There is a danger that local industries which support the construction sector could be stifled, crippling the competitiveness of the domestic construction industry. • The internationalization of construction favours countries with advanced construction industries. This is manifested in the trend that pure contracting is usually no longer a viable option in construction projects; new construction procurement arrangements are preferred. The involvement of lesser developed countries in foreign construction projects is thus constrained, except perhaps in the area of labour deployment, and even then, this is Globalisation and private infrastructure investment in emerging markets 105 usually at the much lower end of the value added construction process where relatively little in the way of skills is expected. • As the international construction industry is concerned mostly with large-scale construction, only large and technologically qualified contractors are allowed to enter into overseas contracts. The prequalification requirement in bidding procedures of foreign construction projects precludes the participation of medium-sized operations or those in pure contracting. To be able to qualify, a firm must demonstrate that it has previously secured a certain amount of contracts of comparable magnitude and complexity. Ofori (2000) further elaborated on the analysis of Raftery et al (1998). Through citing various authors, he drew attention to the impacts of the globalisation process, including the loss of business opportunities for local firms (Ofori, 1996) and the loss of confidence in local firms (Hillebrandt, 1999). This could probably be attributed to the lack of competitive strength of local firms relative to the elaborate technological and managerial capacity of global firms. Nevertheless, some positive impacts of globalisation have been cited by Ofori (2000), including the impact on national development objectives through the completion of sophisticated projects which are impossible with local contractors (Drewer, 1980) and business opportunities for local contractors through subcontracting and strategic alliances (Ofori, 1996). These opportunities could be beneficial to local contractors given an appropriate production function. This paper does not attempt to exhaust the complex debate around the pros and cons of globalisation; instead it focuses on the responses that developing countries must adopt to minimise the negative impacts of the globalisation process. The objectives of this paper are thus to: Highlight the drivers of global capital flows into infrastructure investment. Analyze the amounts of global capital flows invested in private infrastructure in different regions of the world. • Assess the impact of private capital flows on infrastructure in emerging markets in terms of the contribution to overall investment in the economy and the likely attendant impact on socio-economic and development indicators. • Recommend a strategic position to be adopted by emerging economies to facilitate the increased flow of funds into infrastructure investments and simultaneously seek to minimise the risks of adverse effects from foreign capital. The possibility of fulfilling these objectives has been gauged by undertaking an analytical review of the amounts and impacts of global capital flows into infrastructure investments in emerging economies. The major contribution of this paper to the globalisation debate has been the departure from the macro approach in favour of an industry approach. The rationale being that such a micro understanding of the globalisation process lays a better foundation for the much wider aggregate or macro analysis and strategies. • • DRIVERS OF GLOBAL CAPITAL FLOWS INTO INFRASTRUCTURE INVESTMENT At this juncture it is perhaps useful to distinguish foreign direct investment (FDI) from other capital flows. Several authors have identified capital flows with the biological 106 Chege and Ebohon phenomenon – ‘good and bad cholesterol’ (Hausmann and Fernández-Arias, 2000, Loungani and Razin, 2001). This approach distinguishes between capital flows that enable development and capital flows that disrupt economic growth and development. It is argued that FDI is ‘good cholesterol’ when it has some associated favourable elements, for example, technology transfer and skills development. The ‘bad cholesterol’ is speculative capital flows, represented by debt, especially of the short-term variety (Hausmann and Fernández-Arias, 2000). It is argued that the flow of FDI as ‘good cholesterol’ is driven by numerous factors. Furthermore, it has also been argued that the drivers of investment in particular sectors of the economy are diversification benefits, risk and return, the regulatory framework, and industry analysis (Chege, 2003). Ramamurti and Doh (2004) classify the drivers as industry level and country level, and argue that infrastructure FDI boomed in the 1990s due to several beliefs explained as follows. • Industry level drivers. Ramamurti and Doh (2004) argue that there was the belief that: o Irastructure sectors were losing their “natural monopoly” characteristics and hence the need for government regulation; o first-movers would profit handsomely from the resulting globalisation of infrastructure sectors; o new financing techniques would limit the Multinational Corporation’s (MNC’s) risks; • Country level drivers. For these drivers, Ramamurti and Doh (2004) argue that there was the belief that: o the climate for infrastructure FDI in developing countries had changed qualitatively for better in the 1990s; and, finally o host developing countries were no longer likely to expropriate foreign infrastructure assets, as they had in the past. In addition to the above, this paper identifies three other FDI drivers, namely the investment objectives of investors, performance of the stock market, and the nature of corporate governance. The investment objectives of the investor are significant to the investment decisionmaking process. Strong (2003) discusses four main investment objectives, namely stability of principal, income, capital appreciation and growth of income. These objectives have a direct relationship with the degree of risk that the investor is willing to undertake. For example, Zoukis (2004) highlights that the Germans purchased close to $4 billion in US real estate in 2003. An historical aversion to the US stock market, coupled with a conservative investment style and patient-money mentality, make their continuing investment in this sector a safe bet. In recent times, the declining trend in stock market returns has also been an important driver of capital into alternative investments such as infrastructure and real estate; it can be argued that globally, real estate has also become a safer investment when compared to equities. Ernst and Young (2004) have stated that “large global funds have shown significant interest in investing in real estate assets on a globally diversified basis. Three years of tremendous losses in the equity markets have further intensified the interest in global real estate investment opportunities.” Globalisation and private infrastructure investment in emerging markets 107 With the recent financial scandals in major corporations, investors are also becoming increasingly concerned about good corporate governance. The Organization for Economic Cooperation and Development (2004) holds a similar view and states that the relationship between corporate governance and the increasingly international character of investment are of particular importance. Furthermore, international flows of capital enable companies to access financing from a much larger pool of investors. AMOUNTS IF GLOBAL CAPITAL FLOWS INVENTED IN PRIVATE WORLD Since the 1990s, the capital flows into infrastructure have increased dramatically in most regions, for various reasons. According to Ramamurti and Doh (2004), FDI flows to the infrastructure sectors of developing countries in the early 1990s represented one-third of all capital flows. Sader (2000) states that between 1990 and 1998, developing countries received an estimated US$138.3 billion in FDI inflows directly through private infrastructure investments, representing over 17% of total FDI commitments in the developing world. Figure 1 presents a regional pattern of FDI flows to infrastructure, from which it is clear that Latin America and the Caribbean had the greatest share of infrastructure FDI flows between 1990 and 1998. 25 20 US$ billions 15 10 5 0 East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa 1990 0.24 0.03 2.21 0.14 0.07 0.01 1991 0.29 0.10 4.74 0.09 0.11 0.00 1992 1.03 0.17 4.87 0.01 0.01 0.02 1993 1.64 0.35 5.19 1.13 0.19 0.02 1994 2.04 1.17 6.67 0.45 0.74 0.49 1995 2.86 2.98 6.60 0.11 0.75 0.60 1996 3.87 3.68 9.44 0.20 2.71 0.97 1997 4.40 5.59 1998 2.57 4.00 16.84 22.12 2.96 4.13 2.40 2.43 0.57 1.33 Figure 1: FDI Capital Flows to Infrastructure by Region, (Source of data: Sader (2000), Not e: 1998 data are estimates) 108 Chege and Ebohon In 1995, FDI slowed down a little in the region but there was a significant increase in 1996. The Asian financial crisis caused a dramatic decrease in investment in East Asia and the Pacific after 1997. After 1997, the financial crisis also had a large role to play in the dramatic decrease in investment in all the regions except Latin America and the Caribbean. After the crisis, the surviving resources for private infrastructure were mainly dedicated to projects with political risk insurance or guarantees from multilateral development banks (Izaguirre and Rao, 2000). By 2001, private investment in infrastructure in developing countries had declined by more than 50% from its 1997 peak, whereas FDI in non-infrastructure sectors continued to grow through 2000 and declined slightly only in 2001 (Ramamurti and Doh, 2004). IMPACT OF PRIVATE CAPITAL FLOWS INTO INFRASTRUCTURE IN EMERGING MARKETS In assessing the impact of the increased private capital flows depicted in Figure 1, this paper argues that private capital flows have had a major impact in terms of fiscal expansion, the extension of services and efficiency. This paper also highlights that distinguishing between the impacts of private domestic capital and private foreign capital is complex because of the difficulties in obtaining disaggregated data. FDI flows have led to fiscal expansion. It is highly likely that privatisation in many countries has bolstered government revenue in three respects. Firstly, money previously devoted to the kind of infrastructure now provided by the private sector could be diverted to other competing areas of the economy. Secondly, governments’ revenues should have also risen through tax charges on the infrastructure services provided by the private sector. Thirdly, through various procurement systems associated with FDI flows, such as build-operate-transfer (BOT), where the private sector is not only responsible for financing the infrastructure but also for operations and management, there should be improvements to cost recovery for services rendered. One of the major constraints on infrastructure provision and replication is the low scope for cost recovery owing to increased resistance to service payments. This is because of the perception that public services should be free of charge even to those who can afford to pay. Therefore, the significance of cost recovery to infrastructure provision in many emerging economies should not be under-estimated. It is also argued that there has been extension of services across the procurement value chain due to FDI flows into infrastructure. The use of FDI in BOT-type of contracts has ensured that there is sufficient investment to cover the provision of services throughout the service delivery lifecycle. Due to the long-term nature of these contracts, there is a guarantee that service levels will be maintained at optimum levels specified and infrastructure assets will not be subject to dilapidation due to lack of maintenance; as often is the case particularly when budgets are constrained. In addition, the use of BOT type contracts has also resulted in efficiency gains. There is a growing body of evidence on the impact of private participation, revolving around the issues of increased efficiencies as a result of private sector participation. Some examples of increased efficiencies are provided by Harris (2003), who states that Borlotti et al (2001) found that 31 privatized telecommunications companies in 25 developed and developing countries Globalisation and private infrastructure investment in emerging markets 109 saw significant improvements in operating efficiency. Harris (2003) also states that Estache and Kouassi (2002) found that water companies in Africa were more efficient than public ones. Evidently, FDI flows hold a promising opportunity for increased infrastructure investments in developing countries, but individual countries have to devise a strategy for attracting FDI flows because of the intense competition for available resources. STRATEGIC POSITION AND CONCLUSION In adopting a strategy to cope with the above challenges, one of the major stumbling blocks for the construction industry is that the global markets for infrastructure and real estate are not homogenous. This implies that some markets are more robust than others and as a consequence remain the dominant direction of FDI flows. Nevertheless, in response to the challenges to FDI flows presented in this paper, some strategic decisions that might be taken by developing countries to attract FDI into infrastructure investment are as follows. First, an effective industrial strategy is essential. This would minimize reliance on foreign inputs and expertise and ensure that FDI facilitates the transfer of skills and knowledge to the developing countries. Second, the adoption of appropriate corporate governance standards, transparency, accountability and the prevention of opportunistic behaviour are critical. Third, the creation of an enabling environment with an institutional framework to facilitate private infrastructure is essential. Conducive legal and property rights frameworks are necessary to enforce guarantees and obligations. Previously, there have been cases of compulsory acquisition or nationalisation of the assets of foreign companies by developing countries. This has served to discourage foreign direct investment and unless efforts are made in terms of progressive policies, the hardened attitudes of FDI investors are unlikely to shift. There must also be adequate infrastructure in place to support the process of globalisation. This would include adequate transport and communications networks to facilitate the processes. This paper highlights that FDI capital flows into infrastructure have increased since the 1990s. The paper argues that these capital flows have been driven by various factors namely, industry and country level factors, the investment objectives of the investor, the trends in the stock market and corporate governance requirements. The analysis in this paper suggests that FDI could provide opportunities for financing infrastructure investments in the developing countries to augment dwindling government revenues. The paper highlights that FDI could continue to have several positive impacts through fiscal expansion, extension of services and efficiency. The managerial and technological skills transfer that accompanies FDI could ensure efficiency and effectiveness of infrastructure production and delivery. However, the paper strongly argues that FDI does not flow in an institutional vacuum; it requires effective domestic economic strategies in order to provide the intended benefits. 110 Chege and Ebohon REFERENCES Chege L (2003) Attracting Investors into Private Infrastructure Investments in Emerging Markets. Proceedings of the CIB Joint International Symposium, 22-24 October, Singapore. Ernst and Young (2004) Managing the Forces at Work. Ernst and Young. http://www.ey.com Harris, C (2003) Private participation in infrastructure in developing countries. Trends, impacts and policy lessons. World Bank Working Paper No.5. World Bank, Washington D.C. Hausmann, R. and Fernández-Arias, E. (2000) Foreign Direct Investment: Good Cholesterol. Prepared for the Seminar: The New Wave of Capital Inflows: Sea Change or Just Another Tide? Annual Meeting of the Board of Governors, InterAmerican Development Bank and Inter-American Investment Corporation. New Orleans, March 26. Izaguirre, A K and Rao, G (2000) Private Activity Fell by 30 Percent in 1999. World Bank, Washington D.C. Lougani, P and Razin, A. (2001) How Beneficial is Foreign Direct Investment for Developing Countries? Finance and Development. June, Volume 38, Number 2. International Monetary Fund. Ofori, G (2000) Globalisation and construction industry development: research opportunities. Construction Management and Economics 18, 257-262. E&FN Spon. Organization for Economic Cooperation and Development - OECD (2004) OECD Principles of Corporate Governance. OECD. http://www.oecd.org Raftery J, Pasadilla, B, Chiang, Y.H., Hui, E.C.M. and Tang, B. (1998) Globalisation and construction industry development: implications of recent developments in the construction sector in Asia. Construction Management and Economics 16, 729737. E&FN Spon. Ramamurti and Doh (2004) Rethinking foreign infrastructure investment in developing countries. Journal of World Business 39 (2004) 151-167. Sader, F (2000) Attracting Foreign Direct Investment into Infrastructure. Why Is It So Difficult? Foreign Investment Advisory Service. Occasional Paper No.12. Washington, D.C. Stiglitz, J.E. (2003) Globalisation and its discontents. W.W. Norton & Company, New York. Strong (2003) Portfolio Construction, Management and Protection. Thomson, SouthWestern, Ohio. Yusuf, S (2001) Globalisation and the Challenge for Developing Countries. Development Economics Research Group. World Bank, Washington DC. Zoukis S J (2004) Fixed Income Buyers: Niche Long Term Equity Sources. Columbia University Real Estate Research Report, New York. FRAMEWORK FOR PUBLIC PROCUREMENT SYSTEMS REFORM UNDER “GLOCALIZATION” T. WATANABE Frontier Engineering Course, Kochi University of Technology, Tosayamada-cho, Kochi, 782-8502, Japan. [email protected] ABSTRACT In public procurement pursuing economy and procedural fairness are common issues in many countries; thus, they can be called “global” goals. However, solutions to these goals are not unique. Especially in construction each country has its own local history and culture. In discussing reform of the public works bidding process; therefore, it is indispensable to have “glocal” viewpoints, that is, the both global and local ones. A certain framework or a “governing equation” is also needed to represent these “glocal” viewpoints. In this paper, characteristics of competitive bidding of public works in Japan and the U.S. are studied and compared. These findings are then interpreted along with a trust theory. An attempt is also made to develop a draft of the above framework. Finally, with the developed framework, a direction of the Japanese bidding process is proposed. Conventional bidding processes in Japan and the U.S. form systems that can be called “assurance systems” and “competition systems,” respectively. But each has its own problems. Japan needs to develop a new type of social intelligence, and the U.S. needs to cultivate a sense of mutual trust. These directions were derived from the developed framework. To develop the new type of social intelligence in Japan, it is needed to make the bidding a place for “the battle game” between the public and the private sector. Keywords: Competitive bidding, procurement, public works, glocalization INTRODUCTION In public procurement pursuing economy and procedural fairness are common issues in many countries; thus, they can be called “global” goals. However, solutions to these goals are not unique. Especially in construction each country has its own local history and culture. In discussing reform of the public works bidding process; therefore, it is indispensable to have “glocal” viewpoints, that is, the both global and local ones (Watanabe 2003). A certain framework or a “governing equation” is needed to incorporate these “glocal” viewpoints. In this paper, characteristics of competitive bidding of public works in Japan and the U.S. 112 Watanabe are studied and compared. These findings are then interpreted along with a trust theory. An attempt is made to develop a draft of the above framework. Finally, with the developed framework, a direction of the Japanese bidding process is proposed. DEFINITION AND SIGNIFICANCE OF SOCIAL UNCERTAINTY, TRUST, ASSURANCE, AND OPPORTUNITY COSTS The purpose of this section is to introduce the structural theory of trust proposed by Yamagishi (Yamagishi 1998) and to explain four keywords of this theory: social uncertainty, trust, assurance, and opportunity costs. A situation with the social uncertainty is defined as the situation in which one has a loss if the other acts selfishly (Yamagishi 1998). The social uncertainty influences the way each business transaction is made. For example, Kollock explains this theme using examples of the transaction of rice and row rubber. The social uncertainty associated with transaction of rice is low. That is, it is impossible for the buyer to completely grasp quality of the rubber at the time of its purchase. The transaction of rice is made among unspecified players in the market (Kollock 1994). In the case of commodity with high social uncertainty, transaction with trust or assurance is needed. Yamagishi explains “trust” as “one’s expectation that the other does not have an intension to exploit oneself based on one’s evaluation of the other’s personality and the other’s emotion toward oneself when the social uncertainty exists” (Yamagishi 1998). Thus, one way to deal with this social uncertainty is to trust the other party in transaction. In the case of rubber transaction with high transaction, however, buyers make transactions with particular rubber producers with whom a long-term commitment relationship is developed. By forming this commitment the both parties judge each other that the other has no reason to exploit oneself. Yamagishi claims that the “assurance” is developed from judging that the social uncertainty does not exist. Although to obtain the assurance by developing a long-term commitment has the benefit of eliminating the social uncertainty, it has a side effect: giving up additional benefits that would be obtained by doing the business with a new party. These sacrificed benefits are called the opportunity costs. The reason for developing the discussion based on the structural theory of trust is that the social uncertainty associated with construction business transaction is high. Especially in Western countries where the client and the contractor tend to be in an adversarial relationship, studies on trust have been important issues in construction production. This concretely shows how high the social uncertainty associated with construction is and how much western practitioners and academia have been “struggling” with it. Although the Japanese construction industry had been enjoying assurance as described later, a criticism that the opportunity costs are high is becoming stronger. Framework for public procurement system reform under “Glocalization” 113 Application of the structural theory of trust seems to provide a foundation of a study on how to deal with the social uncertainty and the opportunity costs associated with construction business transaction. CHARACTERISTICS OF COMPETITIVE BIDDING PROCESS IN THE U.S. Figure 1 represents recent competition situations of public works in the U.S. The level of infrastructure development and management has reached a certain level in the U.S. Thus, American public are very much concerned with how effectively and efficiently tax is spent for infrastructure development and management. This concern becomes the requirement for the public client to achieve a significant cost saving for public works, which is represented with the thick left-to-right arrow. The prime contractor must bid under this saving requirement. Client(Engr.) Price Stock value↑ Project-based employment Sub. contUnion ractor Prime Prime esti- From public S contcontractor ractor Sub- i maprice↑ con. t tion Owner Bid- -total price Project price e D price↓ ding -unit price mgt. ↑ W -schedule -time e & o s -cost Design claim Re- r i Function -quality sour- k docug ce ments n Design (Design Engineer) Public works competition is a “battle game” between price↓ desire from public and price↑ desire from contractors! Figure 1 Competitive Bidding Situations in Public Works in the U.S. The bid price of the prime contractor is made based on subcontractors’ prices, which are often influenced by strong unions. Since the most important administration principle of the contractor is to secure target profit as well as achieving high stock value, the contractor’s bid should be high enough to bring sufficient profit. Desires to achieve high wages for the union and high profit for the contractor are represented with thick right-to-left arrows, respectively. Thus, the public works competition in the U.S. is considered a “battle game” between the price down requirement from the public and the price increase desire from the private sector. As depicted in Figure 2, the competitive bidding rule of public works in the U.S. can be clearly defined as “competition of the lowest price to fulfill the requirement specified by the design documents given target profit and project staff through productivity improvement” (Watanabe 2003 and 2004). The project management systems, systematic methods of making a construction plan, developing an appropriate organization, monitoring the progress and the actual cost, and taking a corrective action whenever needed, play a crucial role in improving the site productivity. The information collected and analyzed through the management systems also becomes a logical and quantitative evidence for a claim submitted by the contractor. The progress payment method becomes 114 Watanabe a foundation of the project management systems and the whole public works systems. CHARACTERISTICS OF PUBLIC WORKS SYSTEMS IN THE U.S. The bidding competition rule of the U.S. is considered to systematize the whole public works implementation procedure. Appropriate application of this rule enables the public to save the construction cost, the contractor to secure the profit, and the worker to obtain high wage. Here we call these systems “competition systems.” through To fulfill competing given for require- the lowest project obtaining productivity price, ment, staff, the profit improvement. Budget saving Projectbased requirement employfrom public ment Stock value↑ Owner price↓ Price Design Bidesti- docu- ding ma- ments & tion claim Prime contractor price↑ Subcon. -total price Project price ↑ -unit price mgt. Re-schedule -time sourFunction -cost ce -quality S i t e W o r k Progress Payment Method as “infrastructure” Sub-contClient(Engr.) Prime contractor ractor Figure 2 Competitive Bidding Rule in Public Works in the U.S. To maintain the competitive ground, a certain level of efforts to reduce the social uncertainty is needed to prevent contractors from “cutting the corner.” Rules to avoid contractor’s abuse and public client’s abuse have been implemented in the U.S. Example rules to avoid contractor’s abuse are to impose government oversight requirement on contractors and to require each bidder to submit several kinds of bonds: bid bond, performance bond, and payment bond. Examples to avoid client’s abuse by limiting client’s discretion are “prevention of governmental officials from having one-on-one meetings with potential bidders once a procurement process is under way,” “informal rule enjoining use of information about the past performance of suppliers when deciding from whom to buy the next time around,” (Kelman 2001) and recent challenge against the practice of negotiating design contracts by the U.S. Department of Justice (Halpin and Woodhead 1998). In the U.S., thus, reduction of both the opportunity costs through promoting bidding competition and the social uncertainty through preventing client’s abuse are important General competitive bidding has been playing an important role in achieving the both. Framework for public procurement system reform under “Glocalization” 115 CHARACTERISTICS OF COMPETITIVE BIDDING PROCESS IN JAPAN Figure 3 represents competition situations in public works in Japan. The level of infrastructure development and management had been insufficient, and the governmental official had been recognized as “almighty.” Thus, requirement from the public to lower the construction costs had been weak. Furthermore, the ceiling price, the price estimated by “almighty” public engineers using a profound cost estimation system, has been recognized to be “true.” As represented with the word of “ceiling,” the ceiling price also becomes the highest allowable bid price. Thus, the ceiling price has influenced the contractor’s bid price very much. Being different from the administration principle of the U.S. contractor, the general principle of the Japanese contractor is to achieve its high turnover rather than high profit. The high turnover has been crucial in maintaining the lifetime employment system and a high rank, which restricts the size of a project for which the contractor can bid, determined based on the business evaluation score process, a Japanese PQ process, with high weight associated with the value of works completed. High priority on the turnover makes bidders’ attitude “passive:” they are usually ready to accept a project whenever they have to do so regardless of the profit margin. When the “Dango” is formed, a combination of rotational and complementary bidding, the ceiling price usually becomes the target contract value. When this is not formed, the lowest allowable price becomes the target contract value. Thus, characteristics of Japanese bidding competitions are summarized in Figure 3 as follows. First, the left-to-right arrow does not necessarily represent the cost down requirement from the public like the U.S. It rather represents the public client’s logic and “will,” which influence the bidding and awarded prices very much. Second, the turnover-driven administration makes bidder’s attitude “passive.” The bid price information usually flows from the client through a prime contractor and subcontractors to workers. At the bidding, therefore, the “battle game” between the public and the private sector had hardly been observed in Japan. Client Price estimation contractor Proj. Sub- i Design t docu- Client Bid- price↑(↓) mgt. con. e ment price→ ding -total price -time price -cost W change Design -quality Re- o Function docuD r e Design sour- k ments ce s i Assistance g n Increasing (keeping) Sub. contturnover ractor Prime Few public eyes S Prime contractor Small “battle” between Design public & contractors? (Consultant) Price may just flow unilaterally! Figure 3 Competitive Bidding Situations in Public Works in Japan 116 Watanabe CHARACTERISTICS OF PUBLIC WORKS SYSTEMS IN JAPAN In Japanese public works the designated competitive bidding had been used for most of projects though the general competitive bidding should be used in principle. In reality, furthermore, all designated bidders have been jointly guaranteeing project completion through the Dango. The commitment relationship developed by the designation and Dango have virtually reduced the social uncertainty to zero and provided assurance to the public clients and the prime contractors. Mutual cooperative relationship between prime contractors and subcontractors is also nothing more than the commitment relationship and has also provided assurance to the both parties. Implementation processes consisting of the designation, Dango, and cooperative relationship between prime and subcontractors can be called the assurance systems. These systems have been providing Japanese nations with massive and speedy construction of infrastructure facilities, contractors with a stable amount of works, and workers with stable employment without labor agreement. NECESSITY OF SYSTEMS REFORM IN THE TWO COUNTRIES The U.S. competition systems are not almighty. Promotion of price competition seems to put the contractor and the public client in an adversarial relationship. In the U.S. construction industry there is a self-questioning such as “the attributes of honor, integrity and pride in workmanship have been replaced with confrontation, claims, delayed projects, cost overruns and a host of other problems that render all parties less than fully effective. Some firms employ more attorneys than engineers, and “claims” seminars for both owners and contractors proliferated” (Warne 1994). Limiting the public client’s discretion reduces the social uncertainty through preventing an untrustworthy contractor from being selected through favoritism. However, strict application of this limiting rule also might have increased the social uncertainty because it has left a possibility for an untrustworthy contractor with the poor performance record such as bad claim record from being selected. Thus, reduction of the social uncertainty becomes an urgent issue in the U.S. Crux of the Japanese assurance systems is in reducing the social uncertainty. Recently, however, two noteworthy environmental changes, which make the conventional assurance systems it difficult to function, are occurring. The first change is “awareness” of Japanese as taxpayers. Many people become suspicious that not a few transactions of construction business is not fairly conducted and that the opportunity costs associated with the conventional transaction is very high. Actually there are many incidences of pushing up the opportunity costs: politicians’ intervention into bidding process, increase in the bid price due to the Dango, diseconomy of scale due to excessive slicing and packaging the contract, and subletting the whole Framework for public procurement system reform under “Glocalization” 117 work to other contractors. The awareness as taxpayers necessitates reduction in the opportunity costs. The second change is a sharp decrease in construction investment. As a result of more intensified bidding competition, many bid prices concentrate in the proximity of the lowest allowable price if there is any. In Osaka prefecture and Tokyo Metropolitan Office where the lowest allowable bid price and the ceiling price are made open prior to bidding, respectively, the winner is determined through “tossing a coin” for 20 or 25 % of projects. If there is no lowest allowable price, the price competition becomes literally “bottomless.” As a result of the second change, the assurance between the public client and the prime contractor and that between the prime and subcontractors are lowering, and the assurance systems themselves are facing a danger in crumbling away. The second environmental change shows a possibility that the social uncertainty sharply increases. DIRECTION OF SYSTEMS REFORM IN THE TWO COUNTRIES In Japan it is being recognized that the opportunity costs associated with the conventional assurance systems are high. Furthermore, implementation of new measures to suppress the social uncertainty is required. In the U.S., reduction of the social uncertainty is required. Public works systems should go through evolution whenever needed. As shown in Figure 4, directions where the two systems should head are the reduction of social uncertainty and opportunity costs. This goal is considered a global goal; however, paths to the goal are local, that is, different from country to country. Social Uncertainty U.S. Functions of the systems Japan Local paths Global goal? Opportunity Cost Figure 4 Global Goal of Public Works Systems and Local Paths to it in Japan and the U.S. According to the structural theory of trust, under the situation in which the both social uncertainty and opportunity costs are high, there exists a possibility that a “high trustful person” obtains a large profit than a “low trustful person.” Here, a “high trustful person” is defined as the person with “high general trust,” which represents a tendency to trust other people (Yamagishi 1998). 118 Watanabe Yamagishi addresses the key measures to deal with the situation in which the both social uncertainty and the opportunity costs are high as follows: i) to acquire trustworthy, honest, and fair humanity, ii) to trust goodness of humanity of other people in general, iii) to develop “social intelligence” to assess trustworthiness of other people, and iv) to make the above three measures work simultaneously. Yamagishi also emphasizes that the general trust is nothing more than the confidence to deal with relationship with other people based on the “social intelligence” (Yamagishi 1998). Focusing on the public clients, reform implied from the trust theory are that they should a) enhance their trustworthiness, b) develop the “social intelligence” to assess trustworthiness of bidders, and c) deal with bidders with trust and confidence. Table 1 shows evaluations and issues of systems reform of public works in Japan and the U.S. The gray areas are where change is needed. Generally a level of public’s trust towards the government is low in the U.S. The public client is required to reduce the opportunity costs by promoting the bidding competition from the public. Achieving the low opportunity costs and accounting it to the public are important means to restore and maintain the client’s trustworthiness. Table 1 Evaluation and Issues of Systems Reform in Japan and U.S. Japan U.S. Efforts to keep high Historically high due to by lowering opportunity cost Public client’s low social uncertainty through competition trustworthiness Being lowered due to Generally low higher opportunity costs Designation, dango, Clear competitive bidding rule (and long-term cooperation) Process management Social intelligence Need for new Japanese Insufficient elimination of bidding competitive rule contractors with poor records? Trust towards others Much assurance Lowering of assurance Low Recognition of importance of partnering Limiting the client’s discretion is another measure to restore and maintain the trust; however, this had left a possibility for an untrustworthy contractor with poor past performance to be selected, which might have increased the social uncertainty. The U.S. competitive bidding rule, competition of the lowest price to fulfill the requirement specified by the design documents given target profit and project staff through productivity improvement, becomes the social intelligence. Practice of process management such as employment of progress payment method and project management systems also functions as the social intelligence. Framework for public procurement system reform under “Glocalization” 119 However, lack of trust among project parties becomes a fundamental reason for cost overrun, project delay, and quality deterioration. The partnering scheme to cultivate senses of trust and unity among project parties are being introduced for not only public construction projects but also defense and private construction projects. Developing senses of trust among parties is one of the most important issues in the U.S. The Japanese public clients have been devoting themselves to reducing the social uncertainty. This has been a source of their trustworthiness; however, their efforts to reduce the opportunity costs have been limited. The key issue is how clearly the public clients can be aware of importance of lowering the opportunity costs. The client responsibility, which has been intensively discussed for the last several years, should be steadily fulfilled. A fundamental cause of the weakening of the assurance systems is that the conventional Japanese competitive bidding rule does not work any more. This rule is defined as selection of the contractor to minimize the transaction costs for the client to fulfill the client’s requirement. Here the transaction costs include product specification costs, contract selection costs, contract performance monitoring costs, and so on. But this rule works only when a sufficient amount of works is available. Redevelopment of the social intelligence is urgently needed. In Japan, many practices with assurance have been observed. Attitude of all project parties to give the first priority to project completion even when a conflict occurs among parties and frequent information exchange between the public client and the contractor are typical examples. It is questioned, however, whether these practices can be continued while the construction investment is expected to decrease continuously. NEW COMPETITIVE BIDDING RULE IN JAPAN A main component of the assurance systems is “receiving” and “sending” the bid price information unilaterally from the public client through a prime contractor and subcontractors to workers. This component works well when a sufficient amount of works is available because each price can be kept high enough. But there has existed a latent problem: each party in the private sector does not seem to have a sufficient ability to develop its own price. When the volume of works decreases, thus, this lack of price development custom or ability brings undesirable situations. Bid prices concentrate in the vicinity of the lowest allowable price if there is any or go bottomless otherwise. A lesson obtained from the U.S. systems is that the competitive bidding is actually a place for the public and the private sector to “battle.” By introducing elements of the “battle” game with respect to cost and technology, a new social intelligence should be developed of accepting and appraising the contractor’s price and technical proposal. In order to realize the “battle” game, at least three issues should be carefully discussed: development of “foundations” for the private sector to battle, flexible development and 120 Watanabe application of technology, and practice of process management. “Foundations” should be developed to prevent subcontractors and workers from being exploited, which eventually leads to poor quality works. Securing a sufficient level of wage and good working environment of workers and payment guarantee for subcontractors are important examples. Regarding these infrastructures, U.S., U.K., Germany, and France have different characteristics, respectively. It is desirable to develop the Japanese foundations by assessing strength of each country and discussing it applicability to Japan. To secure payment for the subcontractor and worker, improvement of labor productivity is needed. In order to achieve it, flexible development and application of construction technology is needed. There exists, however, one constraint to hinder it: auditing. Auditing often requires the public client that the construction process should be exactly the same as conditions described by the specification. This requirement often makes the public client respond excessively to the auditing. A most typical example is the issue of “arbitrary temporary works.” This works, which the contractor is entitled to do at his/her own discretion, are often recognized as “specified temporary works.” This rigid auditing and client’s excessive response hinders submission of a creative proposal from the contractor and, thus, realization of the battle game between the client and contractor. Practice of process management is expected to play two important roles: improvement of productivity and reduction of the social uncertainty. Project management systems will be important for the private sector to improve labor productivity. Stricter government oversight on contractors is needed to prevent contractors from “cutting the corner.” Introduction of progress payment method, which has hardly been implemented in Japan, is considered a basis of the process management. New systems should be redesigned and applied such that the client is encouraged to enhance the knowledge on “hard construction technology” and managerial capability and to “battle” with the private sector in these fields. This technological and managerial battle for the client with the private sector is the key for systems reform consisting of restoring his/her own trustworthiness, developing and applying new social intelligence, and restoring assurance or developing a sense of mutual trust among project parties CONCLUSIONS Reduction in the both social uncertainty and opportunity costs is considered a “global” goal in design and reform of competitive bidding systems. However, paths to this “global” goal can be local, that is, different from country to country. General principles for the public clients to achieve this goal are tentatively summarized as a) enhancing their trustworthiness, b) developing the “social intelligence” to assess trustworthiness of bidders, and c) dealing with bidders with trust and confidence. In reform of the Japanese Framework for public procurement system reform under “Glocalization” 121 assurance systems, more encouragement of technological and managerial battle for the client with the private sector becomes the key. REFERENCES Halpin, D. W. and Woodhead, R. W.: Construction Management, Second Edition, John Wiley & Sons, Inc. 1998. Kelman, S.: Remaking Federal Procurement, Working Paper No. 3, Visions of Government in the 21st Century, The John F. Kennedy School of Government, 2001 Kollock, P.: The emergence of exchange structures: an experiment study of uncertainty, commitment, and trust. American Journal Sociology, Vol. 100, No. 2, pp. 313-345, 1994. Kunishima, T.: Improvement of Construction Industry -Go out of “rice bowl” approximate estimation)” Discussing current affairs, Journal of Society of Civil Engineers, Vol. 86, No. 1, pp.4-5, 2001 (in Japanese) Warne, T. R.: Partnering for Success, ASCE Press, New York, 1994 Watanabe T., “Bidding Systems of Japanese Public Works Under “Glocalization,” Invited Paper at The International Symposium on Construction & Project Management -Human Resources Development under “Glocalization,” October 16-17, 2003, Tokyo Watanabe T.: Future of Bidding Systems of Public Works in Asian Region, To be presented at The Third Civil Engineering Conference in Asian region (3rd CECAR), August 16-19, 2004, Seoul Yamagishi, T.: Shinrai no Kozo (Structure of trust), Tokyo University Press, Tokyo, 1998 (in Japanese) 122 Watanabe REGIONAL INITIATIVE AS A COMPETING STRATEGY IN THE GLOBAL CONSTRUCTION MARKET A. B. NGOWI, E. PIENAAR, A. TALUKHABA and J. MBACHU School of Construction Economics and Management University of the Witwatersrand, Private Bag 3, WITS 2050, South Africa ABSTRACT Southern African Development Community (SADC) is composed of fourteen states whose total population is 209 million people and has a combined GDP of US$ 163 Million (2002 figures). SADC covers a surface area of 9.4 million square kilometers and enjoys some degree of economic integration. However, due to partly historical reasons and partly sharp differences in levels of development, the construction industries of the various states operate independent of one another and so do not benefit from possible synergies. This paper reports on a study of initiatives aimed at harmonizing the construction industries (CIs) of the various SADC states into a regional block. Through a combination of a workshop of key construction industry stakeholders in the region and a questionnaire to key CI stakeholders, the study identified valuable resources in the region that could be leveraged on the global market. It concludes by outlining the measures that should be taken to ensure that SADC becomes a coherent construction market and that it competes as a block. Keywords: Regional initiative, competitive capability, economic integration, global market, SADC, construction industry INTRODUCTION The bulky nature of the construction industry has made it essentially a local industry for which the bulky materials used in the various constructed structures are locally sourced, heavy equipment/plant locally arranged and labour locally recruited. The history of the CI indicates that construction was a local enterprise in the pre-industrial ages and different communities developed different construction methods and structures depending on local conditions. However, during the middle ages, there were deliberate attempts by different communities to learn the construction methods of one another through, for example, the concept of journeyman as employed by master builders. Moreover, when a community invaded and occupied another community, which was a common phenomenon during this period, the supplantation of the construction methods of the occupied community by those of the occupier usually ensued. 124 Ngowi, et. al The advent of means of transporting bulky materials and movement of finances between different regions of the world that was ushered in by the industrial revolution enabled construction services to be exported from one region to another. This marked the early phase of the globalization of the construction industry. With the introduction of easy means of communications, which is the hallmark of the current information society, coupled with deliberate protocols such as the World Trade Organisation (WTO) that encourage cross-border transactions, the globalization of the construction industry has entered a new phase that affect the CIs of all countries in one way or another. In the new phase of the globalization of the CI, the barriers that once protected “local” industries from competition are no longer valid. Whether a construction firm likes it or not, it has to develop competitive strategies because the platform for competition is now as close as to its own backyard. Once a firm develops a competitive strategy, its platform of operations is no longer “local”. The global market becomes the target of such a firm and the firm becomes a “global firm”. As noted by [Rhine-smith, 1993, pg 2] “…there is little doubt that to be viable during the next century, all organizations, whether international or domestic, will need to be more global in their outlook, if not in their operations”. In principle, competition has several advantages, amongst which are the growth of the firm and value for money to those who receive services resulting from the process. One of the most important requirements for a firm to survive in the global competitive environment is a sound strategy. The competitive strategy that a firm develops to enter the international market is strongly influenced by the home environment [Porter, 1990]. Using a “diamond” model, [Porter, 1990] found that four attributes of the home country environment shape the context which allows firms to gain and sustain competitive advantage: factor conditions, demand conditions, related and supporting industries, and context for firm strategy and rivalry. Each of these attributes has strong influence on the firm strategy and contributes substantially towards a firm’s competitive advantage. For instance, regarding “factor conditions” two distinctions are defined: first, basic (e.g. natural resources, climate and location) and advanced (e.g. modern digital data communications infrastructure and highly educated personnel); second, specialized factors, most of which are relevant to a limited range or even to just a single industry [Porter, 1990]. Regarding the strategies and structures of firms as well as the nature of domestic rivalry, [Porter’ 1990] believes that there should be a good fit between an industry’s sources of competitive advantage plus its structure; and strategies, structures and practices favoured by the national environment. The existence of intense domestic rivalry, on the other hand, is of special importance since, for instance, it encourages firms in the industry to break dependence on basic factor advantages. The roles played by the government and chance in the competitive development of an industry are important but indirect, mainly through influencing the four major determinants of competitive advantage [Porter, 1990]. Against this background, this paper reviews the initiatives that have been taken to harmonise the CIs of the SADC states and proposes a new initiative to establish a regional construction block as a strategy for global competition. Global competitive strategy in construction 125 CAPABILITIES AND KNOLEDGE IN THE GLOBAL FIRM Prahalad and Hamel [1990] explain that competitive advantage is the consequence of holding and combining unique resources and capabilities and creating a strategic architecture that can apply the resulting core capabilities across product/ service and business lines. Firms can gain sustained competitive advantage in the global marketplace by basing their strategies on building and leveraging their unique internal capabilities. The “dynamic capabilities” perspective presents an explicit argument for the importance of sustainable competitive advantage of both exploiting current capabilities and developing new capabilities” [Teece et al.,1997]. Applied to the activities of global firms, this perspective considers the different ways in which international market expansion and global integration of operations work to enhance long-term performance. It also reveals why global firms might not be successful in all cases, as various combinations of capabilities and environments might require particular strategies and organizations for success. Capability-based and related frameworks suggest that the competitive advantage of firms results from their possession of unique internal resources and capabilities and their ability to apply these resources in the marketplace and earn superior profits. From this perspective, the global firm gains advantage internationally if it possesses unique resources that can be leveraged in foreign markets. Further, the firm will sustain its competitive advantage only if it can continue to develop new capabilities in the face of changing environments and evolving competition. Two general types of resource-related capabilities in global firms are particularly relevant to internationalization of strategy: business level component capabilities and corporate-level architectural capabilities [Tallman and Fladmoe-Lindquist, 2002]. The former relates to the competitive advantage of the firm in its business area or areas and includes its ability to produce better products/ services, device superior processes and generate more effective marketing. These have been described as competencies, capabilities, or skills, depending on the level of specificity [Sanchez et al., 1996]. The components of a business’s knowledge involve the various complex but identifiable skills and activities needed to operate business and constitute the bundles of strategic resources and capabilities that are unique to the firm [Chi, 1994]. Component capabilities go beyond the realm of pure knowledge to include the broader set of actions and structures that are critical to competitive advantage. Architectural capabilities are defined as organization-wide routines for integrating the components of the organization to productive purposes [Prahalad and Hamel, 1990] and they are the sources of the organizational synergies at the core of the firm [Conner, 1990]. In the global firm, architectural capabilities involve identifying, replicating, integrating, and otherwise managing hard assets and business-level component capabilities effectively and efficiently. These capabilities are developed in the process of operating the firm, so they are strictly firm-specific and tied closely to the administrative history of the firm. Corporate-level architectural capabilities allow incorporation of new, even foreign-based assets and capabilities while maintaining efficient management. 126 Ngowi, et. al CONSTRUCTION INDUSTRIES OF SADC MEMBER STATES The SADC region is comprised of fourteen states namely: Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. Seychelles has indicated its intention to withdraw its membership, while Madagascar has initiated the process of membership accession. SADC has a total population of 209 million people, a combined Gross Domestic Product (GDP) of US$163 million and a combined land area of 9.4 million Km2. The various states differ in size ranging from the smallest (Seychelles-455.5 Km2) to the largest (DRC – 2 435 409 Km2) as shown on Table 1. The economies of the SADC states are mainly based on natural resources, except in South Africa where wealth from natural resources has been used to establish a buoyant industrial base with the accompanying well developed and modern infrastructure. The history of SADC member states as that of most states in Africa is characterized by the influence of outside powers in their national affairs either as colonies or protectorates. About five European states that include Belgium, Britain, France, Germany and Portugal have had influence in the region, the result of which construction standards and procedures in the countries that were dominated by each of these states were modeled after the latter’s standards/procedures. During the period of occupation (colonization) these construction standards and procedures were directly linked to those of the occupying powers. Although all SADC states currently enjoy political independence, the colonial legacy had three main impacts on the construction industries of these states: 1) Imposition of some standards/ procedures that were inappropriate in the SADC context 2) Introduction of such heterogeneous systems that neighbouring states in the region would employ completely different standards and procurement procedures 3) Stagnation of improvements such that, although the standards have been upgraded in the former colonial powers these changes were either not incorporated in the systems of the former colonies/protectorates or took very long to be effected. Table 1: Statistics on key indicators of SADC states Country Area of (Km2) 1.247.000 582 2.435.409 30.355 118.484 2.040 799.380 842.269 Population (Million) 14 1.736 54.9 2.2 10.7 1.21 18.1 1.86 GDP US $ (Billion) 7.57 4.854 5.278 0.81 1.945 4.676 3.492 3.10 GDP/ Capital US $ 696.9 2.796 96.1 368 182 3.871 193 1.667 External influence (country) Portugal Britain Belgium, France Britain Britain France Portugal Germany Natural Resources Diamond, oil products Diamonds, copper, nickel Gold, diamond, base metals Diamonds, wildlife Tobacco, tea, sugar Sugarcane, beaches Prawns, fish sea, marine resources Diamonds, uranium Republic of Angola Republic of Botswana Democratic Republic of Congo Kingdom of Lesotho Republic of Malawi Republic of Mauritius Republic of Mozambique Republic of Namibia Global competitive strategy in construction 127 Republic of Seychelles Republic of South Africa Kingdom of Swaziland Republic of Tanzania Republic of Zambia Republic of Zimbabwe 455.3 1.221.000 17.364 945.200 752.612 390.757 82.000 45.4 1.10 33.6 10.3 13.89 0.57 104.4 1.22 9.74 3.74 9.06 6.951 2.298 1.109 266 352.9 652 Britain, France Britain Britain Britain, Germany Britain Britain Sea & Marine resources Gold, coal, platinum Sugar, food products Cotton, coffee, cloves Copper, zinc, cobalt Asbestos, gold, copper Given the heterogeneity in the construction standards/ procedures there has been very little interaction among the stakeholders of the construction industries of SADC states, each of which has continued to collaborate with their former colonial masters. Except of a few firms that have taken it upon themselves to operate across their national borders, the prevailing situation is completely against the SADC spirit of integration that has witnessed successful integration of most of the other economic sectors. INITIATIVES FOR THE HARMONIZATION OF THE CTs OF SADC STATES The Southern African Construction Industries Initiative (SACII) SACII was initiated in 1993 through coordination by the Ministry of Works and Construction of the Kingdom of Swaziland on behalf of ten countries in the Southern African region. The objectives of this initiative as set out in the Mbabane regional seminar in May 1993 were to: 1) Identify constraints to the development of local CI in each participating country within the region. 2) identify specific policy reforms to improve the enabling environment for local CI growth and development 3) implement reforms in these countries with governments and donor commitment to local construction A second regional SACII seminar held in 1996 recommended the formation of Southern African Regional Construction Industry Council (SARCIC), which in turn held two meetings in Midrand, South Africa and Lusaka, Zambia respectively. Specific policy reforms that were agreed upon at these meetings included: • Simplification and standardization of contract forms/ documents • Establishment of construction development boards in each member country • Targeted procurement procedures for the development of local/ indigenous contractors and consultants. Table 2 shows the issues that were solicited from the participants of these meetings through a questionnaire in which eight countries participated. It was also resolved that each country representative would urge his/her country’s government, stakeholders and 128 Ngowi, et. al donor agencies to develop a common will and resources to implement the agreed upon policy reforms. Regional construction industry initiative conference Against the background of the deliberations at the SACII and SARCIC meetings, the Department of Public Works, South Africa hosted a regional CI conference within its role in CI development and the South African Government’s commitment to African Renaissance. The three-day conference sought to develop a framework for a regional construction industry development agenda and provided delegates with an opportunity to: 1) Gain insight from the experience of various countries in their efforts to promote construction industry development; 2) Consider regional responses to construction industry development in the areas of: • Targeted procurement as an instrument of industry development; • Local contractor development programmes; • Standardization of procurement documentation; • Contractor registration; • Training 3) Network with industry stakeholders in the region and specialists in the field to identify areas of concern and exchange of information. Table 2: Summary of responses of a questionnaire that was filled in by the country representatives at the SARCIC seminar held in Lusaka, Zambia in September 2000 Construction industry development issue Procurement procedures Summary of responses Procurement procedures are generally through open tender in line with national and international competitive bidding requirements. • Procedures tend to marginalize the local industry • Targeted procurement procedures have been practiced in South Africa and have provided employment and business opportunities to marginalized individuals and communities. • Applicability of the procedures to the region to be investigated Contract Documentation • Several forms of contract both national and international exist • Benefits of regional standardization of contract documentation, standard specifications and general conditions of contract to be investigated Contractor and Professional registration • Some countries, e.g., Malawi, Tanzania and Zambia have classification well developed registration procedures • There are differences in National registration procedures and so a standard regional approach is desirable • Except in South Africa, the classification system is based on contract value • Some systems include personnel, plant and equipment requirements Foreign competition • Only Malawi and Tanzania had reliable information on foreign registered consultants and contractors. • Global competitive strategy in construction 129 • • • • Information dissemination • • Economic Indicators • Industry development programmes Only Malawi provided reliable figures of consultants and contractors from other member states in the region. Generally, foreign contractors/consultants have 70 % market share in the region, except in South Africa where this share is 10-20% All responding countries have industry development programmes Effectiveness and appropriateness of the programmes across member states needs evaluating Information dissemination regarding the industry in the region appears to be generally ad hoc A functional SARCIC structure with mandated national councils might improve the situation The need to establish and disseminate economic indicators such as prime interest rates, inflation rates and currency exchange rates was felt and needs to be pursued further. The findings of the three days of deliberations at which representatives from nine SADC states (Angola, Botswana, Malawi, Mozambique, Namibia, Seychelles, Swaziland, South Africa, Tanzania, and Zambia) were each requested to present a brief overview of their respective country’s construction industry are summarized below. Although Namibia and Swaziland participated at the conference, they did not present their country’s reports. The atmosphere at the conference venue enabled maximum interactions among the participants. The conference coincided with the launching of the Construction Industry Development Board (CIDB), South Africa that was inaugurated by the Deputy President of South Africa and attended by key ministers and Government officials. Presentations of country reports established that there is still a long way to go in establishing standards and simplified contract documents in the various SADC states. In all countries, except South Africa, the largest share of the construction market (about 70%) is controlled by foreign firms, in spite of the fact that each country has implemented some degree of preferential procurement procedures to increase local/ indigenous participation. The deliberations at the conference also established that only South African construction firms and a few Zimbabwean firms operate in other SADC states. The situation is slightly different in consulting services for which the majority of SADC states have at least one firm operating in a sister SADC state. However, the South African consulting firms are also dominating this sector. At the time of the conference, only Tanzania reported that it had established standard tendering procedures for works contracts as well as a Standard Form of Agreement and General Conditions of Contract for Works. The other countries were either at different stages of developing such standard documents or were using generic forms from elsewhere. All participating countries indicated that they have one form of board or another for contractor registration. Most of the countries register contractors in their National (Central) Tender Boards. Exceptions are South Africa, Tanzania and Mozambique that have developed specific boards for the registration of contractors. All participating countries indicated that they conduct various forms of training as both formal and informal programmes, which cover management, technical and craft skills. 130 Ngowi, et. al Identification of Valuable construction Industry Capabilities Within The SADC The wide differences among SADC states make the identification of CI capabilities at a regional level almost impossible. However, in the SADC spirit of integration, a capability that is resident in any of the member states is taken to be a regional capability. Although such capabilities may reside in only a few member states, their identification might spark a move to develop or adopt them in each member state for eventual leveraging. To get an idea of capabilities that exist in the region, interviews were held with five Botswana-based key stakeholders of the construction industry regarding what they consider to be CI capabilities in the region. The interviews which took about half an hour each were carried out in the atmosphere of informality, either in the interviewees’ offices or other appointed venues and centred on an open-ended question “What do you consider to be the construction industry capabilities in the SADC region?” There was no attempt of getting a representative sample as this was considered to be a pilot study that would be improved upon and applied at the regional level. However, the selected interviewees were the chief executives of organizations that financially supported the CIB-TG 29 Conference on Developing Countries that was held in Gaborone, Botswana in November, 2000 and have continued their support for the CI development in Botswana. The following is a summary of what are considered to be CI capabilities in the SADC region according to the respondents: 1) Strong voluntary professional associations and firm regulatory frameworks Each SADC country happens to have strong voluntary professional associations that bring about institutional capability to provide a good basis for coherent regulation of construction and construction related activities. According to the respondents, the voluntary manner in which these professional institutions are run provides a valuable capability 2) Strong research and development capability The respondents alluded to the fact that each SADC member state has either research institutions that direct their research efforts on development of the various facets of the construction industry or faculties of engineering and/or built environment in their tertiary institutions that are actively involved in research on CI development. It was the opinion of the respondents that such institutions provide real capability when assessing local resources or transferring resources/ technologies to/ from other regions. 3) Strong consultancy capability The respondents pointed out that contrary to construction capability for sophisticated structures that is concentrated in South Africa each SADC member state has a strong consultancy capability in the built environment professions. This was considered to be an important capability as it can be deployed in different environments. 4) Building materials supply The respondents pointed the fact that unlike some countries across the world where construction materials have either been depleted or are not available, SADC states boast of large quantities of natural construction materials that could be used as they are or after Global competitive strategy in construction 131 minimum processing. Although these materials are mainly natural resources, most SADC states have the capability for extracting and processing them into construction materials. 5) Regional integration The SADC states have entered into various protocols that give them access to the various global markets. It is the opinion of the respondents that the integration of the various states into a regional block is a valuable capability that could be used to form similar integration for mutual benefit. 6) Strong financial services sector The respondents pointed out that the capability to finance large projects through private institutions is very important especially when the firms intend to enter new markets. Although this capability is largely resident in only South Africa and Botswana, it is the opinion of the respondents that it could be developed in the region using the existing models and later leveraged in the global market. DISCUSSION While Porter’s (1990) diamond framework identifies four attributes of the home country environment that shape the context which allows firms to gain and sustain competitive advantage, Prahalad and Hamel (1990) point out that competitive advantage is the consequence of holding and combining unique resources and capabilities and creating a strategic architecture that can apply the resulting core capabilities across product/ service lines. Although the SADC region is not a single country environment, the integration efforts by the member states are aimed at achieving regional environment that is similar to a country one. For this reason the capabilities of institutional framework, research and consultancy that were identified to be resident in the region would auger well with these views if they could be adequately developed and coordinated at the regional level. For the attribute of “factor conditions” of the diamond framework to give a competitive advantage it needs to be raised from basic and generalized factors that are either inherited or easy to create, to advanced and specialized types that are more decisive and a sustainable basis for competitive advantage. The capability of SADC states to extract and process construction material happens to be operating at the basic level as most of the extracted materials are exported for further processing into finer and more valuable products. At a regional level SADC needs to establish the capability of advanced processing of construction materials instead of exporting/ using them in the unprocessed or semi-processed form. Porter (1990) thinks that the existence of intense domestic rivalry encourages firms in the industry to break the dependence on basic factor advantages. However, as the reports of the various seminars and conferences indicated, the level of rivalry in the SADC region is at two different levels: on the high level it is a few foreign firms that have a monopoly on advanced construction/ consultancy works and at the lower level is among a large number of local/ indigenous contractors and consultants. In most SADC countries the former level constitutes about 70-80% of the market, while the latter constitutes only 20-30% of the market value wise. It is clear that the playing field needs to be leveled so that the 132 Ngowi, et. al local small and medium firms could benefit from the experiences of their larger counterparts. Although Porter (1990) believes that the roles played by the government and chance in the competitive development of an industry are important but indirect, it appears the governments of the various SADC states need to play active role in establishing policies that will enable the local CIs to develop; and also in creating protocols that will lead to the harmonization of the regional CIs and encourage cross-border cooperation for competition on the wider global CI market. CONCLUSION This paper reviewed the initiatives that have been made to harmonise the CIs of the SADC states and proposed a regional initiative as a competing strategy in the global construction market. There have been several attempts to harmonise the CIs of SADC states so as to benefit from the possible synergy, and although these initiatives were done in good faith, it appears that they have not been fully carried through. The early initiatives were geared towards establishing entities in the various SADC states to mobilize and coordinate the activities of the CI stakeholders. This led to the formation of Construction Industry Development Boards and similar entities in the region. Reports on the status of CIs of the various states that were presented at the Pretoria conference in 2001 indicated that there are wide differences among the CIs of the various states and that the resolutions that were agreed upon in earlier initiatives had not been implemented fully. The situation has not significantly changed to date. In the process of establishing SADC construction industry block it is important that valuable capabilities are identified and developed for leveraging on the global market. A pilot study identified some valuable capabilities in the region, which although not necessarily resident in all states could be strengthened as regional capabilities with which the SADC region could compete. RECOMMENDATIONS As this paper was based on the review of the initiatives that have taken place and the opinion of country representatives of stakeholders of the CI in the SADC region, which was a very small number, it is recommended to carry out a comprehensive study that shall document the key stakeholders of each state, the structure of the CIs of the various SADC states, the CI policies that are in place and the valuable CI capabilities that are resident in each state. Having done this, a framework for the integration of the various facets of the CI into a regional CI block should then be developed. Global competitive strategy in construction 133 REFERENCES Chi, T. (1994) Trading in strategic resources: necessary conditions, transaction cost problems and choice of exchange structure, Strategic Management Journal, 15/4 (May 1994): 271-290 Conner, K.R. (1991) A Historical omparison of resource-based theory and five schools of thought within industrial organisation economics: Do we have a new theory of the firm? Journal of Management, 17/1: 151-154 Porter, M.E. (1990) The Competitive Advantage of Nations, The Free Press, New York Prahalad, C.K. and Hamel, G. (1990) The core competencies of the corporation, Harvard Business Review, 68/3 (May/June, 1990):79-91 Rhinesmith, S.H. (1993) A manager’s guide to globalization. Sanchez, R.; Heene, A.; Thomas, H. (1996) Dynamics of competence-based competition, Oxford: Elsevier Pergamon, Chapter 1. Tallman, S. and Fladmoe-Lindquist, K. (2002) Internationalisation, globalisation and capability-based strategy, California Management Review, Vol.45, No.1, Fall 2002, 116-135. Teece, D.; Pisano, G. and Shuen, A. (1997) Dynamic capabilities and strategic management, Strategic Management Journal, 18/7 (August, 1997), 509-533. 134 Ngowi, et. al HEALTH AND SAFETY ON GLOBAL PROJECTS IN DEVELOPING COUNTRIES – TOWARDS GOOD PRACTICE P. D. BUST; A. G. GIBB and C. L. PASQUIRE APaCHe - A Partnership for Construction Health and Safety Loughborough University, Leicestershire, UK, LE11 3TU. [email protected] ABSTRACT Construction companies use technology to gain a competitive advantage and they are expanding into developing countries as markets in developed countries become more difficult. The developing countries allow this expansion as it enables them to ‘buy-in’ to new technology. The workforces in the developing countries have different physical and cultural characteristics and construction working practices vary considerably from those in developed countries. The use of new technology by construction companies working in the developing countries will have an effect on the health of the construction workers in those countries. This paper describes a project aiming to establish the advantages and disadvantages of the use of new technologies and to produce guidelines for effective and safe implementation. Keywords: and safety. Construction health, construction ergonomics, developing countries, health INTRODUCTION This paper reports on the preliminary investigative work on a twelve month research project funded by the United Kingdom (UK) Government through the Innovative Manufacturing and Construction Research Centre (IMCRC). The need for this work was established by the Safety, Health and Environment (SHE) task force of the European Construction Institute (ECI). Many members of this task force have corporate and projects responsibility for construction health and safety within global organisations working largely in the petrochemical/power generation/infrastructure sectors. These organisations take health and safety very seriously, with policies and practices driving towards ‘zero incidents’ performance. However, the task force recognises the challenge of realising these aspirations across the globe, particularly in developing countries. The European Construction Institute (ECI) was founded in 1990 to build and champion a culture motivated to raising the performance standards of the construction industry across Europe. It is financed primarily by its members who comprise around 70 of the world's largest client and contractor organisations who have bases in Europe. 136 Bust, Gibb and Pasquire ECI is dedicated to helping its members work together in a spirit of mutual co-operation to research, develop and apply best practice across the industry. The members believe that there should be no difference in the health and safety approach to work wherever the work is carried out. Our research to date has identified work relating to the transfer of new technology as developing countries encourage foreign contractors to carryout infrastructure projects (Raftery et al. 1998) and the cultural and physical differences of construction workers in developing countries compared to those in the developed world (Peckitt, Glendon & Booth 2002). However, we have been unable to find specific research into the impact of the technology in the form of innovative construction practices, materials and equipment on the health and safety of the workers. Using an ergonomics approach with interviews, focus groups and observation and analysis of working practices it is intended to examine the physical and cultural differences of the workers in developing countries compared to workers in developed world and their interaction with the use of innovative construction practices, materials and equipment (ICPME). The research team will identify and collate good practice, to facilitate inter organisational knowledge and expertise transfer, with the ultimate deliverance being a guidance document for organisations managing these large projects in developing countries. This paper presents the argument for the work and introduces the research methods. In particular it covers the globalisation of construction and the physical and cultural differences between workers in different countries. GLOBALISATION OF CONSTRUCTION Globalisation of the construction industry could result in fewer companies dealing with a greater proportion of the total world product. Construction companies in developed countries are aware that construction projects are becoming more complex and requiring more sophisticated technologies and of the need to compete with each other in this area to obtain work in developed countries. Innovation is an essential element of this. International contracting organizations are occupying a dominant role in the international construction markets (Murray and Appiah-Baiden 2000) and are increasingly looking to expand into developing countries. China is leading the expansion of the world economy with considerable economic growth and associated infrastructure development. The focus of global construction work is now on the developing countries, British companies were reported to be looking at increasing their overseas’ turnover in the new millennium with bias shifting from developed to developing countries (Crosthwaite 1998). With the stiff competition among the major construction companies the use of ICPME is expected to increase in these countries. Health and safety on global projects in developing countries 137 One of the drivers for the use of foreign contractors in developing countries is the benefits to the importing country as it gains access to technology or products which could not be produced locally (Raftery et al. 1998). In China about 30% of construction equipment was reported as being deemed old and out of date but still being used because the enterprises lacked resources to acquire new equipment (Chen 1998). PHYSICAL AND CULTURAL CHARACTERISTICS As a greater proportion of the global construction market is serviced by fewer, larger companies the number of potential workers that would be affected by a mismatch between their physical and cultural characteristics and imported ICPME will increase. Physical characteristics include body measurements which vary as a function of age, sex and for different ethnic populations (Sanders and McCormick 1993). For example, (Ashby 1979) claimed that if a piece of equipment was designed to fit 90% of the U.S. male population it would fit 45% Japanese, 25% Thais and 10% Vietnamese Continued use by a Vietnamese construction worker of equipment designed for use by a U.S. construction worker would exacerbate any risks inherent with that particular task due to lack of fit. The design of construction equipment is more likely to accommodate the anthropometric characteristics of a worker population from a country where the equipment will be more readily bought. Societal cultural biases can have a significant impact upon safety. For example, despite the common occurrence of unprotected drops in the Caribbean, mediating cultural factors reduce the potential for falls. The relatively slow pace of work, worker agility, sense of locus of control over safety are cultural factors which help explain why falling accidents in the Caribbean appear to be less of a problem compared with the UK (Peckitt, Glendon & Booth 2002). Not only will there be societal cultural differences there will also be construction cultural ones. These will be evident in the practices that are commonly used in construction projects in developing countries. The labour force in developing countries is acknowledged as being less skilled than the workforce that contractors would use in developed countries. They are not used to regulations as these are not enforced to the same degree as in developed countries with the use of informal working practices (Mlinga and Lema 2000) which can be used for the construction of anything up to five storey buildings. There are low levels of training of the workforce in many developing countries and this poses a problem when dealing with the handling of hazardous materials as the workers may be less likely to be aware of the potential health risks. Projects carried out in developing countries tend to be very labour intensive so the workforce is not used to using construction equipment and therefore at risk with using unfamiliar equipment. Enno Koehn reported (Koehn, Ahmed & Jayanti 2000) that statistical data has shown that there are 8 to 9 times as many fatalities and accidents on construction sites in developing countries than in industrialized developed regions. Koehn carried out a thorough review 138 Bust, Gibb and Pasquire of construction documents revealing the following major findings regarding safety practices: • • • • • • • • Limited use of modern construction tools and equipment; Lack of periodic examination and weekly inspection of equipment; Carelessness of workers regarding use of protective clothing and equipment; Avoidance of manufacturers’ maintenance manuals and not following safe work practices; Social and religious superstitions on work behaviour; Lack of incentive to use the correct tools or equipment for a job; Taking a self-innovated short-cut method of working; Use of inappropriate standards for equipment. He also reported that there can be 3 to 5 times more workers on a construction site in a typical developing country compared to that of a developed region increasing the number of workers exposed to health hazards. The companies that provide consultancy and contracting services worldwide place health and safety high on the agenda when carrying out construction production. However, the ICPME they use has often been developed in their home countries or countries with a workforce that has physical and cultural similarities to their own and has therefore the potential to cause accidents or have ill effects on the workers in developing countries. Research is therefore required so that the potential benefits or disadvantages of the use of ICPME in developing countries could be identified and strategies formulated for use by companies when undertaking projects overseas. STUDY PROPOSALS Interviews Recent research work at Loughborough University has included the development of a site health handbook (Pendlebury et al. 2004) which provides practical advice on recognising the health risks that may be met within the construction industry and the best way to minimise them and the production of a toolkit which facilitates early design decisions by comparing the health and safety risks and issues of pre-assembled methods against their traditional equivalents(McKay et al. 2002). Using this recent work on risks to health of UK construction workers as a base, interviews of project managers, who have worked on or are working on projects in developing countries, are to be carried out. These are to be used to identify areas of concern where physical , cultural and religious differences of the workers impact on the health and safety of the workers on these projects. Health and safety on global projects in developing countries 139 Observation Industry partners will provide projects in developing countries to visit and to observe working practices and record (digital video and image) for analysis and use in workshops. Task analysis and postural analysis methods will be used to identify health hazards within the observed operations. Tasks can be analysed by breaking them down into their various components and subcomponents in a structured way to reveal the behaviour required of the human and the context in which the behaviour takes place in the work system. Task analysis provides a system specific context for the application of the fundamental ergonomics principals (Bridger 1995). Postural analysis can be a powerful technique for assessing work activities. The risk of musculoskeletal injury associated with the recorded posture(s), in the context of a full ergonomic workplace assessment, can be a major factor for implementing change (Hignett and Mcatamney 2000). Equipment assessments Physical dimensions of equipment to be checked against anthropometric data bases (where tables exist) to assess if appropriate for use by workers in developing as well as developed countries. It is generally believed that the anthropometric differences between European (or North American) user populations are sufficiently different that a product or item of equipment designed for one population will be unsuitable for another. The same may well be true of some developing countries (Pheasant 1998). Focus Groups Focus groups with project managers, procurement managers, equipment suppliers and designers will be used to identify if allowances have been made for differences in worker populations in the use and design of ICPME and whether barriers exist to these developments. Questionnaire A questionnaire is to be used to test the results from the project based interviews on a larger sample, than the interviews, of construction project managers regarding the use of ICPME, problems encountered and solutions adopted. 140 Bust, Gibb and Pasquire CONCLUSION There is increasing involvement of overseas construction companies in developing countries which is partly as a result of the need of these countries to ‘buy-in’ to new technology. The use of innovative construction practices, materials and equipment (ICPME) may provide benefits to these workers but it is likely that there will be a number of different new hazards produced through their use. These new hazards need to be managed effectively. From our early investigations, there is no sign that account is being taken for the many physical and cultural differences between workers from the developed world and the developing countries. These will be covered in this research project. The industry requires research to continue to achieve high standards of health and safety as new situations, such as these, arise. It is therefore intended to adopt an ergonomics approach with interviews, focus groups and observation and analysis of working practices to identify any hazards associated with the use of ICPME. The gathering of good practice from a number of global projects in various developing countries should assist with the inter organisational learning between the ECI member companies and provide projects management guidance for others involved in similar projects. REFERENCES Ashby, P. (1979) Ergonomics Handbook 1: Body Size and Strength., SA Design Institute, Pretoria. Bridger, R.S. (1995) "Introduction to Ergonomics", McGraw-Hill, New York, . Chen, J.J. (1998) "Characteristics and current status of China's construction industry", Construction Management and Economics, vol. 16, no. 6, pp. 711-719. Crosthwaite, D. (1998) "The internationalization of British construction companies 199096: An empirical analysis", Construction Management and Economics, vol. 16, no. 4, pp. 389. Hignett, S., Mcatamney, L. (2000) "Rapid Entire Body Assessment (REBA)", Applied Ergonomics, vol. 31, pp. 201-205. Koehn, E., Ahmed, S.A. & Jayanti, S. (2000) "Variation in construction productivity: Developing countries", AACE International Transactions, , pp. I4A. McKay, L.J., Gibb, A.G., Haslam, R.A. & Pendlebury, M.C. (2002) "Implications for the effect of standardisation and pre-assembly on health, safety and accident causality – preliminary results.", vol. 16. Health and safety on global projects in developing countries 141 Mlinga, R.S. & Lema, N.M. (2000) "Informal Contractors in Tanzania-their Characteristics and Reasons for Informality", 2nd International Conference on Construction in Developing Countries: Challenges facing the construction industry in developing countries. Murray, M. & Appiah-Baiden, J. (2000) "Difficulties Facing Contractors from Developing Countries: Problems and Solutions", 2nd International Conference on Construction in Developing Countries: Challenges facing the construction industry in developing countries. Peckitt, S.J., Glendon, A.I. & Booth, R.T. (2002) "Societal influences on safety culture in the construction industry", Implementation of safety and health on construction sites; Construction safety management systems, ed. S.M. Rowlinson, London:; Spon,; 2004, , pp. 17. Pendlebury, M., Brace, C., Gibb, A.G. & Gyi, D. (2004) Site Health Handbook, CIRIA, London. Pheasant, S. (1998) "Bodyspace: Anthropometry, Ergonomics and the Design of Work", Taylor & Francis, London, 2nd Edition, . Raftery, J., Pasadilla, B., Chiang, Y.H., Hui, E.C.M. & Tang, B. (1998) "Globalization and construction industry development: implications of recent developments in the construction sector in Asia", Construction Management and Economics, vol. 16, pp. 729-737. Sanders, M.S. & McCormick, E.J. (1993) Human Factors in Engineering and Design, Seventh edn, McGraw-Hill, New York. 142 Bust, Gibb and Pasquire ESTABLISH LEARNING ORGANIZATIONS OF CHINESE BUILDING DESIGN PROFESSION TO MEET THE CHALLENGE OF ENTERING WTO ZHANG WEI Teaching & Researching Office of Concrete Structures, School of Civil Engineering, Wuhan University, Wuhan, P. R. China, Postal code: 430072; Email: [email protected] ABSTRACT The building design profession is a profession where intellectuals are assembled and a rich body of knowledge exists. Knowledge is its core asset. The ability of building design organizations to create, absorb, share, apply knowledge, and organizational learning ability directly affects the quality of organizational outputs, design duration and cost, organizational competitive capacity, returns on construction investments and safety of lives and assets. In this time of knowledge economy, economic globalization and China’s accession to the World Trade Organization (WTO), the capacity of creating, absorbing and spreading knowledge, (i.e., learning capacity) in the profession appears to be extremely important for organizations to maintain competitive edge. This article explores and analyzes, in details, the learning situation of Wuhan building design profession at each level and distinguished the main obstacles to the learning. According to the present learning situation of the building design profession, this article has put forward measures to improve organizational learning, and suggestions and ideas such as enriching design job content, forming knowledge alliances, learner-managed learning, life-long learning, concern with external environment of organizational learning, mindset alteration of managers, personnel recruitment, creation of learning organizations and organizational culture facilitating learning and knowledge management. Keywords: Building design profession, Globalization, Knowledge management, Learning, Learning organizations INTRODUCTION As the number of WTO members rises steadily, economic globalization is developing rapidly. China signed the General Agreement on Trades of Services (GATS), formally put forward the concession table of market entrance permission of trades in services in 1994, making a tentative promise for opening the market of fourteen domestic trades in services such as the services of construction, real estate (Zhang Li 2000), and became a formal WTO member in December 12, 2001 [Zhang Yuan-lin (2002)]. All means that China will promote reform, open and market economy more rapidly and firmly to meet the requirements set by the WTO. Building designers will have more and more chances to cooperate with their foreign counterparts and do projects abroad on one hand, but face 146 Learning organizations to meet the challenge of entering WTO more and more intensive global competitions on the other hand. To grasp the chances, adapt to rapidly changing environment, survive the competition, building design organizations have to learn continuously and improve their core competitive abilities. As Shell’s Dagger said, enterprises’ only competitive advantage may be the ability to learn more quickly than their rivals [Wang Yun-liang, et al (2001)]. The building design profession is a profession where intellectuals are assembled and a rich body of knowledge exists. Knowledge is its core asset. The ability for building design organizations to create, absorb, share, apply knowledge, and organizational learning ability directly affects the quality of organizational outputs, design duration and cost, organizational competitive capacity, returns on construction investments and safety of lives and assets. In this time of knowledge economy, the capacity of creating, absorbing and spreading knowledge, (i.e., learning capacity) in the profession appears extremely important to organizational competitive edge. This article is based on a research that has explored and analyzed, in details, the learning situation of Wuhan building design professionals at each level and distinguished the main obstacles to learning. According to the present learning situation of the building design profession, it has put forward measures, suggestions and ideas to improve organizational learning. ANALYSIS OF LEARNING IN WUHAN BUILDING DESIGN PROFESSION There are two types of research paradigms - the normative and the interpretive paradigms. While the normative paradigm researchers use quantitative methods, the interpretive paradigm researchers use qualitative methods [Fensel, (1989)]. The research on which this article is based belongs to the interpretive paradigm, and should use qualitative methods. Miles and Huberman presented the following tips of qualitative research which are applied in this research: Qualitative researchers usually work with small samples of people. Qualitative samples tend to be purposive, rather than random. The most useful generalizations from qualitative studies are analytic, not "sample-topopulation". Work from the outside into the core of a setting [Miles and Huberman, (1994)]. Thematic analysis was conducted to draw conclusions. Wuhan telephone directory listed the phone numbers and addresses of lots of design organizations. Design organizations were first selected by chance, called, visited, and briefly surveyed in terms of how many employees they had, how many designers among total employees, their technical job titles, their parent organizations, what projects they could do, how much value of projects they finished each year, and so on to get a 'snapshot' impression. These impressions were the basis of a final selection of three organizations: one high level, one middle, another low level in terms of size, design capacity, projects value finished, and reputation in the field. The designers were selected to include: both genders; ages varying from twenties to fifties; professional background in Learning organizations to meet the challenge of entering WTO 147 architecture, structures, plumbing, electrical engineering; with final educational records from skilled workers school to master degree graduates; job titles from low to high; national highest level registered architects and structural engineers; working durations from ten years or less to over thirty years. Both questionnaires and interviews were adopted for the study. Four groups comprising forty-one concrete questions were designed ahead, concerning individual learning, team learning, organizational learning, and organizational managers, to get an all-round view of the learning situation in these organizations from different levels and points of view. This article is to analyze the learning situation in Wuhan design profession according to the five component technologies of learning organizations by Peter Senge [Senge, (1990)]. Personal Mastery Given the choice of a project similar to what interviewees had done and a different project, all interviewees selected a different one to learn more. All interviewees, except two, admitted that they would be active in preparation for the registry exams; one of the two said that he was too old; the other had realized all the possible goals of the national registry exams. Two thirds wanted to be "well known". About three quarters interviewees said they didn't admire anyone in their institutes, while the rest admired the ablest one. It showed designers had distinct characters and advocated personal mastery. The interviewees admitted their co-workers had influences on their working attitudes and the profoundness of their drawings. Two-thirds of the interviewees declared they were independent in characteristics and could not be negatively influenced by their co-workers. All interviewees expected newcomers suited their jobs or took a short time to do so; this must improve the newcomers’ learning. The interviewees showed that designers' attitudes to personal mastery were positive, most of them had high creative tension and were active in learning. Though the research showed that designers’ attitudes to personal mastery were positive, their organizations’ were very negative. More than three quarters interviewees confessed that they had no interesting projects. Most interviewees admitted that they had no opportunity to work on large projects, no opportunity to learn (especially, literature materials not enough, time not enough, or institutes not attaching importance to auxiliary specialties). The interviewees who had worked for longer time thought projects did not match their abilities. Most interviewees told that their institutes had no plans to promote designers' professional job titles or records of formal schooling, or the institutes had plans but no implementation. Most interviewees revealed that their institutes had no support for designers' theses. The institutes’ attitudes to improving the exchange of information and knowledge were inactive. 148 Learning organizations to meet the challenge of entering WTO Though most interviewees had ambitions to be well known in the profession, more than half thought they had no chance to be well known; being limited by objective factors such as no opportunity to work on large projects. No institute had clear vision on improving designers' technology, professional job titles, and records of formal schooling. Mental Models We can find from following that there were some useful ingredients of mental models existing among individual designers, but management failed to exploit, share and improve them. Two-thirds of the interviewees said that they had no written mental model. All interviewees expected newcomers to be suited to their jobs or to take a short time to do so. Able designers were respected. The managers of the institutes regarded their main role was to manage or designers obeying managers as a prerequisite. Shared visions No interviewee said his institute had clear vision on improving designers' technology, professional job titles, and records of formal schooling, let alone a shared one. All interviewees admitted there were conflicts among their organizational divisions. The interviewees had some dissatisfaction regarding their institutes, such as too many projects to do, the managers' corruption, not much resources to get projects, lack of facilities and talents, few complicated projects, absence of strong management, no accumulation at end of each year, too many staff members, poor residences and salaries. All these proved that the organizations lack harmony, cohesion and shared vision. Team learning There existed team learning to some extent. Individual designers had active performances in team learning, but the institutes performed very passively. The interviewees said they could learn from cooperation. All interviewees gave basically positive answers to the flow of their information and knowledge, but their organizations did little in this respect. About three quarters of the interviewees said they didn't admire anyone in their institutes, while the rest admired the ablest one. This was helpful for designers' conformance only to truth in team learning. Learning organizations to meet the challenge of entering WTO 149 System thinking Many institutes lacked system thinking: All interviewees admitted there were conflicts among their organizational divisions. Half of the interviewees admitted that cooperation among design offices was not so good. Shortening design duration can bring profits for design institutes and please owners. The benefit of reducing project costs cannot show immediately but will gradually appear through improving design institutes' fame. It needs system thinking to find the importance of decreasing project costs. About half of the interviewees said their institute heads did not emphasize project costs, which meant they lack systems thinking in this regard. Managers' management notions The managers of the institutes regarded their main role was to manage or designers obeying leaders as a prerequisite. These were from traditional management notions which emphasized organization, management, and obedience, while modern management emphasizes more on persuasion and communication to make everyone have shared vision, values and purpose, more on facilitating employees in fulfilling their visions. Modern management thinks shared visions, values and purposes are much more powerful than organization, management and obedience of traditional management. From the managers' management notions we cannot justify that they have imbibed the concept of learning organizations. The profession’s learning situation We can find from all above that individual designers were active in their personal mastery, but the institutes did very few things for designers in this regard; some institutes lacked shared visions, and in some important aspects this kind of situation even appeared very severe. Most institutes had no written mental models or if they have they do not implement; management failed to exploit designers' useful mental models and management themselves had some backward mental models. While individual designers performed well in team learning, the institutes acted passively; many institutes lacked system thinking. The managers lacked understanding of the concept of learning organizations. Consequently, learning in Chinese design institutes is only traditional, no apparent learning organizations there except some ingredients of learning organizations in some institutes. MEASURES TO IMPROVE THE LEARNING SITUATION IN BUILDING DESIGN INSTITUTES IN WUHAN Improving outer environment of the organizational learning The building design market system is not mature; technology and learning have not become the most powerful competitive advantages. The government should implement further reforms to lead to fair competition in the construction profession, such as fair bids 150 Learning organizations to meet the challenge of entering WTO for projects. The government should execute the rule that only designers registered in some class can do certain classes of projects accordingly. It is necessary for the government to make designers flow easily from small institutes to large institutes, and for institutes to enrich designers' jobs. Perfecting registration system is a good method to facilitate designers' flow. The government should hold registry exams periodically and increase difficulties of the exams continuously, and seriously execute the rule that only registered designers in some classes can do projects in such classes. This will greatly give able designers competitive advantage and make them mobile much more easily. Larger institutes have much more chances to get larger, more complicated, and challenging projects, that is why most interviewees considered designers could learn more and faster there. The government can transfer some technology used in large institutes to small institutes to facilitate the learning of designers in small institutes. Management needs to alter their management notions Management of building design institutes should change their traditional management notions, which emphasize organizing, managing and obeying, to modern ones, which emphasize more on persuasion and communication to make everyone have shared visions and common mental models, more on facilitating employees in fulfilling their visions. They should first be learners and commit to their learning, and then they should commit to their designers' learning, designers' personal mastery, shared visions and mental models, designers' team learning and system thinking. Hire suitable persons Able, knowledgeable and aggressive excellent employees can improve organizational learning levels, help guide others in their learning; they are organizational infinite learning sources and lively models. Hiring suitable persons will not only directly improve organizational learning, it can also have far reaching effect on learning. They can shape the subcultures to facilitate learning. Managers can extend these subcultures to the whole organization by instituting rewards. It was told during the interviews that these recent years some design institute recruited a batch of excellent graduates from universities annually. These newcomers had the common characters of good theoretical knowledge, aggressiveness in their specialties, being innovative; they formed distinct subculture which benefited the organizational learning significantly. To take in persons with different talents, characters and experiences helps engender diverse culture, helps employees learn from each other, and facilitate team learning and organizational learning. What set the culture of learning of General Electric apart is "a culture that uses this wide diversity as a limitless source of learning opportunities, a storehouse of ideas whose richness is unmatched in world business." [Abernathy, (1999)]. Learning organizations to meet the challenge of entering WTO 151 Building learning organizations The management should commit them to build learning organizations. Managers should first be learners committing to their learning, and become their subordinates' models. They should also commit to designers' personal mastery, and encourage designers to commit to their own personal mastery, and to learn actively and efficiently. They should make all employees highly honor personal mastery and learning, and build up shared visions and common mental models. To do so, they should seriously listen to designers, complex designers' opinions with theirs, discuss among designers and modify them again until everyone really shares the visions and mental models, and commit to them. Managers can utilize design crews for team learning. As designs proceed, crew members meet sometimes as teams, in which everyone is same member, no one weigh more than others, everyone freely expresses himself and challenges each other's opinions, not the persons who give the opinions. The management can facilitate organization supported action learning and encourage non-organization supported action learning. They can also tap design crews for organization supported action learning. In the process of designs, like setting of action learning, crews meet sometimes for crewmembers' problems, which also benefits projects themselves. The management should advocate system thinking, i.e., to think and observe objects considering all affections and in a long enough time range. This will facilitate the long-term benefit of institutes, and improve designers' cooperation. Enhancing knowledge management To facilitate the exchange of information and knowledge, institutes can adopt knowledge management. Most institutes have connected their computers in nets. They can use their nets to execute the codification strategy, the personalization strategy, or both. For knowledge which is convenient to be codified in computers, they use the codification strategy, otherwise, they can use the personalization strategy. Recovery of old mentor-apprentice relationships Designers learn fastest as beginners and designers as beginners having mentors will facilitate their learning a lot. Institutes are recommended to re-institute the relationship of apprentices and mentors as Wuhan Design and Study Institute of Civil Engineering did. Management by objective Management by objective (MBO) is prevalently used by managers for administration. It can also be used to promote learning by jointly setting and evaluating learning objectives. Other useful concepts Some concepts are also useful to help learning and improve learning. Learner managed learning: Learner managed learning encourages designers to learn actively. Individual designers take the initiative, diagnose their learning needs, 152 Learning organizations to meet the challenge of entering WTO formulate learning goals, identify human and material resources for learning, choose and implement learning strategies, and evaluate learning outcomes [Long, (1990)]. Life long learning: Life long learning argues that "the process of learning ought to continue throughout an individual’s life, whether or not there is involvement with the formal educational system” [Long, (1990)]. Boundary less learning culture: Boundary less learning culture is to "bring people of all ranks and functions - managers, secretaries, engineers, line workers, sometimes customers and suppliers - together into a room to focus on a problem or an opportunity and then to act rapidly and decisively on the best ideas developed, regardless of their source" (Abernathy, 1999). CONCLUSION The building design profession concerns not only incomes of construction investments, but also people’s safety of lives and properties, whose importance is obvious. However, it is discovered through the research that the learning situation in Wuhan building design profession is not so good. To face domestic and international competitions and challenges after China’s entry into the WTO, the present situation must be changed as quickly as possible. Otherwise, Chinese designers will not be able to compete well with their foreign counterparts. REFERENCES Abernathy, D J (1999) Leading-edge Learning. Training & Development, March, pp. 40 42 Fensel, D (1989) Knowledge Acquisition and the Interpretative Paradigm. Unpublished Manuscript, University of Karlsruhe, Karlisruhe, Germany Long, D G (1990) Learner Managed Learning: the Key to Lifelong Learning and Development. London: Kogan Page Miles, M B, and Huberman, A M (1994) Qualitative Data Analysis. London: SAGE Publication, Inc. Senge, P M (1990) The Fifth Discipline: the Art and Practice of the Learning Organization. New York: Doubleday Wang, Y L, Guo, X M, and Zheng, X Q (2001) The Dimensions and Tactics of Knowledge Management. Chinese Soft Science, No.6, pp.43-47 Zhang, L (2000) The Requirement of Trade Freedom of Building and Engineering Services by WTO and Recommendations of Countermeasures. Architecture and Construction, No.2, pp.32-34 Zhang, Y L, and Pang, B (2002) Countermeasure in Consultation for Project Prospecting and Designing after the Access of China to WTO. Journal of Chongqing Jianzhu University, Vol.24, No.3, pp.58-64 THE POWER-BASED PROJECT LEADERSHIP APPROACH Power-based project leadership ANITA LIU Dept. of Real Estate and Construction, The University of Hong Kong, Hong Kong, China. [email protected] KE-WEI TANG Dept. of Construction Management and Real Estate, Tongji University, Shanghai, China ABSTRACT The concept of leadership inevitably concerns power structuring in which power is distributed unevenly between individuals in the project team. Power, in its diverse guises, combines interpersonal and structural elements and may be enhanced through political manoeuvring. This paper develops a power-based model of project leadership underpinned by the culture of harmony and discusses appropriate methodology for testing the construction enterprises in China using social network analysis. The model also postulates that the motivational function of good leadership operates through managing power gaps by means of power-sharing and power-amassing. Such postulation is supported by the Chinese philosophy of yin-yang dichotomy, i.e., the holistic leadership approach is exemplified in maintenance-oriented and performance-oriented leadership where one does not exist without the other and together they imply unity. Keywords: construction, culture, harmony, power, leadership. INTRODUCTION Project management devotes attention to both the formal (hard) system of rules and procedures, and the potential informal (human) system of motivation and leadership in order to maximize the probability of achieving a successful project. In essence, the wielding of power in the project organisation is dependent on the informal system but operable within the framework of the formal system based on the concept of ‘structuration’ [Giddens (1984), Barbalet, (1987)]. That is, the focus upon the notion of power involves control over resources [Foa and Foa (1974)] – especially, finance – and a typology of six types of resources, i.e., status, information, money, goods, love and services, is present for transmission from one individual (social actor) to another. Thus, the desires and needs to control behaviour (e.g. financial rewards is exercised to ensure certain performance outcome) gives rise to considerations of structuring and exercise of power. This paper discusses the development and testing of a power-based model of project management using the social network analysis (SNA) approach. 154 Liu and Tang POWER-BASED PROJECT LEADERSHIP If leadership concerns the ability to influence the behaviour of others to (more) accord with the desires of the leader and headship is identified to involve the imposition of such behavioural modification, then it is apparent that both concern interpersonal relationships and, therefore, regarding pursuit of goals, involve power. Progression in leadership research essentially retains the bi-dimensional perspectives of people-orientation and production-orientation [Likert, (1961), Misumi, (1985), Blake and McCanse, (1991)] and the importance of leadership and power disposition in the project organisation is apparent as the focus of people in project management comprises two elements. First, their being the driver of activities through having needs made effective in different ways, most usually through conversion into demand. Second, their being the only active resource, whether as decision makers (mental activity) or as operatives (functional decision executors; physical activity). Callon, [Law and Rip (1986)] suggest that power structures can be mapped from determining how agents translate phenomena into resources and, thence, into organizational networks of control, alliance, coalition, antagonism, interest and structure – i.e., both negative (need to be controlled) and positive components of power. [Burns (1978)] distinguished transactional leadership (mutual dependence in an exchange process) from transformational leadership (motivate followers via engendering strong vision, mission, emotions and identity). Transformational leaders appeal to followers’ ‘higher ideals’ to upwardly transform performance. The approach is emotionally charged and so, often, is related to charismatic leadership (Kreitner and Kinicki, 2001). Some argue that empowerment is the root of organisational effectiveness, especially during times of transitions and transformation and that the more productive forms of organisational power increase with the leaders’ sharing of power and responsibilities with subordinates [Kanter, (1979, 1983)]. [Fiedler, (1967)] encapsulated the ideas in that the leader’s ability so to act depends on the group task situation and on the extent to which the leader’s personality and behaviour fits the group, i.e. the critical dimensions are position power, task structure and leader-follower relations. The manner of using the position power and delegation/control of the tasks to achieve goals are at the leader’s behest. In processes like the realization of construction projects, power structuring is dynamic and so, the shifting multi-goal coalition which results reflects the changing power structure of the main actors [Walker and Newcombe, (2000)]. Persons in strong power positions may choose to persuade to influence the actions of others rather than command. Indeed, the manner in which a person behaves may be of greater impact on the outcome than the formal attributes of that person’s position in an organization. Hence, leaders motivate, not merely instruct. [House, (1971)] developed a motivation oriented contingency theory of leadership as a path-goal approach. Path-goal motivation asserts that people perceive that increased effort produces increased output for which rewards will be given which the people desire. Such expectancy theory variables are supplemented by situational factors (characteristics of followers and the work environment) and leader behaviour (categorised as supportive, participative, instrumental [or directive], achievement-oriented). As the formal leader of the team, the project leader is legitimately conferred with the formal power concomitant with his/her occupation of the managerial position—positional power [French and Raven, (1959), Mintzberg, (1983)]. However, [Rudolph and Peluchette, (1993)] believe that, as a project becomes Power-based project leadership approach 155 increasingly complex, both project leader and project members may feel pervasively more powerless (see also Conger 1989) as a result of a widening gap between the amount of power granted by the position and that actually required to get the job done. The project leader may have to proactively bridge the power gap through power sharing/empowerment and power amassing. CONCEPTUALISATION OF A POWER-BASED BEHAVIOURAL MODEL Behaviour – to – Performance – to – Outcome Performance in the context of project procurement is a result of the Stimulus-OrganismResponse (S-O-R) cycle, a fundamental concept in the cognitive psychology approach [Tolman, (1926), Naylor, Pritchard and Ilgen (1980)]. Project performance is brought about by the project team’s adoption of (certain) behaviours that leads to performance outcome [see Liu and Walker (1998) for detail]. The aggregate of project team members’ behaviours (the acts of choice made through judgement and decision making) creates projects (products) as a result of carrying out the acts, of which performance could be evaluated within a behaviour-performance-outcome model (fig. 1). Fig. 1 Project leadership behavioural model Organism Project leader (Stimulus) Organism Individual project members (Stimulus) Organism Project team Stimulus 1. Leadership styles adoption 2. Power sources Response Project leaders’s behaviours Response Individual project member’s behaviours Response Project team performance In fig. 1, the S-O-R cycle operates as a result of the stimuli (S) exerted by environmental factors on the members of an organization (O) who then make a response (R). The consequences of the acts are fed back to the individuals and the environment in the form of new stimuli. The important point is that each organism follows the S-O-R paradigm with its own feedback loop, and the responses of one organism form part of the stimuli for the other. Furthermore, the environment is a (collective) ‘organism’ which is composed of a number of people (such as the project organisation in which the project leader is part). The environment is regarded as a system that acts very much like an organism in its own right, i.e. it is a system possessing the same primary mechanisms as the individuals [Naylor et al (1980:23)]. Hence, the organisation is also a responding entity. Take the case of the project organisation in fig. 1: stimuli impinge upon it, some of these stimuli are perceived and processed and the project organisation produces responses (such as increased effort in 156 Liu and Tang enhancing performance). The project organisation and the project leader within it are interrelated while both are active entities in their own right. They are two interacting systems and influence each other dynamically. ‘Both show the S-O-R pattern, but the responses of the environment are a major component of the stimuli of the individual, and the responses of the individuals are a component of the stimuli of the organisation’ [Naylor et al (1980:25)]. General characteristics of project organization Project organizations are usually more complex compared with other kinds of organizations. According to [Cheng (1997)], the complexities shown in the following aspects: 1. Contract-based temporary organizations or shifting multi-goal coalitions called by Newcombe (1994). Project participants include clients, consultants, project managers, designers, contractors, subcontractors, and material suppliers; and construction project organizations are formed based on the contracts between these participants. After a construction project is completed, the life of the organization for this project is also ended. 2. Multi-discipline. There are numerous disciplines that are involved in construction, such as management, architecture, structural engineering, electrical engineering, quantity surveying. 3. Closely environment-related. Many external forces such as economic and political forces may significantly affect construction projects [Walker, (2002)] and sometimes a key external factor even determines whether a project can be made successful. Empowerment and leadership Typically, interdependencies are involved in the project management system; such as between design consultants in the exchange of (interdependent) information to facilitate completion of a design or between leader and follower – the former providing resources to facilitate task execution and the latter to work efficiently and effectively thereby reflecting the leader’s role and abilities. Power imbalances are not always equalised, and, generally the greater the dependency, the greater the power of the agent. Emerson’s (1962) model of social exchanges via analysis of power differentials and dependencies between people provides a basis to understand the project organisation as a shifting power-based multi-goal coalition. Power may also be seen as potential in that it need not be exercised by the agent (power holder) explicitly; however, like potential energy, the power exists and only awaits realization through being acted upon by targets. What is quite clear is that power is a combination of inter-personal and (organisational) structural factors and so both need to be examined in order to gain an appreciation of the power distribution. Thus, it is likely that political activities are important in power distributions and the exercising of such power – through forming (temporary) coalitions etc. Thus, ‘organisations may be seen as a plurality of power holders’ [Arslan, (2001)]. Power-based project leadership approach 157 Sources of power have been examined by many researchers, e.g. [French and Raven, (1959)] but the dichotomous classification of position power (derived from the person’s post in the organisation) and personal power (determined by the individual’s personal attributes) [Bass, (1960), [Yukl and Falbe, (1991), Bass and Avolio (1994)] is more appropriate for project organisations. Position power is determined by organisational structure and how that structure is made active by delegation. If decision-making is delegated, then so is (position) power; but if authority to follow routines is delegated, the position power of the agent and of the target remain unaltered [Barnes, (1986)]. The empowering leaders share a strong underlying belief in their subordinates’ abilities, as supported in the Theory Y argument [see McGregor, (1960)]. Since bureaucratic environments are known to create conditions of powerlessness (Block 1987) and authoritarian management styles can strip away subordinates’ discretion and, in turn, a sense of power [Conger, (1989)], certain leadership styles (which tend towards headship) have a stronger bearing on the subordinates’ sense of powerlessness. The dichotomy posited in performance- and maintenance-oriented leadership implies that the former is the function which contributes towards goal achievement or problem solving, and the latter is that of promoting a group’s self preservation or of maintaining and strengthening the group process itself. Any leader will possess a combination of performance- and maintenance-oriented qualities [Misumi, (1985)] but the relationship (maintenance)orientation, rather than the performance-orientation, aspect of leadership may have more effect on a leaders’ readiness to empower. Empowerment is the act of strengthening an individual’s beliefs in his/her sense of effectiveness – a process of changing the internal beliefs of people [Conger and Kanungo (1988, 1987)] or self efficacy [see Bandura, (1986)] on social cognitive theory for self efficacy) and may lead to increased motivation, productivity and effectiveness [Umiker (1992), Pfeiffer and Dunlap, (1990), Conger and Kanungo, (1988)]. According to Umiker (1992), the more that people are in control of their work, the greater their self esteem, energy, enthusiasm, productivity and attendance; people who have power are more likely to achieve their desired outcomes. The sense of powerlessness maximises feelings of inadequacy and lower self-confidence, which, in turn, lessen motivation and effectiveness [Conger, (1989)]. Since powerlessness equates to low self-esteem and a diminished sense of autonomy and responsibility, to enhance individuals’ belief in their self-efficacy, leaders must satisfy their needs, including need for power and self-actualisation. An individual’s sense of mastery through actual experience is the most effective means of increasing self efficacy (Bandura 1986). Initial success experiences will make them feel more capable and, in turn, empowered. Whetton and [Cameron, (1984)] regard empowerment as the process of motivation through enhancement of self-efficacy, the power to produce effects. Hence, it is postulated that certain leadership styles (of the project leaders) increase/decrease the sense of powerlessness (of project team members) and negatively/positively affect performance via decrease/increase in motivation. 158 Liu and Tang Research Rationale The dichotomous classification of power is examined by [Bass, (1960)] and Yukl and [Falbe, (1991)]. One is position power that is derived from the person’s post in the organization and the other is personal power that is determined by the individual’s personal attributes such as expertise and status. An alternative perspective from [Daft, (2000)] is that sources of power can be examined from two aspects: vertical and horizontal. Vertical sources of power include formal position, resources, control of decision premises, and network centrality. Horizontal sources of power include dependency, financial resources, centrality, non-substitutability, and coping with uncertainty. The examination of power in construction project organizations should consider their characteristics which distinguish them from other types of organizations. As the formal leader of the team, the project leader is legitimately conferred with positional power [French and Raven, (1959), Mintzberg, (1983)]. Thus, the leader guides followers’ performance via a combination of power exercising (through power sharing and amassing) and leadership exertion. A power-based leadership model is developed in [Liu et al, (2003)] and subsequently tested by means of structural equations modeling in [Liu and Fang, (2004)]. Among the 69% variability of members’ performance accountable by their model, more is attributable from the contribution of performance-oriented leadership (0.54) than from member’s intrinsic motivation (0.49). While intrinsic motivation is causal to performance, the effect of intrinsic motivation comes mostly via empowerment/power sharing from manager’s referent power. Power concerns dependency on and control of resources and empowerment concerns delegation of control. The findings that positional power has very little effect on motivation may suggest that project managers in China do not have much control of resources, hence, motivation is more reliant on project manager’s referent power than positional power. It is found (Liu and Fang, 2004) that the importance of the effects of various power sources on members’ performance and extrinsic motivation are ranked as (1) referent power, (2) expert power and (3) positional power. In order to further investigate the effects of the project manager’s exercising of power exertion behaviours on the responses of project team members, it is proposed that network model for project organisations are developed from the social network analysis (SNA) approach. Proposed methodology Social networks are a way of describing systems, which are, composed of related multiple elements [Scott, (2000)]. Each element, sometimes called node or actor, may have a relationship (or tie) with the other elements. Social networks can describe relationships between individuals, groups, organizations, computers and other information/knowledge processing entities [Wasserman and Faust, (1994)]. Social network analysis (SNA) is the Power-based project leadership approach 159 set of techniques used to observe social networks and for the mapping and measuring of relationships between elements. A number of important insights about power have been contributed by SNA. Because power is a consequence of patterns of relations, the amount of power and its distribution in social structures can vary. Power is both a systemic (macro) and relational (micro) property. For measuring power, the concept of centrality is usually used [Brass, (1992)]. The idea of the centrality of individuals and organizations in the social networks is one of the earliest to be pursued by social network analysts, e.g. [Bavelas, (1948, 1950)]. Up to now, a number of competing concepts and measures of centrality have been proposed. The three most widely used centrality measures are degree, closeness, and betweenness [Freeman, (1979)]. The degree measure of centrality is defined as the number of direct links to or from an actor [Scott, (2000)]. Actors who have more ties to other actors may be advantaged positions and have more power than others. The degree measure is sometimes broken down into in-degree (number of direct ties in which the actor is the object of the relation) and out-degree (number of direct ties from the actor to others). If an actor receives many ties, this may indicate the actor’s importance as many other actors seek to direct ties to it. If an actor has unusually high out-degree, this shows that the actor is able to exchange with many others, or make many others aware of their views. Actors who display high out-degree centrality are often said to be influential actors. According to [Freeman, (1979)] and [Wasserman and Faust, (1994)], the closeness centrality indicates how “close” an actor is to all other actors in the network or in other word, the extent to which an actor can avoid the control of others. It is calculated on the basis of farness, which is the sum of the shortest (geodesic) distances from an actor to all others. Farness can be converted into closeness by taking the reciprocal (that is one divided by the farness) and normalizing it relative to the most central actor. Conceptually, the closeness measure has been interpreted as efficiency (extent to which an actor can reach all other actors in the shortest number of steps) and independence (being close to all other actors, a person is less dependent on intermediaries). Betweenness centrality measures the extent to which an actor falls between pairs of other actors on the shortest paths (geodesics) connecting them. [Freeman, (1979)] conceptualizes this measure as potential control over others. For example, if two actors A and C are connected only through actor B, B would fall “between” A and C and would mediate the flow of any resources between A and C. Using the computer, it is quite easy to locate the geodesic paths between all pairs of actors, and to count up how frequently each actor falls in each of these pathways. The betweenness measure can be normalized by expressing it as a percentage of the maximum possible betweenness that an actor could have had. Whereas the closeness measure represents avoiding dependence on others, the betweenness measure represents controlling or increasing the dependence of others. In terms of current Construction Law in Mainland China, for almost all construction projects, an independent outside project management company must be employed by a client. Each main player in a construction project sets up its own team for the project; those being client project team, design project team, contractor project team, and project management team. Moreover, there are other participants such as subcontractors, 160 Liu and Tang consultants, material suppliers, quality monitoring centre for construction projects, industrial safety monitoring centre, government administrative departments etc. The network model of a construction project organization should be multi-relational. There are many relations between the actors in a construction project organization and the integration of these relationships forms the power of each actor. In Mainland China, the relations usually include (1) contractual (2) payment (3) information (4) friendship (5) kinship or “from same hometown” (6) “having same culture”. The power analysis can be conducted on both the individual level and group level in longitudinal studies. CONCLUSION In construction, as in other project situations, where differentiation is extensive, expertise (both special knowledge and experience) is an important source of power. The rules in and around the project team determine the roles of the project manager and project members and specify the meanings of the relationship between the leader and followers. A project manager, as the leader of the mature, experienced professionals, is “…often slightly elevated over them” in terms of influencing power [Walker, (2002)]. The study undertaken by [Rudolph and Peluchette, (1993)] proposes that positional powerlessness is the causal factor for power gap in both private firms and government bodies. In the case of the project team, the attribute for the power gap formation is postulated to be the discrepancy in personal power (referent power and expert power) rather than positional power and it is proposed that social network model be developed to investigate the power exercising behaviors. Culture often dictates how people behave – including the exercising of power. Research indicates that cultural differences exist at the corporate level [Zhang, (2004)] in Chinese construction companies and that Chinese national culture, characterized by Confucianism, nurtured by decades of highly unified political ideology, and centralized planned economy, has great influence at the corporate level. However, China’s recent open and reform policy has been exerting impact on its current culture, which can be reflected from some of the individual cultural traits in a pilot study on organizational cultural profiles involving five enterprises from various regions in China. The enterprise in Shantou in the south of China that is more exposed to western market influence adopts a market-oriented culture in contrast to the other four which are predominantly clan- or hierarchy-oriented. Such differences imply that corporations have undergone cultural changes which affect employees’ behaviors as a response to the changing environment and enhance the importance of the need to understand how the patterns of power exercising are operating and/or being affected in different organizational environments of multi-relational dependencies. [Walker (1989: 143)] quotes Lao-tse, ‘to lead people, walk behind them,’ and continues, ‘As for the best leaders, the people do not notice their existence. The next best, the people honour and praise. The next, the people fear; and the next, the people hate…. When the best leader’s work is done, the people say, “we did it ourselves”.’ (p144). Walker’s extract from ancient Chinese Taoist philosophy confirms the motivational function of good leadership but also impliedly, the leader’s realization and manipulation of the power gap. That holistic approach of the Chinese yin – yang dichotomy is Power-based project leadership approach 161 exemplified in maintenance-oriented and performance-oriented leadership – one does not exist without the other and together they imply unity. ACKNOWLEDGEMENT This paper is partially supported by the Hong Kong RGC competitive earmarked research grant, project no. HKU 7011/98E REFERENCES Arslan, M. (2001) A cross-cultural comparison of achievement and power orientation as leadership dimensions in three European countries: Britain, Ireland and Turkey, Business Ethics: A European Review, 10 (4), October, 340-435. Bandura A. (1986) Social foundations of thought and action: a social cognitive theory, Englewood Cliffs, NJ: Prentice Hall. Barbalet, J. M. (1987) Power, Structural Resources and Agency, Perspectives in Social Theory, 8, 1-24. Barnes, B. (1986) On Authority and its relationship to power, In Power, action and belief, (Sociological review monograph; 32), London: Routledge & Kegan Paul. Bass, B. M. (1960) Leadership psychology and organizational behaviour, New York: Harper. Bass, B. M., Avolio, B. J. (Eds.) (1994) Improving organizational effectiveness through transformational leadership, Thousand Oaks: Sage. Bavelas, A. (1948) A mathematical model for group structure. Human Organizations, 7, 16-30. Bavelas, A. (1950) Communication patterns in task-oriented groups. Journal of the Acoustical Society of America, 22, 271-282. Blake, R. R., McCanse, A. A. (1991) Leadership Dilemmas: grid solutions, Houston: Gulf Publishing Co. Block P. (1987), The empowered manager. San Francisco: Jossey Bass. Brass, D. J. (1992) Power in organizations: a social network perspective. In Research in Politics and Society: The Political Consequences of Social Networks, Moore, G. and Whitt, J. A. (eds), Jai Press Inc., Greenwich, pp. 295-323. Burns, J. M. (1978) Leadership, New York: Harper and Row. Callon, M., Law, J., Rip, A. (Eds.) (1986) Mapping out the Dynamics of Science and Technology: Sociology of Science in the Real World, Basingstoke: Macmillan. Cheng, H. (1997) Construction Project Management, Chinese Construction Industry Press, Beijing. Conger J.A. (1989), Leadership: the art of empowering others. Academy of Management Executive,(3) 1, 17-24. Conger J.A., Kanungo R.N. (1988), The empowerment process: integrating theory and practice. Academy of Management Review, (13) 3, pp 471-482. Conger, J. A., Kanungo, R. N. (1987) Toward a behavioral theory of charismatic leadership in organizational settings, Academy of Management Review, 12, 637-47. Daft, R. L. (2000) Organization Theory and Design. 7th edition, South-Western College Publishing, Mason, Ohio. Emerson, R. M. (1962) Power-dependence relations, American Socialogical Review, 27, 31-40. 162 Liu and Tang Fiedler, F. E. (1967) A Theory of Leadership Effectiveness, New York: McGraw-Hill. Foa, U. G., Foa, E. B. (1974) Social Structures of the Mind, Springfield, IL.: Charles c. Thomas. Freeman, L. C. (1979) Centrality in social networks: conceptual clarification. Social Networks, 1, 215-239. French, J. R. P., Raven, B. (1959) The Bases of Social Power, In Cartwright, D. (Ed,), Studies in Social Power, Ann Arbour: Institute for Social Research, University of Michigan. Giddens, A. (1984) The Constitution of Society, Cambridge: Polity Press. House, R. J. (1971) A Path-Goal Theory of Leadership Effectiveness, Administrative Science Quarterly, 16, September, 321-338. Kanter R.M. (1979), Power failure in management circuits. Harvard Business Review. July/Aug., 65-75. Kanter R.M. (1983), The Change Masters. New York: Simon and Schuster. Kreitner, R., Kinicki, A. (2001) Organizational behavior (5 Edn.), Boston: Irwin/McGraw-Hill. Likert, R. (1961) New Patterns of Management, New York: McGraw-Hill. Liu A. M. M., Walker A. (1998), Evaluation of project outcome, Construction Management and Economics, 16 (2), 209-219. Liu A., Fellows R., Fang Z. (2003), The power paradigm of project leadership. Construction Management and Economics. 21 (8), 819-829. Liu A., Fang Z. (2004), A power-based leadership approach to project management. Manuscript. Dept. of Real Estate and Construction, University of Hong Kong. McGregor D. (1960), The human side of enterprise, NY: McGraw Hill. Mintzberg, H. (1983) Power in and around Organizations, Englewood Cliffs, NJ.: Prentice Hall. Misumi, J. (1985), The behavioral science of leadership: an interdisciplinary Japanese research program, In Peterson, M. F. (Ed.), Ann Arbor:University of Michigan Press Naylor, J.C., Pritchard R. D., and Ilgen, D. R, (1980), A theory of Behavior in Organization, New York: Academic Press. Newcombe, R. (1994) Procurement paths – a power paradigm, in Proceedings of CIB W92 Symposium: East Meets West: Procurement Systems. Rowlinson, S. M. (eds), CIB Publication No. 175, The University of Hong Kong, Hong Kong, pp. 243-250 Pfeiffer I.L., Dunlap J.B. (1990), Increasing productivity through empowerment. Supervisory Management, (35) 1, 11-12. Rudolph, H. R., Peluchette, J. V (1993) The Power gap: Is sharing or accumulating power the answer? Journal of Applied Business Research, 9 (3), summer, 12-20. Scott J. (2000) Social Network Analysis: A Handbook. 2nd edition, SAGE Publications, London . Tolman, E. C. (1926) A behavioristic theory of ideas, Psychology Review, 33, 352-369. Umiker W. (1992), Empowerment: the latest motivational strategy. Health Care Supervisor, (11) 2, 11-16. Walker, A. (1989) Project Management in Construction, Oxford: BSP Professional Books. Walker, A. (2002) Project Management in Construction. London: Blackwell Science. Walker, A., Newcombe, R. (2000) The positive use of power on a major construction project. Construction management and Economics; London, Jan/Feb. Wasserman S. and Faust K. (1994) Social Network Analysis: Methods and Applications. Cambridge University Press, Cambridge Power-based project leadership approach 163 Whetton D.A., Cameron K.S. (1984), Developing management skills. Glenview, IL: Scott, Foresman. Yukl, G., Falbe, C. M. (1991) The importance of different power sources in downward and lateral relations, Journal of Applied Psychology, 76, 416-423 Zhang, S. (2004), An organizational cultural analysis of the effectiveness of Chinese construction enterprises. PhD Thesis. Dept. of Real Estate and Construction, University of Hong Kong. Unpublished. 164 Liu and Tang Educating for sustainable built environment or just educating? 179 EDUCATING FOR A SUSTAINABLE BUILT ENVIRONMENT OR JUST EDUCATING? P. M. D. RWELAMILA Graduate School of Business Leadership, University of South Africa (UNISA), P O Box 392, Unisa 0003, Pretoria , South Africa. [email protected] ABSTRACT Built environment clients across the world have been demanding for improvement in a number of issues, which are fundamental to the sustainable functioning of the built environment and their businesses. Most of the early reports on built environment improvement were inspired by client concerns about the impact on their commercial performance of the inefficiency and waste in construction, and all contained remarkably similar messages. Furthermore, the road to identifying solutions to client demands, have been affected by a number of forces facing the built environment across the world. This paper looks at a cross-section of client demands and the forces, which have affected their dynamics. The paper reports on a survey of built environment professional training curricula at higher learning institutions within the Southern Africa Development Community (SADC) countries, using South Africa, Botswana and Tanzania as case studies. Based on the contents of built environment professional training curricula, the paper identifies the following: curricula designers seem to ignore clients cries and construction industry challenges; most of the curricula designers do not seem to be interested to know what is happening within construction industries; and almost all programmes surveyed are outdated. Finally the paper recommends necessary measures, which should be taken to bridge the gaps in built environment professional training curricula. Keywords: education, client concerns, forces facing the built environment, built environmental professionals, curricula content, sustainable built environment. INTRODUCTION Imagine watching graduates in any built environment degree/or diploma receiving their certificates at any graduation ceremony. The two questions, which linger in the minds of those who are following the built environment turbulent state [Turin, (1973), Wells, 1986], World < biblio >) are – Are these graduates going to provide a solution to their customers’ demand for improvement? Do they have necessary knowledge to face the forces affecting organisations within the construction industry? When you meet these graduates at the coalface you start wondering whether they are aware of the frustrations facing the clients across the world. You wonder if they understand what is going on in the minds of those who spend their money on 166 Rwelamila infrastructure and always regret on what they get from those who claim a good number of years of experience. The fact that the majority of graduates join their role models in practice and continue to ‘romance the stone’ (remain dealing with what they know and only what they know) to the annoyance of the clients, suggest that there is a need to question whether they have been trained for today or for the future? The answer to this question is as complicated as climbing 20 Mount Kilimanjaro on top of each other. The complication as to what the answer should be comes from the fact that while a number of reports, conferences, task teams have dealt with the issue, the solution still looks to be far away from the coalface of various construction projects and client organisations. Writing from the United Kingdom (UK), [Cain, (2003)] refers to ‘Seventy years of customers demand’. He further highlights similar demands (among others), advanced by the 1995 report by the USA Construction and Building Sub-committee of the Committee on Civilian Industrial Technology (CCIT), the Construction 21 report, which was produced for the Singapore Ministry of Manpower in 1999, the 1994 Latham Report – Constructing the team, the 1998 Egan Report – Rethinking Construction. Other cries for improvement have come from: East Africa (Mbatha, (1986), Talukhaba, (1988), Kivaa, (1999)]; Southern Africa: [Rwelamila, (1996), Lema and Price, (1998), Msita, (1998), Department of Public Works (DPW), (1999), DPW, (1999), Rwelamila, Talukhaba and Ngowi, (1999), and Rwelamila, Talukhaba and Ngowi, (2000)], just to mention a few. First, the paper focuses on built environment clients demands for improvement and uses the findings of the above research results to pose questions and answers to all stakeholders involved in training current and future professionals. Secondly, the paper reflects on the forces facing the construction industry. It advances a number of questions and answers to all stakeholders responsible for training current and future professionals on the appropriate training strategies towards dealing with the impacts of these forces. The questions and answers are advanced in order to establish the trends towards addressing client requirements and the way forward towards dealing with the forces identified. Furthermore, the paper presents the research findings on what is being lectured to students at higher learning institutions in South Africa, Botswana, Kenya, Uganda and Tanzania with respect to built environment clients demands for improvement. CUSTOMER INDUSTRIES DEMANDS AND FORCES FACING CONSTRUCTION Customer demand for improvement According to [Cain, (2003)], most of the early reports on improvement were inspired by client concerns about the impact on their commercial performance of the inefficiency and waste in the construction industry, and all contained remarkably similar messages. These reports described the construction industry as fragmented, inefficient and adversarial, which damaged the commercial effectiveness of its end user clients by being guilty of Educating for sustainable built environment or just educating? 167 passing on unnecessarily high capital costs and poor functionality. No significant impact to the construction industry was realised. [Cain (2003)] argues that the reason why the numerous reports [say between (1929 – 1994)] failed to have any impact on the performance of the construction industry is that the industry continues to be blind to its failings. He further argues that it was also unwilling to measure its performance, particularly the impact of fragmentation and adversarial attitude on the effective utilisation of labour and materials and the lack of effective pre-planning of construction activities. Clients continued to reinforce fragmentation and adversarial attitudes by insisting on using a sequential procurement process (traditional procurement system), the situation was made worse. Subsequently, it became impossible to harness the skills and knowledge of the specialist suppliers into design development because they were not involved until after the constructor was appointed and the design was complete. Consequently, it was impossible for them to inject constructability and ‘right first time’ or greater standardisation of components into the developing design. Taking stock of what is happening today, seems little different from that described in the 1994 Latham Report – Constructing the team, the 1998 Egan Report – Rethinking Construction and the Singapore Ministry of Manpower report in 1999, the Eastern Africa studies [Mbatha, (1986), Talukhaba, (1988), Kivaa, (1999)]; and the Southern Africa studies: [Lema and Price, (1998), Department of Public Works (DPW), 1999, Msita, (1998), DPW, (1999), Rwelamila, Talukhaba and Ngowi, (1999), Rwelamila, (1996), and Rwelamila, Talukhaba and Ngowi, (2000)]. The demand from clients in the English Commonwealth countries for radical improvements in the performance of the construction industry is a demand that stakeholders involved in training present and future professionals can not ignore. This is exemplified well in a number of documents that have been published and non-published ones across institutions and countries. The 1999 construction 21 report - Singapore This report compared the situation in Singapore with that in Australia, Japan, Hong Kong, the UK and the USA, and examined developments elsewhere, such as in the Netherlands and in Denmark. It argued that the current state of affairs in the construction industry could not be sustained and that the industry must align its performance and practices with the other sectors of the economy. The report called for paradigm shifts in the performance and perceptions of the Singapore construction industry (CI), namely: Change from being perceived as dirty, demanding and dangerous to being perceived as professional, productive and progressive; Become a knowledge industry which compares well with other technologically advanced industries; Adopt a distributed manufacturing approach where construction products can be manufactured off-site and brought together on-site for assembly; Adopt an integrated approach to design, construction and maintenance where there is close co-operation and collaboration between consultants, 168 Rwelamila constructors and manufacturers, which lead to the formation of synergistic partnerships; and Deliver cost competitiveness through higher productivity. The 199 White paper – South Africa The white paper provides refined results of a broad South Africa public policy making process. It provides an enabling framework within which the construction industry can play a strategic role in social development and economic growth. The white paper advances three key principle goals of the CI development policy as: Ensuring a competitive CI that meets global standards of performance in terms of quality, productivity, safety, health and the environment; Ensuring a total capability in South Africa to meet the built environment needs for development of a whole society; and ensuring that the South African CI in its broadest definition offers access into the mainstream economy for those sectors of society disadvantaged by the policies of the past. Studies in East Africa In studies conducted in East Africa, the following problems have been found to negatively characterise project performance in East African construction industries: Poor project time and cost performance [Mbatha, (1986), Talukhaba, (1988), Kivaa, 1999)]; Late nomination of subcontractors and poor workmanship as some of the factors contributing to project delays, inaccurate estimates of clients project financing, efficient site management lacking, and Delay in payment of contractors, variations issued without regards to original budget – affecting project cash flow, and lack of thorough briefs, skilful designs and specifications [Talukhaba, (1999)]; Strong resistance for change to other forms of project procurement by some members of the design team [Mbatha, (1993)]; The culture to plan meticulously and commitment to controlling the project has not entrenched itself in the construction industry in Kenya [Mbatha, (1986)]; Occurrence of variations – considered to be a reflection of incompetence in design, lack of application of constructability and poor project planning and control [Talukhaba, (1988)]; Public clients build more costly projects, which at the same time take a long to design and construct [Mbatha, (1986), Talukhaba, (1988)]. Other SADC Studies In a number of studies conducted within the Southern Africa Development Community (SADC) region, critical problems, which are affecting performance, have been identified. These include: Poor quality of constructed work and low levels of productivity [Lema and Price, (1998)], Department of Public Works (DPW), (1999); Uncoordinated built-environment professionals [Msita, (1998), DPW, (1999)]; While purporting to use the typical Educating for sustainable built environment or just educating? 169 traditional project delivery system (TPDS), designs are normally incomplete before preparing tender documents [Rwelamila, Talukhaba and Ngowi, (1999)]; Undue haste in making a physical start on site seem to characterise the construction process in 8 SADC countries, and project managers do not have appropriate management structures to balance cost, quality, schedule and utility requirements [Rwelamila, Talukhaba and Ngowi, (1999)]; Costly project delays due to division between design and construction [DPW, (1999)]; Project documents are quite often late to arrive on site, they are incomplete and contain large sections of irrelevant material [Rwelamila, (1996)]; A considerable amount of unacceptable quality work arises due to lack of organisation and co-ordination between trades, which affects location, accuracy, finish, sequence, damage, etc., lack of skilled labour and poor site supervision are two major problems influencing quality, in some projects the people to be closely involved in managing the project do not become familiar with the project until it has actually started [Rwelamila, (1996)]; and the architect appointed by the client is inadequately experienced to cope with the coordination of the design team, to lead the design effort and to co-ordinate the interface between design and fabrication [Rwelamila, Talukhaba and Ngowi, (2000)]; and a project contract form used is not normally negotiated in order to ensure a fair and familiar distribution of risk [Rwelamila, Talukhaba and Ngowi, (2000)]. Latham and Egan reports – UK and the CCIT report – USA These three reports seem to have similar non-technical barriers, which include: Lack of leadership; Adversarial relationships; Parochialism; Fragmentation of the industry; Inadequate owner involvement; Increasing scarcity of skilled labour; and Liability. Forces facing construction industries There are strong indications to suggest that the future promises an increase in the importance and the role of projects in contributing to the strategic direction of construction companies and consulting organisations [Gray and Larson, (2000), Roe and Elton, (1998) and Milosevic, (1999)]. [Cleland, (1997)] argues that this is the dawning of the “Age of Project Management.” There are a number of arguments, which support this point of view, when you look at the business environment across the world. These reasons are briefly discussed below. Global competition The transformation from national or regional economies to one global economy during the 1970s has not only led to dramatic technological innovations but has also created tremendous pressures on quality improvement and cost containment. The open market demands both cheaper products and services and better products and services. This has led to the emergence of the quality movement across the world with ISO 9000 certification a requirement for doing business. These standards cover design, procurement, quality assurance, and delivery processes. Individuals are being assigned 170 Rwelamila responsibility to achieve a specific objective within a given budget and by a specified deadline. Project management beyond the traditional approach with its four parameters focuses on time, quality, utility and cost, and is proving to be an efficient, flexible way to get things done. Compression of the product life cycle The demand for project management has partly been due to the shortening of the product life cycle. According to [Gray and Larson, (2000)], instantaneous, worldwide flows of information have reduced the competitive advantage of new products, which are more easily imitated. Computer-aided design (CAD) and manufacturing (CAM) have also forced radical changes in the product life cycle. For example, today in high-tech industries the product life cycle is averaging 1.5 to 3 years. Only 30 years ago, life cycles of 10 to 15 years were not uncommon. Given the much shorter life cycle, it is imperative that firms keep a constant chain of new products in the pipeline and get each product to market before their competitors. A common rule of thumb in the world of high-tech product development is that a six-month project delay can result in a 33 percent loss in product revenue share. Time to market for new products with short life cycles has become increasingly important to all product organisations because of the velocity with which technology is changing. Speed is becoming a competitive advantage; more and more organisations are relying on cross-functional project teams and project management methods to get new products and services to the market as quickly as possible. Knowledge explosion The majority of projects are becoming more and more complex. This is primarily a result of the growth in new technologies, as projects are encompassing these latest advances. For example, constructing an office building 25 years ago was somewhat simple process. Today, each area has increased in complexity, including materials, specifications, aesthetics, vertical transportation, and required specialists. Not only has basic project work become more complex, requiring greater degrees of co-ordination, but existing products and services are also more technologically complex. In today’s digital, electronic age it is becoming hard to find a new product that does not contain at least one microchip. The complexity of products has increased the need to integrate divergent technologies. Project Management has emerged as an important discipline for achieving this task. Increased customer focus Customers no longer simply settle for generic products and services. They want customised products and services that cater to their specific needs. This mandate requires a much closer working relationship between the provider and the receiver. Project management is critical both to development of customised products and services and to sustaining lucrative relationships with customers. Educating for sustainable built environment or just educating? 171 Corporate downsizing The last decade has seen a dramatic restructuring of organisational life. Downsizing (or rightsizing if you are still employed!) and sticking to core competencies have become necessary for survival for many firms. Middle management is becoming a mere skeleton of the past. In today’s flatter and leaner organisations, where change is a constant, project management is replacing middle management as a way of ensuring that things get done. Corporate downsizing has led to a change in the way organisations approach projects. It is rare today to find any major project performed totally in-house. Companies outsource significant segments of project work, and project managers have to manage not only their own people but also their counterparts in different organisations. Rapid development of developing and closed economies The collapse of apartheid and the Soviet Empire and the gradual opening up of Asian communist countries have created an explosion in pent-up demand within these societies for all kinds of consumer goods and infrastructure development. These changes have created a tremendous market for core project work in the areas of heavy construction, mining, and telecommunications as these countries strive to revitalise their inefficient industries and decrepit infrastructures. According to [Milosevic, (1999)], to reduce some of the risk and maximise individual talents, more and more firms are entering into joint ventures with indigenous firms to complete large and small-scale foreign projects. [Milosevic, (1999)] argues that these foreign ventures have placed a premium on the adaptive capacity of project management personnel to work in foreign cultures with vastly different values, work habits and orientations. Small projects represent big problems According to [Gray and Larson, (2000)], the velocity of change required to remain competitive or simply keep up, has created an organisational climate in which hundreds of projects are implemented concurrently. This climate has created a multi-project environment and a plethora of new problems. Sharing and prioritising resources across a portfolio of projects is a major challenge for senior management. A key question becomes one of how to create an organisational environment that supports multi-project management. A process is needed to prioritise and develop a portfolio of small projects that supports the mission of the organisation. In summary, there are a variety of environmental forces interacting in today’s business world that contribute to the increased demand for good project management across all industries and sectors. Project management appears to be ideally suited for a business environment requiring accountability, flexibility, innovation, speed, and continuous improvement. The question to be asked is how are we doing in South Africa and Africa in general in training current and future professionals? 172 Rwelamila WHAT IS LECTURED AT HIGHER LEARNING INSTITUTIONS? – A PRELIMINARY RESEARCH Defining the core research area What is the meaning of “educating for a sustainable built environment?” (same meaning as “educating for life”). In order to design research instruments an answer (definition) was formulated for this question as indicated in Table 1. Table 1. The meaning of “educating for a sustainable built environment” Educating for a sustainable built environment means: curriculum designed on the basis of triple-bottom line principles, embracing economic, environmental and social considerations; curriculum knowledge areas should cover technical and social cultural aspects of projects; curriculum knowledge areas should cover fundamentals of improving customer economics and efficiencies; project teamwork ethos should be part and parcel of the learning environment; lecturer and learner relationship – anti banking (anti dependence, fear and negative silence) & pedagogy is based on nurturing a culture of reflection, experimentation, dialogue and self-assertion; curriculum should allow learners to learn the dynamics ‘old economics’ and ‘new economics’ ; and knowledge areas covered should primarily aim at decolonising minds of learners. The seven fundamental areas of ‘educating for a sustainable built environment’ indicated in Table 1 above were used as a basis for formulating the assessment scale and curricula survey questions described later. Research Objectives The findings presented in this paper were conducted as a preliminary study to establish what is taught at higher learning institutions within SADC and East Africa. The primary focus of the research was to establish if higher learning construction professions training curricula is influenced by client demands and other forces facing the built environment (BE). The SADC and one country in East Africa were used as a case study. Preliminary Study Scope and Methodology The objectives were met through scrutinising course contents and interviewing (semistructured) randomly selected lecturers and students. Six universities were randomly selected. These are University of Cape Town, University of Witwatersrand, University of Kwazulu Natal (former University of Natal and University of Westville), University of Educating for sustainable built environment or just educating? 173 Pretoria, University of Port Elizabeth, University of Free State. Furthermore, five Technikons were randomly selected. These include Peninsula Technikon, Technikon Northern Gauteng, Cape Technikon, Port Elizabeth Technikon, and Technikon Witwatersrand. Outside South Africa, four universities were randomly selected. These include, The University of Botswana (Botswana), University of Dar Es Salaam (Tanzania), Makerere University (Uganda) and University of Nairobi (Kenya). University programmes The programmes covered in this study include, Bachelor of Engineering (Civil Engineering) (Identified as (1)], B.Sc. Degrees in Quantity Surveying (Identified as (2)], Bachelor of Architecture [Identified as (3)], Construction Management [Identified as (4)]. Technikon programmes: National Diploma in Civil engineering [Identified as (1)], National Diploma in Architecture/Architectural Technology [Identified as (2)], National Diploma/ Bachelor of Technology Degree Building Science [Identified as (3)]. A number of questions were used as a basis in scrutinising course contents, interviewing lecturers and students. For each question, the assessment scale shown in Table 2 was used. As clearly described, the questions range from traditional curricula focusing on technical aspects of a profession to innovative curricula addressing issues beyond technical/or typical aspects, which make a profession. Table 2. Assessment Scale Scale Meaning The course is predominantly traditional (>95%) focusing on the technical side of projects and very little on client concerns and forces facing the BE (95) and very little on the technical side of projects ( F0.95, > 3.965, H0 is rejected and H1 accepted. Therefore it was concluded that there is significant difference between the numerical strength of women in the construction industry and the numerical strength of men in the industry. This implies that women are statistically inadequately represented in the construction industry in Nigeria. In order to explore the factors behind the preference of male to female in the construction industry the companies were asked to rank eight factors in their recruitment policy on eight point Likert – type scale in order of priority. Work experience ranked first with 344 points followed by potential for high productivity (311 points). Academic and professional qualifications (257 points) and physical strength (215 points) ranked third and fourth respectively. Age (175 points), ability to supervise (139 points), decision making skill (86 points) and marital status (57 points) ranked in the fifth, sixth, seventh and eighth positions respectively. The maximum point a recruitment factor can score is 352 points, giving an average of 176 points. Therefore, recruitment factors such as age, ability to supervise, decision making skill and marital status rank below the average mark. Interviews conducted revealed that the recruitment factors which ranked above average, that is, work experience, potential for high productivity, academic qualifications and physical strength do not often favor women when pitched against men during recruitment. At recruitment point, men usually outnumber women and due to age long tradition, men have better work experience and are naturally more productive on site most especially in the enervating sun of the tropical region. While women may have the same qualifications as men, the number of men having the same qualifications often outstrips that of women. Therefore when the other factors mentioned previously are added, women are placed at a disadvantage. Major aspects of construction works are site based. Therefore it is required that certain cadres of workers (site mangers project supervisors, foremen, craftsmen and Women in the construction industry in Nigeria 191 laborers) are physically fit to withstand rugged site conditions pervaded by noise, dust and vibrations. This is in addition to lifting heavy objects, climbing, fixing components and operating plants and equipment. Men are considered to be more physically fit for site conditions and the accompanying tasks, risk and health hazards. The four factors which ranked below average are not quite unfavorable to women. The same age criteria are used for men and women at entry points. Ability to supervise and decision making skill depend on past experience and the category of workers being employed. Marital status is least used for recruitment of male or female workers. However, some married women were reportedly reluctant to relocate to new sites far away from the headquarter. Table 3 – Ranking of the Suitability of Some Selected Construction Tasks for Women Construction tasks Extremely unsuitable (0) Some what unsuitable (1) Some what suitable (2) Suitable (3) Very suitable (4) Score Rank Project supervision Estimating & tendering Administration Preparation of working drawings Block laying Reinforcement placing Concreting Excavation Operating equipment Demolition Carpentry Plumbing Electrical works Site Reconnaissance Setting out Construction progress evaluation 0 0 0 0 25 46 16 48 27 46 39 42 25 0 0 0 0 0 0 0 29 23 21 22 20 24 31 23 34 3 0 0 8 4 45 15 14 47 0 0 0 0 0 0 0 0 25 43 53 17 51 56 21 0 0 0 0 0 0 0 0 6 17 15 219 257 266 229 61 25 87 22 86 24 31 33 56 178 217 223 5 2 1 3 10 14 8 16 9 15 13 12 11 7 6 4 2 16 1 33 0 23 0 0 5 11 36 10 2 Further explorations were made to explain the low level of women participation in the construction industry by asking women professionals to rate the suitability of women for some selected construction tasks. The response of seventy female construction workers professionals are shown in Table 3. The table shows that administration (266 points) estimating and tendering (257 points) and preparation of working drawings (229 points) are considered most suitable for women. These are tasks that are office related, require less energy and devoid of lifting heavy materials. Although tasks like construction progress evaluation, project supervision, setting out and site reconnaissance are less physically exerting and hence ranked next to indoor tasks, they still involve staying in the enervating sun for hours; a situation which many women professionals express inability to cope with as much as their male counterparts for biological reasons. Table 3 also shows that crafts jobs such as reinforcement placing (25 points), carpentry (31 points), plumbing (33 points), and electrical works (56 points) are not suitable for women. This could be the reason why only 18 out of 999 crafts-persons employed in 44 192 Adeyemi et. al construction firms were women. A preponderance of these female crafts-persons even participates only in the area of concreting involving rendering, plastering and painting. Women also dislike tasks involving direct application of physical strength such as excavation (22 points) and demolition (24 points). Thirty-three women respondent however indicated that concreting job (87 points) is suitable for women. This supports the findings on site that a number of female participate in rendering, plastering and painting. This is also an area where women laborers traditionally feature prominently on labor intensive construction site. These women laborers either participate in the supply of water with head pails or transport concrete materials over short distances on head pans. This task is less exerting than demolition, excavation and craft jobs. CONCLUSIONS AND RECOMMENDATIONS Attempts have been made to determine the level of women participation in the construction industry which is the largest employer of labor in Nigeria. The following conclusions were reached from the empirical analysis of data: 1. The level of participation of women in the construction industry in Nigeria is statistically inadequate and this lends credence to the general belief that construction is a male dominated industry. The recruitment policy of construction contractors place highest premium on work experience which does not favor women in tasks involving staying in the enervating sun and exertion of physical energy. Women professionals considered site related tasks such as excavation, demolition and a number of crafts jobs such as block-laying and concreting, carpentry, reinforcement fixing, plumbing and electrical installations unsuitable for some biological reasons and site conditions. The productivity of women can compare favorably with that of men in office related construction activities such as administration, estimating and tendering and preparation of working drawings, which involves less physical energy. 2. 3. 4. Current recruitment practices in the construction industry, Nigeria’s largest employer of labor; do not reflect optimal use of female resources, which represents half of the total human resources in the country. It is therefore recommended that the construction companies concede as many positions as practicable to women in indoor construction activities where they are found quite suitable. Gender issues should be adequately addressed in the National Construction Policy. The [May, (1991)] edition of the policy is gender neutral and this could be one of the reasons why skilled women are inadequately represented in construction activities that are less strenuous and in which their productivity can compete favorably with that of men. The Federation of the Construction Industry (FOCI) the umbrella body under which construction contracting companies in Nigeria registers should establish a career counseling and monitoring unit for women. This is with a view to guiding female Women in the construction industry in Nigeria 193 graduates willing to take up career in the construction industry. Such unit should in addition float a publication to disseminate news about the impact of women in the construction industry both within and abroad. Further, the body should assist in forming women labor pool from where construction companies can recruit female personnel. Such pool will be required to maintain comprehensive data on female resource in various aspects of construction. A comprehensive data must include but not limited is bio-data, academic and professional qualifications and work experience. The pool could even be used as a strategy to make women a dominant force in sustainable mass housing delivery system through direct labor being suggested elsewhere [Adeyemi et al, (2004)]. Mass housing production is characteristically simple with little or no use of heavy equipment, repetitive and requires larger number of unskilled labor. It is an area of construction where female professionals can be easily integrated into decision-making with respect to design, project planning and materials procurement. Female unskilled labor force naturally often outnumber male on labor-intensive construction sites in Nigeria. Mass housing production therefore, could be an avenue for providing employment to more female work force thereby alleviating poverty. The apprenticeship programs of government and the private sector need to be designed to ensure that the prospective female crafts-persons fits physically into the profession she aspires to train in addition to mental capacity. At admission point, female trainee in block laying and concreting for example should be those who can place 225 x225 x 450mm block with ease, must be able to lift at least half bag (25kg) of cement and be able to climb a reasonable height without fear. Women professionals in construction should brace up to the challenges of being entrepreneur themselves in the construction industry. The construction industry is the easiest to enter even with little or no fund. By transforming from employee to employer of labor, professional women will be in a better position to diagnose the problems of women in the industry in relation to construction tasks in the office and on site. REFERENCES Adeyemi, A Y, Ojo, S O, Aina, O O and Ayangade, J A (2004) Construction Process Rationalization Strategies for Sustainable Mass Housing Delivery in Nigeria, Proceedings of XXXII –IAHS World Housing Congress, Trento, Italy. Asiyanbola, R A (1997) Housing Studies and Gender Issues: A Review of Literature, Proceedings of a National Symposium on the House in Nigeria , Ile-Ife, Nigeria, pp. 89 – 92. Brailey, M (1985) Women’s Access to Council Housing, Occasional Paper No. 25, The Planning Exchange , Glasgow. Hood, M and Woods R (1994) Women and Participation, In Gilroy, R and Hoods, R (eds.), Housing Women, Routledge, London. 194 Adeyemi et. al Gilroy, R (1994), Women and Owner Occupation in Britain: First the Prince and then the Palace, in Gilroy, R and Woods, R (eds.), Housing Women, Routledge, London. Kelly, E (1986) What Makes Woman Feel Safe?, Housing Review, Vol. 35, No. 6, pp. 198-200. Ogunlana, S O, Rost, U, Robles-Austriaco, L and Worawichawong, K (1993), Women in the Thai Construction Industry, AIT Women Study Circle(AIT WSC), Bangkok, Thailand, p. 5. Okewole, I A (1997) Women’s Access to and Control of Housing Accommodation in Urban Centres of the South-West Zone of Nigeria: An Assessment, Proceedings of a National Symposium on the House in Nigeria, Ile-Ife, Nigeria, pp. 93 – 96. Orubuloye, O (1987), Values and Costs of Daughters and Sons to Yoruba Mothers and Fathers. In Oppong, C (ed.), Sex Roles, Population and Development in West Africa, Heineman Educational Books Inc. Portsmouth, pp. 86 – 90. United Nations (1985) Report of World Conference to Review and Appraise the Achievements of the United Nations Decade for Women: Equality, Development and Peace, UN Publication, Nairobi, Kenya. Oruwari, Y (1992) The Role of Women in Housing Finance: A Case Study of PortHarcourt, Nigeria, Fifth International Research Conference on Housing, Montreal, Canada. Woods, R (1994) Introduction, In Gilroy, R and Woods R (eds.), Housing Women, Routledge, London. MOTIVATION PERCEPTIONS OF CONSTRUCTION WORKERS AND THEIR SUPERVISORS IN INDONESIA ANDI Department of Civil Engineering, Petra Christian University, Jalan Siwalankerto 121-131, Surabaya 60236, Indonesia. [email protected] ABSTRACT Unarguably the role of worker motivation in improving productivity is very important in construction. It is therefore necessary for those supervisors to understand essential factors motivating or demotivating the workers. This paper attempts to identify factors influencing the motivation and then to compare the perceptions of workers and supervisors. For the purpose, a questionnaire survey was conducted to several construction sites in Surabaya, Indonesia. In general, 263 workers and 12 supervisors participated in the research. The research finds physiological needs as the most important factors perceived by the workers. Comparing perceptions of the workers and their supervisors, a significant correlation is discovered for the overall ranking of demotivators, but not for motivators. Further analyses were carried out to see factors that were significantly different in perception. The factors are discussed throughout the paper. Keywords: Motivation, Productivity, Motivator, Demotivator, Survey, Indonesia INTRODUCTION The development of the construction industry in Indonesia is followed by the sufficient availability of manpower (workers) in every region. However, the number of skilled workers was limited, in which only 9% of the total formally joined training programs held by the government’s institution. Ironically, though Indonesian contractors fully supported and realized the importance of such training programs in increasing workers’ productivity, they felt unwilling to provide funds for the implementation [Arditi and Mochtar, (1996), Kaming et al., (1997)]. The construction workers normally acquired most of their skills from their forerunners, who lived in the same or nearby village. The recruitment process is usually done by the supervisor based on their person-to-person relationship without considering necessary skill factor required. Since the construction workers are not totally skillful, there is the need to establish proper management technique in order to keep the workers productive. Understanding how the workers motivated with their work is one key to this end [Hazeltine, (1976)]. A worker that is motivated will give his best effort to accomplish the job, and subsequently will bring benefit to the company. Therefore, a manager is responsible to generate such an environment that is able to naturally motivate the workers. 196 Andi The paper aims to investigate construction workers’ motivation, based on their needs, and factors motivating and demotivating in Surabaya, Indonesia. The paper then compares the workers’ and their supervisors’ perceptions toward these needs and factors. Throughout the paper, differences in perceptions are discussed and solutions to increase workers’ motivation are proposed. DEFINITION OF MOTIVATION AND WORK MOTIVATION Motivation is a concept used to explain the action on and in an organism to initiate and to direct the behavior [Petri, (1981)]. The motivation concept is also used in the distinctions of behavior intensity. Behavior with a greater intensity is considered as the result of a higher motivation. Such a motivation is realized in an action to gain a so-called satisfaction of needs [Maloney, (1981)]. Based on the general definition of motivation above, some approaches concerning the work motivation have been developed since early 1900. In its definition, work motivation theory has no much difference with other motivation theories in general. However, it is necessary to realize one basic distinction that work motivation has more specific focus on the behavior related to the ‘work’ in a certain institution or organization. Work motivation theories attempt to explain the things related to work problems [Asnawi, (2002)]. Theories of work motivation can be categorized into three, i.e. content theories, process theories and contemporary theories [Luthans, (1995)]. Most researches on work motivation concerning the construction workers to date used the content theories and just started to progress with the process theories. Within the content theories, Maslow’s hierarchy of needs and Herzberg theories are the two most prominent ones used by construction researchers. Due to their comprehensiveness, this paper will also apply the two theories to accomplish its objectives. The following paragraphs will briefly describe the theories. Maslow’s Theory The hierarchy of needs theory was pioneered by Abraham H. Maslow in 1954. According to this theory, in order to motivate a person there is a need to understand what level of condition the person has in the hierarchy of needs and to focus the attention on the satisfaction of the needs on that level or on the level above of it [Robbins, (2001)]. This theory stated that in each individual, there are five hierarchies of needs: physiological needs, safety needs, social needs, the need for esteem, and selfactualization. The five categories of needs in general can be grouped into two major categories: lower-order needs, covering physiological and safety needs; and higher-order needs, encompassing social, esteem, and self-actualization needs. This study utilized the theory to explain the needs of construction workers. Motivation perceptions of construction workers and their supervisors 197 Herzberg’s Theory This theory, sometimes known as Two-Factors Theory or Motivation-Hygiene Theory, was stated by Frederick Herzberg and his colleagues in the Psychological Service of Pittsburgh. The basic idea of this theory is that one’s relationship toward his work is absolutely fundamental and that one’s behavior toward his work undoubtedly determines the work’s success. Herzberg’s study showed that people have two distinct categories of need, i.e. hygiene factor and motivator factor, in which the two are independent and influence behavior in different ways. The first factor, called hygiene, defines the environment where people work and has the main objective to avoid job dissatisfaction. It is also defined as maintenance because the factors are never fully satisfied, and require maintenance. Manager needs to pay attention to this factor so that the workers keep working at their normal condition. Examples of hygiene factor are policies and administration, supervision, and working conditions [Hersey et al., (1996)]. On the other hand, Herzberg called the second factor as the motivator since it seems to be very effective in motivating a person to a better action. The factor is more related to the job itself and can include achievement, recognition for accomplishment and challenging work [Hersey et al., (1996)]. Herzberg had an idea that if a factor is a motivator, it surely leads to job satisfaction. This paper employed the Herzberg theory as the basis to investigate factors motivating and demotivating the workers’ motivation. RESEARCH METHODOLOGY The research collected the required data from workers and supervisors through questionnaire survey. The questionnaire contained general questions of the respondents and a list of factors motivating and demotivating workers, i.e. motivator and demotivator, respectively. The factors were gathered from previous researches [Borcherding and Oglesby, (1974, 1975), Mansfield and Odeh, (1989), and [Ogunlana and Chang, (1998)]. The final questionnaire covered sixteen motivators and seventeen demotivators. To accommodate the Maslow’s theory, the motivators were grouped into six categories, i.e. physiological needs, safety needs, social needs, the need for esteem, self-actualization, and other groups (managerial factors). Both respondents were asked to rate the same list of factors using a four-point scale, ranging from 1 (not important) to 4 (very important). Ten construction projects were approached to distribute the questionnaires, but only six gave positive response. The project types were ranging from educational and office buildings to shop-houses construction. Considering the level of knowledge, the researcher had to explain and wait when the workers filled out the questionnaire. Misunderstanding and incorrect responses could therefore be avoided. A total of 263 questionnaires finally could be collected from the workers. Meanwhile, 12 supervisors of the projects answered the questionnaire. Following the research by [Ogunlana and Chang, (1998)], the respondents’ ratings to each factor were then transformed into relative index (RI), which was then used to rank the 198 Andi factors. The RI was obtained by dividing total rating score from all respondents by four times sample size. In order to compare the workers’ and supervisors’ perceptions, the study employed spearman rank correlation and Mann-Whitney tests. RESULTS AND DISCUSSIONS Workers’ Needs Table 1 portrays the perceptions of workers and supervisors toward the ranking of workers’ needs. Good pay was ranked first by the workers. During the survey, it was found that the average basic wage of the workers was 30,000 to 35,000 rupiahs per day (less than US$ 4). The workers expressed that their salary was often imbalance with their daily spending for basic needs. In the mean time, the supervisors placed this need only fourth in the list. Instead of increasing the basic pay, it was, the supervisors considered, more effective to give additional bonuses and fringe benefits in order to motivate the workers. The need was ranked first by the supervisors and fifth by the workers. Table 1. Ranking of Workers’ Needs Needs Physiological Needs Good pay Good accommodation Bonuses and fringe benefits Overtime Safety Needs Good safety program Good job Belonging/Social Needs Good relationship with workmates Good training program Good orientation program Good supervision Needs for Esteem Recognition on the job Needs for Self-Actualization Challenging task Participation in decision making Workers RI Rank 0.96 0.76 0.85 0.79 0.92 0.81 0.90 0.80 0.86 0.74 0.71 0.51 0.76 1 9 5 8 2 6 3 7 4 11 12 13 10 Supervisors RI Rank 0.81 0.76 0.88 0.65 0.83 0.79 0.85 0.67 0.77 0.77 0.83 0.58 0.71 4 8 1 11 3 5 2 10 6 7 3 12 9 The second most important need according to the workers was safety program. It seems that the supervisors fairly agreed, in which they ranked the need to be third. This finding is quite surprising and contradictory to the actual conditions found on site. It can be argued that workers in this country are in general not yet aware of safety culture. Not Motivation perceptions of construction workers and their supervisors 199 wearing protective equipments (such as safety hat and shoes) and standing on high, dangerous area without safety belt are few examples for such unsafe culture. The contractors themselves rarely pay serious attention to safety on site either. For an example, in one recent visit to a prestigious construction project, the author observed that many safety signs were posted on site by the contractor. However, the author could gauge directly that such safety signs were merely ‘slogan,’ without concrete actions by either the contractor or the workers. The engineer manager of the foreign contractor mentioned that one possible reason for this was because the owner enforced no sanction for the contractors’ unsafe conducts. Having good relationship with workmates was regarded to be an essential need for motivation by the supervisors (second) and the workers (third). This is especially important as the workers working in a project usually come from the same place (village). Having the same local culture and tradition is one key point for the workers to work in a happy work environment. The supervisors perceived recognition on the job (esteem related need) to be the third most important, meanwhile the workers ranked it low (twelfth). Supervisors considered that the workers would be more motivated by giving them more recognition. Conversely, the workers accepted the recognition as the supervisor’s mean to give tighter control to them, thus reducing their free will in the work environment. This reasoning can further be strengthened by the position of good orientation program (social related need), in which the supervisors’ rank (seventh) was fairly higher than that of the workers (eleventh). Rather than receiving more supervision, the workers preferred to have more orientation for their works. The good orientation program before starting the work gave more certainty, and consequently reduced changes and rework during construction. Workers’ Motivators The workers’ and supervisors’ perceptions toward the motivator are displayed in Figure 1. Five main influencing motivators according to the workers, as denoted in the figure, are good pay, good safety program, good relationship with workmates, good orientation program, and bonuses and fringe benefits. Meanwhile, the supervisors believed bonuses and fringe benefits, good relationship with workmates, recognition on the job, good safety program, and good pay as the five factors most motivating the workers. These most important factors have been explained above. The result of spearman rank correlation test signifies that there was no significant correlation between the workers’ and the supervisors’ rank, with a correlation coefficient, σs, of 0.36 (P-value = 0.171). To support the correlation result, a two-tailed mann-whitney statistical test was conducted. The null hypothesis (H0) was that there was no significant difference between the workers’ and supervisors’ perceptions. If the P-value of any of the factors resulted from the test was less than or the same as 0.05 then the null hypothesis would be rejected. In other words, the perceptions between the two respondents were significantly different. 200 Andi Table 2 demonstrates the results, in which five factors were found to be statistically different at α = 5%. They are: good pay, overtime, good training program, good safety program, adequate material supply, and recognition on the job. As shown, the workers possessed higher RI for the first four motivators, which were in general related to the lower order needs [Robbins, (2001)]. Good pay O vertime Good training program Good orientation program Good s af ety program Participation in decision making Good relationship w ith w orkmates Motivators Good job Clear w ork goals Bonuses and f ringe benef it Good superv is ion Proper w ork s cheduling Good ac commodation Challenging tas k A dequate material s upply Rec ognition on the job 0.400 0.600 RI 0.800 1.000 Worker Supervis or Figure 1. Workers’ Motivators Table 2. Mann-Whitney Test of Workers’ Motivators Motivators Good pay Overtime Good training program Good safety program Adequate material supply Recognition on the job Good orientation program Good relationship with workmates Challenging task Proper work scheduling Good supervision Good accommodation Bonuses and fringe benefits Clear work goals P-value (2-tailed) 0.000 0.008 0.018 0.024 0.039 0.049 0.212 0.253 0.253 0.340 0.370 0.664 0.706 0.746 Remark* Reject H0 Reject H0 Reject H0 Reject H0 Reject H0 Reject H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Motivation perceptions of construction workers and their supervisors 201 Participation in decision making Good work 0.807 0.896 Accept H0 Accept H0 *H0 = there is no significant difference between the workers’ and supervisors’ perceptions Workers’ Demotivators Similar to the above analyses, Figure 2 presents the respondents’ perceptions toward the workers’ demotivators. The workers perceived bad treatment by the supervisors, material unavailability, lack of communication, changing workmates, and rework to be five most important demotivators. Meanwhile, the most important demotivators the supervisors considered were bad treatment by the supervisors, unsafe work condition, lack of cooperation, unavailability of material, rework, and little accomplishment. A significant correlation was found between the two perceptions (σs = 0.526; P-value = 0.003). Changing w orkmates Lack of communication Overcrow ded w ork areas Underutilization of skill Bad treatment by the Lack of recognition of effort Material unavailability Incompetence of w orkmates Crew interfacing Lack of participation in decision making Rew ork Tool unavailability Lack of supervision Poor inspection Little accomplishment Lack of cooperation Unsafe w ork conditions Demotivators 0.400 Worker Supervisor 0.600 RI 0.800 1.000 Figure 2. Workers’ Demotivators Table 3 offers the mann-whitney test result, in which only one demotivator was found to be statistically significant different, i.e. changing on workmates. Interestingly, as can be seen in Figure 2, the workers rated almost all demotivators higher than the supervisors did. This thus may indicate that supervisors pay less attention to the demotivators. Herzberg, however, has stated that paying attention to only the motivators is not sufficient. Such effort to increase workers’ motivation has to be accompanied with the reduction of the demotivators. 202 Andi Concurrent with the previous result, workmate is a key factor that can motivate or demotivate workers. The workers considered that it was not easy to change mates working in a project and such a change can greatly degrade their motivation (RI = 0.772). They needed more time to socialize, communicate, and adapt with the new workmates, especially those that did not come from the same place. On the other hand, the supervisors surprisingly placed this demotivator as the lowest important one, with RI of 0.542. Table 3. Mann-Whitney Test of Workers’ Demotivators Demotivators Changing on workmates Bad treatment by the supervisors Lack of communication Unavailability of material Overcrowded work areas Underutilization of skill Lack of recognition of efforts Lack of cooperation Tool unavailability Incompetence workmates Unsafe work conditions Crew interfacing Lack of supervision Rework Lack of participation in decision making Little accomplishment Poor inspection P-value (2-tailed) 0.000 0.056 0.095 0.140 0.166 0.179 0.334 0.395 0.502 0.507 0.522 0.538 0.577 0.629 0.678 0.691 0.898 Remark* Reject H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 Accept H0 *H0 = there is no significant difference between the workers’ and supervisors’ perceptions As for the unavailability of material, a previous research [Andi et al., (2003)] has observed this factor as having significant influence to the time performance of shophouses constructions. Waiting and idling are just two bad effects due to this factor, which ultimately will lower the workers’ productivity and motivation. Both respondents agreed that rework was bringing detrimental effect to workers’ motivation. A further analysis conducted by the author reveals that the rework is mostly generated by design related problems (such as design errors, unconstructable design and uncoordinated designs) and unstable client requirements. It is not unexpected to have a client asking change of her/his design for more than five times, especially in private projects. CONCLUSIONS According to the workers, their most important needs were good pay, good safety program, good relationship with workmates, and good orientation program. The workers’ Motivation perceptions of construction workers and their supervisors 203 and supervisors’ ranks of the needs were fairly similar, except that the supervisors ranked the need of recognition on the job much higher than the workers did. The author argues that the possible alternatives to improve the work motivation in the current condition should be emphasized on the lower order needs on the Maslow hierarchy, such as money and financial incentives. There was no significant correlation between perceptions of workers and supervisors concerning the motivators. A further test indicated that there were five motivators significantly different in perceptions. This shows that the supervisors are lack of understanding the workers’ motivators. It was found that the rank perception of the workers and the supervisors toward the demotivator was significantly correlated. However, as shown in Figure 2, the supervisors’ ratings of the demotivators were mostly lower compared to those of the workers. It could be said therefore that the supervisors pay less important to the demotivators. Beside the financial incentives, in order to improve work motivation, contractors need to apply and improve a good safety program. In addition, they need to improve the management aspects of the construction project, such as giving proper work instruction to the workers, improving material supply, and making better communication flow between the workers and the foreman. In short, this all is done in an effort to introduce the motivators and at the same time to diminish the demotivators. REFFERENCES Andi, Susandi, and Wijaya, H. (2003) On representing factors influencing time performance of shop-house construction in Surabaya, Dimensi Teknik Sipil, Vol. 5, No. 1, pp. 7-13. Arditi, D. and Mochtar, K. (1996) Productivity Improvement in the Indonesian Construction Industry, Construction Management and Economics, Vol. 14, pp. 13-24. Asnawi, S. (2002) Teori Motivasi (Dalam Pendekatan Psikologi Industri dan Organisasi), Jakarta: Studia Press. Borcherding, J.D. and Oglesby, C.H. (1974) Construction productivity and jobsatisfaction, Journal of the Construction Division, Vol. 100, No. CO3, pp. 413-431. Borcherding, J.D. and Oglesby, C.H. (1975) Job dissatisfaction in construction work, Journal of the Construction Division, Vol. 101, No. CO2, pp. 415-434. Hazeltine, C.S. (1976) Motivation of construction workers, Journal of the Construction Division. Vol. 102, No. CO3, pp. 497-509. Hersey, P., Blanchard, K.H., Johnson, D.E. (1996) Management of Organizational Behavior, 7th ed., Prentice-Hall Inc., New Jersey. Kaming, P.F., Olomolaiye, P.O., Holt, G.D., Harris, F.C. (1997) Factors influencing craftmen’s productivity in Indonesia, International Journal of Projec t Management. Vol. 15, No. 1, 21-30. Luthans, F. (1995) Organizational Behavior. 7th ed. New York: McGraw-Hill, Inc. 204 Andi Maloney, W.F. (1981) Motivation in construction: a review, Journal of the Construction Division, Vol.107, No. CO4. Mansfiled, N.R. and Odeh, N.S. (1989) Motivational factors in construction projects: a review of empirical motivation studies from the US construction industry, Proc. Instn. Civ. Engrs, Part 1, 86, pp. 461-470. Ogunlana, S.O. and Chang, W.P. (1998) Worker motivation on selected construction sites in Bangkok, Thailand, Engineering, Construction and Architectura Management, Vol. 5, No. 1, pp. 68-81. Petri, H. L. (1981) Motivation: Theory and Research. Belmont, California: Wadsworth Publishing Company. Robbins, S. P. (2001) Organizational Behavior. 9th ed. New Jersey: Prentice-Hall, Inc. ENHANCING THE EMPLOYMENT OF SKILLED WOMEN IN THE SOUTH AFRICAN CONSTRUCTION INDUSTRY JANE ENGLISH Professional Communication Studies, Faculty of Engineering and the Built Environment, University of Cape Town, Rondebosch, 7700, South Africa JAMES SOMMERVILLE School of the Built and Natural Environment, Glasgow Caledonian University, Glasgow G4 0BA, Scotland ABSTRACT In the South African national strategic objective of promoting skills development in the Construction Industry the gender dimension needs to be promoted. However, in the matter of development of women in construction, the problem of women being poorly presented in managerial, craft and labour level remains. Enquiries by the author indicate that of those companies employing women in their workforce there is less than 9% representation. In Africa, ironically, women were once the architects and builders of homes. A recent study of construction workers in the Western Cape that covered a comprehensive economic range of 65 did not reveal one woman on-site. Where opportunities have been given them, however, women in disadvantaged communities have proved their worth. Justification for this study, further to providing employment, is its relevance to the current training directives. The current Construction Industry Status Report identifies shortage of skilled artisans, supervisory staff and site management as a key constraint to production and concludes that there is little evidence of training at any of these levels. To bring women into the industry, the image of construction and level of self-awareness of employability in construction held by women and by protagonists in the Construction Industry needs to be changed. Arising from this, the initiatives to be installed and barriers to be dissembled in order to achieve the entry of women into the Construction Industry workforce either as employees or as entrepreneurs must be established. Specific occupations in which women would more easily gain employment and the potential working conditions (e.g. levels of education, work histories, patterns of skill acquisition, work conditions) must be defined. Keywords: women, gender issues, skilled labour, construction INTRODUCTION It is the premise of this paper that the Construction Industry in South Africa has the potential to improve on its minor role as an employer of women in its workforce. The 206 English and Sommerville Construction Industry not only provides the infrastructure which is fundamental to the country’s development and to the lives of its peoples, but an increasing amount of the development of this infrastructure is happening within disadvantaged communities [DPW, 2004]. The Construction Industry could provide employment for women in these communities. Promoting women in construction is worldwide and in first world countries mainly concerns professions and crafts. In developing countries, however, promoting women concerns the need to employ women to alleviate poverty [Wells, (1990)]. The national strategic objective of promoting skills development in the Construction Industry has a gender dimension which needs to be promoted. Its underlying aim is capacity building of women, and particularly of Black women, in the construction workforce. It reflects the ethos of the Reconstruction and Development Programme (RDP) and constitution in that equity must be practised and any previously disadvantaged individual (PDI) be given opportunities so that past inequities can be redressed. Women equally must benefit from the commitment of the Government to empower through education: However, in the matter of development of women in construction, the problem of women being poorly presented in managerial, craft and labour level remains. “Education and training must empower the individual, improve quality of life, and contribute towards development targets in the national economic plan through a national qualification” [Nel, (1997)] For these objectives to be achieved the current problems need to be identified and addressed. Cconditions in South African construction in both the formal (businesses that are registered for tax purposes, and which have a VAT number) and informal sectors (businesses that are not registered for tax purposes, and do not have a VAT number, are generally small in nature, and are seldom run from business premises [Statistics SA, (1999)]) have changed since the demise of Apartheid. One of the positive developments of this is that there is no differentiation in opportunities of training and employment based on racial group. Another is that the RDP is committed to redress previous imbalances in education and employment [DPW, (1998)]. Prior to 1990 there was little research internationally on gender issues in the industry [Gale, (1994)]. LACK OF INCENTIVES AND SUPPORT FOR WOMEN Publications by the ILO indicate the start of research into gender in construction and reflect concern with the inequality in treatment and working conditions for those women employed in construction, as well as the lack of access for women to be employed in construction [Wells, (1990)]. Subsequent research reflects a universal situation whereby women are sidelined in the industry through various practices: for example, recruitment practices can be prejudicial and once in employment, options for advancement limited [Dainty and Bagilhole, (2000)]. The construction sector consists of industries that, in most countries, are characterized by dangerous work environments, poor working conditions and a high accident rate [Wells, 2000]. It is also an environment where it is estimated that in South Africa more than 50% of the workforce are either casual, temporary or fixed-term workers [van Huysteen and Chege, 2001]. A reason for a low profile of women in the Construction Industry, thus, is Enhancing the employment of skilled women in SA 207 its reputed working practices: it is considered to have one of the most negative public images of all industries [Dainty and Bagilhole, (2000)]. The negative factors in its working environment are considered particularly unsuitable for women, and, for example, in the UK the industry is devoid of female labourers, even though many facets of the job are not dependent on manual strength or are supported by machines [Fielden and Davidson, (2000)]. Strong stereotypes of women’s choices for their careers have been found to held by employers and are reflected in recruitment biases [Dainty, Neale and Baglihole, (1999)]. In addition, the recruitment literature of the Construction Industry is gender based, offers no career advice to women, and the industry generally is unaccommodating of women entering [Wall, (1997)]. Research has also indicated that discreet or overt discrimination against women in the workplace results in women leaving their jobs [Morley, (1994)]. This is also true of other occupations which are male dominated: whilst performance in the job of women as equaled that of male colleagues, the environment has been too hostile for them to remain [Bullock, (1994)]. And as most of these women are working in the formal sector, the options for their position being changed are reduced. SOCIOLOGICAL MOTIVATORS FOR THE PROMOTION OF WOMEN A well-researched fact is that a greater portion of the poor is women. This is particularly true of South Africa where African women head the majority of households, yet are disadvantaged in many respects [Budlender, (2002)]. African women (38%) are less represented in the formal sector than their male counterparts (65%) and earn statistically less. As heads of families, women desperately need employment. In the developing world they often provide their own housing, particularly in indigenous settings. Yet research indicates they play virtually no part in the formal sector [Wells, (1990)]. It has been suggested that they do not do so because of both active discrimination against their entering it, and their consequent reaction to the barriers which reinforces their feelings of alienation [Dainty and Bagilhole, (2000)]. An aspect of discrimination that continues to be perpetuated is the image of women as minor wage earners. This and the perception of their being less competent in skilled work than men contribute to their being given and accepting lower wages [Bullock, (1994)]. An active example of this is of women in India who, whilst accounting for over 28% of the workforce in the Construction Industry, work predominantly in unskilled occupations such as headload carriers or cleaners and are offered no opportunity to develop skills [Vaid, (1999)]. Overall women in construction are in services rather than in production – as many as two thirds in Africa [Bullock, (1999)]. Worldwide poverty is a major concern as more than half the world’s population lives below the poverty line. Housing for the poor is a vital issue. Women in most income groups, and particularly amongst the poorer, are the core providers as they are increasingly responsible not only for raising children and managing the house, but also for providing economic support. Through providing women with training and employment in both the informal sector and the formal economy of the Construction Industry, sustainable livelihoods can be created, the living standards of disadvantaged peoples raised and poverty alleviated. 208 English and Sommerville In Africa, ironically, women were once the architects and builders of homes. [Kalambu (2001)] describes research into women from different parts of Africa undertaking various physical building tasks such as mixing and moulding bricks, building walls, cutting and setting up roofing poles and thatching. With Western influences on African societies, gender roles have become more Eurocentric than African and women cease to play a pivotal role in creation of housing [Kalabamu, (2001)]. A recent study of construction workers in the Western Cape that covered a comprehensive economic range of 65 did not reveal one woman on a site [English, (2002)]. All of the sample of 200 workers selected through random stratified sampling was male. An appallingly high number of African women in South Africa are without employment and are still, functionally, a disadvantaged group. They require skills in order to gain employment – indeed, acquisition of skills and training is the route to economic upgrading for women in developing countries [Vaid, (1999)]. Recent projects assisting them to gain these skills have proved worthwhile. A proportion of disadvantaged women have acquired some building skills through self-help housing skills [Marshall, (2002); Kalabamu, (2001); Korpivaara, (2001)]. A woman bricklayer in Botswana, whilst having met with resistance from employers, described her working experience in overall positive terms: I do not experience any problems as a female bricklayer – both male and female colleagues respect me. It is not difficult to get work as a bricklayer. [Rantshadi, (2004)] INITIATIVES FOR WOMEN TO ACQUIRE CONSTRUCTION SKILLS Where opportunities have been given them, women in disadvantaged communities in South Africa have proved their worth in self-build housing schemes such as Habitat and the Homeless People’s Federation. Nurcha (National Urban Reconstruction and Housing Agency) offers examples of female developers who have accounted for successful production of houses – 200 in 6 years by a Gauteng based developer and 300 hostels upgraded by a woman in the Western Cape. Another emerging female developer has built over 2 000 houses in 5 years. One of her projects employed over 650 people, 65% of them women, who were involved in almost all aspects of construction work. Small businesses emerged from those who acquired skills on the project with one woman becoming a subcontractor of joinery work [Korpivaara, (2001)]. There should be the motivation for women who have been through such schemes to form SMMEs (small, medium or micro enterprises [Statistics SA, (1999)]), provide skills to the Industry, become employers and train others. That the skills acquired through such schemes should be harnessed and used for subsequent employment is a concept that has been in existence a long time: “Training in building construction, repair and maintenance, should be offered to enable women to participate in building their own houses on a sites and services lot, and to prepare them for a career which straddles both formal and informal sectors.” [UNCHS, (1985)] Enhancing the employment of skilled women in SA 209 Skills required by the industry on-site are not only building [English, (2002)]. A couple of responses reflected employers’ awareness that there are skills other than technical that are valuable. Some of the respondents’ comments were: • • • • Everything – training has been neglected in the industry. Subcontractors don’t have money Skills are being dedicated, doing the particular trade, need to be trained for the trade he is doing Everything to be computerising and to have their own business building instruction Managerial skills. They will know their rights and will not be easily cheated. Employers were asked what skills they would like to see enhanced in their workers. Not surprisingly, skills related to construction were identified as most in need of enhancement: shortage of skills in the industry was a recurring theme amongst employers. In answering this question, most expressed a need for training. In work by [Ofori et al. (1996)] communication skills are described as a necessary component in the successful introduction and management of labour-intensive construction techniques. The authors state that the social and public relations skills of contractors, especially, needed enhancing. Furthermore, the need for such talents and communicative abilities is increased in a developing country where the informal sector operates largely by networking and contacts. It is a premise of this study that women may bring more developed communication skills and communicative qualities to the construction workplace. The image of the Construction Industry is one of qualities identified with men, but new technology obviates some of this and, indeed, places emphasis on interpersonal and communication skills. A finding of a study was that industry needs guidelines on how to present trades as involving interpersonal skills and as offering potential careers to women [Department of Employment, Education and Training, (1993)]. The concern, locally and internationally, is the skills shortages within the industry which current initiatives have not been able to address and yet construction companies continue to show reluctance to employ women. It would seem from models in Europe that political good will to encourage employment of women is insufficient to elicit change and that only when equal opportunity actions that targeted women were implemented was there a change (Michielsens, (2004)]. Reluctance to employ women is more detrimental to the industry’s development than many factors traditionally held responsible. This sentiment has been echoed by findings that female craft workers have been found to be more reliable, produce better quality work and practise sobriety [Boiko, (1994)]. In a study in Botswana, contractors and foremen who had employed women out of a skills’ shortage necessity, stated that most female workers were more committed to their work than male counterparts, being absent less and not requesting daily wages [Kalambu, (2004)]. 210 English and Sommerville SOLVING THE PROBLEMS FACING WOMEN IN CONSTRUCTION The departments of Public Works and of Housing, and the Construction Industry Training Authority (CETA) are committed to goals for increasing the number of women participating in the industry [CETA, (2000)]. To achieve these goals, however, it is necessary to understand the barriers to women entering construction at all the levels, or having entered the industry, staying in it [Dainty and Bagilhole, (2000)]. As said above, the problem is not endemic to developing countries: the greatest under-representation of women in the UK is in the crafts or skills section even though training is available [Fielden and Davidson, (2000)]. A major problem, as cited in research conducted in Australia [Department of Employment, Education and Training, (1993)] is the lack of effective communication between industry and girls / women. Thus the issues surrounding women in the construction workforce need to be explored with employers, to assess the procedures for successful implementation of current proposals and to suggest modification if any should be required. These questions need to be answered: 1. What are the attitudes inherent in the Construction Industry regarding women in the workforce in positions other than administrative, clerical and professional, in skilled crafts and as workers on site? 2. What barriers need to be dissembled in order to achieve the entry of women into the Construction Industry workforce either as employees or as entrepreneurs? 3. What answers and initiatives can the study provide that can be used to stimulate the employment of women in the Construction Industry? 4. In which specific occupations and sub-sectors or areas will women more readily gain employment or generate an income? 5. What training is available – and what training should be available - to women by the South African Construction Industry? 6. Who are the employers who would be willing to employ or sub-contract work to women? The South African Construction Industry Status Report [2004] describes women as representing 8% of the Building and Construction management profile in the formal sector. However, in the informal sector, a more positive reflection of female involvement exists with South African Women in Construction (SAWIC) reporting a membership of about 600 building enterprises owned by women [DPW, 2004]. Women in South Africa need the opportunity to develop employment opportunities. Women have a lower level of education and this increases the possibility for them of unemployment with the provincial workforces being dominated by men [Statistics South Africa, (1999)]. MEETING THE NEEDS FOR TRAINING AND SKILLS Given the CIDB mandate to provide strategic leadership in the growth of the industry, there is consensus that one of the most urgent interventions required is at the level of skills development both in the formal and informal sectors [Shakantu et al., (2002); Mselle and Kgaupe, (2002)]. The specialist on-site skills are in chronic short supply – a factor noted by unskilled workers who perceive training in a craft or skills to be their best Enhancing the employment of skilled women in SA 211 hope for a better future [English, (2002)]. Trained supervisors and artisans are in demand but apprenticeships and learnerships are insufficient to sustain the industry’s current or projected growth. The majority of the respondents thought that the employer should bear the costs of the training or that it should be funded by the industry. A minority felt the Government should be responsible and one respondent stated [English, (2002)]: It is a duty of the government to give people skill. The government (should) open training centres for the people, hire good people to train, educate these guys. I told them if a person is looking for a job, he is coming with his skill and I pay for the skill. I am not here to give training to anyone. I don’t have time for that. The majority of the respondents (50%) had acquired their construction skills through practical experience on site, either by watching or by being actively trained by their fellow workers. A further 8% said they were trained by friends or relatives and 8% by previous employers. Technikons, colleges and training centres were the main formal sources of skills for 23% of the respondents. Industry organisations had trained only 8% of the respondents and only 2% had been trained through apprenticeship. The problem of skills being held by an ageing craft population [DPW, 2004] was aptly remarked on by a foreman interviewed: “Skills are dying due to empowerment. Black labourers have to be taught on the job.” [English, (2002)] Studies elsewhere reflect the same problem with providing training – a factor which exacerbates barriers against women entering the industry. The fragmentation and casualisation of the building industry means that few skilled workers are employed directly by companies that are large enough to have the capacity to train. Thus it is up to the small SMME employer who has few resources, to train workers [Susman, (2000)]. Smithers and Walker’s (2000) assessment of motivation and de-motivation in the workplace summarised some findings of research into operational construction employee motivation amongst union members in America. They found that construction workers exhibit the same need for development, as do other operational trade workers. An aspect of motivation for this group overall is that motivation can be achieved by linking important outcomes of the job to completion, or performance of a task. Furthermore, they found that the visible nature of construction – that the workforce can see the result of their efforts – is an effective motivator [Smithers et al., (2001)]. Imbert commented that technical competence in the developing world should be combined with characteristics such as cultural sensitivity and social conscience. Education and training thus have a role beyond improving the level and spread of skills. He states that the need for skills to be upgraded is “extraordinary” (as in additional to “ordinary” needs) and that education and training is needed at all levels [Imbert, (1990)]. Furthermore, it has been shown that if training accommodates diversity in cultures it is more effective than that which operates from a Eurocentric stance [English, (2000, 2002)]. Research in New Zealand indicated that women place greater emphasis on interpersonal skills and that non-traditional (linear) model of development may not be appropriate for women. It was suggested that different models of development could be developed which recognise women’s skills and abilities [Humphries and Grice, (2003)]. 212 English and Sommerville However, research shows the tendency for women to behave like men in order to gain entry and to develop in male dominated areas [Bennett et al., (1999)]. The current Construction Industry Status Report identifies shortage of skilled artisans, supervisory staff and site management as a key constraint to production and concludes that there is little evidence of training at any of these levels. Ironically, for all the need for skills, the fall off in training since the 1980s is attributed to the closure of industry training institutions since the 1990s. Furthermore, it reports that the situation is exacerbated as only approximately 70% of the remaining capacity for training is being used [DPW, (2004)]. It is well documented that African women have strong social networks and community groups. As cornerstones in their communities African women often manage the social and financial institutions (e.g. stokvels), networks and local protest groups. One study of 226 women in Gauteng indicated that 61% of women interviewed said they made the important decisions in a household, whilst nearly 60% said that their salaries were the main source of income [Marshall, (2002)]. The attributes these activities develop would be beneficial to the Construction Industry. Seeking ways to incorporate women into the workforce would bring these strong community elements onto sites. Community spirit enables a supportive environment to develop which is an important element in effective training models. The latter aspect is not peculiar to Africa: in a UK study one employer made the comment: “Men like to work with people they know from past experience, they don’t want to work with some men either, women need to be able to join the informal networks” [Susman, (2001)]. In one study women cited the following tasks as being ones they could easily manage in building: clearing the site 82%, painting the house 88%, stock control 91% and book keeping 92% [Marshall, (2002)]. Some described activities they had been involved in the construction of their own homes: preparing the site and shifting the shack to accommodate the house to be built, digging foundations, mixing cement and concrete, packing and carrying bricks, collecting materials by wheelbarrow, fetching sand and concrete, and passing bricks [Marshall, (2002)]. In the USA women for some time have been in trades in construction (for example, as electricians) but are still poorly represented in the Industry [Eisenberg, (2001)]. The model that this study could develop would see women with needs and abilities being given access to training and employment and working in activities in construction that do not necessarily require physical strength. For example, in Belgium, women are well represented as house painters [Susman, (2003)]. A study in India described suitable areas of skill for women as tiling, flooring, painting, plastering, finishing and such trades [Chitale, (1999)]. Whilst the inclusion of women is positive, it is only so if they are recognised in the role and can develop. The true statistics of women are hidden in India where most women are noted as assistants and are not listed in their own right, are paid less than their male counterparts and do not receive their wages directly but have their wages added to that of their spouse or other family member [Wells, (2004)]. An example cited is the statistic of a 14.6% increase in women employed in construction in five Asian Enhancing the employment of skilled women in SA 213 countries, whilst the statistic for women in production work is in fact 66% [Wells, (2004)]. CONCLUSION The Construction Industry is short of skills. Providing able skilled labour through the employment of women on sites will contribute to the eradication of poverty, as it would facilitate an improved rate of construction and quality of building. Research must contribute to the alleviation of inequitable development, improvement of housing for the poor and the creation of employment, thus meeting the needs of gender and poverty research and homelessness, housing and shelter within service provision and management. However, the warning bells ring clear for Africa from Asia: women must be trained in skills. As unskilled labour their presence is more easily disguised and as the industry becomes more mechanised, their jobs diminish [Wells, (2004)]. For individuals and communities, the research could also contribute to the understanding of the nature of building and development. Communities could learn to balance gender inequalities in other areas after observing the productivity of women in a traditionally male working environment. Women could use acquired skills to establish small-scale housing development enterprises. As studies show, women have excellent community acceptance, are often the breadwinners, and are a better credit risk for the public and private sector as they have a better chance of achieving success [Korpivaara, (2001)]. Thus, it is clear that tools are needed for incorporating women into the Construction Industry and to initiate skills training of women. This is particularly relevant as new legislation set by CETA, the construction arm of SETA (Sector Education Training Authority), is firming up on a levy which has to be paid by employers and which contributes to training. Employers who have a turnover of R250 000 or more per year need to contribute 0.5% of their income [CETA, (2000)]. Enhanced skills in an industry lead to economic growth. Through an improved economy, the critical national issues of unemployment and poverty can continue to be allayed and employment created. The Construction Industry of South Africa needs gender sensitisation and development and the improvement of skills in the industry through the dissemination of research to the relevant players. There is the potential to change lives and to assist the industry in counteracting diminishing numbers of skilled workers. The research outcomes, therefore, have the potential to have a positive economic and social impact. REFERENCES Bennett, J, Davidson, M and Gale, A (1999) Women in Construction: A comparative Investigation into the Expectations and Experiences of Female and Male Construction Undergraduates and Employees, Women in Management Review, Vol.14, No.7, pp. 273-291. Boiko (1992) cited by Dainty, A, and Bagilhole, B M (2000) A Grounded Theory of Women’s Career Under-Achievement in Large UK Construction Companies, Construction Management and Economics, Vol.18, No.2. Budlender, D (2002) Women and Men in South Africa, Pretoria: Statistics South Africa 214 English and Sommerville Bullock, S (1994) Women, Work and Development, Women and Work, United Nations Non-Government Liason Service, London: Zed Books. Chitale, M (1999) Critical Issues in Training Women in Construction, Women in Construction edited by Vaid, K., Mumbai: Nicmar, www.nicmar.org Construction Industry Training Authority (2004) Sector Skills Plan, Online, Available http://www.ceta.org.za/, 25th October . Dainty, A and Bagilhole, B M (2000) A Grounded Theory of Women’s Career UnderAchievement in Large UK Construction Companies, Construction Management and Economics, Vol.18, No.2. Dainty, A, Neale, R. and Baglihole, B M (1999) Women’s Careers in Large Construction Companies Fulfilled, Career Development International, Vol. 4, No.7, pp.354 Department of Public Works (2004) Construction Industry Status Report, Pretoria www.cidb.org.za/resource/report.pdf, 6 June . Department of Public Works (1998) White Paper, Public Works Towards the 21st Century, Department of Public Works, notice 90 of 1998 in Government Gazette, Vol. 391, No.18616, SA Government Printer . Department of Employment, Education and Training (1993) Different Futures: A Study of the Critical Factors encouraging Women’s Access to Non-Traditional Entry-Level Training, Australia. Eisenberg, S (2001) We’ll Call You if We Need You: Experiences of Women Working in Construction, paper delivered at Tripartite Meeting on the Construction Industry in the Twenty-first Century: Its Image, Employment Prospects and Skill Requirements, Geneva, 10-14 December. English, P J (2000) Education in, and Management of, Cultural Differences in a Developing Country in order to Improve Industrial Efficiency, proceedings for CIB TG29 on Challenges Facing the Construction Industry in Developing Countries, Botswana, November, pp. 51-60. English, J (2002) The Construction Labour Force in South Africa: a Study of Informal Labour in the Western Cape, Sectoral Activities Working Paper, International Labour Office, Geneva. Fielden, S L and Davidson, M J (2000) Women in Construction: the Untapped Response, Construction Management and Economics, Vol.18, No.1. Gale, A W (1994) Women in Non-Traditional Occupations: the Construction Industry, Women in Management Review, Vol. 9, No.2, pp. 3-14. Humphries, M and Grice, S (1995) Equal Employment Opportunity and the Management of Diversity, Journal of Organisational Change Management, Vol.8, No.5, pp.1732. Kalabamu, F T (2001) Westernisation of Gender Roles in House Construction in Botswana, Third World Planning Review Kalabamu, F T (2004) Changing Gender Roles in House Construction in East and southern Africa: the case for Botswana, Women in Construction, edited by Linda Clarke et al., Construction Labour Research Studies, London: CLR/Reed Business Information, pp. 50-64. Korpivaara, A (2001) Building the New South Africa: One House, One Dream at a Time – The Story of Nurcha, New York: Open Society Institute. Marshall, S (2002) Gender and Development: an Investigation into Housing Delivery in Gauteng, M.Phil thesis, University of Cape Town. Michielsens, E, Frydendal Pedersen, E and Susman, B (2004) The European Social Partners for Construction: force for exclusion or inclusion?, Women in Enhancing the employment of skilled women in SA 215 Construction, edited by Linda Clarke et al., Construction Labour Research Studies, London: CLR/Reed Business Information, pp. 80-103. Morley, S (1994) Women’s Participation in Non-Traditional Vocational Training, Women in Entry Level Training Project, Department for Employment, Education and Training, South Australia . Mselle, P C and Kgaupe, T (2002) Impact of Migrant Labour on the Local Construction Industry: A Case of Botswana, conference proceedings at CIB W107, first international conference: Creating a Sustainable Construction Industry in Developing Countries, Stellenbosch, 11-13 November. Nel, P S (1997) A Training and Development Partnership between the Building Industry and the South African Government, University of Pretoria. Rantshadi, M (2004) My Career in Building, Women in Construction, edited by Linda Clarke et al., Construction Labour Research Studies, London: CLR/Reed Business Information, pp. 64-66. Shakantu, W, Kaatz, E and Bowen, P (2002) Partnering with SMMEs to meet SocioEconomic Sustainability Objectives at Cape Town International Convention Centre (CTCC), conference proceedings at CIB W107, first international conference: Creating a Sustainable Construction Industry in Developing Countries, Stellenbosch, 11-13 November. Smithers, G L & Walker, H T (2000) The Effect of the Workplace on Motivation and Demotivation of Construction Professionals, Construction Management and Economics, Vol.18, London: E. & F.N. Spon Ltd. Statistics South Africa (1999) Provincial Profile, report no. 00-91-07. Susman, B (2001) Come Back When You have Some Experience, A report by Building Work for Women, www.buildingworkforwomen.org.uk Van Huysteen & Chege (2001) International Labour Organisation Country Case Study of Construction, South Africa, Pretoria: Division of Building and Construction Technology, CSIR, Vol. 23, No. 3, pp. 301 – 322. Vaid, K (1999) Women in Construction, Mumbai: Nicmar, www.nicmar.org Wall, C (1997) Notes from the Editor, CLR News – Women in Construction, 3, pp.1-2 Wells, J (1990) Female Participation in the Construction Industry, Sectoral Activities Programme Working Papers, International Labour Office, Geneva. Wells, J (2000) The Role of the Informal Sector of the Construction Industries in Developing Countries, Best Practices Project, CIB Task Group 29 on Developing Countries, Botswana. Wells, J (2004) Women in Construction in the Developing World, Women in Construction, edited by Linda Clarke et al., Construction Labour Research Studies, London: CLR/Reed Business Information, pp. 66-79 . 216 English and Sommerville MOTIVATING CRAFT WORKERS: A CASE STUDY WITH NIGERIAN WORKERS BENJAMIN O. UWAKWEH Construction Innovation center, University of Cincinnati, 2220 Victory Pkwy, Cincinnati, OH 45206, USA. [email protected] ABSTRACT Construction labor productivity accounts for a significant portion of the cost of construction. Understanding how to improve labor productivity is of much interest to all the parties involved in the construction process because it is the most critical resource for the successful execution of any project. As a result, the availability of well trained and motivated workforce is highly desirable. This is particularity crucial for developing countries where there is tremendous need for infrastructure, housing and other built environment. Recognizing the importance of workforce, a preliminary study of construction craft workers was conducted in one of the major cities in Nigeria. The survey instrument used in this study was based on the expectancy theory of worker motivation. The factors that affect worker motivation, job satisfaction and worker needs are identified. Based on our finding, workers’ needs are not met and they are generally not satisfied. This is across the broad as none of the group of workers were satisfied with their rewards even though they have a high need for them. The managerial implications are that the managers must work on linking workers’ needs to performance and providing them the rewards that will motivate them to perform. Construction Workforce, Developing Countries, Expectancy Theory, Motivation, Nigeria. Keywords: INTRODUCTION The construction industry is of great importance to the functioning of the economy of any country. The industry is of particular importance in the developing countries where there is acute shortage of houses and dire need for infrastructure. Although, the developing countries have need for the development of infrastructure, they are characterized with large population and higher unemployment rate. Nigeria is no different in this instance. Nigeria is one of the largest countries in Africa with an area of about 365,000 sq. miles. Its population is estimated at about 120 million. English is commonly spoken and all education is in English. The country gained its independence from Great Britain in 1960. It has 36 states and a Federal Capital Tertiary (FCT) in Abuja. Although, it has 36 states, the country is divided into six geopolitical regions for political expediency. About 69% of Nigeria’s fixed capital formation is produced by the construction industry [FOS, 1998]. In essence, the industry represents nearly 70% of the capital base of the 218 Uwakweh national economy and is an indication of the significance of the industry within the economy. Although construction has significant position within the economy, its contribution to Nigeria’s Gross Domestic Product (GDP) has been around 2% for the past 15 years [FOS, (1997)]. Similarly its contribution to employment has also staged around 1.0% [FOS, (1998)]. The construction industry in Nigeria is not well organized. There is an umbrella labor union called National Labor Congress (NLC) but most of the construction workers employed by contractors are not card carrying members. On the other hand, their counterparts in manufacturing, public sector and other mature industries like health and banking belong to a union that is affiliated with NLC. There are so many contractors in Nigeria because entry requirements are not strict. These contractors can hire craft workers easily either by word of mouth, referrals or by posting signs on their sites. Although, there are some firms that have labor for hire, it is not a common practice. OBJECTIVE OF THE STIDY Our primary objective for this study was to conduct a pilot study of craft workers in a major south eastern town in Nigeria. Our goal was to find out the applicability of the expectancy theory in Nigeria. Specifically, we are interested in identifying if construction workers’ needs are satisfied. CONSTRUCTION WORKER MOTIVATION AND EXPECTANCY THEORY The expectancy theory is based on a number of specific assumptions about the causes of behavior. The first assumption is that behavior is determined by a combination of forces in the individual and forces in the environment. In essence, neither the individual nor the environment alone determines behavior. This is because individuals come to firms with certain experiences which give them unique sets of needs and expectations of how the organization will treat them. These experiences influence the way individuals respond to their work environment. The work environment provides structures such as pay system, supervisor and others like work rules. These also influence the behavior of workers. Different environments tend to produce different behavior in similar people. The second is that workers make decisions about their own behavior in their firm. Although, there are constraints on the behavior of workers in their organizations, most of the behaviors that have been observed are, as a result of the individual worker’s conscious actions. Generally, the decisions that workers make can be classified into two categories. Workers make decisions about membership behavior such as coming to work, staying at work, or other ways of being effective. The other category is the decision on effort expended on performing their jobs. These include how hard to work, the quantity to produce and the quality of work. The third is that different workers have different needs, desires or goals. The consequence of this is that workers differ because of the kinds of outcomes (rewards) they desire. The differences are not random as they can be classified in a system that can make it manageable. As an example, medical benefits can be broken down into, dental, eye, surgery, and pre-natal care. The fourth is that workers make behavioral decisions Motivating craft workers 219 based on their perceptions of the likelihood that it will lead to the desired outcome. Simply stated, people will do those things which they see as leading to rewards (outcomes) they desire. Similarly, they will avoid those things that lead to outcomes that are not desirable to them. Generally, the approach presented here views people as knowing their needs and having mental maps of the environment. They use these maps to guide their decisions and behave in those ways which they believe will lead to receipt of the desired outcomes in the hope that it will satisfy their needs. Based on these assumptions the expectancy theory makes several propositions about the process by which people make decisions about their behavior in organizational settings. [Lawler, (1970)] has provided an in depth discussion of the expectancy theory of behavior. The expectancy theory in construction has been adequately discussed by [Uwakweh, (2003)], [Maloney and McFillen, (1984)]. Although, the theory is complex, it is in fact made up of a series of fairly straight forward observations about behavior. Ability Outcomes (Rewards) Motivation Effort Performance [Know-how] Fig. 1 Basic motivation-behavior Three concepts are at the core of the expectancy theory. They are effort-performance (E→P) expectancy, performance-outcome (P→O) Instrumentality, and Valence (V). These have been discussed in details in [Uwakweh, (2003)]. The summary of these three concepts are that: Motivation is greatest when: The worker believes that he/she is able to perform at the desired level (effortperformance) The worker believes that the behavior will lead to desired outcomes (performanceoutcome), Instrumentality The worker believes that the outcomes have positive value for him/her (valence) DATA COLLECTION This study was conducted in one of the major cities in the south east geopolitical zone. Four mid sized firms working on governmental contracts to build schools were randomly selected to distribute the questionnaire. 25 questionnaires were handed out to each firm. A questionnaire was adopted from previous studies and modified where necessary. The first section of the questionnaire contains the demographic variables while the second contains pair of forced-choice statements. There are sixteen questions in this section and the responses were intended to measure worker orientation. In each term, one of the 220 Uwakweh statements indicates external orientation, while the others indicate internal orientation. An example of such pair is: When I make plans, I am almost certain that I can make them work. It is not always wise to plan ahead because many things turn out to be a matter of good or bad fortune anyhow. (Externally orientated) The third section contains questions that are used in measuring job satisfaction. Because we were not certain of the educational level, we used simple instrument that can be easily understood. Only four aspects of work, satisfaction with supervision, work itself, pay, and co-workers were investigated. The workers were asked if they agree or disagree with the given description of that aspect. For example, some of the terms used in describing work are: routine, boring, fascinating, and simple. The fourth section of the instrument covers questions on worker motivation. The measures of expectancy, instrumentality and valence are based on the work done by Maloney and McFillen. To measure expectancy for example, the workers were asked how likely it is that the first factor will lead to the second in their work such as “Working hard lead to high productivity”. The last section contains questions on workers’ needs and their satisfaction with corresponding needs. ANALYSIS Demographics Out of 100 questionnaires distributed, 77 were found usable. This accounts for 77% return and since this was a pilot study, we found that to be acceptable and statistically significant. Figure 1 represents the distribution of sample by age group. It can be observed that the 56.6% of the sample age group lies between 21-30 years. This implies that the workers surveyed are relatively younger when compared to the United States of America workforce where the average age of worker is above 50 years. With this young workforce, the potential exists for developing the various skills that are needed in the industry. It further supports our notion that the country is characterized with a large pool of young workers. 60.0 50.0 40.0 Percent 30.0 20.0 10.0 0.0 < 20 21-30 31-40 Age group 41-50 Missing 9.2 3.9 2.6 27.6 Percent 56.6 Motivating craft workers 221 Fig. 1 Distribution by age group Figure 2 shows the distribution of workforce with respect to the number of years in construction industry. It can be observed that 48.7% of the sample has 6-10 years of experience in the industry. Another observation is that the construction workers in the study are not associated with a specific trade. This is probably due to the fact that these workers can do multi-tasking and also because of the lack of job jurisdiction. Also, there tend to be a significant number of on-the-job training and many workers working with different trades as the need arises. We observed that there was more informal labor structure. 60.0 50.0 40.0 Percent 30.0 20.0 10.5 10.0 0.0 1-5 6-10 11-15 16-20 Missing Number of years in construction industry 2.6 2.6 35.5 Percent 48.7 Fig. 2 Distribution by years in construction industry Need and satisfaction Numerous lists and classification of needs have been presented by Psychologists. Maslow’s hierarchical classification of needs has been by far the most widely used classification system in the study of motivation in organizations. For example, Maslow has five- level classification of needs which he argues are hierarchical. These are physiological, safety, belongingness and love, esteem and self actualization [Maslow, (1970)]. Based on this framework, the lower or more basic needs are inherently more important than the higher or less basic needs. In other words, once an individual’s physiological needs such as food are satisfied, then the individual strives for the next higher level such as safety. What is important is that an individual’s behavior is motivated by an attempt to satisfy the need that is most important at that point. Further, the strength of any need is determined by its position in the hierarchy and by the degree to which it and all lower needs have been satisfied. It is as a result of this that we are interested in identifying the needs of the construction craft workers. Identifying the needs is one thing and determining if the workers are satisfied is another. In this paper, we take the view that an individual is satisfied when the perceived value of the need is equal to the actual value. Therefore, if the value to which a worker attaches to 222 Uwakweh a particular need, like pay is met, then the worker is satisfied with that need. For example in the United States most construction workers are likely to be satisfied with pay but may not be with medical benefits. This is partly because they may be forced to use some of their high wages to pay for some medical benefits. On the other hand, their counterpart in Nigeria and most developing countries may not be satisfied with their pay because, relatively it is still low. Workers were asked to indicate from a list of 14 items related to their needs about how important these items were to them. They had to choose from a five point linker scale, where 1 is “not important” and 5 is “extremely important”. The mean response for each item tapping the workers needs were calculated and were rank-ordered. The mean values of the need factors are shown in a descending order in table 1. Table 1 Mean of need factors Need factor Mean Std. Deviation Enough food for me and my family 4.6379 0.6675 Good pay for work 4.5370 0.6358 Making full use of my abilities at work 4.5294 0.7011 Saving money 4.5143 0.6966 Better living conditions 4.4000 0.6831 Mutual trust between you and your boss 4.3725 0.6621 Openness and honesty between me and my boss 4.3582 0.6674 Cooperative relations with coworkers 4.3043 0.8279 Sense of security 4.2090 0.7494 Respect from boss 4.1455 0.6211 Openness with coworkers 4.1455 0.8906 Frequent rises in pay 4.0392 1.0575 Sense of self esteem 3.9242 0.7084 Respect from coworkers 3.8704 0.8252 The data was analyzed further to explore the depth to which their needs were met. The workers were asked to indicate the degree to which their needs were fulfilled. Table 2 shows how satisfied the workers were for each of the item. In this scale, 1 is “not at all satisfied” where as 5 is “completely satisfied”. General observation of the data is that the workers were not satisfied with their needs. Table 2 Mean of satisfaction factors Satisfaction factor Sense of self esteem Frequent rises in pay Respect from coworkers Mutual trust between you and your boss Openness and honesty between me and my boss Openness with coworkers Respect from boss Making full use of my abilities at work Sense of security Cooperative relations with coworkers Enough food for me and my family Better living conditions Mean Std. Deviation 1.981 0.9901 1.814 0.9523 1.787 0.7945 1.768 0.8599 1.679 0.9562 1.671 0.8555 1.666 0.6868 1.641 0.9626 1.629 0.8078 1.612 0.9313 1.555 0.7572 1.531 0.9079 Motivating craft workers 223 Saving money Good pay for work Expectancy 1.384 1.358 0.7450 0.7114 Workers were asked if they believe that increased effort could lead to good performance, to high productivity and doing a job well. Worker responses ranged on a five point likert scale with 1 being “unlikely” and 5 being “always”. The expectancy score was calculated by taking the mean response for the three items. The mean value is found to be 4.21 with a standard deviation of 0.61. This high score on expectancy suggests that the workers believe that if they exert effort, they can perform. The differences in expectancy scores were analyzed by tenure in the industry, age group, ability to read blue prints and whether or not they attended technical school. The mean value of the expectancy scores for each category is shown in Table 3. The reason that illiterate workers had high expectancy than the literate workers might be due to the nature of the work that they perform. The illiterate workers may not need know-how and hence, increased effort is more likely to lead to doing a job well, good performance and high productivity. Workers with more experience measured by number of years in trade (16-20) or by age group (41-50) had high mean of 4.333 than any other group. The possible explanation of this is that they have more experience and thus, have better perceptions of means of successful performance. Table 3 Expectancy score by demographics Years in construction Mean Std. Deviation 1-5 4.2346 0.5759 6-10 4.2130 0.5173 11-15 3.8571 1.0862 16-20 4.3333 Total 4.1878 0.6087 Age group less than 20 21-30 31-40 41-50 Total Reading blueprint Literate Illiterate Total Technical school No Yes Total Mean Std. Deviation 5.00 0.00 4.1984 0.5561 4.1111 0.7175 4.3333 4.1970 0.6131 Mean Std. Deviation 4.2182 0.6292 4.2444 0.3442 4.2238 0.5779 Mean Std. Deviation 4.25 0.71341 4.1789 0.5328 4.21 0.6149 224 Uwakweh Motivational score The Valance-Instrumentality (V-I) score of each worker was found by multiplying the instrumentality item response (I) by the response of the valance for the same item (V). Thus, a new variable is created for each set of matching items in both sections. To find the motivational score for each worker, the mean of the V-I score is multiplied by the expectancy score (E) found earlier. Motivational Score = E × ∑ ( I × V ) / n , i =1 n Where, n is the number of matched items of instrumentality and valance items (such as the first item in both sections of the questionnaire). The resulting motivational score varies between 1 and 125 with 1 being very poorly motivated worker and 125 a very motivated worker. The actual data ranges from 15.33 to 76.92 with a mean of 39.35 and standard deviation of 15.06. The difference in motivational scores were analyzed by age group, tenure in the industry ability to read blue print and whether or not the attended technical school. The mean value of the motivational scores for each category is shown in Table 4. We can observe that the overall motivational score is very low and there is a lot of score for improvement. Table 4 Motivational score by demographics Years in construction Mean Std. Deviation 1-5 41.9324 13.0689 6-10 36.2299 15.6979 11-15 42.7051 19.5441 Total 39.0148 15.1991 Age group less than 20 21-30 31-40 41-50 Total Reading blueprint Literate Illiterate Total Technical school No Yes Total Mean Std. Deviation 49.4231 1.3598 42.8702 13.8450 36.1984 16.0159 51.3333 40.9221 14.6401 Mean Std. Deviation 40.7245 14.4325 31.8508 15.5692 39.0416 14.9312 Mean Std. Deviation 39.0400 15.8340 39.5755 14.7248 39.3560 15.0610 Locus of control The questions on locus of control indicate the measure of internal or external orientation of workers. A worker who is internally oriented believes in himself whereas the one who Motivating craft workers 225 is externally oriented believes he has no control over the things. The resulting score varies between 1 and 5, with 1 being internally oriented worker and 5 being externally oriented worker. The actual data ranges from 1.50 to 5.00 with a mean of 2.81 and standard deviation of 0.572. The general observation is that the workers are slightly externally oriented. IMPLEMENTATION OF STUDY There is evidence from the workers that they have clear understanding of their needs. For example of the top needs identified in the study, Enough food for me and my family (4.64); Good pay for work (4.54); Making full use of my abilities at work (4.53); Saving money (4.51); and Better living conditions (4.40); management can influence most of them. A careful review of these five top needs can be met by paying these workers adequately and even linking pay to performance. They desire to utilize their skills, and all management needs to do is provide them with the opportunity and reward them contingent on their performance. One result of paying them adequately is that they can improve their living conditions. In summary, this study has helped in identifying some of the fundamental needs of the workers and it is now the responsibility of management to develop mechanisms to ensure that workers are satisfied. The workers in this study are externally oriented. That is, they believe in external rewards although slightly. Management should capitalize on this and provide extrinsic motivation such as bonus for a job well done or praise. Another interesting observation of this study is that the workers believe that they have the ability to perform. Now management must capitalize on this factor and build on it. RECOMMENDATIONS FOR FUTURE STUDY This is just a pilot study that was conducted in one of the geopolitical regions of Nigeria. What needs to be done is to conduct this study in detail to include the major cities within the six geopolitical regions in Nigeria. Such a study will help constructors, owners (public and private) who are interested in developing the much needed infrastructure in the country. Further, it will improve the contribution of construction in the country’s GDP. It is important to build on this study to get better understanding of the construction workers environment in Nigeria. A motivated industry is critical in the development of Nigerian economy. As this pilot study suggests, the preponderance of the workers are under 30 years of age and thus, the industry can be characterized as young and emerging workforce. Therefore, potential exists to study on how to develop and implement quality training programs for the various skills needed in the industry. Further, the pool exists to select from the country. 226 Uwakweh REFERENCES Federal Office of Statistics (FOS) (1998) Review of the Nigeria Economy 1997, Federal Office of Statistics, Abuja, Nigeria Federal Office of Statistics (FOS) (1997) National Accounts of Nigeria 1981-1996, Abuja, Nigeria Industry Profile, Construction industry, U.S. Bureau of Economic Analysis (2001) Nadler, David, and Lawler III, E. E. (1982) “Motivation: A Diagnostic Approach” in Nadler, Tushman, and Hartany (Ed). Managing organization, Little Brown and Company Uwakweh, B O (2003) “Motivating craft workers: A case study with Syrian workers”, in Knowledge Construction, Proceedings of the Joint International Symposium of CIB working commissions w55, w65 and w107, Singapore, Octo. 22-24 Maloney, W F, and McFillen, J. M. (1984) “Unionized construction workers and their work environment”, Technical report 1, Center for Construction and Management, University of Michigan, Ann Arbor, MI Maslow, A H (1970) Motivation and Personality, 2nd Ed, Harper & Row, New York INVESTIGATING ‘UNSAFE ACTS’ AND ‘DECISION TO ERR’ FACTORS OF THAI CONSTRUCTION WORKERS THANET AKSORN and B. H. W. HADIKUSUMO Construction, Engineering and Infrastructure Management, School of Civil Engineering, Asian Institute of Technology, P.O. Box 4, Klong Luang, Pathum Thani 12120, Thailand [email protected] ABSTRACT Unsafe acts of workers in construction industry are the major fundamental reasons behind accidents and these unsafe acts are significantly influenced by workers’ decision to err. These unsafe acts, however, were not adequately researched to explore possible influential factors, which are crucial for explaining why unsafe acts happened. This article discusses the results of studying unsafe acts of 214 Thai construction workers: (i) major unsafe acts; and (ii) decision to err, factors contributing to the unsafe acts. The results demonstrated that ignoring to wear Personal Protective Equipment (PPE), improperly lifting or handling materials and leaving sharp objects in a dangerous condition were the major unsafe acts frequently occurring. The study also identified the various reasons behind the workers’ decision to err causing major unsafe acts, which are mainly related to personal, job, management and workgroup factors. In addition, detail of this factors were also investigated. Keyword: Accident, Safety, Unsafe Act INTRODUCTION Construction project is considered as a labor-intensive industry, which counts workers as an important element contributing to the project success. Protecting workers from accidents, therefore, becomes an important issue. For many years, safety practitioners focused on physical preventive measures such as machine guarding, housekeeping, and inspection, in the belief that poor physical conditions cause accidents while little preventive work was done related with human aspects. This condition must be improved since according to accident record presented by [Haupt, (2001)], unsafe acts of workers were the main contributor. Unfortunately, these unsafe acts have not been properly addressed for identifying possible influential factors. Unsafe acts may happen in two conditions: (i) a worker does not know if he/she is acting unsafely and (ii) he/she does know if he/she is acting unsafely. The first condition can be easily addressed by providing safety education to workers. However, the second condition is a more complex situation because the reasons for acting unsafely can be rooted from different aspects, such as personality, job and managerial factors. This second condition is called workers’ decision to err in which a worker knows that he/she is working unsafely, and yet he/she decided to do it. This study was undertaken to explore the influential factors contributing 228 Aksorn and Hadikusumo to decision to err of Thai construction workers. The importance of identifying factors of decision to err is in devising preventive measures to reduce unsafe acts. HUMAN ERROR IN CONSTRUCTION ACCIDENTS [Abdelhamid et al, (2000)] mentioned that human error is the main cause of accidents and can be explained by behavior and human factor approach. Behavior approach pictured workers as being the main cause of accidents and revealed that workers make errors under various situations and environmental conditions. Similar to behavioral approach, human factors approach also holds that human is the main accidents’ causation however the blame does not fall on human unsafe characteristics alone but this approach covers the designs of the workplace and tasks. Since both approaches confirmed that human unsafe acts are major contribution to accidents hence this study was initiated for investigating template of workers’ unsafe acts and decisions influencing them to commit unsafe acts. The result of study will provide management with systematic guidelines to determine effective measures for preventing accidents. Accident Causation In 1959, Heinrich developed the domino theory (model) of accident causation, in which an accident is presented as one of five logical factors (dominoes) in a sequence that results in an injury. The behavior of the factors involved was similar to the toppling of dominoes when disrupted. When a domino falls (occurs), so do the succeeding dominoes. In the case of removing the 3rd domino (representing unsafe acts and conditions), an accident can be prevented by eliminating unsafe acts and conditions. Among these two, unsafe acts contribute 80% of total accidents. [Haupt, (2001)] mentioned that two studies conducted by the National Safety Council (NSC) and the Du Pont Company [Human Performance Technologies, (1998)] revealed that unsafe act was the major cause of accidents. The results of both studies showed that 88% and 96% of accidents causing by unsafe acts of workers while only 10% and 4% causing by unsafe condition. Unsafe Acts Some researchers [Petersen (1984), King and Magid (1980), Stranks (1994), Simachokdee (1994), Abdelhamid et al, (2000), Holt (2001)] have noted numbers of practices of unsafe acts: a) Working without authority on the job, which may lead to an accident due to lack of skills or familiarity with the process; b) Failure to warn or secure members of danger is considered as unsafe act because an accident may occur due to ignoring to warn or secure other members when they are working under high probability to get an accident; c) Working at improper speed, exceeding improper prescribed limit speed or unsafe speed of action, for example, the workers who are quickly handling objects may get slip. d) Improper lifting, handling, moving objects may cause back injuries for example incorrect manner for manual lifting, lifting heavy object without force-saving equipment. e) Improper placing and stacking objects and material in a dangerous condition can contribute to unpredicted accident. f) Incorrect use of tools and equipment, hand tools, power tools, and machinery, for instance, the workers may climb 228 Investigating “Unsafe Acts” and “Decision to Err” 229 or stand on rebars because they are lazy to get a ladder. g) Using defective equipment and tools to perform the job such as using poor condition ladder may cause falling accidents. h) Annoyance and horseplay in the workplace such as teenage workers roughly play around the workplace may get an unexpected accident. i) Ignoring to wear personal protective equipment may increase chance to get head injury from falling object. j) Removing safety guards from workplace or equipment may raise the chance to get accidents. k) Smoking, creating naked flame or spark in area where flammable material are stored may lead to the explosions. l) Leaving nail or other sharp objects protruding from timber may cause injury to workers who do not wear safety shoes. m) Throwing or accidentally dropping object from height may contribute to head injury to others. n) Working under effect of alcohol and other drugs may increase unawareness of users that can lead to an accident. o) Improper position for tasks can also lead to an accident for example, the workers who are working on high level may get falling accident. p) Improper posture for tasks such as climbing or jumping from height in stead of using provided ladder q) Servicing equipment in operation for example perform maintenance the machine without turn off the engine. r) Working with inattentive action, for instance, the workers are talking with others while they are performing the job. s) Working with poor physical condition such as fatigue, stressful, exhausted, and sleepy. Decision to Err Factors In some situations it seems logical for workers to choose to act unsafely, as [Petersen, (1984)] mentioned in his study that decision to err could lead to human error which can contribute occurrence of accidents. Likewise, [LaDou, (1994)] stated that human error can stem from decisions made by a worker. For example, if a supervisor pressures workers to increase production rate, the workers might choose an unsafe approach rather than a safe approach to save time and get the job done, e.g. because of time pressure, one worked in unstable platform where one should have used a ladder. As a preliminary study of this research, several causes of decision to err were compiled from reviewing literatures and interviewing 10 workers from construction industry. According to the findings, the preliminary study revealed 20 factors contributing to decision to err; and these factors can be grouped into four: personal, job, management and workgroup (see Table 1). Table 1. Identification of decision to err factors List of factors Personal Factors (PF) Laziness (PF 01) Past Experience (PF 02) Being in hurry (PF 03) Showing off (PF 04) Being angry (PF 05) Being uncomfortable (PF 06) Effect from using drugs and alcohol (PF 07) References Hall (1995) Kittleson (1995) Stice (1995) Kittleson (1995) Kittleson (1995) International Labor Organization Michaud (1995) 230 Aksorn and Hadikusumo Table 1. Identification of decision to err factors List of factors References Supervisor’s acceptance (PF 08) McGregor (1960), Stranks (1994) Co-worker’s acceptance (PF 09) McGregor (1960), Stranks (1994) Overconfidence (PF 10) Hirsch (1998) Job Factors (JF) Too much work (JF 01) Greenberg (2000) Too little work (JF 02) Greenberg (2000) Time pressure (JF 03) Timm (1986) Management Factors (MF) Management pressure (MF 01) Petersen (1984) Lack of management support (MF Ladou (1994) 02) Inadequate supervision (MF 03) Hammer and Price (2001) Reward (MF 04) McGregor (1960), Stranks (1994) Penalty (MF 05) McGregor (1960), Stranks (1994) Workgroup Factors (WF) Group norms (WF 01) Gibson (2000) Group pressure (WF 02) Ellis (1994) RESEARCH METHODOLOGY The research methodology involved development of scope and framework of survey, interview schedule design and data collection, and data analysis. At the preliminary stage, a pilot test was conducted on twenty workers to get feedback and obtaining additional data for improving the questionnaire. The result of the pilot test indicated that timeconsuming for completing the questionnaire during the interview was unsatisfied due to limitation of time authorized for interviewing workers by project managers. Therefore, the structures of a questionnaire were rearranged by applying the forced choice items to eliminate this problem. In addition to the questionnaire design, all variables used in the questionnaire were pre-tested for applicability by several site engineers. The results demonstrated that all variables for both unsafe acts and decision to err factors were applicable1. The data collections were conducted by face-to-face interview technique. [Jaselskis and Suazo (1994)] proposed that the face-to-face interview can prevent interviewees from misunderstanding the questions in order to assure the accuracy of the data collected and to avoid embarrassment to illiterate workers. The nature of interviews was to read all questions and mark the ratings by interviewers. The target group of this study was Thai construction workers who worked in medium to large construction projects (i.e. above 10 Million Baht (URL1, Undated)) located in Bangkok and The mean values for unsafe act variables range from 3.09 to 4.00 in a 4-scale (1 to 4) Linkert and standard deviation range form 0.29 to 0.88 for unsafe acts variables, while the mean values range from 2.71 to 3.36 and standard deviation range from 0.29 to 0.88 for decision to err factors. 1 230 Investigating “Unsafe Acts” and “Decision to Err” 231 surrounding areas. 214 workers from 20 construction projects were individually interviewed in this study. UNSAFE ACTS IN THAI CONSTRUCTION INDUSTRY In order to investigate the unsafe acts of the Thai construction workers, 150 workers were asked to rate scores to indicate degree of frequency of unsafe acts that they performed in the current project. The five points rating scale (i.e. 1= never, 2= rarely, 3= occasionally, 4= often, 5= usually) was used for measuring the degree of frequency of committing unsafe acts. The statistical results were shown in Table 2 below. Table 2. Statistical Results of Unsafe Acts Code US-01 Type of unsafe act Working and operating without authority and lack of skills Mean 2.23 1.89 2.15 3.25 2.43 1.75 1.93 1.64 3.95 1.25 1.25 2.67 1.67 1.45 2.38 2.04 1.08 SD. 1.24 1.04 1.12 1.26 1.10 1.05 1.14 1.09 1.42 0.66 0.74 1.52 1.09 0.90 1.31 1.11 0.43 Rank 7 12 8 2 5 13 10 15 1 17 17 3 14 16 6 9 19 Result Rarely Rarely Rarely Occasional ly Rarely Rarely Rarely Rarely Often Never Never Occasional ly Rarely Never Rarely Rarely Never US-02 Failure to warn or secure members of danger US-03 Working and operating at improper speed Improper lifting, handling and moving objects and materials Improper placing and stacking objects and US-05 materials US-04 US-06 Incorrect using tools, equipment and machine US-07 Using defective tools, equipment and machine US-08 Annoying and horseplay at workplace US-09 Failure to wear PPE US-10 Removing safety guard Smoking, creating naked flame or spark in flammable area Leaving nail or other sharp objects in dangerous US-12 condition US-11 US-13 Throwing or dropping objects from height Operating under effect of using alcohol and drugs Improper position or working with dangerous US-15 position US-14 US-16 Improper movement for task US-17 Servicing and maintaining equipment in 232 Aksorn and Hadikusumo Table 2. Statistical Results of Unsafe Acts Code operation US-18 Operating with carelessness and inattention US-19 Working with poor physical condition, such as sick, etc. 1.90 2.49 0.99 1.10 11 4 Rarely Rarely Type of unsafe act Mean SD. Rank Result According to Table 2, ‘Ignoring to wear PPE’ was ranked as the most frequent unsafe act. The results were similar to a study conducted by [Jaselskis and Suazo (1994)] who reported that workers in Honduras rarely wore PPE. Only 5% of construction workers were found wearing hardhat. Moreover, [Suraji et al, (2001)], who studied 500 construction accidents in The U.K., revealed that 29.80% of accidents caused by inappropriate operative actions (unsafe acts) and the major contributor was improper or inadequate use of PPE. The second rank of high frequency of unsafe act was improper lifting, handling and moving objects and materials (average score = 3.25) which was interpreted as occasional degree. Based on interviews, the workers usually carried heavy objects without any lifting device. Moreover, they were unaware of the proper method of handling the objects safely. Consequently, improper manners can cause serious injury to workers. Leaving nails or sharp objects in a dangerous condition comes as the third rank (average score = 2.67). This type of unsafe act can be interpreted as occasional degree. DECISION TO ERR FACTORS One of the research objectives is to investigate what decision to err factors contributing to unsafe acts. Due to time constraints of collecting data in construction sites, it is not possible to ask respondents what are the decision to err factors related to each unsafe act since there are total of 19 unsafe acts. Thus, the possible way to obtain the data within available time was to ask respondents to rank the top two unsafe acts that they frequently performed (i.e. a forced choice). Then, each respondent was asked to choose reasons for doing these two unsafe acts and rate the degree of influence. The four rating scale (i.e. 1= not influential, 2= little influential, 3= moderately influential, 4= strongly influential) was used for measuring the degree. By applying this forced choice technique, the researcher can finish an interview within 15 to 20 minutes, and thus more data were collected to increase the reliability of the findings. However, due to this method, we can identify decision to err factors for only some unsafe acts which were chosen by the respondents. Furthermore, such available data from interview were used for hypothesis tests. The null hypothesis and alternative hypothesis were employed as following: H0 = the average score of each factor is not less than 2.51(µ0 ≥ 2.51, minimum value of moderate degree) H1 = the average score of each factor is less than 2.51 (µ0 < 2.51, minimum value of moderate degree) 232 Investigating “Unsafe Acts” and “Decision to Err” 233 For testing the null hypothesis, the test value was set as 2.51 (minimum value of moderate influential interval) because the interval of mean score were classified into four ranges (1.00-1.50= not at all influential, 1.51-2.50= little influential, 2.51-3.50= moderate influential, 3.51-4.00= strongly influential). The SPSS software was applied to compute the value for hypothesis testing by using one sample t-test method. The output value was asymptotic significance (1-tailed). The final value was compared with significant level (α)), which was set as 0.05. Note that if the asymptotic significance (1-taied) value was less than α, and t value was also less than 0 then the null hypothesis was rejected. The statistical results were shown in Table 3 below. Table 3. Statistical Results of Workers’ Decision to Err Factors Type of unsafe act Factor US-09: Failure to wear personal protective equipment (rated by 140 workers) Mean t -7.00 4.40 12.41 4.43 P-Value (1-tailed) 0.000* 0.000 0.000* 0.000 US-04: Improper lifting, handling and moving objects (rated by 58 workers) Mean 1.43 2.55 1.97 1.03 1.03 1.00 t -9.13 0.237 -3.42 -61.05 -42.79 P-Value (1-tailed) 0.000* 0.813 0.001* 0.000* 0.000* US-12: Leaving nails or sharp objects in dangerous condition (rated by 34 workers) Mean 3.62 3.18 3.03 1.12 1.24 1.00 t 7.91 3.49 2.35 -15.11 -10.64 P-Value (1-tailed) 0.000 0.001 0.025 0.000* 0.000* - PF-01 Laziness PF-02 Past experience PF-03 Being in hurry PF-04 Showing off PF-05 Being angry PF-06 Being uncomfortable PF-07 Effect from using drugs and alcohol PF-08 Supervisor’ s acceptance PF-09 Co-worker’s acceptance PF-10 Overconfidence JF-01 Too much work JF-02 Too little work JF-03 Time pressure MF-01 Management pressure MF-02 Management support MF-03 Supervision MF-04 Reward MF-05 Penalty WF-01 Group norms WF-02 Group pressure 1.84 2.97 1.51 1.00 1.00 3.01 1.00 - - 1.00 - - 1.00 - - 1.00 1.02 3.01 1.00 1.00 1.19 1.00 3.26 1.84 1.00 1.00 3.14 1.12 69.47 4.72 23.01 7.02 -6.78 6.52 37.32 0.000* 0.000 0.000* 0.000 0.000* 0.000 0.000* 1.57 1.62 3.05 1.47 1.00 2.05 2.76 1.71 1.95 1.00 1.91 3.48 1.83 -7.79 -6.51 3.55 -8.81 -2.57 1.36 -5.44 -4.07 -3.92 8.58 -4.38 0.000* 0.000* 0.001 0.000* 0.013* 0.179 0.000* 0.000* 0.000* 0.000 0.000* 1.09 1.00 3.44 1.50 1.00 2.85 1.38 1.68 2.47 1.00 1.00 3.71 1.18 -16.11 6.91 -6.13 1.39 -7.40 -3.89 -0.21 13.31 -12.42 0.000* 0.000 0.000* 0.174 0.000* 0.000* 0.837 0.000 0.000* 234 Aksorn and Hadikusumo Note: P-values with * denote that null hypothesis is rejected when meet both criteria p-value < 0.05 and t < 0. The value of t-test cannot be computed because the standard deviation is 0. US-09: Ignoring to Wear Personal Protective Equipment (PPE) According to Table 5, there are five factors were considered higher than 2.51 or higher than minimum value of moderate degree for contributing to failure to wear PPE. These five factors are summarized as follows: Lack of management support (MF-02): The mean score of this factor is 3.26. According to the interviews, workers blamed management for not providing PPE. However, they realized on their safety matter and willingly to wear PPE if provided by the management. The fact revealed that some of the construction sites required workers to bring their own safety helmet. Some project sites provided safety helmet to workers, however the sites charged the workers higher than the market price. Coincidentally, the result of this study is similar to the study of [Jaselski and Suazo, (1994)] in Honduras which revealed that management did not provide PPE was the common reason for not wearing PPE. Group norms (WF-01): The mean score for this factor is 3.14. The workers normally ignored to wear if they saw other workers not wearing it. They said, “Every one did it that way”. They indicated that the group was important and they were loyal to it otherwise one will be expelled by the group. Overconfidence (PF-10): The mean score for this factor is 3.01. Each worker simply perceived that the possibility of getting an accident was low or if it should happen it would not be so serious. Being uncomfortable (PF-06): The mean score is 3.01 for this factor. The workers commonly complained many reasons such as headache, heavy weight, hot, annoying and unfamiliar because uncomfortable to wear PPE while working. Past experience (PF-02): The mean score for this factor is 2.97. The workers did not use any PPE since they had started working in construction industry. Thus, such experience became a habit and they are reluctant to change. US-04: Improper Lifting, Handling and Moving Objects and Materials Table 5 indicates four factors which are higher than 2.51 or higher than minimum value of moderate degree for contributing to improper lifting, handling and moving objects and materials. These five factors are discussed as follows: Group norms (WF-01): The mean score for this factor is 3.48. The workers mentioned that they did not use tools for lifting heavy objects because their co-workers also did not use, likewise. The workers explained that they saw co-worker repeating this habits over period of time, thus it became their norm. Overconfidence (PF-10): The mean score for this factor is 3.05. The interview revealed that workers were overconfident on low possibility of getting an accident. The workers mentioned “accident would not happen to them”. Similar to [Hirsch, (1998)] who stated that overconfidence could lead to improper procedures. For example, they did not know the correct manual procedure for lifting. They just did what they had ever done before and accident never happened to them. Management pressure (MF-01): The mean score for this factor is 2.76. The workers complained that their supervisor pressured them, which can influence them to work under unsafe manner in order to complete the job. For example supervisors asked them to lift heavy objects without providing any safety device. Past experience (PF- 02): The mean score for this factor is 2.55. The workers stated that 234 Investigating “Unsafe Acts” and “Decision to Err” 235 “I have been doing it this way for years since I have started my jobs”. Similar to [Stranks, (1994)] who supported that most of people are conservative in their views and become resistant to change. They have done tasks on the basis of past experience, using working experience that they have practiced over the years. US-12: Leaving Nail or Other Sharp Objects in a Dangerous Condition According to Table 5, there are seven factors were considered higher than 2.51 or higher than minimum value of moderate degree for contributing to leaving nail or other sharp objects in a dangerous condition. These seven factors are discussed as follows: Group norms (WF-01): The mean score for this factor is 3.71. The workers mentioned that they followed their co-workers for not properly keeping and removing nails or sharp objects. Laziness (PF-01): The mean score for this factor is 3.62. Because of boredom and repletion of tasks, workers decided to forsake safety matters. They mentioned that they felt troublesome to keep and remove nails from the site. Overconfidence (PF-10): The mean score for this factor is 3.44. They were confident that accidents would not occur to anybody even to himself or herself. Past experience (PF-02): The mean score for this factor is 3.18. The workers said that they performed this unsafe act for years and did not experience any accident. Being in hurry (PF-03): The mean score for this factor is 3.03. The workers revealed that they wanted to get the job done as quickly as possible; therefore they did not want to do this supportive task. Time pressure (JF-03): The mean score for this factor is 2.85. The workers mentioned that under limited time given for completing their jobs, they have no time to put such sharp objects in provided garbage. Supervision (MF-03): The mean score for this factor is 2.47. The workers mentioned that their supervisors never complained them when they left such objects improperly. CONCLUSION Unsafe acts practices and decision to err factors influencing the unsafe acts on construction industry in Thailand have been explored in this study. A survey was conducted on 214 workers from 20 medium and large construction projects. The results demonstrated that there are several kinds of unsafe acts occurring in the construction sites in Thailand. Based on this study, the most frequent unsafe acts committed by construction workers comprise are (i) the workers rarely wore PPE for doing their jobs, (ii) they improperly lifted or handled objects or materials and (iii) they left nails and other sharp objects in dangerous conditions. In order to provide preventive safety program for reducing and eliminating the unsafe acts, the decision to err factors (the reasons for why the workers commit to unsafe acts) were also explored. The survey provided a template of four major factors (personal, job, management and workgroup) that contributing to workers’ decision to err. By applying forced choice technique, there are three types of unsafe act committed by more than 30 workers. The first unsafe act was rated by 140 workers is failure to use Personal Protective Equipment. This unsafe act is mainly influenced by five factors: management support, group norms, overconfidence, being uncomfortable and past experience. The second unsafe act was rated by 58 workers is improper lifting, handling and moving objects. This unsafe act of workers is largely influenced by four major factor group norms, overconfidence, management pressure, past experience. The third is leaving nail or other sharp objects in dangerous condition. This 236 Aksorn and Hadikusumo unsafe act of workers is influenced by seven factors composed of group norms, laziness, and overconfidence, past experience, being in hurry, time pressure and supervision. REFERENCES Abdelhamid, T.S., and Everett, J.G., (2000) Identifying Root Cause of Construction Accidents. Journal of Construction Engineering and Management 126, 1: 52-60. Duff, A. R., (1998) Management and Operative Safety Improvement: A goal for the whole organization. Paper of the international conference on environment quality and safety in construction. CIB Working Commission. (Cited in Suraji, A., Duff, A. R., Peckitt, S.J., (2001) Development of Casual Model of Construction Accident Causation. Journal of Construction Engineering and Management 127, 4: 337-344.) Ellis, D G, and Fisher, A B, (1994) Small Group Decision Making: Communication and the group process. Singapore: McGraw-Hill. Gibson, J L, Ivancevich, J M, and Donnelly, J H Jr, (2000) Organizations: behaviors, structure, process. Tenth Edition, Boston: McGraw-Hill. Goetsch, D L, (1999) Occupational Safety and Health: for technologists, engineers, and managers. Third Edition, New Jersey: Prentice-Hall. Greenberg, J, and Baron, R.A, (2000) Behavior in Organizations. Seventh Edition, New Jersey: Prentice Hall Inc. Griffin, R. W, and Moorhead, G., (1986) Organizational Behavior. Boston: Houghton Mifflin. Hall, L, (1995) General Safety: Unsafe acts, , Last Accessed on September 16, 2002. Hammer, W, and Price, D, (2001) Occupational Safety Management and Engineering. Fifth Edition, New Jersey: Prentice-Hall. Haupt, T. C, (2001) The Performance Approach to Construction Worker Safety and Health. Ph.D. Dissertation, University of Florida. Heinrich, H.W, (1959) Industrial Accident Prevention. Fourth Edition, New York: McGraw-Hill. Cited in Abdelhamid, T.S., and Everett, J.G., 2000. Identifying Root Cause of Construction Accidents. Journal of Construction Engineering and Management 126, 1: 52-60. Hinze, J., Pedersen, C., and Fredley, J., (1998) Identifying Root Cause of Construction Injuries. Journal of Construction Engineering and Management 124, 1: 67-71. Hirsch, D., (1998) Seven Common Accidents Causes, , Last Accessed on September 16, 2002. Hodgetts, R.M., (1984) Modern Human Relations at Work. Second Edition, New York: The Dryden Press. Holt, St J. A., (2001) Principle of Construction Safety. London: Blackwell Science. International Labour Organization, Undated. Your health and Safety at Work: Controlling Hazards. , Last Accessed on March 5, 2003. Jaselskis, J. E., and Suazo, A.R. G., (1994) A Survey of Construction Site Safety in Honduras. Construction Management and Economics, 12: 245-255. Kidd, P., Parshall, M., Strullman, T., and Wojcik, S., (1999) Application of the NIOSHUK Stress & Injury Model to the Construction Industry. , Last Accessed on October 2, 2002. Kittleson, C., 1995. Identifying and Correcting Unsafe Employee Attitudes and Behavior. , Last Accessed on September 16, 2002. Krietner, R., and Kinicki, A., 2001. Organizational Behavior. Fifth Edition, New York: McGraw-Hill. Michuad, P.A., (1995) Accident Prevention and OSHA Compliance. Florida: CRC Press, Inc. Petersen, D., (1984) Human-Error Reduction and Safety Management. New York: Aloray Inc. Plimbe, W.J.C., (1996) Accident Prevention on the construction industry. Conference paper on safety on construction sites. London: Institute of Civil Engineers. Schermerhorn, J. R. Jr., (2001) Management. Sixth Edition, New York: John Wiley & Sons, Inc. Sherman, Z. L., (1999) Handling Safety Supervision Issues Requires Leadership. , Last Accessed on February 12, 2003. Simachokdee, V., (1994) Safety Engineer, Bangkok: Physics Center Press. Stice, M., (1995) General Safety: Attitude and Behavior, , Last Accessed on September 16, 2002. Stranks, J., (1994) Human Factors and Safety. London: Pitman Publishing. Stranks, J., (2000) The Handbook of Health and Safety Practice. Fifth Edition, London: Prentice Hall. Suraji, A., Duff, A. R., Peckitt, S.J., (2001) Development of Casual Model of Construction Accident Causation. Journal of Construction Engineering and Management 127, 4: 337-344. Timm, P. R., and Peterson, B. D., (1986) People at Work: Human Relations in Organization. Second Edition, St. Paul: West Publishing. URL1, Undated, , Last accessed on January 2003. 238 Aksorn and Hadikusumo 238 RELATIONAL CONTRACTING; CULTURE AND GLOBALIZATION STEVE ROWLINSON Department of Real Estate and Construction, The University of Hong Kong, Hong Kong, [email protected] FIONA Y. K. CHEUNG School of Construction Management and Property, Queensland University of Technology, Queensland, Australia, [email protected] ABSTRACT Successful sustainable relationships rely on relational forms of exchange characterised by high levels of trust but it is generally accepted that the construction industry has a stronger preference for distrust rather than the full benefits of cooperation (Wood and McDermott, 1999). There is a need for culture change to bring about increased cooperation between parties on a long-term basis. However, this trust must be developed across cultures with different values and mores and this presents a unique and complex problem when taken in the context of the temporary multi-organisations which are endemic in the construction industry. With relational contracting, based on sustainable relationships and trust, a win-win situation can be created for both the client and contractor. The development of trust between organisations is seen as a function of the length of the relationship between them (Bresnen and Marshall, 2000). It is also commonly believed that the construction industry is one which requires lots of trust between participants due to the high uncertainty in the industry. This paper aims to look at how procurement methods are changing and moving towards sustainable procurement forms through a relational contracting approach in a global context. A critical review of partnering and alliancing approaches will be presented, followed by a review of how the change in procurement culture towards sustainable business relationships benefits different parties in the industry and has the potential to achieve empowerment and regional development despite, or maybe because of, the global perspective of the key players. This review is based on research being undertaken in Queensland, Australia but has general applicability. Keywords: Relational contracting, culture, Australia INTRODUCTION Construction project teams are unique entities, created through a complex interaction of factors, with inter-disciplinary players from many countries, varying roles, responsibilities, goals and objectives (Goodman and Chinowsky, 1996). Collaboration and teamwork are therefore crucial since sharing up-to-date information between participants’ leads to minimisation of errors, reduction of time delays and breaking the widespread rework cycle, and the formalisation of these issues through partnering 240 Rowlinson and Cheung mechanisms allows a sustainable relationship between participants to evolve. Benefits of collaborative, rather than adversarial, working relationships within construction organisations are well documented (Walker and Hampson, 2003). All of this is taking place within an increasingly global construction industry which is dominated at the top end by about a dozen, large, mainly European contractors but is implemented at a project level by local people and companies. Partnering has been defined in many ways. It can be considered as an individual project mechanism or can be considered as a long term strategy. Alliancing is normally assumed to be a long term business strategy linking together client, contractor and supply chain. Relational contracting goes further than this and brings in the whole philosophy of the value chain and the linking of the interdependent parts within the construction project as a key business objective. A recent survey was conducted with a public sector department in Queensland Australia. The department has recently adopted a relationship management approach in most of their projects. Relational contracting is multilayered and has been discussed and reviewed in A Review of the Concepts and Definitions of the Various Forms of Relational Contracting (2002-022-A-01). A basic, working definition has been adopted (CRC CI, 2002): “Relationship contracting is based on recognition of and striving for mutual benefits and win-win scenarios through more cooperative relationships between the parties. Relationship contracting embraces and underpins various approaches, such as partnering, alliancing, joint venturing, and other collaborative working arrangements and better risk sharing mechanisms Relationship contracts are usually long-term, develop and change over time, and involve substantial relations between the parties.” In Australia it has been identified that there are three levels, namely the Inspector, Engineer and the Project Manager levels, at which relational contracting needs to operate and that each level has its own issues. Table 1 . Issues in Relationship Management at the Three Levels Issues Inspector Engineer • • • • • • • Maintaining quality Appropriate methods of working Quality and claims, yet not empowered to make final decisions on claims or encouraged in the contract to be forthright on quality Quality of work life Opportunity to act in an old-fashioned, professional manner Reduction of claims Timely completion (Individual) Project Manager Relational Contracting, culture and Globalisation 241 From Table 1 it can be seen that the relationships within the team are focused on completely different issues at these three different levels. It is anticipated in the literature that the concepts of relational contracting will operate in a smooth and seamless manner throughout the length and breadth of a project but in fact the objectives of the various participants are completely different. Because of this, the work of many writers on partnering can be seen to miss crucial issues,: the different levels at which relational contracting takes place being an extremely important one. This has come about because much of the literature is focused purely on the client’s objectives and takes little account of the reality of the situation on site where the Inspectors and Foremen, Engineers from client and Contractor and the Contractor’s Project Manager and Principal all interact at their own levels and across levels on a day to day basis. However, throughout the course of this research there is one underlying and obvious point which has surfaced: the Australian culture suits the Relational Contracting culture very well. The Australian professional is not afraid of confrontation and is relatively frank and honest, essential prerequisites for successful relational contracting. This approach may not readily suit other cultures, so the approach must be adapted in each domain to suit local culture and sensibilities. Hence, the opportunity is available for Australia to determine its own, distinctive path and appears to be doing so in Queensland. RELATIONAL CONTRACTING During the course of case studies and interviews the following general issues became apparent: • • • • Many participants are not used to or familiar with the system in practice; A fallacy has become apparent; contractor may mistakenly conceive relational contracting as leading to a “mates rates” approach; Relational contracting stimulates communication and breaks down barriers; A long-term marketing tool. With Australian clients having moved from a strong emphasis on hard dollar, traditional contracts to relational contracting, the learning curve for staff has been steep and the number of people exposed first-hand to the experience has been limited. This points to a need for education and training, for the department staff, contractor staff and consultant staff. In some instances the authors came across an attitude embodied in the phrase – “you are my mate, you should give me the variation”; this is a misconception of the nature of partnering as a relational contracting strategy. The hard dollar contract still underlies the partnering approach but the role of relational contracting is to proactively manage the project in order to maximise progress (and quality) whilst minimising disputes amongst project team members due to the existence of “us and them” attitudes: partnering seeks to build team relationships whilst tacitly accepting that the tendered contract may inevitably lead to a claim. There appears to be an industry wide issue of education here and the reinforcement of recognition that there are a number forms of relational contracting, 242 Rowlinson and Cheung partnering and aliening for example, which operate under different parameters and which are appropriate for different circumstances. The role of the facilitator is crucial in this process; by facilitating at the outset the establishment of an atmosphere that promotes open communication, willing cooperation and a brainstorming approach to problem solving a value engineering approach can be brought to bear on project issues and solutions, traditional or innovative, can be invoked. These “channels” need to be kept open and the use of partnering workshops throughout the life of a project are an important mechanism to maintain these changed, nonadversarial attitudes. There will always be situations where external circumstances, such as an overheated market, will adversely affect a contractor’s ability to perform to the highest standard. In such circumstances, relational contracting focuses on maintaining project performance whilst accepting that a commercial solution to problems will be sought. If project participants can view this issue as an externality they can be allowed to focus on attaining timely, quality completion and maintaining reputation and honesty. This will then allow commercial issues to be resolved in a more appropriate setting whilst maintaining a proactive attitude on site. The senior managers on both sides tend to carry out relational contracting in their own way. They do this because they have seen different benefits coming from relational contracting such as future job opportunities and benefits for the organisation. However different levels in the project team see the principles and objectives of relational contracting differently and this issue needs to be addressed. Clients must be educated to recognise the benefits of relational contracting. They must be weaned away from an expectation to let projects to the lowest tenderer. This may be best promoted through an industry wide forum where all professions and sides of the industry can be seen to support relational contracting. Relationship contracting should not be seen as a one-off approach which can be switched on and off as necessary. It is in fact an overriding philosophy and a sea-change in the industry’s culture leading to changed attitudes and collaborative, proactive project management. It is, in essence, what good project management is all about. Hence, there is a need to promote the concept of relationship contracting as “business as usual” and effectively drag the industry “kicking and screaming” into a new era. This is an issue that needs to be addressed at an institutional and educational level i.e. it needs to be driven by the involvement of construction industry clients as a group, contractors’ and suppliers’ associations, professional institutions and consultants associations. It also needs to be underpinned by the education system, at trades and tertiary/professional levels and this must be facilitated by the re-design of curricula for the built environment schools. BENEFITS OF RELATIONAL CONTRACTING During the course of this research a series of benefits, to different people at different levels, were identified to come about through the adoption of RM approaches. A major advantage was identified in operating on a face-to-face basis. When the “protective Relational Contracting, culture and Globalisation 243 barrier” of “paper warfare” is broken down by a collaborative approach the need to formally document every discussion or event disappears and the traditional, contract specified route for resolution of discrepancies is circumvented. Direct discussion between decision makers is legitimised, as is rapid decision making. The consequence is that participants are more comfortable at devolving decision making to appropriate levels within the organisation and greater job satisfaction ensues. More enjoyable to go to work was a commonly cited view of relational contracting. When the adversarial nature of the conventional contract is replaced by collaborative, proactive working then participants find work more rewarding and enjoyable. People enjoy going to work in an atmosphere which allows each to make a positive contribution to moving the project forward. Most people are part of this industry because they like to see, and are proud of, their achievement being used and the contribution it makes to society. Undoubtedly, the atmosphere on a well managed relational contract is more pleasurable to work in and conducive to joint decision making. Innovative solutions are more likely to develop, and consequent cost and time savings and quality improvements accrue, when a number of heads are put together to solve a problem. The range of perspectives brought to bear on the problem may well be enlightening to participants and help them to understand and appreciate more fully the differing objectives which always exist in a project. By building a the level of trust and being convinced of the contractors competence and trustworthiness, the department personnel can be freed from the chore of being on the spot all the time in order to conduct supervision. When the situation arises, when the department personnel can trust the Contractor to carry out the job correctly, not only is work more enjoyable but time can be spent on more creative issues and more focus can be given to creating an excellent project. In a similar manner, the Contractor can usefully make savings also. The department is capable of providing assistance on the technical and knowledge aspects of the project and can, in a relational contracting approach, provide faster, better and more solutions to construction problems. More harmonious working relationships allow both parties to focus on work issues rather than other contractual issues. The department becomes more proactive in helping the Contractor. The lower level of necessity to use formal channels and documentation allows for more focus on project problem solving but this new regime is dependant on trust being established. Undoubtedly, the sources of claims still need to be documented but this is not the central focus of either party. When the situation arises as “business as usual” when both sides are proactive in solving construction problems then a new focus of attention can emerge. This is the use of ICT within the construction project management process. By automating document handling and visualising the construction project both sides of the team can more readily focus on Value Engineering issues and the improvement of project quality. However, from a critical point of view it has been pointed out that training and education are key issues which can facilitate this move from adversarial to proactive relationships in the project team. This training and education needs to be focused on the skills and techniques and philosophy of relational contracting. 244 Rowlinson and Cheung At a state level, relational contracting has the potential to deliver on government priorities such as regional and industry development, empowerment, work life balance and a sustainable industry (in terms of economics, environment and people). This being an internal marketing issue should be fully realised and utilised by the department. WHY RELATIONAL CONTRACTING DOES NOT WORK ON SOME PROJECTS? One of the most common observations while conducting this research is that not all participants believe in the efficacy of relational contracting. In order to overcome this barrier it is necessary to involve all staff at all levels, revisit the initial relational contracting workshop and re-facilitate regularly and, finally, identify champions to drive the process at all levels within the project organisation. The other observation is problems arise in communication and adoption of proactive approaches. This occurs as some project team members have not attended all of the workshops, or any of the workshops, and have not been brought into the relational contracting philosophy. A possible solution to this issue is to make the management of relational contracting projects part of craft training, tertiary education and HRM policy. High turnover of personnel in the project team has always been a problem in the industry. Where there is a high turnover of personnel from participating organisations, it is a serious impediment to the relational contracting project. One solution to this may be to invoke a stability clause in the conditions of contract under which the relational contracting project is conducted. It is essential that the contractor buys into the continuity of staff issue but the role of consultants in this respect must be addressed, as there is evidence that consultants are a common source of problem. In order to address the issue of releasing staff to attend facilitated and regular relational contracting meetings, the client's organisation should consider building this into budgets as set at the outset of the project. An example of a relational contracting contract at Contractor’s request is presented as follows. Unlike most relational contracts which are driven by the client organisation, the contracting organisation pushed very hard for the project to be carried out in a relational contracting fashion. The project was not intended to be a relational contract. A common goal was developed by and for the whole project team at the beginning of the project. The Contractor supplied their own internal partnering facilitator. Relationship in the project started off well after the initial workshop and the project was completed at a high quality fashion, within budget and the timeframe. PARTNERING FACILITATOR Most participants felt that the facilitator should be a neutral party but the authors are aware of situations where one or other party has supplied a facilitator and the process has Relational Contracting, culture and Globalisation 245 been successful. Either employing a third party as facilitator or a Contractor supplying its own facilitator are scenarios which can also work successfully. Even with the right or good facilitator, whether relational contracting would work or not also depends on the attitudes of senior management in both organisations – even on different projects within the same organisation. It is not just the Contractor or the client who needs training or has the wrong attitude: it is an industry wide issue involving attitude change through education, training and experience. The question now raised is how are these lessons to be communicated to the whole of the organisation staff? As a starting point, the learning register needs to be used more effectively throughout the organisation and relational contracting reinforced during the course of the project. For example, on a project where an “Alliance Manager” is in place, it has become apparent that the day-to-day management of the alliance or relational contracting project is crucially important to success. Hence, there is a need for a parttime role to fill this particular position in normal contracts. So, when we address the key issues in relational contracting, we need to be able to clearly state our selection procedures and protocols. In essence, this is a research objective or outcome and there is a need for the project participants to draw these issues together from existing experience and so consolidate this into a new protocol. To achieve the new protocol is a matter which needs industry wide debate and commitment but obvious areas which need attention are syllabus changes in learning institutions so as to prepare graduates coming into the industry for relational contracting projects, development of training courses so as to provide additional skills and develop team building and preparation of information handouts as reinforcement for lessons learned. BUILDING A SUCCESSFUL RELATIONAL CONTRACTING CULTURE The following points can be considered received knowledge and pertinent questions for selecting people to participate in a successful relational contracting system: • • • Employ the right people. Believing in relational contracting being one of the considerations in the recruitment process. What are the "right" criteria? Provision of training and development on relational contracting, company and industry wide; A policy issue arises here – including relational contracting skills as one of the recruitment criteria, not just possession of, say, an Engineering degree. This does not happen very often at present and so raises the following questions: o Is there a need to include this into formal graduate curricula and other training courses? o One cannot include relationship training if it is not taught. Who will provide the training material? o Should contractors be expected to, and how can contractors, train their own staff? 246 Rowlinson and Cheung • There must be a commitment from both sides to send ALL personnel along to the relational contracting workshops and to maintain a stable project team throughout the project. SHOULD RELATIONAL CONTRACTING BE APPLIED TO SMALLER PROJECTS? In terms of answers to this question delivered during the research the following can be considered to be received wisdom: • • It can be, even projects with a time frame of less than 6 months; Not necessarily a full scale partnering approach. Can be with a small workshop (e.g. half day) with about 4-5 people and facilitated by an internal person, which would help to get the communication going, set up partnering charter, set up 4-5 objectives and do the scoring each month; A short RM meeting which lasts for about 20-60 minutes can be held once a month; It is beneficial to hold a pre-start (initial) workshop outlining the relationship principles; Yet, again, in order for this to work, commitment is essential from both sides’ leaders. • • • CONCLUSION Alliancing, partnering and relational contracting, all have a common theme, which is to develop a long-term relationship for such to be applied successfully. Successful sustainable relationships rely on relational forms of exchange, with high levels of trust and open and frank communication. The Australian culture is found to suit the Relational Contracting culture very well. The Australian professional is not afraid of confrontation and adopts an open and frank communication approach. In Australia, it has been identified the three levels, namely Inspector, Engineer and Project Manager, at which relational contracting needs to operate. Also, the issues concerned in relationship at each level are different. In order for relational contracting to be successful, realising and understanding the different levels at which relational contracting takes place is an extremely important issue. Relational contracting brings about a more proactive and collaborative working approach. People find work more rewarding and enjoyable. There is much less paperwork to deal with and the traditional, contract specified route for problem resolution is circumvented. During the process, a level of trust is built. Also, problem resolution on the technical and knowledge aspects of the project is shared, providing faster, better and more solutions in a relational contracting approach. Other than at the operation level, relational contracting, at a state level, has the potential to deliver on government priorities such as regional and industry development, empowerment, work life balance and a sustainable industry. Relational Contracting, culture and Globalisation 247 Problems may be overcome by education, training and experience. By making the management of relational contracting project part of craft training, tertiary education and management policy, project team members can be predisposed to buying into the relational contracting philosophy, even those who have not attended all (or any) of the workshops. A good facilitator is important to the success of a relational contract but, other than a good facilitator, the right attitude of senior management in both organisations is also important. Furthermore, major issues emerge in this research project which link to other research, such as: choice of project delivery process; change of culture and development of real teams; a sustainable approach to the industry in terms of people, environment and economics; ICT as a facilitator for these changes. REFERENCES Bresnen, M., and Marshall, N. (2000) "Building Partnerships: Case Studies of ClientContractor Collaboration in the UK Construction Industry." Construction Management and Economics, 18(7), 819-832. CRC CI. (2002) "A Review of the Concepts and Definitions of the Various Forms of Relational Contracting (2002-022-a)." Brisbane, Australia, Unpublished Report. Goodman, R., and Chinowsky, P. (1996) "Managing Interdisciplinary Project Teams through the Web." Journal of Universal Science, 2(9), 597-609. Walker, D., and Hampson, K. (2003). "Enterprise Networks, Partnering and Alliancing." Procurement Strategies: A Relationship-Based Approach, D. Walker and K. Hampson, eds., Blackwell Science Ltd., UK. Wood, G., and McDermott, P. (1999). "Building on Trust: A Co-Operative Approach to Construction Procurement." Journal of Construction Procurement, 7(2), 4-14. 248 Rowlinson and Cheung MULTISKILLING AS A RESPONSE TO GLOBALISATION PAUL W. FOX and ROSEN W. S. YUEN Department of Building & Real Estate, The Hong Kong Polytechnic University, Hong Kong, SAR, China [email protected] ABSTRACT Globalisation implies that international competitive forces raise the degree of competition in the local construction industry of a country. Given that the majority of projects in Hong Kong are awarded on a competitive bid basis [the traditional procurement system], the scope for main contractors to gain a competitive edge is very narrow. Costs of materials and plant are the same or similar between competitors. The opportunity for cost reduction lies with the management of labour cost. Hence, improvement in labour productivity can provide the necessary competitive edge. Multiskilling can improve productivity and thus be an appropriate response to globalisation. This research presents the findings from survey and interviews conducted with various industry participants in order to evaluate the potential benefits, impediments, limitations, and applicability of multiskilling. Results indicate that benefits are likely to both the workers and projects. However, contrary to earlier findings, quality and safety may not improve. In Hong Kong, major impediments exist, such as worker resistance and high training costs. These can be overcome in the long term through a process of continuing improvement, and so benefit the industry image. Thus, Hong Kong does not match experience in other countries in every respect, and this knowledge may be useful to other countries. Keywords: construction labour, globalisation, multiskilling, productivity, training INTRODUCTION As contractors seek to be competitive in the face of international business trends, attention to all aspects of a business needs to be made. Cutting of labour costs is key to survival, especially when other costs are less controllable, since many of non-labour costs are attributable to suppliers of materials and plant. Given that the majority of projects in Hong Kong are awarded on a competitive bid basis [the traditional procurement system], the scope for main contractors to gain a competitive edge is very narrow. Costs of materials and plant are the same or similar between competitors. The opportunity for cost reduction lies with the management of labour cost. Hence, improvement in labour productivity can provide the necessary competitive edge. Multiskilling can improve productivity and thus be an appropriate response to globalisation. This paper draws on the work of an empirical study by [Yuen (2003)] which examined the potential for multiskilling in Hong Kong. The study set out to evaluate the potential benefits, impediments, limitations, and applicability of multiskilling. Lessons from this study are 250 Fox and Yuen relevant to other countries also facing competitive pressures from globalisation. In the analysis of the data and discussion, the authors have considered the issues raised from the point of view of the workers, the projects and the industry as a whole. According to [Burleson et al. (1998)], a multiskilled construction trade worker is “an individual who possesses or acquires a range of skills and knowledge”. The workers are assigned to construction tasks based on their ability to perform the needed skill or task unrestricted by traditional job descriptions or work boundaries [Burleson, (2002)]. The workers may have a primary craft in which they are highly proficient, but their role on a construction projects is not limited to that craft. It should be noted that it is not necessarily that the worker should possess mastery level skills in multiple trade areas. However, the worker should be productive and effective in the trade disciplines other than his or her primary trade. The paper briefly reviews previous studies, before describing the results of field work in the Hong Kong context. PREVIOUS WORK IN LITERATURE Much research has been performed to attempt to identify the potential benefits of multiskilling. Statistically, previous research demonstrated the benefits of multiskilling would be a potential 5-20% labour cost saving, a 35% reduction in required total hires, a 47% increase in average employment duration for workers per project, and an increase in earning potential for multiskilled workers [Burleson, 1998]. Practically, the benefits can be grouped into three levels: worker level, project level and industry level. Worker Level Previous research indicates that construction workers benefit from multiskilling labour strategies. The majority of the findings show worker benefits come from construction applications with multiskilled labour strategies. Carmichael and [MacLeod, (1993)] pointed out the job security of a multiskilled worker is higher than the single-skilled one. Besides, they can participate in many types of project, thereby avoiding the necessity of relocating to different areas because they can work at one location at a number of trades [Haas et al, (1998)]. In the long term, multiskilled workers gain benefits also. Job satisfaction and happiness has been increased among the multiskilled workers as they can gain exposure to a wider variety of craft and need not to face the same kind of job all the time [Haas et al, (1998)]. Another long-term benefit was found by [Burleson, (2002)]. She suggested that multiskilling gives workers more possibilities to advance and develop a career path. They can improve their opportunities of remaining steadily employed within the same geographic region. Therefore, there would be an increase in average employment duration of craft workers. Multiskilling as a response to Globalisation 251 Combining the above benefits, multiskilling makes the workers more competitive and marketable because workers stay longer on a project and a more flexible utilization is possible. Project level The use of multiskilling strategies may reduce many of the problems associated with traditional single skill employment strategies. One of the major benefits of using multiskilling in construction is monetary savings [Haas et al., (1998); Tam et al., (2001)]. It was shown [Haas et al. (1998)] that multiskilling can lead to increased productivity as multiskilling leads to more efficient use of time on construction sites, affects the attitude of workers and increases the desire to perform. Carmichael and MacLeod [1993] also demonstrated that there would be a significant savings in project labour costs after implementing multiskilling. Related research has confirmed the positive impacts of multiskilling on projects such as improved quality and safety together with the added flexibility available to project managers in assigning tasks [Williamson, (1992)]. [Stewart (1999)] found that after implementing multiskilling, the tradesmen generally improved their knowledge of work, leading to better understanding of integrated construction activities. For example, a carpenter with experience of installing conduit would be more sensitive to the impact of his work on an electrician. Industry Level Multiskilled labour utilization strategies may provide increased opportunities for the development of process innovations and technology implementation [Tatum, (1989); Nonaka, (1990); Ettlie and Rezo, (1992)]. This is important when the industry wants to increase the marketability of local construction firms. The lack of innovation or advanced technology would reduce the competitiveness of local firms. The implications are also that multiskilling may have some other significant industry impacts. For example, the industry would hold greater appeal to young workers because of the development of career-type employment opportunities. It is particularly important to the construction industry in the meantime, as it has hitherto encountered difficulty in attracting new blood and in retaining those who have joined the workforce [Hong Kong (China), Construction Industry Review Committee, (2001)]. METHODOLOGY Three primary sources of information were used in this research: literature, questionnaire survey and interviews. Full details of the method are given in Yuen (2003) and only a brief account is given here. The first stage of this research was a literature review based on previous studies of multiskilling applications in the construction industry of other countries in order to familiarize with the practical experience. Articles relating to multiskilling, human resources management, and construction labour management were examined. 252 Fox and Yuen Second, a questionnaire survey of main contractors was executed. There were 317 questionnaires sent, with 54 responses, giving a response rate of 17%. The respondents were requested to score, according to a five-point Linker scale, 22 potential benefits of multiskilling (see Table 1) and 9 barriers to implementation of multiskilling (see Table 2). Main contractors were viewed as being the most knowledgeable about and experienced with multiskilling. They have close relationships with their sub-contractors, as well as with their directly employed workers. Third, a series of interviews was conducted with representatives of five stakeholders, i.e. the government bodies, the training authorities, the unions, the contractors and the industry development groups, representing different points of view. Data Analysis Of the three groups of main contractors Groups A, B and C of the Government classification for Registered Contractors, the numbers of respondents were fairly balanced between these groups. Almost 75% provide training to their trade workers, and 45% also train their subcontractors. Table 1 shows the responses concerning the potential benefits of multiskilling. Table 1. Potential Benefits of Multiskilling [percentages of responses] Item a) Project level Productivity can be increased Safety problems can be improved # of workers from different trades can be reduced Continuity of workforce can be achieved Flexibility in job assignments can be increased Quality of the work can be increased Cost of personnel dept. can be reduced Reduce idle time between trade interfaces Less supervision (prompt decision making) Less rework SD 0 0 0 0 0 0 0 0 0 0 D 3.7 14.8 14.8 11.1 11.1 18.5 22.2 3.7 29.6 22.2 N 51.9 59.3 29.6 18.5 0 55.6 29.6 25.9 48.1 48.1 A 33.3 25.9 40.7 55.6 51.9 25.9 44.4 44.4 18.5 29.6 SA 11.1 0 14.8 14.8 37.0 0 3.7 25.9 3.7 0 Total 100 100 100 100 100 100 100 100 100 100 b) Worker level The employment duration can be increased 0 The # of moves from employer to employer can 7.4 be reduced The # of moves between projects can be reduced 0 Marketability can be increased 0 Earning potential can be increased 0 Better understanding of different trades 0 Workers would have higher security of their job 3.7 The variety of job can be increased 0 Greater opportunities for advancement 3.7 Job satisfaction and quality of working life can be 0 increased c) Industry level # of new entrants to the industry can be increased 7.4 7.4 11.1 0 3.7 3.7 0 7.4 3.7 3.7 18.5 25.9 37.0 25.9 25.9 14.8 22.2 22.2 22.2 25.9 63.0 48.1 40.7 66.7 59.3 63.0 63.0 63.0 51.9 51.9 11.1 11.1 11.1 7.4 11.1 18.5 11.1 7.4 18.5 18.5 100 100 100 100 100 100 100 100 100 100 3.7 18.5 48.1 25.9 3.7 100 Multiskilling as a response to Globalisation 253 The competitiveness of local contractors can be 7.4 increased 3.7 44.4 33.3 11.1 100 KEY: SD=Strongly Disagree; D=Disagree; N=Neutral; A= Agree; SA=Strongly Agree Table 2. Barriers to Implementing Multiskilling [percentages of responses] Item SD D N A SA Total Difficult to change the current traditional industry practice High training cost for single skill employees Increase in wages to multiskilled employees for the additional skills Change in construction management system is caused Workers’ reluctance to learn new skills Resistance from old employees Difficult to estimate and sub-contract out The more complex the trade, the less suitable it is for Multiskilling Union resistance 3.7 3.7 3.7 0 0 0 3.7 3.7 14.8 0 11.1 11.1 14.8 14.8 7.4 29.6 7.4 18.5 11.1 22.2 44.4 48.1 37.0 25.9 44.4 33.3 44.4 59.3 44.4 29.6 33.3 40.7 40.7 7.4 33.3 11.1 25.9 18.5 11.1 3.7 7.4 25.9 14.8 22.2 11.1 100 100 100 100 100 100 100 100 100 KEY: SD=Strongly Disagree; D=Disagree; N=Neutral; A= Agree; SA=Strongly Agree Comparing the benefits at the three levels of analysis (worker, project and industry), results indicate that construction workers benefit most from multiskilling labour strategies as nearly all the benefits listed in this part achieved more than 70% agreement from the respondents. The benefits can be grouped into two major categories: economic benefits and motivational benefits. Construction workers can gain economic benefits because of the increased employment duration, reduced number of job relocations to find work, increased marketability and increased earning potential. Over 70% of the respondents agreed that through the increased training in other trades, the multiskilled workers are capable of performing different types of work and can perform work in different phases of projects which allows them to have longer employment duration. Another economic benefit of multiskilling that is closely related to increased employment duration is the reduction in the number of moves and relocations needed for a worker to find works. If multiskilling affords workers the opportunity to work longer on the projects, the worker will experience fewer periods of non-work from layoffs or firing which will reduce the periods of no income for the worker. Only half of respondents agreed that there would be increased income because workers are able to work more hours in a given year. Results also indicate that multiskilled employees are more marketable than single skilled employees, as employers would rather hire a person who can do a variety of tasks than a person who can only perform one task. No one disagreed that multiskilling allows workers to be more marketable in the industry. Over 70% contractors indicate that multiskilling can increase the earning potential of the construction workers. It can be concluded that most of the contractors willing to pay a 254 Fox and Yuen higher wages to a multiskilled worker than the single skilled one. This result is understandable. When a worker can perform a variety of tasks, employers would be more willing to pay him / her higher wages. Even if the same wage was received, the lengthened employment duration enables the worker to earn more, as he can work more hours during a given year than his non-multiskilled counterpart. Thus, the earning potential is still increased. Multiskilling not only provides economic benefits to the workers, but also motivational benefits. Under the current single skilled labour utilization strategy, most of the construction workers adopt a short-term view of business development, with little interest in enhancing their long-term competitiveness. With implementation of multiskilling, it is likely that workers would seek a sustainable career development. The motivational benefits include better understanding of different trades, increased security and task variety, and increased job satisfaction. Through additional training for other trades, most of the contractors believe that workers can have better understanding of different trades. The result can be shown in the percentage of agreement which is as high as 81.5%. A major motivational benefit to the worker is increased job security. More than two thirds of survey participants indicated employees could benefit from increased job security. The security would be provided by the flexibility of the multiskilled employee through his or her ability to work in several different trades. For increased job variety, 70% of respondents agreed that greater opportunities for advancement exist, leading to increased job satisfaction. The underlying reason may be that multiskilling allows workers to perform a variety of tasks, so that their job opportunities will not be limited to one trade. The workers themselves may appreciate it because they get knowledge of more than one trade. Other benefits discussed earlier, such as increased earning potential and increased employment duration, also have a positive affect on the job satisfaction and happiness of the multiskilled employee. Compared with the benefits discussed above, the benefits of reduction in the number of moves from employer to employer and between projects receive lower degree of support as both of the percentages are less than 60%. At project level, 40% of the main contractors agreed the use of multiskilling leads to increased job site productivity. The increased flexibility in job assignment after implementing multiskilling is the most obvious and anticipated benefit. More than 85% contractors agree with the benefits of flexibility (over one third of respondents even strongly agree). For the continuity of workforce, there is also a higher percentage of agreement as more than 70% of the contractors agree with this item. For site safety and quality, the responses show both of these aspects are largely unrelated to multiskilling. Most respondents did not consider there were any savings in Personnel Department administration costs. Compared with the other two levels, benefits at the industry level after implementing multiskilling are less obvious as the number of contractors who agree with the potential benefits in this area is less than half. Most of them remain neutral when talking about the Multiskilling as a response to Globalisation 255 industry benefits. Scores for better career development of workers together with the improved working condition, indicate that the industry will hold greater appeal to young workers. It is particularly important when the number of young workers can be increased through multiskilling so as ensure a steady supply of labour. However, while the potential benefits to workers as shown in Table 1 are obvious, more than two thirds of contractors are neutral or indicate that multiskilling cannot stimulate the growth of young workers entering to the industry. Compared with the benefit of increasing number of entrants, the benefit of increasing the competitiveness of local contractors is less likely to be accepted by the respondents. When talking about the competitiveness of local contractors, the respondents can give most reliable results as they are the direct parties being involved. The percentage of agreement in this item is almost 45%. Even it is less than a half, it can be concluded that at industry level, the benefit of increasing competitiveness is more obvious and predictable. Validation of the Questionnaire Survey Comparing the questionnaire survey and the interviews, the results show some differences. Different parties would have different standing points and focusing areas. For the contractors, they would focus on profit and productivity while for some other industry stakeholders, they would focus the improvement of the whole industry. Although there are some differences in the comments about the potential benefits and impediments of multiskilling implementation, some points can be summarized. Concerning the potential benefits, it can be concluded that workers benefit most from multiskilling, such as higher earning potential and better understanding of different trades. More importantly, multiskilling allows workers to have better long-term career development. At the project level, both the survey participants and interviewees agree the main advantage is increasing the flexibility in job assignment. For the industry level, it is not easy for the survey participants to identify industry benefits, but some of the interviewees believe multiskilling can improve the image of the industry by increasing the social status of the workers and increasing the confidence of public on building works. Impediments and limitations to multiskilling implementation do exist. Most of the main contractors and other interviewees agree that the impediments include worker resistance and lack of training, but the most important barrier would be how to change the current industry practice which has been adopted for many years. Limitations include information overload and inapplicability in some areas, such as projects with stringent time constraints. Barriers can be overcome, but a certain period of time is required, through a continuous process. DISCUSSION Although there are many identified potential benefits, impediments and limitations as 256 Fox and Yuen identified in the literature, not all of them are suitable for the case in Hong Kong. The main differences between the findings and literature are outlined as follows. Potential Benefits of Multiskilling Most of the benefits identified in the literature research are found to be applicable in Hong Kong. Those potential benefits include 1) the increased flexibility in job assignment, 2) continuity of workforce, 3) reduced idle time between different trades and 4) reduced number of workers from different trades. At the worker level, the potential benefits identified from this study are similar to those found in the literature. However some of the potential benefits seem to be not applicable in Hong Kong. They include: • Improved quality of work: Benefits of multiskilling have been researched by Carmichael and MacLeod (1993) and Burleson et al. (1998). Improved quality of work is one of the significant benefits identified in the literature. However, the results of this study show that almost 75% of main contractors are neutral or disagree with this benefit. • Improved safety of work: The potential for increased site safety through the use of multiskilling strategies is based on the literature. Past studies show multiskilled workers are more aware of the hazards of the other crafts around them, so they tend to perform better in the field of safety. Since they stay on the job through longer phases, they will have a better understanding of what’s going on. However, from the questionnaire survey and interviews, it can be expected the belief of improved safety is too optimistic as about 75% contractors are neutral or disagree with this potential benefit. • Reduced number of moves: A reduced number of moves from project to project to find work is an economic benefit of multiskilling that is mentioned in the literature. Researchers from the University of Texas at Austin found that multiskilled workers can possibly experience longer durations in the present site so that the workers can stabilize in one location and reduce number of relocations of their family. This potential benefit is not applicable to workers in Hong Kong, since it has a small geographical area, and the distance between different sites is short. Workers live at home and travel each day. Also, the employment of directly employed labour by main contractors is a limited practice in Hong Kong (Tam et al., 2001). As a result, the number of moves between employers or between projects is not important to the workers. • Increased number of entrants to the industry: Concerning about the benefits at industry level, [Burleson (2002)] believed that with the implementation of multiskilling, the industry would hold greater appeal to young workers because of the development of career-type employment opportunities. However, results from this study show that it may be difficult to achieve. In Hong Kong, the attraction for young workers to enter the construction industry in the short term is whether they can earn money or not. Career development is one of their considerations, but not the most important one. In the current situation, the unemployment rate is high, especially in the construction industry. Young workers will not normally consider entering the industry because of the lack of long-term career development. Multiskilling as a response to Globalisation 257 Potential impediments of multiskilling Similar to the benefits discussed, not all the impediments of multiskilling covered in the literature would also hinder the implementation in Hong Kong. Common impediments include worker resistance and training availability. The unique impediment in Hong Kong is the resistance from industry due to a change of the current traditional industry practice. For union resistance, research from other countries indicated it is one of the main barriers, however, it would not be expected in Hong Kong. Limitations of multiskilling Multiskilling provides a wide range of benefits, but there are still some limitations. Few limitations have been identified in the literature [Hass et al. (1998) ], one being the problems of information overload. This same limitation would be expected in Hong Kong. Applicability of multiskilling From the literature concerning the implementation of multiskilling in Hong Kong, the Construction Industry Review Committee (CIRC) has pointed out multiskilling should be adopted to equip workers with a broader appreciation of their job requirements. On the other hand, some researchers, such as [Tam et al., (2001)] believed it is difficult to implement multiskilling in Hong Kong as the construction industry always comprises a group of skilled or semi-skilled craftsmen belonging to a very narrow division of craft. Findings from the questionnaire and interviews indicate that multiskilling is applicable. From all questionnaire respondents, the average score of the overall potential is 3.19 (1=low; 5=high) and most of the interviewees indicate multiskilling is likely to be the future direction of manpower development. Although it is applicable, it is difficult to implement multiskilling. There are some impediments which make the implementation very difficult, such as worker resistance and high training cost, but they can be solved. The most important measure to overcome the barrier is the co-operation among the government, training bodies, employers and employees. CONCLUSIONS Studying multiskilling implementation in construction is motivated by its potential benefits identified by previous literature. Multiskilling strategies can benefit the worker. Potential benefits include longer employment duration, higher marketability and higher job security. Results indicate that workers can have both economic and motivational benefits. Multiskilling strategies can also be beneficial to construction projects. Research results indicate that multiskilling can increase the flexibility of job assignment, overall productivity and continuity of work, while reducing the idle time between trade interfaces. However, in this study, there is no evidence that implementation can improve the safety and quality of work. At the industry level, the results show that there is no 258 Fox and Yuen direct benefit, but most of the interviewees indicated the image of the industry could be improved in the long term. Multiskilling presents many potential benefits. However, several impediments and limitations to multiskilling implementation do exist. Impediments such as worker resistance and high training cost may affect implementation. Likewise, limitations due to information overload and application area can present problems. However, with adequate measures, such as promotion and provision of subsidized training courses, these impediments and limitations can be overcome. Concerning about the applicability, the research results show multiskilling is feasible and applicable, but it should be a process of continuous improvement in order to capitalize on previous experience from other countries. The first criterion for implementation is skill proficiency, as it is not possible for workers to expand their skills if their primary trade is not skilled enough. Also, the prevailing economic conditions may favour the implementation as the decreasing number of projects would enable the workers to have more time to attend training courses. Multiskilling is likely to be the trend of future manpower development in the construction industry, but an industry-wide implementation will require the support of different parties, such as government, training organization, contractors, trade unions and workers. Active co-operation can facilitate a smooth implementation process. The lessons from this study are that some of the factors identified in earlier research are not replicated here. However, as the trend towards globalisation continues, some answers to the competitive challenge may be found through multiskilling. The particular country circumstances differ, so that a contingency approach would be the most appropriate strategy. REFERENCES Burleson, R.C. (2002) An analysis of multiskilled labor strategies in construction. Unpublished PhD thesis, USA: The University of Texas. Burleson, R.C., Hass, C.T. and Tucker, R.L. (1998) Multiskilled labor utilization strategies in construction. Jnl. of Construction Engineering and Management, November, 480-489. Carmichael, H.L. and MacLeod, W.B. (1993) Multiskilling, technical change and the Japanese firm, The Economic Journal, 103, 142-160. Ettlie, J.E., and Rezo, E.M., (1992) Organization integration and process innovation. Journal of Academic Management 35, 795-827. Hass, C.T., Rodriguez, A.M., Glover, R. and Goodrum P.M. (2001) Implementing a multiskilled workforce. Construction Management and Economics, 19, 633-641. Hong Kong (China), Construction Industry Review Committee (2001), Construct for Excellence: Report of the Construction Industry Review Committee, Report of the Construction Industry Review Committee (CIRC), Chairman: Henry Tang, Hong Kong SAR Government. Ch. 6. Miller, Tony (1998) Keynote speech by Director of Housing, at the Opening of IBEX '98 Public Housing : Certainty and Challenge, Hong Kong International Building Exhibition, Friday, 12 June 1998. Nonaka, I. (1990) Redundant, overlapping, organizations: a Japanese approach to managing the innovation process, Californian Management Review, 605, S5-S8. Multiskilling as a response to Globalisation 259 Stewart, B. (1999) Multi-skilling: timely manpower utilization for the new millennium? Tam, C.M., Tong, K.L., Cheung, S.O. and Chan, P.C. (2001) Genetic algorithm model in optimizing the use of labour, Construction Management and Economics. 19, 207215. Tatum, D.J. (1989) Organizing to increase innovation in construction firms, Journal of Construction Engineering and Management ASCE, 115(4), 602-617. Williamson, R.M., (1992) Optimum performance through multi-skill maintenance, AIPE Facilities. Yuen, R.W.S., (2003) An Analysis of Implementing Multiskilled Labour Strategies in the Hong Kong Construction Industry, unpublished Dissertation, Dept. of Building & Real Estate, The Hong Kong Polytechnic University. 260 Fox and Yuen INVESTIGATNG THE KEY OF KNOWLEDGE CREATION PROCESS AMONG THAI CONSTRUCTION PROJECT MANAGERS W. TEERAJETGUL and C. CHAROENNGAM School of Civil Engineering, Asian Institute of Technology, P.O. Box 4, Klong Luang, Pathum Thani 12120, Thailand. [email protected], [email protected] ABSTRACT The goal of this study was to learn more about construction project managers’ experiences and perception of the knowledge management in construction project. Qualitative method was used to describe knowledge enablers and knowledge creation process. The focus attention was the knowledge creation process at the on-site work level. Eleven senior construction engineers participated in focus group series and individual interview. Consistent with previous empirical evidence, three knowledge enablers found in this study were: organizational structure (corporate vision, leaderships, formalization, and centralization), corporate culture (knowledge network, collaboration, trust, learning, communication, and incentives), and IT infrastructure. These three enablers overlaid on knowledge creation process in each stage of construction project management. Keywords: Knowledge management, knowledge enablers, knowledge creation, construction project. INTRODUCTION Construction industry in most countries is one of the most intensely competitive businesses with high risk and low profit margin. To date, the construction industry still encounters the consequence of construction delays, cost overrun and delivery failure. Some major issues in construction project management require effective inventions. Professional construction management refers to a project team consisting of a professional construction manager and other participants who will perform the task of project planning, design, and construction in an integrated manner. The project manager who delegates authority from the organizational management is responsible for planning, organizing, and controlling the project competency. In developing countries, previous literature supported that the core symptoms of problems that extremely obstacle project teams competency in developing countries are managerial level and human resource problems. One of human resource problems involves the scarcity of skilled personnel at all levels [Imbert, 1990]. The failure of project management team could adversely affect stakeholders. Several studies had been widely investigated the incompetence of the project management team. The factors were categorized according to their impact and factors of 262 Teerajetgul and Charoenngam occurrence. Human factor was one of the most influential factors that could impact the project team competency [Nonaka and Takeuchi, (1995), Kluge et al., (2001)]. In sum, three main factors that influenced the site manager were (1) personal skills which depended upon age, qualification, training, experience, leadership, communication, negotiation, influencing, and problem solving; (2) technical skills and job conditions identified as complexity, team relationship, job satisfaction, and job security; (3) organizational culture including social, and environment [Belassi and Tukel (1996), Mustapha and Naoum (1998), Odusami (2002)]. The construction stage requires high capital investment. Traditional engineering orientations of project construction management are insufficient. It would be helpful to know how to improve the construction industry from a less productivity and poorly organization to a full effectiveness and high potential of competitiveness. Edum-Fotwe and [McCaffer (2000)] suggested that project managers in today’s construction industry are facing with a situation whereby the fundamental roles and functions they perform are witnessing a gradual shift in focus. To develop or maintain their professional competency, practicing project managers in construction adapt to this changing industry environment by counting on knowledge and skills they acquire through training and experience. Knowledge is very different in many ways from the traditional critical asset. The way that knowledge operates within organizational is difficult to track and the value it adds is not readily quantifiable [Kluge et al., (2001)]. Currently, knowledge-based utilization should be regarded as a critical success factor for project teams. The project teams can identify success patterns and develop a pragmatic approach for competitiveness and organizational competency. Several factors impact a project team’s ability to acquire and use knowledge to improve their probability of success. In today’s business, construction project team has added knowledge to this learning field to complete the projects effectively. The teams have a tendency to break problems down into small objects so that they are more manageable. They need to construct of how they acquire and use information knowledge [Edum-Fotwe and McCaffer, (2000)]. These findings should help in creating learning new product teams, so that small and large firms can systematically profit from the knowledge capital. [Lynn et al. (2000)] pointed out that the traditional way of handling complexity by univariate perspective or linear association prevented the team from understanding the larger problem, which is non-linear by nature. These authors further discussed that a holistic view or system thinking helped the teams’ members to see different perspectives of the new development process. PROBLEM STATEMENT Management competency is an underlying characteristic of a project manager. It results in effective or superior performance. In this modern technology era, there is a need for project managers to have an integration of factual knowledge and management skills. Effective knowledge management by creation of knowledge, information sharing, and knowledge communicating can enhance problem-solving process and enable project completion. There are wide varieties of methods knowledge transmission. A systematic Investigating the key knowledge creation process 263 transfer of knowledge has potential for project teams to make decision and accomplish the common objectives. Knowledge is one of the most important resources contributing to managerial decisionmaking and the competitive advantage of an organization. Project manager must be able to know how to use, manage and, utilize knowledge. Knowledge is information, which has been used and becomes part of a person’s experience base and behavioral patterns [DeTienne and Jensen, 2001]. Individuals have different knowledge-based capacity and experience, leading to different problem solving process and decision-makings. When choosing a construction project manager, knowledge and experience are very important selection criteria. In Thailand and other developing countries, the construction industry has inadequately and ineffectively controls strategies towards project management problems. The characteristics of the operating method of contractors are mainly based on sole ownership, headed by entrepreneurs without expertise in construction management. Evidently, the most important factor inhibiting the completeness of construction project is a scarcity of skilled personnel at all levels of construction engineers especially supervisors [Imbert (1990), Mackenzie et al., (2000)]. However, most of owners do not want to spend money to employ qualified professional for management competency. This exploratory study aims to describe the perception of construction project managers and their experiences regarding knowledge enablers and knowledge creation process in construction project. Qualitative research method was used. It helps the investigator to obtain rich information about knowledge enablers and knowledge creation process in construction project. BACKGROUND Knowledge management in construction projects A construction project team consists of contractors, subcontractors, suppliers, manufactures, client/customers, and consultants. All of them have different knowledge needs and come from diverse background, making it is difficult to management project effectively. Creating successful knowledge needs to have appropriate resources and sufficient time [Nonaka and Takeuchi, (1995)]. Individual experience should be firstly used to collect knowledge. The collected knowledge should be available, shared, and generated among project team members. Knowledge needs in construction project are driven by the nature of task characteristic. An important aspect of construction team is effective communication among members. Traditionally, the communication has been handled through person to person dialogue or meeting. Presently, the complexity of construction project and construction environment has changed rapidly. The project teams need to integrate new information and their collaboration to create consistent knowledge for supporting interaction and decisionmaking through all construction steps. [Nonaka and Takeuchi (1995)] addressed the interaction between explicit knowledge, which can be articulated in formal language including grammatical statements, mathematical expressions, specifications, manual and 264 Teerajetgul and Charoenngam tacit knowledge, which is hard to articulate with formal language then leading to the creation of new knowledge. The combination of the two categories makes it possible to conceptualize four conversation patterns. Socialization means sharing and creating tacit knowledge through direct experience. Externalization means articulating tacit knowledge through dialogue and reflection. Combination means systemizing and applying explicit knowledge and information. Internalization means learning and acquiring new tacit knowledge in practice. Knowledge structure in project team members Project team cannot create knowledge on its own without the initiative of team members and the interaction within group. Knowledge can be amplified or crystallized at the group level through dialogue, discussion, experience sharing, and observation [Nonaka and Takeuchi, 1995]. Besides, knowledge is related to perception. Perceived difference is at all kinds and levels of engineering depending on one in a given situation. Differences in perceptions and experiences of construction engineers create a variety of behavioral responses [Ogunlana et al., (2002)]. Apparently, all groups of construction engineers show more or less variation in perceptions. Literature review revealed that construction engineers have both management and technical thinking styles [Edum-Fotwe and McCaffer (2000), Suaer et al., (2001), Odusami (2002)]. Among management problems, extreme variation in perceptions of actual problems has been demonstrated. This clearly suggests that for the same phenomenon, engineers have different mental models and different capability to define a phenomenon. As a result, they take effective actions to solve problems in a different way. Whenever there is a misperception, humans have a tendency to show behaviors in a different manner. Therefore, understanding and capitalizing on difference of behavior styles related to psychology will help increasing project teams’ chances of success [Charoenngam and Maqsood (2001), Culp and Smith (2001)]. Conceptual model in figure 1 was used to describe the relationship between knowledge enablers and knowledge creation process. The goal of this study was to learn more about construction project managers’ experiences and perception of the knowledge management in construction project. The focus attention was the knowledge creation process at the onsite work level. Investigating the key knowledge creation process 265 Managing Director Manager 1 Manager 2 Manager 3 Organization work level Tracking of project work by organization and information feedback Time On-site work level Enablers Organizational Structure Corporation Culture Knowledge Creation Process Socialization Externalization Project Manager Project Engineer 1 Project Engineer 2 Creativity Internalization IT Infrastructure Site Engineer 1 Combination Site Engineer 2 Forman 1 Forman 2 Crew 1 Crew 2 Figure 1.1 Relationship between knowledge enablers and knowledge creation process in construction management team METHODS Sample selection The study sample was 11 senior construction managers from construction projects. All were qualified and met the following criteria: (1) having at least 20 years of experience in construction projects, (2) being experts in knowledge management area, (3) willing to participate. It was agreed that the study samples could withdraw from the study at any point. Table 1 summarized demographics data of the 11 study participants. All of them were male with a mean age of 49.27, ranging from 41 years to 63 years. Years of experience in engineering discipline ranged from 21 to 40 years (Mean = 26.73, SD = 6.66). More than a half of the sample had bachelors’ degree in civil engineering. 266 Teerajetgul and Charoenngam Table 1. Demographics data of the study participants (N = 11). Variable Study participant Age 49.27 (7.35) Year in current company 10.43 (4.62) Year in experiences 26.73 (6.66) Education 7 (63.6 %) - Bachelor’s 4 (36.4 %) - Master’s Primary discipline 1 (18.2%) - Structure 10 (81.8 %) - Civil Services 1 (9.1 %) - Residential 5 (45.5 %) - Factory 5 (45.4 %) - Infrastructure Company size 6 (54.5 %) - SME 5 (45.5 %) - Large Note: All values are express in percentage (%) except ‘Age’, ‘Years in current company’ and ‘Years in experiences’ for which mean and standard deviation are given. SME = small and medium enterprise. Data collection process The study was conducted in construction sites in Bangkok and suburb areas. Interview of the study participants and site observation were conducted from February 2003 to July 2003. The investigator developed a semi-structured interview for focus group series and individual interview format for examining project managers’ attitude, experiences, and perception regarding knowledge management practice [Stewart and Shamdasani, (1990)]. The questions were open-ended. Only four construction managers voluntarily participated in the focus group series after briefing and discussion about detail. The others decided to participate later in the personal interviews. Both formats were utilized to maximize the variability in response and minimize the response biases. The focus group format prompted for memories of experiences whereas site observation and individual interviews relied on the individuals’ recollection of events. Follow-up interviews were used because what participants perceived to be the content did not always relate to the investigators own observation. Each interview and focus group was supplemented by note-taking and audio-tape recorded and later transcribed for coding. The code is a word or phrase close in meaning to what is in data. The significant statements pertained to the investigated phenomenon were extracted and quoted [Stewart and Shamdasani, (1990)]. The investigator added codes as necessary until redundancy was reached. Informant comments were compared and found to be similar. The investigator formulated the meaning of the significant statements and organized them into cluster of themes. The investigator then confirmed the identified themes with the informants during the subsequent interviews. Investigating the key knowledge creation process 267 FINDINGS The objective of the interviews was to better understand factors related to knowledge management in construction management team. This also involved knowledge enablers and knowledge creation process perceived by construction managers. Emerging themes and highlights of the interviewing with construction managers are summarized below. Enablers The discussions have revealed that three enablers: organizational structure, corporate culture, and information technology overlaid onto each stage of knowledge processes. A brief mention of these areas will be made and provided below: Organizational structure The participants or informants expressed their opinions that enablers referred to the impact on knowledge of knowledge management in form of organizational structure. It included vision, leadership, centralization or hierarchical, and formalization. Data revealed: “In the construction project knowledge came from people experience. Even though the construction project had no vision or clear policy about knowledge management but project managers’ used of knowledge management occurred by traditional and working direction. Common workstation platform such as ISO was necessary for collaborative environment.” The adversarial nature of the construction contract impeded knowledge management across boundaries. Additionally, sharing knowledge in an environment where the giver (eg. owner or project manager) was not sure about the benefits they can gain was considered to undermine the competitive advantage of the firm disclosing the knowledge. Two participants complained: “The idea of managing construction business was still conservative. The company paid closely attention to project success within a time frame instead of thinking about an investment in knowledge management since there was no clear benefit. A few of employees were sent to attend any conference, to formally train, or to participate in any seminar. Knowledge management in construction project should be under the project manager and team members’ responsibilities.” Corporate culture Evidently, all participants stated that corporate culture had strong significant impact on knowledge management practice in construction team members. The corporate culture emphasized on members’ interaction or communication, collaboration, trust, incentive, knowledge network and learning. Several informants explained: “Sometime I struggled with unfamiliar problem. I traced other experts from my knowledge networks. There were two general ways: 1) networks of expert who worked in the same field but in different firms, especially friends. I was cited frequently for sharing knowledge to solve or improve 268 Teerajetgul and Charoenngam working, 2) networks of expert from diverse background. I was used to contact sources for identifying the appropriate experts for collaboration.” “I emphasized teaching my team members with the real works or at weekly meeting. Occasionally, training programs might not be focused or specific. Training programs were not continued when mentors believed that these engineers were trained enough to be responsible for their work.” The lack of trust, miscommunication, and promoting impinged negatively on knowledge management in construction project. Issue related to knowledge ownership and adversarial attitudes were mentioned among the issue why team members are reluctant to share knowledge with others. A simplified comment from one informant: “People reluctant to share knowledge with other. They didn’t want any to know more than themselves. They felt not secure with their job and position. I believed trust depended on working experience and how often we had work with our team. If we have got experience and we have work on construction project for a long time and the members would have knew it. Then you got high trust. Likewise my team, they pretty much trusted my judgment.” Information technology After knowledge has been explicitly given or documented, team members consider it to be a form of data or information. Data are better viewed as a set of facts about events. Information is data that has been synthesized and inform the recipient of potential value. Most of experts addressed that internet was only company provided for searching new knowledge. “I mainly utilized information technology to search new knowledge or new product and distribute to my colleagues based on area of interest. Because of day-job and construction characteristics, most of my engineers stayed away from the construction office so internet or e-mail was rarely used or less important than mobile phone in my construction site.” Knowledge creation process Knowledge creation process concerns four modes: socialization, externalization, combination and internalization models. Socialization In construction practice, socialization involves capturing knowledge through physical proximity. The process presents during the communication of tacit knowledge. Tacit knowledge is shared and created through direct experiences as interaction with customer, suppliers or managing by walking around. All informants implied: Every morning I walked around and inside the area of working to access the actual jobsite. The available information was collected and updated. Then I used the collected information to proactive my scheduling and to teach site engineer or foreman to avoid problem. Investigating the key knowledge creation process 269 Information was exchanged through my team members who joined activities such as being together (living at the same construction camp), spending time living in the same environment (coffee hour, informal drinking and eating together). Externalization By sharing experiences through socialization, project team obtains novel ideas that are converted to language or explicit knowledge. This represents externalization. Almost all informants expressed that wording and dialogue strongly support tacit knowledge into readily and express ideas. “I never closed my door, my team members were freely to talk with me for express ideas and opinion. We discussed in both formal and informal depended on situation. My creative experience typically started with talking to my team members, especially when I tried to solve construction problem. I’ll start saying, “ what’s happen? How to solve it?” The civil engineers whom directly responded would say, “we needed to do XYZ”. I’ll take a lead on this situation, guiding, explaining or asking the others civil engineers who ever got that experience (finding best practice). Then a template was developed to allow engineers to involve the interest and to convert it to activities.” Combination When the team combined one example of explicit knowledge with another for new knowledge creation, it called combination, in which information technology or documentation played important role. Informants presented that knowledge was collected in form of data (folder and database). The dissemination was based on the process of transferring this form of knowledge by using directly presentation or meeting. “We had traditional meeting where everybody sit around and offer different ideas. I discussed oneby-one via phone calls. Only certain people were chosen, so sometime we lost other people, novel ideas. They worked nothing in the discussed task, but would be some different things outside the dotted line.” Internalization For internalization, knowledge was put into action and practice. It created value in the form of technologies, products, services and solution. Then interaction returned to the first stage of socialization. By the time, project managers escalated their competency in making independent decision. Their knowledge and experiences also increased. Site engineers largely made decisions under supervision of project manager or project engineer. Majority of informants explained: “I got problems from young engineers. They didn’t know how to do when a problem occurred or they had to produce work that was not routine. Even though they got more than five-year experiences, they created nothing appropriately with potential to solve or handle this situation. I (project manager) directly used executable or adaptable example of prior situation that I had experienced/memorized or learned about. Then they had learnt from doing the real work.” 270 Teerajetgul and Charoenngam CONCLUSION Four factors should be taken for developing knowledge management ability: corporate vision, culture or community of practice, information technology and creative process. First, vision or policy is accepted by every level of employee and inspires were needed. Vision is important to surpass the limitation of existing capability and speed up to new market. Top management must take the initiative in knowledge management nurtured culture for knowledge sharing and creation. Second, culture as virtual place is needed for developing and maintaining creation and sharing knowledge. The culture promotes open sharing of knowledge. It can be realized if leaders clearly articulate value of knowledge management initiative or knowledge management program. Third, information technology was facilitated to capture and access knowledge in the real time meaning. IT realizes the benefits of increasing information technology development to response shorter product cycle and speeds up decision making in project team. Last, creation process is necessary to make knowledge visible or capability to convert from invisible to visible product. REFERENCES Belassi, W. and Tukel, O. I. (1996) A new framework for determining critical success/failure factors in project. International Journal of Project Management, 14, 141-151. Charoenngam, C. and Maqsood, T. (2001) A qualitative approach in problem solving process tracing of construction site engineers. In Proceeding of the ARCOM Seventh Annual Conference Manchester, U.K., pp. 475-485. Culp, G. and Smith, A. (2001) Understanding phychological type to improve project team performance. Journal of Management In Engineering, January, 24-33. DeTienne, K. B. and Jensen, R. B. (2001) Intranets and business model innovation: managing knowledge in the virtual organization. In Knowledge Management and Business Model Innovation, Vol. 12 (Ed, Malhotra, Y.) Idea Group Publishing, Hershey, PA, pp. 198-215. Edum-Fotwe, F. T. and McCaffer, R. (2000) Developing project management competency: perspectives from the construction industry. International Journal of Project Management, 18, 112-124. Imbert, I. D. C. (1990) Human issues affecting construction in developing countries. .Journal of Construction Management and Economics, 8, 219-228. Kluge, J., Stein, W. and Licht, T. (2001) Knowledge Unplugged, Palgrave, New York. Lynn, G. S., Reilly, R. R. and Akgun, A. E. (2000) Knowledge management in new product teams: practices and outcomes. IEEE Transactions on Engineering Management, 47, 221-231. Mackenzie, S., Kilpatrick, A. R. and Akintoye, A. (2000) UK construction skills shortage response strategies and analysis of industry perceptions. Construction Management and Economics, 18, 853-862. Mustapha, F. H. and Naoum, S. (1998) Factors influencing the effectiveness of construction site managers. International Journal of Project Management, 16, 1-8. Nonaka, I. and Takeuchi, H. (1995) The Knowledge-Creation Company, Oxford, New York. Investigating the key knowledge creation process 271 Odusami, K. T. (2002) Perceptions of construction professionals concerning important skills of effective project leaders. Journal of Management In Engineering, April. Ogunlana, S., Siddiqui, Z., Yisa, S. and Olomolaiye, P. (2002) Factors and procedures used in matching project managers to construction projects in Bangkok. .International Journal of Project Management, 20, 385-400. Sauer, C., Liu, L. and Johnston, K. (2001) Where project managers are kings. Project Management Journal, 32, 39-49. Stewart, D. W. and Shamdasani, P. N. (1990) Focus groups, Sage Publications, Newbury Park. 272 Teerajetgul and Charoenngam REGISTRATION OF CONSTRUCTION FIRMS: GOOD PRACTICE TO ENHANCE ITS BENEFITS GEORGE OFORI National University of Singapore [email protected] ABSTRACT In many countries, construction enterprises are required to register with a central public organisation. “Registration” is used to refer to a number of forms of official recognition which construction business organisations must have. The impetus for registration comes from different sources in different countries including: to enable the collection of information on the industry to facilitate the regulation or management of the industry; to generate revenue; and to facilitate procurement by being a pre-qualification initiative. Registration can have several benefits. In order to safeguard public health and safety, the requirement for firms to register is to ensure that firms which undertake construction projects have the necessary professional capability to deliver built items of the requisite quality and durability. Registration also provides targets for firms which seek to grow. The demerits of registration are mainly with regard to its restriction of trade. It is also difficult to administer the registration process effectively. This paper considers the approach to registration in a number of countries. It is based on a review of the literature. The paper discusses the merits and drawbacks of registration in principle, and with respect to current practices and experiences in various countries. It offers recommendations on best practice in policy formulation and implementation. Keywords: registration, international experiences, industry development, best practice INTRODUCTION In many countries at all levels of development, in addition to the need for organizations engaged in construction activities on site to register as business enterprises for revenue and taxation purposes, they are also required to register formally as contractors. This may, indeed, be a statutory requirement. In such cases, firms must register with a central government agency, and no organization can undertake any construction work within the country if it has not been formally registered. This is quite apart from the need for individual professionals such as architects and engineers, to register. Industrialized countries where contractors must register include Australia, Greece, Japan and Italy. However, registration is not required in many industrialized countries whereas it seems to be the norm in developing countries, although it is carried out in these nations with different levels of formality, effectiveness and efficiency. 276 Ofori OBJECTIVES The objectives of this paper are to: • study the motivation for the registration of construction firms • examine the merits and disadvantages of registration • Suggest improvements to the practice and procedures of the registration of construction firms. This paper considers the approach to registration in a number of countries. It is based on a literature review. The paper starts with a consideration of the various forms of contractor registration. It then discusses the motivations for such schemes, and the merits and drawbacks of registration. It presents in some detail, registration of contractors in Singapore and Tanzania. It offers some recommendations on good overall approaches, and best practice in policy formulation and implementation. REGISTRATION: FORMS AND MOTIVATION Various forms of registration “Registration”, as a term, is used to refer to a number of forms of official recognition which construction organisations may be required to have. Under licensing, each construction organisation must meet certain technical requirements, including, in some cases, the need for some of its employees to pass an examination. Licensing is backed by statute, implying that to operate as a contractor on any project (whether public or private) in the particular country, the firm must be licensed. Countries which require contracting enterprises to seek a license include Japan and Greece. The builder registration scheme of the Australian state of Victoria is also a licensing scheme. The second form of “registration” is accreditation which also often has statutory backing. Under accreditation, the firms must seek formal recognition by a government agency or a designated organisation. Accreditation is less formal than licensing. The Philippines is an example of a country where contractors must be accredited. The final form of recognition of construction firms considered here is registration where the requirement to seek official recognition is not mandatory, but may only be related to qualification to undertake public-sector projects. Tanzania is one of a few countries which have dedicated contractor registration agencies – called Contractors Registration Board (CRB) in Tanzania. In other countries, the agency in charge of registration has a wider developmental mandate. These include Malaysia and South Africa where the Construction Industry Development Boards (CIDB), like Singapore’s Building and Construction Authority (BCA) register contractors as part of their tasks in managing. In Malawi, the National Construction Industry Council registers contractors, consultants and materials suppliers (Somba, 2001). In some other developing countries, construction firms must register separately with each of the major public-sector client agencies. In Ghana, the Ministry of Roads and Highways registers civil engineering firms, whereas the public-owned Architectural and Engineering Services Ltd registers building contractors. Registration of construction firms 277 Countries may have a range of forms of registration, each applicable to different segments of the construction industry. For example, in Singapore, owing to the greater threat to public safety involved, specialist plumbing and electrical contractors are required to be licensed (by the Public Utilities Board), and to engage trained, certified tradespersons and technicians, whereas other contractors are to register (with the Building and Construction Authority (BCA)) only if they wish to undertake public-sector construction projects. Registration criteria and classification of firms All registration systems require the firm to meet certain criteria. The most common of these are: financial resources (as represented by paid-up capital); equipment owned by the firm; and (c) personnel employed by the firm. The applicant must submit documentary evidence to support the information which it provides. In most countries, registered contractors are placed in categories which indicate the size of the projects (in monetary terms) they are capable to undertake. The classification, which denotes the capacity and capability of the firms, indicates the sizes of projects that contractors in the various categories can tender for. The registration is usually valid for one year. However, in Singapore, this has been extended to three years. To be re-registered, the firm must fulfill the set criteria for the classification it belongs to, or wishes to join. A company can apply for the upgrading of its classification. The registering agencies usually undertake periodic audits of the firms on their books. Following such an assessment a company may be downgraded, have its registration suspended, or de-listed. In some countries, such as Singapore, public sector clients are required to provide the registering agency with reports on the contractors’ performance. Sanctions such as fines, demotion to a lower financial group, or debarment for some years may be imposed on firms which are adjudged to have performed poorly on projects. Motivations for registration The impetus for registration comes from different sources in different countries. This motivation for the institution of the requirement influences the form of registration stipulated. The first reason why some countries have instituted contractor registration is to use it as a national or regional framework for collecting information on the construction industry. This information can then be used to regulate or manage the industry. Various authors such as the team of international experts who conducted the national study of the construction industry in Tanzania [Ministry of Works, (1977)] have suggested that a registration system for construction enterprises be instituted for this purpose. [Ofori (1988, 2001)] includes information on contractors obtained through registration among the national database on construction, and the indicators on construction industry development. The second motivator for the establishment of a contractor registration scheme is that it can be a revenue generating initiative, since firms pay a fee to be registered. As is done 278 Ofori by the CRB in Tanzania, the funds collected from such fees are usually used for developmental purposes such as training, and research, as discussed below. The final reason for setting up a registration scheme is that it can serve to pre-qualify the firms. This facilitates the tendering process. Clients can be assured that firms in a particular financial category have similar capabilities. The central establishment of the resources, records of accomplishment and other aspects of the profile of the contractors reduce the cost of procurement for individual clients. The objectives of registration in South Africa include: reduce the risk relating to the selection of contractors for public sector work; regulate behaviors, actions and practices of contractors; reduce the administrative burden associated with awarding contracts; reduce tendering costs to both clients and contractors; promote best practice among contractors; provide information on the size, distribution, volume, nature and performance of contractors [Water Meyer, (2001)]. MERITS AND DEMERITS OF REGISTRATION Merits of registration Some of the often-cited merits of registration are regulatory, and others are developmental. The need for aspects of construction activity to be regulated is well understood. The main reasons are the need to safeguard public health, safety and environmental issues during the construction project, and after the completion of the built item. In these regards, the requirement for construction firms to register, and to satisfy certain criteria before being considered to merit registration, is to ensure that the companies which undertake construction projects have the necessary professional capability. In economic terms, the nation benefits if the better firms are separated out as they are the only ones which succeed in being registered, and going on to constitute the construction industry. The items built by such firms would be more cost-effective, completed in a timely manner, and of good quality and durability. This would safeguard the nation’s savings in its stock of built items. The structure of the construction industry in every country is pyramidal in shape [Hillebrandt, (2000)]. There are very few large firms which are able to work in many geographical regions within the country, and on a wide range of projects. The overwhelming majority of construction firms in any country are small and have limited scope of operations in both variety and geographical terms. (It is pertinent to note that this is not an undesirable phenomenon as there is wide range of construction projects by size and nature, which the size distribution matches.) For the smaller firms to grow and develop, they require yardsticks which they can adopt as targets to guide them. Thus, a company can adopt the classification of firms in a registration system and the related criteria as a guide on successive targets it should achieve as it grows. The database on registered contractors gives a good indication of the capacity of the country’s construction industry. Thus, it serves as a source of information for planning for both the construction industry and the overall economy (given the role of the construction Registration of construction firms 279 industry in creating the basic physical infrastructure). A well monitored contractor registration system also provides a good base of information for managing the development and improvement of the construction industry as it indicates the number of firms, their size and geographical distribution, and their resources and experience. Demerits of registration The first demerit of registration is its restriction of trade and its tendency to reduce competition for projects, as it constitutes an entry barrier. An example of the anticompetitive nature of registration is the restriction on the entry of foreign contractors which prevails in many countries. Although the outright exclusion of foreign firms which prevailed in several countries (such as China and Japan) is a thing of the past, various, often subtle forms of restrictions remain [UNCTC, (1989)]. For example, in some cases, foreign firms are required to have a local track record before being considered to have qualified for registration. In Singapore, as discussed below, firms in the top registration categories must have completed certain volumes of public-sector projects. Another manifestation of this is the requirement in Malaysia that foreign firms must tender, not for a period, but for each project they undertake. Second, it is difficult to administer the registration process effectively owing to the need to check a range of documents and references in respect of each applicant. Thus, in many cases, firms are able to seek registration without having the full set of credentials required. Moreover, it is a challenge to maintain the data on registered contractors in a current state. In these regards, at any one time, information on the industry may not be accurate. The final demerit considered here is that registration may introduce bureaucratic delays, and some uncertainties in the management of the firm as the registration criteria tend to be changed over time. REGISTRATION IN SELECTED COUNTRIES Registration of contractors in Singapore The BCA registers construction contractors in Singapore. Central registration was instituted in 1985 after the amalgamation of the registers maintained by the Housing and Development Board, Jurong Town Corporation, and the then Public Works Department. The objective of the register was “to have a common prequalification for public sector construction works which could be tapped upon by the public sector agencies” (Lam, 2001: 1). In Singapore, registration is not mandatory; only firms wishing to undertake public-sector projects must register. However, almost no significant contractor remains unregistered, and most private-sector developers use the register. Construction firms are placed under relevant “heads” according to the nature of the projects they have the capability to undertake. The various heads are: (i) construction; (ii) construction related; (iii) mechanical and electrical; (iv) maintenance; and (v) supply. The definitions of the two main heads are shown in Table 1. 280 Ofori Table 1 BCA’s Construction Workhead Classification and Description Workhe ad CW01 Title Description General Building CW02 Civil Engineeri ng All types of building works in connection with any structure, being built or to be built, for the support, shelter and enclosure of persons, animals, chattels or movable property of any kind, requiring in its construction the use of more than two unrelated building trades and crafts. Such structure includes the construction of multi-storey car parks, buildings for parks and playgrounds and other recreational works, industrial plants, and utility plants. Scope of work includes the addition and alteration works on buildings involving structural changes and installation of roofs. (a) Works involving concrete, masonry and steel in bridges, sewers, culverts, reservoirs, retaining walls, canals, drainage systems, underground structures, cutting and filling of embankment, river banks, excavation of deep trenches, scraping of sub-soil, surface drainage works, flexible pavement, rigid pavement or laterite roads, bus bays, open car parks and related works such as kerbs and footways. (b) Works involving dredging in canal, river and offshore for the purpose of deepening and extraction of mineral or construction material. It also includes reclamation works. (c) Works involving marine piling and the construction of marine structures such as jetties, wharves, sea and river walls. The head does not cover the construction and fabrication of marine crafts, pontoons and oilrigs or any floating platform. Source: http://www.bca.gov.sg The firms under each head are classified into a number of groups indicating the ceilings of the projects they can tender for. As shown in Table 2, building and civil engineering contractors are placed in seven “grades”. The criteria are: • paid-up capital and net worth • Management and development (mainly technical personnel and management systems to which the firm is accredited). Firms in each category must have stated minimum numbers of professional and technical personnel • Track record in the past three years in terms of project value. In the higher categories, certain stated minimum proportions of this completed work must be public-sector work • Additional requirements such as that for firms in the top three grades to submit their accounts annually for perusal by the BCA. Table 2 Requirements for Registration of Contractors in Singapore Grade Financial Track Record (Past 3 Management years)** Additional Requirements Registration of construction firms 281 (Tendering Limit) ($) A1 (unlimited) (Minimum PaidUp Capital and Minimum Net Worth) ($) 15.0 million and Development General Civil Building ($) Engineering ($) 150.0m of which 75.0m PS 112.5m MC 37.5m SP 65.0m of which 32.5m PS 48.75m MC 16.25m SP 30.0m of which 22.5 MC 7.5 SP 10.0m of which 7.5m MC 2.5m SP 3.0m 150.0m of which 75.0m PS 75.0m MC 37.5m SP 65.0m of which 32.5m PS 32.5m MC 16.25m SP 30.0m of which 15.0m MC 7.5m SP 10.0m of which 5.0m MC 2.5m SP 3.0m Annual submission of financial accounts 6.5 million A2 (65.0millio n) 3.0 million B1 (30.0millio n) 30P/T* ISO 9000:2000 ISO 14000 OHSAS 18000 12P/T* ISO 9000:2000 ISO 14000 OHSAS 18000 6P/T* ISO 9000:2000 Annual submission of financial accounts Annual submission of financial accounts 1.0 million B2 (10.0millio n) 3P/T* ISO 9000:2000 300,000 C1 (3.0million ) 100,000 C2 (1.0million ) C3 (500,000) 25,000 1P + 1T 1P or 2T 1.0m 1.0m 1T 500,000 500,000 Source: http://www.bca.gov.sg Notes: Both minimum paid-up capital and minimum net worth must be met. PS – projects executed for public sector agencies in Singapore; MC – main contracts (and nominated sub-contracts) SP – minimum size single project (main contract) Percentage of sub-contract value taken into consideration shall be 50% for CW01 and 75% for CW02. P/T – Professional and Technical personnel with relevant qualifications. ISO 9000:2000 (with effect from 1 July 2003); ISO 14000 & OHSAS 18000 (with effect from 1 July 2004) 282 Ofori * One third of P/T personnel must possess relevant qualifications from universities recognised by the Professional Engineers Board of Singapore (PEB) or Board of Architects (BOA). ** For renewal cases, projects completed satisfactorily in the past 5 years including ongoing projects and recently awarded projects will be considered as track record. The registration system, classification of contractors and the criteria for qualification, have undergone changes over the years. In 1989, the number of financial categories was increased from six to eight. An entry level with a tendering limit of $100,000 was one of the changes introduced. A new G8 was included in 1998. Firms in the top three categories were required to be certified to ISO 9000 was instituted in 1994, The system was comprehensively revamped in 2000. Among the changes were: an increase in the paid-up capital for the upper categories; requirement for public-sector track record for firms seeking registration in the top two grades; raising of the number of professionals and technicians required; and enhancement of the track record levels. Singapore’s contractor registration system is adjudged to have encouraged capability building (Lam, 2001). Linked to the register, and forming part of public sector procurement were incentives for good performance (such as bonuses for good quality work); and penalties for unsatisfactory work (such as demerit points, downgrading or debarment from the registry for up to five years). It has been the inspiration for that in South Africa, and the BCA has directly assisted the Construction Industry Development Board (CIDB) in that country to establish its registration system. However, a spate of bankruptcies and failures of firms to complete projects since 2001, which has affected some of the larger and apparently better established ones, owing to cash flow problems showed that many construction firms are not as sound, at least financially, as their registration status would suggest. This showed a weakness in the system as it did not appear to provide accurate information on firms. The BCA’s activities involve the development of the construction industry, and includes training, technology development, quality development, and enhancement of the operating environment of the industry. Thus, it can be said that the BCA registers firms, provides help for them to progress through the system, as it manages the development of construction enterprises. A significant current development is the promotion of exports as the level of demand locally has declined. Contractor registration in Tanzania The Contractors Registration Board (CRB) was established under the Contractors Registration Act No. 17 of 1997 to register, regulate and promote contractors in Tanzania after the dissolution of the board which registered architects, quantity surveyors and contractors. The CRB’s functions include (United Republic of Tanzania, 1997: section 4): (a) to consider and decide upon applications for registration, to effect registration of contractors; to maintain a register of contractors (b) to regulate the activities and conduct of contractors Registration of construction firms 283 (c) to enter and inspect the construction, installation or erection sites for the purpose of verifying and ensuring that the works are being undertaken by registered contractors; and that the works comply with all governing regulations and laws of the country (d) to promote and provide opportunities and facilities for the study of and for the training in pre-contract and post-contract management, construction, erection, installation or alteration of structures and allied subjects connected with them (e) to promote and maintain professional conduct and integrity of contractors (f) to furnish managerial, technical and administrative consultancy services to contractors (g) to classify contractors into different types, categories and classes and to set class limits of projects to be executed by contractors (h) to set criteria to be met by contractors for registration in different classes (i) to review, from time to time, the registration criteria of contractors (j) to review registered contractors with a view to ensuring that they meet the registration criteria in force of their respective types, categories and classes. The objective of the CRB “is to ensure that the industry is served by competent contractors who observe business ethics and care for quality of work, environment and safety of workmen and public at large” [Materu, (2001: p. 133)]. To achieve this, the CRB undertakes regulatory and developmental activities. Its strategy includes: promotion of training on aspects of construction business; dissemination of information and networking; promotion of partnership and joint ventures between local and foreign contractors; research on construction business; and promotion of a co-operative approach in addressing issues of credit and equipment. The CRB requires at least one director of a firm to be technically qualified (to a minimum of Trade Test Grade 1) before it can register. Thus, most of the registered firms are managed by qualified persons. As noted by [Lemunge (2001: p. 36)]. Most of the contracting firms currently registered are owned and managed by academically qualified personnel. Technicians and engineers with varying years of experience are found running most of the contracting firms. As a result there has been a dramatic improvement in the quality of most construction works. The quite significant registration fees charged by the CRB have enabled it to fund various developmental activities. For example, in 2001, the CRB launched its CRB Sustainable Structured Training Programme (SSTP). The programme, designed in modular format, “aimed at enhancing the capacity of contractors to participate effectively in infrastructure development” [The Contractor, (2001: p. 13)]. [The CRB (2001: p. 2)] states that: The main objective of SSTP is to equip contractors with necessary technical and management skills so as to make them more competitive in the local and regional markets. This training focuses on contractors’ needs, encompasses all contractors and takes into consideration lessons learnt from previous training programs. The CRB Contractors Assistance Fund was set up in April 2002 to help small and medium-sized contractors (Kagaruki, 2002) in Tanzania to obtain finance which constrains their ability to take advantage of work opportunities to enhance their capacity and capability. Thus, the main objective of the Fund is to enable small and medium-sized firms to compete effectively for projects within their class limits by assisting them to obtain bank guarantees for bid bonds and advance mobilization payments. The Fund is used as security to facilitate guarantees to contractors when they seek to procure bid 284 Ofori bonds and bank guarantees for advance mobilization payments. Only CRB registered contractors in the three (out of seven) lower classes are eligible to receive assistance from the Fund. DISCUSSION Experience Countries have had various experiences in their efforts to administer the registration of contractors. The discussion in the rest of the paper focuses on the potential of registration to facilitate the development of the construction industry. The intention to use registration to gather accurate information on the construction industry has not been fully realized. In many cases, the lack of effectiveness of the enforcement of the prequalification criteria means that, in several countries, many construction firms on the registers at any one time may not meet the criteria. It is quite a difficult task in large countries to monitor each contractor’s physical assets. Contractors’ track record information may also be difficult to verify. In many countries, there are delays in the registration procedure owing to many factors including the inadequate capacity of the agencies; the cumbersome procedures; and the many set criteria which firms must satisfy, and on which they must provide evidence. Often, this is because there are no norms or targets on the time the approval process should take. In Singapore, the BCA measures, among the indicators of its activities, the number of cases processed, and the overall processing time. The former rose progressively from 2740 in 1999 to 3462 in 2002; the latter was 2.4 days in 1999 and 2000, 2.8 days in 2001 and 2.0 days in 2002 [BCA, (2004: p. 62)]. In 2003, 92.6 per cent of applications were processed within 4 days. The yardsticks in the various categories of the register which firms should meet can lead to difficulties. For example, the need for a firm to meet certain levels of turnover in order to maintain its position in certain categories may motivate firms to over aggressively bid for projects. Also, such a provision may lead to firms pursuing the wrong form of growth. For example, in Singapore, the number of construction firms in the top registration category grew substantially in the 1990s. This was initially highlighted as a success of the industry development programme. However, by 1998, it was clear that the number of such firms had outstripped the number of large projects available each year which these firms could undertake. This was one of the reasons for the decision to revamp the registration system. Another aspect of “wrong growth” is in terms of the technical capability of the firms which emerge, or grow. In Singapore, it was found that most of the local firms in the top registration category had become large by undertaking projects such as public housing which involved relatively basic technology. Thus, the BCA currently monitors the development of the engineering procurement and construction (EPC) sector of the industry [BCA, (2004)]. Good practices Registration of construction firms 285 From the discussion so far, some elements of good practice can be highlighted. First, it is evident that registration should not be an end in itself. In the context of this paper, it should be linked to the development of the construction industry and its component firms, and the improvement of their performance. Where a separate organization other than that responsible for construction industry development registers contractors, a situation which prevails in Tanzania where the National Construction Council (NCC) and the CRB coexist, it is important that at an early stage, some consideration is given to, and provision made for, the collaboration of the two or more agencies. The objectives of the registration system should be clearly explained to the stakeholders. The details of the proposals for revisions to the registration scheme should be presented to the industry and clients, and their feedback sought. The users of the system should also be encouraged to provide continual feedback on the basis of their experiences, and these should be acted upon to improve the scheme. Measures of performance of the registration system should be set at the time the scheme is designed or revamped. A set of targets should also be set under each performance measure. In general, the broad performance criteria should be “effectiveness” and “efficiency”. These should be operationalised in the context of the country. In the “due diligence” mechanisms for verifying the records and other information submitted by applicants, the agency should seek to balance strictness with flexibility. The stance of its officers should be one of offering advice and assistance to facilitate and support applicants’ endeavors. The contractor registration scheme should be continually monitored, and reviewed or fine-tuned as is found necessary. For example, financial limits for categorization may be made inappropriate by inflation. There should be a regular schedule for comprehensive reviews of the system. This should involve the participation of the stakeholders. The registration system should be as dynamic as possible. Every piece of information on every entrant in the register must be as current as possible. The agency should endeavors to use modern technology not only to verify the information submitted by applicants, but it should also follow up where it has doubts, and update its records available to users. RESEARCH AGENDA There is a need for further knowledge on the registration of construction contractors. The international research community should explore the following topics: • enhancing registration and making it effective and development oriented • international review of registration systems to increase knowledge • Developing theoretical concepts to explain the need for, and merits of registration. CONCLUSIONS The registration of contractors has both positive and negative impacts and implications. It is important that the former should be taken advantage of, and the latter minimized. In 286 Ofori particular, registration should aim to develop the nation’s construction industry and enhance its performance. The continuous development of the contractor registration system itself should also be an objective of the agency responsible for it. Such periodic review and further development should involve the stakeholders of the industry. In this way, the system will be dynamic and continuously relevant to the needs of the country. REFERENCES Building and Construction Authority (2004) BCA and U: Annual Report 2003. Singapore. Contractors Registration Board (CRB) (2001) Sustainable Structured Training Programme for Contractors. (A publicity leaflet). Dar es Salaam, p. 2. Hillebrandt, P M (2000) Economic Theory and the Construction Industry, 3rd Edition. Macmillan, Oxford. Kagaruki, D R (2002) CRB Contractors Assistance Fund. In Proceedings of CRB Annual Workshops 2002 – Five Years of CRB: Achievements and Challenges. CRB, Dar es Salaam, pp. 75-77. Lam, S W (2001) Development of the contractors registry for public sector Paper presented at Conference on Developing the Construction Industries of Southern Africa, Pretoria, 23-25 April. Lemunge, N (2001) Experiences and challenges in contracting business in recent years. In Proceedings, Contractors Registration Board (CRB) Annual Workshops 2001, May to June 2001, pp. 35-40. Materu, S N (2001) Promotion of local contracting capacity: CRB approach. In Construction Industry Forum 2001: Construction Industry Development for Tanzania Social and Economic Transformation – Forum Report. Dar es Salaam, 18-20 April, pp. 133-143. Ministry of Works (1977) Local Construction Industry Study: General report. Dar-esSalaam. Ofori, G (1988) Central data bank for construction. Habitat International, 12, 1, pp. 87-94. Ofori, G (2001) Indicators for measuring construction industry development. Building Research and Information, pp. 40-50. Somba, J J (2001) Malawi country status report. Paper presented at Conference on Developing the Construction Industries of Southern Africa, Pretoria, 23-25 April. The Contractor (2001) Course Announcements. Issue 5, July, p. 13. The United Republic of Tanzania (1997) Architects and Quantity Surveyors (Registration) Act, 1997, section 4. United Nations Centre for Transnational Corporations (UNCTC) (1989), Transnational Corporations in the Construction and Design Engineering Industry, United Nations, New York. Watermeyer, R (2001) South African country status report. Paper presented at Conference on Developing the Construction Industries of Southern Africa, Pretoria, 23-25 April. LOCAL CAPACITY AND CAPABILITY: A PROBABLE DETERMINANT FOR PROMOTION OF CONSTRUCTION EXPORT ARUN BAJRACHARYA and GEORGE OFORI Department of Building, National University of Singapore, 4 Architecture Drive, Singapore 117566 [email protected] ABSTRACT The annual ENR top 225 international contractors’ list indicates that there is a positive relationship between the development stage of a country and the capability of its construction firms in export business. The majority of the top construction firms are from the developed countries. There are also a number of firms from the middle income countries (MICs). To secure and improve their trade in the international construction market, the MICs’ governments emphasize the promotion of construction export. However, for the export promotion, assessment of the export ability of the potential local firms would be essential. From a general point of view of MICs, it is argued that a certain level of domestic capability would be required for carrying out the export business in construction. The objective of this paper is to explain the theoretical bases on the development stages of domestic construction sector – particularly with the focus on the stages for attaining export ability. Some selected theoretical models are reviewed, and based on the models probable growth paths of the construction firms and pre-requisites of the firms for the export business are explained. This paper then suggests for prior assessment of the growth stages and export capabilities of the potential firms before helping them through the government’s construction export promotion mechanism. Keywords: International construction, construction export, corporate growth, local capacity BACKGROUND The Engineering News-Record [ENR, (2003)] top 225 international contractor lists show that the dominating top contractors are from the developed countries such as the United States, Japan, and other European countries. However, there are also about 68 international contractors from middle income countries (MICs) which are scattered between the 14th to other lower positions in the list. The presence of contractors from the MICs like China, Korea, Taiwan, U.A.E., Singapore etc. in the list indicates that these countries have also established their positions in international construction market and they have potential to strengthen their competitiveness. 288 Bajracharya and Ofori The list also indicates a positive relationship between a country’s development stage and its potential in international construction market. [Turin (1973)] stated that the developed countries have a strong construction industry in comparison to the less developed countries. Therefore it can be argued that a country needs to attain a certain developmental stage in order to enable its construction firms to export their services. For the under-developed or developing countries exporting major construction services (except labor supply) in international market would be beyond their capacity. However for the MICs, the international construction market would be a viable domain to strive for their export trade benefits. Therefore the governments of such MICs are putting efforts on construction export. For instance, Singapore has set a target such that 15% of its construction demands (about S$2 billion) to be driven by exports in 5 years’ time [ERC Report, (2003)]. To achieve this target Singapore government have delineated some supportive policies on financial and institutional fronts for its construction industry. However, for the effectiveness of such programs, the potential local construction firms should be identified on the basis of their capabilities. Having known that the different local firms would have different capabilities, there could be some crucial questions like what would be the required capabilities of the construction firms for the export business and how would they acquire such capabilities. This paper attempts to explore the theoretical background of these issues with the backdrop of the nature of international construction. INTERNATIONAL CONSTRUCTION: OPPORTUNITIES, CHALLENGES, AND DETERMINANTS Opportunities [Mawhinney, (2001)] stated that if the construction produces 10% of global GDP, the market size of global construction would be around US$3200 billion. [Bon and Crosthwaite (2000)] found that Asia shares the largest chunk of 35% of world construction market, while Africa and the Middle East share only 2%. Likewise, Europe shares 31%, Latin America 8% and North America shares 22%. The ERC Report (2003) stated that the amount of construction services export of the US firms to China, Indonesia and India is around US$360 billion – only 1% of which would be around half of Singapore’s total construction demand for the year 2002. The Singapore ERC Report (2003) also stated that the average annual growth rate of the Chinese and Indian markets would be around 10% in the next five years. It is estimated that by 2010, the Chinese construction market would expand up to US$1.2 trillion and the Indian market would amount to US$114 billion. Likewise the Indonesian and Thai market would also expand to US$120 billion and US$71 billion respectively in 2010. These figures indicate the scale of opportunities in the international construction market at the global and regional level. Such opportunities encourage the MICs to compete for the maximum possible market share. Probable determinant for promotion of construction export 289 Challenges Harnessing the potential opportunities in international construction is a highly challenging business. Successful firms navigate with highly competitive strategies to deal with multitudes of problems associated with the business. The challenges that the firms normally face in the international construction business could be the challenges at the host country, and the challenges within the construction firm. [UNCTC, (1989)] outlined some of the challenges at the host country like the political instability, economic instability, and poor economic climate of the host country. Protectionist policies of the host country for its local construction firms might also create cautious situation for foreign construction firms. The challenges within the construction firm would be to acquire and possess the necessary organizational requirements to sustain and to grow in international market. [Khoon, (1991)] stated basically five types of such requirements of the firm: (1) size of the firm, (2) track record, (3) expertise in management and technology, (4) financing capacity, and (5) marketing network. Determinants Dunning’ eclectic paradigm [Dunning, (2000)] stated three sets of interdependent determinants – ownership advantages, location advantages, and internalization advantages – that determine the extent and composition of a firm’s foreign production. Ownership (O) advantages are defined as the degree to which a firm possesses sustainable ownership-specific advantages over other firms in the market. Some examples of these advantages are innovative capacity, access to financial resources, and organizational and marketing systems. The more the firms have the competitive ownership advantages, the more they are likely to be engaged in foreign production. Location (L) advantages are the foreign country specific locational attractions like natural resources, labor force, social and physical infrastructure, market size, supplier network, government policies, political stability, business culture, etc. The more the locational advantages that can be exploited in the foreign country, the more the firms will increase their engagement in foreign production. Internalization (I) is the degree of ownership and control on the intermediate transaction of goods and services that are required for the foreign production of the firms. The transaction could be through the market or by ‘internalizing’ or owning/controlling the other intermediate firms. The greater the benefits of internalizing the intermediate firms, the more likely a firm will prefer to engage in foreign production itself. The eclectic paradigm explains the OLI advantages that encourage the firms to engage in foreign production. Therefore the more the construction firms acquire and possess the OLI advantages, the more they would be able and are encouraged to venture into international market. 290 Bajracharya and Ofori Another theoretical framework known as [Porter’s (1990]) diamond model (Figure 1) provides four inter-related determinants of the home country environment that shape the context which allows the firms to gain competitive advantages in international market [Oz, (2001)]. The four determinants are the ‘factor conditions’, ‘demand conditions’, ‘related and supporting industries’, and ‘context for firm strategy and rivalry’. Two other external factors – ‘chance’ and ‘government’ – would independently affect the four major determinants. Chance Context for Firm Strategy and Rivalry Factor Conditions Demand Conditions Related and Supporting Industries Government Figure 1. The Diamond Model [Porter, (1990)] The ‘factor conditions’ refer to the nation’s position in factors of production necessary to compete in a particular industry. The factor conditions could be either ‘basic’ (like natural resources, climate, location, etc.) or advanced (like modern IT infrastructure, highly educated workforce, etc.). The basic factor conditions are inherited or at times easy to create, whereas the advanced factor conditions are more decisive and strong basis for competitive advantages. The ‘demand conditions’ refer to the nature of the market demand in a country for the industry’s product and services. They include composition of home demand, the size and growth of the home demand, and the mechanisms through which domestic demand is internationalized. The ‘related and supporting industries’ refer to the presence of internationally competitive supplier and other related industries in a nation. The presence of these industries would also be a competitive advantage as they could be the parts of a supportive value chain for the products of the firms. The fourth determinant, ‘context for firm strategy and rivalry’ refers to the conditions in the nation that govern the creation, organization, and management of enterprises as well as the nature of domestic rivalry. The domestic rivalry encourages the firms to break the dependence on the basic factor advantages. Each of these four determinants represents a point on the [Porter’s, (1990]) diamond model (Figure 1). The four determinants are interdependent. Therefore, weaknesses in any one determinant will affect others and it constrains an industry’s potential for advancement and upgrading. Probable determinant for promotion of construction export 291 The two external factors ‘government’ and ‘chance’ also affect the competitiveness of an industry, but they are considered as independent and indirect determinants within the diamond model. [Porter’s (1990)] diamond model has been criticized on some of its concepts. Some of the major criticisms are on the concept of indirect role of the government [Stopford and Strange, 1991), the underestimated significance of the globalization of economic activity [Dunning, (1993)], and on the applicability of the model to all countries [Rugman, (1991)]. CORPORATE GROWTH MODELS The challenges and the determinants of international construction demand that the construction firms should be able to tackle these issues so that they can harness the potential opportunities in international market. However, the potential firms in the exporting country would have diverse competence levels, and this situation would prompt the question that which particular potential firm/s would be able to tackle the challenges of the export business. Therefore in order to determine the export capabilities of the potential firms, it would be necessary to take an account of the competitive stage of the firms. Moreover, it would also be necessary to know that how the firms would attain the different competitive stages. There are some theories which explain these questions on the development and competitive stage of the firm. [Moavenzadeh and Hagopian (1984)] developed a model which explains stage-wise development of construction firms in a country. Their model is also known as M-H model and it explains five different stages of development of construction firms. At the first stage, the construction firms of a country would be at the infant stage such that they would not have indigenous contracting capacity. The expertise of the capable foreign firms would be needed for the construction of large projects in the country. Therefore the major projects of the country would be dominantly undertaken by the foreign firms. However, even though the foreign contractors dominate the major projects, they would need the local firms for carrying out the project packages that demand local capacity and knowledge. Therefore, the foreign firms would engage the local firms as their local subcontractors, and as a result the local firms would acquire knowledge and expertise to undertake local sub-contracts. This stage of gaining the local sub-contracting capability is the second stages of development of the local firms. After having experience in the local sub-contracts, the local firms would then be able to carry out small local projects independently – this is the third stage of their development. The capacity at the third stage develops gradually to the fourth stage when the local firms would be capable to undertake independently the local works of different sizes. At this stage the local firms would also work in joint venture with foreign firms. Further, at the fifth stage the local firms would start to diversify their operations and eventually they would expand their business and they would be able to export their services to other countries. The M-H model gives a fairly simplistic explanation of the sequential development stages of construction firms. [Low (1996)] criticized the model for not being explicit in providing detail accounts of construction firms’ development. [Ofori, (1996)] also criticized this model for being over-dependent on the foreign firms. He suggested that the 292 Bajracharya and Ofori development of the local firms does not only depend on the foreign firms – some local firms can develop independently because sub-contracting may not be only the technology transfer vehicle and the foreign firms do not transfer technology willingly. Another model for explaining the competitive stages of construction firms can be developed by using [Sterman’s (2000)] generic examples of different corporate growth paths. He portrayed different growth paths in terms of feedback loop models. In this paper his concepts on the corporate growth are reorganized and adapted to explain the probable growth paths of construction firms. Figure 2 presents reorganized concepts of corporate growth paths. + + R4 (+) International Industry Demand + R3 (+) International Market Share + R2 (+) + + Domestic Market Share + Product Attractiveness B2 (-) Sales + Scale of Operation R1 (+) + Breadth of Product R7 (+) + Process Improvement R6 (+) + Cumulative Experience + Investment in Process Improvement Domestic Industry Demand + R5 (+) Unit Costs - Price + B1 (-) + Perceived Attractiveness of Business International Competitors + Domestic + Competitors Figure 2. Corporate Growth Model [Adapted, Sterman (2000)] [Sterman (2000)] postulated that there could be four possible growth paths of a firm – the growth through (1) economies of scale, (2) economies of scope, (3) learning process, and (4) process improvement and innovation. 1. Growth through economies of scale: In Figure 2 the reinforcing feedback loops R1, R2, R3, and R4 depict the growth path through economies of scale. These feedback loops state that the domestic and international market demand along with corresponding market share is vital for increasing the sales of a firm. As the sales grow beyond a certain extent, there would be incentives for the firm in increasing the scale of operation, which would economize the unit cost of production. The cost of production determines the price of product, and the competitive price increases the product attractiveness. Attractive products in terms of its low price would increase the industry demands and it would help capture more market share in turn. These reinforcing feedback loop concepts represent the growth path through economies of scale. 2. Growth through economies of scope: The reinforcing feedback loop R7 (Figure 2) depicts the growth path through economies of scope. The feedback loop states that as the sales of a firm increases, the firm would be motivated to increase the breadth of its production or it would diversify its production range. This would enable the firm to have a capacity to offer more competitive price, which would increase the product Probable determinant for promotion of construction export 293 attractiveness. It would help increase the firm’s industry demand and market share, which eventually increase the sales in turn. 3. Growth through learning process: The increase in sales also implies the increase in business involvement or experience or track record. The firm with a good track record would perform the job efficiently in competitive price, and it would again eventually help increase the sales in turn. This reinforcing feedback loop R6 (Figure 2) represents the concept of the growth path through learning process. 4. Growth through process improvement and innovation: The increase in sales would also motivate the firm to invest in process improvements. The improved process increases production efficiency and reduces the price which would again eventually help increase the sales in turn. This reinforcing feedback loop R7 (Figure 2) represents the concept of the growth path through process improvement and innovation. The corporate growth path model indicates that a firm can grow through four different paths provided that its sales or revenue increases. However, as the scale of operation of a firm increases, the words of mouth in the industry sends signal of attractiveness of the business, and thus it attracts other firms in the business. This trend gives rise to a number of competitors in the market and this would reduce the market share and the total sales of the firm. This limiting process is represented by the balancing feedback loops B1 and B2 in Figure 2. Construction business for the beginners was highly lucrative and it attracted so many new firms in the business that this speculative effect resulted overcrowding in the industry. However, only the limited construction firms with the reinforcing growth path capability grew and sustained in the industry, whereas other majority of the firms have been struggling to grab the market pie or some of them were forced out of business on the course of their growth. The model suggests that the potential construction firm cannot compete in the international market unless its products (services) are attractive enough for the market. The product attractiveness should be backed-up by the firm’s economic strength and size, diversification of the product range, the track record, and innovation. This corporate growth model can be criticized for its high level of aggregation. However, if we include the time factor in the growth path, it gives a sense of the evolutionary development of construction firms. This model helps to mark-up the growth-path led capacity of a firm. PROMOTION OF CONSTRUCTION EXPORT The function of export promotion generally lies in the jurisdiction of MICs’ governments. In general, the export promotion measures of the government [Ofori, 1994)] would include, (1) providing institutional support, such as the support of construction industry development board, (2) financial incentives such as the grants to set up and tender for projects overseas, and tax exemptions on income derived from export, (3) technical assistance such as providing public-sector experts for overseas projects, (4) information services such as providing market and tendering data. 294 Bajracharya and Ofori Low (1996) stated that the government’s policy measures in promoting exports may be aimed at improving the two levels: the general national economy, and a particular industry. Government organizations such as the economic development board (EDB) and the trade development board (TDB) would be responsible for instituting the incentive schemes for the general export promotion and establishing supports for the potential exporting firms. These organizations might also have specific wing to promote the construction export. Besides these organizations, the specific government agency like construction industry development board (CIDB), which looks after the overall development of local construction industry, would also have specific function in export promotion. CONCLUSIONS International construction offers attractive market opportunities, which motivate home government as well as local construction firms for the export of construction services. Although, the international construction market is dominated by the highly developed countries, the middle income countries (MICs) are also striving to secure their market share. As the construction export is a viable business for their export trade benefits, the governments of the MICs are emphasizing the promotion of construction export. However, on the other side the international construction is a highly challenging business. The potential construction firms need to tackle several challenges like the adversities in the home and host countries, market competition, and deficient self-capabilities within the firms. The firms need robust organization size, strong financing sources and capabilities, strong track record, strong managerial and technical capabilities, and reliable market networks to compete in the developed world dominated market. According to the Dunning’s eclectic paradigm, the firms need to possess the ownership advantages, location advantages and internalization advantages in order to be able and encouraged to compete in international market. Moreover, according to Porter’s diamond framework, the firms need to have supporting home country environment that help them gain competitive advantages in international market. In essence the potential construction firms need to have capability and favorable environment to take up the challenges of the export business. The corporate growth models suggest that the firms acquire and accumulate their capabilities in certain stages. The Moavenzadeh and Hagopian (M-H) model explains the five stages of the growth of construction firms and indicates the stage at which the firms would be able to handle the export business. Likewise Sterman’s corporate growth model shows different possible growth path of a firm. These corporate growth theories postulate that the growth of local firms is an evolutionary process and they need certain growth stage and competitive advantages to be able to compete in international construction market. Export promotion is one of the important functional areas of MICs’ governments. The governments can support the construction export promotion through their organizations like EDB, TDB, and construction specific CIDB. The export promotion measures would be targeted at providing the export incentives to the potential local construction firms. However, in order to select the potential construction firms and to decide on the extent to which the support is needed to them, their growth stages, competitive advantages, Probable determinant for promotion of construction export 295 working environment, and the resulting capabilities need to be ascertained first. Therefore there is a need for an effective assessment system in evaluating the growth stages and export capabilities of the potential firms. On the basis of the assessment system, appropriate support may be provided for enhancing their export business. REFERENCES Bon, R and Crosthwaite, D (2000) The Future of International Construction, Telford, London. Dunning, J H (2000) The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity, International Business Review, 9(2), pp. 163-190. Dunning, J H (1993) Internationalizing Porter’s Diamond, Management International Review, Special Issue 2, pp. 8-15. ERC Report (2003) Economic Review Committee Report, Ministry of Trade and Industry,Singapore,Retrievedfrom http://www.mti.gov.sg/public/PDF/CMT/ERC_DOM_MainReport_Part%203.5.p df?sid=138&cid=1402. Engineering News Record (ENR) (2003) 2003 ENR Top 225 International Contractors, Retrieved from http://www.enr.com/people/toplists/topGlobalcont/topglobalCont_1-50.asp Khoon, Q S (1991), Marketing Abroad, Competitive Strategies and Marketing Niches for the Singapore Construction Industry, Institute of Southeast Asian Studies, Singapore. Low, S P (1996) Theory and Practice of Construction Export Marketing, Brookfield, Vt.: Avebury. Mawhinney, M (2001) International Construction, Malden, MA: Blackwell Science. Moavenzadeh, F and Hagopian, F (1984) The Construction Industry and Economic Growth, Asian National Development, June/July, pp. 56-60. Ofori, G (1996) International Construction and Structural Changes in Host Country Construction Industry: Case of Singapore, Engineering, Construction Architectural Management, 3(4), pp. 271-288. Ofori, G (1994) Formulating a Long Term Strategy for Developing Construction Industry of Singapore, Construction Management and Economics, 12(3), pp. 219-231. Oz, O (2001), Sources of Competitive Advantage of Turkish Construction Companies in International Markets, Construction Management and Economics, Vol. 19, pp. 135-144. Porter, M E (1990) The Competitive Advantage of Nations, The Free Press, New York. Rugman, A M (1991) Diamond in the Rough, Business Quarterly, 55(3), pp. 61-74. Sterman, J D (2000) Business Dynamics, Irwin McGraw-Hill, New York. Stopford, J M and Strange, S (1991) Rival States, Rival Firms: Competition for World Market Shares, Cambridge University Press, Cambridge. Turin, D A (1973) The Construction Industry: Its Economic Significance and its Role in Development, 2nd Edition, University College Environment Research Group, London. UNCTC (1989) Transnational Corporations in the Construction and Design Engineering Industry, United Nations, New York. 296 Bajracharya and Ofori PROMOTING FORMATION OF ALLIANCES AS A CONTRIBUTOR TO THE DEVELOPMENT OF THE CONSTRUCTION SERVICES SECTOR ; A MALAYSIAN CASE STUDY AHMED USMAN AWIL Ph.D. Candidate, School of Housing, Building & Planning, Universiti Sains Malaysia. Penang 11800, Malaysia. [email protected] ABSTRACT The need to increase the capacity of local construction firms in order to deal with the increasing rate of urbanisation has called for the acquisition of new construction methods. Participation of foreign firms in the local Malaysian construction industry was seen as a factor that could assist in catering to the needs. Globalisation of markets has allowed the acquisition of new technologies to increase the capacities of local construction firms. A case study is presented of a construction alliance with a foreign firm through joint venture in the provision of industrialised building systems. The benefits of alliances have been found to be favourable when there is a transfer of knowledge in the form expertise and relevant technology that could be readily adapted to the local environment. Keywords: Alliances, capacity building, industrialised buildings, INTRODUCTION In any country the construction industry plays an important role in developing the investments of both the private and public sector into tangible and productive products. The role that and contribution of the construction services sector primarily is in two fields first, of meeting the socio-economic needs of the nation and secondly, of uplifting the standard and equity of the people [Wang, (1987)]. [Crosthwaite (2000)] notes that there is a strong association between construction activity, economic growth and economic development of a country, with the share of construction activity growing during developing stage and then tapering off as the nation attains a developed status. Alliances with foreign construction firms and transfers of technology has increased the capabilities of local firms and accelerated the economic development of some nations The dependence on firms from developed countries has been reduced to a large extent due to the development of the capacity of the local construction but also to the interaction between local and foreign firms. Additionally, some developing countries have succeeded in developing managerial and organizational resources that, together with the low costs in these countries of skilled and unskilled construction labour, has helped local construction firms to enhance their capabilities both at home and in the international markets. In part this is due to the globalisation and liberalisation of nations, which has made capital, technology and professional workforce mobile, benefiting the construction industry of developing countries. 298 Awil OBJECTIVE OF PAPER The objective of this paper is identifying the contributions that alliances with developed country firms have contributed to the development of Malaysian construction firms. This paper will address the issues of alliances and the outcome of alliances after the joint venture has ceased to exist. There have been arguments in the literature on the improving the capacity of local developing country firms through acquisition but there has been no studies done on the outcome of such technology transfer. Most previous studies concentrate on dealing with technology transfer at the process approach with Devapriya & Ganesan (2003) dealing with subcontractorship, [Kumaraswamy & Shreshta (2002)] deal with organisations and industrial development. The focus of this paper is on the way that provision of new technology and alliances with developed country firms have contributed to the development of the local construction industry through use of case study method. We will be initially discussing those issues that have contributed to the necessity of using new technologies. URBANISATION INDUSTRIALISATION & POPULATION GROWTH A brief description of the factors that necessitated the investigation for new technologies and flexible policies to the involvement of foreign firms in the Malaysian construction is introduced here. The rapid increase in population preceded the provision of industrialised building systems and this factor in turn preceded the search for sources of new technologies in order to cope with urbanisation and population high growth (Yeang 1997, Choo 1997; Johnstone 1980). Increase in the urban population was due to the rapid increase in the migration from rural to Urban areas (Sirat 1999). Apart from natural increase and rural-urban boundary changes, rural-urban migration has played a significant role in the growth of urban centres, especially those that are state or federal capitals. Changes in the administrative boundaries and expansion of existing town centres as well as establishment of new townships contributed to the higher share of population in urban areas. Despite the growth of several individual urban settlements, the urban system however, tends to be concentrated in the conurbations of Kuala Lumpur in the centre, Penang in the north and Johor Bahru in the south. The proportion of the population living in urban areas has increased from 50.7 per cent in 1991 to 61.8 per cent in 2000, growing at an annual average rate of 4.8 per cent. The urbanisation rate for Malaysia is expected to increase to 66.9 per cent by end of 2005. The industrialisation of the housing sector in Malaysia was preceded by the rapid increase in the urban population as shown in table 1 below. Table 1. Population Size and average growth Malaysia, 1980 – 2020 Years 1980 1991 2000 2020* Total Population 13.7 18.5 23.3 33.4 Average annual growth rate (%) 2.3 2.64 2.6 2.8 Source: Department of Statistics, Malaysia, Eighth Malaysia Plan, 2001-2005 (* approx.) Various alternatives were tried to accommodate this growth, among which included increasing density of the urban areas, participation of the private sector and increasing use Promoting formation of alliances 299 of industrialised building systems. The experience in use of prefabrication technology in the provision of the housing to the public by the housing development board in Singapore enabled the board to provide housing to a large part of the population while simultaneously reducing the construction lead time [Choo (1997)]. TECHNOLOGY Technology used in the construction in most developing countries has been found to be lacking and this necessitated the search for solutions to the issues addressed above. Malaysia undertook a survey of the available technologies as early as 1966 and involved the despatch of professionals to France for exposure to the available technology for provision of industrialised building systems [Sumadi et al (2001)]. It was then decided to adopt the use of transfer of technology form developed nations in order to increase the provision of available housing. Generally definitions of technology transfer is taken as to represent the passing of knowledge, products or people to help augment existing technological base that the firm or a nation possessed [Carillo (1994)]. Within the Malaysian context [Jegathesan (1988)] defined it as ‘transfer of knowledge from one brain to another.’ There are two types of technology transfer among firms. Vertical and horizontal. In the services sector [Grosse (1996)] contends that it is horizontal as there is transfer of technology from home office to an affiliate. The most important long-term goals of technology transfer should be internal transfer of advanced technologies to enhance and sustain domestic construction industry (Devapriya & Ganesan (2003)]. Governments can sustain and enhance the development of technology transfers by creating opportunities for domestic contractors with international firms through the use of regulations and policies [Devapriya & Ganesan (2003)]. Among the factors that influence successful transfer of technology was the more international a firm is, larger the host country and a newly established affiliated positively correlate with the transfer of technology [Grosse (1996)]. Technology in use is referred to as three types namely; process, product and management technology [Grosse (1996)]. Product technology is the knowledge used to produce a product, process technology is the knowledge used in production to organise the inputs and operate the machinery, while management technology is the knowledge used in operating a firm. ALLIANCES Initially the need for foreign firms in the local developing countries was resisted based on the need to develop the local construction industry. But over a period of time the resistance decreased due to the realisation that enhancing the local construction industry required increasing their capabilities, which in turn required the exposure of local construction firms to the foreign firms. In the East and South Asia environment the government took the lead in realising that to maintain the pace envisaged for their economic and infrastructure development, the active involvement foreign capital, technology & management know-how should be encouraged [Raftery et al (1998)]. Inter-firm collaboration across national borders involving construction firms from developing countries has increased and contributed to capacity building and 300 Awil competitiveness [UNCTD (1999)]. [Drewer (2001)] recommends the utilisation foreign firms & technologies by nations from developing countries so as to create necessary infrastructure and increase local industry capabilities. Co-operation between firms of developing and developing country has been at the level of subcontracting and this has been the practice for some time. [Devapriya & Ganesan (2002)] contend that subcontracting is a desirable and can be used as a vehicle for transfer of technology to indigenous firms. More specifically, subcontracting has proven to be an entry point in the international market for small and medium-sized enterprises. An important source for the creation of competitive advantages lies in improving access to new technologies. [Ofori & Chan (2001)] on a study of the factors facilitating the construction industry development found that the role of foreign contractors was not a decisive factor in the development of local contractors, but do acknowledge that the prevailing practice of subcontractorship in Singapore to have a major influence on the contractor development in Singapore. Competitiveness within the construction industry is increasing as market borders are breached due to the wide use of telecommunications, increasing efficient transport systems and lowering of tariffs. In such competitive environment, nations realise the necessity of developing the local construction firms in order to compete with foreign firms both at home and abroad. Firms must look to a variety of strategies to assemble the services required to successfully acquire new projects and new revenues. Alliance formation is one way to increase capabilities of local firms that can provide complimentary services to the foreign contractors (Sillars & Kangari 1997; Raftery et al 1998). Alliances in construction may be defined as an association with a non-affiliated organisation, used to further common interests [Badgers & Mulligan (1995)]. For foreign firms use of alliances is a way to penetrate markets that would otherwise have been difficult to enter and also to decrease potential difficulties with existing policies regarding participation of foreign firms. [Badger & Mulligan (1995)]. To initiate, organise, and execute work abroad, a construction firm will often associate itself with other firms from both home country and foreign countries in order to win contracts in the international arena. Most of the construction firms enter into consortiums in order to bid for a particular project for which a single firm's resources cannot cope with. Alliances are primarily vehicles to further the interest of the stakeholder to any given firm. Two specific types of alliances were reported by [Sillars & Kangari (1997)] Long-term and short-term alliances; long-term alliances were used for strategic marketing purposes, often to market or offer specific new technology. This is based on understandings that take the form of loose contractual arrangement and allows each party the flexibility for each party to sever themselves from the relationship relatively easily. The short-term alliance is primarily for project or operational reasons. These are for acquiring partners for specific client needs such as political requirements, to acquire single use technology such as tunnelling techniques or to ensure resources such as local engineers or local trade union. Utilising of alliances increases the capabilities of the firm through interaction between firm and its potential partners, offers increase opportunities and the transfer of technology and expertise possible. The rationale of alliances varies according to development status. Table 2 indicates the reasons that firms from developed nations enter into alliances. Promoting formation of alliances 301 Table 2 Reasons why contractors enter into alliances • Access technology • Secure financing • Meet foreign government requirements Source: [Badger & Mulligan (1995)] • • • Share risks Enter new markets Learn local markets [Devapriya & Ganesan (2003)] propose the employment of local subcontractors in large number by the foreign contractors employed in a developing country in order to reduce the gap between domestic and foreign firms in terms of technology. They argue compensating the main contractor for expenditure incurred in terms of time and cost to help train local workforce will help in the development of the local industry and transfer of knowledge to the local workforce. The United Nations [UNCTD, (1999)] emphasised on the need to increase the development of local service sectors of the strategy to attract investment to the services sectors through acquisition of new technologies so as to strengthen the positions of services providers in developing countries. Malaysian firms co-operated with firms from South Korea. India, Taiwan and Singapore in the design and construction of investment projects, particularly in infrastructure projects such as the Malaysian-Korea arrangement for the construction of the 13.5-Km long Penang Bridge in Malaysia. CASE STUDY The information regarding this case study was collected through readings of literature, from presentations by the company, company newsletters, annual reports, citing in newspaper, interviews with company personnel and personal experience of the author as a former civil engineer with the firm. A brief history of the firm will be presented here starting with the firms establishment. Crendon Building Systems (CBS) a specialist provider of building systems was incorporated in 1984 in order to help develop the use of precast construction Malaysia. The firm had principal participation from Crendon Concrete of U.K., which was a shareholder as well as a technology provider. The use of technology to assemble & erect precast frame and panel system was provided by this joint venture in order increase the availability of low to medium cost apartments so as to accommodate the faster rate of urban migration that was being observed in peninsular Malaysia. The use of this system of construction allowed for the efficient, fast and reliable method of construction that was not previously undertaken in Malaysia. The firm initially undertook projects in the conurbations of Kuala Lumpur & Penang. The technology utilised by CBS consisted of utilising space available at site to assemble the precast yard to cast the facades and panels so as to avoid logistical issues and increase the turnaround time for erection of the various units of the project. The projects were mostly of low cost and medium to low cost combination. Due to issues faced in filling of joints, waterproofing, architectural rigidity and logistical issues the use of this method of work was halted [CBS, (2001)]. Another reason was that space available at site greatly reduced due to the large scale development that was being undertaken in location where the firm’s projects was located. 302 Awil As the trend in the construction industry nowadays, moves towards reducing construction time and cost, improved work place safety and standardization, use of cross wall and halftunnel form systems caters to these requirements. The firm then adopted the use of cross wall and half-tunnel type of system formwork, which had great many advantages over the use of precast facades and less disadvantages. A brief introduction of the cross wall or half-tunnel of work is warranted here. This is a method in which the walls and the slabs are casted together in a single operation Initially the foundations are completed with the conventional method and dowels are left out for column and wall reinforcement. The wall reinforcement (in form of pre-assembled wire meshes) is tied in position along with the electrical conduits and reservations for the plumbing fixtures before placing the tunnel forms in position. The structure is designed as a portal frame having monolithic casting of the wall, slab and columns. The beams are eliminated and columns are in built with the wall. In locations where the requirement of is of dual use then use of conventional construction is utilised for some part and for those parts that require repetitive works, half-tunnel of cross-wall construction used and load transfer takes place through use of transfer floor. The introduction of systems formwork allowed CBS the efficient utilisation of the available site without the requirement of large open spaces. Also such system has the advantages of reducing the cycle time of per floor construction, reducing to a large extent the use of plastering and brickwork for partitions, reduced dependence on labour and increased quality of the projects. The advantage the use of cross-wall construction has brought to the CBS is found in the cost comparisons that has been developed and illustrated in fig. 1 below. As the CBS gained experience in the use of new technologies, it introduced new methods of construction to Malaysia including the use of reusable lightweight sheet metal formwork for suspended concrete slabs for multi-storey car parks. This technology is patented by CORCON worldwide formwork. Promoting formation of alliances 303 COST COMPARISON (%) OF CONVENTIONAL, PRE-CAST AND CROSS WALL CONSTRUCTION FOR A 4-STOREY BUILDING 1 20% 1 03% 1 00%1 00% 1 00% 1 00% 99% 95% 1 00%1 00% 1 00%1 00% 1 00% 1 00% 99% 89% 83% 80% 79% 79% 60% 59% 40% 20% 0% Substructure Superstructure Brickw alls Wall finish Ceiling Finish Conventional Pre-cast Cross Wall Total Cost of Above Fig. 1 Cost comparison of various methods of construction source [CBS (2001)] Over a period of time the share held by Crendon Concrete U.K. reduced and the expertise provided by the British technical personnel was augmented by the training and transfer of technology to Malaysian technical personnel. Subsequently the shares of CBS were bought by IJM Corporation Berhad and then fully integrated within IJM’s group and subsequently renamed IJM Building System to reflect the change in ownership. In the year 2002 IBS patented along with another construction firm Brunsfield Resources and the Forest Research Institute of Malaysia the oil palm fibre reinforced cement (OPFRC) – a cement and palm fibre mix – which could replace bricks as internal partition components in housing construction of homes [Star, (2002)]. The product utilizes the oil palm trunk fibres, which are normally discarded during replanting in oil palm plantation. Malaysia being the world’s largest exporter of oil palm it made sense to utilise products that would otherwise been wasted. This later activity of patenting happened after the company was fully owned by the local Malaysian firm and co-operation with research institute and another contracting firm. Use of the excess oil palm plants to be recycled as a lightweight block. 304 Awil The development of the OPFRC was supported by a grant of RM 1.6 million by the government of Malaysia in order to utilise process products of the agricultural industry. The advantages of OPFRC includes the contribution to the zero burning approach for oil palm replanting as the oil palm trunks will be processed to be supplied as natural fibres, blocks with laboratory tests with a density of about 650 to 1000 kg/m3, strengths of 2 to 5 Mpa depending on the ratio of ingredients. The use of OPFRC could potentially be 30% cheaper than use of conventional bricks and houses made from OPFRC are also cooler due to the cement’s fibre insulation properties as well as water and termite resistance. The OPFRC were used in two apartment blocks being undertaken by the co-patentees in the south of Kuala Lumpur consisting of 2316 units. Acquisition of new technologies both within Malaysia and outside is an on-going process and the firm believes that by increasing its technological capability it will be able to play a bigger role in the field of building systems in Malaysia. CONCLUSION The increase in population of developing nations along with the high urbanisation rates has called for the use of new methods of construction methods. Available methods of construction in developing countries were found lacking and subsequently there was a deliberate approach to enhance the capabilities of local constriction firms through the use of technology transfer and alliances with firms from developed countries. Malaysian government facilitated the participation of foreign firms in local construction industry through lowering tariff and non-tariff trade barriers but keeping in place statues encouraging participation of local firms. This paper investigated the end result of alliance between a Malaysian firm and a firm from a developed nation as means to increase the capabilities so the local construction industry. It was found that Malaysian firms gained from the formation of alliance in two folds. Firstly, there was a substantial transfer of technology initially and exposed the local firm to newer methods of construction thereby increasing its capabilities in knowledge and technology aspects. Secondly, alliance helped the firm seek out other potential technologies independently through cross-linkages with local Malaysian construction firms. The lesson learnt here is to encourage the participation of the foreign firms in developing country firms in cases where there is requirement for technologies that are not available in the local construction industry. REFERENCES Agus, Mohd. Razali (1997) Historical perspectives on housing development. In Housing a nation: A definitive Study. Cagamas Berhad. Kuala Lumpur, Malaysia. pp. 2969. Badger, William W, & Donald E. Mulligan (1995) Rationale and benefits associated with international alliances. Journal of Construction Engineering and Management Vol. 121 No.1 pp.100-111. Carillo, P. (1994) Technology transfer: a survey of international construction companies Construction Management. Vol. 12 pp. 45-51. Choo, Howard (1997) Productivity in housing and international experiences I. In Housing Promoting formation of alliances 305 a nation: A definitive Study. Cagamas Berhad. Kuala Lumpur, Malaysia. pp. 749789. Crendon Building systems (CBS) (2001) Systems and affordable housing-our experience in Malaysia. Presented at the National Seminar for Industrialised Building systems. 3rd International Construction Week 2001. Organised by Construction Industry development Board, Kuala Lumpur 10-17 September 2001. Crosthwaite, David (2000) The global construction market: A cross-sectional analysis. Construction Management and Economics. Vol. 18, pp. 619-627 Devapriya, K.A.K. & S. Ganesan (2002) Technology transfer through subcontracting in developing countries. Building Research and information. Vol. 30 no.3 pp. 171182. Drewer, Stephen (2001) A perspective of the international construction system. Habitat International. Vol. 25 Issue 1, pp. 69-79. Grosse, Richard (1996) International technology transfer in services. Journal of International Business Studies. Vol. 27 no.4 third quarter pp. 781-800. Jegathesan, J. (1988) Factors affecting access to technology through joint ventures. Proceedings of joint ventures as a channel for the transfer of technology. United Nations Conference on Trade and Development. Moscow 21-25 November 1988. Johnstone, Mike (1980) Conventional housing provision in peninsular Malaysia: spatial distortions in a developing economy. Habitat International Vol.5 no.3/4 pp. 337359. Kumaraswamy, Mohan M. & G.B. Shrestha (2002) Targeting technology exchange for Faster organisational and industry development. Building Research and information. Vol. 30 no.3 pp. 183-195. Ofori, George & Martin Betts (1992) Strategic planning for competitive advantages in construction. Construction Management & Economics. Vol. 10 pp. 511-532. Raftery, John, Bernie Pasadilla, Y.H. Chiang, Eddie C.M Hui and Bo-Sin Tang(1998) Globalisation and construction industry development: Implications of recent developments in the construction sector in Asia. Construction Management & Economics Vol. 16 pp. 729-737. Sillars, David N. & Roozbeh Kangari (1997).Japanese construction alliances. Journal of Construction Engineering and Management. Vol. 123 no.2 pp. 146-152. Sirat, Morshidi (1999) Low cost housing in urban industrial setting. Issues and challenges. Penerbit Universiti Sains Malaysia Pulau Penang, Malaysia. Star (2002). Brunsfield, IJM to tap oil palm fibre cement. Published on the 26 November, 2002. Sumadi, Salahuddin Radin, Johnson W.K. Ng, S.L. Lim and C.M. Tham (2001) Promotion strategies and future research and development needs on industrialised building systems. 3rd International Construction Week 2001. Organised by Construction Industry development Board, Kuala Lumpur 10-17 September 2001. United Nations Centre on Trade & Development (UNCTD) (1999) Trade & Development Analysis of experiences in selected services sector. TD/B/COM.1/28 17 August 1999. Wang, B.T.H. (1987) Construction and Development. Pelanduk Publications, Petaling Jaya, Malaysia. Yeang, Kenneth (1997) Technology for housing: Past and future trends. In Housing a nation: A definitive Study. Cagamas Berhad. Kuala Lumpur, Malaysia. pp. 499512. 306 Awil A STRATEGIC PLANNING IN SMALL AND MEDIUM CONSTRUCTION FIRMS J. K. SSEGAWA Department of Civil Engineering, Faculty of Engineering, University of Botswana, P Bag 0061, Gaborone, Botswana [email protected] ABSTRACT Strategic planning is a key activity for survival and achieving sustained growth in a competitive and turbulent environment. In addition, it serves other purposes including the setting of the future direction, long- term measurement performance and control of activities and resources of a firm. Proper planning requires time, effort and information to be meaningful. However, it is doubtful whether the exercise is given the due weight and attention it deserves in construction firms. Indications show that operational planning is given the largest share of time, effort and importance at the expense of strategic planning. Research reports indicate that firms find themselves in various problems traceable to lack of strategic planning. The paper reports findings of a pilot study carried out to investigate issues related to strategic planning by conducting interviews with chief executive officers (CEOs) of nine small and medium construction firms operating in Botswana. The study revealed that CEOs had strategic awareness capability in form of knowing where their firms should be in future and the constraints they face in the business environment. However, this was not matched by a strategic response in terms of devising appropriate strategies to mitigate threats and formulating plans of getting their firms to desired future positions. Keywords: strategic planning, construction industry, small and medium enterprises, business assessment, objective formulation, strategy INTRODUCTION Strategic planning is the key to setting the long-term direction of organisations, including construction firms. Strategic planning serves a number of purposes including, identifying the desired future position of the firm in the market place, formulating objectives and identifying strategies to achieve them. Strategic plans are also used as performance benchmarks necessary for control of performance and resources of the firm. Though strategic planning is not a panacea of all problems that firms encounter [Hayes, (1985)], it has nevertheless been touted as an enabling tool, providing managers with means to steer firms out of trouble and for achieving growth. Various studies (e.g. Baker et al, 1993; Robinson and Pearce, 1984) have associated planning with financial 308 Ssegawa performance in firms with some studies e.g. [Dunnand Bradstreet, (1976)] noting that troubled firms had often neglected the planning process. Planning as a process requires coordination, time and effort. It also requires both internal and external information that is reliable, accurate, timely, and accessible and which is in a decipherable format; attributes which are so elusive in the real world. Both of these factors tempt a number of managers, particularly of small and medium firms, to perceive planning as a time consuming process, which if pursued, disadvantages production activities. [Miles (1979) and Upson (1987)] intimated that managers of small and medium construction firms are too busy pursuing construction work to bother about office activities like planning and financial management. The remark was made a while ago, and one wonders whether the statement is still true today. The answer to the question is the subject of discussion in this paper. The paper highlights the process of strategic planning and its importance in the context of a construction firm. It further reports findings of a pilot study carried out to investigate issues relating to strategic planning in construction firms in Botswana. The first section discusses the study methodology and is followed by a discussion of data analysis and study findings and the paper ends with some conclusions regarding the practice of strategic planning, for example, that CEOs of small and medium constriction firms had the strategic awareness capability in form of knowing where their firms should be in future and the constraints they face in the business environment but did not match the awareness with a strategic responses STRATEGIC PLANNING Strategic planning (sometimes loosely referred to as long-term, long-range or simply business planning) is the formulation of long-term objectives, taking cognisance of how the capabilities of the firm strategically fit in its business environment. The objectives are formulated to move a firm from its current position to a future desired position in the market thus reducing the performance gap [Ansoff, (1968)] in terms of the market share in relation to the competition. For construction firms, survival depends on winning contracts, while growth depends on profitability. Since most of the lucrative contracts are obtained by open tendering systems, firms have two choices; to depend on luck or to formulate appropriate strategies that increase the chances of winning contracts. In most sectors of the economy, operational plans are normally devolved from strategic plans. In the construction sector, the link between strategic and operational plans is ever pervasive. The project nature of construction work forces firms to carry out operational planning, which results in, for example, project estimates, programmes and cashflow forecasts. In many instances, it is possible to have operational plans, once a tender is won and leave strategic plans in abeyance. Strategic planning involves a number of overlapping phases illustrated in Figure 1, namely assessment, formulation, evaluation and development of a strategic plan (The devolvement of operational plans follows the strategic phase but is not a subject of discussion of this paper). Each phase is discussed below in the context of construction firms. Strategic planning in small and medium construction firms 309 Assessment phase The assessment stage consists of several interlinked tasks namely environment appraisal, capabilities assessment, and future position forecasting and assumptions generation. Environmental Appraisal The environment appraisal requires scanning both the micro and macro environments for current and future threats and opportunities [Kotler and Armstrong, (1991), Baker, (1985)]. [Scherer (1970) and Pickering (1974)] noted that performance of a firm depends on the structure of the players and their conduct in the market. Structure refers to the number of buyers and sellers, vertical integration, barriers to entry and conglomerates in the industry. Conduct relates to the strategies pursued by firms, such as, pricing behaviour, promotion, innovation and the level of investments in production assets. Porter (1980) added that profitability in an industry is determined by the intensity of competition, threat of new firms entering the market, bargaining power of suppliers, bargaining power of clients, and the threat of substitutes of services. A few examples in the construction industry in Botswana may be noted. The government is the largest single client of the industry, letting over 80% by value, of all jobs in the industry (Ssegawa, 2003). Due to the enormous bargaining power, the government exerts a lot of impact on the industry, for example, the setting of reservation and preferences schemes for citizenowned firms, which include [Ngowi et al, (2002)]: provision of government guaranteed performance bonds; 2.5% price preference;10% up-front mobilisation allowance; and reservation of 30% on the total volume of building projects. The macro environment may be appraised using political, legal, economic, social and technological factors [Loosemore et al, (2003)], for instance, the state of health of the national economy is one of the most worrying aspects of any construction industry as it influences the demand for projects. Secondly, the level of inflation, interest and exchange rates, the major economic parameters, affect the performance of both projects and firms. 310 Ssegawa Phase 1 Assessment Environment Appraisal Capabilities Assessment Forecast Future position Assumptions Generation Phase 2 Formulation Formulate Objectives Phase 3 Evaluation Evaluate Strategies Develop Strategic Plan Phase 4Develop Plan Production Phase 5Devolve Operational plans Estimating & Tendering Human Resource Assets IT Figure 1 A summary of strategic planning phases Capabilities Assessment The assessment of capabilities is carried out by looking at how the strength of a firm can be positioned to take advantage of the opportunities in a changing environment and how weaknesses can be mitigated or turned into strength. [Teece et al (1997)] noted that capabilities permit the adaptation, integration, reconfiguration of internal organisational skills, resources and functional competencies to suit a dynamic environment. Functional and value chain analysis may be used to assess or benchmark capabilities. Functional analysis looks at each function (e.g. marketing, finance, research and development, human resources, production and IT) of a firm, in terms of how it adds value and supports the achievement of objectives. While all other functions of the firm are important, production, material procurement, estimation and tendering functions play a major part in the success of a construction firm. The value chain analysis examines the efficiency and the level of integration of core and support activities in terms of the respective value created in the firm. The aim is to reduce non-value adding activities and hence reduce cost, speed up decision making and delivery time while improving quality. Though cost reduction is an internal perspective, while value is a customer perspective, both are geared at increasing competitive advantage and hence increasing profitability. Strategic planning in small and medium construction firms 311 Forecasting the future position and generation of assumptions The last activity of the assessment stage is the forecast of the future desired position in the market and listing assumptions on which the position is based. The future position is a perception of management taking into consideration assessments of the environment and capabilities. The forecast position describes what the firm should be at a point in time in terms of say, the desired class, e.g. (E) and market share, e.g. (25%) in five year’s time (class E is the largest class of contractors in Botswana, others being OC, A, B, C, and D). To register for to class E requires formulation of objectives as discussed in the next section. However, because the future is uncertain, managers try to ‘tame’ it by stating assumptions on which their perceived position and objectives are based. Assumptions could be, for instance, ‘the current success rate of bidding and current work load availability in the industry will remain unchanged for the planned period’. Objective Formulation Phase The intention of formulating objectives is to move a firm from its current position to the future desired position to close the performance gap, given the stated assumptions. An example, if the firm has an annual winning bid rate of 1:5 (20%) as an objective, it will lead to a greater market share provided it is better than the competition. If the projects are profitable, growth will be achieved leading to registering in a higher class. The example illustrates that the objectives must be: identifiable (or specific); leading to the expected goal or target; measurable; achievable; time bound; agreed to by both policy makers and implementers. [Drucker (1968)] suggested that a firm could formulate objectives in any combination of the following eight areas, namely market share and perception, innovation, productivity, physical and financial resources, profitability, manager performance and development, worker performance and attitude and public responsibility. [Kaplan and Norton (1992)] in their balanced scorecard framework, noted that firms could formulate objectives in the following perspectives: improving customer perception in terms of time, quality, performance, service and cost; improving internal capabilities, e.g., information systems, procedures and policies; increasing innovation and continuous improvement; and increasing wealth through growth (market share, profitability and return on investment). In construction, the most important objectives are those of delivering projects on time, within budget and at a specified quality. However, achieving them at the expense of other underlying objectives may be catastrophic; for example, an improvement in customer satisfaction when the rate of human accidents on a project site is increasing may lead to numerous litigations and industrial action, all which may result in financial haemorrhage. Strategy Evaluation Phase If objectives are set how can they be achieved? The answer lies in evaluating appropriate strategies as means of achieving the chosen objectives. The concept of strategy has been studied by various scholars, including [Porter (1985)] who provided three basic strategies for gaining and sustaining competitive advantage. They are: being able to perform contracts at a lower cost that the competition; the ability to perform contracts in a way 312 Ssegawa that clients perceive unique in relation to the competition and thus attract a premium fee; and being able to carve out a niche market due to some unique competence (Porter, 1991). Porter noted that when a competitive advantage is achieved and sustained it gives a firm superior profitably than the competition. However, while cost leadership is an achievable strategy in construction, differentiation is rather difficult to realise. The scope for service differentiation at the lower segments of the construction market, where the small construction firms operate, is limited. This is because the services that these firms offer do not have many attributes that can be manipulated or modified [Kale and Arditi, (1998)]. [Ansoff (1957)] provided another set of strategies, specifically aimed at increasing the market share in form of a product-market matrix and are: penetrate market; develop product; develop market; or diversify. In the construction industry this could translate in moving from one class to another to increase the scale of projects taken; venturing into building, civil and roads works to increase scope; being able to take on projects in distant locations or outside national borders; and vertically integrating into a supplier or developer. Development of Strategic Plan Phase Figure 2 illustrates a summary of the strategic planning process. The desired position could be, say, moving from class C to E and capturing a market share of 25% (from 15%) in five years, using the anticipated performance (rate of growth of turnover, which may be stipulated as an objective). Objective formulation and strategy evaluation are iterative processes, involving an analysis and evaluation of alternatives until an optimal strategic plan is arrived at. In practical terms, the manner in which the processes are carried in small and medium firms has been a subject of investigation in numerous studies and is briefly highlighted in the next section. Performance /Market share 25% Desired Position in 5 years time Desired Future Performance Level Performance GAP 15% Performance Projected at Current Level 0% Now 5 years Time Figure 2 Projected market position developed in a strategic plan Strategic planning in small and medium construction firms 313 Role and Relevance of Strategic Planning and Plans In the past two decades, there has been a heightened criticism of the role, purpose and value of strategic plans. It has been argued that uncertainty and complexity in the business environment often renders strategic plans obsolete before they are implemented (Mintzberg, 1994). The market place often changes and the competition frequently moves goal posts in a manner not anticipated in the plans. In addition, most managers: mistake strategic plans to be a destination as opposed to being an en route to the destination; rarely refer to them after preparation; and are forced to produce plans by creditors (sometimes written by consultants) whose contents are not internalised. It has also been argued that the formalisation of strategic plans depends on the size and stage of growth of a firm [Camillus, (1975)]. For large firms, it has been suggested that the planning process is often formalised and systematic and separated from operational planning [Hannon and Atherton, (1998). In these types of organisations, it is necessary to have plans to serve as a means of: coordinating the strategic direction; communicating to relevant stakeholders (e.g. employees, shareholder, etc); controlling activities and resources; creating responsibility in terms of authorisation and accountability; measuring performance; getting inputs from other employees in order for them to accept and implement the plans; creating continuity in case of a change in management; and affording a chance to critically review the set objectives. The nature of small business (where there is high centralisation, informality in communications, and where the owner-manager dominates the decision making process) may not be appropriate for a formalised planning process As a result some researchers have distinguished planning processes from plans [Lyles et al, (1993)]. Strategic planning process requires searching and assimilating internal and external information and making optimal strategic business decisions from alternatives. It is noteworthy that a number of iterations are needed to produce a strategic plan. [Gibb and Scot (1985)] noted that the capability of being aware of the market and flexibility in responding to threats and opportunities are more critical for the performance of a firm. Therefore, strategic awareness and response capability is a combination of processes that examine, understand and learn from the environment [Hannon and Atherton, (1998)], with a view to making appropriate, if not superior response to the competition in order to seize opportunities while mitigating threats from the business environment. [Ansoff and MacDonnell (1990)] have argued that strategic planning cannot be left alone as if it was a distinctive process but has to evolve into strategic management. Strategic management integrates the management functions of planning, organising, staffing, leading and controlling [Fayol (1984)] while adding the strategic awareness and response capability. The result is that the speed of planning, decision making and intervention are much faster bringing about change (which may be a response to a threat, seizure of an opportunity or creation of an innovation) than the classic strategic model. This is particularly possible due to the characteristics of small firms, mentioned earlier. These attributes are some of the pre-requisites for gaining and sustaining a competitive advantage and it may explain why small firms are more innovative than large firms and why a lot of criticism has been levelled against public departments. The latter are criticised for their lack of innovation, efficiency and quick response. This is understandable because in response to the turbulence and complexity of today’s markets, 314 Ssegawa the use of blue prints in the form of long-term plans, implemented with a bureaucracy of general orders is inappropriate and ineffective. With that background, the business profile of construction firms should not be left to luck but should be a result of strategic management decisions carved out to match a business environment. In other words, a planned approach should increase the chances of winning tenders and executing them in a manner that satisfies client objectives. The next section discusses a pilot study designed to investigate issues pertaining to practice of strategic planning or management in construction firms in Botswana. METHODOLOGY For purposes of public procurement, firms in Botswana are divided into classes OC, A, B, C, D and E by the Public Procurement and Asset Disposal Board (PPADB), which replaced the Central Tender Board (CTB). The classes represent the maximum value of a single project that a firm can execute, e.g., class OC (opportunity class) can tender for projects of up to P0.3 million, class E may execute projects from P8 million upwards and the rest may tender for projects within the P0.3 - P8 million (1U$=P4.59) ceiling band. The firms may register for building works only, or both building and civil works. There are basically three major types of ownership; citizen owned, non-citizen owned and subsidiaries of foreign firms. The study focused on classes A, B and C and within these classes subsidiaries of foreign firms were excluded. The firms in these three classes were deemed to exhibit characteristics identifiable with small and medium firms. In addition, subsidiaries were excluded from the study, as they normally use more advanced systems of parent firms. The time and effort required to make arrangements for interviews limited the sample of firms studied to nine, three from each class. This was done by listing the firms in each class in alphabetical order and every fifth firm was selected. If management declined taking part in the study or if the firm was a subsidiary of a foreign firm, the next firm on the list was selected. The interview method was considered the most appropriate for the study because of its effectiveness in capturing data and the flexibility it offers when seeking clarifications to both questions and responses. The chief executive officers (CEOs) of the firms were identified and telephoned to make necessary arrangements for interviews. Between 25 to 35 minutes were allocated for each interview. Care was taken to ensure that respondents understood strategic planning concepts through clarifications but without compromising the technical meaning. CEOs RESPONSES TO INTERVIEW QUESTIONS CEOs from the selected firms were given codes A (1, 2, 3), B (1, 2, 3) and C (1, 2, 3), for anonymity, as shown in Table 1 (column 2-10). Some of the responses from CEOs were captured and tabulated in the table, e.g., row 3 shows that most firms were citizen-owned, except C1 and C3 (all CEOs were male). The next two rows (4 and 5) show the year of first registration and the respective class. If this is viewed in tandem with the current class, firm C2, e.g., took 10 years (1990-2000) to move from class OC to class C2. The next row (6) shows the scope of work firms execute; with firms most carrying out Strategic planning in small and medium construction firms 315 building work only and a few firms carrying out both building and civil. Row 7 shows that all firms obtain the majority of their work from the local and central government. CEOs indicated the targeted class their firms should be in five years time and row 8 shows that some were conservative in their forecast while others were more ambitious. The CEO of firm C2, whose firm achieved a relatively higher rate of growth than the rest desired a more ambitious target of class E. As one of the basic strategic planning aspect, all CEOs showed they knew at least where their firms should be in five years. Responses in row 9 showed that all CEOs did not know the current and desired future market share. A few CEOs (B2 and C1) commented that what is important is that there are jobs in the market for a firm to ensure it wins jobs and executes them at profitable levels. Though estimation of market share is not easy, it is one of the targets that firms use to measure the rate of performance and growth periodically or in comparison with the competition. Additional responses were also obtained relating to specific questions discussed below. Class Profile/CEO-firm Ownership Date of first registration First Class Registered Which jobs do you do (B: C) 3? Who are your clients (Pub: Pri) 4? Targeted Class in 5 years Market share held (now: 5years)? Dou you have Strategic Plans? 1 5 A A11 2 B A3 CO 1990 OC 100:0% 90:10% C NK Yes B1 CO 1990 OC 100:0% 90:10% B NK No B2 CO 2000 A 85:15% 85:15% D NK Yes B3 CO 1997 A 100:0% 80:20% D NK No C1 NCO 1989 A 55:45% 80:20% D NK No C C2 CO 1990 OC 80:20% 70:30% E 18%:NK Yes 2 A2 CO 1999 OC 100:0% 95:5% B NK No C3 NCO CO 1995 OC 100:0% 85:15% C NK 1997 B 65:35% 75:25% E NK Yes No The last class registration was carried out in 2000 by CTB; 2CO-citizen owned, NCO –non citizen owned; 3Building and civil jobs proportions; 4Public and private jobs proportions; 5NK-not known WHATCURRENT AND FUTURE THREATS ARE RECOGNISABLE IN THE BNUSINESS ENVIRONMENT? Overall, CEOs showed a lot of enthusiasm to the question and they were unanimous in identifying the inability of the Government to procure projects as the greatest threat to the industry. Botswana Government gets 45% of its revenue from the sale of diamonds. The vagaries of world trade determine the quantity of diamonds purchased and hence the amount of revenue earned by the government. Judging from the projections made in the budget speech [Republic of Botswana, (2004)] and comments made by some public officials, a downturn in the procurement of public works is expected in next few years. It is also forecast that some of the projects in the National Development Plan 9 may not be implemented. The second threat, also identified by all the CEOs, was the delay in payment for work done for the government, with some saying it sometimes takes more than six months to be 316 Ssegawa paid. Apparently, the government is well aware of the problem and has formalised the payment of an interest on outstanding amounts at 2.5% per annum. The government blames bureaucracy and inefficiency on part of some of the government officials and sometimes under-budgeting by procuring entities. Delayed payments cause a serious cashflow problem to contractors. The pricing behaviour of Chinese owned firms was perceived as a third threat by all CEOs who complained that the firms often bid below acceptable cost levels. They also allege that the firms are subsidised by their state or similar agencies and hence can afford to bid so low. During the ABCON conference [ABCON, (2004)], a participant representing one of the procuring entities, commented that there are two major factors governing bidding at a lower cost on a project tender namely, the ability to reduce overheads, and how a contractor manages the finances of the firm (a direct reference to the perceived problem of Chinese firms). Most contractors bid high because they try to pass their overhead expenses and inefficiencies to the client [Ssegawa, (2000)]. Chinese firms have existed in the country for more than 15 years and their continuing presence in the market may suggest that clients are not unhappy with their work. Some of the CEOs (C2 and C3) saw the frequent utterances by government officials about the poor performance of many contractors [Tebelelo, (2004), Mogami, (2004)], as a threat. The under-performance was reinforced by the report of the [Auditor General (2004)] which revealed that large amounts of tax payers’ money had been squandered by the industry through some unscrupulous contractors who abandoned projects, escalated costs, completed jobs beyond stipulated time and provided low quality work and some with unacceptable defects. However, the CEOs feel it is unfair for the government not to discriminate between performing and under-performing contractors. A backlash by the state for the perceived situation is considered a threat by some CEOs. Another threat mentioned by CEOs B1, C1, C2 and C3 was the influx, into the construction market, by South African (SA) contractors. One CEO called them ‘suitcase’ contractors and emotionally described their modus operand as follows: …they take jobs without having any plant at all and bring in hired plant from SA. …they do not provide employment but we do have a stable force which we cannot necessarily fire like they do when a project is completed’. When officers at PPADP were requested to comment on this allegation, they asserted that in awarding tenders they only deal with registered companies and hence the question of ‘suitcase’ firms being awarded tenders does not exist. However, they speculated that some locally registered firms ‘sell’ their contracts to SA contractors, in what is locally known as ‘fronting’ and PPADB is not legally empowered to monitor the behaviour. Two of the CEOs (C1 and C2) perceived the reservation and preference schemes as unfair and a threat to their business. They contend that they have been operating in the country for a long period, paid their tax bills, trained citizen employees, employed citizens from labourer to supervisors and hence feel they should be part of the schemes. Alternatively, they suggested the schemes should not exist at all as artificial and unsustainable barriers are created yet subsidies are becoming a thing of the past in most economies. One described the situation as feeding an orphaned animal on home food until it is old and then releasing it to the wild when it has lost its killer instincts. Strategic planning in small and medium construction firms 317 Some CEOs (C1 and B3) complained that they do not understand the tender evaluation methods, adjudication procedures and the proposed registration requirements by PPADB yet each process or procedure directly affects their performance or existence. WHAT ARE THE CURRENT AND FUTUREOPPORTUNITIES THAT MAY BE SEIZED BY YOUR FIRM? The old adage that one man’s meat is another man’s poison seems true for reservation and preference schemes. Citizen-owned CEOs see them as a means of creating a level playing field with foreign-owned and subsidiary firms, which they perceive as having adequate resources. IN WHAT ASPECTS DO YOU CONSIDER THE FIRM TO BE STRONGER AND WEAKER THAN THE COMPETITION? A number of CEOs mentioned that a few aspects they felt were their strength but could not substantiate the claims, e.g., B2 and C2 claimed that estimating is their strength but did not even know their biding rates or could not provide the accuracy of the project budgets. Another CEO (C3) claimed his production team was good, particularly the builders but failed to provide indicators whether there are any references from clients (it is noteworthy that to request further substantiation sometimes looked like a challenge to the CEOs and on many occasions, there was backing down on the issue). C2 provided illustrations to back up his claims as regards what was the strength of his firm- the good relationship with suppliers, subcontractors and the bank by supplying references and letters that entitles him to get credit and overdraft facilities. . Regarding weaknesses, all CEOs in class A and B felt that their firms were financially under-resourced and also felt that the financial institutions were reluctant to assist them. Some (B2 and B3) also indicated that they have difficulties in recruiting and retaining skilled staff and mobilising staff when they get projects at distant locations. WHAT OBJECTIVES HAVE BEEN SET TO ENSURE YOUR FIRM ACHIEVES THE TARGETED CLASS? All the CEOs responded that they need to increase their chances of winning jobs. However, many did not state how this could be done though some contemplated acquiring more resources like plant (A3, B2 and C3), delivering projects within client objectives of time, costs and quality (B1 and C1 and C2). WHAT STEPS OR STRATEGIES HAVE BEEN MADE TO ENSURE YOU ACHIEVE YOUR STATED FUTURE TARGET? Most CEOs did offer any strategy to overcome the threats except many mentioned the continued engagement of government on various issues affecting them, particularly by using lobby groups. There was no mention of down sizing in case of an anticipated 318 Ssegawa downturn or even partnering or forming joint ventures. It was also noticeable that at some point CEOs confused problems with threats. Though threats and problems lie on the same continuum, threats are strategically solved while problems are tactically solved. As an example, some CEOs (A3 and B1) mentioned that the rigorous accounting needed for the recently introduced value added tax is a threat to their operations; surely this is a problem not a threat. HOW DO YOU PRODUCE STREGIC PLANS? The last row (10) of Table 1 shows that many firms (A1, A2, B1, B3 and C1) did not have documented strategic plans. CEOs from firms A1 and A2 indicated that they produce mainly operational plans, that is, once the firm win a tender project,, they plan for its execution and hence solve on an ad-hoc basis any problem that arises thereof. The CEO of firm B3 and B2 showed the researchers a document which showed very little elements of strategic plans but more of operational plans. The CEO of firm B2 elaborated how the process is carried out namely functional heads are called for meetings to discuss all problems and challenges facing all projects; suggestions are then floated in the meeting until a solution is obtained. This is a pseudo- formalised strategic planning process but a major part of it devoted to operational plans. Table 1 shows that only firms A3, B2, C2 and C3 had documented strategic plans. However, on clarifying the responses, it transpired that firm A3 prepared the plans when it needed a loan from the bank to buy a truck (two years ago before the study. Firm B2 prepared the plans when they wanted to a get a loan from Citizen Entrepreneurship Development Agency and were prepared by a consultant. The CEO and other employees provided some information to the consultant but the plan was never referred to in course of business. It was only CEOs (C2 and C3) who had current strategic plans but they differed in how they approached the process. C3 drafted the plans in a sketch with a friend, financial expert, and had them typed. They are mainly biased to future resource requirements of labour and plant in relation to projects. Apparently, C2 is a managing director but there are three other directors who co-own the firm and they normally have annual director meeting where, as he put it, ‘strategise’. C2 drafts the plans and the co-directors make comments in a meeting. SUMMARY OF FINDING The responses showed that all CEOs had an understanding of the business environment, particularly threats to their firms (although sometimes, they could not distinguish between problems and threats). However, most of the CEOs could not identify opportunities beyond the preference and reservation schemes. In addition, most of them could identify where each of their firms was more competitive. Therefore, almost all the CEOs did not have full-fledged strategic awareness and response capabilities needed to understand, learn and respond to the environment by making appropriate decisions to seize opportunities while mitigating threats. Strategic planning in small and medium construction firms 319 As regards to the strategic planning process and plan documentation, only one firm (C2) endeavoured to produce periodic strategic plans using a formalised process. Firms A3, B2 and C3 produced documented plans as a result of being forced by external parties to do so, particularly when they needed financing. Firms A1, A2, B1, B3 and C1 carried out strategic activities in an ad-hoc manner. That is strategic issues were discussed remotely when operational plans were being considered. For these firms the modus operandi was ‘tender for a project and if lucky, execute it’ and repeats the cycle. CONCLUSIONS Strategic planning, even in its crudest form, provides means of steering firms in the right direction whether for survival or for growth. The activity makes the future a matter of choice and not chance. The nature and form of planning depends on the size and age of firms. Larger and older firms pursue the activity in a more systematic and formalised manner. Most of the smaller and young firms carry out strategic planning in an informal and ad-hoc manner, if they pursue the activity at all. In most cases, it is the ownermanager who carries out the process and the plan stays in his memory and is rarely documented. The selected firms have highlighted that very few firms carry out a fully fledged strategic planning process, leave alone producing strategic plans. Most of CEOs identified threats and opportunities in the business environment. However, they did not have appropriate strategies to match their capabilities and the business environment and therefore could not mitigate threats or seize opportunities but depended on ad-hoc means. The research confirmed earlier findings that small and medium firms hardly carry any comprehensive or meaningful strategic planning. REFERENCES ABCON (2004) Unpublished Rapportuers Notes for the Association of Botswana Building and Civil Engineering Contractors Congress, 17-19 June, 2004, Grand Palm, Gaborone, Botswana. Ansoff I (1957) Strategies for Diversification, Harvard Business Review, SeptemberOctober. Ansoff I (1968) Corporate strategy, Harmondsworth: Penguin Books Ansoff I and MacDonnell E (1990) Implanting strategic management, London: PrenticeHall. Auditor General (2004) Annual Report, Gaborone: Government Printer, Republic of Botswana. Baker M (1985) Marketing strategy and Management, Hampshire: Macmillan. Baker W H, Addams H L and Davis B (1993) Business planning in successful small firms, Long range planning, 26(6), 82-88. Camillus JC (1975) Evaluating the benefits of formal planning, Long range Planning, 8(3), 33-40. Drucker P (1968) The practice of management, London: Heinemann. Dunn and Bradstreet (1976) Business failures, USA. 320 Ssegawa Fayol H (1984) General and Industrial management (revised ed.), New York: IEEE Press. Gibb A A and Scott M (1985) Strategic awareness, personal commitment and the process of planning in the small business, Journal of Management studies, 22(6), November . Hannon A and Atherton P D (1998) Small firm success and the art of orienteering: the value of plans, planning and strategic awareness in the competitive small firm, Journal of small business and Enterprise Development, 5(2), 102-119. Hayes R H (1985) Strategic planning: Forward in reverse, Havard Business Review, November-December. Kale S and Arditi D (1998) Business failures: Liability of Newness, adolescence and smallness, Journal of Construction Engineering and Management, NovemberDecember. Kaplan and Norton (1992) the balanced scorecard- Measures that drive performance, Harvard Business Review, January-February. Kotler P and Armstrong G (1991) Principles of Marketing, New Jersey: Prentice-Hall, USA Loosemore M, Dainty A and Lingard H (2003) Human resource management in construction Projects: Strategic and operational approaches, Spon: London, UK Lyels M A Baird IS, Orris J B and Kuratko F (1993) Formalised planning in small business: Increasing strategic choices, Journal of Small Business Management 31(2), 38-50. McKay E S (1972) The marketing mystique, New York: American Management association. Miles D (1979) Financial planning for the small building Contractor, London: Intermediate Technology. Mintzberg H (1994) The rise and fall of strategic planning, London: Prentice-Hall Mogami T (2004) Inability to complete projects is intolerable, Daily News, Gaborone: Government Printer, 117, June 21, pp. 19. Pickering J (1974) Industrial structure and market performance, London: Robertson. Porter E M (1985) Competitive advantage: creating and sustaining superior performance: New York: Free press. Porter M E (1980) Competitive strategy, New York: Free Press, USA Porter M E (1990) The competitive advantage of nations, New York: The Free press. Porter M E (1991) Towards a dynamic theory of strategy, Strategic Management Journal 12, 95-117. Republic of Botswana (2004) The Budget speech, Gaborone: Government Printer. Robinson R B and Pearce J A (1983) The impact of formalised strategic planning on financial performance in small organisations, Strategic Management Journal, 1, 197207. Scherer F M (1970) Industrial Pricing, Chicago: Rand MacNally & Co. Ssegawa J K (2000) Prevalent Financial Management Practices by small and medium Construction Firms in Botswana, Proceedings of the 2nd International Conference of the CIB Task Group (TG 29), Gaborone, Botswana, pg 139-146. Ssegawa J K, (2003) A building price index: A case for Botswana, The Journal of Financial Management of Property and Construction, 8(1) pg17-28. Tebelelo S (2004) Government aware of building Industry’s low standards, Monitor Business, Gaborone: Mmegi, 21 June, pp17. Teece D J, Pisano G and Shuen A (1997) Dynamic capabilities and strategic management, Strategic management Journal, 18(7), 509-533. Strategic planning in small and medium construction firms 321 Upson A (1987) Financial Management for Contractors, Oxford: BSP Professional Books. 322 Ssegawa INTERNATIONAL TECHNOLOGY AND KNOWLEDGE TECHNOLOGICAL CAPABILITIES IN BUILDING IN COUNTRIES FLOWS AND DEVELOPING EMILIA. L .C. VAN EGMOND – DE WILDE DE LIGNY Faculty of Technology Management, Eindhoven University of Technology, PO Box 513, 5600 MB Eindhoven, The Netherlands, e-mail: [email protected] ABSTRACT Technological innovations in manufacturing were indicated to have an important impact on industry development. Innovation is seen as a cyclic process that includes not only the invention of technologies, but also the diffusion in terms of flows of technologies and knowledge, adoption, application, maintenance, adaptation and incremental development of these. On its turn innovation is found to be influenced by technological capabilities the total stock of resources- that exist in the industrial innovation system, which is seen as the network in which the industrial enterprises operate. Much of the findings on these phenomena were reported from research in the manufacturing industries, yet little is known from this in the construction industry. The objective of our studies is to determine the features of international technology and knowledge flows (ITKFs) related to technological capabilities in the innovation system of the construction industry in Developing Countries. The analytical framework and research instrument used for the execution of the case studies is based on techno-economic evolutionary theoretical viewpoints regarding innovation. Systematic evaluations of cases of international technology and knowledge flows (ITKFs) in the construction industry in developing countries, by using the developed analytical framework and research instrument, revealed problems, constraints but also promoting factors. Based on the comparison of the data some preliminary cautious conclusions could be drawn. Keywords: Construction Industry, Developing Countries, Innovation International Technology and Knowledge Flows, Technological Capabilities System, BACKGROUND International technology and knowledge flows (ITKFs) can be used as a boosting mechanism for the development of industries and countries. Especially in the case of developing countries the pay-off can be high., although there is also ample evidence of unsuccessful ITKFs. Much of these findings were reported from research in the manufacturing industries that has been carried out already since the 1960s, yet little is known from this in the construction industry. The present global movement to a knowledge economy changes the context in which construction industries in developing countries operate. It has opened the borders for international communication, collaboration and trade as well as extended the channels through which technology and 324 Van Egmond knowledge flows take place by means of which technological capabilities can further grow. On the other hand globalisation forms a threat of marginalization and further lagging behind of the construction industry in these countries given the fact that international communication, collaboration and trade thrives on attractiveness of the countries and their industries. OBJECTIVES In our studies we make an attempt to determine the particularities of international technology and knowledge flows (ITKFs) and the available technological capabilities (TeCaps) in the innovation system of the construction industry (CI) in Developing Countries (DCs). The objective of these is to gain better insight in the mechanisms of ITKFs and TeCaps in the innovation system of the CI. Systematic evaluations of cases of ITKFs in the CI in DCs and their technological capabilities are expected to reveal problems, constraints but also promoting factors regarding ITKFs for construction industry development. In this paper our findings are presented of casestudies which were carried out in Tanzania, Ecuador, Costa Rica and Bangladesh. METHODOLOGY Empirical evidence showed the important impact of technological innovations in manufacturing on industry development, despite criticism on being too deterministic to put technological innovation as one of the major factors for industry progress. This evidence led the techno-economic evolutionary theories which are based on the understanding that growth can largely be attributed to closing the technology and knowledge gap through innovation. Moreover the context (international-, national- and industry context) in which economic activities take place is considered to have a determining impact on innovativeness and company performance. Innovation on its turn is found to be influenced by the availability of Technological Capabilities that exist at industry level in the so-called industrial innovation system. (Bell et al., 1984, Fransman 1984, Lall 1985, and others). The concept of TeCaps refers to the total stock of resources -including the technology and knowledge stock -that can be committed to innovation in an industry, also in the processes of ITKFs. IITKF TeNeeds T input H O country A Fig.1 International Technology & Knowledge Flow Source: Van Egmond 2000 I output input H O country B TeCaps TeNeeds T I output TeCaps Technology and Knowledge Flows in Building 325 The industrial innovation system is the network of the industrial enterprises, their forward and backward linkages with other industrial enterprises, as well as with the so-called technology promoting –or constraining- agencies, such as governmental institutes, R&D and educational institutes, information and documentation centres, financing agencies. The actors in this network should supply the means, skills, know-how and knowledge not only to select, master and adapt the technologies that are needed in production and that are most appropriate to the social system of the country. It should also enable the country to develop and generate its own new technologies (self-reliant technology generation) .The generic analytical framework that we elaborated for studies on technology and innovation related to socioeconomic development is based on the above described basics of the techno-economic evolutionary theoretical viewpoints and a framework developed by UNESCAP (UNESCAP 1989). We translated the core elements in this generic analytical framework in research instruments for case studies in the construction industry. (see also Kumaraswamy, MM et all (2002) and Egmond, ELC. and Kumaraswamy, MM (2003). Each case study is composed of a number of sub-studies at different level of aggregation: country-, industry-, enterprise-/project- and technology- transfer level. The country context is analysed by investigating the particularities of the social and geophysical environment in which the construction industry (CI) operates. The Sector or Industry context is analysed by investigating the particularities of the market in which the CI operates as well as those of the industrial innovation system and its technological capabilities. Indicator for the market is the technology need, determined by the requirements for the desired building, civil works or building materials and components. Indicators for the particularities of the industrial innovation system are (a) the nature and number of the actors in this system and (b) the nature and intensity of linkages (supply of means, skills, know-how and knowledge) Technological Capabilities are assessed by using the stock of technologies, human and natural resources that are needed to assimilate the ITKFs as indicators. The enterprise- and project context in which innovation takes place is generally analysed in detail by investigating the type, time frame, location, scale, management orientation, production/construction process and production performance of the enterprise or project. Process technologies are assessed by investigating the four inextricably interrelated technology components: Technoware (equipment, tools, machines), Humanware (manpower), Infoware (documented facts) and Orgaware (organisational framework) (UNESCAP 1989) The ITKFs are analysed by investigating the (a) nature of the technology or knowledge, (b) source of the transferred technology (c) modality in which the ITKF takes place. The impact of ITKFs is assessed by investigating the achievement of targets for the ITKFs. CASE 1: TKFs for the establishment of a building materials company in Tanzania The Tanzanian ITKF case took place in the building materials industry to establish, run and maintain a Tanzanian small scale private family business (< 10 employees) located in Dar es Salaam focussed at production of concrete building materials for the local urban market. Although the national economic situation at that time (the 1990s) still was not very favourable, liberalization and privatization policies offered room for private investments. The traditional economic feasibility studies that were carried out indicated an opportunity for ITKFs based on a local market demand for the building material and only one local competitor that produced the same product. The technologies and 326 Van Egmond knowledge components that were needed to be imported for the establishment of the building materials enterprise were identified next. Table 1 shows the nature of the components of technology and knowledge that were transferrred to Tanzania, the source of these and the particular mode through which the components were transferred. The production performance -in terms of the quality of the produced building materials- was at the start basically good. The building materials met the quality requirements of the market. A problem was the quantity of the production output that did not keep pace with the actual market demand and the enterprise had to terminate their operations a few years after the start up. Our evaluation of this ITKF case revealed the following reasons. Table 1 ITKFs in the building materials industry in Tanzania Nature of technology and knowledge Source Mode Execution of feasibility studies Europe Consultancy Selection & Negotiation of technologies Europe Consultancy Production Equipment & Machines Europe Direct purchase Production knowledge & skills Europe Training Maintenance knowledge & skills Europe Training Plant information & documentation Europe Included in purchase of prod. Line Management & organisation Europe Consultancy Product knowledge Europe Training Raw materials, components, spare parts Europe Continuous purchase Local financing of enterprise investments were subject to strong loan conditions, which were difficult to meet by the enterpreneur. The physical infrastructure formed a another constraint at national level: the road infrastructure and transport system showed deficiences as well as the electricity and water supply network. Technological capabilities in the CI were not very strong. The local production and supply of capital goods for the intended production process was negligible. Also spare parts and some of the intermediate products -e.g. pigments- had to be imported on continuous basis. Production labour was sufficiently available, although their education level was rather low. Also the construction labour appeared to have insufficient knowledge and skills to use the building materials properly. The stock of natural resources for the building material production like sand and water is large, however the supply was constrained by the in-sufficient exploitation and a rather bad state of infrastructure and transport facilities in the country. Electricity supply broke down several times for a rather long period and cement delivery consequently also stagnated which affected the continuity of the building material production. The innovation system of the construction industry showed rather weak or even non-existing linkages between the enterprises in the CI and various other agents such as governmental-, financial-, R&D and educational institutes. (Egmond 1999). The selected and imported machinery for the production line was rather easy to maintain and repair. The production and maintenance skills of the labour force -which belonged in majority to the (extended) family of the director of the enterprise- needed to be up graded through through training. Information and documentation on the production process and maintenance was imported and the local labour force was trained to use these as well. The European management principles that were introduced as well as the principles of running and maintaining the production process were not familiar to the Tanzanian partner. Socio- Technology and Knowledge Flows in Building 327 cultural aspects (values, norms, expectations, attitudes, motivations) affected the production performance in a harmful way. Commercialization of the production output did not succeed, which was to a large extend due to the limited and weak linkages of the enterprise with other agents in the innovation system of the construction industry. We concluded that the problems that emerged in the post investment phase can be attributed to constraints (1)internally in the enterprise –particularly the lack of management skills-; (2) externally in the CI with its weak innovation system and in the country particularly regarding the loan conditions of the local financing organization as well as the insufficient infrastrature and transport facilities and consequently deficient supplies of resources (electricity and cement) . CASE 2: Diffusion of innovative bamboo construction technologies in Ecuador Literature studies were carried out to gain insight on the factors that influenced the success of the development and diffusion of innovative bamboo construction technologies for lowest income households in Ecuador. (de Vries, 2002) Alike many other developing countries also Ecuador has to cope with an unfavourable social structure, economic situation and policy-making noticable in deficiencies in the physical infrastructure and a housing shortage in particular for the lowest income households. The majority of formal residential construction takes place for middle- and higher income families, generally by using concrete blocks. Lowest income households generally rely on the informal sector construction activities. This implies that this section of the residential construction sector has practically no linkages with the agents in the formal innovation system of the construction industry. Consequently informal residential building construction has to rely mainly on own sources, without support from governmental, financial, educational or R&D organization, which implies a limited availability of TeCaps. The technology stock in the informal sector is limited to predominantly bamboo technologies used for and by the lowest income families for their houses. The knowledge and skills of a large part of those who are involved the actual execution of the informal housing construction projects appears to be limited as well which is revealed in a very traditional and non-innovative use of bamboo in housing construction, and the very limited availability and use of tools and equipment to build. The availability of the needed natural resources like bamboo seems to be sufficient. On the other hand the available technological capabilities in the formal Ecuadorian construction sector for the (incremental) development of technologies for the benefit of low-cost housing seemed to be promising. An opportunity to overcome the non-existent linkage between the formal and informal residential construction sector in the country was created by the intervention of a Non Governmental Organization (NGO) in Guayaquil the “Viviendas de Hogar de Cristo” (VHC). This organization which has formal relations with the agents in the CI developed a design and a bamboo construction system for the lowest income households based on the traditional rural bamboo houses. 328 Van Egmond The basic house unit consist of room to live and sleep. (see figure 2) The design, construction system and costs of the innovative housing technology respond rather well to the technological requirements and capabilities of the target group. Social acceptation therefore appeared not to pose any problems, which is enhancing for the succesful diffusion of the innovative building technology. The materials that are used and the physical properties of the houses very well match both sector and national conditions in Ecuador. The lack of technological capabilities to carry out the on-site construction activities properly is overcome by the off-site prefabrication of the building elements in a serial production process.. On-site construction with the system requires limited process technological components: equipment, tools, skills and knowledge, information and Fig 2 Innovative bamboo technology in Ecuador Source de Vries SK, 2002 management. The housholds themselves could assist in the prefabrication and construction of the basic house units after being trained by the VHC. Employment opportunities are thus created. The management still is in the hands of the VHC. The VHC also offered soft loans for the construction of the houses. The only disadvantage is that the basic houses lack facilities, like private water, electricity, cooking, bathing and sanitation., but this counterbalanced by the fact that the costs of the basic house can be kept very low. Moreover in a later stage the lacking facilities can be added as soon as the house owner has re-paid the loan for the basic house unit. The conclusion is that Ecuador´s less favourable economic situation which imposes problems for financing of public housing for the lowest income households is partially alleviated by the intervention, succesful diffusion of the locally developed innovative building technology -although rather basic and limited- and additional financial support of VHC. Case 3 ITKFs and diffusion in the residential construction industry in Costa Rica Literature studies, field observations and interviews with the involved experts were carried out to gather information for the evaluation of the ITKF case in the residential construction sector in Costa Rica. (Egmond 1994). The case of the Proyecto Nacional de Bamboo (PNB) represents an example of ITKFs of innovative building technologies. Although the Costa Rican national socio-economic situation is better than that in Tanzania or Ecuador, also this country had and still has to face deficiencies in the physical infrastructure and a housing shortage for in particular the lowest income Technology and Knowledge Flows in Building 329 households. Residential construction of old was carried out predominantly by using timber as construction material, but accelerated deforestation resulted in a scarcity of timber and a tremendous increase of the costs. This enhanced the use of masonry and precast concrete systems, which increased the costs of construction and had negative effects on the Costa Rican trade balance. The PNB was a government-initiated project as part of the ‘National Housing Programme’ launched in 1985 in Costa Rica with the primary objective to stimulate the application of locally produced bamboo as a building material to substitute timber, masonry and concrete and to contribute to the alleviation of the housing shortage of the lowest income families. The project included in an integrated manner (1) bamboo cultivation to increase the natural resources stock, (2) up-grading of skills and knowledge of the human resources, (3) R&D on bamboo, bamboo construction technologies, (4) the design and construction of bamboo houses and (5) the industrialisation and commercialization of the project activities. Linkages of the PNB with some agents in the innovation system of the construction industry – e.g. consultantsappeared to be rather strong, although somehow isolated and beneficial to the project activities only without linkages with other construction agents and not all long lasting. There was a strong linkage of the PNB with the national government during the periods of socio-democratic policy orientation, that supported the PNB with financial resources. Also international relations of the PNB were rather strong, but limited to the project duration. The project was co-financed by UNDP and the Dutch Government and ITKFs in several fields took place from various sources and through various modes that contributed to technological capability building and the succesful achievement of the PNB project targets. Since the specific Guadua bamboo was originally not available in the country, bamboo samples were imported from other Latin American countries and bamboo plantations were established to provide for the necessary raw material to meet the demand for it in the residential construction program. Knowledge about the cultivation was transferred from Germany. R&D projects were carried out that rendered designs of the houses and development of specific bamboo preservation and construction solutions, in close collaboration between Costa Rican, Colombian, German and Dutch experts. Fig 3 Basic innovative bamboo house Costa Rica Source: Vries, SK de 2002 The PNB houses (see fig.3) were designed by a Costa Rican architect according to national and sector conditions: the appearance as well as physical performance of the houses meet the (inter)national building standards as well as the requirements of the Costa Rican population; they score better regarding the construction costs, the earth 330 Van Egmond quake resistance and the environmental sustainability compared to similar houses built with concrete systems, but they were not affordable for the lowest income population. Industrialisation –systematisation, standardisation- of certain bamboo processing activities resulted in the establishment of a production plant for prefab bamboo wall elements. Further improvement and mechanisation of the process followed after investigation by Dutch researchers. Since the bamboo harvest appeared to be more than actually needed for the planned housing construction, the PNB decided to extend its activities to industrial production of bamboo based products like furniture and timber substituting panels supported by investigations of Dutch researchers and contribution of US experts in industrial design and engineering of furniture. Training programs, short courses and conferences were organised and information services rendered to those (1000 professionals, technicians, family heads involved in housing construction) involved in cultivation, production, preservation and application of bamboo technologies for housing construction, as well as for those involved in adminstration of small bamboo based community bussiness. These activties were carried out in collaborative effort of Costa Rican, Latin American and European experts. The bamboo based economic activities and housing construction could not be continued on durable basis as was planned. Crucial factors due to this were found at national level: the economic and political situation in the country as well as the dependence of the PNB on foreign and public financing. The economic situation and not all govermental regimes are favourable for the financing of the activities such as envisaged in the PNB. At sector level a major constraint was the lack of linkages of the PNB in the sector and the reluctance of the private sector contractors to accept and adopt the bamboo construction technologies. The residential construction industry is dominated by the concrete building materials suppliers and contractors predominatly building with these systems. Moreover the public owned materials industry of the PNB had limited capabilities for the commercialization of bamboo-based building products. Case 4 ITKFs from Latin America: opportunities for low cost housing in Bangladesh The case study in Bangladesh is an example of an ex-ante study focused on the opportunities and obstacles for ITKFs involving innovative building technologies developed in Ecuador and Costa Rica to selected villages of the Chittagong Hill Tracts (CHT), a hilly region in the Southeast of in Bangladesh where most of Bangladesh’s natural bamboo grows. The less favourable socio-economic development situation of Bangladesh is reflected in many aspects such as technological development, education, physical infrastructure and housing for a large percentage of the population. The limited availability of resources makes that a large part of the population has to rely on traditional building with materials like bamboo. The technology systems available for the construction of the houses in the CHT are either bamboo- and timber-based or rammed earth systems. Over 70% of the houses are built with bamboo systems. Most of the bamboo houses have a temporary character. (figure 4). The construction process of the traditional houses requires rather limited capabilities. If the house is not constructed by the owners themselves, the construction is carried out by majis (local construction experts) who operate quite competitively. They have learnt their trade by family tradition. Technology and Knowledge Flows in Building 331 Fig 4 Bangladesh Traditional bamboo house Source: Vries, SK de 2002 Opportunity studies were carried out to find out whether the introduction in Bangladesh of innovative and sustainable bamboo technologies developed in Ecuador or in Costa Rica and making use of the Latin American experiences could contribute to a solution to the housing problem and to a sustainable development in the construction industry in the country. Field studies have been carried out in four villages in the CHT and data was gathered by means of observations and through interviews with the target group as well as with local construction experts. Next to this literature studies rendered information on the residential construction sector as well as the national context in which construction activities take place in Bangladesh. The studies showed opportunities to transfer innovative bamboo technologies for low-cost housing from Latin America to Bangladesh. However there are some major obstacles for the ITKFs to the CHT in Bangladesh. (see table 2) These result in particular from the national context of the country. Basically, the country lacks a solid socio-economic base for initiatives towards technology development. Any national effort for investment in the CHT in particular may form a problem as the CHT people take a marginal position in the country. The fact that bamboo as a building material for houses has low social status, forms a huge constraint for the development of bamboo construction technologies in general. Moreover, introduction of innovative technologies thrives on political stability and political will at all levels of the country, which unfortunately is not the case for the CHT. As bamboo is available throughout the whole country, there are plenty of other areas suitable for the application of innovative bamboo technologies. 332 Van Egmond Table 2 Crucial factors for ITKFs from Latin America to CHT Bangladesh Source: Adapted from de Vries, S. 2002 Bangladesh National context Economic Political Socio-cultural Physical infrastructure Innovation system Techn Needs (house) EC +/+/+ + +/+ +/+ CR + +/+ + + +/-- +/+ Constr sector Functionality geometry /dimensions Materialisation physical durability production complexity Costs Techn Stock Products TECHN CAP Process HR stock NR stock + indicates a promoting factor for assimilation of ITKFs from Ecuador or Costa Rica - indicates a constraining factor for assimilation of ITKFs from Ecuador or Costa Rica CONCLUSION AND DISCUSSION The comparison of the data of the cases enabled to make some first cautious conclusions regarding ITKFs in the CI related to the technological capabilities in the industrial innovation system of the construction industry in the developing countries in which the case studies took place. The national setting in many developing countries forms a major obstacle for ITKFs, which can not be solved just from one day to the other. The economic situation in many DCs is far from favourable for local investment in ITKFs. Technological development through ITKFs therefor has to rely on either foreign financial sources or on a political orientation and will at various levels in the country to give priority to the support to investments in CI development. The world wide globalisation pattern, which also has left traces in the national policies of liberalisation and privatisation in many DCs offers incentives for foreign investments. However not in all DCs there is a situation of economic and political stability which makes the countries attractive for foreign investment. The physical infrastructure (communication and transportation, energy and water supply network) in many DCs often shows deficiencies which form an obstacle for the diffusion of ITKFs in the countries. The socio-cultural system in DCs, the expectations, beliefs, norms, values, motives of the local communities, often does not comply with those of the foreign suppliers of technologies and knowledge. This forms a constraint for proper ITKFs and even leads to non-acceptance of the transferred technologies and knowledge. The innovation system of the CI in DCs shows a characteristic of rather weak or even non-existing linkages between the actors in the network. ITKFs then take place without broad support and acceptance among the actors in the network, with too much dependence on single sources of support within a too limited time frame. ITKFs often are isolated actions by a single actor in the sector. Technological capabily building then takes Technology and Knowledge Flows in Building 333 place on non-durable basis and gets easily lost when it is not further diffused and assimilated in the innovation system. Technological capabilities in the CI -in terms of the stock of national resources that are available and that can be committed to the construction industry - showed deficiencies that could not all be counterbalanced by ITKFs. The technological capabilities in the CI in DCs can be improved through ITKFs, though given the characteristics of the context in which ITKFs in DCs generally takes place TeCap building does not always succeed as was expected. The case studies that we carried out just give a rough picture of the major aspects that are considered to influence the success of ITKFs leading to technological capability building and improved performance of the CI in DCs. In order to get a better understanding of the phenomena more en more in-depth studies should be carried out in our opinion, while knocking down the total process of ITKFs – taking into account the stages of initiation, selection, assessment, negotiation, contracting, implementation and assimilation of the technologies and knowledge- in different DCs. Thereby it is considered necessary to further elaborate and refine the basic theoretic framework and research instruments for the investigations. REFERENCES Bell, M (1984) Learning and the Accumulation of Industrial Technological Capacity in Developing Countries, in Fransman M. and King K (ed), Technological Capability in the Third World., London Macmillan, UK . Egmond, E L C (1999) Technology Mapping for Technology Management, Delft University Press, Delft, The Netherlands. Egmond, E L C (2000) International Technology Transfer, Lecture notes, Eindhoven University of Technology, Eindhoven , The Netherlands, 153 p. Egmond, E L C and Kumaraswamy, M.M. (2003), Determining the success or failure of international technology transfer, in Industry & Higher Education, Vol. 17 - no 1 February 2003 pp 51 –59, London UK. Fransman M and King K (ed), Technological Capability in the Third World., London Macmillan, UK . Kumaraswamy, M M, van Egmond E.L.C. and Rahman M.M. (2002) Prospects for propelling contractor development through technology exchange, TTI Conference Birmingham UK 2002, Vol I, p 20-25. Kumaraswamy, M M (1995) Synergy through Technology Exchange, 1995 International Congress of Engineering Deans and Industry Leaders, Melbourne, Australia, July 1995, p. 563 – 567. Lall, S (1985), Trade in technology by a slowly industrializing country: India In: N. Rosenberg and C. Frischtak (Eds.), International technology transfer: conc, In.Concepts, measures and comparisons. New York: Praeger. Lall, S (1987) Learning to Industrialize, London, Macmillan . UNESCAP (1989) A framework for technology based development planning : an overview of the framework for technology-based development Volume I (6 volumes) Technology Atlas Project, United Nations ESCAP. Vries, S K de (2002). Bamboo Construction Technology for Housing in Bangladesh; opportunities and constraints of applying Latin American bamboo construction 334 Van Egmond technologes for housing in selected rural villages of the Chittagong Hill Tracts, Bangladesh. MSc thesis: Eindhoven University of Technology. Eindhoven, The Netherlands. PROCUREMENT STRATEGY FOR PROMOTING SMALL SCALE CONTRACTING IN RURAL INFRASTRUCTURE PROVISION: CASE STUDY OF INDONESIA K. S. PRIBADI Department of Civil Engineering, Institut Teknologi Bandung, Jl Ganesa 10, Bandung 40132, Indonesia. [email protected] ABSTRACT Small-scale contracting is one of the methods for private sector participation in rural infrastructure provision. It promotes small enterprise development in rural areas and thus stimulates local economic activity through backward and forward linkages. It is expected that promoting small scale contracting activities will improve the capacity of the national construction industry, which consists of a large number of small scale contractors (SSCs), and will contribute significantly to the national economy. It is generally accepted that technology for rural infrastructure is basically simple, thus considered suitable for SSCs.. Labour-based methods may be applied by SSCs with limited heavy equipment, thus improving job opportunities for communities in rural areas, particularly for seasonal agriculture workers. The method utilizes labour in an optimal way, supported by appropriate equipment, to produce cost-effective rural infrastructure. This paper describes an investigation into the structure of the construction industry in Indonesia focusing on SSCs and the procurement system in the provision of rural infrastructure. Current practices are identified and issues, problems and strengths within the local context are discussed. A strategy for improving the procurement process is proposed. The strategy is based on targeting small scale contractors through proper contract packaging, simplifying administrative processes, building the capacity of the local construction industry and local government organizations to manage small scale contracts. Keywords: Procurement system, small scale contractor, rural infrastructure, labour-based technology, capacity building INTRODUCTION Background Infrastructure facilities have an important role in improving quality of life, as well as the economic and business activities. Rural infrastructure is expected to contribute to poverty reduction by increasing access to basic social and economic services. Activities to plan, 336 Pribadi construct, and maintain rural infrastructure may also increase job opportunities in rural areas. Rural infrastructure development as a means for employment creation involves small scale contracting. Participation of the community in rural infrastructure development increases ownership of the created asset and therefore helps to sustain the infrastructure. It is also generally accepted that technology for rural infrastructure is basically simple in nature, and is therefore suitable for small-scale contractors (SSCs). SSCs with limited heavy equipment can apply labour-based technology, thus improving job opportunities for communities in rural areas, especially for seasonal agricultural workers. Labour-based methods utilize labour in construction activity in an optimal way, supported by appropriate equipment, to produce cost-effective rural infrastructures. Small-scale contracting is one of the methods for private sector participation in the rural infrastructure procurement process. It promotes small enterprise development in rural areas and thus stimulates local economic activity through backward and forward linkages. Promoting small scale contracting activities may also improve the capacity and professionalism of the local construction industry and, through fair and transparent competition, ensure a level playing field for new emerging contractors. A healthy national construction industry, which comprises a large number of SSCs, will contribute significantly to the national economy. The current situation is different. A quick look at national construction industry practices in Indonesia makes clear that there are many obstacles to promoting SSCs. There is corruption and collusion in the practice of public procurement. Local governments tend to prefer medium- and large-scale contractors. There is no continuous market for small scale contracting due to lack of investment in infrastructure. There is a lack of capacity due to inadequate investment in human resource development in the SSCs as well as in the local government agencies dealing with public procurement. SSCs have inadequate access to financial resources. Procurement procedures are overly complicated. SSCs have difficulty competing due to the unbalanced structure of the construction industry. All these issues make it difficult to promote SSCs. Objective This paper describes the result of a study on the structure of the construction industry in Indonesia focusing on small scale contractors and the procurement system in the provision of rural infrastructure. The objective is to develop an overall strategy for promoting small scale contracting in rural infrastructure programs, in order to provide more employment and business opportunities for the rural community, where poverty is a common phenomenon. INDONESIAN CONSTRUCTION INDUSTRY Prior to the economic crisis in 1997, the construction industry grew at the rate of 20% per annum (excluding small scale construction industries such as the housing sector). This high growth was mostly attributable to the private sector. Since the crisis, labour demand has declined - with highly visible lay-offs in the construction and manufacturing sectors. In Procurement strategy for promoting small scale contracting 337 1998, BAPPENAS (the National Development Planning Agency) estimated that around 6 million persons (~7 % of the total labour force) were laid-off, the greater part of which (1 million) came from the construction sector (25% of the construction labour force was laid-off) [Anon,(2000)]. With the economic rebound, the construction sector in Indonesia was able to employ 4,300,000 construction workers in the year 2001 (4.69% of the total labor force in Indonesia). Among them, 19.1% were located in rural areas. Most of the workers (97.2%) were low-level laborers indicating that this sector can absorb unskilled or semi-skilled workers – those affected most by poverty. At the moment in Indonesia there are about 63,000 contractors and 2,500 consultants listed at the National Construction Industry Development Board. About 55,000 of these are members of the Construction Business Association (GAPENSI), while the rest are members of other contractor associations. About 91% of them are SSCs. Data from East Nusa Tenggara (ENT), where in-depth research was conducted, confirm these results: Out of 3,600 contractors listed in Local Construction Industry Development Board, 3,000 of them are members of GAPENSI, and 95% of these are small contractors. The World Bank has reviewed the practices of the construction industry in Indonesia [Tollie ,(2000)] and identified a number of features of the industry. The broad conclusions of the review were: • Projects built by large construction companies were up to international standards; • The standard of workmanship and value-for-money of projects built by the 65,000 (before the crisis) or so medium and small-scale contractors is extremely variable; • The structure of the industry does not favour specialisation and many contractors are incorrectly registered. Small-scale contractors, in particular, are sometimes registered without fully meeting standard classification criteria; • There is a common practice of total “vertical” sub-contracting by national contractors to inexperienced and non-pre-qualified local contractors; • Excessive slicing or unbundling of contracts has lead to a highly segmented industry. Small contracts are often excessively targeted to a limited group of small contractors registered in each kabupaten. These poor performers are protected from price and quality competition with more efficient (often small-scale) contractors operating in other kabupatens, in urban areas and at the provincial level; • Designs are often not adapted to local conditions or to the availability of appropriate local materials; • Industry development is very variable, with the largest concentration of contractors and consultants on Java; • Small contractors are often poorly trained and unable to follow simple drawings or specification norms; and • “Hire and fire” are normal practices in both contracting and consulting, and firms are often unwilling to invest in management and to provide sufficient funds for in-house training. The market segment includes construction and repair for simple buildings and infrastructure. In the Indonesian construction sector, larger contractors appear to be more attracted to private sector building work and smaller scale contractors to public sector 338 Pribadi work, particularly roads. The distribution of construction work is broadly as follows (excludes informal sector residential construction, forestry-related infrastructure, land development/soil conservation and (probably) a significant proportion of maintenance work): • Building work 34% • Roads 33% • Irrigation work/water 11% • Power 9% • Other construction 13% Small Scale Contractors Up to now, the definition of SSCs in Indonesia is still vague. The National Law on Small and Medium Enterprise classifies SSCs based on the value of their assets, while the Presidential Decree No 80 Year 2003 (Technical Guidelines for Government Procurement of Good and Services) stipulates that the net assets of SSCs should not exceed Rp 200 million (about USD 22.000), excluding fixed assets such as land and buildings. Annual sales should not exceed Rp 1 billion ( USD 110.000). In the past, SSCs used to be divided into 3 categories (K1, K2 and K3) and public procurement regulations only limit competition between similar classes. A classification of contractors by [Edmonds and Johannessen, (2003)] shows an important characteristic of SSCs. According to the authors, there are two major types of contractors related to this category: petty contractors and SSCs. Petty contractors are individuals with limited technical skills, operating without any formal business entity, who are not registered in the local contractor associations. Their market is limited to small jobs related to the informal construction sector, light road maintenance and repair works, and other infrastructure. They also work as (trade) sub-contractors for other contractors. SSCs are business entities or individuals registered in the local contractors’ association, with a limited local market, some technical skills, and limited managerial and financial capacity. SSCs in Indonesia are in general characterized by very limited managerial, financial, technical and human resource capacity. A study in Kabupaten Kudus, West Java [Pribadi and Pribadi, (2002)] showed that nearly 50% of SSCs can not fulfill government requirements on financial capacity for participating in public procurement processes, while the study in ENT showed that the financial capacity of most SSCs is less than 10% of the project value, which is the minimum requirement set by the project owners. SSCs have only limited access to construction plants. For example, an SSC which has been operating for 20 years in ENT owns only one small pick-up truck and one water pump. A typical SSC usually employs one technical staff and one field operator. Administrative work is handled by the contractor, supported by the staff. In many cases, the staff is employed only when the contractor has a job. Trades and craftsmen are hired on work-volume basis, the contractor sublets the work to a group of workers consisting of at least a mason and a carpenter and supported by 4 non-skilled labourers. The group is Procurement strategy for promoting small scale contracting 339 coordinated by a foreman (the local term is mandor). Daily wages are used when the work volume cannot be measured easily. PROCURING CONTRACTORS FOR RURAL INFRASTRUCTURE WORK Rural Infrastructure Rural infrastructure can be practically defined as “……… all that is constructed in rural areas, however it usually refers to "small-scale" rural infrastructure and concentrates on rural roads, paths, bridges, water supplies, small-scale irrigation systems, schools, health centre, markets and other pavement” [Parikesit et al, (2002)]. In addition, rural energy and water transport infrastructure should also be considered important in the Indonesian context. Different approaches can be used for the delivery of rural infrastructure. Largescale rural infrastructure can be provided by a contractor working on its own account or in a joint operation with a local organization, whereas small-scale rural infrastructure can be provided by the local community. In both cases, however, certain technical qualifications and safety requirements must be met. Indonesia has a long history of rural development, with programmes for both rural infrastructure development and rural community (economic) development. A few examples include the Poverty Alleviation Programme, the Village Infrastructure Project, the Kecamatan Development Programme, the Rural Electrification Project, the Public Works – Sectoral Productive Labour Intensive Programme, Integrated Infrastructure and Village Environment Development, Rural Water Supply and Sanitation, and the Rural Electrification Program. Public Procurement vs. Community Work When funding for rural infrastructure comes from either central or local government, construction services and goods should be procured publicly in accordance with the prevailing regulations on public procurement. On the other hand, when local communities provide the funding for their own rural infrastructure, there are a variety of approaches, such as procuring contractors and material locally, the force-account method, and collective community volunteer work. Public procurement is the preferred method for government investment work, as it is expected to provide cost-effective quality infrastructure through a fair and competitive procurement process. Public procurement is also expected to feed the formal construction sector with a continuous market, which should contribute to the development of a healthy and strong national construction industry. A healthy construction industry should in turn contribute to the national economy through its forward and backward linkages. In practice, there are many problems related to construction industry practices and in particular to public procurement that prevent it from being a cost effective, fair, transparent, non-discriminating and non-collusive process. Public procurement is notorious for being a high-cost process, where a major portion of the construction budget is absorbed by unaccountable expenses, resulting in poor quality infrastructure and less 340 Pribadi value for the cost. The provision of rural infrastructure through contractors tends also to reduce community involvement and ownership, which are important for sustainability. As a result, there seems to be more demand for a community empowerment approach, in which local (and central) governments disburse public funds in the form of block grants to local rural communities. The local communities can then manage the development of rural infrastructure based on their own needs and plans. Construction of infrastructure is often done under a force-account process or by mobilizing local informal contractors and trades, or by mobilizing community volunteer (unpaid) work. With this approach, the community’s sense of ownership is improved and they get higher quality infrastructure at a reasonable cost. From the industry point of view, however, this approach is not attractive because it reduces the construction market for contractors. Industry advocates also argue that the approach is unlawful, because the informal sector does not satisfy the requirement for professional liability that is stipulated in national construction law. Policy and Regulations At the national level, policies concerning the construction sector are set in the following act and regulations • National Act No. 18 Year 1999 on the Construction Industry . • Government Regulation No. 28 Year 2000 on the business and role of the construction industry society • Government Regulation No. 29 Year 2000 on the operation of construction business. • Government Regulation No. 30 Year 2000 on the development of construction business. The national policy on public procurement is presented in Presidential Decree No 80 Year 2003 on Procurement of Services and Goods for Government. The main policy is to procure all services and goods through an open competitive bidding process. There are however special cases in which a limited tender process, direct selection, or a direct appointment process can be applied. For certain situations, forced-account processes are still applicable when there is no third party interested in the offering and no service provider is available. The decree provides detailed instructions on how to procure services and goods publicly. It also provides guidance on SSC empowerment through small scale bid packaging. The decree divides contractors into two categories only: large-scale contractors and SSCs. Regarding competition, the spirit of the decree is to liberate the market, so that small contractors can compete with larger ones and contractors can bid for all projects in different areas or provinces without geographic barriers. The idea is to train national contractors to be competitive and prepared for the global construction market once the AFTA open market is put into effect. The tender process could be done either through pre-qualification or post-qualification of bidders. Participating contractors have to be registered in one of the accredited contractor associations. Figure 1 shows a schematic diagram of possible ways of procuring services and goods by open or limited tender, direct selection, or direct appointment. Local level policies also exist, such as decrees from local authorities on the preferred method of Procurement strategy for promoting small scale contracting 341 Prequalification Notice procurement (e.g., procuring the services of large/medium scale contractors to reduce the Tender Notice Invitation number of contracts, establishing agreements with communities exclusively and avoiding contracts with contractors). Submit Prequalification Document Prequalification Evaluation Invitation based on Prequalification Result Pre-bid conference Registration Bid submission Bid Evaluation Bidders’ Rank & Negotiation Legend: List of Candidates Objection Periode Notice of award Limited Tender : Contract Award Open Tender Direct selection : : Direct appointment : Figure 1 Public Procurement of Services and Goods based on Presidential Decree 80/2003 Current Practices SSCs use trade or petty contractors to execute their work. In many cases, the basis of the work is not a contract, but a document in the form of a Notice to Proceed. In some programmes, contractors are required to establish a joint operation agreement with local community groups who provide local construction materials and labour. In community empowerment schemes, in which local communities obtain block grants from local governments or donors, the local community could choose either to contract a contractor for the provision of construction equipment, administrative staff and technical supervisors, or to implement the project on a forced-account basis, with equipment being provided by the local government agency as part of the in-kind support of the project (such as plants and bitumen asphalt). A small scale contractor typically operates with very limited staff and workers, about 5 to 10 persons recruited locally through the chief craftsmen. The wage rate of a foreman or chief craftsmen in East Nusa Tenggara is Rp 30 to Rp 50 thousands (USD 4-6) per day, while skilled craftsmen/tradesmen earn Rp 20-25 thousands (USD 2.5 - 3), and non-skilled labourers receive Rp 10 to 15 thousand (USD 12) per day [Pribadi, (2004)]. Project owners often complain about SSCs in many rural infrastructure projects because of quality problems as well as delay in delivery time. 342 Pribadi Typically 60% of small scale projects in East Nusa Tenggara are behind schedule and 25% deteriorated before the end of the design life. Community projects executed by collective volunteer work or by forced-account are often considered to be of reasonable quality, considering that the community members are not construction professionals. Local government agencies planning to implement rural infrastructure projects usually set up a procurement committee whose members are selected from officers and staff in the agencies. A project manager is appointed on behalf of the agency to implement the whole process (tendering, contract preparation and signing, project monitoring and reporting, approving payments and project handover). Issues and Problems The government effort to promote small scale contracting for rural infrastructure development as a means to alleviate poverty faces a number of obstacles. In particular, any strategy to promote small scale contracting must address the following issues: • How can a continuous construction market be provided for small scale contracting in rural infrastructure? • What kind of procurement process in rural infrastructure will help small-scale contractors and community contractors compete successfully? • How can procurement regulations ensure consistency, fairness and transparent business in the construction sector? • What kind of contracting procedure and management process is applicable to support a small scale contracting strategy? • How can the (local) government’s capacity to manage a large number of small scale contracts be improved? • How can contractors be encouraged to improve quality and become more competitive? In addition, regulations and procurement practices must be considered when formulating small scale contracting strategy for local governments. Regulations are often interpreted in different ways by different organizations and local governments, requirements are too complicated for SSCs, and national regulations do not always accommodate the situation in remote and less developed areas. Abuse of direct procurement methods, implemented in non-transparent and discriminative ways, has resulted in unfair competition. Contractors with strong ties to authorities are favoured and the quality of works often suffers due to the ineffective use of funds. As a result, communities often prefer implementing a force-account method themselves, rather than hiring contractors for rural infrastructure. Another problem is the lack of local construction labourers in some areas, where other economic activities such as trade, agriculture, and plantation work (palm, rubber) compete with the construction sector in the labour market. In some cases, local people are not interested in working in the construction sector due to better income from other sectors. Procurement strategy for promoting small scale contracting 343 DEVELOPING A CONTRACTING STRATEGY FOR PROMOTING SMALL SCALE Providing Continuous Market for SSCs Stable jobs for contractors are often not available continuously in the construction market. Without such job security, there is little incentive for the contractors to invest in improving their human resources. The government, at the national and local level, could address this problem by requiring that a certain amount of the rural infrastructure program is procured exclusively through SSCs. The planning and designing process should also ensure the use of simple technology in rural infrastructure programs.. The SSCs should be able to compete with the other segment of the construction industry when the use of sophisticated technology and equipment can be avoided. Simplifying the Procurement and Contracting Process A large percentage of SSCs are having difficulties fulfilling the administrative requirements requested by local governments infrastructure projects when selecting contractors. The process is often too complicated and costly for them. New procurement regulation has been in place since early 2004 which reduces the amount of paperwork required from contractors participating in the tender process, including removing the requirement for SSCs to submit a bank financing support letter, but more efforts are still needed. For example, a better and more open publication process for tender invitations should be instituted, tender forms and tender bond requirements should be simplified, and adequate time should be provided for bid preparation and bid submission so that contractors can prepare attractive bids. Improvement in evaluation also needs to be addressed. Guidelines for a simple, consistent, fair and transparent bidders’ evaluation process should be developed and disseminated to various local government agencies procuring construction services for rural infrastructure work. Standardized simplified contract forms, simplified payment procedures, and advance payment processes should be adopted to reduce the complexity of the contracting procedure for SSCs. Capacity Building It is also important to develop the capacity of local government staff to manage the entire small scale contracting process, from planning and procurement through implementation. In the past, the procurement committees established by local government agencies were not always staffed with knowledgeable personnel, as assignment was usually on a rotating basis. Adequately trained personnel in procurement and contract management should be developed through appropriate training programs. References [Thongchai, (2002)] and [Bentall et al., (1999)] provide a wealth of idea on how to strengthen local capacity in this regard. 344 Pribadi On the supply side, contractors’ training programs should also be developed. Objectives of the training programs should be well set, target groups identified and outputs and results specified. When the trainees know in advance what is expected of them, they are more likely to achieve a significant performance improvement [Hernes, (1988)].The training programs should include materials on bid preparation and submission, construction planning and scheduling, site management, construction business management (cash flow management, office and plant management, labor relations, etc.), construction methods, construction quality, productivity improvement, construction safety, and hygiene. The training programs should prepare all players to respond to the higher demand for quality infrastructure and to a more competitive process in the industry while understanding their limitations. The training should include at least 60 to 70% of hands-on experience and practical applications, supported by about 30 % theoretical basis. CONCLUDING REMARKS An analysis of the Indonesian construction industry has been described, focusing on the small scale contractor (SSC) category and the current public procurement system. Opportunities for promoting small scale contracting is available in the sector of rural infrastructure provision, with the aim of providing more employment and business opportunities for rural communities where poverty is a common phenomenon,. A strategy to improve the representation of SSC in the rural infrastructure sector has been proposed. The strategy is based on improving the construction business environment, removing barriers to the entry of SSCs in the very competitive industry, and developing the capacity of all players in the sector. The goal is to enhance the effectiveness and efficiency of planning, procurement, and implementation in order to produce quality infrastructure for reasonable cost. ACKNOWLEDGEMENT The author thanks the ASIST-ILO Asia Pacific in Bangkok and the Coordinating Team for Rural Infrastructure Development of the Coordinating Ministry of Economic Affaires of the Government of Republic of Indonesia for their support of the investigation in East Nusa Tenggara. REFERENCES Aniruth Thongchai (2002) Small Scale Contracting – Strengthening Local Capacity for Sustainable Rural Infrastructure in Thailand, International Labour. OrganizationAnonym (2000) Project Document For Technical Support and Training for Targeting the Creation of 1.1. Million Jobs in Indonesia, ILO. Bentall P, Beusch A, de Veen J (1999) Employment Intensive Infrastructure Programmes: Capacity Building for Contracting in the Construction Sector. Edmonds and Johannessen (2003) Building Local Government Capacity for Rural Infrastructure Works, ILO. Procurement strategy for promoting small scale contracting 345 Hernes T (1988) Training Contractors for Result: A Guide for Trainers and Training Managers, International Labour Organization. Pribadi, K S and Pribadi, T (2002) Cash Flow Structure in Indonesian Small Scale Contractors, Proceeding of International Conference on Advancement in Design, Construction, Construction Management and Maintenance of Building Structures, Bali, 27-28 March, pp.II-163-175. Pribadi K S (to be published, 2004) Development of Strategy for Rural Infrastructure Procurement and Improving Small Sacle Construction Business, IL0. Parikesit, D, Pribadi, K S and Dwiryanto, R (2004) Rural Infrastructure Development : Problem and Perspective, Working Paper (in Bahasa Indonesia), Coordinating Team of Rural Infrastructure Development, Coordinating Ministry of Economic Affaires, Government of Indonesia. Tollie J.M (2000) Watching Brief on the Construction Industry, EASTR, World Bank, Washington. 346 Pribadi CONTRACTOR DEVELOPMENT MODELS THAT MEET THE CHALLENGES OF GLOBALISATION - A CASE FOR DEVELOPING MANAGEMENT CAPABILITY OF LOCAL CONTRACTORS W. S. DLUNGWANA and P. D. RWELAMILA CSIR Division of Building and Construction Technology, CSIR, PO Box 395, Pretoria, 0001, South Africa. [email protected] The Graduate School of Business Leadership, University of South Africa, PO Box 392, UNISA, 0003, South Africa. [email protected] ABSTRACT This paper argues for contractor development models and programmes that are holistic and integrative in their approach. It supports a view that globalisation in the construction industries of developing countries is real, unstoppable and has the potential to destroy non-competitive contractors. Developing countries, particularly those in Southern Africa, are therefore encouraged to meet the challenges of globalisation by strengthening the competitiveness of small and medium sized-enterprises (SMEs) in particular. The paper summarises a preliminary review study on the status of development models for construction SMEs in South Africa and other developing countries, highlights the challenges and potential effect of globalisation on this sector. On the basis of the review, suggestions are made that can improve the current models and procurement programmes. Due to a significant socio-economic role of construction industries in developing countries, the authors argue for increased effort in the programmes that promote contractor development of small and medium-sized indigenous contractors. The paper promotes implementation of well-structured contractor development models and supportive procurement programmes in order to improve technical and managerial skills, knowledge and competitiveness of contractors. The benefits expected from effective contractor development include global competitiveness, sustainable business growth, good environmental management and socio-economic development of the developing countries. Keywords: globalisation challenges, SME-contractor development models and programmes, Southern Africa, sustainable global competitiveness and growth. INTRODUCTION Globalization, according to [Hough, et al, (2003:4)[, is the movement of resources, goods, services and skills over international borders. [Hough (2003:7)[, argues that there has been a considerable growth in international business since World War II. It may be argued that there is a growing realization by construction industries of many developing countries that globalisation is real, irreversible and has the potential to destroy non- 348 Dlungwana and Rwelamila competitive contractors. The adage “if you cannot beat them, join them” should be taken to heart by many leaders throughout the world, in particular those in the developing world who are not currently in the forefront of globalisation. According to [Ofori, (2000)], globalisation is a trend which has occupied the headlines of major popular publications for several decades. He argues that there are sharply different arguments on the advantages and disadvantages of the process of globalisation from the perspective of developing countries. It is the view of the authors that the majority of contractors in many construction industries fall in the small and medium-size range and do not export their services outside their countries. This sector therefore does not compete in the global construction market which is dominated by a few, construction multinational enterprises. However, the local SME sector often has the capacity to execute small and medium-sized projects, and can thus compete at this level. Globalisation thus brings opportunities for SMEs to subcontract work from large, multinational enterprises and, in limited cases, to form joint ventures and partnerships. Competition of SMEs at regional level, where a contractor works across its national borders is, however, a common phenomenon. This paper therefore advocates the development of contractors’ skills and knowledge in order to: (a) build capacity to grow their businesses trough technical and managerial skills; (b) compete locally among fellow SMEs (c) build a foundation for competing globally, once adequate capacity has been built over time. A “Contractor Development Model (CDM)” refers to structured methodology comprising measures designed to help the managers of contractors to develop their technical and managerial skills and thus grow their business enterprises. These models should be located within the procurement programmes of government, in line with the government’s procurement policy. The authors do not wish to create an impression that contractor development models advocated here will immediately make SMEs global players. Rather, the focus is on how the models can assist SMEs, largely within the context of domestic economies, to capitalise on construction opportunities brought by globalisation, as well as to mitigate the risks. What is promoted is an incremental approach to contractor development that is underpinned by clear development goals. THE ROLE OF SMALL AND MEDIUM-SIZED CONTRACTORS IN THE ECONOMIES OF DEVELOPING COUNTRIES A number of definitions can be put forward to describe small and medium-sized enterprises (SMEs) enterprises in the construction industry. For the purposes of this paper, a general definition will be limited to contractors with a capacity to handle projects up to US$ 4m and which employ up to 50 permanent staff. The vast majority of contractors in this range will have the capacity to handle projects of approximately US$ 0.8m or less and employ up to 10 permanent staff. Clearly, the range is wide and the type of challenges experienced by each contractor can vary significantly across contractors. Small and medium-size contractors comprise by far the largest proportion of contractors in the industry. Whilst individual enterprises employ few permanent staff, usually fewer Contractor development models 349 than ten employees per enterprise, this sector is still the largest employer. For example, the Singapore Construction Industry Development Board (1996) found that 73% of total construction industry employees employed by contractors in Singapore were employed by small and medium-sized contractors. Similar trends have been reported in many other countries. It is thus clear that a development intervention focussed on small and medium-sized contractors can have a huge impact on the economic development of developing countries in terms of providing management skills that the enterprise creates sustainable employment. There are a number of additional benefits that can be realized, such as increased spending in the local economy through participation of local enterprises, growing entrepreneurship pool among the country’s citizens and improved delivery of infrastructure through the use of competent contractors. A starting point for many construction industries in developing countries should be to address industry constraints at a basic level by gearing local contractors to deliver effectively on local projects. While not all SMEs will thrive and be successful, a few good contractors will emerge to become more sustainable and globally competitive. In the long run, globally competitive medium-sized contractors could, through mergers or organic growth, grow to become large contractors able compete across international borders – a sector that has become extinct in many developing countries. GLOBALISATION CHALLENGES AND OPPORTUNITIES FACING LOCAL CONTRACTORS IN DEVELOPING COUNTRIES A number of researchers [Rwelamila, (2002), Ngowi and Ofori, (2001), Mashamba, (2001)] agree that an outlook of the SME sector in many Southern African construction industries needs serious attention. This situation needs the urgent attention of relevant industry stakeholders such as governments and training and research organisations. According to [Ofori (2001)], estimates show that foreign contractors and consultants have about 70% of the construction market share in the Southern African region. In many Southern African countries, governments have expressed frustration at the poor returns on their investment in improvement programmes, such as the granting of tendering preferences to local construction firms. As early as the 1960s, the forces of globalisation had begun to make their presence felt in Africa in the form of international financial institutions, mainly the World Bank and the International Monetary Fund. The arrival of these institutions in Southern Africa opened the gates for foreign contractors to operate in these countries. As indicated in Table 1, the disadvantages of globalisation are more severe to small and medium-sized contractors in the developing countries; hence the need to find solutions through various measures and contractor development models (CDMs), which are advocated in this paper. 350 Dlungwana and Rwelamila Table 1. Advantages and Disadvantages of Globalisation to Construction Industries in Developing Countries. Source: Ofori (2000) Merits Demerits I: Involvement of international finance I: Local construction firms have no funds makes possible the implementation of or expertise to participate in the several projects, such as those of major sponsorship of privatised projects. infrastructure. II: Direct foreign investment in projects leads to increase in construction demand, creating work opportunities for local firms. II: Local construction companies lack the technical and managerial capability to undertake most of the foreign-funded projects. III: Competition between foreign firms III: It is possible that local firms will be lowers the costs of projects to deprived of the opportunity to grow developing countries. (Hillebrandt, 1999). IV: Presence of large numbers of international firms offers scope for technology transfer and the development of local firms and upgrading of the industry. The large number of such firms also means that technology transfer can be a tool for competition. IV: Foreign construction firms may pay lip service to technology transfer (Carillo, 1994) or take measures to avoid it. Moreover, local companies may not be in a position to benefit from technology transfer, or to subsequently utilise the acquired expertise. As indicated in Table 1 above, the disadvantages have brought a number of unfavourable situations in the construction industries of developing countries which need to be addressed. Firstly, local construction firms have no funds or expertise to participate in the sponsorship of privatised projects, but if their expertise/capacity could be enhanced, they could be in a good strategic position to be part of joint ventures with international firms (I). Secondly, the fact that local construction companies lack the technical and managerial capability to undertake most of the foreign-funded projects, deprives them an opportunity to be considered in any possible sound partnership arrangement with international/foreign firms (II). Thirdly, for many small and medium size contractors in the developing countries, the forces of globalisation have resulted in declining market share due to stiffer competition from foreign contractors invading their previously safe territories (III). In spite of the negative experiences of the construction industries in developing countries, there is hope of regaining the lost markets. But the road will not be easy as they will have to gear themselves for serious competition in a new global, construction marketplace where competition against foreign enterprises is a way of life. [Mashamba (2001)] comments that many Zambian contractors have, over times, found it very difficult to take advantage of these economic opportunities, due to highly controversial participation schemes which do not favour small and medium-sized local contractors. [Mashamba (2001)] further states that a cursory look at the history of the Zambian construction economy in the 1960s and 1970s testifies to the fact that many Contractor development models 351 African countries have a long history of problems in their industries, which have seen the number total market share of local contractors shrinking drastically. [Mashamba (2001)] cites [Kampsax’s (1996)] estimate that the current market share of Zambian contractors in road construction projects is a mere 17%, and the rest in the hands of foreign contractors, a situation even worse than Ofori’s estimates. The Zambian experience highlights the critical role that government and other industry stakeholders should play in assisting contractor development. While globalisation may have benefits for a country’s economy, such as reduced prices, high standards of quality and improved technology and skills, it can have serious negative consequences for the construction industries of developing countries. Unless local contractors succeed in raising performance standards relative to foreign competitors, the current situation will worsen. Some of the key challenges faced by developing countries include: • The high failure of local contractors due to lack of competitive advantage will result in a situation in which most of the construction work is undertaken by foreign contractors, with very limited participation by the local industry. Thus, in many Southern African countries, the base of viable contractors has been severely depleted. • Severe socio-economic problems, such as increasing unemployment. • Lack of resources resulting in an unhealthy dependence on foreign resources to create badly needed social and economic infrastructure. • The lack of appropriate legislation that creates an environment in which contractors can grow sustainably. • The lack of well structured training programmes to equip enterprises with technical and managerial skills, as well as the lack of strong mentorship programmes. • The lack of performance improvement strategies and tools that nurture the culture of continuous improvement at national and regional level. • Poor construction procurement systems and lack of management capacity and resources to equip managers to operate their business enterprises effectively and efficiently. The question: “How do construction firms in Southern African countries adopt a strategic approach to performance management?” posed by [Ofori (2001)] is becoming increasingly uncomfortable for many in Southern Africa’s construction industries as the pressures exerted by the global forces intensify. [Rwelamila (2001)] has also challenged the use of registers of contractors for “gate-keeping” purposes as opposed to facilitating contractor development and better project delivery. The authors confront these challenges and argue that strategic adoption of contractor development models or programmes that have full support of governments and other institutions could well begin to create a culture of continuous improvement and innovation in the Southern African region and thus respond earnestly to globalisation challenges facing the construction industries of developing countries. The CDMs should be implemented within a clear, supportive regional policy framework which encourages cooperation between contractors across the regional borders. 352 Dlungwana and Rwelamila CONTRACTOR DEVELOPMENT MODELS As a response to the question posed by Ofori, this paper suggests a possible solution, namely fostering a competitive construction sector at two levels, i.e. at the level of management tools and at the level of regional institutional collaboration. The paper promotes contractor performance development models that seek to promote entrepreneurship, innovation and global competitiveness of contractors, based on the principles of the Total Quality Management (TQM) philosophy. The models should be used as instruments for promoting effective managerial approaches essential for a vibrant, competitive SME sector. For CDMs to be effective, the following key characteristics should be the features of the model: • • • • • The models should aim to develop contactors’ technical and management capacity over a long-term period with a view to encouraging competitiveness and growth of contractors. There must be a clear development path along which contractors progress. The models should integrate development activities of all stakeholders, from government to private sector, such that procurement, training, mentorship and performance assessment activities are well integrated and complementary. In other words, the model should encourage partnering in all aspects of contractor development. The models should become an integral part of the entire industry development strategy and be strongly championed. The models should be flexible enough to accommodate the varying needs of contractors at different levels of development. The models should promote the adoption of industry best practices and be supported by excellent research practices in order to create and share knowledge. Many such models for example: [Dlungwana, et al, (2002), Brown, M.G., (1996)] incorporate the use of Total Quality Management (TQM), including safety and environmental management. Key processes on the way in which the typical models function, are centred around the need to focus the development effort on small and medium-sized contractors. These processes include: Contractor selection and registration Since development resources are limited, it is important that only contractors which show good potential to succeed be selected. It is also important that they be selected in a fair and transparent manner. The selection criteria should therefore be objective. An assessment should be conducted on selected contractors to determine their performance capabilities as well as the improvement intervention that will be required. Selected Contractor development models 353 contractors should be properly registered and categorised in terms of their size and performance capabilities with a view to assisting their progression through subsequent higher categories. Some development models make use of performance scores to rate the performance of companies. Training and mentoring Training and mentorship needs are identified, based on the results of the assessment exercise, and an appropriate training and mentorship intervention is developed. Training and mentorship revolves around the contractor’s business management skills and knowledge, such as tendering and marketing, thus affording SMEs an opportunity to gain basic capability or, more importantly, a competitive edge in comparison to their counterparts. The benefits that construction industries reap for developing their contractors include, among others, sustainable, competitive enterprises that deliver better products and create growth and employment. Continuous contractor assessment and grading Another fundamental process in developing contractors includes a continuous cycle of contractors’ performance assessment and improvement. This process serves as a feedback mechanism to monitor the development process on a continuous basis. Continuous grading validates the changing status of contractors as performance improves or deteriorates. The implementation of development models requires serious commitment, planning and resource allocation by the managers of government agencies, to enable confident entrepreneurs to grow their businesses and create sustainable employment. Without such support, the models cannot effectively address the challenges faced by SME contractors in the construction industries. Appropriate support institutions, such as research organisations, also play a critical role in facilitating learning through knowledge creation and sharing. Ultimately, an integrated contractor development approach that places development models and the cultural values of organisations and industries at the centre of the development effort, will yield tangible improvement in the economies of developing countries. CURRENT STATUS OF THE USE OF CDMs IN SOUTHERN AFRICA AND ELSEWHERE – A PRELIMINARY REVIEW Preliminary results of a study being conducted by the authors in a few selected countries in Southern Africa, including South Africa, Zambia, Botswana, Tanzania and Malawi, 354 Dlungwana and Rwelamila suggest that the CDMs, or some forms of CDM, have not yielded the required results in the past. The most common approach to contractor development used by a number of countries is the registration of contractors. The use of registers is not, in the true sense, a development model but merely a tool that can be used to, inter alia, facilitate the development of contractors by ensuring the availability of accurate information on contractor capabilities. While most countries do not use the registers as a tool for managing the performance of contractors, there is clear evidence of benefits to those which do. Proper use of the registers enables public sector clients to manage contractor risk on their projects and to monitor contractor progression based on accurate information. The best practices on the effective use of registers were found in [Australia, Singapore and Malaysia. Rwelamila (2001)] argues that many Southern African countries are not using their registers effectively. The register, he argues, are used merely record contractor information in an unstructured manner which does not allow for monitoring of performance and similar support interventions, and therefore have little benefit to the construction clients. At the time of writing, South Africa was in the process of launching its register. Much of the contractor development effort in South Africa and in other African countries has a greater focus on providing work opportunities to as many contractors as possible, at the expense of assisting a limited number of contractors to build long-term sustainability. Much of this effort is also characterised by ad hoc development interventions that do not promote a culture of continuous improvement and long-term growth of contractors. However, some medium-sized and large construction enterprises in South Africa have been successfully competing in the global markets for some time. Within a period of less than ten years these contractors have increased their share of external revenue from less than 10% to between 30-50% of their total revenues. Based on the preliminary review exercise, it would seem that a number of African countries do not have structured development models to assist their small and mediumsized contractors. Due to a lack of structured effort to develop contractors, many construction industries in Southern Africa are not in a position to compete in the harsh global construction market. Globalisation is therefore a big threat to these industries. CONCLUSIONS It is clear that construction industries of developing countries need to urgently address the problems they face. This paper recommends a vigorous promotion of well-structured contractor development models. Given the necessary integrated support from all stakeholders, the models could make a remarkable difference in easing the plight of small and medium-sized contractors as well as that of construction industries as a whole, in Southern African countries in particular. The following are suggested to address contractor competitiveness in the industries of developing country: • The construction industry stakeholders need to urgently implement supportive legislation to create an enabling environment for small and medium-sized contractors to grow and compete in the global construction market. Contractor development Contractor development models 355 • • • • models and programmes should be implemented urgently to develop a culture of continuous improvement and competitiveness. Education and research organisations should also contribute to a culture of learning, knowledge creation and knowledge sharing. Government departments should create a procurement environment which promotes excellent performance by small and medium-sized contractors, by removing a number of barriers, such as complicated and onerous tender processes. Contractor development models should be fully supported by research and educational institutions in the individual countries and throughout the regional trade blocks in order to create a learning environment in which knowledge is created and shared for the benefit of all the entire stakeholders in the region. Such integration maximises the use of scarce resources and facilitate the easier sourcing of funds. African countries should embark upon strategic programmes to promote the development of skills, in particular management skills, to enable entrepreneurs to run their companies profitably and in a sustainable manner. This means that registers of contractors and the contractor development models should be carefully integrated into a streamlined effort designed to build contractors’ capacity to grow and compete. The procurement systems should include contractor development models that are structured in a way that allows some form of preferential treatment to local contractors in order for them to establish, behind temporary protective barriers, a certain level of competency until they can compete in the open market. Although this strategy is often frowned upon in some developed market economies, it was and is still being used by many industries today in various forms to support and local industries [Hough, et al, (2003)]. In some cases, developed countries still have protective barriers against foreign competition such as in the agricultural sector. The breakdown of the talks in the World Trade Organisation meeting in Cancun, Mexico, is a recent reminder of globalisation challenges and tensions. Thus, African economies should give their local contractors some limited form of temporary protection while they develop their capacity to grow and compete. Failure to do this will exacerbate the status quo and completely destroy local contractors, with grave consequences for local economies. On the other hand, the benefits of a competitive local industry include sustainable employment creation, economic growth as a result of the tendency by local contractors to spend in the domestic economy, and equity in income distribution. • African countries should take advantage of the opportunities arising from the implementation of the New Partnership for Africa’s Development (NEPAD) to jointly exploit opportunities brought by globalisation. • Models for developing contractors should be implemented within a clear, supportive regional policy framework which encourages cooperation through joint ventures, partnering and sub-contracting - and which discourages exploitation - between contractors of different sizes across regional borders. Innovative partnering relationships between local enterprises and foreign construction enterprises to create a “win-win” situation in how local projects are undertaken. The support of other industry stakeholders must also be strongly encouraged. While Africa’s SME sector cannot stop the winds of globalisation, it must prepare itself hard in order to explore the opportunities of globalisation as well to mitigate the risks. 356 Dlungwana and Rwelamila REFERENCES Brown, M.G. (1996) Baldrige Award Winning Quality. ASQC Quality Press. Carillo, P., (1994) Technology Transfer: A survey of international construction companies, Construction Management and Economics, Vol. 12, pp. 45-51. Construction Industry Development Board (CIDB), (1996) Census of the Construction Industry 1996, Singapore. Hassan, T., Mitrovic, D., Gayoso, A., Hunter, I. (1998) The Future LSE Industry, Work Package 2 of Report on the ELSEWISE Project, European Construction Institute, Loughborough, UK. Hillebrandt, P. M., (1999) Problems of Larger Local Contractors: Causes and possible remedies, Unpublished paper presented at the Second Meeting of CIB TG29, Kampala, Uganda. Dlungwana, W.S., Noyana, C., Rwelamila, P.D., Nxumalo, X.H., van Huyssteen, S., (2002) The Development and Implementation of the South African Construction Excellence Model (SACEM) Proceedings, International Conference on Construction in the 21st Century (CITC2002), “Challenges and opportunities in Management and Technology” 25-26 April, 2002, Miami, Florida, USA Hough, J., Neuland, E.W., Bothma, N., (2003) Global Business Environments and Strategies, Oxford University Press, Southern Africa. Mashamba, S.M., (2001) Globalisation, Liberalisation and the Development of Local Construction Industries: The Zambian Experience, Proceedings, Conference on Developing the Construction Industries of Southern Africa, Pretoria South Africa. Ngowi, A.B. (2001) Preferential Policies in Botswana, Proceedings, Conference on Developing the Constructions Industries of Southern Africa, Pretoria South Africa. Ngowi, A. and Ofori, G., (2001) 2nd conference on the construction industry in developing countries. Sustainable Building, Vol. 1, No. 1, pp. 20. Ofori, G., (2001) Challenges Facing Construction Industries in Southern Africa. Proceedings, Conference on Developing the Constructions Industries of Southern Africa, Pretoria South Africa. Rwelamila, P.D., (2001) From Gate Keeping Registers to Best Practice Accreditation – Learning from Others and Past Mistakes, Proceedings, Conference on Developing the Construction Industries of Southern Africa, Pretoria, South Africa . Rwelamila, P.D., (2002) African Construction Industries in Turmoil? Implications for Nepad, Proceedings, 1st CIB-W107 International Conference on Creating a Sustainable Contractor development models 357 Construction Industry in Developing Countries, 11-13 November, Stellenbosch, South Africa. 358 Dlungwana and Rwelamila AN ASSESSMENT OF RISK IN CONSTRUCTION IN THE NIGERIAN CONSTRUCTION INDUSTRY HENRY A. ODEYINKA School of Property and Construction, Nottingham Trent University, Nottingham NG1 4BU, UK, E-mail: [email protected] ADE A. OLADAPO and JOSHUA O. DADA Department of Quantity Surveying, Obafemi Awolowo University, Ile-Ife, Nigeria ABSTRACT Risk in construction is a variable in the process of construction whose occurrence results in uncertainty as to the final cost, duration and quality of the project. Some of the major causes of risk in construction include design error, estimating error, competitive tendering risk, financial risk and changes in political and economic climate among others. While these risk factors are not unknown to the Nigerian construction practitioners, the relative likelihood of occurrence and impacts in case of occurrence at pre and post contract stages is yet to be investigated. This then is the concern of this study. Data were collected using questionnaire survey self-administered on construction practitioners. Respondents were requested to score on a Likert-type scale, their perception of the likelihood and impacts of some identified risk factors at pre and post contract stages. Survey responses were analysed by computing the relative index of each factor and ranking the computed indices. Results showed that the major risk factor encountered at pre-contract stage is design risk while at post contract stage; they are financial and political risks. These findings have implications as regards the risk factors to focus attention on for risk management purposes at pre and post contract stages. Keywords: construction, pre-contract, post contract, risk, Nigeria INTRODUCTION The environment within which decision-making takes place can be divided into three parts: certainty, risk and uncertainty [Flanagan and Norman, (1993)]. According to them, certainty exists only when one can specify exactly what will happen during the period of time covered by the decision. This, they concluded, of course does not happen very often in the construction industry. Bennett and Ormerod [1984] also concluded that an important source of bad decisions is illusions of certainty. They submitted that uncertainty is endemic in construction and needs to be explicitly recognised by construction managers. According to [Flanagan and Norman (1993)], uncertainty, in contrast to risk, might be defined as a situation in which there are no historic data or previous history relating to the situation being considered by the decision-maker. In other words according to them, it is 360 Odeyinka, Oladapo and Dada ‘one of a kind’. A company has to operate in an environment where there are many uncertainties. The aim is to identify, analyse, evaluate and operate on risks. Accordingly, the company is converting uncertainty to risk. The more one thinks about risk and uncertainty, the more one is inclined to the view that risk is the more relevant term in the building industry [Flanagan and Norman, (1993)]. [Perry and Hayes (1985)] submitted that while the distinction between risk and uncertainty is recognised, the distinction is unhelpful when it comes to construction projects. [Fong (1987)] asserted that it is generally recognised that those within the construction industry are continually faced with a variety of situations involving many unknowns, unexpected, frequently undesirable and often unpredictable factors. These factors according to [Lockyer and Gordon (1996)] include timing schedule slippage of the project tasks, technological issues, people-oriented issues, finance, managerial and political issues. [Smith (1999)] and [Chapman and Ward 1997)] submitted that generally, risk is viewed within the context of the probability of different outcomes and that the general attitude towards risk is its identification, evaluation, control and management. Some of the major causes of risk in construction include design error, estimating error, competitive tendering risk, financial risk and changes in political and economic climate among others. Whilst these risk factors are not unknown to the Nigerian construction practitioners, the relative likelihood of occurrence and impacts in case of occurrence at pre and post contract stages is yet to be investigated. This then is the concern of this study. An overview of risk in construction Risk is inherent in all human endeavours, including construction activities, and the risk elements involved are diverse and varied [Odeyinka, (2000)]. Risk has been defined in many different ways by economists, insurance scholars and construction management researchers among others. In the business and insurance domain, [Knight (1921)] defines risk as measurable uncertainty or uncertainty of loss. Risk has also been defined as the uncertainty that exists as to the occurrence of some events [Greene, (1973)]. In the light of these definitions, risk can be viewed as a psychological phenomenon that is meaningful in terms of human reaction and experience. It can also be viewed as an objective phenomenon that may or may not be recognised in terms of human reaction and experience. In construction management domain, [Perry and Hayes (1985)] and [Healey (1982)] defined risk as an exposure to economic loss or gain arising from involvement in the construction process. [Moavenzadeh and Rossow (1976)] however regarded risk as an exposure to loss only. Bufaied [1987] described risk in construction as a variable in the construction process whose variation results in uncertainty as to the final cost, duration and quality of the project. Moreover, [Fong (1987)]. According to [Akintoye and MacLeod (1997)], risk in construction has been the object of attention because of time and cost overrun associated with construction projects. Many time and cost overruns according to [Perry and Hayes (1985)] are attributable to either unforeseen or foreseen events for which uncertainty was not appropriately accommodated. [Thompson (1992)] also identified an effect of risk on construction project as failure to achieve the required quality and operational requirements. This is in addition to cost and time overruns which other authors also identified. The assessment of risk in construction in Nigeria 361 [Perry and Hayes (1985)], [Thompson (1992)] and [Akintoye and MacLeod (1996)] have identified risk sources in construction at pre contract stage to include design risk, competitive tendering risk, tender evaluation risk and estimating risk among others. In addition, they also identified risk factors at post contract stage to include physical risk, site condition, inclement weather, legal risk, environmental risk, logistic risk, political risk, financial risk and contractual risk among others. Data and methodology Data were collected from Lagos and Abuja, which are respectively the commercial as well as the political capital of Nigeria. The choice of these cities was made for data collection, as they are the hubs of construction activities in Nigeria. Data collection was done through a questionnaire survey self-administered on 40 randomly selected construction practitioners involved in a nearly completed or recently completed construction projects. Subjects include project quantity surveyors, architects, engineers and contract managers in the employment of construction companies, consulting firms, government establishment and institutions [see Tables 1 and 2]. The computed mean experience of the respondents is 14.5 years with a standard deviation of 5.2 years. About 49% of the respondents were educated up to HND level whilst the remaining 51% had at least first degree in construction related fields [Table 3]. This background information regarding the respondents indicates that responses provided by them could be relied upon for this study. Many risk management researchers as stated earlier viewed risk as the probability that cost, schedule or technical performance of a system goes wrong combined with the consequences of these aspects going wrong. With this view, they argued that risk could be measured through the following formula: R=P*I where: R = the degree of risk P = probability of occurrence of a risk I = the consequence or perceived impact on a project Akintoye et. al. [2001] and Carter et. al. [1994] referred to this as the risk exposure or expected value [EV] while Tweeds [1996] referred to it as average risk estimate. This method of risk measurement has a well-established place in decision theory domain. Table 1: Types of organisation surveyed Type of organisation Frequency Construction company 10 Consulting firm 10 Government establishment 5 Institution 3 Others 3 Total 31 [Equation 1] Percent 32.26 32.26 16.12 9.68 9.68 100.00 Cumulative percent 32.26 64.52 80.64 90.32 100.00 362 Odeyinka, Oladapo and Dada Table 2: Respondents’ designation Respondent’s Frequency designation Quantity surveyors 15 Architects 6 Engineers 5 Builders 3 Others 2 Total 31 Percent 48.39 19.35 16.13 9.68 6.45 100.00 Cumulative percent 48.39 67.74 83.87 93.55 100.00 Table 3: Educational qualification of respondents Qualification Frequency Percent HND 15 48.38 B.Sc. 8 25.81 B.Sc. + M.Sc/MBA 8 25.81 Total 31 100.00 Cumulative percent 48.38 74.19 100.00 [William (1996)] however contended that rather than decreasing the two-dimensional nature of the risk measure, it should be extended. Charette [1989] uses 3-dimensional graphs [see Fig. 1] with independent axes he labels severity [i.e. impacts], frequency [i.e. likelihood] and 'predictability' (in technical terms, the extent to which the risk is aleatoric rather than epistemic). [William (1996)] demonstrated that calculating 'expected' risk as probability multiplied by impact has limitations and that ranking risks according to this figure is misleading. [William (1996)] concluded that both probability and impact must be considered at all times. Taking the cue from [Williams (1996)], and [Charette (1989)] underpins the approach adopted in this study in measuring respondents’ perception of risk. In this study, two-dimensional approach to measurement of risk have been adopted in which case the likelihood or probability of risk occurring and impact in case of occurrence have been considered. Out of the 40 questionnaires administered, 31 responses fit for analysis were received, representing a response rate of 77.5%. The questionnaire identified from literature and based on discussion with industry practitioners, various risk factors encountered at the pre and post contract stages of construction. Using a two-dimensional scaling, respondents were requested to score on a Likert –type scale of 0-4, the likelihood of the identified risk factors occurring and their perceived impacts in case of occurrence. The measuring scale of 0 represents a situation where there was no likelihood of occurrence or impact while 4 represents a very high likelihood of occurrence. This then gives the measuring scale the property of an interval scale, which enables the collected data to be capable of being subject to various statistical analyses. The assessment of risk in construction in Nigeria 363 Risk impact Probability of risk occurring Extent of risk occurrence Fig 1: A Three-dimensional model of risk Adapted from Charette [1989] Data analysis and results Data analyses were carried out by evaluating the relative importance of the identified risk factors at pre and post contract stages of construction. The numerical scores assigned by respondents were transformed to relative importance index [RII] using the following formula: RII = ∑E P i =0 i i=4 i [Equation 2] Where E i is the ith likelihood of occurrence of risk factor or impact and Pi is the percentage of respondents to the ith likelihood of occurrence or impact Risk factors associated with construction contract at pre-contract stage An analysis was carried out to evaluate the relative importance of risk factors at precontract stage. Table 4 summarises the result of the analysis. From the table, it is evident that the highest-ranking risk factor at the pre-contract stage is design risk. This is not surprising due to the fact that most projects in the Nigerian construction industry are procured using the traditional procurement option. As most design details are still unresolved at the pre-contract stage, there is a lot of uncertainties as to the final cost and completion duration. It is therefore not a surprise that this risk factor ranks highest. Following design risk on relative importance scale are tendering risk and estimating risk. 364 Odeyinka, Oladapo and Dada Competitive tendering has had the effect of preventing a realistic attitude towards risk [Thompson, 1992]. This is because the risk involved is often buried in the total bid. It is therefore not a surprise that this risk factor ranks next to design risk and should therefore engage the attention of the construction contractor. Estimating risk ranks next to tendering risk on the relative index scale [Table 4]. During bidding, the contractor will usually base his estimate on similar past project. The contractor will attempt to assess the current market price for the proposed project, the design of which is subject to revision and with proposed labour force not yet recruited. In most cases, the contractor would have to bear any losses attributable to faulty estimating. As such, it is also not surprising that this risk factor ranks fairly high. Tender evaluation risk ranks lowest on the relative index scale [Table 4]. In public works, the usual thing is to go for the lowest tender. However, there are cases of many contracts in which the lowest tender did not result in the lowest final cost [Chapman and Ward, 1997]. As such, selection of contractors on their tender price alone is like buying trouble. It is however not Table 4: Likelihood and impact of risk factors at pre-contract stage Risk factor Likelihood of risk Rank Risk impact occurrence index index Design risk 1.90 1 2.87 Estimating risk 1.75 2 2.81 Competitive tendering risk 1.60 3 2.03 Tender evaluation risk 1.40 4 1.50 Rank 1 2 3 4 surprising that this risk factor ranks lowest as the risk can be avoided by using risk analysis to decide what range of price is reasonable. From Table 4, it is also evident that whilst the likelihood of design risk occurrence ranked 1st overall, its impact in case of occurrence also ranked 1st. This same pattern is repeated for estimating risk [rank of 2 in both cases], competitive tendering risk [rank of 3 in both cases] and tender evaluation risk [rank of 4 in both cases]. This indicates that the order of impact also follows the order of likelihood of occurrence. Risk factors associated with construction contract at post-contract stage Further analysis was carried out to evaluate the relative importance of the likelihood and impact of occurrence of risk factors at post-contract stage. Table 5 summarises the result of the analysis. From this table, it is evident that the risk factor ranking highest in likelihood of occurrence is financial risk. It also ranked 2nd in its impact in case of occurrence. Financial risk to contractor includes whether the building owner has enough money to complete the project, financial failure of the building owner or sub-contractors, availability of money to the contractor in a suitable manner and time to enable the contractor to progress with the work [Akintoye and MacLeod, (1997)]. Financial risk according to [Perry and Hayes (1985)] also include adequate provision of cash flow, fluctuations, inflation and taxation. In view of all these issues involved in financial risk, it The assessment of risk in construction in Nigeria 365 is therefore not surprising that it ranked highest in likelihood of occurrence and also ranked 2nd in its impact in case of occurrence. Political risk ranked 2nd in its likelihood of occurrence while it ranked 3rd in its impact in case of occurrence. Political risk includes wars, revolution, and changes in laws or decrees, which were not envisaged during the formation of a contract. The Nigerian construction industry had in the recent past coped with frequent change of government and as such exposed to political risk to a great extent. It is therefore not a surprise that the likelihood of occurrence of the risk factor ranked 2nd while its impact in case of occurrence ranked 3rd. Physical risk on the other hand ranked 3rd in its likelihood of occurrence whilst it ranked 1st in its impact in case of occurrence. Physical risk according to [Perry and Hayes (1985)] includes site difficulty, inclement weather, flood, earthquakes, Table 5: Likelihood and impact of risk factors at post-contract stage Rank Risk impact Risk factor Likelihood of index risk occurrence index Financial risk 3.45 1 3.18 Political risk 2.94 2 3.10 Physical risk 2.32 3 3.19 Contractual risk 1.87 4 1.90 Logistic risk 1.55 5 2.68 Legal risk 1.39 6 1.61 Environmental risk 1.23 7 1.19 Rank 2 3 1 5 4 6 7 destruction of work by fire, etc. and accident on construction site. Since most of these issues have great potential of occurrence on any construction site, it is therefore not a surprise that physical risk ranked 3rd in its likelihood of occurrence. Moreover, since the impact on occurrence of this risk factor could be devastating, it is also not a surprise that it ranked 1st in its impact in case of occurrence. Contractual risk ranked 4th in its likelihood of occurrence while it ranked 5th in its impact in case of occurrence. Contractual risks are those associated with flaws in contract document or improper contractual relationship [Akintoye and MacLeod, (1997)]. The risk consequences or implication of these include claims and disputes, disruption of work, stoppage of work, lack of coordination, delays and inflated cost. In spite of the grave consequences of this risk factor, it is hardly surprising that it ranked mid way among the identified risk factors. This is because balancing of risk allocation within construction project by the two major parties to the contract can mitigate the risk factor. Other risk factors which ranked low both in likelihood and impact of occurrence include logistic risk [damage to material and equipment during transportation, availability of suitable labour and materials], legal risk [liability for acts of others, direct liabilities, complying with local law] and environmental risk [risk associated with the environment where construction work is taking place e.g. reclaimed land, contaminated site, ecologically damaged site, etc.] 366 Odeyinka, Oladapo and Dada CONCLUSION This paper has attempted to investigate the likelihood of occurrence and impact in case of occurrence of some identified risk factors at pre and post contract stages of construction in the Nigerian construction industry. The paper concludes that at pre contract stage, the likelihood of occurrence of identified risk factors was found to be in the order of design risk, estimating risk, competitive tendering risk and tender evaluation risk. The perceived impact of the risk factors in case of occurrence was also found to be in the same order. Whilst this order is not a surprise in traditionally procured projects, which form the basis of the majority of the responses to the study survey, it provides an invaluable piece of information to the construction contractor as regards the risk factors to concentrate on in the risk management process. Moreover, the paper concludes that at the post contract stage, the likelihood of occurrence of identified risk factors was found to be in the order of financial risk, political risk, contractual risk, logistic risk, legal risk and environmental risk. Unlike the case with the risk factors at pre-contract stage, the perceived impact in case of occurrence did not follow the same order of the likelihood of occurrence. For instance, whilst physical risk ranked 3rd in its likelihood of occurrence, it ranked 1st in its perceived impact in case of occurrence. Whilst this ordered list helps the construction contractor to target the significant risk factors to concentrate on for risk management purposes, it also reveals the need to consider the two- dimensional nature of risk in the risk management process. REFERENCES Akintoye, A S and MacLeod, M J [1997] Risk analysis and management in construction. International Journal of Project Management, 15(1), 31-8. Akintoye, A, Beck, M, Hardcastle C, Chinyio E and Assenova D [2001] Framework for Risk Assessment and Management of Private Finance Initiative Projects. Report of an EPSRC Sponsored Research Project, Glasgow Caledonian University, Glasgow, UK. P. 10. Bennett, J and Ormedo, R N [1984] Simulation applied to construction projects, Construction Management and Economics, 2 (3), 225-63. Bufaied A S [1987] Risks in the Construction Industry: their Causes and their Effects at the Project Level PhD. Thesis, University of Manchester, UMIST. Carter, B , Hancock, T, Morin, J and Robins, N [1994] Introducing Riskman Methodology: The European Project Risk Management Methodology. NCC Blackwell Ltd., Oxford. Chapman, C and Ward, S [1997] Project Risk Management, Risk Management Processes, Techniques and Insights. John Wiley, UK. Charette, R [1989] Software Engineering Risk Analysis and Management, McGraw Hill, New York. Flanagan, R and Norman, G [1993] Risk Management and Construction. Blackwell Science, London. P. 22. Fong, S W [1987] Risk management. The Cost Engineer 25, 12-16. Greene, M R [1973] Risk and Insurance. South Western Pub. Co., Cincinnati, Ohio. The assessment of risk in construction in Nigeria 367 Healey, J R [1982] Contingency funds evaluation, Transaction of American Association of Cost Engineers, B3.1-B3.4. Knight, F H [1971] Risk, Uncertainty and Profit. University of Chicago Press, Chicago, London. Moavenzadeh, F and Rossow, J [1976] Risks and risk analysis in construction management. Proceeding of the CIB W65, Symposium on Organisation and Management of Construction, US National Academy of Science, Washington DC, USA, 19-20 May. Odeyinka, H A [2000] An evaluation of the use of insurance in managing construction risks. Construction Management and Economics. 18, 519-524. Perry J G and Hayes, R W [1985] Risk and its management in construction projects. Proceedings of Institution of Civil Engineers, Part 1, June, 78, 499-521. Smith, N.J. [1999] Managing Risk in Construction Project. Blackwell Science, Oxford. Thompson, J A [1992] A Guide to Project Risk Analysis and Assessment: Implications for Project Clients and Project Managers. An ESRC Project Report. Engineering Construction Risk. Tweeds, T A [1996] Laxton's Guide to Risk Analysis and Management, Tweeds Chartered Quantity Surveyors, Cost Engineers and Construction Economists (eds.), Oxford. Williams, T M [1996] The two-dimensionality of project risk. Int. J. Project Management, 14 (3), 185-186. 368 Odeyinka, Oladapo and Dada ENTERPRISES TOWARDS ENVIRONMENTAL EXCELLENCE: A MODIFIED LIFE CYCLE MODEL SAMMY KIN MAN, WAN and DAVIS TAT CHIU, LIU Operation Support Department, Analogue Group of Companies, 17/F Java Commercial Centre, 128 Java Road, North Point, Hong Kong, China. [email protected] & [email protected] ABSTRACT The construction industry has long been inherently disturbing our environment in the form of noise, dust, muddy runoffs and improper disposal of chemical waste and the industry has been criticized as a major waste producer. There are inevitably many resistive forces obstructing enterprises of the industry to move forward to achieve better environmental performance. However, it is not difficult to discover that environmental performance as well as safety and health awareness of a company will contribute equally well to the strategic success factors of a company towards competitiveness for this ultra-competitive world due to globalization. This paper will attempt to discuss the resistive forces that enterprises are facing in environmental improvements and investigate the success factors and their relationship with environmental friendliness. Life cycle analysis is no strange to environmental experts, which is a useful tool to study different environmental aspects through the product life cycle from raw materials sourcing to its disposal. The Environmental Excellence Model presented in this paper incorporating a comprehensive “candle-to-grave” perspective for the entire life cycle of the process that will be definitely useful for the industry. It is certain that enterprises in the industry adopting this Model will stay competitive in the industry in terms of quality, productivity, finance, reputation, etc while other goals are still achieved in addition to excellent environmental performance. It follows that enterprises of the industry adopting the Environmental Excellence Model may associate with each other to become Green Construction Alliances. This paper attempts to discuss the benefits of this approach in the Pearl River Delta region in Mainland China in particular and introduces how the Environmental Excellence Model may be employed in the industry to achieve the environmental goals of all the stakeholders. Keywords: Competitiveness, environmental excellence model, green construction alliances, life cycle, stakeholders. INTRODUCTION Globalization has already aroused the leading developers, designers, contractors and end users in Asia, if not the whole world, to pay particular attention to competitiveness in terms 370 Kinman and Liu of quality, productivity, innovation, technology, finance, environmental protection, etc. It is the belief of the authors that the Environmental Excellence Model as presented in this paper will be of paramount usefulness in assisting enterprises in the construction industry in Asia or ever around globe to develop balanced while effective strategic goals to preserve the natural environment while staying competitive against counterparts in the global platform by adopting comprehensive mindsets in the life cycle analysis in a project. RESISTIVE FORCE FOR ENVIRONMENTAL IMPROVEMENTS The economic and environmental objectives have long been seen as competing and this mindset has become extra obstacles that arise within and outside the companies to impede the implementation of environmental improvement programmes. In the wake of economic downturn, restructuring, downsizing and outsourcing by large corporations become popular. This results in greater numbers of small and medium sized enterprises and collectively, this causes a huge environmental impact. However, the resistive forces associated with the environmental improvements are particularly significant within the enterprises. On the other hand, most of the companies emphasize profitability rather than environmental management, particularly within the worldwide competitive business environment. They believe that environmental development may impose an additional cost while the long-term benefits are uncertain. Therefore, they are lack of motivation to recognize the benefits of the environmental initiatives and they tend to keep the critical processes and markets as simple as possible to match the capabilities to raise short-term successful business goals. The possible resistive forces are listed as follows: a) b) c) d) e) f) g) h) i) j) k) l) Lack of understanding of environmental impacts. Underestimation of long-term business benefits. Reluctance to change or innovate. Lack of skills, knowledge and expertise. Inadequate focused information and training. Lack of active trade unions and associations. Inadequate incentive schemes and promotion. Lack of financial resources. Incompatibility with corporate culture. Lack of top-level commitment and communication. Unfavorable political and business climate. Exposure of global and keener competition. The implementation of the Environmental Management System or ISO 14001 becomes popular but it may not assuredly ensure real environmental friendliness if the companies intend to maintain the certificate for the purpose of survival or marketing without consideration of the strategic goals of them. Actually, many of the companies are driven to seek ISO 14001 certification by pressure from customers rather than as an incentive to improve business performance. This may inevitably and ultimately build a bureaucracy of procedures and records without any business or competitive advantage. Enterprises towards environmental excellence 371 REINFORCEMENT OF COMPETITIVE ADVANTAGES BY GREEN BUSINESS Environmental issues have now become a concern for business in both strategy and management practice. Before discussing the Environmental Excellence Model for enterprises, it is necessary to mention that environmental improvement is one of the key building blocks for steadily contributing to enterprises’ competitiveness, particularly with the exposure of worldwide competition. As a matter of fact, the most competitive companies always consistently outperform their competitors in productivity, quality, innovation & technology, efficiency, finance and reputation and continually improve the aforementioned Critical Success Factors (CSFs) (See Fig. 3.1). Green business can mean lower operating costs associated with waste reduction, energy efficiency, resource conservation, reduced pollution, regulatory compliance, better public image, etc and all these will enhance productivity and financial saving and create more market opportunities for the business. Therefore, it is essential to cultivate this strategy for cost savings and competitive advantages. Quality Productivity Environmental friendliness Finance Competitiveness Safety & health Innovation & Technology Efficiency Reputation Fig. 3.1 Model of Critical Success Factors for competitive advantages However, many enterprises often focus on short-time quick profit and are lack of long-term strategic vision. They are unaware of the importance of environmental performance and its contributions to the competitiveness and ultimate total customer satisfaction. With the worldwide competition and external pressures due to globalization and stringent environmental standards, the enterprises should change the wrong perception of competitiveness and profitability and adopt a balanced and holistic environmental improvement strategy for their prosperous development in the global marketplace. Very often, the enterprises believe that additional investment is required for the environmental compliance and the involved costs might lead to poor profit margin and end up with the erosion of competitiveness. In reality, competitiveness depends on the CSFs as specified in Fig. 3.1. Enterprises can effectively use labor, capital and resources to produce quality products or services as to achieve total customer satisfaction. In fact, those CSFs can only be able to further stretch their muscles to full potential in an environmentally friendly, safe and healthy business environment. Pollution is a form of economic waste and it is a sign that resources have been used incompletely and ineffectively. Actually, additional costs are required for handling, storage and disposal of wastes, which create no 372 Kinman and Liu value for the customers. The preservation of environment can definitely reduce pollution, waste and energy consumption, which leads to a productive and effective use of resources for providing products or services. On the other hand, environmental compliance ensures that all investments are diverted into productive costs such as equipment or technological upgrading and good practices development instead of the unproductive costs such as environmental clean-up, disposal, pollution control, litigation, workers’ compensation, etc. In this way, environmental costs are gradually becoming internalized within the profit and loss account. Additionally, the outstanding environmental performance enhances the maintenance of productive work environment and facilities at optimum and efficient operating conditions. A good reputation of environmental forerunner can cultivate high level of morale within the company, which is helpful for products or services marketing and attracting talent people. A good morale causes the whole team to work towards established and desired business goals. The cause-and-effect chart (See Fig. 3.2) attempts to identify the environmental aspects and develop practical solutions for enhancing the overall competitiveness of an enterprise in consideration of the perceptive from the CSFs. Similar benefits can result from the causes identified particularly from other strategic business goals. Finance Fewer cleanups Less litigation Lower disposal costs Energy savings Fewer defects Quality Consistent products Less process wastes Productivity Efficient operation Fewer accidents Less loss time Competitiveness Improved maintenance Technological upgrading Process Enhancement Rewarding schemes Fewer emissions Green marketing Recyclable products Reuse of resources Better training Efficiency Reputation Innovation & Technology Fig. 3.2 Cause-and-effect chart for developing practical environmental solutions Undoubtedly, the developments of environmental friendliness will definitely trigger the developments of the CSFs and contribute to the driving of improvement in other CSFs until a balance is attained. For instance, the ability to innovate environmentally by moving towards processes which generate less waste and increase the recycling and re-use of process wastes will encourage the technological development and this contributes to other success areas such as productivity and efficiency. At the same time, the costs of improving environmental impacts are offset and ultimately, the overall global competitiveness of the enterprise is enhanced. This chain process is essential for linking the CSFs with environment towards “win-win” sustainable and long-term competitive business goals for an enterprise. Enterprises towards environmental excellence 373 MODIFIED LIFE CYCLE – AN ENVIRONMENTAL EXCELLENCE MODEL With the aforesaid principle in mind and having taken into account that good environmental performance enhances overall competitiveness of an enterprise, it is now clear that the translation of vision and strategy into critical business goals taking into account of the environmental friendliness, safety and health and social concern is essential. The Balanced Scorecard philosophy is one of the performance measurement tools for establishing a coherent set of critical business goals from different perspectives in seeking full spectrum measurement and analysis. The targets of the CSFs will provide strategically clear directions and objectives for diverting resources and driving improvements in the life cycle of the product or service (See Fig. 4.1). Quality Productivity Finance Environmental Friendliness Vision & Strategy Social Concern Safety & Health Innovation & Technology Efficiency Reputation Fig. 4.1 A conceptual Environmental Excellence Model The full participation of all stakeholders becomes the primacy of the model by taking the advantages of their information, skills, knowledge, opportunities, etc, which is useful to address potential environmental problems before they even arise. Each stage of the model should be reflected from the interaction and coordination between stakeholders. The key stakeholders involved in the model include customers, general public, government departments, manufacturers, suppliers, environmental pressure groups, media, educators, trade unions or associations, research institutions, etc and finally the industry itself. The stakeholders may provide the driving forces for the enterprises to enhance the environmental performance. Such driving forces include government policies, taxations, penalties, financial subsidiaries, incentive schemes, ethical investments, insurance premiums, public image, market share, etc. At each stage of the model, it is necessary to provide products or services within the intent that all the stakeholders’ benefit but particularly for the benefit of customers. As the customers might not have time and adequate knowledge to examine the whole lift cycle of product or service and thus its environmental implications, they are likely to make wrong purchasing decisions taking into account the price of product or service. The model allows the involvement of all stakeholders such as educators, media, environmental pressure groups, etc for developing a higher transparency and positive business climate in respect of environmental characteristics of products or services towards the long-term critical business goals of the enterprise. After all, the final green products or services can totally satisfy and benefit Stakeholders’ Satisfaction Critical Business Goals Strategic Life Cycle Analysis & Risk Assessment Stakeholders’ Participation 374 Kinman and Liu customers by offering the products with higher quality, innovation and efficiency but at lower cost. The adoption of life cycle thinking (See Fig. 4.2) is fundamental upon environmental and business excellence. Life cycle analysis is being adopted for analyzing all potential environmental impacts such as emissions and wastes at each stage of process or operation across the entire life cycle, evaluating the trade-offs and mitigating environmental hazards. It adopts a “cradle-to-grave” approach focusing on process-based analysis of environmental impacts for considering of the wider implications of all the activities. The life cycle concept has been defined in the ISO 14040 as a means for assessing the environmental impacts of a product or service over its entire life cycle and identifying opportunities for reducing these impacts. However, the concept has been augmented from different literatures as there is a restriction that the focal point on environmental management might just mitigate the impacts throughout the life cycle without triggering the improvement on CSFs, safety and health and social concern. As a result, a more holistic view for life cycle that results on value-added environmental processes has received attention. In view of this, a modified model which is propelled by numerous driving forces of CSFs, vision and strategy as well as stakeholders’ interests is proposed. The job hazard analysis and risk assessment is incorporated for ensuring all the foreseeable or potential hazards that may give rise to the possibility of injury, illness or damages are adequately controlled. It is essential for the smooth and effective implementation of each stage of the life cycle. Productivity Quality Improvement Raw Materials Sourcing Innovation & Technology Stakeholders’ Participation Waste Management Environmental Friendliness Manufacturing / Processing Vision & Strategy Safety & Health Resources Inputs Disposal / Recycle Strategic Life Cycle Analysis & Risk Assessment Distribution / Transportation Social Concern Feedback Use, Reuse, Maintenance Products & Services Finance Reputation Efficiency Fig. 4.2 A modified life cycle for environmental business excellence Through the entire life cycle, the environmental and safety provisions are conceptually incorporated with considerations including resources and energy inputs, process wastes and other emissions, impacts from transportation and distribution, products disposal and associated wastes. The cycle also recognizes that the environmental effects should be balanced against the critical business goals such as performance, cost, marketability, functionality, flexibility, modularity, maintainability, user-friendliness, etc for propelling Stakeholders’ Satisfaction Critical Business Goals Enterprises towards environmental excellence 375 towards the CSFs. Suitable measurements and alignments are required for further improving the entire life cycle without jeopardizing the fundamental CSFs. For instance, the innovative goals established. May actually adverse the environmental improvements and in consideration of the total life cycle effects, the utilization of recycling materials may be required for ensuring the integrity of the model. After the review of the entire life cycle, the resource inefficiencies are identified in the form of incomplete input utilizations or poor process controls during the life cycle of product or service, which result in unnecessary wastes. The feedback system allows the validation and modification of the entire life cycle taking into account the critical business goals as to improve continually the effectiveness of the system. As a result, the emissions are largely reduced and the resources are effectively utilized resulting in business improvements in the CSFs and the overall competitiveness. The new model attempts to seek for synergism emphasizing the potential for reduction in environmental and safety impacts by linking all business processes and perceptions of stakeholders via cyclic flows of resources and materials with necessary review, redesign and improvement. The traditional barriers of life cycle analysis such as fragmentation of processes, lack of recognition of drivers and incompatibility with corporate culture are recognized and reinforced by using the model. Ultimately, it becomes a systematic business approach to eliminate or minimize environmental impacts while enhancing overall competitiveness and maximizing stakeholders’ satisfaction within the global marketplace. DEVELOPMENT OF STRATEGIC GREEN ALLIANCE FOR PROMOTING ECONOMIC RESTRUCTURING As our Chief Executive indicated in his Policy Address in 2003, Hong Kong should make further progress with environmental protection and greening and strengthen comprehensively the advantages for promoting economic growth, particularly in vigorous competitive business environment due to globalization. The establishment of Strategic Green Alliances is useful for integrating strengths for economic and environmental challenges. Actually, the form of Strategic Green Alliance within the Pearl River Delta (PRD) is of particular importance to achieve a “win-win” situation between Hong Kong and the PRD region for achieving sustainable and competitive business goals. The Strategic Green Alliance Model is built on the foundation of business partners under the modified life cycle Environmental Excellence Models (See Fig. 5.1). The business partners become the strategic stakeholders of the other business partners and their interaction and collaboration are important for sharing and combining their resources, skills, knowledge, etc as to identify the environmental aspects and provide insights for improving operational efficiency, extending market share and reinforcing their overall competitiveness within the region. For instance, if one of the business partners explored energy efficient equipment, the strategic interaction within the Green Alliance can send ripples throughout the region for adopting that equipment and hopefully, leading to environmental improvements and competitiveness enhancement within the region. On the path of this collaboration, it is helpful for developing the best environmental practices, techniques, technologies and indicators. Furthermore, the Green Alliance may find it 376 Kinman and Liu easier to attract foreign environmentalists and trading partners for fostering the sustainable development of the global market. The successful Green Alliance can build and improve the collaborative advantages by first acknowledging and then effectively managing the human aspects of this Green Alliance so as to sustain the fruitful collaborations and improve global environmental performance continually. Fig. 5.1 The Strategic Green Alliance within the Pearl River Delta Putting the Environmental Excellence Model to the Construction Industry The construction industry has long been inherently disturbing the environment in the form of noise, dust, muddy runoffs and improper disposal of chemical waste. The project teams (including the design team, the construction team and the facilities management team) and the users generally give inadequate concern to the environmental nuisance. The Tang Report 2001 also gives comprehensive recommendations to the industry in respect of environmental performance improvement. The Environmental Excellence Model presented in this paper incorporating a comprehensive candle-to-grave perspective for the entire life cycle of the process will be definitely useful for the industry. Adequate considerations for each phase of the life cycle of a building, from design, materials sourcing, construction, occupation, maintenance, demolition and recycling are necessary to ensure the environmental friendliness of all the processes without jeopardizing the fundamental CSFs. At the outset, the design team may consider to make more use of environmentally friendly building materials, energy efficient devices and equipment, natural sources of energy including the solar energy, innovative design as to make use of more daylight and natural ventilation to save energy, etc. The contractor may adopt innovative construction methods as to reduce waste, pollution and noise and shall meet the stringent environmentally friendly specifications in respect of the building materials and equipment. With the design team taking the lead, the traditional manufacturers will be forced to comply with the Enterprises towards environmental excellence 377 requirements of the designers to produce more environmentally friendly products for the industry. The facilities manager may devise methodologies to make best use of the advanced technologies to maximize the value of the building. Environmental management will definitely be an area not to be overlooked. The conventional way to dispose of construction waste is to dump it at the landfill. If more recyclable materials and equipment are specified at the outset, the problem of shortage of landfill may be tackled. Indeed, the Environmental Excellence Model is valuable and viable for incorporating environmental aspects in the entire life cycle of building. By linking practically the top management commitment in environmental friendliness with other CSFs in the project team companies and individuals, the quality awareness and innovativeness is enhanced and the behavior change is facilitated which leads to pollution prevention, toxic reduction, waste reduction, energy conservation, recycling and reuse. For instance, the business target for innovation may enhance the adoption of advanced construction technologies, out-situ construction methods and recycling building materials. The work processes become efficient with consistent and traceable workmanship. With the concerted contribution of the stakeholders in driving the environmental improvement through the entire life cycle, a substantial improvement in the competitiveness to the whole industry with a change of culture and mindset is easily achievable. CONCLUSION The governments, enterprises and general public have expressed their growing concern of the environmental problems that industries have brought about. Enterprises, however, are still reluctant to put efforts on improving their environmental performance under the delusion that they will be less competitive given the higher costs of production based on the short-term profit analysis. This paper has suggested a modified life cycle model integrating the strategic success factors of enterprise, the participation of the stakeholders, the setting of balanced goals and application of the life cycle analysis. The model can achieve continual improvement of the environmental performance of an enterprise given its feedback mechanism and can deliver products providing ultimate satisfaction to all stakeholders. Enterprises adopting this business model will stay competitive in the industry in terms of quality, productivity, finance, reputation, etc while other goals are still achieved in addition to excellent environmental performance. The Strategic Green Alliance Model has been suggested to establish strong joint efforts and forces to promote and adopt the modified life cycle Environmental Excellence Model. With such practice and collaboration, sustainable development is just an inch rather than a mile away. The local construction industry is in dire need of a serious upgrade. Voices have been expressed throughout the community about the over-consumption of energy in buildings and too much waste generated in the industry. The Environmental Excellence Model, if applied thoroughly across the board in the industry, will definitely help control the problem. Actually, the model is not for the faint hearted. 378 Kinman and Liu REFERENCES Chief Executive’s Policy Address (2003) Capitalizing on our Advantages, Revitalizing our Economy. 2003 Policy Address of the Government of Special Administrative Region, HKSAR, China. Chief Executive’s Policy Address (2004) Seizing Opportunities for Development, Promoting People-based Governance. 2004 Policy Address of the Government of Special Administrative Region, HKSAR, China. Commission of European Communities (2001) Green Paper on Integrated Product Policy, European Commission, Brussels, COM2001 68 Final, Europe. Construction Industry Review Committee (2001) Construct for Excellence – Report of the Construction Industry Review Committee, The Construction Industry Review Committee, HKSAR, China. Dixon Thompson (2002) Tools for Environmental Management – A Practical Introduction and Guide, New Society Publishers, Gabriola Island, Canada. International Organization for Standardization (1996) Environmental Management Systems – Specification with Guidance for Use, ISO 14001:1996E International Standard. International Organization for Standardization (1997) Environmental Management – Life Cycle Assessment – Principle and Framework, ISO 14040:1997E International Standard. Ingrid Ritchie & William Hayes (1998) A Guide to the Implementation of the ISO 14000 Series on Environmental Management, Prentice Hall, Upper Saddle River, NJ, USA. Michael E. Porter & Class Van Der Linde (1995) Green and Competitive – Ending the Stalemate, Harvard Business Review on Business and the Environment, Harvard Business School Press, U.K. Robert S. Kaplan & David P. Norton (1996) Using the Balanced Scorecard as a Strategy Management System, Harvard Business Review on Measuring Corporate Performance, Harvard Business School Press, U.K. Rosabeth Moss Kanter (1994) Collaborative Advantage: The Art of Alliances, Harvard Business Review on Strategic Alliances, Harvard Business School Press, U.K. LOCAL PROBLEMS IN THE CONSTRUCTION INDUSTRY OF YEMEN BASEL SULTAN AND STEPHEN KAJEWSKI School of Construction Management & Property, Queensland University of Technology, GPO Box 2434, Brisbane, Queensland, 4001, Australia, fax +61 7 3864 1170, [email protected], [email protected] ABSTRACT The problems plaguing the construction industry of Yemen are fairly typical of most developing economies. There exists a strong requirement for improved construction methodologies, management practices and legislative reform. Research is being conducted into the Yemen construction industry in an attempt to develop an industry that is efficient, economical and ultimately, sustainable. Preliminary findings from this research are presented in this paper and focus initially on determining the major impediments to any intended development in the local construction industry from an assumed start point that any strategy formulation should be cognizant of, and in harmony with, the local conditions and capabilities. Data associated with the research was collected using a structured questionnaire, distributed to appropriate professionals and other stakeholders operating in Sana’a and Aden cities. This survey scrutinized the views and knowledge of the professions and stakeholders of the construction industry in Yemen as it currently exists and comprised questions relating to major barriers to the development of the local construction industry and building materials development. This paper presents this research, its findings and proposes a set of recommendations for industry development in Yemen and other similar developing countries. Key words: Yemen, construction industry, building materials, development barriers, INTRODUCTION As construction booms began in the gulf countries in the 1960’s and 1970’s labour was attracted from throughout the region, including Yemen, which has exported labour to the region [Nader Fergany (2001), ESCWA, (1993)]. In 1975, about 280,000 Yemenis were working outside the country, remitting some 375 million US dollars annually. In 1979 this remittance rose to 1.5 billion US dollars [Kulkarni, (1983)]. The national exchanger gained much-needed foreign exchange for development, but the nation lost its pool of skilled workers and human resources. The late eighties saw the end of construction booms in the gulf. It was expected that those who returned would bring with them valuable experience. Perhaps as a result, the construction industry in Yemen expected to start with a higher benchmark. However, recent history has demonstrated that it was not possible for the local Yemen construction industry to cope with the rapid growth needed for the modern forms of construction that 380 Sultan and Kajewski have occurred over the past decades. The inadequacies of building materials as well as inadequacies in design and project management potential have been a further hindrance. A lack of any approved national system of codes, standards or specifications have only compounded the industry’s problems. The result is that construction projects are often over-designed or inappropriate to local needs and priorities [UNIDO/world bank (1981)]. Further, in the early 1990’s, the economic and social conditions in the country of Yemen started to deteriorate noticeably due to many factors but mainly due to ‘The Gulf’ wars; the reunification of Yemen in 1990, which has caused even more confusion and chaos; and the civil war in 1994. Inflation soared in 2003, jumping from 4.3% in 2002 to 13.6% in 2003 [World Bank (2004)]. The heavy reliance on imports is a continuing problem as materials comprises 60% to 70% of the construction costs in the modern sector in Yemen [Miles, (1984)], moreover there is no indication of any significant development, if not degeneration by the sudden growth of the construction activities associated with the expulsion of over 1 million Yemenis from the gulf due to the Gulf War of 1991. This has created an instant increase in the population, the loss of remittances (the country’s primary source of income), increased unemployment in Yemen reaching30% [CIA, 2003)], housing shortages, and pressure on the existing infrastructure. For the purpose of proposing any solution there is a need to gain knowledge of the current situation and possible barriers within the local industry. The paper will focus initially on determining the major existing impediments to any intended development in the construction industry in Yemen. Hence any solutions strategy and policy formulation will be within the local conditions and capabilities. METHODOLOGY Due to the lack of existing data and research in this sector, it was reckoned that a local survey of construction industry issues was needed; to provide some insight into the current local obstacles. Surveys are considered a popular method for gathering information needed for identification and assessment as they allow inputs from various sources (clients, key informants and target populations) and help to build consensus for solutions. It was also felt a survey would be beneficial to scrutinize views and knowledge of the stakeholders and professionals in the sector as it exists. Thus, it was hoped that the results obtained would generate some idea on the various issues occurring and affecting the industry. Data was collected using a structured survey questionnaire. The questionnaire was distributed to a selected professions and stakeholders operating in the capital Sana’a and Aden city. The questionnaire contained questions relating to major issues affecting the local industry performance and the factors causing high construction waste and cost. Variables were compiled form existing literature; mainly World Bank reports such as [Kimani, (1988)], the [UNCHS (1984a and b) and Wells (1986)], and using the judgment gained through 12 years of work experience in the local market.The survey was made as simple and as clear as possible, to encourage the participants to respond as quickly as possible. Further, the survey questionnaire was designed to enable respondents to add any further variables or suggestions that they considered necessary for inclusion. Local problems in the construction of Yemen 381 The survey was distributed electronically (emails) and via local representatives who delivered, collected and returned the surveys. A total of 49 responses were received, 5 of which have been discarded for being incomplete, making it a total of 44 participants. These responses represented a wide range of stakeholders who have been involved in construction activities including the construction of informal housing units, as well as experienced engineers working privately in small to medium size consulting and contracting construction firms or on government projects. While the choice of the survey location was mainly in the capital city of Sana’a, where major construction and economic activities are taking place, the participants were in fact from different parts of the country and are currently working in the capital. Therefore the survey unintentionally embraced other regional parts of Yemen. THE SURVEY STRUCTURE The survey comprised three sections. This paper will deal only with section (A) which comprised of 4 interrogations: Q.1. Barriers to the construction sector development Q.2. barriers to building materials industry development Q.3. Causes of high construction cost Q.4. Causes of construction waste Each interrogation has a set of selected factors/variables which the participants had to give a ranking according to its perceived effect on the industry and construction activities. These variables are outlined in later parts of this paper ANALYSIS OF RESPONSES FROM SECTION (A) Respondents were asked to indicate their perception on the factors for each interrogation. A frequency distribution of the responses was used to assess the prevalence of these factors. Factors were identified as either an “important factor”, “medium importance factor”, or “low importance factor”. For each factor, an importance index was determined by calculating the total percentage of respondents. Following the frequency recording and percentage calculation, the ‘Importance Index’ was used to find the relative importance and ranking of each variable. This could be expressed as: Importance index = 100 ∑ ( w f ) WF Where w is the weighting, ranging from 1 to 3, given to each factor; W is the highest weight, that is, 3; f is the frequency of the response; and F is the total number of respondents. When a tie occurs, ranking is in accordance with the percentage of respondents rating the variable as very important (i.e. 2 or 3). A low importance index indicates that the variable is perceived to be of a low importance, while a high importance index indicates a high importance factor. 382 Sultan and Kajewski BARRIERS TO CONSTRUCTION SECTOR DEVELOPMENT The first interrogation asked the participants to give a ranking to the factors that they thought were the major barriers to achieving development of the construction industry in Yemen. Figure 1 summarizes the responses. In general it was found that there was moderate agreement between professions and stakeholders to most factors. The availability of materials (12) 100% Administrative problems and Red tape The availability of skilled labour (8) (1) 80% Informal sector (5) 60% 40% The availability of specifications (10) Lack of research and experimental projects (7) Lack of standardization of local materials (6) Inappropriate law and legislation (3) Poor utilization of local building technologies (13) 20% 0% Inadequate supply of affordable land (9) Inadequate supply of infrastructure (2) Inadequate of finance system (4) Poor utilization of local building materials (11) Figure 1 Importance Index for Barriers to Construction Development Administrative problems and red-tape (including corruption) was ranked the first barrier to the construction development. Excessive bureaucracy is a cause of project delays at all phases, and is characterised by an abundance of laws and regulations, excessive paperwork, too many permits and overlapping authority of government agencies. The second ranked barrier is inadequate infrastructure, lack of infrastructure such paved roads or electricity power and water supply, road access and associated damage to vehicles, delay and difficulty of delivery of resources. This has inflated inner and urban land prices and increased the load on existing infrastructure which already stating to deteriorate. The ineffective penalty on delay or damage and frustrating dispute resolution, which has often been blamed on inefficient and ineffective law and construction legalisation is ranked third. Inadequacies of the finance system were ranked fourth. Clients, investors and contactors often experience a lack of the financial support from institutions or the there are very difficult conditions associated with getting a loan or assurance certificate. Often, contractors have to carry out the project or investment using their on expenses and by doing so they have to cut few corners in the attempts to reduce costs and risks. Local problems in the construction of Yemen 383 The fifth factor highlights the existence and increasing dominance of the informal sector, although section (B) of the survey indicates a high use of the informal sector by stakeholders perhaps indicating its acceptance. This may be as a result of the absence of regulations, difficulties in obtaining permission and the many difficulties and expenses involved in using the formal sector. BARRIERS TO BUILDING MATERIALS INDUSTRY DEVELOPMENT This section of the survey investigates the reasons behind the lack of achieving satisfactory manufacturing and production capacity in local building materials. The factors were carefully chosen from a blend of work experience, extensive literature reviews and international reports on developing countries. Theses are 1. Market problems 2. Difficulty in getting materials 3. Financing 4. Difficulties in acquiring skilled labour and technicians 5. Machinery lacking 6. Poor plant locations and land problems 7. Poor local conditions and infrastructure 8. Lack of studies and information 9. Administrative problems and Red tape As indicated in Figure 2, the most important factor considered is the excessive bureaucracy and difficulties in obtaining work and plant permits. The second ranked factor is poor local conditions and infrastructure, lack access roads and adequate electricity and water supply and any other services necessary to establish any economic activity. Market problems ( 7) 90% 80% Administrative problems and Red tape (1) 70% 60% 50% 40% 30% Difficulty in getting materials (8) Lack of studies and information (3) 20% 10% 0% Financing (4) Poor local conditions and infrastructure (2) Difficulties in acquiring skilled labour and technicians (5) Poor plant locations and land problems (6) Machinery lacking (9) Figure 2 Barriers to the Local Building Materials Industry The lack of information was the third ranked impediment to the development of an appropriate building materials industry. The World Bank (2002) has already indicated 384 Sultan and Kajewski Yemen’s less-developed market institutions, and how firms face specific uncertainties due to lack of information. These include the inability to identify markets; insecurity and unenforceability of contracts; and the lack of specialized business skills, such as accounting and bookkeeping, marketing, exporting. Such factors increase the uncertainty faced by the firms about its future earnings and prospects, and once again induce them to indulge in low-risk, short-term activities. Reducing such firm-specific uncertainties would require a range of institution-building, and the need to make available planning and business resources to the firms. CAUSES OF HIGH CONSTRUCTION COSTS In this section, participants were asked to give a ranking to the factors that they think contribute most to high construction costs. It was agreed by most participants that the most important factors causing high cost, from highest to lowest, were inflation and price fluctuation, imported materials and excessive waste. Factors that emerged clearly as not very important were labour cost and local materials cost. Figure 3 summaries the responses. Expensive local materials (8) 100% Lack of cost effective methods (4) Inflation and fluctuation of prices (1) 80% 60% 40% 20% 0% Expensive imported materials (2) Cost of labour (9) Expensive and inefficient transportation and delivery (7) Inefficient Local construction methods (5) Excessive wastage (3) Inefficient designs (6) Figure 3 Importance Index for Construction Cost factors Inflation and price fluctuations identified as the most important factor by stakeholder and professions (97% Importance factor) and was ranked 1st as shown clearly in (figure 3 ). The inflationary trend is probably due to: demand exceeding supply, artificial scarcity of goods, unstable economy and political instability. Furthermore, fluctuation in prices affects the prices of raw materials, labour and services and other ancillary materials. The consequences of expensive imported construction materials came 2nd (over 79% of the responses agreed upon and a score 93% in the Importance index) this always only lead to the selection of cheap but poor quality and less durable materials. Additionally the Local problems in the construction of Yemen 385 life-cycle cost required for maintenance and replacement will sharply increase, all this can be avoided by the selection the correct and most durable materials for the job. 3rd excessive wastes due to lack of efficient execution and lack of skilled labour, supervision, lack of management and planning of the project procurement and absence of reuse mechanism. 4th factor was lack of cost effective methods, quantity surveyors and accountants are hardly involved in the construction phases. Inefficient local construction methods was ranked 5th, with an importance index of 72%, with 79% of respondents giving it a medium causing ranking. CAUSES OF CONSTRUCTION WASTE This section was used to rank the factors causing construction waste. Waste has been defined as “any thing different from the absolute minimum amount of resources of materials, equipment, and manpower necessary to add value to the product”. Alwai et al. (2002) also indicated that waste is not only associated with waste of material in the construction process but also other activities that do not add value, such as repair, waiting time and delay. In general, all construction activities that produce cost, direct or indirect, but do not add value or progress to the product can be called waste. Any improvement effort should be focused on identifying waste in the construction process, analysing the causes that produce this waste, and acting over these causes to reduce or eliminate them. Any improvement effort should be focused on identifying waste in the construction process, analysing the causes that produce this waste, and acting over these causes to reduce or eliminate them. (Serpell & Alarcon, 1998) The participants had to give a ranking for the following variables: • Lack of planning and management • Resources misused • Unclear information and information quality problems • Resources quality problems • Lack of execution skills • Lack of control • Inefficient procurement and unnecessary transportations On ranking the factors which cause construction waste, professions agree on most factors with the results ranging between 62% and 80% for the importance index values as indicated in figure 4. 386 Sultan and Kajewski Lack of planning and management (1) 1 00% 80% 60% 40% 20% 0% Inefficient procurement and transportations (7) Resources misused (3) Lack of control and supervision (2) Unclear information and information quality problems (4) Lack of execution skills (6) Resources quality problems information (5) Figure 4 Importance Index for Construction Waste Lack of early planning and poor contract management are ranked first. Good project management entails planning, coordinating and controlling all aspects of the work and could lead to significant improvement in productivity without necessarily increasing input. Local formal and even more informal contractors lack any managerial skills that can increase productivity and prevent time and cost overrun. Inadequate economic analysis of the project or over estimation of the financial capacity of the owner is also symptoms of poor planning. Adequate contract management is very important since most other variables result from the lapses in the management of the contract by either the client or the contractor. Lack of managerial skills has been highlighted by the World Bank (1984) and Ofori (1991) as a major deficiency of local construction enterprises in developing countries The second ranked factor was lack of control and weak supervision of site activities perhaps due to qualified engineers limiting their supervision to match fee rates or deliberate underpayment. In addition, the market often uses unqualified supervisors and technicians in the control of labour and minor works. Resources misuse was ranked third, perhaps due to unnecessary or inefficiently managed labour use onsite, and inappropriate materials storage and transportation. Unclear information is ranked fourth, despite the fact that this factor is frequently used by contractors as rationalization for delay or choice of low quality materials. This problem can be improved if professions are more prudent in their design, and more knowledgeable of material availability, suitability and usage. Local problems in the construction of Yemen 387 CONCLUSION AND RECOMMENDATIONS The general conclusion for the barriers of development came as institutional and administrative weakness, red-tape and corruption followed by the availability of infrastructure required for economic activities and human settlement, third was law and legal matters followed by and financial issues. Participants think that industry technical problems are of lesser concern. They also indicated that economical stability is important for any development because it creates less risk for investment. In addition, the most important factors that caused high construction costs were identified as imported materials, inflation and unstable economy and construction wastes. Factors that emerged clearly as less important are labour cost, local materials cost, availability of local materials and standardisation. There exists demand for serious strategies and policies that should be implemented and exercised by both public and private sectors; to initiate and sustain any economic development. The adaptation of explicit strategies and policies to reduce the impact of unemployment and consumption of foreign exchange should be implemented through appropriate and more thoughtful labour employment and local materials protection policies. There is most of all an urge for institutional and administrative development to facilitate and monitor any required development. Moreover, the local development of the construction material industries should be influenced by the adequate choice and implementation of policies and strategies that balance local and global issues, moreover balance local industry protection policies, foreign investment and importation control. Lending organizations could perhaps help the implementation of the local policies rather than imposing their own. REFERENCES Alwi, S,Hampson, K and Mohamed, S (2001), Waste in the Indonesian construction projects, The 1st International Conference of CIB W107 Creating a Sustainable Construction Industry in Developing Countries,11-13 November 2002, South Africa. Chalabi C and Camp D (1984)‘Causes of delay and overruns of construction projects in developing countries’, CIB proceedings, vol. 2, pp. 723-734 CIA (2003), The World FactBook, http://www.cia.gov/cia/publications/factbook/fields/2129.html http://www.cia.gov/cia/publications/factbook/geos/ym.html Kirmani S, (1988), The construction industry in development: issues and options, discussion paper, Infrastructure and Urban Development Department , World Bank, Washington DC. Kulkarni, B V (1983) A Construction Industry in Transition. In Development and Urban Metamorphosis; Volume 1: Yemen at the Cross-Roads. Evin, Ahmet (ed). Singapore: Concept Media/The Aga Khan Award for Architecture. Miles D (1984) “Yemen Arab republic: the construction industry”, Development and Urban Metamorphosis; Volume 2: Background Papers, Editor Ahmet Evin, The Aga Khan Award for Architecture 388 Sultan and Kajewski Nader Fergany (2001) Aspects of labor migration and unemployment in the arab region, Almishkat Center for Research, egypt (www.almishkat.org) http://www.worldbank.org/mdf/mdf4/papers/fergany.pdf Ofori, G (1991) Programmes for improving the performance of contracting firms in developing countries: A review of approaches and appropriate options. Construction Management and Economics, 9, 19-38 Serpell A and Alarcon L F (1998) Construction process improvement methodology for construction projects’, International journal of project management vol. 16, no 4, pp 215-221, 1998 Tassios S (1992) “Structure & function of the construction industry with emphasis on developing countries,” Paper ID/WG.528/1, 8 September 1992. Prepared for meeting of UNIDO and UNCHS (Habitat), First Consultation on the Construction industry, Tunis, Tunisia, 3-7 May 1993 United Nations centre for human settlements (UNCHS), (1984) a, small-scale building materials production in the context of informal economy, Nairobi, HS/45/84/E United Nations Centre for Human Settlements (UNCHS), (1984) b, ‘The construction industry in developing countries. Contribution to socio-economic growth, Nairobi, United Nations Economic and social Commission for West Asia (ESCWA) (1993), “the Absorption of returnees in the Republic of Yemen”, in Return Migration profiles, Impact and Absorption in Home Countries, E/ESCWA/SD/1993/12, ESCWA, New York, 30 December 1993) UNIDO/World Bank Cooperative Programme (1981), Yemen Arab Republic: The Construction Industry, Report no. 17, Vienna, July 1981. World Bank (1984) The Construction Industry: Issues and Strategies in Developing Countries, International Bank for Reconstruction and Development, World Bank, Washington, D.C. World Bank (2002), The Republic of Yemen Economic Growth: Sources, Constraints and Potentials Report No. 21418-YEM -31 May 2002, Social and Economic World Bank group (2004), Yemen economic update, The World Bank Group, Sana’a Office Social and Economic Development Group (MNSED), Middle East and North Africa Region, prepared by Nadir Mohammed & Maria Handal. LOCAL PROBLEMS IN THE CONSTRUCTION INDUSTRY OF YEMEN BASEL SULTAN AND STEPHEN KAJEWSKI School of Construction Management & Property, Queensland University of Technology, GPO Box 2434, Brisbane, Queensland, 4001, Australia, fax +61 7 3864 1170, [email protected], [email protected] ABSTRACT The problems plaguing the construction industry of Yemen are fairly typical of most developing economies. There exists a strong requirement for improved construction methodologies, management practices and legislative reform. Research is being conducted into the Yemen construction industry in an attempt to develop an industry that is efficient, economical and ultimately, sustainable. Preliminary findings from this research are presented in this paper and focus initially on determining the major impediments to any intended development in the local construction industry from an assumed start point that any strategy formulation should be cognizant of, and in harmony with, the local conditions and capabilities. Data associated with the research was collected using a structured questionnaire, distributed to appropriate professionals and other stakeholders operating in Sana’a and Aden cities. This survey scrutinized the views and knowledge of the professions and stakeholders of the construction industry in Yemen as it currently exists and comprised questions relating to major barriers to the development of the local construction industry and building materials development. This paper presents this research, its findings and proposes a set of recommendations for industry development in Yemen and other similar developing countries. Key words: Yemen, construction industry, building materials, development barriers, INTRODUCTION As construction booms began in the gulf countries in the 1960’s and 1970’s labour was attracted from throughout the region, including Yemen, which has exported labour to the region [Nader Fergany (2001), ESCWA, (1993)]. In 1975, about 280,000 Yemenis were working outside the country, remitting some 375 million US dollars annually. In 1979 this remittance rose to 1.5 billion US dollars [Kulkarni, (1983)]. The national exchanger gained much-needed foreign exchange for development, but the nation lost its pool of skilled workers and human resources. The late eighties saw the end of construction booms in the gulf. It was expected that those who returned would bring with them valuable experience. Perhaps as a result, the construction industry in Yemen expected to start with a higher benchmark. However, recent history has demonstrated that it was not possible for the local Yemen construction industry to cope with the rapid growth needed for the modern forms of construction that 380 Sultan and Kajewski have occurred over the past decades. The inadequacies of building materials as well as inadequacies in design and project management potential have been a further hindrance. A lack of any approved national system of codes, standards or specifications have only compounded the industry’s problems. The result is that construction projects are often over-designed or inappropriate to local needs and priorities [UNIDO/world bank (1981)]. Further, in the early 1990’s, the economic and social conditions in the country of Yemen started to deteriorate noticeably due to many factors but mainly due to ‘The Gulf’ wars; the reunification of Yemen in 1990, which has caused even more confusion and chaos; and the civil war in 1994. Inflation soared in 2003, jumping from 4.3% in 2002 to 13.6% in 2003 [World Bank (2004)]. The heavy reliance on imports is a continuing problem as materials comprises 60% to 70% of the construction costs in the modern sector in Yemen [Miles, (1984)], moreover there is no indication of any significant development, if not degeneration by the sudden growth of the construction activities associated with the expulsion of over 1 million Yemenis from the gulf due to the Gulf War of 1991. This has created an instant increase in the population, the loss of remittances (the country’s primary source of income), increased unemployment in Yemen reaching30% [CIA, 2003)], housing shortages, and pressure on the existing infrastructure. For the purpose of proposing any solution there is a need to gain knowledge of the current situation and possible barriers within the local industry. The paper will focus initially on determining the major existing impediments to any intended development in the construction industry in Yemen. Hence any solutions strategy and policy formulation will be within the local conditions and capabilities. METHODOLOGY Due to the lack of existing data and research in this sector, it was reckoned that a local survey of construction industry issues was needed; to provide some insight into the current local obstacles. Surveys are considered a popular method for gathering information needed for identification and assessment as they allow inputs from various sources (clients, key informants and target populations) and help to build consensus for solutions. It was also felt a survey would be beneficial to scrutinize views and knowledge of the stakeholders and professionals in the sector as it exists. Thus, it was hoped that the results obtained would generate some idea on the various issues occurring and affecting the industry. Data was collected using a structured survey questionnaire. The questionnaire was distributed to a selected professions and stakeholders operating in the capital Sana’a and Aden city. The questionnaire contained questions relating to major issues affecting the local industry performance and the factors causing high construction waste and cost. Variables were compiled form existing literature; mainly World Bank reports such as [Kimani, (1988)], the [UNCHS (1984a and b) and Wells (1986)], and using the judgment gained through 12 years of work experience in the local market.The survey was made as simple and as clear as possible, to encourage the participants to respond as quickly as possible. Further, the survey questionnaire was designed to enable respondents to add any further variables or suggestions that they considered necessary for inclusion. Local problems in the construction of Yemen 381 The survey was distributed electronically (emails) and via local representatives who delivered, collected and returned the surveys. A total of 49 responses were received, 5 of which have been discarded for being incomplete, making it a total of 44 participants. These responses represented a wide range of stakeholders who have been involved in construction activities including the construction of informal housing units, as well as experienced engineers working privately in small to medium size consulting and contracting construction firms or on government projects. While the choice of the survey location was mainly in the capital city of Sana’a, where major construction and economic activities are taking place, the participants were in fact from different parts of the country and are currently working in the capital. Therefore the survey unintentionally embraced other regional parts of Yemen. THE SURVEY STRUCTURE The survey comprised three sections. This paper will deal only with section (A) which comprised of 4 interrogations: Q.1. Barriers to the construction sector development Q.2. barriers to building materials industry development Q.3. Causes of high construction cost Q.4. Causes of construction waste Each interrogation has a set of selected factors/variables which the participants had to give a ranking according to its perceived effect on the industry and construction activities. These variables are outlined in later parts of this paper ANALYSIS OF RESPONSES FROM SECTION (A) Respondents were asked to indicate their perception on the factors for each interrogation. A frequency distribution of the responses was used to assess the prevalence of these factors. Factors were identified as either an “important factor”, “medium importance factor”, or “low importance factor”. For each factor, an importance index was determined by calculating the total percentage of respondents. Following the frequency recording and percentage calculation, the ‘Importance Index’ was used to find the relative importance and ranking of each variable. This could be expressed as: Importance index = 100 ∑ ( w f ) WF Where w is the weighting, ranging from 1 to 3, given to each factor; W is the highest weight, that is, 3; f is the frequency of the response; and F is the total number of respondents. When a tie occurs, ranking is in accordance with the percentage of respondents rating the variable as very important (i.e. 2 or 3). A low importance index indicates that the variable is perceived to be of a low importance, while a high importance index indicates a high importance factor. 382 Sultan and Kajewski BARRIERS TO CONSTRUCTION SECTOR DEVELOPMENT The first interrogation asked the participants to give a ranking to the factors that they thought were the major barriers to achieving development of the construction industry in Yemen. Figure 1 summarizes the responses. In general it was found that there was moderate agreement between professions and stakeholders to most factors. The availability of materials (12) 100% Administrative problems and Red tape The availability of skilled labour (8) (1) 80% Informal sector (5) 60% 40% The availability of specifications (10) Lack of research and experimental projects (7) Lack of standardization of local materials (6) Inappropriate law and legislation (3) Poor utilization of local building technologies (13) 20% 0% Inadequate supply of affordable land (9) Inadequate supply of infrastructure (2) Inadequate of finance system (4) Poor utilization of local building materials (11) Figure 1 Importance Index for Barriers to Construction Development Administrative problems and red-tape (including corruption) was ranked the first barrier to the construction development. Excessive bureaucracy is a cause of project delays at all phases, and is characterised by an abundance of laws and regulations, excessive paperwork, too many permits and overlapping authority of government agencies. The second ranked barrier is inadequate infrastructure, lack of infrastructure such paved roads or electricity power and water supply, road access and associated damage to vehicles, delay and difficulty of delivery of resources. This has inflated inner and urban land prices and increased the load on existing infrastructure which already stating to deteriorate. The ineffective penalty on delay or damage and frustrating dispute resolution, which has often been blamed on inefficient and ineffective law and construction legalisation is ranked third. Inadequacies of the finance system were ranked fourth. Clients, investors and contactors often experience a lack of the financial support from institutions or the there are very difficult conditions associated with getting a loan or assurance certificate. Often, contractors have to carry out the project or investment using their on expenses and by doing so they have to cut few corners in the attempts to reduce costs and risks. Local problems in the construction of Yemen 383 The fifth factor highlights the existence and increasing dominance of the informal sector, although section (B) of the survey indicates a high use of the informal sector by stakeholders perhaps indicating its acceptance. This may be as a result of the absence of regulations, difficulties in obtaining permission and the many difficulties and expenses involved in using the formal sector. BARRIERS TO BUILDING MATERIALS INDUSTRY DEVELOPMENT This section of the survey investigates the reasons behind the lack of achieving satisfactory manufacturing and production capacity in local building materials. The factors were carefully chosen from a blend of work experience, extensive literature reviews and international reports on developing countries. Theses are 1. Market problems 2. Difficulty in getting materials 3. Financing 4. Difficulties in acquiring skilled labour and technicians 5. Machinery lacking 6. Poor plant locations and land problems 7. Poor local conditions and infrastructure 8. Lack of studies and information 9. Administrative problems and Red tape As indicated in Figure 2, the most important factor considered is the excessive bureaucracy and difficulties in obtaining work and plant permits. The second ranked factor is poor local conditions and infrastructure, lack access roads and adequate electricity and water supply and any other services necessary to establish any economic activity. Market problems ( 7) 90% 80% Administrative problems and Red tape (1) 70% 60% 50% 40% 30% Difficulty in getting materials (8) Lack of studies and information (3) 20% 10% 0% Financing (4) Poor local conditions and infrastructure (2) Difficulties in acquiring skilled labour and technicians (5) Poor plant locations and land problems (6) Machinery lacking (9) Figure 2 Barriers to the Local Building Materials Industry The lack of information was the third ranked impediment to the development of an appropriate building materials industry. The World Bank (2002) has already indicated 384 Sultan and Kajewski Yemen’s less-developed market institutions, and how firms face specific uncertainties due to lack of information. These include the inability to identify markets; insecurity and unenforceability of contracts; and the lack of specialized business skills, such as accounting and bookkeeping, marketing, exporting. Such factors increase the uncertainty faced by the firms about its future earnings and prospects, and once again induce them to indulge in low-risk, short-term activities. Reducing such firm-specific uncertainties would require a range of institution-building, and the need to make available planning and business resources to the firms. CAUSES OF HIGH CONSTRUCTION COSTS In this section, participants were asked to give a ranking to the factors that they think contribute most to high construction costs. It was agreed by most participants that the most important factors causing high cost, from highest to lowest, were inflation and price fluctuation, imported materials and excessive waste. Factors that emerged clearly as not very important were labour cost and local materials cost. Figure 3 summaries the responses. Expensive local materials (8) 100% Lack of cost effective methods (4) Inflation and fluctuation of prices (1) 80% 60% 40% 20% 0% Expensive imported materials (2) Cost of labour (9) Expensive and inefficient transportation and delivery (7) Inefficient Local construction methods (5) Excessive wastage (3) Inefficient designs (6) Figure 3 Importance Index for Construction Cost factors Inflation and price fluctuations identified as the most important factor by stakeholder and professions (97% Importance factor) and was ranked 1st as shown clearly in (figure 3 ). The inflationary trend is probably due to: demand exceeding supply, artificial scarcity of goods, unstable economy and political instability. Furthermore, fluctuation in prices affects the prices of raw materials, labour and services and other ancillary materials. The consequences of expensive imported construction materials came 2nd (over 79% of the responses agreed upon and a score 93% in the Importance index) this always only lead to the selection of cheap but poor quality and less durable materials. Additionally the Local problems in the construction of Yemen 385 life-cycle cost required for maintenance and replacement will sharply increase, all this can be avoided by the selection the correct and most durable materials for the job. 3rd excessive wastes due to lack of efficient execution and lack of skilled labour, supervision, lack of management and planning of the project procurement and absence of reuse mechanism. 4th factor was lack of cost effective methods, quantity surveyors and accountants are hardly involved in the construction phases. Inefficient local construction methods was ranked 5th, with an importance index of 72%, with 79% of respondents giving it a medium causing ranking. CAUSES OF CONSTRUCTION WASTE This section was used to rank the factors causing construction waste. Waste has been defined as “any thing different from the absolute minimum amount of resources of materials, equipment, and manpower necessary to add value to the product”. Alwai et al. (2002) also indicated that waste is not only associated with waste of material in the construction process but also other activities that do not add value, such as repair, waiting time and delay. In general, all construction activities that produce cost, direct or indirect, but do not add value or progress to the product can be called waste. Any improvement effort should be focused on identifying waste in the construction process, analysing the causes that produce this waste, and acting over these causes to reduce or eliminate them. Any improvement effort should be focused on identifying waste in the construction process, analysing the causes that produce this waste, and acting over these causes to reduce or eliminate them. (Serpell & Alarcon, 1998) The participants had to give a ranking for the following variables: • Lack of planning and management • Resources misused • Unclear information and information quality problems • Resources quality problems • Lack of execution skills • Lack of control • Inefficient procurement and unnecessary transportations On ranking the factors which cause construction waste, professions agree on most factors with the results ranging between 62% and 80% for the importance index values as indicated in figure 4. 386 Sultan and Kajewski Lack of planning and management (1) 1 00% 80% 60% 40% 20% 0% Inefficient procurement and transportations (7) Resources misused (3) Lack of control and supervision (2) Unclear information and information quality problems (4) Lack of execution skills (6) Resources quality problems information (5) Figure 4 Importance Index for Construction Waste Lack of early planning and poor contract management are ranked first. Good project management entails planning, coordinating and controlling all aspects of the work and could lead to significant improvement in productivity without necessarily increasing input. Local formal and even more informal contractors lack any managerial skills that can increase productivity and prevent time and cost overrun. Inadequate economic analysis of the project or over estimation of the financial capacity of the owner is also symptoms of poor planning. Adequate contract management is very important since most other variables result from the lapses in the management of the contract by either the client or the contractor. Lack of managerial skills has been highlighted by the World Bank (1984) and Ofori (1991) as a major deficiency of local construction enterprises in developing countries The second ranked factor was lack of control and weak supervision of site activities perhaps due to qualified engineers limiting their supervision to match fee rates or deliberate underpayment. In addition, the market often uses unqualified supervisors and technicians in the control of labour and minor works. Resources misuse was ranked third, perhaps due to unnecessary or inefficiently managed labour use onsite, and inappropriate materials storage and transportation. Unclear information is ranked fourth, despite the fact that this factor is frequently used by contractors as rationalization for delay or choice of low quality materials. This problem can be improved if professions are more prudent in their design, and more knowledgeable of material availability, suitability and usage. Local problems in the construction of Yemen 387 CONCLUSION AND RECOMMENDATIONS The general conclusion for the barriers of development came as institutional and administrative weakness, red-tape and corruption followed by the availability of infrastructure required for economic activities and human settlement, third was law and legal matters followed by and financial issues. Participants think that industry technical problems are of lesser concern. They also indicated that economical stability is important for any development because it creates less risk for investment. In addition, the most important factors that caused high construction costs were identified as imported materials, inflation and unstable economy and construction wastes. Factors that emerged clearly as less important are labour cost, local materials cost, availability of local materials and standardisation. There exists demand for serious strategies and policies that should be implemented and exercised by both public and private sectors; to initiate and sustain any economic development. The adaptation of explicit strategies and policies to reduce the impact of unemployment and consumption of foreign exchange should be implemented through appropriate and more thoughtful labour employment and local materials protection policies. There is most of all an urge for institutional and administrative development to facilitate and monitor any required development. Moreover, the local development of the construction material industries should be influenced by the adequate choice and implementation of policies and strategies that balance local and global issues, moreover balance local industry protection policies, foreign investment and importation control. Lending organizations could perhaps help the implementation of the local policies rather than imposing their own. REFERENCES Alwi, S,Hampson, K and Mohamed, S (2001), Waste in the Indonesian construction projects, The 1st International Conference of CIB W107 Creating a Sustainable Construction Industry in Developing Countries,11-13 November 2002, South Africa. Chalabi C and Camp D (1984)‘Causes of delay and overruns of construction projects in developing countries’, CIB proceedings, vol. 2, pp. 723-734 CIA (2003), The World FactBook, http://www.cia.gov/cia/publications/factbook/fields/2129.html http://www.cia.gov/cia/publications/factbook/geos/ym.html Kirmani S, (1988), The construction industry in development: issues and options, discussion paper, Infrastructure and Urban Development Department , World Bank, Washington DC. Kulkarni, B V (1983) A Construction Industry in Transition. In Development and Urban Metamorphosis; Volume 1: Yemen at the Cross-Roads. Evin, Ahmet (ed). Singapore: Concept Media/The Aga Khan Award for Architecture. Miles D (1984) “Yemen Arab republic: the construction industry”, Development and Urban Metamorphosis; Volume 2: Background Papers, Editor Ahmet Evin, The Aga Khan Award for Architecture 388 Sultan and Kajewski Nader Fergany (2001) Aspects of labor migration and unemployment in the arab region, Almishkat Center for Research, egypt (www.almishkat.org) http://www.worldbank.org/mdf/mdf4/papers/fergany.pdf Ofori, G (1991) Programmes for improving the performance of contracting firms in developing countries: A review of approaches and appropriate options. Construction Management and Economics, 9, 19-38 Serpell A and Alarcon L F (1998) Construction process improvement methodology for construction projects’, International journal of project management vol. 16, no 4, pp 215-221, 1998 Tassios S (1992) “Structure & function of the construction industry with emphasis on developing countries,” Paper ID/WG.528/1, 8 September 1992. Prepared for meeting of UNIDO and UNCHS (Habitat), First Consultation on the Construction industry, Tunis, Tunisia, 3-7 May 1993 United Nations centre for human settlements (UNCHS), (1984) a, small-scale building materials production in the context of informal economy, Nairobi, HS/45/84/E United Nations Centre for Human Settlements (UNCHS), (1984) b, ‘The construction industry in developing countries. Contribution to socio-economic growth, Nairobi, United Nations Economic and social Commission for West Asia (ESCWA) (1993), “the Absorption of returnees in the Republic of Yemen”, in Return Migration profiles, Impact and Absorption in Home Countries, E/ESCWA/SD/1993/12, ESCWA, New York, 30 December 1993) UNIDO/World Bank Cooperative Programme (1981), Yemen Arab Republic: The Construction Industry, Report no. 17, Vienna, July 1981. World Bank (1984) The Construction Industry: Issues and Strategies in Developing Countries, International Bank for Reconstruction and Development, World Bank, Washington, D.C. World Bank (2002), The Republic of Yemen Economic Growth: Sources, Constraints and Potentials Report No. 21418-YEM -31 May 2002, Social and Economic World Bank group (2004), Yemen economic update, The World Bank Group, Sana’a Office Social and Economic Development Group (MNSED), Middle East and North Africa Region, prepared by Nadir Mohammed & Maria Handal. READINESS ASSESSMENT OF THE CONSTRUCTION INDUSTRY FOR GLOBAL TRADE IN SERVICES: THE INDONESIAN EXPERIENCES A. SURAJI, D. PARIKESIT AND A.T. MULYONO Centre for Transportation & Logistics Studies, Gadjah Mada University, Bulaksumur E-9 Yogyakarta 55281, Indonesia. [email protected] ABSTRACT Globalisation of business in term of economic, finance and trade has spread throughout the globe. Many countries expect other countries to open their market access for global trade in goods and services for all sectors. In this case, the International Trade Organisation (WTO) has introduced the General Agreement on Trade in Services (GATS), including all the different ways of providing an international service. Asean countries also introduced the Asean Framework Agreement in Services (AFAS). The construction industry both consulting and contracting services will be one of potential sectors for both modes of liberalisation on trade in services, namely commercial presence and movement or presence of natural persons. Domestic players of the industry have to be ready for the global competition as more international players to involve. Assessing readiness of the industry is required to review how best the industry players prepare themselves for the global competition. This paper reports a readiness assessment of the Indonesian construction industry for liberalisation on trade in services. The purpose is to review the industry current performance reflecting its competitiveness, both in term of company level and professional level. For this purpose, readiness indicators and their parameter measures were developed. The industry survey in 4 major cities of the country was conducted by in depth interviews and questionnaires. Nine contracting companies participated in this survey. Findings of the survey show that readiness level of the industry is 61.73%. The survey revealed that company readiness level is 56.2% and professional readiness level is 67.2%. These readiness levels represent a relative grade score of the industry competitiveness. As with these readiness levels, the Indonesian construction industry needs to improve its performance through simultaneous and strategic efforts, such as improving professional standards and skills level, corporate development, culture of quality in contracting, and technological leadership. Keywords: competitiveness, Indonesian construction industry, liberalisation on trade in services, and readiness assessment. INTRODUCTION Globalisation of business in term of economic, finance and trade has spread throughout the globe. Many countries expect other countries to open their market access for global trade in goods and services for all sectors. In this case, the International Trade Organisation (WTO) has introduced general agreement on trade in services (GATS), 390 Suraji, Parikesit and Mulyono including all the different ways of providing an international trading in services. Asean countries also introduced the Asean Framework Agreement in Services (AFAS). Liberalisation of construction market is one of challenging sectors for many countries to deal with. The industry both consulting and contracting services will be one of potential sectors for both modes of liberalisation on trade, namely commercial presence and movement or presence of natural persons. Domestic players of the industry have to be ready for the global competition as more international players to involve. Construction companies need a strategy to improve their competitiveness to enter global market. The competitiveness issues of the industry have been addressed widely [Porter, (1990), Bond, (1992), Grant, (1997), Warszawski, (1998), and Birgonul & Ozdogan, (2000)]. Assessing readiness of the industry is required to review how best the industry players prepare themselves for the global competition. Since its position and role in the development process, the construction industry competitiveness becomes a deep concern of most countries in the world to response globalisation. Latham’s report entitled constructing the team has reflected the deep concern on the British construction industry [Latham, (1994)]. A further study entitled rethinking construction by Construction Task Force set up by the British Deputy Prime Minister has been undertaken in response to the criticism of the industry performance in failing to provide a client satisfaction and its inability to improve effectiveness and efficiency [DETR, (1998)]. Singapore has also taken a serious measure toward the construction industry by setting up reinventing construction well known as Construction 21 [S&P, (1999)]. It reflects the vision of the construction industry of Singapore for the 21st century to be a world-class builder in the knowledge age [Dulaimi et al, (2001)]. As with the construction industry in developed countries, the Indonesian construction industry needs to build progressively its strength in term of technology advancement, professional and skill development for the global challenges [Suraji, (2003)]. This paper reports a readiness assessment of the Indonesian construction industry for liberalisation on trade in services. The purpose is to review the industry current performance reflecting its competitiveness, both in term of company level and professional level. In this paper, readiness is defined as the state of competitiveness to enter the global market. Readiness indicators were developed to measure current state of the Indonesian construction industry in relation to its competitiveness. In this paper, readiness indicators and their parameter measures are introduced and the construction industry competitiveness is then discussed. Findings of the industry survey are also presented. This may assist the industry shareholders to take appropriate actions in improving their performance in order to stay competitive in the global market. READINESS MEASUREMENT FOR GLOBAL COMPETITION Readiness Indicator The construction industry in Indonesia currently consists of more than 100.000 construction companies providing consulting and contracting services. Most of them mainly compete for the domestic market particularly public procurement of infrastructure by the government. Only few have been trying to pursue their market in ASEAN countries. Since introduction of AFAS-AFTA and GATS-WTO, the industry has more Readiness assessment of the construction industry 391 opportunity to expand their market. However, the industry competitiveness is of important factor to deal with. A study was conducted to measure a readiness level of the industry to go for global competition. For this purpose, readiness indicators were developed to reflect readiness measure for both company and professional level. In this research, the term of readiness is defined as the state of competitiveness performance of a construction company for the global competition. Table 1 describes the indicators to be assessed. Parameter measures for each indicator were also established. Table 1 Readiness indicator for global competition READINESS INDICATORS COMPANY LEVEL PROFESSIONAL LEVEL 1. Technical Competence 1. Management System 2. Teamwork 2. Business Strategy Development 3. Organisational Framework 3. Leadership 4. Project Delivery 4. Togetherness 5. Responsiveness 5. Client Focus 6. Marketing Strategy 6. Discipline 7. Research & Development 8. Construction Technology 9. ICT: Information & Communication Technology 10. Quality Assurance 11. Coordination Support 12. Facility Design Readiness Indicator of Company Level Assessing management system is to identify capability of construction companies to manage their resources for project success. It includes their planning & controlling of project implementation, resource management, contract administration & management, project accounting system, and risk management. Assessment of project delivery is to verify how best construction companies to deliver their construction project to their clients. Assessment of organisational framework is to identify commitment and policy adopted by construction companies to deal with effective organisation structure in order to provide supportive, conducive and collaborative working environment as the best practice of organisation. Business strategy assessment is to identify an existing strategy adopted by construction companies to deal with their business in order to stay competitive in the industry market. Assessment of responsiveness is to identify capacity of construction companies to respond dynamic construction business changes including project requirements by clients, project financing, legal aspects and other trade and business industries. Assessing quality assurance system of construction companies is to identify their quality management system applied, while design facility assessment is to measure hardware and software provided by construction companies for planning and design of their work development process. In this new age, information technology is a vital resource of business. Assessing this technology is to identify advancement and the 392 Suraji, Parikesit and Mulyono use of information technology by construction companies to support their construction business. Assessment of coordination support is to identify best practices adopted by construction companies to organise and coordinate their resources, working process and product delivery by means of any technology. Marketing strategy assessment is to identify a specific effort introduced by construction companies to exist within construction market. Research & development is well known as a key strategy to innovate products and services in many business sectors. In this case, assessment of research & development conducted by construction companies is to identify any innovation produced by the companies in order to stay competitive and leading in the market. For contractors, construction technology is a prerequisite in delivering their construction works. Assessment of this Indicator is to identify any special construction technology owned by construction companies for achieving cost effectiveness of their project implementation process. Readiness Indicators of Professional Level Assessing readiness level of construction professionals is to identify their individual competence as required by construction businesses. Assessment of technical competence is to assess individual technical knowledge and experience to solve any technical matter pertinent to the project development process. It includes individual practical knowledge of information and communication technology, principles of technical design, planning process and construction engineering and management. Assessment of teamwork development is to identify personal capability to develop teamwork within a project based organisation in which dynamic environment exists. Leadership is a central soul of personnel in the team building process. Assessing this indicator is to identify capability of construction professionals to lead a team for project success. It includes communication skills, empowerment and motivation. Working as a team, togetherness is a prerequisite to get a success. Assessing this indicator is to identify a working well together in term of sharing to synergy among other professionals adopted by a construction professional within a project organisation. Construction professionals work to serve what project clients’ objectives. Client focus is of important subject to deal with. Assessing this indicator is to identify how best construction professionals within construction companies concern with what clients’ needs and expectation as well as satisfaction. These competences of professional will not work without a discipline. It is a part of organisation culture by which professionals should adopt. Assessment of this indicator is to identify professional commitment to follow rules and enforcement set up within organisation of construction companies. Readiness Measurement & Findings The industry survey was conducted to measure the readiness level for both company and professional level to enter the global market. A questionnaire consisting of those readiness indicators and their parameter measures were developed (Suraji, 2003). In this survey, nine construction companies from 4 different regions of the country participated. The survey was conducted through interview and questionnaires to be completed by the companies who participated in the industry survey. Firstly, a questionnaire package was Readiness assessment of the construction industry 393 sent to each company and then followed by a direct interview. This questionnaire is to identify current state of parameter measures of each indicator. In this case, each parameter measures to indicate a performance level of a construction company to perform its business. Scoring system to measure current state of each parameter measure was used. This scoring system represents to what extent that a company is using a business best practice for its competitiveness. For example, to measure current performance level of ICT employed by a company, the company was asked to complete a question such as “to what extent does your company use ICT to advance your deliverable businesses? The answer could be very intensive or always used (assigned with 3 score), moderate or seldom (assigned with 2 score), or even low or never (assigned with 1 score). Each indicator contains more than one parameter measures to be assessed. For instance, management system indicator contains 10 parameter measures; project delivery indicator consists of 10 parameter measures, and organisational framework indicator has 8 parameter measures. The maximum score of each indicator is the total score of all parameter measures with 3 score. In order to reduce bias of this questionnaire survey, the interview may help clarify all the answers provided for the questionnaire by companies. Summary of survey findings is presented in the following tables and figures. Table 2 and table 3 describe readiness score of each company and professional respectively. The score reflects current performance level of competitiveness of a surveyed construction company. For the sake of intervention strategy to improve the industry competitiveness, a readiness score with less than 70% is categorised as low level, 71% to 90% is categorised as moderate level and 91% to 100% is categorised as high level. The Composition of Readiness Indicators The readiness indicators consist of different number of parameter measures. In this paper, the composition of parameter measures of each readiness indicator is presented in Figure 1 and 2 respectively. Figure 6 shows the percentage of the composition of readiness measures within the company level. In this case, the number of parameter measures within each indicators and maximum score may cause the different portion of the indicators composition. It can be seen that the management system adopted by the companies has a major portion on the readiness level, while the ICT support has a minor portion. 394 Suraji, Parikesit and Mulyono Fig. 1 Composition of parameter measures of company readiness indicators As with the composition of company readiness indicators, figure 7 shows the percentage of the composition of parameter measures of readiness indicators within professional level. It can be seen that the client focus indicator has the larger portion followed by the technical competence, while the teamwork development indicator is the smallest portion. Fig. 2 Composition of parameter measures of professional readiness indicators Readiness assessment of the construction industry 395 Table 2 Readiness Score of Company Level INDICATOR Management System Project Delivery Organizational Framework Business Strategy Responsiveness Quality Assurance Design Facility ICT Support Coordination Support Marketing Strategy R&D Construction Technology Total Score SURVEYED CONSTRUCTION COMPANY MAXIMUM SCORE 1 2 3 4 5 6 7 8 9 25 27 25 26 27 26 25 23 27 30 21 20 21 20 21 20 21 17 19 30 16 17 18 17 15 7 13 6 7 7 15 14 18 18 14 5 13 7 10 9 16 19 18 18 15 10 13 4 12 10 16 18 18 18 12 7 11 7 12 10 16 18 13 18 14 0 6 2 0 10 14 19 17 18 12 5 9 6 8 9 16 19 18 18 15 10 13 4 12 10 15 18 13 9 13 1 1 3 1 4 12 17 14 18 15 2 7 5 6 5 24 30 27 27 27 21 24 9 21 15 285 169 170 181 175 145 163 181 111 147 Table 3 Readiness Score of Professional Level SURVEYED CONSTRUCTION COMPANY MAXIMUM INDICATOR SCORE 1 2 3 4 5 6 7 8 9 Technical Competence 17 18 19 19 15 18 19 12 15 24 Teamwork 14 14 15 15 15 13 15 10 15 24 Development Leadership 19 19 19 19 19 15 19 18 19 27 Discipline 14 14 14 14 14 13 14 14 14 21 Client Focus 18 18 18 18 18 18 18 18 18 24 Togetherness 9 9 10 10 10 10 10 9 9 15 Total Score 91 92 95 95 91 87 95 81 90 135 The comparison between average score of each indicator and maximum score shows the industry readiness level gap. Figure 3 show the gap between maximum score (ideal level) of readiness and existing condition measurement of company performance. It can be seen that the ICT support indicator has the highest gap followed by the coordination support indicator. In fact, the management system and marketing strategy indicator have the lowest gap among the indicators. It was also found that most the companies participated in the survey have not provided ICT support. The ICT investment is still regarded as costly capital. Figure 4 describes the gap between maximum score (ideal level) of readiness and existing condition measurement of professional competence within the construction companies. It can be highlighted that the leadership and teamwork development indicator have the highest gap among the readiness indicators of professional. The togetherness indicator showing the working well together among professional within the company organisation has the lowest gap. Another case shows that togetherness is not in line with teamwork development. Further examination of this gap may lead to understanding of improvement strategy for preparing global competition. 396 Suraji, Parikesit and Mulyono 40 30 30 30 27 24 27 27 24 21 Existing Condition Maximum Score 30 26 Score 20 20 15 18 16 17 14 21 15 10 5 10 5 9 8 8 Management System ICT Support Design Facility Marketing Strategy Project Delivery Organisational Framework Research & Development 0 Coordination Support Business Strategy Responsiveness Indicator Fig. 3 The readiness level of company toward established maximum score 30 25 20 Score 15 10 5 0 Technical Competence Teamw ork Development 24 24 27 24 21 18 17 14 14 10 18 15 Leadership Quality Assurance Discipline Client Focus Togetherness Existing Condition Maximum Score Indicator Fig. 4 The readiness level of professional toward established maximum score Construction Technology Readiness assessment of the construction industry 397 The following figure 4 and 5 describe average readiness score of company level (56.2%) and professional level (67.2%). Whilst, figure 6 shows average readiness score of the industry taking into account both company and professional level in aggregate (61.73%). Based on the result above, the readiness level of the industry can be categorised into low level. 100% 80% 56.2% 60% 40% 20% 0% Management System Project Delivery Design Facility Organisational Framework Coordination Support ICT Support Marketing Strategy Research & Development Responsiveness Fig. 5 Average readiness level of company 67.2% Fig. 6 Average readiness level of professional competence Construction Technology Quality Assurance Business Strategy 398 Suraji, Parikesit and Mulyono Average 61.72% Fig.6 Average readiness level of the construction industry CONCLUSIONS The Indonesian construction industry is still facing some burdens to enter global competition of construction business. Those burdens may affect the industry readiness level for global trade in services under AFAS and GATS. These burdens can be associated with the competitiveness of companies and also enabling factors such as government policy, institutionalisation within the industry, professional and skill development, project implementation practices, business culture and other industry sectors. This study has revealed to what extent the industry ready to go into global market. The survey revealed that company readiness level is 56.2% and professional readiness level is 67.2%. These readiness levels represent a relative grade score of the industry competitiveness. As with these readiness levels, the Indonesian construction industry needs to improve its performance through simultaneous and strategic efforts, such as improving professional standards and skills level, corporate development, culture of quality in contracting, and technological leadership. Further strategic actions are required to improve the competitiveness level of the industry. This can be achieved by revitalising the construction industry through constructing the team. ACKNOWLEGMENT This research was a part of research project entitled the development of liberalisation strategy for trade in construction services supported by the Construction and Investment Development Board, the Ministry of Settlement and Regional Infrastructure. Thanks are due to the Indonesian government for the financial support and all Indonesian construction companies who participated in this research. Readiness assessment of the construction industry 399 REFERENCES Birgonul, M.T and Ozdogan, R.D (2000) Competitiveness of Turkish Contractors in International Markets, Proceedings of 16th Annual Arcom Conference, Glasgow, UK, September, pp: 95-104. Bon, R (1992) The future of international construction: secular patterns of growth and decline. Proceedings of Habitat international, Vol 16(3), pp: 119-128. DETR (1998) Rethinking Construction, Construction Task Force, UK. Dulaimi, M.F, Ling F.Y.Y and Ofori, G (2001) Building a World Class Construction Industry: Motivators and Enablers, Singapore University Press Ltd, Singapore. Grant, R.M (1997) Contemporary Strategy Analysis: Concepts, Techniques, Applications, Blackwell Publications, 2nd Edition, Oxford, UK. Latham, M (1994), Constructing the team, HMSO, UK. Porter, M.E (1990) The Competitive advantage of nations, MacMillan Press Ltd, London, UK S & P (1999), Construction 21: Reinventing Construction, Construction Task Force. Suraji, A (2003) Construction industry readiness toward liberalisation on trade in services, Proceedings of national seminar on the construction role in the decentralisation and AFAS-AFTA Era, HMTS-University of Indonesia, Jakarta, October. Warszawski, A (1994) Current trends in the operation of building construction companies, International Journal of Project Management, Vol 12 (4), pp: 261268. 400 Suraji, Parikesit and Mulyono STAKEHOLDERS’ AWARENESS AND DISPOSITION TO THE USE OF INTEGRATED PROJECT PROCUREMENT METHOD IN SOME SELECTED STATES OF NIGERIA M. O. DADA and O. S. OYEDIRAN Department of Building, University of Lagos, Akoka, Lagos, Nigeria. [email protected] S. O. OGUNLANA School of Civil Engineering, Asian Institute of Technology, P.O. Box 4, Klong Luang, Pathum Thani 12120, Thailand. [email protected] ABSTRACT Procurement is a topic that has engaged the attention of construction clients, consultants and contractors principally because it has effects on both the processes and product of construction. The research sought to investigate the level of awareness of Nigerian construction industry participants about integrated procurement strategies. Such strategies include design-and-build, package deal, turnkey, build-operate-transfer and their variants. The study also investigated the disposition of construction industry participants towards the use of such methods and strategies. Construction industry participants are significantly supportive of such methods with the need for collaboration and involvement among project participants ranks highest in accounting for the support. Call or clamour for the use of the method by construction clients/customers is the least reason. It is recommended that the tempo of awareness be sustained or increased as attitude change depends on, amongst others, information and orientation. Keywords: construction industry participants, integrated procurement methods, Construction procurement, Nigeria. INTRODUCTION The construction client is faced with many needs that can vary over time and place [Chinyio et al, (1998)]. The needs sometimes revolve around the procurement of the building product. The options for meeting of those needs – strategies to evolve and develop the construction product - are not unitary: options are available and more are emerging. This development is strengthened further by the wave and gale of globalisation which has been adjudged to be irreversible [Ogunlana and Chareonngam, (2003)]. The options for the procurement of the building product include but are not limited to the traditional method, the integrated method, the collaborative method, and the management oriented methods. None of these options is however a cure-all under all situations. However, the perceived drawbacks of the traditional method have given a leeway for the 402 Dada, Oyediran and Ogunlana call and utilization of the integrated procurement method. A major criticism of the traditional procurement method is the separation of design from construction with the attendant loss of single point responsibility. Integrated methods such as design-and-build, package deal, turnkey, build-operate-transfer and their variants – emphasize the working together of project participants from planning and design phase up to the construction stage of the project. The development of the construction project is achieved under one contractual and/or organizational umbrella. There have been recent calls for the departure from the traditional method to the integrated method in some countries [Garza et al, 1994]. This research thus aims to investigate the level of awareness of Nigerian construction industry participants about such methods and their disposition to the adoption of such methods. It is hoped that such study will contribute to the body of knowledge on procurement in the country and also be a source of relevant information for any intervention programmes in the construction industry. Information, when concise, precise, timely and adequate, has been rightly acknowledged as a tool for decisionmaking. PROCUREMENT: DEFINOTION, TYPES AND CHOICE There has been difficulty in securing an acceptable definition for procurement globally. McDermott (1999, p.4), however, while citing an unpublished document, gave what he called a harmless, broad and neutral definition that is applicable in all cultures as `the framework within which construction is brought about, acquired or obtained’. The International Council for Building Research and Documentation Working Group 92 (CIBW92) has been adopted this definition. A similar definition had been given by Love, et al., (1998) earlier, who asserted that procurement determines the overall framework and structure of responsibilities and authorities for participants within the building process. [Harris and McCaffer (2001)] succinctly capture the purpose of procurement: to ensure that all resources are acquired effectively. Love et al (1998) agree that numerous arrangements exist and that they are becoming flexible. [Masterman (1992)] has hinted that there is a proliferation of procurement methods and has suggested ways by which the different methods can be categorised. The ways include but are not limited to: (1) By the amount of risk taken by all of the participating parties (2) By the extent to which design and construction are integrated. (3) On the basis of the way in which the contractor is reimbursed. In essence, literature posits that the procurement methods available in the construction industry vary from separated methods, integrated and collaborative methods to management oriented methods. Literature also recognizes the possibility of the existence of hybrids and variants of some of these methods [Masterman, (1992); Ashworth, (1996); Edun-Fotwe et al., 1999, Harris & McCaffer, (2001)]. [Ashworth (1996)] particularly opines that new procurement methods would continue to evolve to meet new circumstances and situations. [Gerard and Houn (1999)] specifically categorized procurement methods into traditional lump sum, non-traditional, single source and collaborative. They classified non-traditional into construction management, project management, and design and-construct. They further classified single source procurement into turnkey and build-own-operate-transfer (BOOT) with its variants. Collaborative Stakeholders’ awareness and disposition in integrated project procurement 403 methods include partnering, joint venture and alliancing. The choice and use of procurement methods can vary and can depend on an intricate or complex web of considerations that ranged from client characteristics, objectives and purpose, and project characteristics. Authors have proposed a link between these variables and choice of procurement methods. Sometimes results confirm or disconfirm the relationship between one or more or some of these variables and procurement choice. RESEARCH METHODOLOGY The study involved the administration of questionnaires to different types of respondents and also on different types of projects. The opinion survey questionnaires were administered on clients, consultants and contractors. The respondents were drawn from both the private and public sector. Contractors were limited to building and civil engineering contractors. Consultants were professional firms involved in building project development, including architects, civil/ structural engineers, electromechanical engineers, quantity surveyors, land surveyors, estate surveyors, town planners and builders. Responses for the three questionnaires were received from fifteen states in addition to Abuja. As much as practicable except in only one instance, all questionnaires were administered on the respective organizations and demanded to be filled by construction industry professionals in those organizations. The goal was to ensure that respondents were really not novices and who could better understand and appreciate the research and reduce the element of bias. The obvious deviant case was an experienced contractor who, although having professionals under him, decided to supply the information himself. The method used for the sampling works were the purposive and snowballing techniques. Many reasons account for this development. There was no available and reliable record of construction industry contractors and their areas of focus or market orientation in the country. Many are not registered with the contractors’ association. The three questionnaires used for the study were similar except that each asked for detailed judgment peculiar to the organization. The three sets of questionnaires sought to know the personal data of respondents viz: age group of respondent, profession, grade of membership in professional body, highest educational qualification, years of experience in construction industry or service. The second subdivision sought information on their organizations: head office location, number of employees, annual turnover range for the last five years where applicable, ownership structure of organization, age of organization, frequency of commissioning of construction works, number of construction professionals, and major area of focus. The questionnaire further asked respondents about their awareness and use of integrated and collaborative project procurement methods and also on their disposition towards the use of such methods. Respondents were asked to assess the reasons on a scale from ‘1’ to ‘4’ (of 1 = no contribution; 4 = very high contribution) respondents were to assess reasons contributing to such disposition. PRESENTATION AND ANALYSIS OF DESCRIPTIVE DATA Table 1 shows the classification of respondent organizations used in the study. Contractor organizations and client organizations were 34 (32%) each respectively while consulting 404 Dada, Oyediran and Ogunlana organizations were 31 (34%). The numbers chosen are relatively close together and each grouping is judged to be fairly representative in view of a similar approach by Mills and Skitmore (1999). Table 1: Classification of respondents organisations Organisation Frequency Percentage Contractor 33 34 Consultatnt 31 32 Client 33 34 Total 97 100 Hypothesis 1 Construction industry participants are not significantly aware of integrated procurement strategies. The questionnaire item for this hypothesis required respondents to indicate their level of awareness on a scale of 1-4 (1 = ‘not aware’, 2 = ‘somewhat aware’, 3 = ‘moderately aware’ and 4 = ‘aware’). To test this hypothesis, the level of awareness was set thus: a hypothetical mean value was set at 2.0. Any value less than the hypothetical mean value was taken as being ‘unaware’ while values above it implied ‘aware.’ Table 2 shows the results of the computation using the one sample T test. Table 2: One-sample test results of awareness of construction professionals about integrated procurement strategies (N = 97) Issue t d. f S* ___________________________________________________________________________ Awareness of teambuilding methods 8.931 96 significant ___________________________________________________________________________ S* = significant at p < 0.05; d.f = degrees of freedom. The t calculated at d. f of 96 is 8.931, which is more than the table value of t at degrees of freedom of 96, which is 1.98. The decision is to reject the null hypothesis that construction professionals are not aware of integrated procurement methods in favour of the alternative hypothesis that construction industry participants are significantly aware of teambuilding methods. Furthermore, study of publications of some professional bodies in the industry showed evidence of updating of knowledge base. They are also making continuous professional development mandatory for members. In essence the growing awareness about teambuilding procurement strategies may be ascribed to more enlightenment of the client among other factors. Stakeholders’ awareness and disposition in integrated project procurement 405 Granted that the professionals are aware of integrated procurement methods, are they supportive? A second hypothesis was set to test this. Hypothesis 2 Construction industry participants are not significantly supportive of teambuilding procurement methods. This hypothesis was tested by the goodness of fit test for nominal data. The data was obtained by response of yes or no to the question of whether the respondent organizations are supportive of the use of integrated procurement methods. Table 3: Goodness of fit test results on organisations’ support for the use of teambuilding procurement methods. ___________________________________________________________________________ Group Observed Test Prop. Prob Significance Prop. Value ___________________________________________________________________________ Private YES 68 0.76 0.5 0.001 S* Public NO 22 0.24 Total 90 1.00 ___________________________________________________________________________ S* = Significant at p < 0.05 Category N From table 3 above, p value is 0.001 implying that the result is significant. In essence since the p value is less than 0.05 the null hypothesis is rejected. The alternative hypothesis that project participants - client, consulting and contracting organizations - are significantly supportive of the use of teambuilding procurement strategies is accepted. There are possible explanations for the support of the use of integrated project procurement method. The responses of the reasons for support are shown in table 4. While some of these reasons tally with those adduced for the use of such methods in the United Kingdom and USA especially economic issues warranting more competitiveness, the results on a study in Finland point in the opposite direction. Design and build was more popular in Finland in the period of economic boom [Lahdenpera, et al., 1999]. The trend in Nigeria for the use or support of integrated methods seems to indicate more popularity in consonance with the economic performance of the country. The trend in the country since the 1980s has been that of austerity measures. This was then followed by structural adjustment programmes, then privatization and most recently, (from 1999), liberalization and deregulation of the economy. While this research has not been able to pin down and isolate all the reasons for the support of integrated methods to the macroeconomic variables, the macro-economy nonetheless presents an environment for understanding, locating and possible explanation of this research. At least in the country for public sector projects government has already mooted the idea of integrated procurement that also has the underlying potential of relieving the government of the economic burden of implementing public projects [New Age, 2004]. Table 4 shows the reasons accounting for support of the use or adoption of integrated method. The table also 406 Dada, Oyediran and Ogunlana shows the mean item scores and rankings of the reasons accounting for the support for integrated methods. Table 4: Reasons contributing to the support of the use or adoption of integrated method (1 = low contribution, 4 = very major contribution) Reason contributing to the support of the adoption of teambuilding method We see the benefit/need for collaboration and involvement among project participants We feel it will give best results among other alternatives Need to improve our contracting or project performance to give more beneficial building project Our organization is equipped to use such procurement methods We want to try our hands on new methods and innovate We see need for having one organization responsible for design and construction works The need to match the procurement methods to the complexity of jobs We are used to or familiar with this method We want to be able to clearly allocate and assign our risks to one organization There is a call for/ clamour for such methods by professionals in our organization Commercial and investment reasons Need to avoid adversarial relationships Some of our construction clients/customers call for the method Mean item Rank score 0.579 1 0.553 0.526 0.509 0.583 0.483 0.478 0.462 0.452 0.443 0.430 0.408 0.408 2 3 4 5 5 7 8 9 10 11 12 12 Table 4 shows that the overriding reason for the support for integrated procurement methods is the perceived ‘benefits/need for collaboration and involvement among project participants’. The research however did not investigate the specific benefits being referred to whether qualitative or quantitative. The feeling that such methods will give ‘best results among other alternatives’ followed this. The least contributory reason is ‘some of the construction clients /customers call for the method’. The results in the table, at least the last two items, seem to suggest that project participants, other than the clients, might moot the use of integrated methods for project procurement. It could be interpreted to mean that Nigerian construction clients may not be championing efficiency in project execution. Even though there is growing awareness of the integrated methods, clients do not seem to be empowered to jointly affect issues. This is in contradistinction to reports regarding the UK construction industry where the voice and influence of clients, as it were, is corporately heard and felt in the industry. This is manifested in such organizations as the British Property Federation sometimes having such things as procurement methods or their conditions of contract. Stakeholders’ awareness and disposition in integrated project procurement 407 CONCLUSION AND RECOMMENTATION The study has revealed that construction industry professionals are significantly aware of integrated procurement strategies. The implication is that the Nigerian construction professionals are getting more enlightened and having knowledge of alternative procurement methods. As far as human capital is concerned, the Nigerian construction industry participants have come of age. This knowledge implies further a keen and positively critical and discerning spirit in procurement choice. That may also be a launchpad to position them for competitiveness in the international market. There is significant support for the use of integrated methods. Industry professionals – clients, consultants and contractor - support integrated methods primarily because they offer the advantage of collaboration and involvement among project participants. It is recommended that Nigerian construction industry professionals should sustain and improve the tempo of their human capital development. Stakeholders in construction procurement especially those that formulate policies should use the findings or example of this research to improve their project implementation. Stakeholders’ involvement in project implementation is necessary to secure support. In this way, participating clients, consultants and contractors are carried along in decision making in matters that affect procurement especially in a developing and oil-producing country like Nigeria to assuage agitation of host communities. This may then be a remedy to the failure of government projects at the community level as reported in news [The Guardian, (2002)]. Similar research can be conducted in other countries to reveal similarities or dissimilarities due to culture and other national differences. REFERENCES Ashworth, A (1996) Precontract studies: Development economics, tendering and estimating. England: Addison Wesley Longman Ltd. Chinyio, E A, Olomolaiye, P O and Corbetti, S (1998) An evaluation of the project needs of UK building clients. International Journal of Project Management, Vol. 16 No. 6, pp. 385-391. Edun-Fotwe, F T, Thorpe, A and McCaffer, R (1999) Organisational relationships within the construction supply chain. Paper presented at CIB W55 & W65 Joint Triennial Symposium on customer satisfaction: A focus for research and practice, Capetown, September. The Guardian, (2002) Failed contracts panel indicts elites for Nigeria’s woes, November 6 p. 3. Garza, J.M Alcantara, P, Kapoor, M, and Ramesh, P S (1994) Value of concurrent engineering for AEC industry. Journal of Management in Engineering, Vol. 10, No.3, pp.46 -55. De Valence, G and Houn, N (1999) Procurement strategies In R. Best and De Valence(Eds.) Building in value Arnold and the Contributors ( pp. 37 –61). Harris, F., & McCaffer, R. (2001). Modern construction management. (5th ed.). Oxford: Blackwell Science Limited. Lahdenpera, P.J, Sulankivi K .K and Nykanem V E (1999) Procurement systems’ shares 408 Dada, Oyediran and Ogunlana and trends in Finland. In S. O Ogunlana (Ed.), Profitable partnering in construction procurement, London: EFN Spon Limited. pp. 265-272. Love, P E D, Skitmore, M and Earl, G (1998) Selecting a suitable procurement method for a building project. Construction Management and Economics. Vol. 16, pp. 221 – 233. Masterman, J. W. E. (1992) Introduction to procurement systems. London: E&FN SPON Ltd. McDermott, P (1999) Strategic and emergent issues in construction procurement. In S. Rowlinson., and P. McDermott (Eds.), Procurement Systems: A guide to best practice in Construction. London: E&FN Spon Ltd. (pp..3 – 26). Mills, A,and Skitmore, M (1999) A comparison of client and contractor attitudes to prequalification criteria. In S. O. Ogunlana (Ed.), Profitable partnering in construction procurement London: E&FN Spon Limited. (pp. 699-708). New Age (2004) FG scores self low on utilities, proposes a private sector partnership, February 26, pp1, 2. Ogunlana, S.O and Chareonngam, C (2003) Meeting the challenges of construction in a global economy: Suggestions for developing countries. Keynote address presented at Global 2003- The 1st International Conference on Globalisation and Capacity Building for the Construction Industry of Developing Economies, held at University of Lagos, Lagos. December 1-5. THE THIRD PARTY’S ATTRIBUTES THAT INFLUENCE THE PERCEIVED FAIRNESS OF THE PROCESS FOR HANDLING CLAIMS AND DISPUTE AJIBADE AYODEJI AIBINU Research Scholar, Department of Building, School of Design and Environment, National University of Singapore, 4 Architecture drive, Kent ridge Crescent, Singapore 117566. Singapore. [email protected] ABSTRACT The process for handling claims and dispute may be inefficient if the employer and or the contractor perceives injustice in that process. But, the third party’s involvement in the process can play a significant role in ensuring smooth and expeditious claims resolution. However, the third party’s involvement may also be perceived as unfair. This study examines the third party’s attributes that influence the employer and contractor’s perceived fairness. A conceptual framework is developed and illustrated by fusing knowledge gained from a review of literature and analysis of two litigated cases relating to claims by contractors for delay. The results demonstrate how the following third party’s attributes influenced perceived fairness: third party’s professional expertise; third party’s personal qualities; third party’s appropriate power; third party’s knowledge; and third party’s neutrality and impartiality. One of the interesting results is that in order to ensure that parties perceive the process for handling claims/dispute as fair, neutrality of the third party in terms of independence is important but it is not enough. The process for handling claims can still be perceived as unfair if the third party fails to demonstrate professionalism in that process. The results provide vital information for establishing third party claims certifier and conflict intervener on construction projects. Keywords: cost, claims, contract administration, dispute resolution, perceived fairness, managing projects, process, third party role, Time INTRODUCTION Over the last three decades, the construction industry has experienced an increase in claims liability exposures and disputes along with an increasing difficulty in reaching reasonable settlement of claims in an effective, economical, and timely manner [Barrie and Paulson, (1992)]. The submission of claims by the contractor for delay does not itself create entitlement to additional time and or additional money. In order to decide the contractor’s entitlement and the quantum of the entitlement, the claims must first be assessed and ascertained. A preliminary review of some litigated cases involving contractors’ claims suggests that the process for handling claims may generates conflict and escalates into protracted dispute if the employer or the contractor perceives injustice hence become unsatisfied with the process and the outcome. The perception of injustice may influence the ability of the parties to resolve the claims expeditiously and within the 410 Aibinu on-site machinery for handling claims. The involvement of the third party could deescalate conflict, break deadlock in claims negotiation, reduce dispute, and should be cheaper and faster than litigation [Spittler and Jentzen, (1992), Aubert, (1963)]. However, the third party intervention may also be ineffective and may escalate conflict, protract dispute and become costly if one or both parties (the employer and contractor) perceive the third party’s role and decision as unfair [Tyler and Bladder, (2000)]. There is therefore need for a suitable third party, which is perceived as fair by the employer and the contractor. To achieve this, the position, characteristic and the role of the third party and his relationship with the employer and the contractor is a critical factor that must be considered when designing mechanism to govern the process for handling claims and when appointing the third party claims certifier and conflict intervener at the project planning stage. Based on these highlights, it will be useful to understand what third party’s attributes and roles influence the parties’ perceived fairness of the process for handling claims. Accordingly, the objective of the paper is: • to study the attributes of the third party that influence the employer and contractor’s perceived fairness of the process for handling claims. The results will provide useful insight based on which to establish a suitable third party for the handling of claims. Additionally, it will form a useful basis upon which to create claims and conflict handling schemes that are experienced by the employer and contractor as fair. CLAIMS AND DISPUTE HANDLING SCHEMES: A REVIEW OF MODELS It is difficult to differentiate claims and conflict handling schemes. However, differentiation is possible by looking at the relative role and timing of involvement of the employer, contractor and the third party. Based on this the following groups can be identified (based on two different contracting systems and developments in conflict resolution): (1) The English System, and (2) The Continental Europe System. (3) Alternative Dispute Resolution techniques. In the English model (for example, in JCT standards forms and the ICE Conditions) closely adopted by F.I.D.I.C conditions of contracts and contracts in most commonwealth jurisdictions, the designated third party decision-maker and conflict-settler is the employer-appointed contract administrator (who traditionally, is the architects or the engineer). In the model, the procedure for contractor’s claims is that extension of time, and loss and expense claims are to be submitted first to the Engineer. He/she is required to assess the merit of the claims and make a decision and recommend settlement to the employer and contractor. If not satisfied with the recommendation, the parties can refer the differences back to the engineer. If the parties cannot agree, they may opt for other forms of resolution techniques ranging from arbitration to full-blown litigation. Here the engineer acts as project planner, supervisor, third party claims certifier and quasi arbitrator. The Continental Europe system comprises standard forms of contracts in Denmark, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland. In an event of excusable delays, the contractor is allowed to claim for extension of time for completion. However, unlike the English model where the engineer is accorded a third party function to decide the validity and certify the extent of the claims and its associated Third party’s attributes in perceived fairness of handling claims and disputes 411 cost, the continental model provide for direct negotiation and agreement between employer and the contractor. This is usually based on the provision of the contract. If they fail to reach agreement, they may later (at the end of project) refer the matter to court of arbitration or a state court (third party). In the English model, the third party claims certifying and quasi-arbitral role of the engineer has been subject of heated discussion in the past [Mortimer-Hackwins, (1984), Westring, (1984) ristensen, (1985),nd Nicklisch, (1990)] The main theme of the conflicting views is in respect of fairness of the engineer’s role in the claims process hence fairness of his/her decision. The continental model has also been subject to criticism in that it does not satisfy the need for a third party decision-making authority in claims and dispute matters during the construction phase. The weakness of the two models in terms of intervention of third party, the identity, role and timing of the third party intervention have led to the advent of alternative dispute resolution techniques such as mediation, arbitration, dispute review boards (DRB) or claims review board (CRB), standing neutral or dispute resolution adviser (DRAd), and dispute adjudication board (DAB). These alternative dispute resolution techniques are now used as complements of the English and the Continental Europe models. FAIRNESS – The goal of the process for handling claims and dispute The goal of the process for handling claims is examined from the principle of a claim. The principle of claim is that: a claim allowed in order for the contractor to balance his losses for the excusable delay and compensable delay, and additional work; and the contractor must not gain more from it [Sims, (1975)]. Based on this principle, the contractor must be left in no worse position as the consequence of the genuine delay than he would have been had the delay not occurred. On the other, the contractor should also be left in no better position than he would otherwise have been; he should not benefit as a result of the delay. The process of handling claims should aim at putting the injured party back to the position he held before the breach or compensate that party for the loss [Turner and Turner, (1999)]. For these reasons, ‘equity’ appears to be one of the essential goals of the process of handling claims. Based on these highlights, fairness appears to be an important primary goal of the process for handling claims. The requirement of most general conditions of construction contracts is line with this notion [see for example, JCT 98, Clause (25.3), PSSCCOC (1999), Clause (14.3.3)]. However, issues influencing the attainment of this goal in practice need to be addressed. THE ATTRIBUTES OF THE THIRD PARTY THAT INFLUENCES THE EMPLOYER AND CONTRCATOR’S PERCEIVED FAIRNESS – a conceptual framework According to [Ross (1977)], the best way to determine the fairness of any process is to examine the judgments, attitudes and the perception of the participants. Based on a review of socio psychology literature, the third party’s attributes that could influence perceived fairness of the process for handling claims span five areas [Walton, (1969); Thibaut and Walker, (1975, 1978), Aubert (1963)]: Third party’s professional expertise; 412 Aibinu third party’s personal qualities; third party’s appropriate power; third party’s knowledge; and third party’s neutrality and impartiality. These attributes are now discussed: The third party’s professional expertise and personal Qualities The professional expertise and personal qualities of the third party that can influence the perceived fairness of the claims process include diagnostic skill, behavioural skill in breaking possible escalation of conflict or a deadlock in reaching agreement, acceptance and concern for the parties concerns and capacity to provide support and assurance to the parties [Walton, (1969)]. The third party must be knowledgeable in the particular field and fully capable of evaluating the claims and perhaps translating the claims into ways that is understandable by both parties [Thibaut and Walker, (1978)]. Even if the third party has the authority to decide the claims, a lack of technical understanding can impair the third party’s effective control over the decision stage, thereby forcing the third party to make decisions based on considerations other than the technical merits of the claims [Thibaut and Walker, (1978)]. An uninformed decision will be inaccurate, and can be perceived as unfair, thus impairing the process for handling the claims. The third party’s knowledge and appropriate power The third party’s prior knowledge of the nature of the claims and conflict issues is an advantage, in that it not only enhances the third party’s credibility with the parties, but also increases the likelihood that the third party’s intervention will be on target [Walton, 1969)]. It is advantageous for the third party to have little or no power over the future of the parties in conflict. This third-party power increases the conflicting parties’ sense of risk in confronting issues candidly and or is likely to induce them to behave in ways which are calculated to elicit the approval of the third party. Another type of power that can influence the parties’ perceived fairness is the perceived expertise of the third party in controlling the administrative process of claims assessment and resolution. This is usually responded to by the parties’ acceptance of the third party’s direction during the claims resolution process. The third party’s neutrality and impartiality While third party’s impartiality refers to the third party’s behaviour, neutrality refers to questions of interests such as any existing relationships between the third party and the parties, any interest of the third party in the outcome of the claims, any present or future conflict of interest that may prevent the third party from acting impartially. When the parties believe that the third party is biased against them, they are likely to be less receptive to claims resolution process [Rubin et al, (1994); Welton and Pruitt, (1987)]. Asymmetry in third party’s relationship with the parties could influence the perceived fairness. Three different types of third-party symmetry are important: Is he neutral with respect to the outcome? Is he equally close to or distant from the parties? Does he avoid behaviour that would inadvertently operate to the advantage of one and disadvantage of the other party? [Walton, (1969)]. The third party’s symmetry may be helpful but not always necessary [Zartman and Touval, (1985)]. On the other hand, asymmetry in third- Third party’s attributes in perceived fairness of handling claims and disputes 413 party roles or intervention can be more effective, especially, when they offset basic power or skill asymmetry between the conflicting parties. Irrespective of the personal relation asymmetry between the third party and the parties, both parties might still respect the third-party’s intervention, where the third party displays professionalism in resolving issues of fact in the claims. Where the basic trust in the third party is high, it might still be productive for the third party to give asymmetric support to one party’s ideas, perceptions, feelings and actions. The third party is less likely to be seen by either of the parties as having negative intentions toward that party to whom the third party gives less support or whom he/she actively opposes. Where the third party has much better relationship with one party, he/she is better able to confront that party effectively. The third party is also better able to make interventions that interrupt and interfere with that party’s conflict approach and behaviour. Figure 1 show the conceptualised variables. 414 Aibinu The third party’s professional expertise The third party’s personal qualities The third party’s appropriate power The third party’s knowledge of the parties and the claims The third party’s neutrality and impartiality The Employer and the contractor’s Perceived fairness of the process for handling claims Figure 1 Conceptualised Third Party’s Attributes that Influence Perceived Fairness of the Process for Handling Claims and Dispute ILLUSTRATING THE CONCEPTUALISED VARIABLES Method In order to further illustrate and study the influence of the conceptualised variables, two litigated cases were studied. The decision transcripts of the cases were obtained from relevant law reports. The cases are: Bernhard’s Rugby Landscapes Ltd v. Stockley Park Consortium Ltd (1998) (herein referred to as ‘BRL’ case) and John Barker Construction Ltd. v. London Portman Hotel Ltd. (1995) (herein referred to as ‘JBC’ case). Content analysis of the judicial decision transcripts of the selected cases was conducted. The analysis is organised around the five key aspects of the conceptual framework (the third party’s professional expertise; the third party’s personal qualities; the third party’s appropriate power; third party’s knowledge; and third party’s neutrality and impartiality. In each of the selected cases, the events during the claims process were examined, and by synthesizing the evidences and the facts, how each of the five attributes influenced the parties’ perceived fairness of the claims process was investigated. The background and overview of the selected cases precede the analysis and discussion of findings. Third party’s attributes in perceived fairness of handling claims and disputes 415 Background overview of the ‘BRL’ case In the ‘BRL’ case, the project made use of ICE 5th edition with the construction managers being given the powers which the engineer usually exercises under the ICE conditions. The construction managers were designated contract administrator and third party certifier and quasi arbitrator in matters relating to claims and dispute respectively. The works were delayed by employers’ preventive acts and variations. The construction managers and the employers consistently rejected the contractors’ claim prior to any objective assessment. The contractors lost confidence in the contractual machinery for claims and dispute resolution and as a result asserted claims at litigation. The employers argued that the court had no jurisdiction to entertain the contractors’ claims because the contractors had not allowed the construction managers to decide on the claims before referring the claims for litigation. However, the contractors, among other things, argued that the contract machinery for resolving the claims had broken down and that the clause relating to dispute resolution had become inoperable as a result of construction managers’ failure to administer the contracts properly and to give decisions on the disputed claims. Background and overview of the ‘JBC’ case The contract in the ‘JBC’ case made use of JCT 1980 standard terms but with the deletion of clause 41 (the arbitration clause) and replaced by the words ‘the proper law of the agreements shall be English law and the English courts shall have jurisdiction’. The architect is the designated third party claims certifier and quasi arbitrator. The works were carried out under two contracts. The dispute in the case is in respect of the second contract (herein referred to as Block B). There were delays and it was apparent to all concerned that the contractors were entitled to some extension of time, the exact amount of which was open to argument. Afterwards, the parties negotiated and entered into acceleration agreement and with agreement to pay additional sums of £50,000 to the contractors. After the acceleration agreement, there were further delays and further instructions to the contractors from the Architect. About 3 weeks after the works were supposed to have been completed; the contractors’ managing director wrote a letter to the project managers enclosing a schedule of variations that had taken place since the acceleration agreement was made. The contractors’ managing director stated in the letter that if the contactors had known that there was going to be high level of variation, they would not have committed themselves to the dates in the acceleration agreement. By the letter, the contractors gave notice of intention to seek an extension of time. About 7 weeks after the contractors notice, the architect certified that practical completion of all sections of the block B contract had taken place 6 weeks beyond the contract completion time. Eight weeks later, the architect sent to the contractors, notices giving about 1 week extensions of time. The architect’s decision implied that the contractors are liable to payment of liquidated damages of about 5 weeks. The contractors were not satisfied with the decision of the architect and they asserted claims at litigation. The contractors claimed that they were, and are, entitled to a longer extension of time than was granted by the architect. The contractors also argued that the architect’s decisions were not fair and reasonable. The employers contended that the architect's determination of the claim for extension of time is conclusive and that the court has no jurisdiction to inquire into it. The court reviewed the decision the architect by applying ‘fairness test’. The findings of the court showed how some of the conceptualised attributes and roles of the third party 416 Aibinu influenced the contractors’ perceived fairness of the process for handling the claims hence the contractor’s decision to litigate the claims. Analysis • The third party’s professional expertise and personal qualities In the ‘JBC’ case, the contractors contended that the architect erred both in the allowance, which he made for some of the delay events, and in failing to make allowance for some other delay events. The court reviewed, in detail, the architect’s decision on some of the events. In particular, how the architect generally approached the assessment of the contractors’ claims was investigated. The court found that there was little record by way of contemporaneous notes. The extension of time report prepared by the architect gave no indication how the architect arrived at some of the extension of time granted for the delay events. The court fundamentally flawed the architect’s assessment of the extension of time. It was found that no calculated, logical analysis in a methodical way had been conducted. The architect had not considered the impact of the delay events on the contractors’ programme. Where the architect allowed extension of time for relevant events, the allowance made bore no logical or reasonable relation to the delay caused. Evidence further showed that the employers’ project manager had noted that the extension of time granted by the architect did not address the specific points raised by the contractors in his application for an extension of time, and that the architect had considered items not raised by the contractors. The project manager reported the mistake to the employers' parent company. According to the project manager’s evidence, it was planned that the mistake would be rectified in such a way as to analyze the contractors’ claim in a methodical way, taking into account the contractors’ stated programme, the progress of work at the time and the effect of the incidents on any subsequent works. However, the employers did not seek to have detailed analysis of the contractors’ claims despite the employers’ awareness of the architect’s mistake. In conflicting evidence, the architect said that he had done an analysis of the contractors’ claim in a methodical way, taking into account the contractor's stated programme, the progress of the works at the time and the effect of the relevant events on subsequent works. The architect also said that the possible methodical analysis to which the project manager was referring to was a ‘very high tech solution'. However, there was no documentary evidence to support the architect’s evidence that such an exercise was conducted or to indicate what form it took. When it came to the details of individual delay events, the architect was in difficulty in recalling how he assessed and determined some of the extension of time granted. Other decisions of the architect which were thoroughly reviewed by the court were found to be illogical and inconsistent. The learned judge concluded that the architect had made an impressionistic, rather than a calculated assessment of the time that he thought was reasonable for the various delay events. Evidence showed that the contractors wrote to the architects enclosing various bar charts and an accompanying narrative, suggesting that the effect of the instructions issued after acceleration agreement on the contractors' planned programme of work was such as to justify an extension of time of about six weeks. The contractors also submitted, in support of their claim, lists, or copies of architects’ instructions (AIs) and confirmations of verbal Third party’s attributes in perceived fairness of handling claims and disputes 417 instructions (CVIs). While the architect demonstrated a weak professional expertise in the assessment of the claims, the contractors' case was supported by an expert witness, who produced charts demonstrating the logical links between the various activities shown in the programme prepared at the time of the acceleration agreement and further charts seeking to show the effect on those programmes of the subsequent variations. Although under the contract, the architect had authority to assess and decide on the contractors’ claims; however, the architect’s display of weak professional expertise and lack of technical understanding of the claims appear to have impaired the architect’s exercise of effective control over the decision stage of the claims procedure. That appears to have forced the architect to decide based on subjective criteria rather than on the technical merit of the contractors’ claims. As earlier discussed in the conceptual framework, an uninformed decision by the third party decision-maker will be inaccurate, thus impairing the attainment of a fair decision. This provides wide latitude for perceived injustice and confrontation. An examination of the ‘BRL’ case also shows that the construction managers (the designated third party) did not exercise professional expertise and personal qualities needed to hold the balance between the contractors and the employers. The construction managers failed to assess the contractors’ claims and failed to make its own inquiries into the claims. The court observed that the failure might have been due to the inexperience of the construction managers’ personnel in administering a contract. Evidence revealed that one of the construction managers’ key personnel had never acted under such a contract as a contract administrator. It was also revealed at the trial that prior to the commencement of the proceedings, the construction managers in one of its correspondences sought direction from the employers on what action to take in respect of the dispute arising from the contractors’ claims. In reply to the construction managers, the employers expressed disappointment in the construction managers’ inability to take appropriate steps necessary to resolve the claims and mitigate the dispute. • The third party’s appropriate power and knowledge The conceptual framework suggests that the third party’s prior knowledge of the circumstances of the claims, and the issues in the conflict enhances the third party’s credibility with the contracting parties and increases the likelihood that the third party’s intervention will be on target. In ‘BRL’ case, lack of thorough understanding of the contractors’ claims by those appointed to conduct the assessment and decide on the claims appeared to have influenced the contractors’ perceived credibility of the assessment and the decision-making process, leading to contractors’ non-satisfaction with the outcome of the assessment and consequent decision to litigate. The evidence at the trial reinforced this inference. A claims consultant was engaged by the construction managers to assess the contractors’ claims shortly before the commencement of the court proceeding. The claims consultant had little knowledge of the events and circumstances surrounding the contractor’s claims. Furthermore, other construction managers’ personnel who assisted the claims consultant in the assessment of the contractors’ claims were in some instances appointed after the commencement of the court proceedings; they were not familiar with course of the project. They only had passing on knowledge of the delay events and the contractors’ account. The possession of little knowledge of the contractor’s claims, by the claims consultant and the construction managers’ personnel appeared to 418 Aibinu have influenced the ability of the construction managers to demonstrate objectivity in the assessment of the claims and hence the contractors’ loss of confidence in the claims assessment and decision making process. In addition, the highest degree of control over the assessment and decision making process was exhibited by the employers through the terms of the construction managers’ contract of engagement, which limited the construction managers’ powers to grant extension of time. The contractors were not aware of the terms until disclosed during the proceedings. In particular, one of the terms stipulated that the construction managers had no authority to grant any extension of time or agree to accept any financial claim of any kind without first consulting the design team leader and reporting to the employers. These terms were found to have fettered the construction managers’ control over the claims assessment. The trial judge concluded that the limiting terms affected the attitude of the construction managers as a result of which the contractual machinery for claims was not operated, as it ought to have been operated. The construction managers appeared not to have had appropriate powers. This again provides a wide attitude for perceived injustice. In the ‘JBC’ case, the court found that the architect misapplied the contract provisions in some instances. In addition, because of the architect’s unfamiliarity with Standard Method of Measurement, 7th edition, the architect did not pay sufficient attention to the content of the bills, which was vital for claims assessment in the case of JCT contract with quantities. This reveals the influence of third party’s knowledge on fairness. In the JBC and BRL cases there also appear to be power imbalances in terms of information possessed by the parties. It appears that the contractor has more information than do the employers. This could have led to the employer’s consistent lack of trust in the contractor’s claims and consequent unwillingness to accept the contractor’s claims. Although under the traditional contracting system information asymmetry is expected since the contractor usually is the party in greater control of actual execution of the works. However, in both cases the active control over the gathering of contemporaneous record by the third party construction managers and the architect could perhaps have redressed the problem. In both cases, the inability of the third parties to elicit facts, harmonize the interest of the employer and contractor and generating a convincing decision led to the perceived injustice hence inability to effect settlement within the contractual machinery. • The third party’s neutrality and impartiality In ‘BRL’ case, the construction managers’ behaviour influenced the contractor’s perceived neutrality of the construction managers’ third party role and the consequent loss of confidence in the contract machinery for claims and dispute resolution hence decision to resolve the claims through litigation. The evidence reinforcing this inference is now discussed. Evidence showed that the construction managers were unduly subservient to the wishes of the employers, hence, the construction managers’ counter approach and attitude towards the contractors’ claims. Evidence further revealed that the construction managers’ key personnel involved in the assessment of the contractors’ claims engaged in a behaviour that operated to the disadvantage of the contractors’ claims. By the construction managers’ personnel attitude, the trial judge opined that there was no sign that the construction managers were truly performing its duties under the contract, including exercising its discretion fairly as between the employers and the contractors. Third party’s attributes in perceived fairness of handling claims and disputes 419 The lack of neutrality displayed by the construction managers provide latitude for contractors’ perceived injustice and hence contractors non-satisfaction with the claims process and the construction managers decision. Again, the contractors’ decision to litigate the claims is not unexpected. In ‘JBC’ case, the court observed that the architect endeavored to exercise his judgment independently. However, the architect’s assessment of the amount of extension of time due to the contractor was unfair and irrational. In addition, it was found that the architect discussed the proposed award with the employers and gave the employers the opportunity to comment on it. However, as agreed in evidence by the architect at the trial, the same opportunity was not given to the contractors. Although contractually, acting as a professional man, the architect is not bound to discuss the decision on his assessment with either party, but in ‘JBC’ case, since the architect had discussed with the employer it would have been better if equal opportunity had been given to the contractor. The architect’s asymmetric attitude, among other things, in relation to the employers and the contractors appeared to have contributed to the contractors’ perceived injustice of the decision-making process. The problem was exacerbated by the architect’s lack of display of professional and technical expertise. CONCLUSION AND RECOMMENDATIONS Five important attributes of a third party that can influence the employer and contractors perceived fairness of the process for handling claims has been identified. Analysis of two cases demonstrates how the attributes influence the parties’ perceived fairness. In particular, one of the interesting results is that in order to ensure fairness and smooth claims and dispute resolution, neutrality in terms of independence of the third party is important but it is not enough. The process for handling claims can still be perceived as unfair if the third party fails to demonstrate professionalism in the decision-making process. It is recommended that the attributes be further investigated by statistical analysis of information obtained from many cases in order to understand the relative significance of each attribute and perhaps the dynamics of their influence. REFERENCES Aubert, V. (1963) Competition, and Dissensus: Two types of conflict and Conflict resolution, Journal of Conflict Resolution, 7, (March), 26-42. Barrie D S and Paulson B S (1992) Professional Construction Management, 3rd ed. McGraw-Hill. JCT: Joint Contracts Tribunal. A family of standard forms of contracts published by the Building Employers Federation. Keating on Building Contracts (1991), 5th ed., Sweet and Maxwell: London. Kristensen, H. (1985) F.I.D.I.C – Another Engineer’s View of the Engineer’s Role. International Construction Law Review, Vol 3 Part 1, pp. 51-58. Mortimer-Hackwins, (1984) F.I.D.I.C – An Engineer’s View of the Engineer’s Role. International Construction Law Review, Vol 2 Part 4. 420 Aibinu Nicklisch, F (1990) The role of the engineer as contract administrator and quasi arbitrator in international constriction and civil engineering projects. International Construction Law Review, Vol. 7, Part 3, pp. 323-338. Ross, L. (1977) The intuitive psychologist and his shortcomings: Distortion in the arbitration process. In L.Berkowitz, ed. Advances in Experimental Psychology. Vol. 10, New York: academy Press. Rubin, J.Z., Pruitt, D.G., and Kim, S.H. (1994) Social Conflict: escalation, stalemate and settlement, 2nd ed., New York: McGraw-Hill. Spittler, J.R., and Jentzen, G.H. (1992) Dispute resolution: managing construction conflict with step negotiations: AACE Transactions, D9, 1-10. Sims, J. (1975) Contractors’ Claims. Building, Vol. 4, July, pp. 70. Thibaut, J., and Walker, L. (1975) Procedural Justice: A psychological analysis. Hillsdale, NJ: Erbaum. Thibaut, J., and Walker, L. (1978) A theory of procedure. California Law Review, 66(54), pp. 541-566. Turner, D. F and Turner, A. (1999) Building Contracts claims and disputes. 2nd ed. (Addison Wesley Longman Ltd). Tyler, T.R. and Bladder, S.L. (2000) Cooperation in groups: procedural justice, social identity, and behavioural engagement. Taylor & Francis: United States. Walton R.E. (1969) Interpersonal Peace Making: Confrontations and third party consultation. Reding, MA: Addison-Welsey. Welton, G.L. and Pruitt, D.G. (1987) The mediation process: The effects of mediation bias and disputant power. Personality and Social Psychology Bulletin, 13, 123133. Westring, G (1984) Balance of power in the F.I.D.IC. Contract with special emphasis on the powers of the engineer. International Construction Law Review, Vol. 2 Part 2, pp. 117125. Zartman, I.W., and Touval, S. (1985) International mediation: Conflict resolution and power politics. Journal of Social Issues, 41 (2), 27-45. ESTABLISHMENT OF FOREIGN CONSTRUCTION COMPANIES IN KOREA AND THE KOREAN CONSTRUCTION INDUSTRY IN A FOREIGN PERSPECTIVE: AN INDUSTRY ANALYSIS FOR MARKET ENTRY TILLMANN SACHS and TIONG LEE KONG, ROBERT School of Civil and Environmental Engineering, Center for Advanced Construction Studies, Nanyang Technological University, Blk N1, #B1b-04/10, 50 Nanyang Avenue, Singapore 639798, [email protected] KOO JA-KYUNG Department of Civil- and Environmental Engineering, e-Construction Laboratory, Hanyang University, Sa-1 Dong, Kyonggi-do, 425-791, Ansan, Korea ABSTRACT The Korean construction industry is analyzed from a foreign perspective. Thereupon, characteristics and typologies of construction in Korea are identified. Then, the establishment of foreign construction companies and engineering consultants in Korea and the establishment of Korean construction companies overseas are discussed. Three case studies on major infrastructure projects in Korea help to characterize the Korean way of managing construction. Interviews were held with foreign and Korean companies that were involved in these cases. They are on the high-speed railway construction from Seoul to Busan, the Incheon International Airport, and the construction of the world cup soccer stadiums in Korea. The aim of this paper is to generate an understanding on what problems companies face when entering a new environment that is different in the decision making process, power and information flow from their known habitat. Keywords: international construction, Korean construction, market entry, strategic management INTRODUCTION The Korean construction industry has been in depression since the Asian financial crisis in 1997/98 and the intervention of the International Monetary Fund (IMF). Yet it is consolidating and recovering. The recession is reflected in a decrease of incoming orders from the public and private sectors and a high number of bankruptcies. The structural change in the Korean construction industry towards internationalization and full engagement of information technologies (IT) into the construction process and management is driven by newly emerging companies as well as the financially and technologically strong construction branches of the conglomerates (Chaebols). Even though Korean construction 422 Sachs, Kong and Ja-Kyung companies are strong in pricing and construction execution, the design of international projects and supervision is yet provided and performed by overseas engineering consultants. In this course, the prevailing research questions are: - What is the current stage of and development in the Korean construction industry and environment? - How can foreign construction companies and engineering consultants enter and survive in the Korean market? - How do Korean construction companies operate internationally? For this investigation, fourteen interviews with Korean and foreign construction companies and engineering consultants in conjunction with a market analysis were conducted. The results are presented in the following. THE KOREAN CONSTRUCTION INDUSTRY AND ENVIRONMENT Economic overview The general economic situation The Korean construction industry contributed 14.2% to Korea’s GDP in 2003 which indicates the importance of construction in an emerging economy. The population in Korea has almost doubled to 47 million since 1960 and the economy boosted since the take over of President Park in 1963 who favoured the formation of conglomerate firms (Chaebols) (Table 1). The consecutive urbanization drew massive investments into residential, commercial, urban and infrastructure construction. This documents the change of the Korean society from an agricultural towards a modern industrialized society. Table 1. Indicators of the Korean economy 1960 1970 1980 Population [mil.] 24.9 31.4 37.4 0.2 2.9 39.8 GDP [bill. $] Urbanization [%] 35.8 40.7 56.9 [KNSO 2003] 1990 43.5 188.5 73.8 2000 47.0 448.8 81.9 2003 48.8 620.3 n.a. In 2003, Korea’s GDP ranked 12th in the world (before the crises it ranked 11th) and amounted to 620.3 billion US$. The economy is recovering but still, market and structural reforms are taking place for consolidation. Korea is recovering quicker than expected and is repaying its debt to the IMF ahead of schedule. The Korean economy is dominated by Chaebols. Chaebols are conglomerate firms such as Hyundai, Samsung or LG. The 30 leading Chaebols make up to 30% of Korea’s industrial production. These Chaebols exert a strong bargaining power against suppliers. This results in dependencies of the suppliers of up to 70% in their turnover on one client. This client might influence the supplier to purchase its products for being awarded with a contract in return. If one of these big players collapses, the whole supply chain may collapse as well due to the unbalanced portfolio of clients. Transparency International (2003) ranks Korea at 53 in the Corruption Perceptions Index 2003 and at 18 in the Bribe Payers Index. In general, public works and construction are ranked lowest of all sectors worldwide. Establishment of foreign construction companies in Korea 423 The present situation of the Korean construction industry International construction is a major export product to the Korean economy. In 2003, it accounted for 29.4% of domestic construction [MOCT 2004]. In the course of the financial crises 1996/97 the domestic demand for construction sank by 40% and recovered slowly due to initiated residential construction (Table 2). In 1999, Korea’s credibility was upgraded which led to a 126.4% increase in overseas’ orders. Table 2. Trends in the construction industry since the financial crisis 1997 1998 1999 2000 2001 Domestic orders [bill. US$] 68.7 41.2 44.0 51.7 58.3 % change to previous year 8.3 -40.0 6.7 17.5 12.8 Orders from overseas [bill. US$] 14.03 4.06 9.19 5.43 4.36 % change to previous year 30.8 -71.1 126.4 -40.9 -19.7 [MOCT 2003] 2002 71.5 22.6 6.13 40.6 2003 88.1 23.2 3.67 -40.1 The breakdown of foreign construction orders in 2000 has been attributed to the bankruptcy of Dong-A Construction as well as the liquidity constraints with Hyundai Engineering & Construction, which is now recovering. Both companies were together with Samsung Engineering & Construction the three leading Korean contractors in international construction. As a political counteraction to the large number of bankruptcies in the course of the crises, regulations on the formation of construction companies were eased. The number of construction companies tripled since 1996. The newly established companies draw on the assets of bankrupt companies. The effect is a harsh fight for the lowest bid resulting in a decrease of 65% in the average order volume (Table 3). Table 3. Number of construction companies in comparison to the average order volume 1996 1997 1998 1999 2000 2001 2002 2003 Number of con3543 3896 4207 5151 7978 11961 12643 12996 tractors 196 291 524 112 132 78 47 139 Number of bankruptcy (contr.) Number of subcontractors Number of bankruptcy (subcontr.) Average order volume [mil. $] [MOCT 2004] 21842 607 24167 1061 25432 1579 29704 354 31823 449 35572 430 36665 373 37120 383 18.9 17.6 9.8 8.5 6.5 4.8 5.6 6.8 424 Sachs, Kong and Ja-Kyung The Korean construction industry therefore can be characterized as fragmented [cp. Porter 1998, p. 191] in which no single company emerged as market leader and the industry is comprises a large number of small and medium-sized companies with tough competition at the lower end. How can foreign companies find their niche in such a competitive environment and survive? ESTABLISHMENT OF FOREIGN CONSTRUCTION COMPANIES AND ENGINEERING CONSULTANTS IN KOREA The role and position of foreign construction companies and engineering consultants in the Korean construction industry is investigated by applying the concept of a StrengthWeakness-Opportunity-Threat Analysis (SWOT) with respect to Porters [cp. Porter 1998, p. 4] five competitive forces (i.e. affecting a company’s competitive edge are its suppliers, clients, the threat of potentially new entrants and substitute products and services as well as the immediate rivalry with competitors) and competitive strategies (i.e. cost leadership, differentiation, and focus) [cp. Porter 1998, p 35]. These underlying theories were incorporated into fourteen interviews conducted with foreign and indigenous companies in Korea on their operation in Korea and overseas. The companies were mainly involved in three major projects. In the following, these projects are introduced and the competitive position of the foreigners with respect to the culture specific characteristics in Korean construction is discussed. The interviews were conducted with DE-Consult, Bovis, Clestra, Black&Veatch, Solentanche Pumyang, Dywidag, Eukorail, Bechtel, Fluor Daniel, DLiA, and Hanmi Parsons. The foreign companies in Korea export high-end construction technologies, engineering and consulting services. Due to the big number of domestic contractors and the harsh rivalry at the lower end of the industry, none of these foreign construction companies operates as a building contractor. They are specialised service providers.Each company was/is involved in one of the following projects. BRIEF INTRODUCTION OF THREE CONSTRUCTION PROJECTS KTX – Seoul-Busan High-Speed Rail The Korea Train Express (KTX) is linking Seoul, the capital, with Busan, a harbour city in the southeast. 71% of Korea’s population live along the 412km track. Changes in the tracks, changes in the construction method by employing the Precast-Span-Method (PSM) and lack of experience by the Korean contractors in such complex engineering works led to tripled costs of construction and exceeded the project duration by twelve years. The projected costs amount to 15.3 bill. US$ and project delivery will be in 2010. Since 1994, Bechtel from the USA has been engaged as project manager and among others, DE-Consult from Germany as supervisors and checking engineers. The Korean contractors are interested in the technology transfer provided by the foreign consultants. Korea chose to have the work executed by Korean companies and not by experienced foreign contractors. Thereby, they managed to build up their own expertise on high-speed Establishment of foreign construction companies in Korea 425 rail construction. The first payoff can be witnessed with Hyundai and Samsung, both contractors in the high-speed rail construction in Taiwan. Incheon International Airport The Incheon International Airport (IIA) was erected off-shore between two islands in the west of Seoul that were connected with dikes. The spare volume was refilled with 80% soil from the sea and 20% from the adjacent mountains. The first construction phase began in 1992 and ended with the opening of the Airport in 2001.The cost amounted to 484.3 million US$ and the fee for the construction management to 69.8 million US$. The foreign consultants were Parsons, Turner, and ICT. According to the Project Management Team (PMT), the greatest problems they encountered in executing the project were to match the work breakdown structure (WBS) with the contract structure and cost breakdown structure (CBS). Due to the inexperience of contractors in executing such a mega project, sections were split up among companies so that they could train each other on the job and transfer the knowledge to other sections they also contracted for. One reason for this structure which causes a conflict of interest in the management was the initial segregation of the cost, schedule and quality department. They were competing by nature to report the best numbers respectively. The national regulation on construction contracts favours lump-sum and unit-price contracts but forbids homogenous cost-schedule packages. Therefore, the control of cost vs. schedule was a major problem in this project. World-Cup Soccer Stadiums The construction of the stadiums for the world cup soccer championship in 2002 was also shadowed by the financial crises of 1996/97. Since the discussion was to even blow off Korea’s participation, planning for the stadiums and acquisition of the building ground was delayed. Consequently, supplier constraints emerged for certain materials because the local suppliers were limited in their production capacity. Also, unsettled was the utilization of the stadiums after the championship. The construction amounted to 1,703 million US$ in total. Future projects For each 0.8 billion US$ of investment into construction, 35,000 new jobs are created. By investments into housing, 200,000 new jobs were created. The government plans on constructing seven new north-south and nine new east-west expressways by 2020. It is aimed, that from any point in Korea, one can reach an expressway within 20 to 30 minutes. Thereby, the existing expressways of 1,889 km are to be expended to 5,642 km. In addition, five new domestic and international airports, an expansion of the high-speed rail system and domestic ports and hub ports are planned. Also, the rail links to North Korea are being reopened, allowing the export of goods by land. 426 Sachs, Kong and Ja-Kyung CHARACTERISTICS OF KOREAN CONSTRUCTION, THE ROLE OF FOREIGN COMPANIES AND SET UP The most predominant difference between foreign and Korean companies is in the attribution of clear responsibilities and positions. In Korean companies, even small decisions often need the approval of the superior. This leads to the delegation of the decision in a circle and results in long decision processes. The foreign company therefore needs to know the exact contact person when approaching a Korean company. On the other hand, due to the Confucian background and hierarchic social structure, that is reflected in the companies, decisions are quickly executed, once they are made. One foreign interviewee stated: “Koreans tend to be weak in forward planning, but once they aim at a target, they act so fast, that one easily looses track.” For foreign companies in Korea, this implies keeping in close touch with their JV partner. They should impose on him the main administrative work and daily dealings and focus instead on their expertise and core competences. Socio-cultural differences perceived as market entry barrier Apart from technical problems, all companies experienced difficulty in transferring their objectives to the Korean clients and subcontractors. Therefore, most companies operate in Joint Ventures to let their local partner deal with the locals. Yet, misunderstandings between the Korean and foreign counterparts arise due to the differing socio-cultural valueset they base their actions on. Following Gunnerson and Scott-Stevens (1989), the reasons for the misunderstanding can be summed as in Table 4. Table 4. Socio-cultural differences between Korea and Westerners that lead to misunderstandings Status Korean Roles and Status Hereditary, gender, age, education background dependent on attended schools, family, employer Problem-Solving Harmony, the older person decides Proposals with consideration of not confronting the decision maker to loose face with a solution he does not understand; use of previous cases Information held back and only punctual attributed, small number informed, command-and-control Knowledge & Information “May be” Adaptation, little reflection, search for exemplary cases Social status, chance for job and adequate marriage partner, follow expectations Premises Confucianism War driven, occupied, being shaped Western Position, education background by skills and knowledge, experience Emphasis Approach Majority rule Economic and technical most feasible, direct communication across hierarchy, derive from principles Open to generate broad understanding for the decision so it is carried by the members Surely Discovery, create something new contributing to the situation Social status, career, self fulfillment Communication information of Means Education Education purpose Emphasis Development Christian, Enlightenment Maker, shaping the environment Establishment of foreign construction companies in Korea 427 World view Time (but changing in Korea towards western) Motivation (but changing in Korea towards western) Society by other nations Social, material Little separation of private and professional life Ambitious, “we can do it!”, follow order Collective, group oriented, age matters Communication According to social status and age From top to bottom easy, but only stepwise up Work Ethics Stand-by, ad-hoc Do it in group; one stays at work until the colleagues leave Cover up, but do it again; no individual blame, group carries responsibility Dealt with by negotiation, arbitration; dependency on client → avoid claim for “good relationship” to acquire follow-up order “Good-enough” spirit Social, material Clear distinction between private and professional life Self-satisfied, over-cautious Individualism Mechanism Process According to matter and position Cross-functional and vertial Planning Accomplishment Mistakes Preplanning, follow and execute the plan, only little adjustments Individual fulfillment of task Discussion about mistake, avoid next time; individual is blamed and held responsible Clear laws to assign responsibilities, identify reliable counterpart Claims Performance Precision Table 5 sums up the previous table and discusses the most important perceived differences and commonalities between Koreans and Westerners. Table 5. Differences and commonalities in the background Korean Western group-oriented individualistic island, isolated migration and exchange Differences conglomerates small & medium sized enterprises Constant search for Open for conflict harmony Diligence Respect of age Experience of war Commonalities Divided territories Reconstruction and economic miracle Strategy for set-up In order to overcome these socio-cultural market entry barriers, the foreign companies form Joint-Ventures (JVs). Most foreign companies entered the Korean construction market via a target project. Through the initial project, follow-up projects are acquired for long term establishment. 428 Sachs, Kong and Ja-Kyung One company exists only for a one-off project whereas the other is owned 51% by the foreign partner but the JV is run 100% by Koreans. Yet another company started as a oneman-enterprise and employed Korean staff. In general, foreigners mark the minority of staff and they focus on management and specialized engineering expertise. They experience support in their establishment through the embassies, chambers of commerce and industry as well as through the Korea Investment Service Centre. Typical problems in everyday operation Even though technology transfer is favoured, the foreigners experience suspicion towards newly developed construction and management methods. They then either face costly and time consuming persuasion and training or they are forced to employ tested, traditional methods that are less efficient. For example, the introduction of the Earned Value Management System (EVMS), which is a transparent project management and control tool, showing the correlation between schedule and cost and therefore is a powerful tool in claim management, is not favoured by all participants. The subcontractors tend to cover up deficiencies towards the general contractor (GC) to appear in good shape. They also are hesitant in reporting mistakes done by the GC to the GC in order to stay in his trust and favour for receiving follow-up contracts. But also the general contractor and clients return deficiency reports from check engineers unopened so that deficiencies can not be tracked in their books in case of sitechecks by the audit. The GC faces difficulty tracking, which reports are true or forged and what the exact situation on site is. It is in the GC’s interest to rework project critical deficiencies, but yet not reporting them to the client. And again, clients as well as GCs are reluctant to keep evidence that could be held against them by the audit. Therefore, even though EVMS is understood by management to be a powerful controlling tool, it is difficult to exercise the theory in practice due to the inherent conflict of interests. Even though EVMS is not executed properly, yet it is well documented on paper and in contracts. Same mechanism applies to the concept of Guaranteed Maximum Price (GMP). Reason may be found in the cultural perception of business relations but also in the weak construction laws that leave room for interpretation and therefore do not serve as a planning tool and firm basis in claim preparation. ESTABLISHMENT OF KOREAN CONSTRUCTION COMPANIES OVERSEAS General remarks The establishment of Korean construction companies overseas is investigated by interviewing Hyundai Engineering & Construction and Samsung Engineering & Construction. They generate 30-35% of their annual turnover through overseas construction. In comparison with German HOCHTIEF, that generates 80% of their turnover in international construction that is a rather small portion. Both Korean contractors are in international construction solely executing contractors. They pass the design on to international engi- Establishment of foreign construction companies in Korea 429 neering companies that are familiar with the international standards. Also in their management capacity, unlike HOCHTIEF, they lack the experience and knowledge to run lifecycle oriented projects such as Build-Operate-Transfer (BOT) projects on an international basis. Yet, they want to export the experiences they gain with BOT projects in the Korean market overseas. Determination of competitive position Samsung and Hyundai are strongly engaged in Hong Kong, Singapore, the Middle East, and India. When entering a market for the first time, they determine their competitive position by dispatching two to three employees. Their task is to establish a branch office and to observe the market, identify potential rivals and partners, look for potential projects, clients and suppliers. They acquire information from embassies, chambers of commerce and industry, trade associations, and consultants. They experience a competitive advantage against other foreign contractors in drawing on the experience and information of other regional offices from one of the other branches within their conglomerate. Therefore, the initial set-up costs are decreased. Information on potential target projects is selected and evaluated by standardized checklists. The information is passed on to the head office, which evaluates the data and draws the decision whether the project should be persecuted. The branch office may yet provide a recommendation which is often followed because the branch office is closer to the market than the head office. Both contractors emphasize on the importance of the price level of labour. Thereupon the decision is based whether to use local labour, own labour or labour from a third country. Strategic selection of partners Samsung and Hyundai generally act through joint ventures for entering a new market. They differentiate in the selection of the JV partner between the case of new entry and after establishment. The motives in the selection of the JV partners can be divided and ranked by priority into four categories. a) Technology transfer: That is for bridging gaps in expert knowledge, specialization and resources. That applies to projects that are challenging to the technical competence. The aim is to learn from the partner’s expertise and utilize it in other projects later. b) Capacity: This applies to large capacities that cannot be acquired by outsourcing. It also applies to machinery, equipment, tools, labour, and financial resources that one can either not provide or does not want to provide. c) Pricing: In order to achieve a higher price on the project, one co-operates with the strongest rival in order to cut out the lowest bid and avoid unprofitable competition. d) Network effect: The partner’s network is used to acquire a larger market share and risk is better distributed. The network effect is the most important criteria when entering a new market. 430 Sachs, Kong and Ja-Kyung Table 6 ranks these motives of JV partner selection according to their priority when either entering a market or after establishment. Table 6. Priorities in selecting a JV partner Priority New entry After establishment High Network effect (d) Pricing (c) Middle Pricing (c) Network effect (d) General Technology transfer and capacity (a & b) As indicated in table 6, the general aspects in the partner selection are the technology transfer and bridging capacities. These aspects are predominant when entering a market for the first time. They are dealt with by laying the strongest emphasis on the network effect. In the case of entry to new market, the high risk of failure is compensated by limiting its own engagement and thereby not binding too many resources at once but having a strong partner to carry them. Pricing is in both cases relevant but more relevant after establishment and the following competition with local contractors. At first entry, the network provided by the partner is most important for sustained success. After successful establishment, the network effect becomes less important due to own established network. CONCLUSION The ongoing opening of the Korean construction market since the economic crisis in 1996/97 and the planned projects until 2020 will lead to an increased presence of foreign companies in Korea. Since Korea’s construction industry is horizontally fragmented and has unused capacities within the industry, competition is harsh for building contractors. The field of construction execution is, for foreign companies, impossible to penetrate. The demand for foreign companies however will increase with respect to consulting engineers, specialized construction methods and technologies, and the training of local staff. Even though Korean contractors operate internationally, they lack the expertise for sophisticated design on international standards because the standards are not applied in Korea and therefore the expertise is not developed indigenously. International construction companies and engineering consultants exploit that niche and turn this asymmetric distribution of information, knowledge and expertise into their profit margin. On the long run, Korean contractors thrive for internationalization and taking over complex projects such as BOT projects. Consequently, they will need to cooperate with experienced international contractors for compensating own deficits, learn from the partner and eventually act as a new alternative contractor for complex projects. Due to the strong restructuring effort in the Korean economy after the economic crisis of 1996/97, foreign investors have regained trust in the economy. For many Asian countries, Korea is the role model. Establishment of foreign construction companies in Korea 431 REFERENCES Gunnerson, C.G., Scott-Stevens, S.(1989) Community and Counterpart participation development; J. Society for Int. Development (4), pp. 122-128. In: Gunnerson, C.G. (1991) International information and technology transfer, Journal of Professional Issues in Engineering Education and Practice, Vol. 117, No. 4, pp. 336-350. KGCCI – Korean German Chamber of Commerce and Industry 1998 (1997) Partnerland Korea, 5th Ed., Seoul, Sept. 1997. Korea National Statistical Office, 2003. MOCT (2003) Ministry of Construction & Transportation, 2003, Statistics of construction economy, http://www.moct.go.kr MOCT (2004) Ministry of Construction & Transportation, 2003, Statistics of construction economy. Porter, M.E. (1998) Competitive strategy: techniques for analyzing industries and competitors, The Free Press, New York. Transparency International (2003) Annual Report 2003, pp. 21, 22. 432 Sachs, Kong and Ja-Kyung MODERNIZING A GLOBALIZING CONSTRUCTION INDUSTRY: CHANGING THE WAY OF CHANGING? I. R. WILCO TIJHUIS Ass.-professor at University of Twente, Faculty of Engineering Technology, Department of Civil Engineering; P.O.Box 217, NL 7500 AE, Enschede; The Netherlands; www.utwente.nl; [email protected] Joint coordinator of CIB Task Group TG 23, ‘Culture in Construction’ Managing partner at WT/Beheer BV – Participations-Management-Real Estate, P.O.Box 110, NL 7460 AC Rijssen - The Netherlands; www.wtbeheer.com; [email protected] ABSTRACT As globalization introduces several challenges to the construction industry, it is an interesting issue to deal with. Not only for developing regions but also for the so called ‘modern’ world with its ‘modern’ construction industries. As these regions have been through centuries of modernization (i.e. industrialization), they obviously have not been able to reach a fully satisfying status quo. Clients complain due to cost- and timeoverruns, procurement-procedures seem to be very untransparant, price/quality levels are difficult to handle, etc. A resulatant dilemma for developing countries striving for ‘modernisation’ of their construction industries is whether to try to follow the ‘Western’ model or to pursue a different path. Differences are especially between the drivers of modernization processes, i.e.: mainly technology-driven or human driven? The basic assumption is that it’s not just about technology and it’s development, but much more on the human aspects (i.e. culture) within it. Against the background of present critical situations and their examples in ‘modern’ European construction industries, the conclusions and recommendations focus on the unique and high value of a ‘diversified’ approach. Not only for modernizing the developing regions but also for modernizing the ‘modern’ construction industry. Keywords: Culture, Construction, Diversification, Globalization, Modernization. INTRODUCTION Within the so called ‘modern world’ there are strong forces, trying to engage parties to act in what they believe is the right way. This means that the way of ‘western thinking’ has settled into the construction industry as a strong driver for technological improvement. But has this modern western construction industry a satisfying way of working? When considering recent developments and actions in e.g. the European areas, there are several examples which may indicate the opposite [ICE, 1993; Ogunlana et al, 1999; Vos et al, 2002; Werner & Pastor, 1986]: 434 Tijhuis • • • • Stronger emphasis on improving client-driven approaches such as partnering in construction industry; Discovery of fraud, e.g. recently in Dutch public infrastructure procurement; Large number of claims, e.g. a lot of German juridical procedures in existing construction conflicts; Cost-overruns in large projects, e.g. the British-France Channel-Tunnel. It became clear that the most important party in construction industry, the client, is complaining due e.g. to cost- and time-overruns, untransparant procurement-procedures, price/quality levels are difficult to handle, etc. Therefore, the modern construction industry has taken up the challenge and started to change several years ago, e.g. stimulated by British reports like Latham’s and Egan’s. Also other countries did take up the challenge, and learnt from the lessons of the British construction industry. But has anything really changed? MODERNIZING CONSTRUCTION INDUSTRY: SOME RECENT LESSONS As discussed, the challenge to change the construction industry has been taken up for several years now. Some outcomes of these action may be listed below sorted as positively [see e.g.: CIB, 1998; EEIG, 1999; Eekhout et al, 1993] and negatively [see e.g.: Ofori & Ling, 2003; Tijhuis, 2002; Vos et al, 2002]: Some positive outcomes of recent changes: • There are better possibilities for information and knowledge exchange, e.g. due to information technology; • There are more newly developed materials, such as high-tech glass structures and carbon-fiber; • There is a growing awareness for saving the environment by recycling and re-use within life-cycle approaches. Some negative outcomes of recent changes : • Clients still complain about cost and time-overruns; • There are still difficulties in partnering-issues; • Information technology cannot work without personal contacts; • There are still fraud / illegal activities in construction industries. In general, one can see that the main initiatives of modernizing the western construction industry have been quite succesful on the technological level. However, on the human (culture/behaviour) level it is still difficult to handle and solve the existing problems. Modernizing a globalizing construction industry: Changing the way of changing? 435 MODERNIZATION OF CONSTRUCTION INDUSTRIES: EXAMPLE OF THE EUROPEAN UNION Globalizing of markets: Harmonization of regulations As a basis for modernization, the harmonization activities in the European Union (EU) are obviously a very important issue. Especially now while the EU has been enlarged recently with ten new member-states in the former Eastern parts of Europe. This would be nearly impossible without good and fast exchange of information, moreover as the harmonization has to do with regulations, especially (information…!). So, information technology in the EU assists people and their businesses opportunities for easier expanding and improving their markets, processes and products. In construction related areas this is the case with the harmonized procurement-regulations [see e.g. EU, 1993]. Effects of Harmonization: Changes and struggles by increasing competition The effects of this harmonization can be quite varied. Harmonization can lead to a more open and competive market, creating chances for (new) business opportunities but it is still not an absolute guarantee that the local and/or newly established firms do have the profit of these harmonized systems; it even can result in stimulating the established (foreign) firms at the one hand to enter those (still underdeveloped) new markets, making it more difficult for the new (local) firms to survive! A fair play and control of the behaviour of the people involved is then absolutely necessary, especially during the first years of the harmonized markets operation. Remarks: (See e.g. the strong influence of the ‘old existing’ European companies, settling themselves in the new European countries, controlling these ‘new’ markets). A gradual integration should then be a good scenario for opening and/or further developing such markets. This applies, not only in the field of expanding companies, but also in the field of transfer of low-cost labour: This can increase the risk for ‘labour-dumping’ in the existing ‘old’ markets. Lessons learnt As one of the results of the recent expansion of the EU, there are forces now coming up wanting to block the entrance of low-cost labour coming from these new member countries into the own existing ‘old’ labour market. Although the EU has set a certain period of about seven years to gradually integrate the total internal labour markets, it still generates a lot of unsatisfied and even angry parties like the labour unions. This means, in essence, that the use of only technology for improving or developing new and/or underdeveloped markets, processes or products cannot be succesful for all participants without a thorough influence and control of the people involved. At least a good and gradual integration and adaptation (i.e. communication!) towards the new situation is necessary. Figure 1 represents the importance of this human factor in modernizing construction activities schematically. 436 Tijhuis Human creativity Human skills Technolog y Satisfie d Communication: human & technology Figure 1: The importance of the human factor in modernizing construction activities However, focussing on the process level within the EU, there seems to be still a lot of things to improve; especially on the level of human (culture) issues. MODERNIZING DEVELOPING CONSTRUCTION INDUSTRIES: CHANGING THE WAY OF CHANGE? A gradually change? If the above described European stuation is put into a more global context, it should be clear that the use of a strategy of change on a gradual basis could be an effective approach (although on a company level, a quick change may be more effective). This gives all the parties involved time to change, and to adapt themselves. Therefore: • The strategy of change should have a gradual approach to give the people involved sufficient time to adapt themselves to the new situations . This is a good approach for changing an industry, especially when there are a lot of people involved in it (as is in construction industry!). It can lead to a more ‘natural’ way of new ways of developing markets. A quick change? However, gradual change can still be totally wrong when there are e.g. serious reasons for a quick process of change. One of those reasons can be the situation in which construction industries (or parts of it) are being influenced by criminal activities: Think of situations of illegal construction activities, cost-manipulations, falsification of documents and certificates, and do not forget situations of bribery/corruption, etc. The recent Dutch Modernizing a globalizing construction industry: Changing the way of changing? 437 example of cost-manipulations in tender procedures for public infrastructure by some larger Dutch companies has made it clear [Vos et al, (2002)]: • If there are illegal activities in an industry, quick and rigourous change and control are necessary to create new behaviour of parties as soon as possible. However, also then the human factor plays the important role: stimulation of new accepted behaviour according the accepted ethics (culture!). A local change! Apart from the discussion of whether the way of changing should be a gradually one or a quick one, the main theme still is that is has to do with people! Not only in the modern world, but, especially in the (under)developed world, including the still underdeveloped new EU-member countries. As an example, figure 2 gives an impression of a recent lowcost labour situation in one of those new EU-countries: Labour intensified manually digging and building foundations with only a small scale of technology available. Figure 2: Manually digging and building foundations: Example of a low-cost labour situation in one of the new EU-member countries. There labour and employment plays a much stronger role, apart from the technology (which is often not available…). But of course, situations in e.g. Central Africa or in Middle Europe etc. are not the same as they are in e.g. Asia or Australia, etc. Therefore: • Changing an industry starts with a local approach, taking into account: Why does the industry need to change, and will the right people profit from this change? DISCUSSION 438 Tijhuis In changing construction industries, there are some examples in which Western (governmental) organizations play a role, e.g.: The ILO with their ASIST-Programme is stimulating local labour by supporting labour-intensifying approaches with, often, local developed and/or assembled technology [see e.g. ILO, (2004)]. However, should such industries be changed according the ‘Western’ way, e.g. should it be according the gradually or the quick approach? The main discussion raised here is: a. Should the changing of construction industries take place with or without the use of a technology-push/pull? (i.e.: Choosing for modernizing labour, using modern technology? Or choosing for just creating -a lot of- labour, not using –modern- technology?). The described local based approach by e.g. stimulating the smaller/weaker parties in construction (often SME’s) may be an important strategy [see, for a South African case, Rwelamila, Tijhuis et al, (2003)]. Nevertheless, such a stimulating approach does not guarantee a succesful development of the local/regional/national construction industry, as the people involved are still the most important key-issue; e.g. a bad entrepreneur will stay a bad entrepreneur….if not educated and trained properly and sufficiently! This raises the following discussion-theme: b. How to integrate the change of construction industry with the structural professional training of the people involved? (i.e.: combining or splitting up these activities?). CONCLUSIONS & RECOMMENDATIONS Conclusions 1 Changing the construction industry should not be done through one unique approach. Diversification with adaptation according to local situations and approaches is necessary. (Also: Now it is time to learn from examples from both the ‘western’ developed and other developing areas.) Before deciding on a strategy for change, it is necessary to recognize the people’s roles in it. Not only from the viewpoint of implementation (who will have to participate?, etc.), but also, and especially, from the viewpoint of results (who would or should profit?, etc.). Modernizing the construction industry can be done with the use of modern technology. However, there is an absolute need for integrating this with good and sufficient professional training of the people involved. 2 3 Recommendations Modernizing a globalizing construction industry: Changing the way of changing? 439 1 Underdeveloped regions should be improving their awareness of their present situation, rethinking their needs for changing their local construction industries. However, they should still think from the viewpoint of their strengths, learning from their weaknesses. Developed regions should not only just rethink or revalue their construction industries. It is especially a matter of people and their (built) environment. An important task, therefore, in the present and near future, is trying to attract the right people to keep the construction industry attractive for all the parties involved. 2 REFERENCES CIB (1998) ‘Agenda 21 on sustainable construction’; CIB Report; Publication nr. 237; Rotterdam. EEIG (1999) ‘EITO - European Technology Observatory 1999’; report; European Economic Interest Grouping (EEIG); Frankfurt am Main. Eekhout M. et al (1992) ‘The Glass Envelope’; proceedings; Ed.: M. Eekhout; 6th of March, 1992; Product Development in Architecture; Delft University of Technology; Delft. Egan J. (1998) ‘Rethinking Construction: The Report of the Construction Industry Task Force’; Commission-Report; HMSO; London. EU (1993) “Richtlijn 93/37/EEG van 14 juni 1993 betreffende de coördinatie van de procedures voor het plaatsen van overheidsopdrachten voor de uitvoering van werken”; coordination regulations; European Union; Brussels/Luxemburg. ICE (1993) ‘The Channel Tunnel’; report; proceedings of the Institution of Civil Engineers (ICE); Ed.: W.G.K. Fleming et al; Thomas Telford Services; London. ILO (2004) ‘Advisory Support Information Services and Training for Employmen Intensive Infrastructure (ASIST)’; journal; a programme of the EmploymentIntensive Investment Branch (EMP/Invest) of the International Labour Organization (ILO); Geneva. Latham M. (1994) ‘Constructing the Team – Joint Review of Procurement and Practitioners Contractual Arrangements in the United Kingdom Construction Industry’; Commission-Report; HMSO; London. Ofori G. & F.Y.Y.Ling (2003) ‘Knowledge Construction’; proceedings; Eds.: G.Ofori & F.Y.Y.Ling; Joint symposium of CIB W55, W65 and W107; 22nd – 24th of October, 2003; National University of Singapore (NUS); Singapore. Ogunlana S.O. et al (1999) ‘Profitable Partnering in Construction Procurement’; proceedings; Ed.: S.O. Ogunlana; Joint symposium of CIB W92 and TG23. January 25th – 28th, 1999; Chiang Mai; Asian Institute of Technology (AIT); CIB Publication 224; E & FN Spon, London. Rwelamila P.D., W,Tijhuis et al (2003) ‘Construction Project Procurement Selection for Poverty-Focused Development’; report; South Africa – Netherlands 440 Tijhuis Research Programme on Alternatives in Development (SANPAD); Johannesburg, Amsterdam. Tijhuis W. (2002) ‘Globalizing Construction Industry and E-Business: The Value of Personal Relationships in a Dot.com Economy’. In: K.C.Lam & M. Kumaraswamy (Eds) Special issue of the Journal of Building and Construction Management; Vol.7, No.1; pp.50-56; Chartered Institute of Building & Building Division, Hong Kong Institute of Engineers & Asian Construction Management Association; Hong Kong. Vos M. et al (2002) ‘De bouw uit de Schaduw – Parlementaire enquête Bouwnijverheid – Eindrapport’; Final Investigation Report; SdU-Uitgevers; Den Haag. Werner U.& W.Pastor (1986) ‘Der Bauprozess: Prozessuale und materielle Probleme des zivilen Bauprozesses’; report; 5. Auflage; Werner Verlag; Düsseldorf. CONSTRUCTION: A COLONISED INDUSTRY (Identifying the agent of retardation in construction process development) BOB HINDLE ProjCore: Construction Business Development Consultancy PO Box 848, Howard Place, Cape Town 7450, South Africa, [email protected] ABSTRACT Around the world there is a growing awareness of the need for construction industries to develop or be developed in order to deliver improved value for money. It is understood that the construction delivery process is flawed, most frequently blamed upon the separation of design from production and the phenomenon known as fragmentation. (Explained as the great number of individual specialist service providers who engage with each other to deliver a bespoke product). However, this is not a unique situation, there are other project driven industries, such as film making, that works very well in this way and many manufacturing industries have a very wide range of outsourced component and service providers. These industries do not suffer from fragmentation, in the construction sense or in the sense that [Porter (1995)] described, (though Porters description does fit construction), so it would seem to suggest that there is something more than fragmentation that is the root-cause of the problems, perhaps a type of retarding agent. Several authors have, suggested that the problems of construction are rooted in its unusual social structure. This paper supports this argument but suggests that the social structure can be likened to that of a country that has been colonised. It compares several of the problems found in construction with those found in countries at the time that they were colonised. Strong correlation is found and this leads to the identity of the colonial power that has been the retarding agent of construction development for more than a century. Keywords: Construction Industry Development, Fragmentation, Industrial Colonisation, The Professional Project, Retarding Agents, Social System IINTRODUCTION The idea that the unusual social structure, found amongst the role-players in the construction delivery process, is a major contributory factor and a reason why it is difficult to obtain value for money for customers who invest in bespoke buildings, has been suggested by many authors. Amongst them: [Higgin & Jessop (1965), Mariane Bowley (1966), Wells (1986:10), Ball (1988), Lewis & Cheetham (1993), Latham (1994), Hindle (1997)]. [Bowley (1966:351)] describe the damaging impact that the social structure within and between the construction role-players had had on the industry. She found that it was caused 442 Hindle by the peculiar circumstances that had existed in Britain at the time of its development into its present form. She believed that it was the only form of the system that building owners concerned with culture or social prestige would accept at that time. She went on to describe how the power vested in those at the head of the social hierarchy had allowed them to maintain control for more than a century. This is a view that was expanded upon by [Root & Thorpe (2002)] who contended that the culture of construction was the primary barrier to the uptake of process development, a legacy of its evolution in the 19th Century and the embedding of craft production values of practice improvement, rather than process improvement. It was also seen to be a force that had maintained its power to resist change until the present time, a phenomenon noted by other researchers and writers, such as: [Ball (1988:33&54)] who asked why forces had not changed the structure and procedures of the industry and then answered the question himself: Social constraints imposed by the contracting system …have limited the ability of building contractors to initiate changes in technique and organisation that arise from a breakdown of the social divisions. [Lewis & Cheetham (1993)] who whilst attempting to trace the historical roots of current problems with building procurement systems concluded, thus: The new methods have failed to alter the social hierarchy in the industry and relationships between its principal groups, which are hangovers from former times, and remain as barriers to a truly efficient industry. In South Africa a review of the role of the professions by the National Department of Public Works aroused some one sided debate. One sided because the traditional built environment professions mobilised their forces to stifle debate, resist change, and persuade the policy designers to ‘see things their way’, in a discrete or ‘behind-closed-doors’ way. During this time a small number of academics published their views and research findings, hoping to engender some debate. They were as one in describing the power of the professions, at the head of the social hierarchy, as the major force behind the retardation of process development in construction. They had suggestions concerning ways of achieving this, primarily to abolish the Acts that sheltered them from market forces and allowed them to resist change. Amongst the papers and articles of note were; [Hindle & Muller (1997); Rwelamila (1997a & b); Hindle (1997); Hindle & Rwelamila (1998); Hindle (1998 a, b & c); Pearl (2001 a, b & c)]. It was as a result of this process that the similarities between colonial masters and construction design consultant behaviour was noted and the thesis of this paper was developed. This paper offers the view that the traditional built environment professions behave in ways quite similar to colonial masters at the height of the British Empire. In particular, the attitude, demeanour and strategies employed by the design professions has had a similar impact on the construction industry as did the British and European colonial masters on African and other colonies in their Empires. It compares colonial practices with construction industry practices. [Johnson (2003:11)], studied British Imperialism and noted that colonial powers brought to those who were colonised a need to adopt, a foreign language, belief system and new Construction: A colonised industry 443 procedures and standards. The colonists held the view that they were superior to the natives of the colonised land. This mantle of superiority brought with it racism, separation, categorisation, dehumanisation and exclusion, reinforced through a set of ideas and rules. All of these were used as tools of control but this control brought with it, oppression and humiliation. As consequence, development of the country and its peoples was retarded or reversed and the economy denuded during the period of colonisation. THE PROFESSIONAL PROJECT Despite the fact that both participate in the same process, it is obvious that there is a great difference between the business models used by contractors and consultants. One has a typical consultant trust/advice/opinion orientated mode and the other a production, process and profit driven model. Both are profit motivated but the professions would seem to be hidden behind a vale of status and mystique, whilst the contractors is quite direct about it and considered vulgar by the other. The professions are an ancient and complicated form of organisation but they have been studied and are described in the sociology literature. [MacDonald (1995)] building upon the work of others, particularly [Larson (1977)] described a phenomenon described as ‘the Professional Project’. One, that aims to gain monopoly over a body of knowledge in order to achieve legal monopoly over its application, whilst, gaining high status and respectability in order to win the trust of clients. To achieve this they need to have a special arrangement with, and enjoy the support of, government. Its application and impact on the construction process was described by [Hindle, (1997) & (1998a)]. Several of these ‘objectives’ were also found amongst colonial rulers; A ruling class with high status supported by government; in a structure that embodied elitism and a rigid hierarchy; governance over a body of people who were not allowed to participate and who were thought of as ‘second class’ citizens. The construction social system and traditional procurements system evolved in Britain during the age of colonialism. In construction the client takes the place of the nobility, the traditional professions being gentlemen, able to fit into the social norms of the client and to communicate with them, whilst the balance of the role-players are seen to be less worthy mortals or working class. The latter held in place through master servant relationships and the mind-set of the age. [Cain & Hopkins (1987)] described the phenomenon as ‘Gentlemanly Capitalism’, a commercial elite who emulated the aristocracy (which merged with the old landed gentry and their value system of respectability and class). A system that was also imposed upon many countries, during the period of British Empire building. A UNIQUE MODEL The architecture profession has a business model that is quite unique amongst professions. Other professions, that are involved in complicated processes that may be considered ‘industrial’, include accountants who are clearly involved at several levels as consultants or in commerce and industry. Others have a rather more tenuous link, such as 444 Hindle attorneys, medical doctors, ministers of religion and teachers. Consider the similarities and differences here: Attorneys and medical doctors are at the entrance of a market, which is accessed by private individuals seeking advice from a specialist, usually when they are in a vulnerable state and in need of urgent help. Help, in the form of advice and some form of intervention to heal the body or guide the ‘client’ through a process that he or she may not access alone. (not just because of a lack of knowledge but because the rules of the game preclude it) • In the case of the attorney he will lead a process that may require the individual to appear in court and subsequently to be incarcerated in a prison. Both the court and the prison being institutions set-up and managed by the government. • In the case of the medical doctor it is again a service for an individual that may result in hospitalisation and care in a state-run or private hospital, managed by people with administration and management skills. (changes here are relatively recent) It could be argued that the courts and hospitals are in some way controlled by the professions concerned. However, in both cases there is no end product or manufacturing process involved. • Ministers of religion and teachers are employees who offer ‘upliftment’ to individuals. One offers to heal the soul and keep the individual on the ‘straight and narrow path’ whilst the other offers to help the candidate to acquire knowledge and, sometimes, skill. Once again, the services provided are for the betterment of the individual and there is no manufacturing process involved and no material end product. Then there is another sub-category that would seem to most resemble the model that the built environment professions, they are artists who may interpret their patrons or clients wishes and deliver a painting or sculpture which is a material product that was, in some sense, manufactured. However, the ‘manufacture’ was undertaken by the artist in person, perhaps, with the assistance of apprentices or helpers. We can see that this model does resemble the service offered by architects with the major difference being, the size and scale of the finished ‘work of art’. In the case of architects, they may be accessed by private individuals or by government departments, firms and corporations. They are commissioned to design and to help deliver a finished product that requires the input of a great number of people and specialist firms, that may be many times larger than the client organisation and the architectural practice that engaged them. They are manufacturers of ‘bespoke’ buildings who activate the services of other manufacturers of raw materials, components, tools and equipment and employ quantities of resources to interact in the ‘assembly’ process. This is done on a scale that equals that of the manufacturing process for other major assets such as, motor vehicles, airplanes, locomotives and space vehicles. However, these industries are not burdened with professions who control their markets and supervise their manufacturing processes. In the architecture profession we have a unique situation. Its members are, in effect, artists who have diversified ‘upstream’ and ‘downstream’ to control the market for, and delivery of, buildings. Upstream, to engage with ‘clients’ in the same way as the more distinguished professions of law and medicine have. In effect to control the entry point Construction: A colonised industry 445 into the construction market for buildings. Downstream, to control the manufacturing process, even though they do not necessarily understand the technologies involved. They are appointed as clients agent and provided with the powers of a ‘masters’ in a ‘master servant’ relationship that is embedded into the traditional building procurement system and the typical contracts entered into by client/customer and contractor. Incredibly, they are not at risk in this process, except for aspects of the design. Most construction contractors allocate power and responsibility to those with no corresponding accountability or liability for their actions. [Cox & Thompson (1998:326)]. In this way it can be seen that the profession of architecture has effected control over access to markets and a very large manufacturing process, consisting of general contractors, specialist contractors, associated suppliers, materials manufacturers and equipment companies. Beyond this, in a way that provides them with exceptional powers that can be likened to that of colonial powers, over the people of a colonised country. No other industry is dominated or controlled by a profession or professions in this way. THE LANGUAGE AND STRATEGIES OF COLONISATION AND CONSTRUCTION Most people in the construction industry are familiar with the phrase, ‘professionals and contractors’ but few perceive it as a discriminatory phrase because of tradition. Use of the word ‘professionals’ to describe members of a profession is common in society at large, however, it is not common within industry. Some may believe that it simply separates those who were educated at university from those who were not but it has the effect, by implication, of categorising those who are not in the camp of ‘professionals’ as something less than professional in the way that they execute their work; that ‘professionals’ are superior in rank, status and intelligence. This of course, is similar to the way that colonial masters demanded recognition that accentuated their authority. Clearly, use of the word ‘professional’ in this way is elitist and is used to elevate one group above others, in a typical colonial discriminatory manner. This elitism and its discriminatory impact is inherent in the arrangement of role-players in the construction delivery process. It would seem to have originated in Britain but is found in many other countries, particularly those which were colonised by Britain. A distinct social structure, or as [Bowley (1966)] described it, ‘the system’, is discernable. It is a social structure that mirrored that found in Britain at the time that it developed, some two hundred years ago. It is hierarchal, as described in Figure 1. The first two levels considered themselves to be ‘gentlemen’ and ‘professionals’ whilst the rest were considered to be ‘working class’ or ‘commoners’ (presumably colonised ‘natives’ or subjects). [Von Albertini (1982)] described a similar phenomenon found during European colonial rule. He noted that unlike other invading forces that had become the rulers of various countries and had assimilated with the population, the European colonists maintained a distinct line between the 446 Hindle H orizontal g aps ex ist betw een com petitors in a single b an d A R C H IT E C T OTHER C O N S U LT A N T S V ertical fragm entatio n ga ps G ENERAL C O N T R A C T O RS S U B -C O N T RA C T O R S A R T IS A N S / C R A F TS M E N LABO UR FO RCE Figure 1. The social structure of the construction industry rulers and the ruled. Those who were responsible for the local administration of the empire understood very well that they were strangers in a strange land. This awareness helped create a racist syndrome of rule in which consciousness of one’s superiority was closely bound up with anxiety and insecurity in the face of a foreign world. Social distance was a natural concomitant of these feelings, as was a close sense of corporate identity, which in turn fostered authoritarian or paternalistic attitudes. [Von Albertini (1982:488)]. In construction this relationship was reinforced through the conditions of the various forms of contract that were used for each project. [Cox & Thompson (1998)] described the system as a strange one, where two parties to a contract allowed a third party to administer control over the implementation of that contract. By controlling the entrance to the markets and the power that was vested in them through the contract, they were indeed the ‘masters’ of the industry and contractors were their servants. One strategy that the ‘masters’ have used over the centuries, in order to maintain their position at the entrance to the market, was to warn their potential clients that contractors were charlatans who would rob them unless they used the professions to ‘keep them in place’. In this way they kept the customer and the contractor apart in a divide and conquer strategy. Communication between the groups was kept to a minimum during a project, whilst communication between all of the role-player organisations, outside of the project were unheard of be they, regional or national. Whilst the consulting professions had such meetings, on occasion, but never were contractors invited to discuss issues pertinent to design or the delivery process. In effect, contractors were marginalized and confined to a bit players role because the consulting professions controlled the market, procurement system and delivery processes. The situation became so bad that the various role-players acknowledge that a ‘virtual fence’ exists between consultants and contractors. Terminology such as “They are on the Construction: A colonised industry 447 other side of the fence” is commonplace in the industry, as is the practice of character assassination amongst and between, role-players, even those who might be ‘on the same side of the fence’. Proof of the fact that isolation and separation strategies are effective. Another way that colonists maintained the separation of groups was through inequality in things such as, education, access to opportunities, human rights and benefits. This was achieved through such things as separate education, job reservation, quotas, denial of access and unequal legislation, methods that, once again, are found and used in construction. One example is to be found in the fact that education of the various roleplayer types is completely separate, despite one or two pioneering attempts. [Bowley (1966)] described how the architecture profession caused the separation of education for builders and designers, limiting those who wished to be builders to trade apprenticeship training. This was the case for almost a hundred years, until builders were able to establish ‘building science and construction management’ programmes at tertiary education institutions in the 1970’s. Using these and other strategies to maintain the status quo, design consultants effectively blocked process innovation and neglected everyone else in the process, including the customer. [Bowley (1966), Rwelamila (1997a & b), Pearl (2001) & (2004)]. So effective was the strategy that no other role-players have been able to make changes to the system, in terms of industry relationships and process. There have been several attempts at change, made by customer groupings, particularly governments but most have failed. [Ofori (1991)] There are several attempts underway at present that may produce some results though this is by no means certain, because most of them are aimed at contractors only, as in the case of South Africa. In Britain though, the emphasis of industry development initiatives flowing from Latham and Egan has been on the integration of role-player inputs and this is having some success, despite resistance from many. PROFESSIONAL CONGESTION Another unique feature that supports the colonisation theory is the fact that there are a greater number of independent professions involved in construction than in any other discipline other than, perhaps, medicine. Certainly, more than in any other industrial process. The large number of professional organisations, each with narrow fields of specialisation and little appreciation of the operational difficulties of the others, might have contributed to the United Kingdom’s higher unit cost in design and construction compared with overseas competitors. There are over twenty professional institutions jostling for position in the construction industry and each has sought to carve a niche for its members. [Foster (1990:3)]. This phenomenon has been described as ‘professional congestion’ because of the barrier to process innovation and change that they represent. [Hindle, (1998a)]. Other industries also have numerous specialists but they are integrated into, and oriented with, a single delivery process. This phenomenon in construction does seem to demonstrate their 448 Hindle powerful position and provides them with the critical mass needed to maintain position in a colonised industry, CRITICISM AND CHANGE Criticism about the poor performance of construction delivery began some fifty years ago, rather intermittently and low key for the first twenty years but building in momentum since then. Culminating in the number of critical reports in many countries around the world, at the turn of the century. [Egan (1998)] would seem to be the watershed point between denial and acceptance by many, though, there is still great ignorance of the criticisms amongst the role-players in construction. [Hindle (2001)]. Despite this, there have not been any industry based initiatives of change of note. Certainly none by the supposed leaders of the construction procurement process. Indeed, the architectural profession has studiously ignored the demands for change, even designing strategies to resist it. [Crinson & Lubock (1994), Rwelamila & Hindle (1998), Hindle (1998c), Pearl (2004)]. As a result of this, construction industries in many parts of the world are faced with a virtual customer revolt. Government procurement agencies and major private-sector customers are demanding changes in the way that the construction role-players engage with each other. Despite this there are no signs that the professions are trying to change or even to accept that there is a problem. Surely, only the most stupid or arrogant or powerful entities would ignore such calls for change? Perhaps it is easier to explain by comparing this attitude with the attitude of a typical Colonial power, who simply refused to change and ‘put-down’ any protests or insurrection but had to give way eventually through insurrection and warfare motivated by freedom fighters (or terrorists as Bush and Blair would have it). Change does not come easily to such powerful entities with centuries of tradition behind them. Indeed, one social scientist cited the architecture profession as one that is suffering from an incurable condition known as ‘professional regression’. [Abbott (1988:118), Hindle (2001)]. CONCLUSION It would seem that the comparison between the attitudes, objectives and strategies of colonial rulers and their impact on the colonised subjects, on the one hand and the role players in the construction delivery process, on the other, reveals alarming similarities. Architects and other built environment consulting professions can be likened to colonising powers with other role players as the colonised subjects. Similar attitudes, strategies and impacts are found and the result is experienced by customers as ‘poor value for money’ through the traditional construction delivery process. It has also been shown that the construction industry structure is unique amongst industries, that it demonstrates a complete mismatch of business models and has more individual professions than any other. The industry demonstrates discriminatory language and ancient illogical procedures that are still conditioning the minds of the role-players and preventing them from seeing that it is hampering industry development. Despite the fact, Construction: A colonised industry 449 that customers are demanding change. It does indeed seem to be an industry that is ‘stuck’ and incapable of self engendered change. Whilst Mariane Bowley may not have seen the parallels between colonialism and what she called the strange arrangement of the social structure in the building industry, she did say that no amount of tinkering with the symptoms of the problems would succeed. She argued that it would only be achieved if the pattern of relationships between the roleplayers could be fundamentally changed. The findings of this paper would support this observation. It would seem that the retarding agents of construction process development are those who behave like colonial masters. Therefore, in order to ‘move on’ it will be necessary to achieve independence. The ‘oppressed’ need to ‘throw of the yolk’ and take responsibility for the whole construction delivery process if there is to be meaningful development from within. REFERENCES Abbott, A (1998) The System of the Professions: An Essay on the Division of Expert Labour, The University of Chicago Press. Ball, M (1988) Rebuilding Construction: economic change in the British Construction Industry, Routledge. Bowley, M (1966) The British Building Industry: four studies in response and resistance to change, Cambridge, 1966. Cain, PJ & Hopkins, KG (1987) Gentlemanly Capitalism and British Expansion Overseas: 1) The Old Colonial System, 1688-1850 and 2) New Imperialism 1850-1914, Economic History Review, (1986) 501-25 and (1987) 1-26. Cox, A & Thompson, I (1998) Contracting for Business Success, Thomas Telford Crinson, M & Lubbock, J (1994) Architecture Art or Profession? Three Hundred Years of Architectural Education in Britain. Prince of Wales’s Institute of Architecture, Manchester University Press, UK. Egan, J Sir (1998) Rethinking Construction: The report of the construction task force to the deputy Prime Minister, John Prescott, on the scope for improving the quality and efficiency of UK construction, Department of the Environment, Transport and the Regions, HMSO. Foster, C Sir. (1990) Construction: Restructure to Win, Memo to the NEDC Construction Industry Sector Group, National Economic Development Council, 19 December, pp.21. Higgin, GW & Jessop, N (1965) Communications in the Building Industry – the Report of a Pilot Study, Tavistock Publications, London. Hindle, RD (1997) Two Construction Industry Characteristics that are Hindering its Development, Proceedings of 1st International Conference On Construction Industry Development: Building The Future Together, National University of Singapore, 9-11 December 1997, pp 324-331. Hindle, RD and Muller, M (1997) The Role of Education as an Agent of Change: A Two Fold Effect, Journal of Construction Procurement, UK, pp.56-69. 450 Hindle Hindle, RD Rwelamila, PD (1998): Resistance to Change: Architectural Education in a Turbulent Environment, Engineering Construction and Architectural Management, Vol.5, No.2, Blackwell Science, pp 1-9. Hindle, RD (1998a) A Role for the Built Environment Professions in the Development of the Construction Process? Meeting of CIB TG29 “Construction in Developing Countries”, Arusha, Tanzania, 21 to 23 September. Hindle, RD (1998b) What is Wrong With the Construction Industry? The Civil Engineering & Building Contractor, June, pp.10-12. Hindle, RD (1998c) The Professions: Following the Path of the Dinosaurs! Project Pro, July, pp Hindle, RD (2001) Structural Impediments to Construction Supply Chain Development, Proceedings of CIB World Building Congress, April, Wellington New Zealand, Paper N0 91, p 1 of 11 on CDRom. Johnson, R (2003) British Imperialism, Macmillan, UK. Latham, M (1994) Constructing the team: Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry, HMSO. Larson, MS (1977) The Rise of Professionalism: A Sociological Analysis, London, University of California Press. Lewis, J and Cheetham, D.W. (1993) The historical roots of current problems in building procurement, in proceedings of ARCOM 9th Conference, Oxford, Sept, pp.50-61. Macdonald, K (1995) The Sociology of the Professions, Sage Publications, London. Ofori, G (1991) Programmes for improving the performance of contracting firms in developing countries: A review of approaches and appropriate options, Construction Economics & Management, E & F N Spon, Vol 9, pp 19-38. Pearl, R (2001) Quantity Surveying – a dying profession? A 3 part paper in Building Africa, Part 1 – Vol.1, No 4, pp 3-4, Part 2 – Vol. 2 No 1, pp 3-4, Part 3 – Vol. 2 No 2, pp 8-9. Pearl, R (2004) The architectural and quantity surveying professions in South Africa – are they suffering from a terminal illness? 4th World Congress, International Cost Engineering Council, Cape Town, April. Root, D & Thorpe, T (2002) Moving from a Project to a Process view of Construction, Cultural Barriers to the Introduction of Supply Chain Management, CIB, pp 1-14. Rwelamila, PD (1997a) More Questions on Construction Professions, ProjectPro, Vol 7, No 3, pp 22-24. Rwelamila, PD (1997b) Adapt or Die - the Dilemma of the Construction Professions, ProjectPro, Vol 7, No 4, pp13-14. Rwelamila, PD & Hindle, RD (1998) Resistance to change: architectural education in a turbulent environment, Engineering Construction and Architectural Management, Vol 5, No 2, pp 1-9. Higgin, G.W. and Jessop, N. (1965) Communications in the Building Industry - The Report of a Pilot Study, Tavistock Publications, London. von Albertini, R (1982) European Colonial Rule 1880-1940: The impact of the West on India,Southeast Asia and Africa, Clio Press, Oxford, UK Construction: A colonised industry 451 Wells, J. (1986) The Construction Industry in Developing Countries: Alternative Strategies for Development, Croom Helm, London. 452 Hindle SUPPLY CHAIN MANAGEMENT IN CONSTRUCTION: DIAGNOSIS AND APPLICATION ISSUES ALFREDO SERPELL and BORIS HEREDIA Department of Construction Engineering and Management, Pontificia Universidad Católica de Chile, Vicuña Mackenna 4860, Edificio San Agustín, 3er. Piso, Santiago, Chile [email protected] ABSTRACT A research project has been carried out with the general objective of proposing a generic application methodology of supply chain management (SCM) to the construction sector by adapting the manufacturing SCM experience and development to the particular characteristics of construction. As part of this research, a survey was carried out to more than 50 companies that participate in the construction sector. The purpose of this survey was to obtain a diagnosis about the current situation of the supply chain in the Chilean construction industry. The paper presents the main results of the survey and highlights the problems and restrictions that exist in the local construction supply chains as well as their main causes. Also, a set of solutions is suggested to address the identified problems and improve the supply chain performance. By using the data obtained from the survey and the knowledge available in the literature, the paper proposes a framework for implementing the concepts and principles of supply chain management in construction companies and, in this way, to take advantage of the benefits that SCM can provide. One of the principal conclusions of the paper is that the application of SCM in the local construction sector will require the introduction of several changes in the way that participants of the supply chain interact currently. Some of these changes are analyzed and discussed. Keywords: Supply Chain Management (SCM), construction, diagnosis, application. INTRODUCTION Management of materials and information flows are key strategic priorities for construction companies. A good performance in these areas can provide them with significant benefits and allow the adding of greater value for clients. Supply Chain Management (SCM) can be a very useful approach for construction companies on this regard. This is especially attractive if we consider that the construction activity is a process characterized by high levels of fragmentation and where the effective integration, coordination and management of the chain, from suppliers to final clients, is a necessary condition to obtain good results. This paper presents the main results of a diagnostic study about the relationships between the participants of the supply of construction in Chile. It also provides a general 456 Serpell and Heredia methodology for the application of SCM in construction. Finally, it discusses about its main application problems and their causes, its benefits and the requirements for its effective application in this sector. SUPPLY CHAIN MANAGEMENT IN CONSTRUCTION The supply chain is a network of organizations involved, from the supplier of the supplier until the client of the client, on the different processes and activities that produce value in the form of products and services for the final client. Its major components are the suppliers’ network, the transformation unit and the clients’ network. The effective management of the supply chain is necessary for successful competition in today’s global markets. SCM is a philosophy that describes how organizations should manage their supply chains to achieve strategic advantages. Its goal is to synchronize the client requirements with the materials and information flows along the supply chain, until reaching a balance between the client satisfaction and the cost. It refers then to the coordination of the activities of all that participate in the supply chain, to knowing the production requirements with the purpose of satisfying the client, to delivering of products of higher value and to reducing the costs of the organization that apply these principles. The application of the SCM, mainly in the manufacturing industry, has been successful and has achieved the expected benefits [Roth and Martin, (2000), Proverbs and Holt, (2000), Landry, (1998), Christopher, (1992)]. Some of these benefits are: cost reduction, competitive advantages, productivity improvement, value creation and better relationships between parties. This can be achieved by four proposed critical factors that were determined after an analysis of the SCM literature: information integration of the whole company, operational coordination and collaboration, focus on the client and development of general strategies in the whole chain [Ross, (1998), La Londe, (1998), Lee and Whang (2001), Roth and Martin, (2000)]. These four factors are shown in figure 1. Strategy and action plan Information technology Information integration Objectives and goals Organizational structure Strategic planning Management commitment Application of SCM Focus on the client Outsourcing Process improvement Collaboration and coordination Training and education Communication Requirements analysis Pull production system Fig. 1 Proposed critical factors for SCM application Supply chain management in construction 457 To apply SCM in construction it is necessary to distinguish some characteristics of the construction production system, as follows: • The construction product is for a single client most of the times. • The product changes for each project. • The place, equipment and methods of production change for each project. • Construction personnel have a high rotation index during the construction time and between projects. • Not all the parts and materials can be stored at site. • It is not easy to take advantage from economies of scale and learning. Although the construction process is different, SCM can be useful and effective in construction [O’Brien, (1999)]. Besides, construction is a process with strong fragmentation evidenced by the lack of integration of its supply chain, a fact that makes SCM a very appealing approach to achieve integration between internal and external suppliers, designers, contractors, subcontractors and internal and external clients. Figure 2 presents a conceptual representation of the construction supply chain and the way that all of its participants interact. Owner or user Need Architect and consultants Design and studies Constructor Suppliers and subcontractors Indirect suppliers Management Fabrication Parts production Materials production Use Site construction Capacity Information Flow (orders, programs, estimates, procedures, etc.) Resources Flow (supplies, finished products, equipment, etc.) Fig. 2 General model of the supply chain in construction (adapted from Vrijhoef y Koskela, 1999) Given this configuration of the construction supply chain, a construction company has as many supply chains as it has construction projects, because for each project the client’s needs and the project’s characteristics might be different. As shown in figure 2, the supply chain in construction represents a system of multiple supplier – client relationships that are needed to complete the project. Besides, every supply activity (i.e., purchase, storing, transportation, inventory management, etc.) ends at the site, where the construction is carried out. Another particularity is the number of clients. Compared to the manufacturing supply chain, the number of clients in construction is very limited and, besides the housing sector, generally is only one. 458 Serpell and Heredia The construction supply chain is affected by many problems as has been reported by several authors [Vrijhoef and Koskela, (1999), Vrijhoef, (1998), Hong-Minh et al., (2000); Akintoye et al., (2000), O’Brien, (1999), Ofori, (2000)]. Most of these problems are not generated in the conversion process but in the different interfaces that exist within the supply chain. Some of the general problems are as follows: • Lack of coordination, collaboration and commitment between suppliers and clients within the supply chain. • Design problems (many changes and inconsistent information). • Poor quality of materials and components. • Deficient communication and information transfer. • Inadequate management within the supply chain, mainly poor planning and control. • Poor training of contractor’s suppliers, subcontractors and workers. • Lack of effective methods for measuring the performance of the different parties within the supply chain. The purpose of incorporating the principles of SCM to construction can be stated as: obtaining competitive and comparative advantages through value generation, cost reduction and the integration of all the parties that intervene in project management and construction processes, with the goal of satisfying both the internal and the external clients. RESEARCH METHODOLOGY The methodology used for carrying out the diagnostic of the construction supply chain in Chile, consisted in the application of a survey to more than 300 organizations that involved construction companies, suppliers, subcontractors and clients [Heredia, (2003)]. The population analyzed was all the companies that belong to the construction sector that develop their activities in Santiago, the capital of Chile. A total of 50 valid surveys were obtained during the study. The composition of the sample is shown in table 1. Table 1 Composition of the sample Type of organization Construction companies Suppliers Subcontractors Clients Total Required number of answers 29 13 5 3 50 Current number of answers 31 11 6 2 50 In addition to the answering instructions, the survey was structured in four sections with the following objectives: • To obtain general information about the respondent companies, including type of company, area of work, annual operational volume and number of employees. • To understand the relationships between companies and their suppliers. • To understand the relationships between companies and their clients. Supply chain management in construction 459 • To identify and understand the more relevant aspects of the relationships between construction companies internal clients and suppliers especially between construction sites and the main office. The survey was answered mainly by companies’ general or area managers that have a direct relationship with their clients and suppliers. SUMMARY OF THE DIAGNOSTIC FINDINGS In the next sections, concise summaries of the major findings of the diagnostic of the supply chain are presented. RELATIONSHIPS WITH SUPPLIERS Regarding the criteria for suppliers’ selection, price ranked as the most important factor taking into account when choosing a supplier by an 84% of the respondents, followed by quality (78%) and efficiency and effectiveness of delivery (37%). Concerning problems in the relationships with suppliers, the major categories were: not conforming to agreed delivery time (72.6%) followed by non conformance with quality requirements (52.2%), lack of adequate communication (34.8%) and lack of suppliers’ capacity or availability (30.4%). When asked about causes of these problems with suppliers, the most mentioned by the answerers were: lack of planning of own company (38.3%), lack of planning by suppliers (34%), lack of control by suppliers (34%), insufficient communication (34%) and lack of training and competence of suppliers’ personnel (34%). Design changes were also mentioned as a cause but only by 27.7% of the respondents. Respondents also referred to the main barriers in the relationships with suppliers: differences in objectives and goals were mentioned by 52.8% of respondents; also the same percentage indicated the lack of management skills of suppliers, 43.2% referred to the inadequate organizational structure of suppliers and 36% to the inability of suppliers to consider long-range benefits. Regarding the benefits of keeping good relationships with suppliers, the major benefits were: better quality (67.4% of answerers), better productivity (57.2%), cost reduction (44.9%) and lower inventories (32.6%). Finally, when asked about the ways used of measuring suppliers’ performance, cost was mentioned as the most important factor by an 86% of them, quality (82%), timing (58%) and service (40%). 460 Serpell and Heredia RELATIONSHIPS WITH CLIENTS Respondents indicated that the main problems with clients are as follows: design problems (86.7% of respondents), quality requirements (49.2%), and communication problems (46.9%) and contracts problems (46.9%). Regarding the causes of these problems, they indicated that changes in requirements is by far the most important cause marked by 65.7% of the respondents, followed by the participation of third parties (inspection, engineering firms, etc) mentioned by 39% of the respondents and insufficient communication (35%). When asked about barriers to good relationships with clients, respondents indicated the following: deficient communication channels (90.6%), insufficient management skills of their own company (46.9%) and inappropriate organizational structure of their own company (46.9%). Regarding the mechanisms to identify and understand clients’ requirements, periodic conversations were mentioned by 94.9% of respondents, previous projects information (76.9%), surveys and interviews (51.3%) and market studies (46,1%). They also mentioned the following benefits of keeping good relationships with clients: better quality (57.5%), higher profits (55.5%), more competitiveness (53.3%) and cost reduction (39%). INTERNAL RELATIONSHIPS CONSTRUCTION SITES BETWEEN MAIN OFFICES AND Contractors and subcontractors were asked about issues related to the relationship between their main offices and construction sites. The main difficulties mentioned by respondents were: problems with design information (96.4%), communication problems (53.6%), quality failures of supplied items (53.6%) and lack of knowledge of requirements (39.3%). According to the respondents, the main causes of these problems were: lack of planning (83.3%), lack of control (62.5%) and insufficient communication (58.3%). Regarding the main barriers to keep good internal relationships between main offices and construction sites, the answers were as follows: lack of appropriate communication channels (100%), inappropriate organizational structure (71.2%), lack of knowledge of information technologies (55.9%) and inadequate management skills (55.9%). They also mentioned the following benefits of keeping good internal relationships: cost reduction (75.9%), better quality (75.9%), productivity increase (41.3%) and greater profits (34.5%). APPLICABILITY OF SCM IN THE CHILEAN CONSTRUCTION INDUSTRY The brief review of the answers obtained from the survey is an evidence of the many problems that exist in the supply chain at the local construction industry and demonstrates that many of these problems should be solved before SCM may be effectively applied. Deficiencies of integration and coordination, price-based supply decisions and different short-term goals are critical issues that should be addressed before implementing SCM. One of the manifestations of this inadequate attitude of the parties is the fact that most of Supply chain management in construction 461 the companies assign the responsibility of supply problems to their suppliers without looking at their own internal deficiencies, like the lack of planning and control, changes of their supplying needs, inadequate communication and so on. No intention of creating long-term relationships and promoting integration and collaboration with suppliers was clearly proposed by most of the companies. Construction clients also have an important role in improving the specific relationships with their contractors, with especial emphasis on three issues: to provide clear requirements, to avoid continuous changes of designs and supplies needs and to create adequate communication channels to improve the critical conversations with their suppliers. In general, it can be said that there is a poor understanding of the way each of the parties participates in the supply chain. It adds to this, the insufficient application of sound management principles and methodologies for managing their respective companies. This is also an issue that should be addressed if it is hoped to be successful in the application of SCM in the local construction industry. The effective application of SCM would provide many benefits that should act as incentives for all the parties as it is recognized by most of the answerers of the survey. A PROPOSED METHODOLOGY FOR APPLYING SCM IN CONSTRUCTION Knowing the current situation of the local construction supply chain, a generic methodology is proposed to implement SCM, taking into account the problems previously identified. This methodology is addressed mainly to construction companies. However it can also be applied by the other parties of the supply chain. The methodology is based on the cycle known as the Deming cycle, also known as the PDCA cycle (plan – do – check – act). The fundaments of this cycle and its application to every activity or process of the organization are essential to achieve a continuous improvement of its supply chains. The main steps of the implementation methodology are shown in figure 3. Initial analysis of the supply chain Planning and redesign of the supply chain Implementation of improvement actions Monitoring, control and improvement Fig. 3 Main steps of the SCM implementation methodology 462 Serpell and Heredia The methodology is focused on strengthening four aspects: strategic planning, coordination and effective collaboration, focus on the client and information integration as shown previously in figure 1. These four aspects should be considered and measured by construction companies to reach the potential benefits of keeping good relationships with suppliers and clients. INITIAL ANALYSIS OF THE SUPPLY CHAIN The objective of this stage is to define the supply chain of the organization and to know the problems that are present as well as their causes. With this analysis, a wide vision of what is going on with clients-suppliers relationships within the chain can be obtained. The actions and expected results of this stage are summarized in figure 4. INITIAL ANALYSIS OF THE SUPPLY CHAIN Main activities Analysis of organizational structure and strategic planning Identification and description or supply chain processes Identification of waste in the supply chain Expected results °Mission, vision and strategic objectives focused on improving relationships with suppliers and clients °Redesign of organization focused on clients and suppliers °Critical processes and subprocesses that belong to the supply chain °Processes relationships °Definition of responsibilities °Activities that do not add value in the supply chain °Detection of problems in the interactions between production flows and conversion SUPPLY CHAIN PLANNING AND DESIGN Fig. 4 Activities and results of the initial analysis of the supply chain PLANNING AND DESIGN OF THE SUPPLY CHAIN During this second stage, objectives and actions needed to eliminate or reduce the main causes of the problems found during the analysis stage are planned. Also, improvement opportunities are proposed. The activities in this stage are focused on designing a new structure of the supply chain of the organization that will improve competitiveness through value generation for clients and cost reduction through waste elimination. This is shown in figure 5. Supply chain management in construction 463 Fig. 5 Activities and results of the planning and design stage ACTIONS IMPLEMENTATION In this stage, the purpose is to carry out the activities or strategies defined in the planning stage. It also considers the construction of the necessary capacities related to the use and management of technology, capital, people and resources to assure an effective implementation. MONITORING, CONTROL AND IMPROVEMENT In this stage, the obtained results are compared against planned results using performance measurements. If this comparison is not positive, then corrective actions should be taken. If results are okay, then new actions are planned to continue improving the supply chain. TOOLS AND METHODS The application of the methodology should be supported by several tools and methods. Figure 6 presents some of these tools and methods that may be complemented with additional ones. 464 Serpell and Heredia Fig. 6 Tools and methods for the proposed methodology CONCLUSIONS Construction is a productive process that presents a high degree of fragmentation between participants. This fact gives rise to many problems originated mainly by the lack of coordination of these participants. SCM provides many principles to address this fragmentation and reduce it. However, those principles were developed in the manufacturing environment, which presents conditions that are much more favourable for its application. The analysis presented in this paper suggests that the principles of SCM can be applied to the Chilean construction industry despite of the existence of several inadequate conditions currently in the industry, as shown by the survey’s results. Some of this adverse conditions are: the short-term approach of management decisions in the construction sector, the lack of managers’ commitment with the required changes, the absence of sound communication channels between construction participants and the lack of management’ training, between others. Therefore, it is proposed that to achieve the benefits of SCM it is necessary to apply a very systematic but flexible approach and with a long-term planning horizon so that many of these conditions can be changed effectively. Some of the major benefits that construction organizations can achieve by means of applying SCM principles are: (i) the development of internal capacities to carry out their processes in a more effective and efficient way than that of their competitors; (ii) the development of strategies that will allow them to deliver better products and services to their targeted market segments and (iii) the effective organization and handling of the information and resources flows needed to improve the performance of their suppliers. Supply chain management in construction 465 Organizations would become more competitive in terms of production costs reduction and by increasing the value for their clients. A better supplier-client relationship requires the availability of an integrated information and communication system shared by both organizations. This system will help to strengthen the relationship, to facilitate the required understanding between them and to make their objectives more compatible. It will also provide timely information about the performance of the relationship, easing the rapid adoption of improvement actions and motivating a greater commitment in both organizations. REFERENCES Akintoye, A., Macintosh, G., Fitzgerald, E. (2000) A survey of supply chain collaboration and management in the UK construction industry, European Journal of Purchasing and Supply Management, Special Issue. Christopher, M. (1992) Logistics and supply chain management: strategies for reducing costs and improving service, Pitman Publishing, London, UK. Heredia, B. (2003) Diagnóstico y metodología de aplicación de la administración de la cadena de aprovisionamiento en la construcción. (Diagnostic and a methodology of application of supply chain management in construction) M. Sc. Thesis, Departamento de Ingeniería y Gestión de la Construcción, Pontificia Universidad Católica de Chile, Santiago, Chile. La Londe, B. (1998) Building a Supply Chain Relationship, Supply Chain Management Review. http://fisher.osu.edu/supplychain/pdf-files/scmr. Landry, J. (1998) Supply Chain Management, Harvard Business Review, Nov – Dec. Lee, H., Whang, S. (2001) E-Business and Supply Chain Integration, Stanford Global Supply Chain Management Forum, SGSCMF-W2-2001, E-business and Supply Chain Management, Stanford University. USA. O’Brien, W. (1999) Construction supply chain management: a vision for advanced coordination, costing and control, http://www.ce.berkeley.edu/~ tommelein/CEMworkshop.htm Ofori, G. (2000) Greening the construction supply chain in Singapore, European Journal of Purchasing and Supply Management, Special Issue. Proverbs, D., Holt, G.D. (2000) Reducing construction costs: European best practice supply chain implications, European Journal of Purchasing and Supply Management, Special Issue. Ross, F. (1998) Competing Through Supply Chain Management, Kluwer Academic Publishers, USA. Roth, R., Martin, J. (2000) Supply Chain Management Development Strategy. ECRU Technologies Publisher. Vrijhoef, R., Koskela, L. (1999) Roles of supply chain management in construction, 7th Conference of the International Group for Lean Construction, Berkeley, USA. Vrijhoef, R. (1998) Co-makership in construction: towards construction supply chain management, Graduate Thesis, Technical Research Centre of Finland, Espoo. 466 Serpell and Heredia ELECTRONIC PROJECT MANAGEMENT INFORMATION SYSTEMS FOR CONSTRUCTION PROJECTS IN DEVELOPING COUNTRIES P. NITITHAMYONG Construction Engineering and Management Program, Malaysia University of Science and Technology, Unit GL33, Block C, Kelana Square, 17 Jalan SS7/26, Petaling Jaya, Selangor 47301, Malaysia. [email protected] M. J. SKIBNIEWSKI School of Civil Engineering, Purdue University, 550 Stadium Mall Drive, West Lafayette, IN 47907-2051, USA B.Y. RYOO Department of Construction Management, Florida International University, 10555 West Flagler Street, Miami, FL 33174, USA. ABSTRACT This paper presents an Information Technology (IT) concept called “Electronic Project Management Information Systems (e-PMIS),” which has proven practically useful in enhancing the management of construction projects worldwide. The paper discusses technical and implementation concepts of commercially available e-PMIS and identifies important issues that still require further investigations before the maximum benefits of e-PMIS can be reaped. The paper then proposes a methodology that can be used to develop an integrated web-based e-PMIS. It is envisaged that such a system can help construction firms in developing countries manage projects more effectively and efficiently, thereby facilitating the globalization process in construction. Keywords: Electronic Project Management Systems, Information Technology, Internet, World Wide Web, Construction, Management. INTRODUCTION The construction industry is fragmented because of its multi-disciplinary/organizational nature, which has led to well documented problems with communication and information processing and low productivity in construction projects. Information Technology (IT) has been used extensively and successfully by practitioners in developed countries to improve coordination and collaboration among firms participating in a construction project and to revolutionize the way in which construction project teams conduct business. Its practical benefits, for example, include an increase in the quality and timeliness of documentation, the speed of work, better financial controls and communications, simpler and faster access to common data, and a decrease in documentation errors [Nitithamyong and Skibniewski (2004a)]. Yet, construction practitioners working in developing countries have not reaped 468 Nittithamyong, Skibniewski and Ryoo as much benefits from IT utilization as those working in developed countries. This is mainly because many of IT applications are still implemented on a stand-alone basis, focusing solely on a specific operation or process. Existing IT programs, so called “solutions,” containing different management functions are a norm, but the customization of these programs is still relatively difficult and has not yet been implemented successfully in developing countries. As a result, IT applications in various construction business processes are still not adequately integrated, often creating scenarios referred to as “islands of automation.” In addition, most practitioners working in the construction industry usually apply IT in their business processes based on what they know or have experienced. They do not have adequate knowledge on how to apply IT effectively and efficiently in construction operations and processes. Since IT has become a promising tool/solution to facilitate the globalization of the construction industries in developing countries, it is therefore important to search for a way that construction practitioners in developing countries can gain the maximum benefits from IT investment and implementation. This paper presents one of the fastest growing IT concepts in construction called “Electronic Project Management Information Systems (e-PMIS),” which has proven practically useful in enhancing the management of construction projects in various aspects, such as project documentation, schedule, cost/contract, quality, safety, and materials management. In particular, the paper discusses the technical and implementation concepts of commercially available e-PMIS and identifies important issues that still require further investigations before the maximum benefits of e-PMIS can be reaped. The paper then proposes a methodology that can be used to develop an integrated web-based e-PMIS. It is envisaged that such a system, if implemented appropriately, can help construction firms in developing countries manage projects more effectively and efficiently, thereby facilitating the globalization process in construction. ELECTRONIC PROJECT MANAGEMENT INFORMATION SYSTEMS E-PMIS are basically systems that use Internet, World Wide Web (WWW), and related communication technologies to manage project information. Such a system provides a centralized and reliable means of transmitting and storing project information, which is only accessible by a project team, but team members can be located in different organizations [O’Brien, (2000)]. Project information is stored on a server and a standard Web browser is used as a gateway to exchange this information, eliminating geographic and boundary hardware platforms differences. Figure 1 shows a basic functional scheme of a generic e-PMIS [Skibniewski and Nitithamyong, (2004)]. There are generally four types of information that are carried out through e-PMIS: project, design, management, and financial information [Mead, (1997)]. Project information includes details about the project (i.e., project participants, project e-mail directory, project description, and photos of the project’s progress). Design information includes any information generated by the design team (i.e., drawings, specifications, clarifications and changes, and punch lists). Management information includes meeting minutes, submittals and shop drawings, change order status logs, as-built drawings, requests for information (RFIs), requests for quotation (RFQs), contract status logs, safety information, daily logs, and project schedules. Financial information includes cash flow, projections, requisition Electronic project management systems 469 status, general ledger, and contract status reports. As any of this information changes, the database on the server can be easily updated with new data. Since a closed network is generally used where no one is allowed to access the system without permission and everyone is identified (through an individual user ID and password), the system can automatically track who has seen what, and what comments or changes if any, they made. It is also possible to introduce a project hierarchy into the system, which allows documents or areas of the project to be restricted to only people at certain levels of responsibility, etc. Firewall Internet Owner Extranet Personal Identification and Authorization User Interface Project Planning Management Module Information Database Architect Industry data Engineer Design Management Module Project data Contractor Procurement Management Module User data … Project Collaboration Module Subcontractor Facilities Management Module Etc. Supplier Figure 1. Basic functional scheme of e-PMIS [Skibniewski and Nitithamyong (2004)] Currently, there are more than 200 commercial e-PMIS systems that are developed specifically for the construction industry [Cyon Research Corporation, (2004)]. Features supported by these systems usually vary depending on target customers of the companies developing the systems and target phases in a construction project that such a system is intended to be used. Table 1 illustrates some examples of these systems as well as their current offering features as reported by Nitithamyong and Skibniewski, (2004a). Readers are referred to Alshawi and Ingirige (2003) for additional examples. Limitations of existing commercial e-PMIS systems Although the concept of e-PMIS is practically useful for construction project management, some important issues still require further investigations before the maximize benefits of commercial e-PMIS systems can be realized by practitioners in developing countries. According to a recent survey conducted by the authors, several characteristics of the project, the project team, the e-PMIS service provider, and the selected e-PMIS can have significant impacts on the effectiveness of e-PMIS used in a construction project. The survey also shows that most commercially available e-PMIS systems still focus on the integration of management functions at a project level [Nitithamyong and Skibniewski (2004b)]. In fact, most of these systems are tailored only for a construction phase, with the major goal of facilitating the management of documents and information at project sites. An integration of such systems with other management systems generally used by 470 Nittithamyong, Skibniewski and Ryoo construction firms (i.e., accounting management systems, cost management systems, Enterprise Resource Planning (ERP) systems, Customer Relationship Management (CRM) systems, and Knowledge Management Systems (KMS), and Supply Chain Management (SCM) systems) has also not yet been accomplished or even not applicable. Most management systems used by construction firms in developing countries are Intranet-based programs aiming to control and manage internal business processes and associated data for predefined purposes and their platforms and system architecture are different. To successfully integrate e-PMIS with these systems, an understanding of both business processes and system compatibility issue is therefore required. Electronic project management systems 471 Table 1. Examples of commercial e-PMIS for the construction industry (Nitithamyong and Skibniewski 2004a) Common Features Central Logs& Revision Control Conferencing & White boarding Expanded Features Messaging Outside the System Type of e-PMIS Project Collaboration Network (PCN) Project Information Portal (PIP) Project Procurement Exchange (PPE) PCN+PIP PCN+PPE PIP+PPE Full Service Portals (PCN+PIP+PPE) Example Products BuzzsawTM CitadonTM Constructw@reTM e-BuilderTM Project TalkTM 4Specs.com Biw.co.uk BuildingOnline.com BidExpress.com BuildPoint.com BidA/E/C.com BIW Technologies IronSpire JobSiteTM Bricnets® HomeSphereTM ConstructionSweetsTM PrimeContractTM Causeway Solutions CXTM X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X e-Bidding and Procurement Archiving of Project Info. Document Management Website Customization Schedule & Calendar Threaded Discussion Advanced Searching Wireless Integration Information Service Project Workflow Financial Service Project Directory Printing Service File Conversion Project Camera Offline Access 472 Nittithamyong, Skibniewski and Ryoo PROPOSED METHODOLOGY TO DEVELOP AN INTEGRATED E-PMIS A construction project usually consists of many parties from diverse disciplines. Therefore, a good e-PMIS system should be able to provide project information required by various participants who are responsible for different types of jobs. Such a system should at least has the following modules: 1) project administration; 2) design management; 3) procurement management; 4) materials and equipment management; 5) quality management; 6) safety and environment management; 7) cost management; and 8) contract management. In essence, data must be exchangeable among all the modules embedded in the system and the system itself also needs to be able to communicate with other management systems used by individual firms participating in the project, especially the owner and/or CM contractors’ systems. This section proposes a methodology that can be used to develop an integrated e-PIMS system. The methodology considers both functional and technical integrations of the system. Functional integration considers the dependency and relationships among systems, and technical integration considers appropriate IT tools that can be used to develop an interface for system integration. Nevertheless, it should be noted that functional integration must always precede technical integration. Functional Integration Developing a vertical solution such as an integrated e-PIMS requires a sophisticated understanding of business processes and activities involved in construction projects. Generally, there are two major categories of business activities performed in a construction project: activities performed at main offices and activities performed at project sites. The first important step is to define business processes and management activities performed by personnel working at main offices and engineers working at project sites. A study of both on-line and off-line business processes and activities must be conducted. All existing activities should be clearly identified and suggestions to improve the existing activities should be proposed. The following are steps recommended for functional integration. 1. Identify types of business processes conducted in main offices and construction project sites. 2. For each business process, define and group activities associated it. (i.e., activities associated with marketing and sales, planning, bid and awards, design, procurement, construction, closeout, operation and maintenance). 3. Categorize business processes and activities based on scope and capability of each management system (i.e., what system can handle what types of activities?). In this step, activities associated with each management system must be clearly defined. 4. Define the dependency and relationships among systems (i.e., what activities can be shared among management systems?). Once the above steps are complete, an interface as shown in Figure 2 can then be developed. Electronic project management information systems 473 CRM SD MM PP Management Systems PS QM WF PM HR IS SCM KMS Project Administration FI CO AM ERP Interface To be developed Contract Management Schedule Management e-PMIS Quality Management Safety Management Cost Management Figure 2. Functional integration of e-PMIS and existing management systems It is highly recommended that an integration of systems should be accomplished through an exchange of cost and contract information. This information will make e-PMIS fully integrate with other management systems. Since most management systems have Finance (FI) and Cost/Accounting (CO) modules, integration of e-PIMS with such systems is practical and promising. For example, SCM systems usually utilize a procurement module as a key module. Therefore, integration of SCM with e-PMIS can be easily accomplished if cost/contract/procurement information is exchangeable. In addition, KMS can also be integrated with e-PIMS and other management systems mentioned above. Unlike other systems, KMS serve as an information repository. Therefore, any information produced by e-PIMS or other systems should be stored in KMS. An integration of KMS with other systems is possible since a groupware is commonly installed and used as a backbone of integrated systems within an enterprise. Technical Integration It is proposed that the concept of Component-Based Development (CBD) should be used to develop an integrated e-PMIS system. CBD brings a significant level of flexibility to the development of e-PMIS. Using CBD concept, a system will be platform-independent and componentized, which enables it to integrate with other systems through Internet. Web technologies such as Extensible Markup Language (XML) and Extensible Stylesheet Language (XSL) should be used as communication tools in order to make the system communicate with other systems via metadata format. XML and XSL also allow latest mobile and wireless technologies to integrate with the system without any additional modifications. Unlike existing e-PMIS systems on the market, the proposed system can support individual workflow and personalization and can be applied efficiently to 474 Nittithamyong, Skibniewski and Ryoo Engineering, Procurement, and Construction (EPC) phases. Therefore, project transactions and management activities can be monitored as one piece of information. CONCLUSIONS This paper has introduced a concept of e-PIMS, which can help construction firms in developing countries manage projects more effectively and efficiently. The paper has illustrated some examples of currently available e-PMIS systems developed for the construction industry and suggested that an integration of such systems with other management systems commonly used by construction firms has not yet been accomplished. An integration methodology is then proposed in order to communicate e-PMIS with other management systems. Based on the proposed methodology, an integrated e-PMIS system is currently being developed. This system will be tested with actual construction projects in the U.S. and its resulting performance will be reported in future publications by the authors. REFERENCES Alshawi, M and Ingirige, B (2003) Web-Enabled Project Management: An Emerging Paradigm in Construction. Automation in Construction, Elsevier, Vol. 12, No. 4, pp. 349-364. Cyon Research Corporation (2004) List of Extranet Companies. The Extranet News, , as viewed on June 16, 2004. Mead, S (1997) Project-Specific Intranets for Construction Teams. Project Management Journal, Project Management Institute, Vol. 28, No. 3, pp. 44-51. Nitithamyong, P and Skibniewski, M (2004a) Web-Based Construction Project Management Systems: How to Make Them Successful? Automation in Construction, Elsevier, Vol. 13, No. 4, pp. 491-506. Nitithamyong, P and Skibniewski, M (2004b) Web-Based Project Management Systems: Survey of Success and Failure Factors. Under review by Building Research & Information, Taylor & Francis Group Publishers, London, U.K. O’Brien, W J (2000) Implementing Issues In Project Web Sites: A Practitioner’s Viewpoint. Journal of Management in Engineering, ASCE, Vol. 16, No. 3, pp. 34-39. Skibniewski, M and Nitithamyong, P (2004) Web-Based Construction Project Management Systems: Practical Advantages and Disadvantages. Proceedings, 4th International Conference on Construction Project Management: Remaking Construction in the Knowledge-Based Economy, ISBN: 981-05-0579-5, Nanyang Technological University and Building and Construction Authority, Singapore, March 4-5, pp. 1-17 (invited keynote paper). INFORMATION AND KNOWLEDGE MANAGEMENT FOR INTERNATIONAL PROJECTS: A STUDY OF EXTERNAL PROVISION HEDLEY SMYTH Construction and Project Management, the Bartlett School of Graduate Studies, University College London, Gower Street, London WC1E 6BT [email protected] ABSTRACT There has been frequent need for information at short notice on projects to solve problems, due to high levels of uncertainty – a primary reason to select ‘the project’ as the delivery mode. The demand for information and managed knowledge will increase as the construction becomes increasingly global and construction projects become more complex with higher levels of added value. The primary objective is to evaluate how information and knowledge management services can be mobilised for global projects, covering: External provision by suppliers Market management by suppliers International sourcing on large projects at the local level Implications for construction enterprise management of strategy and projects Leonard-Barton [1995] identified learning outside of the organisation as one of four areas of organisational activity giving rise to the application of knowledge. The paper will review internal versus external sources and formal and informal enterprise-project systems in the application of cement and concrete technologies for international construction projects. The global market provides particular challenges for information and knowledge management. The work of [Madsen (1989)] is instructive and has been applied to international management for construction [Smyth and Stockerl (1998)], which will be applied to analyse the global context. Keywords: Added Value, Information, knowledge management, ,market management INTRODUCTION This paper considers an emergent area of knowledge management (KM). It considers the external provision of KM as an additional source to internal sources, which are inherently limited by strategy and the resource base of a contractor. Therefore externally provided KM is a growth market for all industry. However, the project environment poses particular challenges. This issue will be explored theoretically by examining the types of 476 Smyth market for KM. It will look at both information and KM provision in order to analyse the market dynamics. The implications of international projects will then be considered, looking at the relationship between the corporate centre and the international project. Finally, a synthesis of the type of KM market and geographical factors are provided in the context of international construction projects. The theoretical understanding is then explored in the light of a case study concerning the cement and concrete supply industries. The paper concludes with some lessons for the future development of external KM internationally. The international construction system has an estimated global output of US$800-1000 billion, of which 80% is undertaken in developed countries [Drewer, (2001)]. The success of contractors internationally has involved the application of information, knowledge and expertise that is scarce and unavailable in the local market [Linder, (1994)]. Efficient and effective application of information is considered one success factors for the future [Flanagan, (1994)]. In both cases the authors have their focus upon the internal expertise and knowledge of the contractors. However, external provision can also be mobilised. It can be mobilized by contractors to be successful in a market [cf. Bröchner and Sjöström (2003)] or mobilized by local contractors protecting their market by raising effectiveness and efficiency [cf. Huovinen and Kiiras, (1994)]. At the project level there has been frequent need for information at short notice on projects to solve problems, due to high levels of uncertainty – a primary reason to select ‘the project’ as the delivery mode. The demand for information and managed knowledge is rising and will continue to rise as the construction sector becomes increasingly global and construction projects become more complex with clients demanding improved levels of added value. Satisfying these rising demands will not always be possible within the confines of the knowledge and expertise held within contracting organisations, nor the project coalition. EXTERNAL SOURCING OF KNOWLEDGE Leonard-Barton [1995] identified four general areas of organisational activity giving rise to the sourcing and application of knowledge: Shared creative problem solving Integrating and implementing new methods and adopting new tools Formal and informal experimentation Learning outside of the organisation. Learning outside of the organisation includes external sourcing, that is, buying in information and knowledge for internal application. External knowledge may be prepackaged or tailor-made. Internal knowledge management (KM) is constrained by the areas in which an organisation has strengths and strategically by the allocation of scarce resources to the development of new areas. Therefore there are applications that cannot be sourced internally, hence the demand for external sources. The external sourcing of knowledge can be applied in the construction context. At the project level, the scope may be marginally amended according to injection from other project team organisations and by the project strategy. Yet the speed of response demanded at the project level will be Information and knowledge management for international projects 477 rapid for the application of KM will tend to be problem solving [Smyth, (2004a)]. External sources will be used where the value added is greater than the marginal cost to the service or product or where the organisation secures a competitive advantage relative to the costs. In the first case external sourcing serves project effectiveness and indirectly the international standing of the contractor, whereas in the second case the contracting organisation is served directly. The demands of projects pose particular problems for the external provision of information and knowledge. Information has to be processed and hence converted to knowledge. Information, once converted into knowledge and knowledge that has been bought in has to be applied. In projects the uniqueness and uncertainties will often require evaluation and interpretation for application in the particular context. At the level of the organisation, ‘head office’ or corporate centre, effective KM requires formal systems. These systems combine human systems and IT systems. These systems are formal. Such systems may not ‘reach down’ to the project level. This may be due to the costs of necessary investment, but these barriers are being reduced all the time. Corporate and project intranets and other IT protocols are growing in significance and will continue to have major impacts upon the management of projects. However, IT provision is only as effective as the people who use it. How people use systems requires organisation to maximise effectiveness and efficiency – a human system. In the KM context human systems vary, yet it has been shown do not necessarily function effectively. In effectiveness arises where gatekeepers act as a constraint because they are overcommitted or because they use the position of power to reinforce their own interests rather than the best interests of the firm [Smyth, (2004a)]. These tendencies, in addition to the temporary nature of the project team [Cherns and Bryant, (1983)], induce a more informal approach to sourcing information and knowledge, although informality can also operate in a highly effective way. The point about informal systems is that they are difficult to control. This works well when by-passing the controls speeds up the process and works badly when the interests being served are corrupted. A matrix can be constructed to illustrate the permutations of sourcing information and knowledge [see Figure 1.]. 478 Smyth Figure 1. Dynamics of Information and Knowledge Management The temporary nature of project teams, both within many projects [Smyth, (2000; 2004b) Pryke and Smyth (2005 forthcoming)] and as an organisational entity [Cherns and Bryant (1983)], tends to produce informality. The rigorous application of project management tools can be seen as both a response to the informal system and the demands they impose can serve to preserve the informal system ‘beyond’ their application. There are problems with accessing external information and knowledge in the project market. First is the general issue of market awareness of a source [Smyth, (2000; 2004a)]. Second is the problem of information quality and symmetry [Akerlof, (1970), Milgrom and Roberts (1992)]. Third is the nature of international projects. Construction projects are physically dislocated from their corporate centre. The dislocation can take two forms: 1. Corporate centre in relation to location of international projects 2. Corporate centre in relation to local office in the international market. The dislocation can create difficulties in dissemination and access of information and KM, hence a lack of support from top management and through the systems. Such constrains are critical where speed of response is important for problem solving on a large project. Those on a project need awareness of the available resources. The corporate centre has a role in creating awareness. This can be facilitated where there is a local office acting as the go-between. However, the local office can also pose a double constraint, whereby those working on a project are dislocated from the local office and also from the corporate centre. Dislocation tends to encourage systems being more informal at a project level. While international projects are frequently compensated by teams that have learnt to identify and mobilise resources as needed, the main problem is that external provision requires knowledge to be explicit, yet informal systems at a project or local office level are not conducive to managing information and knowledge. Therefore international projects are typically located in the external-informal segment [see Figure 1.]. It is this feature that may inhibit the potential for project KM on international construction projects, the market being latent. An external-formal position would be more conducive. Before pursuing this analysis in the context of a case of external KM it is important to address whether an informal approach is justified from a broader perspective of strategic management. STRATEGIC MANAGEMENT AND GLOBAL MARKETS Madsen [1989] produced a instructive study on export performance across a range of sectors, which included construction and engineering. The findings from the study showed that different management approaches proved more effective according to geographical location. Different approaches to strategic management from the corporate centre were mapped against geographical markets. The findings showed that in some markets were more suited to top management support, whilst others showed higher performance levels where management was decentralised. Madsen categorised markets into three scales: domestic and adjacent markets, regional markets and distant markets. The export performance in relation to these variables is shown in Figure 2. Information and knowledge management for international projects 479 Top management support and intervention is required for qualified decision-making, understanding of market mechanism and mobilising systems, especially formal ones to manage performance. Decentralisation is required where response to local culture, legal and other circumstances is important. It can be deduced that in such cases informal systems are more appropriate. Some of the implications of Madsen’s findings have been developed in the context of global construction [Smyth and Stockerl (1998)], demonstrating that strategic management needs to address different market strategies in different geographical markets. The focus was UK contractors, whereas the focus in this case is external KM providers. What are the implications in the in the information and knowledge management markets for global construction projects? On large and complex international construction projects the local circumstances are Figure 2. Export Performance critical. Even though labour and materials are frequently sourced from the world market, local legal, cultural and political factors are important. Alliances and joint ventures are frequently necessary, and often demanded, in order to conform to local requirements. Therefore informal systems are more appropriate, even in distant markets, construction acting more in the character of regional markets [cf. Smyth and Stockerl (1998)]. However, it has been demonstrated that the global market is changing. The knowledge 480 Smyth and expertise cited by Linder [1994] and Flanagan [1994] as critical to international success cannot be assumed to be internal to the organisation and therefore competitive advantage will increasingly rely on effective and efficient sourcing of external KM, which requires a formal system and therefore closer adherence to Madsen’s high performance position in distant markets based upon top management support [1989]. What are the implications for the strategic management of large contracting organisations for international projects? First it is instructive to consider the scope for internal KM and systems to be developed. Considering internally sourced knowledge, studies of structural change through international acquisition have shown that one-way transfer from the corporate centre is rapidly imposed, but two-way transfers take longer [Bresman et al (1999)]. Applying this lesson to international projects, a two-way transfer is needed for top management support to be mobilized from the centre to respond to local project needs for information and KM. The time necessary to generate two-way transfer, especially concerning awareness of and demand for KM sources, will be beyond the life of many projects. Therefore the scope for internal KM from the point on the project of being aware of the potential for the corporate centre to source relevant information and KM to the point where there are formal systems to mobilise the KM for application there appears to highly constrained. Second, Fenton and Pettigrew [2000] found culture and market factors to be key variables concerning knowledge transfer within construction. Bröchner et al [2004] show that geographical, along with legal and technical, factors provide the main barriers to knowledge transfer in construction [cf. Huovinen and Kiiras (1994)]. Although these studies have looked at internal sourcing of information and knowledge in a global market, their findings add support to the decentralised management approach with informal systems. The decentralised-informal combination is not conducive to internal KM [see Figures 1. and 2.]. Bröchner et al [2004], following Lengel and Daft [1988] apply two forms of communication – rich and lean communication. Rich communication involves close relationships and includes face-to-face communication, whereas lean communication includes email. Lean media are best suited to routine functions, from which it can be concluded that formal systems tend to handle routine functions best. The international project market needs formal systems for the effective knowledge transfer and management. As has been shown, this is not a feature of international projects and local offices. Thus the solution for formal systems may not lie with the contractor. If the external information and KM provider can provide the system that can easily interface with the local informal one, then the decentralised-informal combination can stand [see Figures 1. and 2.]. In effect a surrogate for the external-formal position [Figure 1.], described above as more conducive, would have been created. If the external provider provides the system, then a formal system is best suited to handling a lean medium. The provision of KM services through the internet would be a lean medium. These issues will be illustrated through the case of information and KM services developed by the UK cement and concrete sector. Information and knowledge management for international projects 481 THE UK CEMENT AND CONCRETE INFORMATION SERVICES Research has recently been completed on the services of Concrete Information Limited (CIL) in the UK (Smyth 2004a). CIL was formerly the library and information services of the British Cement Association (BCA). It has been restructured as a joint venture company, owned by the BCA and the Concrete Society. It has been set up on a commercial basis as an external organisation responsible for supplying highly specialist technical information – frequently the sole source – to those responsible for design, specification and to other consultants and contractors delivering projects within a complex field of business-to-business social networks (Smyth 2004a). The structural change provides scope for new services to be develop, transforming a purely knowledge based service to the public and members to a service that combines information and knowledge provision. CIL has developed it services along several lines: • • • • Publication of research Provision of technical information Developing KM packages for generic application Creating tailor-made KM services for specific customers. Publications and a range of technical information are available on the open market. The remaining services are delivered through a range of membership packages. The provision of KM services is developing in an incremental fashion. It is expected that the services will be under regular review and new additions will emerge in relation to demand. The demand is difficult to estimate as the markets themselves are under development too. CIL has developed its markets along several lines: • • • Deepening its historic market of serving a range of organisations, a ‘technical director’ being the primary contact Developing alliances and partnerships with intermediary providers, typically other industry bodies representing specific interests Developing broader relations with consultants and contractors in order to by-pass gatekeepers and target the ‘end users’ in the organisation, which is typically project based. The last of these three implicitly recognises the informal systems operated amongst contractors, especially at the project level. The latent market theoretically identified in the external-informal position in the knowledge matrix [see Figure 1.] by nature is unquantifiable and needs to be in part tapped into and in part created by providers. For the case of CIL in the light of the preceding analysis a formal system is needed as part of the equation to convert latent into effective demand. CIL’s Marketing Plan [2003] set the international market as a future target. The cement sector has become global in ownership patterns as well as contractors operating globally, hence the need to be present in the global market. The potential has been set up by linking with the BCA and the Building Research Establishment in their web development plans through funding under a Partners in Innovation project (PII). The CIL website [2004] offers a formal system, a lean medium, to be accessed on construction sites wherever located in the world. The technical data is applicable for many projects, even 482 Smyth where British and European standards are applied for these are applied on many international projects outside Europe. Other countries have counterparts, the American Concrete Institute, the Cement & Concrete Association of South Africa being notable, which are both competitors and complimentary providers having grown up in response in response to different demand patterns and market structures in relation to both concrete and cement producers and the panoply of trade bodies [cf. Smyth (2004a)]. CIL, along any comparative measure, have been international leaders in terms of the range and depth of library resources in former incarnations and under the current commercial form. Information and knowledge management for international projects 483 CONCLUSION The paper has considered external KM. The market has been explored in terms of the types of services and geographical location in order to bring together an analysis for construction. It was found theoretically that the optimum combination was externalformal, supported by top management from the centre. In practice international construction projects operate with informal systems and are decentralised in terms of management. However, the analysis also showed that if the provider provides the formal system through delivery, using lean media, the problems are overcome. CIL was used as a case study to demonstrate that how they have started to provide the system and service. From this case study a number of lessons can be demonstrated in the light of the analysis. The lessons from this study are: • • • • • CIL represents a case of an external information and KM provider in the market CIL is developing its capacity in response to and to create a market in KM The internet represents an appropriate lean medium as employed by CIL A complex international project can access KM services locally without needing to rely upon the corporate centre, hence a formal system The market has been latent and the providers are in the formative stages of development. The market has growth potential. There are two barriers that remain, which the CIL case highlights. First, awareness of sources remains and issue. Word of mouth is important and the temporary nature of project teams, the strong industry networks within construction and the rise of a younger generation of managers to top management positions will accelerate awareness. However, the responsibility in the short and long term rests with top management to create awareness at the project level of external KM sources. It is in their interests in order to remain competitive, yet keep costs down. Second, many of these services will only be sustainable through membership and subscription schemes in order that providers can continue to develop the KM resources. Therefore the onus rests with corporate centres to invest in subscriptions to providers, thus reversing the current practices of making projects pay out of project budgets. Subscriptions are minimal in terms of corporate expenditure, yet have been easy targets for cost cutting historically. This trend needs reversal not only because it ‘seems good’, but also because it has been shown it yields benefits in terms of competitive advantage; and also because it is cost effective for problem solving. REFERENCES Akerlof, G (1970) The Market for Lemons: qualitative uncertainty and the market mechanism, Quarterly Journal of Economics, Vol. 84, pp. 488-500. Bresman, H, Birkinshaw, J and Nobel, R (1999) Knowledge Transfer in International Acquisition, Journal of Management Studies, Vol. 30, No.3, pp. 439-462. Bröchner, J, Rosander, S and Waara, F (2004) Cross-border Post-acquisition Knowledge Transfer among Construction Consultants, Construction Management and Economics, Vol. 22, pp. 421-427. 484 Smyth Bröchner, J and Sjöström, C (2003) Quality and Coordination: internationalizing Swedish building research, Building Research & Information, Vol. 31, No.6, pp. 479-484. Cherns, A B and Bryant, D T (1983) Studying the Client’s Role in Project Management, Construction Management and Economics, Vol. 1, pp. 177-184. Concrete Information Limited (2004) www.cementindustry.co.uk. Concrete Information Limited (2003) Marketing Plan, Camberley. Drewer, S (2001) A Perspective on the International Construction System, Habitat International, Vol. 25, No.1, pp.69-79. Fenton, E M and Pettigrew, A M (2000) Integrating a Global Professional Services Organization: the case of Ove Arup Partnership, The Innovating Organization (eds.A M Pettigrew and E M Fenton), Sage, London, pp. 47-81. Flanagan, R (1994) The Features of Successful Construction Companies in the International Construction Market, Strategic Planning in Construction (eds. A Warzawski and R Navon), Proceedings of the A J Etkin International Seminar on Strategic Planning in Construction Companies, Haifa, Israel, 8-9 June, pp. 304318. Huovinen, P and Kiiras, J (1994) Spearhead Strategy for Cross-border Exports within Building Market of EES Countries, Strategic Planning in Construction (eds. A Warzawski and R Navon), Proceedings of the A J Etkin International Seminar on Strategic Planning in Construction Companies, Haifa, Israel, 8-9 June, pp. 421443. Lengel, R H and Daft, R L (1988) The selection of Communication Media as an Executive Skill, Academy of Management Executive, Vol. 41, No.3, pp. 225-232. Leonard-Barton, D (1995) Wellsprings of Knowledge, Harvard Business School Press, Boston. Linder, M (1994) Projecting Capitalism: a history of the internationalization of the construction industry, Greenwood Press, Westport. Madsen, T K (1989) Successful Export Marketing Management: Some Empirical Evidence, International Marketing Review, Vol. 6, pp. 41-57. Milgrom, P and Roberts, J (1992). Economics, Organization and Management, PrenticeHall, New Jersey. Pryke, S and Smyth, H J (2005 forthcoming) Scoping a Relationship Approach to the Management of Projects in Theory and Practice, The Management of Projects: a relationship approach (eds. S Pryke and H Smyth), Blackwell, Oxford. Smyth, H J (2004a) Managing the External Provision of “Knowledge Management” Services for Projects, Knowledge Management in the Construction Industry: A Socio-Technical Perspective (ed. A. S. Kazi), Idea Group, IRM Press. Smyth, H J (2004b) Competencies for Improving Construction Performance: theories and practice for developing capacity, The International Journal of Construction Management, Vol. 4, pp. 41-56. Smyth, H J (2000) Marketing and Selling Construction Services, Blackwell, Oxford. Smyth, H J and Stockerl, K (1998) Strategic Marketing Planning by UK Contractors in an International Business Environment, Opportunities and Strategies in a Global Marketplace, Proceedings of the 1st International Construction Marketing Conference, 26-27 August, University of Leeds. AN INVESTIGATION OF ICT DIFFUSION ISSUES IN AN AUSTRALIAN CONSTRUCTION CONTRACTOR COMPANY USING SSM TAYYAB MAQSOOD CRC for Construction Innovation, [email protected] RMIT University, Victoria Australia DEREK H. T. WALKER Project Management, RMIT University, Victoria, Australia ANDREW D. FINEGAN Charles Darwin University, NT, Australia. ABSTRACT The leading Australian construction organizations have ventured into the adoption of ICT (information and communication technologies) to cope with their heavy communication needs. However, the organization-wide use and the diffusion of these technologies have not been as successful as might be expected. It is becoming important to investigate the issues that are acting as barriers to the successful diffusion process. This research uses soft systems methodology (SSM) to investigate the underlying diffusion issues. SSM has been used in the domain of information systems (IS) and management for over 30 years to explore complex situations. It can give structure to messy problems and aids in understanding the nature of the problem that is helpful in devising a solution to rectify these situations. This paper describes an investigation of the ICT diffusion issues in a major Australian construction contractor where the widespread use of recently adopted ICT is problematic. Keywords: Information and communication technologies, diffusion, soft systems methodology. INTRODUCTION Information technology (IT) and information and communication technologies (ICT), including the Internet, e-commerce, and groupware, is on the brink of significant growth in Australian businesses [Australian Bureau of Statistics, (2001)]. The Australian construction industry is still in the initial stages of industry-wide adoption of ICT [Peansupap et al. (2003)], lagging behind other industries such as manufacturing, financing, and property and business services [NOIE, (2001)]. However, the leading Australian construction organizations have responded to the challenge of adopting ICT. The benefits are that ICT can help in managing their complex and diverse communications needs and protocols. ICT also can help to make a project ‘a success 486 Maqsood, Walker and Finegan story’ as thoroughly documented by various researchers [Poon et al. (2001); Walker and Hampson, (2002)]. The strategies to adopt ICT and then diffuse the technology vary from organization to organization. [Peansupap and Walker (2004)] argue that successful ICT adoption requires detailed strategic planning and an appropriate strategic ICT adoption strategy. Strategic planning is required for the long-term application of ICT that reinforces the vision of the core business delivery strategy for an organization, and links it to a competitive information system strategy [Björnsson and Lundegård (1993)]. Within an organization the strategic ICT adoption strategy contains the sub-processes that allows an organization to become aware of, search for, select, and finally decide to adopt an ICT initiative. A successful adoption strategy has to be followed by a suitable diffusion of technology strategy in order to spread the organization-wide use of the technology. [Rogers, (1995)] describes diffusion as an important process where technological innovation is introduced into work processes and adopted by a specific group or across the whole organization. [Green & Hevner (2000)] consider that the success of technological innovation in an organization is very much dependent upon understanding the technological diffusion process. Knowledge of what could be the barriers to the successful diffusion of technology is very important. This paper is a part of a research project that investigates the ICT adoption and diffusion issues in the Australian construction industry both quantitatively and qualitatively. It specifically deals with the technology diffusion issues and provides an insight into the barriers of the diffusion process by employing qualitative technique of Soft Systems Methodology (SSM). IMPORTANCE OF ICT AND BENEFITS TO THE CONSTRUCTION PROCESS A major construction process demands heavy exchange of data and information between project participants on a daily basis. It is essential to provide clear construction-related information to project participants to avoid unnecessary problems. [Duyshart (1997)] notes that much of the paper-based information exchange during the construction phase involves duplication, continual translation and transcription from one medium or form to another, as well as the loss of information. The use of ICT minimizes such problems. Fig. 1 describes the diverse types of data flows in the various construction stages. ICT applications can help improve project planning, scheduling and cost control [Abudayyeh et al. (2001), Sriprasert and Dawood (2002)]. [Tam (1999)] demonstrates that the development of a total information transfer system for project management can save considerable time and cost for document transfer. ICT can improve database distribution by the use of a web-based electronic document management system (EDMS), with all documents stored in central database and accessed from other locations [Björk (2002)]. ICT can encourage information integration between construction processes and help to reduce errors from data re-entry and support real time construction project monitoring [Björk (2002); Anumba (2000)]. Integrated electronic communication exchange provides various tangible benefits such as reduction in cost and time, and intangible benefits that include improved and effective service delivery [Duyshart et al. (2003)]. An investigation of ICT diffusion issues 487 ICT has not only been used to decrease these integration problems, but also is used as an effective way for experts to share knowledge and jointly solve problems. The BP virtual office is one example where complex problems were solved using the expertise of a global network of experts linked electronically [Prokesch (1997)]. Even e-mail, which is considered information-poor due to being context-minimalist, is shown to be more effective than expected when used as a tool for low-level knowledge in a knowledge intensive firm where staff are familiar with it [Robertson, et al. (2001)]. Owner Owner’s Project Management Staff Feasibility Stage Project Concept Conceptual Design Documentation Usable Space and Total Units Market Absorption Model Project Cost and Cash Flow Project Schedules Material and Labour quantity availability Evaluation of Preliminary Design of the Project Design Stage Deign Team Architect and Engineers Project Management Team Definition of the Project & Preliminary Design Construction Planning Stage Approved Definition of the Project and Preliminary Design Bid Package & Notice to Bidders Detail Design includes: Detail Drawings & Specs Storage of Data Base Through Internet and/or Selection of the Contractor Approved Final Owners Estimation intranet CAD system Description Construction Task Planning Site Investigation Regional Resource Planning Detail Product Identification Construction Management Contractor Construction Stage Design Documents Project Cost & Cash Flows Schedule Networks Design and Site Changes General Change Orders Material and Labour Availability Construction Strategies Design Documents Terms of Functional Service Project Cost and Cash Flow Schedule Network Coordinate Teams Work Construction Strategies Evaluation of Change Orders Notes: Solid Line representing how the date is sending to or receiving from the database storage Dash line representing the interaction between the parties However, the interconnection between the processes are taking place into one database Fig. 1 Data flows in various construction stages [Cabellero et al. (2002)] 488 Maqsood, Walker and Finegan THE SOFT SYSTEMS APPROACH Soft systems thinking seeks to explore the ‘messy’ problematic situations that arise in human activity. It strives to learn from the different perceptions that exist in the minds of the different people involved in the situation [Andrews, (2000)]. This interpretive approach is strongly influenced by Vickers’ (1968, pp. 59, 176) description of the importance of appreciative systems in dealing with human complexity. [Checkland (1999), and Checkland and Scholes (1990)] have attempted to transform these ideas from systems theory into a practical methodology that is called Soft Systems Methodology (SSM). Checkland’s premise is that systems analysts need to apply their craft to problems of complexity that are not well defined, and that SSM attempts to understand the wicked and fuzzy world of complex organizations. This is achieved with the core paradigm of learning [Checkland (1999, p. 258)], and is described as a logical sequence of seven steps [Checkland (1999, pp. 162-183)]. These are illustrated in Fig. 2. Fig. 2 Summary of SSM as a seven-stage process [Adapted from Checkland (1999: pp. 163, and Checkland & Scholes (1990: pp. 28)] It is most important to note that the sequence is not imposed upon the practitioner; a study can commence at any stage, with iteration and backtracking as essential components. SSM encourages investigators to view organizations from a cultural perspective. Therefore, the component parts that are human beings determine the essential characteristics of organizations. These ‘people-components’ can attribute meaning to their situation and define their own purpose for the organization. An investigation of ICT diffusion issues 489 Applying SSM to problems in construction knowledge management Industries with entrenched traditional structures, including the building, construction and engineering industries, are under particular pressure to review their working practices. In this context, [Elliman and Orange (2000)] recommend SSM as an approach to facilitate effective change and to improve work practice. In particular, SSM is able to stimulate debate and capture the vision for the future of participants. They observe that a soft systems approach allows the exploitation of individual and socially constructed group knowledge and experience. [Green (1999)] also identifies difficult problems in the building and construction industries and suggests that the potential of SSM lies in the early stages of a project to assist stakeholders to achieve a common understanding of the problem situation. To help understand the complex, multi-disciplinary activity found in the construction industry, [Cushman et al. (2002)] have used SSM’s rich pictures and root definitions to identify responsible actors, key transformations, and the knowledge resources that are appropriate to the needs of a construction company. Venters et al. (2002) further describes how SSM can be used to develop conceptual models that identify patterns in knowledge activities as a basis for technical design and organizational and social intervention. Based upon the need to learn about the problems in the construction industry, a model to apply SSM has been developed (Fig. 3) and is being incorporated into investigations into the adoption of innovation and knowledge management in the construction and building industry. ?? External Stakeholders ?? SOFT SYSTEMS METHODOLOGY This provides a framework for iterative enquiry and learning about the organisation. The methodology provides a welldefined action research approach to help address wicked problems. Produces: Construction Organisation ?? Internal Stakeholders ?? ENVIRONMENT (External Constraints) Rich Root Conceptual Further Pictures Definitions Models Analysis Identification of key transformations Identification of patterns in knowledge activities Understanding of the organisational context and culture. OUTPUTS Identification of the Stakeholders and Actors Fig. 3 Applying SSM to the Construction Industry ICT case study using SSM The case study, illustrated in the Rich Picture (Fig. 4) shows the structure, processes and especially the beliefs and concerns of the key players. Given the wide variety of participants in this diffusion of ICT innovation – from head office, the construction site, and third party organizations – the Rich Picture portrays the complexity and conflict associated with different priorities, knowledge and skills, access to training, reporting relationships, and service delivery. From the Rich Picture it can be seen that there are major differences between the expectation of head office, and the operational practice of 490 Maqsood, Walker and Finegan site office staff and the construction site supervisors. In particular, there is frustration with the reliability and performance of the ICT systems, with some staff choosing to avoid it and revert to the use of manual reports. This suggests that the reliability and accessibility of the ICT system is a major issue. However, on the positive side there is knowledge sharing taking place, particularly in the sit office, and some staff are encouraged by the realization the new ICT system has definite advantages. This rich picture is followed by the development of the root definition that provides the central transformation of the “ideal” diffusion of innovation system. Head Office We must use technology for better productivity in the company Training Style We will have two hours general training What specifically is there for me? Push or Pull Training Staff Senior Management We must use ICT, It’s company policy now. you should have some training Interesting but little confusing, learn rest at work Team Third Party such as Client, Architecture, SubContractors It’s good for sending drawings but.. Leadership Style Too many ICT systems Not every body inputting data using ICT Project Manager Functionality or Ignorance Team Accessibility Slow Connection Break downs Central server running ICT Hey, I can’t do cost things with it. Its limited!!! Back to site Not all subbies use it Hey John, I got a problem, can you help? Thanks you helped.Help desk usually takes long time to fix problems, as you know. It is good, therefore, to solve our problem by ourselves. Generate correspondence Forms and email Fax as well to make sure it reached. Need to double dip Reliability Coordination problems Knowledge Sharing Would it be better, if foreman can input data into system directly?? Save me work. Advantages Wonderful I can find the report I made 6 months ago but it was hard to find old data. Site Office Hey Judy, your system working? Its seems stuck up, damn too slow. Oh, shut down notices again!!!! Foreman/ Supervisor Better do daily report manually. No time to use the system even to learn. System not designed for my use, why bother?? Manual Daily Report RICH PICTURE – EVALUATION OF THE SYSTEM!!! Construction Site Workers/ Labourers Fig. 4 Rich Picture of case study of ICT An investigation of ICT diffusion issues 491 In this case study the transformation is defined as: ‘Knowledge, processes and ICT are used to provide accessible, reliable, timely and useful communication services and knowledge sharing’. This is underpinned by a significant worldview - Weltanschauung that ‘access by all the stakeholders in a construction project to reliable, timely and useful communication system is essential to the success of the project’. This transformation is the basis for the development of the conceptual model of pre-tendering (Fig. 5). This is expressed as a model of human activity where there are nine high-level key activities necessary to achieve the transformation. Root Definition – ICT Diffusion A system owned by the Construction Company, that with the support of Senior Management utilizes ICT (information and communication technology) to provide accessible, reliable, timely and useful communication services and knowledge sharing that meets the needs of construction staff, consultants, subcontractors and management. The operation of this system must include relevant training, user support and encourage participation of all the users within the Construction Company and its projects to ensure competitive operation and project success. Customer: Construction Staff, Consultants, Subcontractors and Management Actors: Senior Management, Training Staff, Systems Support Staff, Project Managers, Construction Staff Transformation: Knowledge, processes and ICT (information and communication technology) are used to provide accessible, reliable, timely and useful communication services and knowledge sharing. Weltanschauung (why bother?): Access by all the stakeholders in a construction project to reliable, timely and useful communication system is essential to the success of the project. Owner: Construction Company Environment: Competitive, Project (time and cost), Corporate Goals. Conceptual Model – ICT Diffusion ICT Vendors Acquire & implement ICT Provide user support & training Management Construction Consultants & Staff subcontractors Maintain support of management Know the needs of the various stakeholders Systems Support Staff Set the criteria needed to define reliability, timeliness & usability Monitor & Control participation of all users Undertake needs analysis Training Staff Deliver communication services Project Communications Develop training plan Knowledge Sharing Fig. 5 Root Definition, CATWOE and Conceptual Model for ICT Diffusion 492 Maqsood, Walker and Finegan ISSUES ANALYSIS The conceptual model illustrated in Fig. 5 provides a set of activities that can be used to learn more about the situation, and in the case study of ICT diffusion it provides a framework for undertaking an issues analysis. Two activities – ‘acquire and implement ICT’ and ‘know the needs of the various stakeholders’ – have a strong focus upon knowledge management, and especially the essential step of sense-making, in what is often a complex and confusing business environment. These activities, together with ‘undertake needs analysis’ and ‘maintain support of management’ provide the inputs into the essential planning processes for successful ICT diffusion. The support of senior management is an essential component of the adoption of any innovation into an organization, and in the case of ICT diffusion it is a critical success factor [Belassi and Fadlalla (1998); Kim and Galliers (2004)]. The activity – ‘set the criteria needed to define reliability, timeliness and usability’ – defines all the performance measures and milestones for the diffusion process. This planning activity presents a challenge as it relies heavily upon the knowledge and estimation skills of the project staff. Inaccurate estimates will impact the support and operational activities of the diffusion process. For example, both the supporting activities ‘develop a training plan ‘ and ‘provide user support and training’ can only be successfully achieved where knowledge building, and then knowledge deployment, been integrated into the estimation and planning activity [Damsgaard and Scheepers (1999)]. ‘Deliver communication services’ is the activity that delivers the desired outcome provision of communication services that meets needs of the construction company, it projects and stakeholders. This is the operational core upon which all the other activities focus and provide inputs. It is essential that this activity provide the process transformation to ensure that the initiative to adopt ICT is successful [Chabrow (2003)]. This activity is a system in its own right, and can be modeled in greater detail. ‘Monitor and control participation of all users’ is the management and decision-making activity that provides the monitoring and control loop to observe the performance of the delivery of communication services, and provides feedback to control via the criteria setting activity as necessary. It is within this activity that another important process provide innovation directives [Damsgaard and Scheepers (1999)] – must be undertaken. CONCLUSION The paper examines the technology diffusion issues associated with the adoption of ICT in a construction company, and provides an insight into the barriers of the diffusion process. The investigation was conducted through a framework of SSM. Being a system approach, SSM provides deeper insights into the issues regarding the application of project histories in the organisation. SSM is particularly useful where there is organisational complexity and the challenge of effective knowledge management and decision-making. The conceptual model derived by applying SSM indicated various sets of activities that would help to achieve the successful adoption of ICT in an organisation. An investigation of ICT diffusion issues 493 A number of important underlying processes that is essential for the diffusion activities have been identified. Knowledge management, particularly sense-making, knowledge building, and knowledge deployment, underpin the success of the diffusion process. Similarly, management support, and especially the provision of innovation directives as part of the feedback and control process, must also be undertaken. Importantly, the organizational initiative to adopt ICT must be matched by an activity the provides the process transformation that delivers the operation objectives of the project – in this case the provision of communication services that meets needs of the construction company. Finally, the model developed in this study has the potential to be investigated in greater detail, especially within the context of knowledge management and process transformation. REFERENCES Australian Bureau of Statistics. (2001) Business use of information technology, Australia, 1999-2000 [Online]. Commonwealth of Australia, 2001 [cited July 11, 2002. Available from http://www.abs.gov.au/.] Abudayyeh, O, Temel, B, Al-Tabtabai, H and Hurley, B (2001) An intranet-based cost control system. Advances in Engineering Software, Vol. 32, No. 2, pp. 87-94. Andrews, C L (2000). Restoring legitimacy to the systems approach, IEEE Technology and Society. Vol. 19, No. 4, pp. 38-44. Anumba, C J (2000) Integrated systems for construction: Challenges for the Millennium. In: P E D Love (Ed.), Proceedings of INCITE 2000 Conference on Implementing IT To Obtain a Competitive Advantage in the 21st Century, Hong Kong. Hong Kong Polytechnic University press, pp. 78-92. Belassi, W and Fadlalla, A (1998) An integrative framework for FMS diffusion, International Journal of Management Science, Vol. 26, pp.699-713. Björk, B C (1999) Information technology in construction: domain definition and research issues. International Journal of Computer Integrated Design and Construction, Vol. 1, No. 1, pp. 3-16. Björk, B C (2002) The impact of electronic document management on construction information management. International Council for Research and Innovation in Building and Construction, CIB W78 conference 2002, Aarhus, 12–14 June 2002. Björnsson, H and Lundegård, R (1993) Strategic use of it in some European construction firms. In: K W Tham, (Ed.), Management of Information Technology for Construction, Singapore: World Scientific Publishing Co. Pte. Ltd. pp. 17-33. Caballero, A, Ahmed, S M, Azhar, S, and Barcala, M (2002). Development of an information model to enhance integration and coordination in the construction projects. Proceedings of 19th International Symposium on Automation and Robotics in Construction (ISARC 2002), National Institute of Standards and Technology, Washington DC, September 23-25, 2002, pp. 123-128 Chabrow, E (2003) Where’s the benefit of I.T.? informationweek.com, July14/21, 2003, p. 20. Checkland, P B & Scholes, J (1990) Soft Systems Methodology in Action. Chichester: John Wiley & Sons. Checkland, P B (1999) Systems Thinking, Systems Practice. Chichester: John Wiley & Sons. 494 Maqsood, Walker and Finegan Cushman, M, Venters, W, Cornford, T and Mitev, N (2002). Understanding sustainability as knowledge practice. Presented to British Academy of Management Conference: Fast-Tracking Performance through Partnerships, London, UK, September 9-11, 6 pages. Damsgaard, J and Scheepers, R (1999) Power, influence and intranet implementation: A safari of South African organizations. Information Technology and People, Vol. 12, No. 4, pp. 333-58. Duyshart, B H (1997) The Digital Document. Oxford: Butterworth-Heinemann. Duyshart, B, Mohamed, S, Hampson, K D and Walker, D H T (2003) Enabling Improved Business Relationships -How Information Technology Makes a Difference. In: Hampson, K D (Ed.), Procurement Strategies: A Relationship Based Approach, Chapter 6, Oxford: Blackwell Publishing. pp. 123-66. Elliman, T and Orange, G (2000) Electronic commerce to support construction design and supply-chain management: a research note. International Journal of Physical Distribution and Logistics Management, Vol. 30, No. 3/4, pp. 345-360. Green, G C & Hevner, A R (2000) The successful diffusion of innovations: guidance for software development organizations, IEEE Software, Vol. 17, No. 6, pp. 96-103. Green, S D (1999) A participative research strategy for propagating soft methodologies in value mangement practice. Construction Management and Economics. Vol. 17, No. 3, pp. 329-340. Kim, C and Galliers, R D (2004) Towards a diffusion model for Internet systems. Internet Research, Vol. 14, No. 2, pp155-66. NOIE (2001) The current state of play. Canberra, Commonwealth of Australia. Peansupap, V, Walker, D H T, Goldsmith, P W, and Wilson, A (2003) Factors influencing information communication technology diffusion – an Australian study', Proceedings of CIB W55, W65 and W107 - Knowledge Construction Conference, October 22-24, Singapore, Vol. 2, pp. 415-27. Peansupap, V and Walker, D H T (2004), Strategic adoption of information and communication technology (ICT): case studies of construction contractors, ARCOM 2004: 20th Annual Conference, Sept 1-3, Edinburgh Scotland. Poon, J, Potts, K and Cooper, P (2001). Identification of success factors in the construction process. COBRA, RICS Foundation. Prokesch, S E (1997) Unleashing the power of learning: an interview with British Petroleum's John Browne. Harvard Business Review, Vol. 75, No. 5, pp. 147-68. Robertson, M, Sørensen, C and Swan, J (2001) Survival of the Leanest: Intensive Knowledge Work and Groupware Adaptation. Information Technology & People, Vol. 14, No. 4, pp. 334-52. Rogers, E M (1995) Diffusion of Innovation. 3ed. New York: The Free Press. Sriprasert, E and Dawood, N (2002) Next generation of construction planning and control system: The Lewis approach. Proceedings IGLC-10, Gramado, Brazil, Aug. 2002. Tam, C M (1999) Use of the Internet to enhance construction communication: total information transfer system. International Journal of Project Management, Vol. 17, No. 2, pp. 107-11. Venters, W, Cushman, M and Cornford, T (2002) “Creating knowledge for sustainability: using SSM for describing knowledge environments and conceptualising technological interventions, Organizational Knowledge Learning and Competencies Conference, Athens, April 2002, 11 pages. Vickers, G (1968) Value Systems and Social Process. London, Penguin Books. An investigation of ICT diffusion issues 495 Walker, D H T and Hampson, K D (2002) Procurement Strategies: A Relationship Based Approach. Oxford, Blackwell Publishing. 496 Maqsood, Walker and Finegan TOP-DOWN AND BOTTOM-UP CONSTRUCTION INDUSTRY DEVELOPMENT M.M. KUMARASWAMY*, S.T. NG, E. PALANEESWARAN, M.M. RAHMAN, O.O.UGWU and E.K.K. SZE Centre for Infrastructure & Construction Industry Development, The University of Hong Kong, Pokfulam, Hong Kong; email address of corresponding author*: [email protected] ABSTRACT An overview of two R&D projects provides summarised case studies of the ongoing development of two distinct performance improvement systems that can help empower different segments of the industry. The first project focuses on a Management Support System (MSS) for large clients (LCs); while the second aims at Information and Knowledge Management Systems (IKMSs) for Small & Medium Contractors (SMCs). Finally, the paper points to the potential for an integrated system that can provide useful linkages across these extremities of the construction supply chain by proposing a LC based Project Information & Knowledge Management Platform (PIKMAP). The latter could serve specific projects by providing useful seamless interfaces with all stakeholders, including the LC, its consultants, contractors and suppliers, as well as SMCs involved. Certain issues will of course need to be carefully addressed e.g. in terms of confidentiality, security levels and legal liabilities in respect of each stakeholder. Keywords: Construction Industry Development, Information & Management, Management Support System, Small & Medium Contractors Knowledge INTRODUCTION This paper commences with a ‘tale of two projects’ that summarises the main thrusts and status of two ongoing R&D projects. Each project aims at enhancing opposite corners of the construction industry supply chain, namely Large Clients (LCs) and Small & Medium Contractors (SMCs). However, they both focus on supporting management through better information & knowledge management and decision support systems. The paper concludes with a basic conceptual proposal for an integrated Project Information & Knowledge Management Platform (PIKMAP) that should accelerate the exchange of information, the development of broader knowledge bases, and thereby empower better decisions in the construction industry. The first R&D project aims to develop an integrated framework and sample working modules of a knowledge-based MSS that will empower the formulation of more effective and efficient construction project procurement and delivery systems – for innovative and improved ‘total’ management of construction projects – from a large client’s viewpoint. The objectives include developing: (A) rich knowledge-bases for selecting and optimising construction procurement and operational/ delivery sub-systems, in the context of both client priorities and project contextual conditions; and (B) prototype modules – to 498 Kumaraswamy et. al demonstrate management support possibilities, including decision aids in specific sample areas: such as in incorporating ‘relational contracting’ principles and best practices in more sustainable partnering and alliancing arrangements in an area that is attracting increasing attention [Walker and Hampson, (2003)]. The second project is entitled SMILE-SMC. It aims at empowering continuous improvement of Small and Medium Contractors (SMCs) by providing a SMC-friendly framework and innovative tools for boosting productivity, quality and image, through strategic information and knowledge management. Project deliverables include SMCfriendly platforms, incorporating web-based and mobile communication linked systems and tools - for boosting business and operational processes of construction contractors in general, and SMCs in particular - to be developed and disseminated through the proposed SMILE web-site, newsletters, industry seminars, training workshops and self-learning packages. Work is proceeding on (a) formulating a basic SMILE framework and (b) on a wider questionnaire survey and workflow analyses to prioritise SMC needs, following the completion of a preliminary ‘needs analysis’ survey. Both projects are based in Hong Kong, and include inputs from overseas bodies and experts, as well as strong participation from local organisations, including clients, contractors, government-sponsored bodies and trade associations. The projects were conceived, proposed and funded separately, with the first started about a year before the second. However, it is not surprising that the possibilities of an eventually seamless solution are now being envisioned. Such an over-arching initiative could integrate improved ‘decision support’ and ‘information and knowledge management’ across complex construction supply chains. This would in turn help to accelerate technology diffusion and construction industry development. MSS (MANAGEMENT SUPPORT SYSTEM) FOR LARGE CLIENTS Project formulation and main thrusts This project aims for ‘top-down’ improvements by developing an integrated framework and sample prototype modules of a knowledge-based Management Support System (MSS). This will empower the formulation of more effective and efficient construction project procurement and operational/ delivery systems, from a large client’s viewpoint, for innovative and improved ‘total’ management of construction projects. This project is funded by a grant from the Research Grants Council of Hong Kong. It was launched in September 2002 and planned for a three year duration. The proposal was strongly endorsed by two large construction clients (one being a private developer and the other a railway corporation). It also involved two overseas co-investigators, one based in the UK, and the other originally in Singapore. The objectives are to develop: (1) rich knowledge-bases of sound principles, best practices and innovations, in optimising selected construction procurement and operational/ delivery sub-systems, in the context of both client priorities and project contextual conditions; (2) an MSS framework and (3) prototype working modules – to provide management support, including decision aids in the following sample areas: (a) in incorporating ‘relational contracting’ principles in more sustainable partnering and alliancing arrangements in construction projects e.g. by adapting proven ‘joint risk Top-down and bottom-up construction industry development 499 management’ protocols; (b) public-private partnered procurement; (c) contractor selection; and (d) ‘extension of time’ evaluations. Present status The framework and two of the sample modules are presently being developed. A wide literature review, interviews, two questionnaire surveys and two project case studies have been completed. A third questionnaire survey and three more project case studies are now underway. The first two questionnaires focused on: (1) ‘innovations and their implementation, including barriers, and lessons learned’ - surveyed in both Hong Kong and Singapore, using the same questionnaire, to enable comparisons within the same region and a somewhat similar setting; and (2) ‘barriers to, and prospects for mutual technology transfers’ and ‘relational integration in Joint Venture teams’ – surveyed in Hong Kong only, this being an additional survey, also linked to another research exercise. The two completed case studies were on: (1) ‘partnering’ in a housing estate construction project of the Hong Kong Housing Society; and (2) ‘extended partnering’ in a building refurbishment project of the Hong Kong Housing Authority. The three other case studies that have commenced are on: (3) relational contracting and joint risk management approaches on a MTRC (Mass Transit Railway Corporation) station extension project; (4) ‘partnering’ on a foundations project of the Housing Authority; and (5) a recently commenced public-private partnership type project of the MTRC. These questionnaire surveys and case studies are yielding interesting outcomes, for example on a proposed structure and sample contents of a ‘partnering knowledge-base’ that would form part of the ‘relational contracting’ module (Kumaraswamy et al., 2003), weak links in the partnering supply chain [Sze et al., (2003)] and on potential for relational approaches and technology exchange in joint ventures [Kumaraswamy et al., (2004a)] while analysis is in progress on other material. The framework and related principles for structuring the findings of the case-studies, are being drawn from both the case interviews and literature on previous research and theories e.g. [Cheng and Li, (2001); Chan et al., (2002); Luu et al., (2003); ESCAP, (1994); Carrillo, (1995)]. These are being consolidated and framed in the context of improving procurement and delivery sub-systems. The third questionnaire survey is on the potential for developing a relational contracting culture. It was launched in five countries. 86 responses have been received from Hong Kong and another 96 from Singapore. A smaller cluster of high quality responses has been received from the Netherlands. Surveys using the same questionnaire in UK and Australia have not yielded many responses to date, apparently the victims of a questionnaire-weary industry. Analysis has commenced on the Singapore and Hong Kong samples and the eventual cross-country comparison is expected to yield interesting outcomes. A prototype web-based Decision Support System for assisting in the evaluation of Extension of Time’ entitlements has been formulated (Palaneeswaran et al., under review), demonstrated to a small group of industry experts and positive feedback received. The frameworks for ‘contractor selection’, for ‘relational contracting’ and ‘joint risk management’ are being developed further. A rationalised re-classification/ re- 500 Kumaraswamy et. al definition of procurement & delivery systems terminology has commenced, along with the formulation of a basic decision support tool for procurement system selection. Basic conceptualisations Clearer conceptualisation and differentiation has been proposed between project ‘procurement’ and ‘delivery’ systems, although North American terminology indicates an overlap e.g. in terms of ‘Project Delivery and Contract Strategy’ (Anderson and Oyetunji, 2003). These are differentiated herein by distinguishing the initial overall ‘procurement’ system decisions e.g. on project packaging, contractual, organisational and team selection strategies; and the downstream project management (more ‘operational’) decisions that are taken during project ‘delivery’. While this differentiation has been described in detail by [Kumaraswamy et al. (2004b)], Figure 1 serves to summarise the various interactive components of the envisaged Integrated Procurement System (IPS) and Collaborative Delivery System (CDS). These will be at the core of the proposed MSS framework. Decision support protocols will be developed to assist in selecting and assembling appropriate sub-systems in order to formulate the most suitable procurement and delivery systems for a given project of a large client, depending on specific project priorities and contextual conditions. The initial concepts are described in more detail by Kumaraswamy et al. (2004c), while [Ugwu et al. (2003)] expand on the ICT conceptualisations. CM Interactive WP initial strategic decisions TM QM FG CC SHM CDS HRM CDM IPS ICM SM PM Monitoring & feedback for joint improvement VM PA RM Integrated Procurement System (IPS) IPS sub-systems CC – Contract Conditions FG – Functional Groupings PM – Payment Modalities SM – Selection Methodologies WP – Work Packaging Collaborative Delivery System (CDS) CDS sub-systems TM – Time Management CM – Cost Management QM – Quality Management VM – Value Management RM – Risk Management PA – Performance Appraisal HRM – Human Resources Management SHM – Safety & Health Management CDM – Claims & Disputes Management ICM – Information & Communications Management Figure 1 Collaborative Procurement and Delivery Systems in proposed MSS SMILE-SMC (STRATEGIC MANAGEMENT WITH INFORMATION LEVERAGED EXCELLENCE FOR SMALL AND MEDIUM CONTRACTORS) Top-down and bottom-up construction industry development 501 Project formulation and main thrusts This second R&D project aims for ‘bottom-up’ improvements through the development of Small and Medium Contractors (SMCs), by providing a SMC-friendly framework and innovative tools for boosting productivity, quality and image, through strategic information and knowledge management. For example, savings are envisaged through more efficient and timely information flows, enhanced ‘business knowledge’, reduced wastage (of resources) and less rework (in rectifying substandard or defective works). Quality and image improvements will be derived from guidelines based on good/ best practice examples. These will be made available/ accessible through various modules of the proposed SMILE system. The SMILE-SMC project is funded by a grant from the Small and Medium Enterprises Fund of the Hong Kong SAR Trade and Industry Department, with support funding from the Faculties of Engineering and Architecture of The University of Hong Kong. The proposal for this project, which commenced in November 2003, was strongly endorsed by the Provisional Construction Industry Co-ordination Board of the Hong Kong SAR, as well as the Hong Kong Federation of Electrical and Mechanical Contractors; and supported from the outset by both the Hong Kong Construction Association (HKCA) and the Construction Industry Training Authority (CITA), as collaborating organizations; five ‘partner contractors’ (PCs) in Hong Kong; and five overseas Universities/ R&D Centres from the UK (two), Australia (two) and Singapore (one) as collaborators/ advisors. The interest and momentum generated have led to 9 more SMCs joining as PCs on this project; and strong support has been enlisted from two other contractor associations: the Hong Kong General Building Contractors Association (HKGBCA) and the Hong Kong Construction Sub-contractors Association (HKCSA), both of which represent many SMCs. Representatives of these associations and our PCs share their views and experiences and provide feedback for improving system development at Team Meetings and follow-up opportunities. This project focuses on developing a suite of ICT-aided tools for up-grading Small and Medium Contractors (SMCs) who form the ‘back-bone’ of the construction industry in most countries. The benefits expected from the project outcomes will be particularly valuable to Hong Kong, where extensive multi-layered sub-contracting perpetuates a large number of SMCs. There is a special emphasis on dissemination, to penetrate further - to the many who can benefit. The planned project deliverables include: (a) a web-based information library; (b) a collaborative information and knowledge management framework; (c) a ‘strategic information and knowledge manager’; (d) templates and initial issues of periodical (e.g. quarterly) newsletters/ e-bulletins; (e) a basic training workshop package and a self-learning package. Status summary and initial conceptualisations The initial exercises aimed at the ‘R’ part of this ‘R&D’ project. Firstly structured interviews were held with senior staff of the 14 PCs. These were supplemented with general information and knowledge derived from monthly ‘full’ team meetings that included the PCs and representatives of the local collaborating organisations. These interviews, joint meetings and follow-up have helped to identify a preliminary profile of 502 Kumaraswamy et. al the information ‘needs’ of SMCs and to formulate the presently proposed framework for the web-based information and knowledge management systems which comprise: 1. ‘Wanted Zone’ (for ‘Services Wanted’) 2. SMILE Members Register (‘Available Zone’ to convey ‘Services Available’) 3. Discussion Forum (to exchange information on useful topics) 4. Information and Knowledge Management Modules (includes web-based zones and tools/ formats for enhanced communications within and between organisations e.g. site office & head office; and sub-contractor & contractor, or contractor & consultant) 5. Performance Improvement Module (to help improve productivity, quality, etc.) 6. Benchmarking Club (to share and compare performance indicators, where so desired). Figure 2 Potential Uses and Users of the SMILE-SMC System Figure 2 indicates potential SMILE services and the envisaged broad range of potential users, given the information and knowledge that may be derived from the web-site. A temporary SMILE website has been set up to provide a pilot platform for testing such systems. In order to capture wider collective industry perceptions, and to validate and prioritise identified ‘user needs’, a questionnaire was developed on the basis of initial findings. This questionnaire was issued to a wide range of contractors, 100 responses have been received up to now, and analysis has commenced. Top-down and bottom-up construction industry development 503 A ‘workflow analysis’ exercise is also in progress to capture some of the critical SMC business processes through interviewing the site staff and senior management of PCs. Typical workflow and information transmission patterns are being analysed. Outcomes are expected to provide pointers to better ways of structuring some common and/or critical processes and information flows e.g. even in the transmission cycle of ‘requests for information’ (RFIs). ‘Use cases’ are being modelled using UML (unified modelling language) in order to visualise and streamline the present flow patterns. After analysing and consolidating the incoming data, it is expected to propose better ways to help streamline / improve some prioritised (more important/ common) business processes by making use of increasingly available, but under-utilised information and communication technology (ICT) tools (including basic web-based systems and mobile communication technology). Lack of time and resources presently restrict SMCs from developing and using such ICT tools, whether in Hong Kong or elsewhere [Rahman et al., (2004); Caillaud and Passemad, (2001); Keeble and Wilkinson, (1999)]. It is hoped that SMILE-SMC will help these SMCs to make a good start in this direction towards continuous improvement. A SMILE-SMC Development Workshop held in June 2004 helped to take stock, prioritise user needs and identify better directions for the future development. The Workshop aimed to (1) discuss, consolidate and prioritise present findings (on SMC needs) and initial developments (of the SMILE system) and (2) generate ideas and suggestions on: (a) the relative usefulness of different modules within the proposed framework, and (b) how best to develop the more useful modules within the limited time frame. Plans for maintaining and up-dating the SMILE-SMC system beyond the two year development period presently rely on collecting minimal/ nominal post-development subscriptions from users to sustain a research/ project assistant for basic tasks. However, if interest is demonstrated and users seek up-grading and/or extra services, it is possible to raise the system operation & maintenance levels and even hand it over to an interested independent body, such as a government or professional organisation. POTENTIAL FOR AN INTER-PARTICIPANT INTEGRATED PROJECT MANAGEMENT PLATFORM There have been many previous exercises to develop integrated project management systems. However, most have not been truly integrated. For example, (a) some large clients like the Hong Kong Works Bureau (now the Environment, Transport and Work Bureau) developed a Project Information Management System for tracking costs and progress of their extensive portfolio of projects across many Works Departments; while (b) some large contractors have tried out commercially available or specially developed ‘project management systems’. However, interviews in Hong Kong have indicated that some of the latter have been found to be glorified ‘document management systems’. What is targeted in the two reported R&D exercises delves deeper and spans wider: (1) into knowledge-based decision support for critical project procurement and delivery choices of large clients (LCs) in the top-down exercise; and (2) for more efficient and 504 Kumaraswamy et. al effective information & knowledge flows that will lubricate and accelerate the development of SMCs in the bottom-up exercise. Figure 3 conceptualises an over-arching Project Information & Knowledge Management Platform (PIKMAP) that can effectively link the above two systems. PIKMAP will be applied on a specific project and designed to selectively mobilize identified (projectcritical) groups across that project supply chain in respect of different types of information flows and knowledge sharing. For example, the information systems of the consultants and main contractors (and if needed suppliers), can be linked to those of subcontractors, so that any design changes can be rapidly transmitted on a selected ‘need to know’ basis. CLIENT A Client A’s IPS Collaborative Delivery System Client A’s MSS – CDS Interface for Project P Project Consultant(s) Project Suppliers PROJECT INFORMATION & KNOWLEDGE MANAGEMENT Project Main Contractor(s) Other authorized bodies (e.g. relevant Govt. Depts.) PLATFORM (PIKMAP) SMILE compatible interface for SMCs on Project P General Web-based Interface for SMILE-SMC users Other SMILESMC users General SMILE-SMC uses e.g. in (a) sourcing ‘available’ services & ‘information’, (b) posting ‘wanted’ notices, and (c) improving ‘performance Figure 3 Proposed PIKMAP (Project Information & Knowledge Management Platform) IPS – Integrated Procurement System; MSS – Management Support System; SMCs – Small & Medium Contractors – could be on small direct contracts or subcontracts SMILE – Strategic Management with Information Leveraged Excellence Top-down and bottom-up construction industry development 505 Bottom-up information flows e.g. due to non-availability of a critical building material can also alert consultants faster. All these would facilitate faster and better decisions. The ICT issues of inter-operability, common standards, formats and protocols need to be addressed, but these may be easier to tackle if the next phase of MSS and SMILE-SMC project developments take into account this longer-term goal. CONCLUDING OBSERVATIONS The collaborative information, knowledge-sharing and decision support systems that are being developed in the two reported R&D projects target different ends of the construction supply chain. Appropriate links and protocols are seen to be useful in generating valuable synergies and wider coverage across the entire supply chain. The planned top-down and bottom-up industry development can be both extended and effectively ‘connected’ – by a project-specific Project Information & Knowledge Management Platform (PIKMAP) that provides appropriate interfaces and mutual benefits to all project participants. Specific groups of participants will receive information on a ‘need to know/ share’ basis, guided by a principle of getting the right amounts of the right information to the right people at the right time. Different security level settings will enable control, while each information ‘originator’ may also screen out potential recipients who would have no particular interest in that piece of information. This will minimise the ‘information overload’ that can easily arise from each participant sending every bit of information generated to all other authorized participants. Security and legal liability issues will need addressing if sub-contractors and suppliers are to access consultants’ design changes directly, rather than through their ‘parent’ contractors. While this saves time, it does not mean a supplier can act on the changes without authorisation from its ‘contracting party’. On the other hand, the collaborative working arrangements envisaged in ‘partnering’ and ‘alliancing’ projects would benefit from such an inter-participant PIKMAP. Second and third generation partnering and alliancing arrangements increasingly advocate such collaborative interactions and information sharing but lack the mechanisms to enable them. Most existing project/ document management systems are geared towards facilitating the traditionally restricted/ guarded communications in ‘adversarial’ scenarios. PIKMAP could address this shortfall e.g. in facilitating group inputs where needed, better informed decisions and faster dissemination. Given the choices to be made and the issues to be addressed it is envisaged that each PIKMAP will be client-driven, i.e. the information flow, specific interfaces and access protocols will be designed into the ‘collaborative delivery system’ set up by the client and his principal adviser/ consultant. ACKNOWLEDGEMENTS Grant HKU/7011/02E from the Hong Kong Research Grants Council and D02 002 074 from the Hong Kong Trade & Industry Department are gratefully acknowledged, for enabling R&D work on the MSS and SMILE-SMC projects respectively. 506 Kumaraswamy et. al REFERENCES Anderson, S. and Oyetunji, A (2003) Selection Procedure for Project Delivery and Contract Strategy, Proceedings of the 2003 ASCE Construction Research Congress, Hawaii, USA, CD Rom, 9 pages. Caillaud, E. and Passemad, C. (2001) CIM and virtual enterprise: a case study in a SME. International J. Computer Integrated Manufacturing, Vol. 14, No. 2, pp. 168-174. Carrillo, P. (1995) “Technology Transfer on International Joint Venture Projects”, First International Conference on Construction Project Management, Nan yang Technological University, Singapore, Jan. 1995, pp 327 - 334. Chan A.P.C., Chan D.W.M. and Ho K.S.K. (2002) An analysis of project partnering in Hong Kong, Department of Building and Real Estate, The Hong Kong Polytechnic University, Hong Kong. Cheng E.W.L. and Li H. (2001) Development of a conceptual model of construction partnering Engineering, Construction and Architectural Management, Volume 8, 292-303. ESCAP (1994) Application and Extension of the Technology Atlas, United Nations, New York, USA, 145 pp. Keeble, D. and Wilkinson, F. (1999). Collective learning and knowledge development in the evolution of regional clusters of high technology SMEs in Europe. Regional Studies, Vol. 33, No. 4, pp. 295-303. Kumaraswamy, M.M., Yeung, N., Sze, E., Law, S. and Rahman, M. (2003) KnowledgeBuilding for successful Partnering, Joint International Symposium of CIB Working Commissions, 22-24, Oct. 2003, Singapore, Vol. 1, pp. 468- 480. Kumaraswamy, M.M., van Egmond, E.L.C., Rahnman, M.M. and Ugwu, J. (2004a) Technology Exchange through Relationally Integrated Joint Venture Teams, CIB W92 International Symposium on Procurement Systems “Project Procurement for Infrastructure Construction”, 7-10 January, 2004, Chennai, India, pp. 326-334. Kumaraswamy, M.M., Ng, S.T., Luu, D.C., Anumba, C. and Palaneeswaran, E. (2004b) ‘Proactive Procurement and Improved Project Delivery’, CIB W92 International Symposium on Procurement Systems “Project Procurement for Infrastructure Construction”, 7-10 January, 2004, Chennai, India, pp. 179-187. Kumaraswamy, M.M., Ng, S.T., Ugwu O.O., Palaneeswaran, E and Rahnman, M.M. (2004c) Empowering Collaborative Decisions in complex project scenarios, Engineering, Construction & Architectural Management, Vol. 11, 2, pp. 133-142. Luu, D.T., Ng, S.T. and Chen, S.E. (2003). “A Case-based Procurement Advisory System for Construction.” Advances in Engineering Software, 34, 429-438. Palaneeswaran, E., Nadarajah, R and Kumaraswamy, M.M. (under review) ‘EOTDSS A Web-based Decision Support System for Assessing Time Extension. International Journal of Project Management. Rahman, M.M., Kumaraswamy, M.M., Ng, S.T., Lam, E., Ho, E. & Lee, S. (2004) Needs of SMCs in Hong Kong: Information Management and IT, Proceedings, CIB W102 Information and Knowledge Management, April 29-30, Ryerson University, Toronto, Canada, (eds. C.J. Katsanis, B. Dimitrijevic & C. Davidson), pp. 59-66. Sze, E., Kumaraswamy, M.M., Wong, T., Yeung, N. and Rahman, M. (2003) Weak Links in Partnering Supply Chains? - Consultants’ and Subcontractors’ Views on Project Partnering’, 2nd Intnl. Conference on Construction in the 21st Century, Hong Kong, Dec. 2003, pp. 108-113. Top-down and bottom-up construction industry development 507 Ugwu O.O., Kumaraswamy, M.M., Rahman, M.M. and Ng, S.T., (2003) IT tools for collaborative working in Relationally Integrated Supply Chains, 2nd Intnl. Structural Engineering and Construction Conference, Rome, Sept. 2003, editor: F. Bontempi, A.A. Balkema, Netherlands, ISBN 90 5809 599 1, Vol. 1, pp. 217-222. Walker, D and Hampson, K. (2003) Procurement Strategies – A Relationship-based Approach, Blackwell Science, UK. 508 Kumaraswamy et. al CONSTRAINTS ON THE ICT DIFFUSION WITHIN LARGE AUSTRALIAN CONSTRUCTION FIRMS V. PEANSUPAP and D. H. T. WALKER RMIT University, 3000, Australia, [email protected], [email protected] ABSTRACT Many practitioners and academics realise the importance of implementing information and communication technology (ICT) in construction organisations and identify various success factors influencing ICT implementation. However, few of them can adequately explain the barriers that may occur during from initial adoption to actual implementation stages. To fill the above gap, this paper adopts innovation diffusion concept and highlights the constraints of ICT diffusion within large Australian construction firms. Two case studies of web-based document management and one case study of Intranet document management systems are used to support our explanation. Our research results indicate that at the organisational level, these constraints are: a limited ICT investment budget; organisational adoption gaps; and business results gaps. The scope of this paper precludes us from discussing personal level and group level constraints that we have identified. However an understanding of the organisational level constraints may help us become more aware of possible ICT implementation delays at that level and solutions for these constraints are proposed in this paper. Keywords: IT Implementation, technology diffusion and implementation barriers INTRODUCTION Recently, strategic ICT implementation frameworks have been developed to provide a strategic view of its success in the construction industry and several studies identify key drivers and barriers of successful ICT implementation. Previous research studies explore barriers to ICT use and adoption at the construction industrial level. These highlight common barriers such as low levels of ICT literacy and lack of ICT investment [Love et al. (2001); Tucker et al. (1999)]. Some studies have also identified factors influencing the success of strategic ICT implementation at the organisation level [Stewart et al. (2002)]. However, few empirical studies explain ICT implementation constraints from an innovation diffusion perspective at the construction company level. The research reported upon here differs from previous IT innovation research in two ways. First, we make the assumption that organisation-wide ICT diffusion (such as groupware or intranet applications) may differ from stand-alone ICT innovation (such as CAD systems or non-integrated project planning and scheduling). One reason for this is that organisation-wide ICT innovation requires a commitment from a greater number of 510 Peansupap and Walker users than IT innovation focused in individual stand-alone ICT applications—the greater the number of users the greater the potential benefits of ICT innovation. Thus, the organisation that expects to obtain realisable benefits from its ICT investment needs to ensure that users adopt and use ICT applications. Second, the research focuses on ICT implementation from the ICT innovation diffusion perspective at the micro level of ICT implementation within an organisation. Before going into details, it is essential to answer why innovation diffusion is useful in explaining ICT implementation. ICT implementation is a complex rather than simple task involving both technical and social issues. Many practitioners believed that ICT failures occur because of technical issues rather than social issues. However, [Songer et al. (2001)] argues that corporate culture is one the main implementation barriers to information technology systems rather than technology issues. This supports general innovation diffusion theory where it is held that the major reason for innovation failure is poor implementation. It has also been argued that implementation needs to be managed and structured because it is the critical process in successful ICT innovation diffusion [Green & Hevner (2000)]. Thus, overlooking the importance of ICT initiative implementation may cause ICT failure. Even though several studies argue that the main cause of ICT implementation failure relates to social issues, many practitioners still neglect the important of social issues in regard to ICT implementation. [Griffith et al. (1999)] provide evidence in their study of ten technology projects from a Fortune 300 manufacturing organisation. They found that project managers tend to overlook social issues when developing their innovation initiative project budgets. For example, in five out of ten cases there was no budget allocation for social issues and in another four cases the budget allocation for social issues was only 1%-2%. [Griffith et al. (1999)] also showed that MIS students and MBA students hold different views of allocating ICT budgets. They found that MIS students allocated a larger budget for people development than MBA students who allocated greater amounts for technical development. They reasoned that both replacement of technology and people movement may cause ICT implementation budget allocation problems because people can choose to leave a firm whereas a technology investment remains on its books, thus people investment can be potentially ineffective. Peoplerelated ICT implementation support is an internal activity that will often have a lower budget priority compared to investment in technology systems [Griffith et al. (1999)]. Thus, an unclear understanding of the implementation process can cause ineffective ICT implementation that may eventually lead to implementation failure. This paper identifies ICT implementation constraints from the diffusion perspective to improve understanding of the importance of ICT implementation. We define constraints and diffusion terms and then discuss adoption, implementation and diffusion aspects. We then use a casual loop diagram [Senge, P. et al. (1999); Senge, P. M. (1992)] tool to explain common ICT diffusion constraints to highlight interesting issues from the an organisational perspective. Constraints on the ICT diffusion within large Australian construction firms 511 DEFINITION OF TERMS In this paper, we use the term ICT diffusion constraint to refer to resistance to drivers of change that occurs in organisations during ICT adoption and implementation. We define ICT diffusion as a process where organisations introduce ICT initiatives for adoption by expected users. Resistance may occur at organisational, group and/or personal levels. Therefore, an understanding of constraints could help construction firms manage ICT diffusion by focusing on possible ICT implementation diffusion barriers and finding ways to militate against these problems. We refer to innovation in this paper as the introduction of new ICT initiatives to an organisation. Thus, it is necessary to describe differences between ICT and traditional IT innovation. In general, IT innovation may be adopted by specific groups of users within an organisation. For example, the use of computer aided design (CAD) by architects or estimating software by engineers is often implemented as a stand-alone or non-system integrated initiative whereby a small group of expert users participate in the initiative. On the other hand the success of company-wide ICT innovation initiatives such as groupware applications needs adoption from multiple groups of staff such as project managers, engineers and foremen within a construction organisation. In addition, the adoption of ICT may include organisation-external project participants such as designers, consultants and owners. A firm may operate small-group IT innovation such as planning and scheduling applications independently whereas groupware ICT innovation needs cooperation both within a group to share and exchange data and information to help in managing the construction project as well as with external project team and supply chain members. Innovation diffusion can be described in either technology transfer or intra-organisational innovation adoption terms. Firstly ‘Innovation diffusion’ can be defined from the technology transfer perspective as transferring innovation information from a research and development (R&D) unit to a targeted consumer unit—individual or organisational (Scheirer 1983). Thus innovation diffusion usually begins before any adoption decision is made because it requires delivering positive information about an innovation to expected adopters to hasten the targeted users to adopt the innovation. Thus, the more persuasive the information that is delivered to expected adopters, the higher will be the adoption rate. Secondly, ‘innovation diffusion’ from the intra-organisational innovation adoption perspective usually occurs when top management and/or a champion (top-down approach) or expert groups within the organisation (bottom-up approach) decide to adopt an innovation and encourage other users to adopt the innovation [Yetton et al. (1994)]. In this research, innovation diffusion focuses on both initial adoption and actual implementation of the innovation. Different organisations have their own specific process and culture, which in turn causes an inconsistent outcome of innovation diffusion so that it is difficult to generalise any case studies of innovation diffusion with certainty. However, a general understanding can emerge from individual case studies and so the more case studies that can be undertaken, the greater is the chance of patterns being identified that stabilise into something approaching a general theory. 512 Peansupap and Walker As diffusion of innovation deals with numerous variables, both of a technological and social nature, it could be argued that it is essential that an organisation should provide adequate management support and monitoring of diffusion innovation within the organisation. (Carlopio 1998) proposed an innovation diffusion framework in the workplace environment by adoption of the Rogers diffusion of innovation concept to extend the model to an individual/group level. His framework indicates that the diffusion of innovation may occur at both organisational and individual/group level. While our research analyses innovation diffusion constraints at the organisational, individual, and group levels, we are limited by the scope of this paper to report only upon the organisational level. RESEARCH METHODOLOGY AND ANALYSIS This paper focuses on the qualitative data analysis on constraints that occurs during ICT diffusion within three contractors’ organisations from the top ten Australian construction contractors with an annual turnover in excess of one billion Australian dollars. These companies are experienced ICT users with a history of decades of ICT initiative deployment ranging from accounting and planning information technology (IT) applications during the 1980s to groupware applications today such as email and intranets. Further details about the contractors can be found elsewhere (Peansupap et al 2003) as the space limit in this paper does not permit us to provide this information. We chose a descriptive case study approach to obtain rich information from the participant’s viewpoint using multiple sources of data that helped us understand what was happening as well as how and why it followed a particular trajectory [Yin (1994)]. Case study qualitative research can be grouped into three broad categories: exploratory, descriptive, and explanatory [Neuman (1997)]. We used quatitative research to identify factors influencing ICT diffusion within construction organisations and explain how they influence the ICT diffusion processes. Data collection started with discussions with senior IT managers from the three organisations Case study contractor A, B and C to understand the strategic adoption of ICT applications at the organisational level. We followed that up with interviews conducted with the ICT implementer or ICT manager involve in rolling out the ICT application at the organisation, group or individual level. Experienced ICT users were requested to discuss their impression of drivers and barriers influencing their adoption and use of ICT application. Our analysis followed casual loop diagram [Senge, P. et al. (1999); Senge, P. M. (1992)] to explain the constraints that occur at the: organisational level, individual and group levels. Finally, we conducted seminars to feed back and validate our analysis and to stimulation further debate. ORGANISATIONAL LEVEL ICT DIFFUSION CONSTRAINTS Many studies have identified various factors influencing ICT implementation but few can adequately explain the ICT diffusion constraints for construction firms. Results from two case studies of web-based document management and one case study of an Intranet document management system are used to support our explanation. These are illustrated in Figure 1 and show that the influencing forces comprise one driving (positive impact) Constraints on the ICT diffusion within large Australian construction firms 513 cycle of organisational support at the organisational level and three barriers (negative impact) that constraint the ICT diffusion initiative. Figure 1 illustrates the drivers and barrier forces that act upon the diffusion of this ICT initiative at the organisational level during the initial adoption phase. The dashed line indicates the construction organisation’s boundary in which ICT is adopted and diffused. Factors that drive the initial adoption of the ICT initiative into the construction organisations start with the firm’s policy that relates to the way in which its core ICT competencies will be grown. A champion will emerge with varying degrees of enthusiasm and influence within the organisation. Key people in the organisation will act as gatekeepers who help filter messages about their impression of the ICT diffusion initiative as well as bring additional knowledge to potential ICT users depending upon the level of resources available to them. The ICT initiative investment decision is then made and the adoption of the initiative proceeds and this results in perceptions of the business result of the ICT initiative’s deployment. Figure 1. Constraints of ICT diffusion within construction organisation (organisational loops, C1a, C2b, C2c) at the organisational level The supportive driver influence can be summarised as: • An effective organisational policy and vision • Top management support and commitment • Encouragement of technology champion • Development of internal knowledge groups 514 Peansupap and Walker • Development of external networks Each driver has its own function in influencing ICT diffusion within a construction organisation. Firstly, the company’s vision and policy have a direct influence on strategic ICT adoption and implementation within a construction organisation. The company’s vision functions as a long-term strategic objective of ICT adoption while the company’s policy enhances ICT implementation by determining the framework for employee behaviour. Secondly, support from top management has a key role in the ICT adoption decision because this support is essential for development of infrastructure and people for ICT adoption within the organisation. Without management support, ICT adoption is hard to accomplish. Top management, who commit to the ICT adoption, allocates financial expenditure. Thus, to obtain adequate funding, it is necessary to provide clear potential benefits of the ICT investment to gain commitment from senior management. Thirdly, the technology champion will also influence ICT diffusion at the organisational level as this champion is considered as the source of ICT information to be distributed to employees throughout the organisation. Fourthly, the firm should develop people’s knowledge of how to effectively apply ICT to their work practices because successful use and adoption of ICT diffusion is required to support their work processes. Without effective ICT adoption by expected users, the firm cannot gain full benefit from its investment. Thus, sharing and building internal group knowledge (both of how the ICT initiative works technically and how it is applied to enhance construction practice) can facilitate ICT diffusion because it can ensure that ICT will be effectively used. Finally, the company should develop a knowledge network with professional institutions and/or university academics to be able to maintain additional channels of advice and support. This networking can increase interlinking with the firm to others with ICT knowledge to feed updated ICT knowledge back into the intra-organisation supply chain network. This information network can be an essential part of the innovation diffusion process for the company because ICT information can be effectively transferred from the industry/professional level to the organisational level. Although the organisation attempts to encourage ICT diffusion during the initial ICT adoption phase, some constraining barriers may develop. These constraints can be categorised into three main groups: (a) ICT investment decision gaps, (b) organisational adoption gaps, and (c) business result/outcome gaps. ICT investment decision gaps, C1a In Figure 1, the first constraint loop (C1a) illustrates ICT investment decision gaps at the organisational level. These stem from several issues such as: lack of technology awareness; a complex construction environment; immaturity of the technology to be used; unsuited technology for organisation needs; and financial constraints. Lack of technology awareness Lack of technology awareness could be one constraint affecting ICT investment decisions. For example, senior information technology (IT) mangers from the three cases mentioned that some senior managers were unaware of some potential ICT innovation Constraints on the ICT diffusion within large Australian construction firms 515 benefits. Lack of technology awareness may also obscure the ICT investment opportunity because knowledge about a construction process (such as estimating or cost control) may be limited to more conventional methods rather than how ICT may be applied to more effectively re-engineer these processes. Complex construction environment The nature of the construction environment is complex and this may influence the ICT investment decision. For example, the IT developer in Case B mentioned that the construction industry is slow in its adoption of most new technologies. Many construction people are very conservative in their thinking. Similarly, the IT senior manager in Case A said that the construction industry culture is a key constraint on ICT investment because construction subcontractors and smaller scale suppliers find it hard to change their way of working with contractors, especially in the area of ICT innovation which needs commitment from many other project participants in a supply chain to fully realise the benefits of e-commerce and extranet technologies. In addition to the people and construction culture barriers, the process of construction is also complex requiring many different supply chain partners of different organisational size and sophistication each often using their own documentation processing standards. ICT investment decisions would benefit from an industrial standard. However as noted by the IT manager in Case C, while several ICT construction applications for e-business have been recently developed there is as yet no standard platform for the Australian construction industry. Engineering consultants who have to adopt and use several ICT platforms that are used by different main contractors also made this statement. Thus, ICT investment decisions should be made in the context of constraints that exist in the current construction environment. Immaturity of technology Immaturity of technology may cause reluctance to invest. For example, the IT senior manager in Case C mentioned that ICT groupware applications were immature. However, he decided to adopt one of the many available ICT portals for documentation sharing instead of developing an in-house solution that would better integrate with other organisational ICT systems. He commented that the development of in-house ICT might lead to incompatibility with a future system that may become an industry standard. Thus, immature technology may require a lot of resources including technical specialists and hardware and software development for integration with legacy systems that in turn might demand high ICT development investment. This may be the reason why many smallmedium construction organisations are slow to adopt ICT innovation. Immaturity of technology, therefore, may be seen as an investment risk because of potential high costs and possible incompatibility. Unsuitable technology for organisational needs In both Case A and Case B the reason given for adopting in-house ICT development was that at the time there was no commercial ICT application suitable for their organisation. While immature technology can lead to incomplete ICT functions, technological benefits 516 Peansupap and Walker that do not fit with the organisation’s needs have a similar negative impact but it focuses more on the functions or benefits that fail to adequately fit technology within construction organisations. This constraint may obstruct the investment decision because fundamentally ICT adoption should support construction work processes. Thus, if ICT applications are not supported with organisational work processes, it will be hard for the company to gain benefits from its investment. For example to function optimally a groupware application may require high band width access for all sites regardless of size, this may not suit using this technology on small projects where the cost of establishing the ICT infrastructure may be uneconomical. Financial constraint Senior IT managers agreed that financial considerations are a major ICT investment decisions constraint. This can cause ICT investment decision delays. This is especially true if the organisation decides to develop its own ICT technology with a requirement for a lot of people and funding resources. The ICT investment needs commitment from senior management to provide the necessary budget and support. Where there are financial constraints, the investment decision of in-house ICT application should be based on a long-term ICT strategy that allows the organisation to develop ICT in several modules. Furthermore, financial constraints may result in a lack of budget for hardware, operation, training, and maintenance. Organisational adoption gap, C1b The second constraint loop (C1b) is the organisational level adoption gap. Lack of ICT adoption implementation experience of senior managers introducing ICT into an organisation and user resistance (possibly as a result of this) may contribute to this gap. There was evidence that there may be a link between lack of confidence and user resistance. Lack of experience of ICT adoption and implementation We suggest that adoption of an ICT application might not be a success because of an IT manager’s inexperience in ICT adoption and implementation. Lack of experience in ICT adoption and implementation may cause several difficulties in the organisation during ICT adoption. As ICT adoption affects both people and process within the construction organisation, care needs to be taken in its adoption and implementation. The IT implementer in case C mentioned that a previous complex ICT system had been tried as a pilot study on one construction project, but its implementation was found to be unsuccessful because the ICT application had been too complex. The reasons for this complexity were unclear. Thus, inexperience in ICT adoption and implementation may lead to the development of a gap in ICT adoption. This uncertain complexity led to a lack of confidence in the application’s value and user resistance. Constraints on the ICT diffusion within large Australian construction firms 517 Business result gap, C1c The third constraint loop (C1c) at the organisational level is the business result gap. The business result means the actual tangible outcome of the ICT investment though intangible results may be recognised as of value. However, the actual result may not match expected organisation needs and be devalued as a result. The perceived value of a business result may be hindered by an overestimation of expected ICT benefits. Overestimation of ICT benefits—Did not achieve competitive advantage To obtain investment support from top management, the IT department or the implementer often presents an ideal preferred outcome benefit of the ICT investment [Griffith et al. (1999)]. This evaluation may be based on a software vender or a consultant recommendation. An unexpected business result gap may result from information not being based on organisational reality. This can happen because of a misunderstanding of the organisation’s true level of ICT readiness or of the business processes that it employs or it may be a result of misrepresenting potential benefits unlikely to be actually realised. Thus, evaluation of ICT benefits should be truly concerned with the organisational context. In practice, it may difficult to estimate the benefits from the ICT investment especially if the organisation has had no prior significant experience with ICT. When the only source of ICT benefits may come from a software vender or an IT consultant, this information should be used only as guide for evaluation. One way to minimise unrealistic estimates of ICT benefits, is for the organisation to trial ICT pilot projects and learn from them. However, it is natural for IT managers to select projects with enough support and resources to be successful [Songer et al. 2001)]. Thus, success of an ICT application in one project may not guarantee success in another. Therefore, an understanding of the pilot project’s characteristics will help the IT manager to adjust investment plans of actual ICT investments to reflect reality. DISCUSSION Clearly, ICT implementation and adoption is a management intensive activity. Figure 1 illustrates organisation level driver and barrier constraints that govern the success of ICT diffusion initiatives. [Griffith et al. (1999)] propose for example, that managers should reframe expectation of IT implementation, create small wins, and reduce any conflict of interest. We found that our constraint model at the organisational level supports this suggestion because the model provides the possible organisational gaps such as an ICT investment decision gap (C1a), an organisational adoption gap (C1b), and a business result gap (C1c). Therefore, this model could help IT manager to explore the gaps and help to understand the hidden constraints that reflect the actual implementation of a proposed ICT outcome. [Skibniewski & Abduh (2000)] found that there are two strategies for adopting ICT—inhouse development and outsourcing depending upon the level of internal systems and resources that support the main organisational functions. Our belief is that no matter which strategy is selected, organisations still need to implement their ICT initiatives. To 518 Peansupap and Walker understand the ICT implementation, the organisation should adopt a trial, a pilot project strategy to learn from experience [Sutton & Lemay (1999); Whyte et al. (2002)]. First, this strategy could help them understand real benefits and possible constraints that may occur before diffusing the ICT initiative throughout their organisation. Second, a pilot strategy can help the organisation to overcome the investment barriers because a pilot generally requires a small-scale budget. Third, a pilot project can help avoid a large cost impact if the ICT implementation fails. The final advantage of this strategy is help to create small wins and create a best practice model, which helps staff, understand the benefits of the investment. CONCLUSIONS AND LIMITATIONS The constraint loops (C1a, C1b, C1c) describe organisational level ICT diffusion constraints. These constraints involve a construction organisation’s internal and external environment with issues that may influence the investment decision, the organisation’s ICT initiative adoption and resulting business results. Constraints at the organisational level are different from the constraints at both the individual and group levels. For example, the organisational constraints involve issues relating to an organisational decision adoption that is determined by a senior management group or IT managers whereas the individual/group constraints involve issues relating to operational users who are expected to use ICT. Thus, it is necessary to explore the constraints at both individual and group levels. While we acknowledge the limitation of this paper’s scope group and individual level implications are explored in one author’s PhD thesis currently under examination. This paper, based upon research of three sophisticated large construction contracting organisations, provides insights into what drives and inhibits effective ICT innovation diffusion for this class of construction firm at the organisational level. While we do not intend that results should be generalised to other types of construction organisation, they do provide a useful checklist of potential pitfalls that may be more broadly considered in a wider context. The literature and the case study results suggest that organisations should closely manage their ICT initiative decision making and implementation using pilot studies and a reflective learning approach to maximise advantages from lessons learned. This research work formed part of a much wider study and so many of the unanswered issues are unaddressed elsewhere. REFERENCES Carlopio, JR (1998) Implementation: making workplace innovation and technology change happen, McGraw-Hill Book Company Australia Pty Limited, NSW, Australia. Green, GC & Hevner, AR (2000) 'The successful diffusion of innovations: guidance for software development organizations', IEEE Software, vol. 17, no. 6, pp. 96-103. Griffith, TL, Zammuto, RF & Aiman-Smith, L (1999) 'Why new technologies fail', Industrial Management, vol. 41, no. 3, pp. 29-34. Love, PED, Irahi, Z, Li, H, Cheng, EWL & Tse, RYC (2001) 'An empirical analysis of the barriers to implementing e-commerce in small-medium sized construction contractors in the state of Victoria, Australia', Construction Innovation, vol. 1, no. 1, pp. 31-41. Constraints on the ICT diffusion within large Australian construction firms 519 Neuman, WL (1997) Social research methods: qualitative and quantitative approaches, 3rd edn, Allyn & Bacon, Needham Hights, MA. Scheirer, MA (1983) 'Approaches to the Study of Implementation', IEEE Transactions on Engineering Management, vol. EM-30, no. 2, pp. 76-82. Senge, P, Roberts, C, Ross, R, Smith, B, Roth, G & Kleiner, A (1999) The dance of change: the challenges of sustaining momentum in learning organizations, Nicholas Brealey Publishing, London. Senge, PM (1992) The fifth discipline: the art and practice of the learning organization, Random House Australia, Milsons Point, N.S.W. Skibniewski, MJ & Abduh, M (2000) 'Web-based project management for construction: search for utility assessment tools', paper presented to Conference on Implementing IT to Obtain a Competitive Advantage in the 21st Century, Hong Kong. Songer, AD, Young, R & Davis, K (2001) 'Social architecture for sustainable IT implementation in AEC', paper presented to IT in construction in Africa 2001, Mpumalunga South Africa, 30 May - 1 June. Stewart, RA, Mohamed, S & Daet, R (2002) 'Strategic implementation of IT/IS projects in construction: a case study', Automation in Construction, vol. 11, no. 6, pp. 681-94. Sutton, MJD & Lemay, PJ (1999) 'Terms of reference: The foundation for implementing document management systems.' Information Systems Management, vol. 16, no. 1, p. 78. Tucker, S, Mohamed, S & Ambrose, MD (1999) Information technology analysis framework for Action Peninsula Project, Department of Industry, Science and Resources and CSIRO, Victoria. Whyte, J, Bouchlaghem, D & Thorpe, T (2002) 'IT implementation in the construction organization', Engineering Construction and Architectural Management, vol. 9, no. 56, pp. 371-7. Yetton, PW, Johnston, KD & Craig, JF (1994) 'Computer-Aided Architects: A Case Study of IT and Strategic Change', Sloan Management Review, vol. 35, no. 4, pp. 57-67. Yin, R (1994) Case Study Research: Design and Methods, Second edn, Sage Publications, Thousand Oaks. 520 Peansupap and Walker STRATEGIC MANAGEMENT OF INFORMATION TECHNOLOGY CONSTRUCTION INDUSTRY: THE INDONESIAN PERSPECTIVES MUHAMMAD SAPRI PAMULU School of Civil Engineering, Hasanuddin University, Makassar 90245, Indonesia [email protected] IN CHANDRA BHUTA School of Architecture, Civil and Mechanical Engineering, Victoria University of Technology, Melbourne, Victoria 3011, Australia [email protected] ABSTRACT This paper presents findings of a research project which explores the current use of information technology (IT) in the Indonesian construction Industry. The findings are based on a survey taken between December 2002 and April 2003 among 250 construction companies registered in the National Construction Industry Development Board (CIDB). The CIDB listed and classified these companies as B group or large company. A total of 48 valid replies were received, representing a response rate of 38%. The survey includes: IT environment and management, use of software, hardware, internet application and staff competency, Investment in IT, benefits gained and problems associated with IT implementation. An assessment of the exploitation of IT for business strategic purposes was also explored. Survey reveals that (1) Level of IT applications among contractors in the industry is relatively low in their core activity; (2) There is a growing gap in managing IT, where high investment and expenditure in hardware and software on one hand with poor human resources development on other hand; (3) From strategic point of view, Indonesian construction industry is still in reactive mode in managing IT indicating that the industry has a limited understanding of the value and potential of IT. The paper suggests a need to aggressively promote relevant government initiatives which would increase strategic use and adoption of IT. Government and public agencies should consider policies that encourage the use of IT in the construction industry thus making this industry sector more competitive. Keywords: Construction, Indonesia, Investment, IT, Management, Strategic. INTRODUCTION The issue of technology exploitation, particularly in the field of information technology, is of significant importance in construction industry. The paper discusses the finding of a survey of 250 construction companies registered in the National Construction Industry Development Board (CIDB). Information technology (IT) has created fundamental 522 Strategic management of information technology in construction industry impact on the way business processes are carried out. IT can no longer be viewed as an enhancement to traditional business procedures but rather as an innovation agent that enables new and different alternatives in operation of business organization. This new trend will color investment attitudes of business communities in the world towards utilization of IT in the coming years. IT is already widely used in construction organizations and much more dramatic effects are anticipated for the years to come. [Betts, (1999)] reported that the construction industry in many countries is starting to consider seriously the strategic use of IT. The use of IT in construction is extending beyond the stage of piecemeal application for improving the efficiency of discrete operations by individual organizations to an advanced stage where IT is applied strategically in commercial enterprise, government agencies and professional institution. From strategic point of view, IT has the potential to change the landscape of the construction industry. INDONESIAN CONSTRUCTION INDUSTRY The construction industry in Indonesia is relatively young. However, it has grown significantly since the early 1970s. Its contribution to the GDP has increased from 3.86% in 1973 to 7.94% in 1996. It constitutes about 60% of gross fixed capital formation. The number of people employed in the industry has increased significantly, from about 413,000 in 1978 to about 3.796 million in 1996. Construction works in the period of 1996 to 1999 has been sharply reduced due to the recent economic crisis. After 1999, there is slow recovery. In contrast, number of construction companies has increased significantly during the period 1992 – 2002 (CIDB 2003). Indonesia is an archipelago with more than one thousand islands. More than sixty percent of the construction works are in the island of Java, and more than half of these are in the capital city, Jakarta. Most of project planning and design is prepared in the national capital, Jakarta. Problems arise during construction where buildings or facilities could not be built as planned and designed, or could not be constructed efficiently. Many communication problems develop during the construction stage especially between designers and contractors. Communication in construction has been identified as a problem area [Ganah (2001)]. Information and Communication Technology (ICT) undoubtedly has a profound influence on how data and information is transmitted and used by parties involved in the construction industry. The Latham report has called for 30% cost saving in construction [Hamilton, (1995)]. It said that many ways of achieving this saving will be found through the use of IT. PREVIOUS WORKS A number of research surveys concerning IT in the construction Industry have been reported in the literature. Many surveys were carried out in various countries such as: Australia [Love (1996), Stewart (1998), Marosszeky (2000), Thomas Ng. (2001), Canada (Rivard 2000), Hong Kong [Shen (1999), Futcher (2000), Ireland Thomas (1999), Malaysia Mui (2002), New Zealand Dohorty (1997), Saudi Arabia (Sash 1996, O’Brien (1999), Scandinavia: Denmark, Finland, & Sweden (Howard 1998, Samuelson (2002), Singapore BCA (2001), Swee-Lean (2003), South Africa Arif (2003), Taiwan Tang (1996), Turkey Isikdag (2002), UK O’Brien (1994) , Ingirige (2001), and US (CFMA Strategic management of information technology in construction industry 523 2002), Toole (2003)]. With so much research being carried out on the use of IT in the construction industry, it is important to ensure that the results and findings can be compared and lessons learned be applied to gain a picture of the growth of IT use. However, the number of research surveys related to construction IT in developing countries appears to be limited. Above surveys certainly provide information of IT in construction industry in the developed countries. [Howard (2003)] stated that IT products such as software are available worldwide, but may not fit into industries that are organized in a traditional way and do not have the same drive towards process improvement yet. [Stewart (2002)] reported that construction organizations operating in these countries face further distinctive difficulties, such as, scarcity of IT professionals, inadequate physical and information infrastructure, social and cultural diversity, and political barriers that modulate and distort competitive markets RESEARCH OBJECTIVES AND METHODOLOGY The research aims to investigate the current state of IT in the construction industry, to obtain an up-to-date and general view of the state of IT applications in Indonesia. The survey includes IT environment, such as hardware, software, networks, staff competency, and IT investment and the resulting benefits and associated problems, and assessment of the exploitation of IT for business strategic purposes. Postal transmission of questionnaire was selected as the main information gathering research process. This method is widely used for collecting data and opinions from target groups. Some personal interviews have also been undertaken to supplement some limitations of the postal questionnaire. The mailing list for the survey distribution was obtained from the National Construction Industry Development Board (LPJKN/CIDB). The survey recipients were mainly in the capital, Jakarta area for the following reasons: (1) About 30 percent of construction projects in Indonesia are located in the Greater Jakarta area, (2) Most of the projects, especially public work projects, are planned and designed in Jakarta, and (3) Most of the construction participants - owners, designers and contractors - have their head offices or representatives in. There were approximately 247 organization listed in the mailing list representing all national companies which operate throughout Indonesia. A group of 130 randomly selected construction companies were sent the questionnaire. Of these 20 were returned undelivered and or declined to participate. 48 organizations (44 % of those delivered) returned the questionnaire. The questionnaire responses were entered into a spreadsheet for collation and analysis. RESULTS & FINDINGS Characteristics of Respondents The companies represented in the survey had a workforce that varied from one employee to over 200 employees in average. Under half of the respondents have over 200 employees. 524 Strategic management of information technology in construction industry Table 1: Company size (Number of employees) Number of 1-10 11-50 51-100 Employees Percentage 2.1% 29.2% 12.5% 101-200 >200 18.8% 37.5% The respondent companies in terms of size (number of employees) are shown in Table 1. The data is derived from Construction Industry Development Board (CIDB) of Indonesia. Most of the companies are involved in civil, electrical and mechanical construction works. Over 90% of all local companies are involved in civil construction business. Of all international respondent companies 64% have engineering business (Electrical and Mechanical Engineering), and 59% of them compete with the local firms in civil construction Table 2:Respondent Organization’s Annual Revenues Annual Revenue US$1.1M 25.0% 18.8% 43.8% Thirty organizations had annual revenue of more than US$666,667. Twelve (25%) organizations had an annual turnover between US$111,111 – 555,556 and 6 organizations had an annual turnover of less than US$111,111. In the highest category of revenues there are 45% of all multinational companies and 42% of all local companies had turnover of more than US$1.1 m annually. IT investments This section will present IT environment within the following topics: General IT investment, IT related expenditures, and reasons toward investing on IT. General IT investment The amount of company funds spent on IT investment has always been controversial. For many years it has been thought by some executives feel that too much has been spent and with insufficient return from this IT expenditure. Table 3:Level of Spending on IT Level of Spending 21% 8% In terms of spending on IT, by looking at the current picture, most firms (83%) spend less than 10% of their overall expenditure on investments in IT. 16 % of the companies surveyed spend more than 10% on IT. Strategic management of information technology in construction industry 525 Budget on IT related aspects With the scant budget for IT expenditure, the firms tend to spend it more on hardware and peripherals (98%). As more new IT products come out in more frequent cycles, the pressure to upgrade will only increase. Naturally, to operate the latest hardware and employ the necessary applications must be followed by an 88% budget in spending on Software. Table 4:Budget on IT related aspects Budget/Costs Percentage Hardware Software 98% 88% Network Training Manpower 50% 40% 29% Others 6% However, the proportion of training and manpower costs is well below under hardware, software, and networks management costs. Interestingly, with the emphasis on upgrading the systems, IT manpower and training takes up the fourth and fifth budget priority. There is a disparity on having the latest in hardware and software without the necessary adequate and/or trained personnel to operate it. Reasons for Investing on IT The motivation for investing in IT seems to be initially for proficient technical work, followed by management control and reporting, demand from employee (internal purposes). Innovation becomes least reason for investing on IT. Table 5: Reasons for Investing on IT Reasons Responses Desire to make technical work more efficient 81% Demand for management control and 67% reporting Demand from employees 60% Desire to stay ahead of competition 58% Demands from clients/customers 50% Strategic decision from company management 42% Desire to make administrative work more 33% Demand for business sustainability 33% Exploitation and Innovation of new and latest 29% technology 526 Strategic management of information technology in construction industry LEVEL OF IT USE IN BUSINESS PROCESS In the next, level of IT use in business processes is going to be set. With so many potential strategic applications for IT in business, it becomes important to find a means of classifying the role played within organizations business processes. To enable such classification, a self-assessment matrix categorizing IT use into one of level or quadrants is often utilized. Construct IT – University of Salford develops the following matrix. Table 6. IT Self-Assessment Matrix IT Level Characteristics IT plays a vital role in your business activities and is integrated with your clients and business partners IT 5 Integrated systems Your business employs IT as part of overall business strategy. IT used to analyse and improve business 4 Strategic activities Your business has a program for IT investment and implementation. The application support business 3 Planned activities and tend to be working satisfactorily Competitors or software vendors govern IT implementation. IT is used primarily when asked by 2 Responsive clients and partners Your business has limited understanding of value and potential of IT. It is dependent on individuals 1 Occasional buying hardware and software for their own needs Your business does not use IT to support its 0 Not Used activities In this case, business processes have been defined as processes that cut through the entire organization to exist as a business entity. [Betts (1999)] outlines a definition of generic business processes in construction enterprises as shown below: Business Planning: refers to strategic management of the organization, deciding on new business ventures, and other senior management functions. Marketing: refers to market selection, public relation activities, market intelligence, and generating new business. Information management: refers to communications links between parts and locations of the business and external organizations, information achieving and distribution, and activities in information processing. It also includes information strategy and system planning. Procurement: refers to all activities associated with the involvement of the organization in the procurement activities of the client or customer and to the activities associated with procuring the services and activities of other participants to the organization’s input to the project. Finance: refers to activities associated with financial management and transaction processing on projects and at head office within organization Client Management: refers to activities associated with managing relationships with customers, both on specific projects and in longer-term relationships. Strategic management of information technology in construction industry 527 Design: refers to those activities concerned with obtaining a brief, conducting feasibility studies, and sketch and detailed design activities undertaken on projects. Construction: refers to those activities associated with production support on projects and extends into commissioning. Occupation and maintenance: refers to activities associated with the use and occupancy, and maintenance phases of buildings and projects. Human Resources: refers to activities within the organization and on its projects that concern the management of people. The Porter’s Value chain models [Porter (1980)] can also to be adapted to the construction industry, where business processes divide into two categories: Core activities: refers to processes associated with business planning include design, construction operations include planning & scheduling, Operation executions and client services follow-up include client management. Supporting activities: refers to processes associated with human resources, procurement, finance, IT and other technology application and development, and marketing. The following sequences describe the methodology adopted in assessing the level of IT use in different business processes in construction organizations. Use questionnaire results related to three typical benefits gained in the previous section would to find out the role played within construction organizations. [Betts (1999)] provided a useful checklist of typical benefits in relation to business processes. Rank business processes and the classify into core activities and supporting activities Use the self-assessment matrix to assess the level of IT use. The results of the above assessment are shown in Table 7 Table 7: IT use in Business Processes Business Processes Business Planning Marketing Information Management Procurement Finance Client Management Design Construction Occupation & Maintenance Human Resources Total Score 4.58 4.00 3.67 3.67 3.19 2.90 2.75 2.60 1.44 0.73 Table 7 shows construction organizations in Indonesia use IT mostly in processes related to information management, occupation and maintenance management, and business planning. IT has made little difference in business human resources and marketing process. Overall, IT has been employed in core activities rather than supporting activities within business process. However, the level of usage is still very below. From this evidence, it may be concluded that Indonesian construction companies are not yet in the strategic position in the exploitation of IT. It can be said to be in planned level where the applications support business activities. 528 Strategic management of information technology in construction industry COMPARISON OF IT INVESTMENT IN INDONESIA WITH OTHER COUNTRY Looking at IT use in Singapore construction industry [Technowledge, (2002)] that could be as best figures of recent pattern in developing country, in particular Asia. Other similar surveys that have been carried out in the past about information technology in the construction industry include the following: A Survey on the impact of information technology on Canadian architecture, engineering and construction industry [Hugues Rivard (2000) IT-Barometer (2000)]: The use of IT in the Nordic construction industry [ Olle Samuelson (2002)]. The barometer survey has been applied to a number of different countries over last five years. However, there is a limit to the extent of comparison that can be made between these different surveys, as there is a variation in both the questions asked and the classification of individuals and firms that supplied answers. Although a direct and exact comparison is not possible, the following general comments can be made in relation to the past and current use of information technology by the construction firms in Singapore, Canada and Nordic Countries: The motivation for investing in IT stems first internally in Indonesia and Singapore (demand from employees), followed by demands from client and desire to make more administrative work. In contrast, firms in Canada and Nordic Countries, where desire to stay ahead of competition and make administrative works become leading motivations, and then followed by desire to make technical work more efficient. CONCLUSION & RECOMMENDATION Survey shows that Indonesian construction industry was having investment for acquiring the latest in hardware and software, but does not have adequate and trained personnel to utilize the same. It can be surmised that IT is used mostly in administration and other supporting area, but not in strategic core and business enhancement processes. If above areas of IT applications are strengthened the Indonesian construction industry will reap greater benefits. Since the level of IT use is prevalent at lower level, top management of construction organizations should have strong commitment to develop strategic management of IT in their business processes. The hardware, software and their applications should be utilized to enhance both core and supporting activities to gain competitive advantage in today highly global business environment. Secondly, the firm's management should give greater attention to IT support and training, by making sure that there is sufficient trained staff for the implementation of IT, and making greater effort in training staff on the correct and efficient use of IT in the organization. Thirdly, Government and public agencies should consider policies that encourage the use of IT in the construction industry thus making this industry sector more competitive, and encourage industry to make greater use of information system. Strategic management of information technology in construction industry 529 FURTHER WORKS The survey was confined to only one sub-sector (large contractors) of the Indonesia construction sector in particular Jakarta. Other sub-sectors such as small and medium firms should be a part of future surveys. This being the first published survey of this type in Indonesia, a full study in greater breath and depth would be highly recommended for this important field. The result of such a study and the adoption of its recommendations would be of immense value to the construction industry in Indonesia and the national economy. REFERENCES Arif, A.A. & Karam, A.H. (2003) A Comparative Study: With Insight into The Use of IT in Local Architectural Practices. Proceeding W78-19, pp.8-14. Betts, Martin (1999) Strategic Management of I.T. in Construction. Blackwell Science Ltd, Oxford. Construction Financial Management Association. (2002) 2002 Information Technology Survey for the Construction Industry, (fourth edition) CFMA, Princeton, New Jersey. Futcher, K. (2000) Use of Information Technology within the Hong Kong Construction Industry. Proceedings, International Conference on Construction Information Technology, INCITE (2000) Hong Kong, pp.119-131. Ganah, A., et al. (2001) A Survey of The Use of Visuatlisation Tools to Communication Buildability Infonrmation. COBRA, RICS Conference, Glasgow Caledonian University. Howard, Rob. (2003) IT Directions – 20 Years Experience and Future Activities for CIB W78. Proceeding W78-19, pp.153-161. Howard, Rob., Kiviniemi, Arto., & Samuelson, Olle.(1998) Surveys Of It In The Construction Industry And Experience Of The IT Barometer In Scandinavia. Electronic Journal of Information Technology in Construction, Vol.3/1998, pp.4759. Ingirige, B., and Aouad,G. (2001) Awareness and Usage of Information Standards in the UK Construction Industry: A Survey by The SIENE Network. Proceeding CIB W78-17, South Africa, Paper ID.007. Isikdag, Umit. (2002) A Survey of IT use in the Turkish Construction Industry. The Second International Postgraduate Conference in the Built and Human Environment, University of Salford, UK. (April 11-12th, 2002). Love, Peter E.D., MacSporran, Carol. & Tucker, Selwyn. (1997) The Application O Information Technology By Australian Contractors: Toward process ReEngineering. Proceeding of International Conferences on Lean Construction, The University of Birmingham, UK, 1996. Marosszeky, M., et al. (2000) Information Technology in the Building and Construction Industry: The Australian Experience. Proceedings, International Conference on Construction Information Technology, INCITE 2000, Hong Kong. p.183-196. 530 Strategic management of information technology in construction industry O’Brien, M. and Al-Soufi, Ali. (1994) A Survey of Data Communication in the UK Construction Industry. Journal of Construction Management and Economics, No. 12, pp.457-465. Porter, Michael. (1980) Competitive Strategy Techniques for Analyzing Industries and Competitors. Free Press. Rivard, Hugues. (2000) A Survey On The Impact Of Information Technology On The Canadian Architecture, Engineering And Construction Industry. Electronic Journal of ITcon, Vol.5/2000, pp.37-56. Samuelson, Olle. (2002) IT-Barometer 2000 - The Use Of It In The Nordic Construction Industry. Electronic Journal of ITcon, Vol.7/2002. Shen, Q.P., and Fong, P.S.W. (1999) A Study of Information Technology Applications among Contractors in Hong Kong. International Journal of Construction Information Technology. Vol. 7, No.1 Summer 1999, p.1-19. Stewart, P., Beswick, S., and Lingard, H. (1998) Strategic use of IT in the Australian construction industry. A Study of Information Technology Applications among Contractors in Hong Kong. International Journal of Construction Information Technology. Vol. 6, No.2 Winter 1998. Stewart, R. & Mohamed, S. (2002) Barriers To Implementing Information Technology in Developing Countries. Conference Proceeding: Construction in Developing Countries, Nov. 2002. South Africa. Pp.593-602. Tang, R.R. (1996) Information Technology and Perceived Competitive Advantage: An Empirical Study of Engineering Consulting Firms in Taiwan. Journal of Construction Management and Economics, No. 14, pp.227-240. Thomas, S., et al. (2001) Current state of IT usage by Australian subcontractors. Construction Innovation 2001; 1: pp.3–13. Thomas, K. (1999) A Study of Information Technology Applications among Contractors in Hong Kong. International Journal of Construction Information Technology. Vol. 7, No.1, 1999, pp.21-34. Toole, T. M. (2003) "Information Technology Innovation: A View Of Large Contractors." Proceedings of the 2003 Construction Research Congress, Honolulu, Hawaii. ANALYSIS OF PERFORMANCE MEASUREMENT OF CONSTRUCTION PROJECTS IN MALAYSIA ROSHANA TAKIM, AKINTOLA AKINTOYE AND JOHN KELLY School of Built and Natural Environment, Glasgow Caledonian University, Glasgow G4 OBA, United Kingdom. [email protected] ABSTRACT Performance measurement is used as a systematic way of judging project performance and has become critical to business and organisational success. Past studies have shown that the development of performance indicators is one of the key mechanisms to performance measurement. This paper provides an empirical analysis of the types of measurements used in the development of construction projects in Malaysia and the possibility of measuring project performance by means of performance indicators. A survey was conducted in Malaysia among the four project stakeholders: the Government, private client, consultants, and contractors. In total 93 respondents completed the questionnaire. The findings revealed that the five utmost types of measurement used in Malaysia were measuring contractor performance, followed with measuring project quality, project performance, project manager’s performance, project viability and feasibility, and consultant’s performance. Private sectors in Malaysia were seen to be more receptive, detailed and thorough in measuring project performance compared to the Government. Although the results reported the different types of measurement used, it highlighted that there are no systematic models that appeared to be adopted by the respondents in measuring project performance. As well as the types of measurement used, construction project performance in Malaysia could be measured based on performance indicators, incorporating both the financial and non-financial measures. The data was analysed by means of statistical analysis i.e., ranking variables based on the mean value and analysis of Variance (ANOVA) techniques. By means of a Wilcoxon Signed Rank Test of 2 related samples, 25 out of 28 indicators could be utilised to form a framework for performance measurement of construction projects in Malaysia at the four project phases. It is anticipated that the findings reported in this paper could be important for future strategies and guidelines for measuring project performance in Malaysia. Keywords: Analysis of Variance (ANOVA), Malaysia, performance indicators and performance measurement, questionnaire survey, Wilcoxon Sign Rank Test. 534 Takim, Akintoye and Kelly INTRODUCTION Performance measurement is the regular collecting and evaluating of information about the inputs, efficiency and effectiveness of construction projects activities. The use of performance measurement to judge project performance, both in terms of the financial and non-financial aspects and to compare and contrast the performance with others, could improve programme efficiency and effectiveness of construction organisations. According to [Kelada (1999)], performance measurement should not simply apply to product or service quality and to business performance. Instead it should also be extended further to quality management, customer satisfaction, needs, wants and expectations, which incorporate the three stakeholders, namely; shareholder, customer and employees. These measurements can be classified along three broad dimensions i.e., numerical/quantitative indicators, qualitative/subjective matters, and to what and whose performances are to be measured. This aligns with the views of [Stevens (1996)], that the ‘hard’ and ‘soft’ sides of project measurement criteria are used in measuring project success, with time and cost being ‘hard’ and satisfaction being ‘soft’. The results have to be compared with the planned effort and reference value in order to identify the standard [Mbugua et al, (1999); Love et al, (2000)]. This study initially explores and documents the performance measurement systems used in the development of construction projects in Malaysia by the four groups of project stakeholders, namely: the Government, private clients, consultant and contractors. The second stage reports the possibility of measuring project performance based on performance indicators at the four project phases. PERFORMANCE MEASUREMENTS AND PERFORMANCE INDICATORS [Mbugua et al, (1999) and Love et al, (2000)] have identified a distinction between performance indicators, performance measures and performance measurement. According to [Mbugua et al, (1999)], performance indicators specify the measurable evidence necessary to prove that a planned effort has achieved the desired result. In other words, when indicators can be measured with some degree of precision and without ambiguity they are called measures. However, when it is not possible to obtain a precise measurement, they are usually referred to as performance indicators. Performance measures are the numerical or quantitative indicators [Sinclair and Zairi, (1995). On the other hand, performance measurement is a systematic way of evaluating the inputs and outputs in manufacturing operations or construction activity and acts as a tool for continuous improvements [Sinclair and Zairi, (1995); Mbugua et al, (1999)]. In response to calls for continuous improvement in performance, many performance measurements have emerged in management literature (see Mbugua et al, (1999)]. According to [Sohail et al, (2002)], one of the probable reasons for the lack of performance monitoring in many public projects in South Asian countries is the nonavailability of the reliable performance indicators. There is no standard measurement formulated to assess project performance in the project life cycle. All the key stakeholders’ (client, consultant, contractor, supplies, and users) needs and expectations are not being seriously highlighted and entertained. Different prioritisation of cost, quality and time factors between project stakeholders, as well as the non-congruence of Analysis of performance measurement of construction projects in Malaysia 535 measurement criteria could create conflict among the stakeholders. The consequences of this could result in the project being completed with many claims and legal jurisdictions to settle conflicts. In the meantime, the performance of a project reflects the performance of the people who managed the project [Cooke-Davis, (2002)] and to a large extent relies on the right people having the right information at the right time [Kagioglou et al, (2000)]. With most public clients in Malaysia, the difficulty is on how to choose the most reliable measurement methods to measure the performance of their construction projects in the different phases of the project life cycle. The CIDB of Malaysia has proposed a solution and consequently, the QLASSIC model of project quality and productivity measures has been proposed by them (CIDB, 2001b). The five key objectives of the model are: to evaluate the quality of workmanship, to comply with a set of approved standards and specifications, to compare quality between projects, to evaluate a contractor’s performance and, finally, to estimate the productivity level of the project. The model emphasises three components of construction physical works namely; structural, architectural and external. The assessment of structural work is done during the construction process, while both the architectural and external works are conducted after the completion of the project, before handing over to the client. QLASSIC evaluations are done for superstructure components of a building and do not cover substructure works, mechanical works and electrical services. The strength of this model is that it is very simple to implement. Nevertheless, a major weakness is that assessment of architectural and external work is not conducted until the project is completed. The development of project performance indicators is a fundamental step to performance measurements and consequently set performance targets for continuous improvement. This approach follows the proven models of performance measurement systems used internationally such as Key Performance Indicators (Egan, 1998), UK Industry Measures [Latham, (1994), US Construction Sector Improvement Target [Brown et al, (2001), Critical variables [Chan, (2001), and Project phases Arditi et al, (1998)]. The indicators used in UK are targeted at assessing industry-wide performance and individual companies. The UK government department of the Environment, Transport and Region (currently known as DTI) was saddled with the responsibility to support industry in achieving these targets. The target sets are demanding but achievable as reported by [Brown and Riley (1998)]. RESEARCH METHODOLOGY The methodology adopted for this research was based on a structured questionnaire survey of four principal target groups within the Malaysian construction industry, focusing on the states of Selangor and Kuala Lumpur in Malaysia. The data collection exercises were held in Malaysia over a period of three months in 2003. A fourteen-page structured questionnaire was distributed to four targeted groups (the Government, private clients, consultants and contractors) representing a mixture of professionals, including those dealing with policy-formulation, design, construction, quantity surveying, and clients of construction projects. Samples were randomly selected from the listing provided by their respective professional institutions. The target population for contractors was based on companies that are registered with the CIDB of Malaysia under 536 Takim, Akintoye and Kelly the Class G7 (projects greater than Ringgit Malaysia 10 Million) categories and were identified from the CIDB directory. The two states of Selangor and Kuala Lumpur, Malaysia, were chosen because larger groups of professionals and Class G7 contractors registered in these regions, representing above 61% of registered professionals in Malaysia [CIDB, (2003a)]. This paper on performance measurement systems reports a section of the larger survey. Based on a comprehensive literature review, a list of sixteen different types of measurement used in the development of construction projects (Table 2), were produced for the respondents to identify their level of use in the Malaysian construction industry. Respondents were also required to assess the techniques of measurement used. In addition, a list of 28 performance measurement indicators was listed for them to provide opinion on the extent to which they impact on the four phases of the project life cycle. Respondents were required to rate their responses on each question on a five-point Likert scale (1-5), where one represents ‘not important’ and 5 ‘extremely important’. The questions were of the ‘close-ended’ type aimed at simplifying completion, thus enhancing the response rate, as suggested by Dlakwa, (1990). The results were analysed using the Statistical Package for the Social Sciences (SPSS) software. Statistical analyses conducted include: descriptive analysis (mean value and ranking) and inferential statistic [Kruskal Wallis of One-way ANOVA and a Wilcoxon Signed Rank Test of 2 related samples]. Response Rate As shown in Table 1, a total of 446 questionnaires were sent to the different target groups in the Malaysian construction organisations. Ninety-three questionnaires were returned within two months of being sent out, making the total response rate 20.9 percent. This response rate was finally achieved after several efforts were made in terms of personal contacts and follow-up calls. All the questions were satisfactorily completed. The respondents had an average construction experience of approximately 16 years. The majority of them were in senior positions in their organisations. Table 1: Response Data Type of organisations Government Private clients Consultants Contractors Total Number of questionnaires Sent Return 71 21 81 15 191 34 103 23 446 93 Percentage return (%) 29.5 18.5 17.8 22.3 20.9 Twenty-one (29.5%) respondents were from the Government, followed by 15 (18.5%) from private clients, 34 (17.8%) from consultant organisations, and 23 (22.3%) from contractor companies. The response rate of 20.9 percent is not uncommon and acceptable and is in line with the opinions of Akintoye (2000) and Dulami et al (2003). They reported that the norm response rate in the construction industry for postal questionnaires is around 20-30 percent. Moreover, a recent questionnaire survey on Joint Venture projects in Malaysia, conducted by Adnan and Morledge (2003), has also received a 20 Analysis of performance measurement of construction projects in Malaysia 537 percent response rate. Although the volume of the questionnaire (14-pages) is essential to capture the issues involved in project success in Malaysia, it might also have been responsible for the seemingly low response rate. Nevertheless, this questionnaire was completed by the various project stakeholders in Malaysia and, thus, gives us some confidence that the responses are representative. DATA ANALYSIS, RESULTS AND DISCUSSION As suggested by Tabachnick and Fidell (1996), a Kolmogrov-Smirnov test would be used to evaluate whether the data on quantitative variables was normally distributed or otherwise. In this case, the test indicated significant results (Sig.value 50 12 (2%) 2 (2%) Thai Foreigner Table 2: Satisfaction of Thai Users Factor Very dissatisfied 4 (0.6%) 1 (0.2%) 4 (0.6%) 1 (0.2%) Dissatisfied 17 (2.7%) 10 (1.6%) 30 (4.8%) 18 (2.9%) Average 149 (23.7%) 146 (23.2%) 177 (28.2%) 198 (31.6%) Result Satisfied 402 (64%) 404 (64%) 377 (60.1%) 337 (53.7%) Very satisfied 55 (9%) 66 (11%) 39 (6.2%) 73 (11.6%) Mean 3.78 3.84 3.67 3.74 SD 0.66 0.62 0.69 0.70 Services Safety Operation Others (Life improvement) Satisfaction of Foreign Users Non-Thai BTS users were also surveyed. There were 130 respondents comprising 65 male riders (50 %) and 65 female riders (50%). There were 7 (5%) youngest users below the age of 20. There were 68 persons whose ages are between 20 and 30 and it is the largest group (52%). The number of 31-40 year-old users is 40 (31%), and 13 people (10%) are within the age range 41-50. Again the smallest group is the 2 (2%) riders who are older than 50 years. Overall, 75% of the foreigners (98 riders) using the BTS system are satisfied and 14% (18 users) are very satisfied on the service factors; there is no one who is either very dissatisfied or dissatisfied (Table 3). In addition, 94 foreign users (72%) are satisfied overall on the safety factors as well as 27 passengers (21%) are very satisfied on it. For overall satisfaction on operation factors, 97 BTS users (75%) are satisfied, and 19 persons (15%) are very satisfied. No one is dissatisfied or very dissatisfied. On the “other factors,” 85 foreign users (65%) and 30 users (23%) are satisfied and very satisfied 752 Tangkitsiri and Ogunlana respectively with the item “Being able to lift up your life (Physical and Psychological Health),” and the item mean is 4.12. 70 Foreign BTS Users (54%) are also satisfied as well as 33 riders (26%) are very satisfied with the factor “Having a role to solve traffic problem in the city,” and the item mean is 4.03. There are 64 respondents (49%) rating the item “Saving cost of traveling” at the satisfied level and 28 users (22%) are very satisfied; therefore, yielding an item mean of 3.89. 48 Foreign BTS riders (37%) are satisfied with the item “Saving time of traveling.” Not only satisfied with this factor, but 80 non-Thai respondents (62%) are also very satisfied. No one is dissatisfied or very dissatisfied with this item; the item means being 4.60. Foreign users reported that traffic in Bangkok has improved over the years; thereby making the city a more attractive tourist destination. Table 3: Satisfaction of Foreign Users Factor Very dissatisfied 0 (0.0%) 0 (0.0%) 0 (0.0%) 0 (0.0%) Dissatisfied 0 (0.0%) 1 (0.8%) 0 (0.0%) 0 (0.0%) Average 14 (10.8%) 8 (6.2%) 14 (10.8%) 15 (11.5%) Result Satisfied 98 (75.4%) 94 (72.3%) 97 (74.6%) 85 (65.4%) Very satisfied 18 (13.8%) 27 (20.8%) 19 (14.6%) 30 (23.1%) Mean 4.03 4.13 4.04 4.12 SD 0.50 0.53 0.50 0.58 Services Safety Operation Others (Life improvement) Cross-analysis of characteristics of respondents and usage factors This research also studied the relationship between the BTS users’ satisfaction on various factors and their demographic characteristics, (i.e., gender, age, occupation, monthly income), as wee as frequency of use per week, and the main purpose for using BTS services. The result of the Chi-Square Test (Table 4) shows that “frequency of use per week” is related to satisfaction with “quick and convenient steps of using BTS services” with the significance level at 0.026 but most riders in each class are satisfied. Next, “occupation” and “frequency of use per week” are related to “the appropriateness of service times (6:00am - 12:00pm daily)” with the significance level at 0.021 and 0.009 respectively. Students who ride BTS very often are satisfied but those who need to travel at odd hours are less satisfied. “Age” and “frequency of use per week” are related to satisfaction with “the appropriateness of BTS fare” with the significance level at 0.031 and 0.000 respectively. It is found that the riders younger than 31 years old are sensitive to BTS fare if they travel on it lower than four times a week. In addition, “age” and “frequency of use per week” are related to satisfaction with “services and shops in BTS areas” with the significance level at 0.031 and 0.018 respectively. There is only one variable, frequency of use per week, related to satisfaction with “the sufficient number of security guards” with the significance level at 0.044 and using the BTS services two or three times a week. “The main purpose for using BTS” is related to satisfaction on “the appropriate speed of the BTS skytrain” with the significance level at 0.034, for the persons who study or work and go shopping. Besides, only gender is related to satisfaction with “sufficient routing of the BTS” with the significance level at Real benefits of BTS study 753 0.000. This means that female BTS users are less satisfied than their male counterparts and, as such, want the system to extended to reach other areas. The result of the ChiSquare Test illustrates that “age,” “frequency of use per week,” and “the main purpose for using BTS” are related to satisfaction with “the passenger managing system in each station” with the significance level at 0.004, 0.018 and 0.043 respectively. It is specific that the 20-30 year-old users who ride the skytrain more than two times a week and to go study, work, or shopping are more satisfied with this factor than others. “Age” and “the main purpose for using BTS” are related to satisfaction with “the punctuality of departure and arrival times” with the significance level at 0.005 and 0.001 respectively. Young people going to study want trains to be more punctual than the others. Furthermore, the result of the Chi-Square Test demonstrates that “age” and “monthly income” are related to satisfaction with the factor, being able to lift up your life, with the significance level at 0.013 and 0.012 respectively. It means 20-50 year-old riders who earn 5,000-35,000 Bath per month are satisfied with this factor. Those who earn less and young people are less satisfied than others. Next, “gender” and “the main purpose for using BTS” are related to the factor, having a role to solve traffic problem in the city, with the significance level at 0.011 and 0.001 respectively. Results show that 50% of the female users are satisfied and very satisfied with the factor in order to work, study or go shopping. Finally, “age,” “usage frequency,” and “purpose of use” are related to “saving cost of traveling,” with the significance level at 0.002, 0.043 and 0.012 respectively. Most BTS passengers younger than 31 years old and using BTS for going to study, work, home, and shop lower than four times a week rate levels of satisfaction at the average. Table 4: The Summary of Cross-Analysis of the Characteristics and Factors Occupation Frequency BTS-User Factors Service Factors The convenience from the start point to the BTS station Quick and convenient steps of using BTS services The appropriateness of service time The appropriateness of BTS fare Services and Shops (Convenient Stores) in BTS areas Free BTS Shuttle Bus service Safety Factors The sufficiency of warning signs The safety of stairs and Skybridges connecting BTS stations The sufficient number of security guards The alerting system of skytrain doors while opening and closing The reliability in safety systems of the BTS skytrain The appropriate speed of the BTS skytrain Operation Factors Sufficient routing of the BTS The efficiency of using BTS tickets to enter and exit stations The passenger managing system in each station The surroundings and cleanliness of BTS stations The punctuality of departure and arrival times * * * * * * * * * * * * * * Purpose * Income Gender Age 754 Tangkitsiri and Ogunlana The announcement to prepare yourself for exiting the skytrain Other Factors Being able to lift up your life Having a role to solve traffic problem in the city Saving cost of traveling Saving time of traveling * * * * * * * Note : * = Significance Level at 0.05 or less Results of the non-users’ satisfaction The research also surveyed the attitudes and satisfaction of several secondary stakeholders of the BTS skytrain. Shopkeepers, van and bus drivers, taxi drivers, and personal-car users are included in this category. The main purpose is to understand the feelings of other stakeholders towards the existence of BTS. A non-user questionnaire was designed for this purpose and the results from the survey are presented below. Shop owners along the major highways can benefit from improvement in traffic through better patronage because better traffic make it more attractive for people to come to their shops. A total of 440 shopkeepers were sampled yielding an overall mean of 4.26. The number of customers seems to have improved. Consequently, their mean satisfaction improved from 3.53 before the system to 4.03 after the system (Table 5). Table 5: Satisfaction of Non-Users Factor Very dissatisfied Shopkeepers Before After Minivan drivers Before After Bus Drivers Before After Motorcycle Taxi Drivers Before After Dissatisfied Average Result Satisfied Very satisfied Mean SD 0 (0.0%) 1 (0.5%) 2 (1.7%) 0 (0.0%) 2 (1.7%) 2 (1.7%) 1 (1.0%) 0 (0.0%) 2 (2.0%) 1 (1.0%) 0 (0.0) 37 (8.4%) 10 (2.3%) 42 (35.0%) 1 (0.8%) 1 (0.8%) 25 (20.8%) 5 (5.0%) 1 (1.0%) 8 (8.0%) 9 (9.0%) 23 (15.3%) 176 (40.0%) 73 (16.6%) 39 (32.5%) 39 (32.5%) 26 (21.7%) 45 (37.5%) 52 (52.0%) 34 (34.0%) 43 (43.0%) 47 (47.0%) 65 (43.3%) 212 (48.2%) 243 (55.2%) 37 (30.8%) 53 (44.2%) 65 (54.2%) 37 (30.8%) 42 (42.0%) 43 (43.0%) 38 (38.0%) 37 (37.0%) 56 (37.3%) 15 (3.4%) 112 (25.4%) 0 (0.0%) 27 (22.5%) 26 (21.7%) 11 (9.2%) 0 (0.0%) 22 (22.0%) 9 (9.0%) 6 (6.0%) 6 (4.0%) 3.53 4.03 2.93 3.80 3.93 3.25 3.35 3.86 3.44 3.38 3.30 1.57 0.75 0.85 0.76 0.79 0.95 0.63 0.77 0.84 0.84 0.78 Motorised Tri-cycle Taxi Drivers Before After Taxi Drivers Traffic Situation After BTS Real benefits of BTS study 755 Car Users Before After Police 16 (5.3%) 0 (0.0%) 11 (5.5%) 115 (38.3%) 5 (1.7%) 18 (9.0%) 112 (37.3%) 52 (17.3%) 27 (13.5%) 52 (17.3) 156 (52.0%) 95 (47.5%) 5 (1.7%) 87 (29.0%) 49 (24.5%) 2.72 4.08 3.77 0.87 0.72 1.09 Minivan drivers normally carry passengers over long distances. They are particularly affected by heavy traffic on the major highways. From 120 van drivers sampled, the mean of “overall point of view on BTS” is 3.75. Moreover, their patronage improved after the BTS system was introduced; resulting in improvement in satisfaction with patronage from 2.93 to 3.90 (Table 5). This is because it is now easier for them to stop only at BTS stations to pick up passengers. A total of 120 bus drivers and conductors were sampled along the roads nearby BTS routes. Overall, the respondents were satisfied with the introduction of the BTS system (mean = 3.54). However, the mean satisfaction with “overall traffic on roads after having BTS” is only 2.48. It does seem that traffic only improved marginally on the bus routes after the BTS system was introduced. Bus drivers and conductors were also dissatisfied with the post-BTS drop in the number of bus passengers (mean reduced from 3.9 to 3.25). Motorcycle taxi drivers normally take passengers from the major roads into the minor streets. The response from 100-motorcycle taxi drivers show that their income and patronage improved after the BTS was introduced. Consequently, the mean satisfaction improved from 3.35 before to 3.86 after the system came into being (Table 5). Motor-tricycle taxi drivers on the roads around BTS routes were sampled. The result from the 100 respondents shows that the number of passengers using their services was hardly affected by the introduction of the BTS system. Their satisfaction on this item reduced marginally (from 3.40 to 3.38) after the introduction of the BTS (Table 5). 150 taxi drivers were sampled along the roads nearby BTS. Their mean response on the “overall traffic on roads after having BTS” is 3.30 suggesting that they were moderately satisfied with the traffic situation. However, they reported slight reduction in income and taxi rider ship after the system was introduced (Table 5). Personal car users were surveyed on various items of which the condition of traffic is particularly relevant to their needs. The 300 respondents were moderately satisfied (mean = 3.60) on the condition of traffic after the BTS system was introduced (Table 5). Police officers were surveyed on the condition of traffic after BTS system came into being. The result in Table 5 shows that the majority of the 109 respondents was satisfied with the system (mean = 3.77) and believed that it had contributed to the alleviation of traffic problem in the city. 756 Tangkitsiri and Ogunlana SURVEY OF PROMOTERS OF THE BTS SYSTEM The primary promoters of the BTS system were also interviewed in form of two senior BTS and two senior TTD officers. It is found that they are all satisfied with the services, safety, and operations of the system. In addition, the four officials are convinced that the system has improved the quality of life in the city and that it saves travel time. Furthermore, one of the main purposes of the BTS project is making financial profit. Figure 2 shows the numbers of BTS passengers each month during the fiscal years 2001 – 2002. The BTS passenger growth rate shows the success of the BTS in fulfilling this purpose. However, newspaper reports show that the BTS Company is having problem meeting financing obligations. In addition, the number of users dropped after the subway project started operating. The Thai Government is also considering the idea of buying up the system in order to merge it with the recently completed underground system. Although the merger would create better service for the users of the system, investors are likely to lose out as the reported purchase price of B3.0 per share being mooted is well below the B10.0 par value for the shares [The Nation, (2004)]. Source: BTSC (2003) Fig. 2: The Key Performance Indicator – Monthly Patronage CONCLUSIONS The primary objective of this study is to evaluate stakeholder satisfaction with the benefits on a BOT project in Thailand, i.e., BTS project. It is obvious that most of the people studied in this research are satisfied with the following factors: services, safety, and operations. Hence, it is safe to conclude that BTS is beneficial to the people within the Bangkok metropolis. It has contributed to the uplifting of the quality of life (physical and psychological health), reduction in travel time times but did not reduce cost for riders. Moreover, the benefits are being enjoyed by local people as well as foreigners; thereby making Bangkok a more attractive travel destination for tourists. Real benefits of BTS study 757 The promoters of the system, namely the officials of the TTD and BTS are also satisfied with the performance so far. The system seems to be making money, thereby meeting one of the objectives of private participation in infrastructure provision. However, the route is limited in coverage. The users of the system believe that it should be extended to better serve the needs of the people living in or visiting the city. The performance of this project is a good advertisement for the public-private partnerships in infrastructure delivery. Since many developing countries have difficulties in funding public infrastructure, a well-designed PPP scheme can deliver services to the population with minimum use of public funds. However, the company running the system seems to be having problems meeting funding obligations. The Government is interested in buying up the system at a price that is reported to be lover than fair market price (the Nation, 2004). This kind of issues needs further investigation. REFERENCES Bangkok Mass Transit System Public Company Limited (BTSC), http://www.bts.co.th/eprofile.htm, accessed on April 7, 2004. Campbell, A A, and Katona, G (1953) Research Methods in the Behavioral Sciences. New York: The Dryden Press. Dias, A, and Ioannou, P G (1996) Company and Project Evaluation Model for Privately Promoted Infrastructure Projects. Journal of Construction Engineering and Management, Vol. 122, pp. 71-82. Sidney, M Levy (1996) Build, Operate, Transfer: Paving the Way for Tomorrow’s Infrastructure. New York: John Wiley & Sons, Inc. Malini, E, and Raghavendra, B G, (1996) Risk Analysis of BOT Approaches for Developing Transport Infrastructure. IATSS Research, Vol. 20, pp. 112-120. Maxwell, J A (1996) Qualitative Research Design. Newbury Park: Sage Publications. Miles, M B, and Huberman, A M (1994) Qualitative data analysis: A sourcebook of new methods. Newbury Park: Sage Publications. Mohamed-Asem, U M, Kaysi, I A, and Schoucair, M S (2001) Allocation of Risks under the BOT Delivery Approach for Transport Infrastructure Projects. Proceeding of 80th TRB Annual Meeting, National Research Council, Washington, D.C. Pipattanapiwong, J., Ogunlana, S. and Watanabe, T., Multi-party risk management process for a construction project. Chapter 16: In Akintoye, A. Beck, M and Hardcastle C. (Eds) Public Private Partnership: managing risks and opportunities, Blackwell Science, 2003. pp351-367, ISBN 0-632-06465-X The Nation (2004), “Government Acquisition: Skytrain, subway deal ‘next month’”. 24 August, p. 1B, 7B. Walker, C, and Smith, A J (1995) Privatized Infrastructure: The Build Operate Transfer Approach. London: Thomas Telford Publications. Zhang, X Q, and Kumaraswamy, M M (2001) Procurement Protocols for Public-Private Partnership Projects. Journal of Construction Engineering and Management, Vol. 127, pp. 351-358. 758 Tangkitsiri and Ogunlana Zhang, X Q, Kumaraswamy, M M, Zheng, W, and Palaneeswaran, E (2002) Concessionaire Selection for Build-Operate-Transfer Tunnel Projects in Hong Kong. Journal of Construction Engineering and Management, Vol. 128, pp. 155163. EVALUATION AND COMPARISON OF CONCESSION PROJECTS ALISON McCOWAN and SHERIF MOHAMMED School of Engineering, Griffith University, Gold Coast Campus, PMB 50 GCMC, QLD 9726, Australia. [email protected] ABSTRACT As the procurement of large infrastructure projects via higher risk concession contracts is becoming more and more commonplace, it is imperative that construction industry decision makers have access to a Decision Support System (DSS) that facilitates a realistic appraisal of Concession Project Investments (CPIs) at the feasibility stage. Such a DSS must be capable of evaluating and ranking various CPI options by incorporating both financial and non-financial aspects of an investment, as well as the uncertainties commonly encountered at the feasibility stage of a project. Over recent years, a diverse range of DSSs have been developed for the purpose of modeling high risk construction project investments such as CPIs. However, each of these systems is limited in its practical application and fails to meet la key requirements of a DSS. This paper proposes a DSS that is effective at capturing the real-life investment characteristics, in a resource and time efficient manner. To achieve the dual objective of efficiency and effectiveness, the design of the DSS is based upon the most suitable multi-criteria decision-making technique, mathematical modeling technique, financial analysis model and CPI risk factor framework. The paper also numerically demonstrates the DSS’s application to the modeling of two real-life CPIs. Keywords: Concession projects, decision-making, investments, risk, uncertainty. INTRODUCTION The underperformance of many concession projects has been attributed to the inability of project sponsors and promoters to predict the impact of financial and non-financial (risk and opportunity) factors associated with CPIs, and negotiate contracts to allow for these factors [Halligan (1997)]. Available DSSs are limited in their capacity to incorporate both financial and non-financial aspects of an investment, as well as the uncertainties commonly encountered at the feasibility stage of a project in the most efficient and effective manner. Thus, there is a need for a DSS that is capable of evaluating and comparing several CPI options. To develop such a DSS, it was first necessary to clearly define its requirements. Ten requirements were identified [McCowan and Mohamed (2002)] including the identification of non-financial factors (risks and opportunities) and the interdependencies that exist between them. The most appropriate techniques in the areas of mathematical modeling, financial analysis modeling, decision-making, and risk factor frameworks (RFFs) were selected for implementation in the DSS. Possibility (fuzzy) theory was selected as the most 760 McCowan and Mohammed suitable mathematical modeling technique [Mohamed and McCowan (2001)], a novel, largely generic, financial analysis model was derived encompassing equity holder, lender, and government perspectives, the analytic network process (ANP) was selected as the most appropriate decision-making technique [McCowan and Mohamed (2002)] and Wang et al.’s (2002) RFF was selected as the basis for a generic RFF provided by the DSS. Although this RFF was originally developed for international projects, it was chosen based upon the assumption that concession projects face much the same risks as large-scale international projects due to similarities in the complexity of financial arrangements and organizational structure, and the ability of country and market environments to significantly affect project viability. Based upon the selected techniques, a DSS was developed and fully implemented as a stand-alone computer software program, ECCO (Evaluate and Compare Concession Options), using the Visual C++ development environment. ECCO is a dialog-based application, not unlike a commonly used wizard program. ECCO’s design comprises three modules: Module One - model definition; Module Two - model evaluation and ranking; and Module Three - sensitivity analysis. MODULE ONE Module One performs the task of input definition for analysis that takes place in Modules Two and Three. The structure of this module is divided into two independent components: financial and non-financial. The financial component of Module One is structured according to Bakatjan et al.’s (2003) two-phase (construction and operations) financial analysis model. Analysts must provide the below information on financial factors to the DSS in the form of a single, interval, triangular or trapezoidal possibility distribution (excluding year values): • • • • • • • • • • • • Construction costs ($, yr) Operations and Maintenance (OM) costs ($, yr) Revenue streams ($, yr) Concession period, incl. construction period (yr) Construction period (yr) Equity fraction (%) Discount rate (%) Escalation rate (%) Tax rate (%) Loan interest rate (%) Grace period on loan (yr) (assumed to be equal to/greater than the construction period) Loan repayment period (yr) The CPI’s non-financial component is structured using the ANP method [Saaty (2001)]. Non-financial factors must be divided into two separate ANP frameworks of opportunities (positively impacting factors), and risks (negatively impacting). Since the risks and opportunities faced by one project may not necessarily be the same as another project, the DSS allows for analysts to be able to define a unique set of risk/opportunity factors for each project, where required. The Analyst must provide factor name, importance, likeli- Evaluation of construction projects 761 hood, and interdependencies for all risk and opportunity factors. Fig. 1 presents the 1-7 scale that is employed by the DSS for the definition of non-financial factor importance, likelihood, and any interdependencies between non-financial factors (2, 4, and 6 can also be used as intermediate values on the scale). 1 - Weak treme 3 – Moderate 5 - Strong 7- Ex- Fig. 1. 1-7 Scale for Non-Financial Factors A generic CPI RFF is offered as an option when using the DSS. This RFF contains the four (4) most critical risk factors identified by Wang et al. (2002) at the country, market and project levels of the project, as well as the quantified interdependencies between these factors, as identified by a pilot study questionnaire. MODULE TWO The purpose of Module Two is to evaluate and rank between one and five CPIs at a time. Overall rankings of the projects are based upon their ANP project ratings. The ANP project rating method is presented as Fig. 2. Project Rating = Benefit x Opportunity Cost Risk Financial Non-Financial Fig. 2. Saaty’s (2001) ANP Project Rating Method This rating method extends the traditional financial benefit-cost (B/C) ratio to incorporate non-financial factors via the inclusion of an opportunity-risk (O/R) ratio, hence providing a holistic evaluation of the CPI options. The module also calculates the following performance measures to ensure that all parties (equity holder, lender and government) to the project are catered for: • • • • • • • • • • Total project cost NPV ($) Equity holder cumulative cash flows (non-discounted) ($) Equity holder payback period (yr) Equity holder NPV ($) Equity holder Benefit/Cost ratio (0-1) Equity holder IRR (%) Debt Service Coverage Ratios (DSCR) Overall project cumulative cash flows (non-discounted) ($) Overall project payback period (yr) Overall project NPV ($) 762 McCowan and Mohammed • • • • Overall project Benefit/Cost ratio (0-1) Opportunity Rating (0-1) Risk Rating (0-1) Opportunity/ Risk Ratio (O/R) In the above performance measures, the total project cost and equity holder’s perspective includes financing considerations, whereas the overall project perspective does not. All financial formulae used by the Module, incorporated uncertainty by representing all variables (except year values) with possibility distributions. Module Two applies the ANP method to the non-financial data provided to develop the overall risk rating, opportunity rating and O/R ratio of each CPI evaluated. Overall rankings of the projects are based upon their ANP project ratings. The equity holder’s B/C ratio and the O/R ratio are then used to derive each CPI’s ANP project rating. Where opportunities or risks are not included in a CPI model, the DSS simply ranks the projects based on adaptations of the above method (i.e. B/CR ratio and BO/C ratio). Alternatively, in the case of a purely financial or non-financial comparison of projects, the equity holder B/C or O/R ratio is used for rankings, respectively. Finally, this Module presents all results in both tabular and graphical form. MODULE THREE It is designed to assist the analyst in comparing the sensitivity of the selected projects to changes in any single factor (financial or non-financial) common to all projects selected. This module can only be accessed via Module Two, and therefore caters for the analysis and comparison of between one to five projects at a time. It is not the purpose of the module to perform Scenario Analysis, which can be performed simply by editing existing models in Module One, but to create different project scenarios, and then evaluating and comparing them using Module Two. To run an analysis, Module Three requires the following information: • Project(s) to be analyzed; • Factor to be analyzed (either financial or non-financial); and • Range of analysis. If a financial factor is selected, the analyst must define the range of analysis as a %age change in the factor’s value (e.g. – 5% to + 5%), whilst if a non-financial factor is selected, the DSS automatically analyzes for the entire range of likelihood values (1 to 7) of that particular factor. Results are presented both in tabular and graphical form as %age change in selected factor vs. % change in equity holder’s NPV, or change in factor likelihood vs. % change in the project’s risk/opportunity rating, as appropriate. NUMERICAL EXAMPLE The following numerical example demonstrates the practical application of ECCO to the modeling of two CPI opportunities, Projects A and B. Project A is a real-life, Build- Evaluation of construction projects 763 Operate-Transfer (BOT) hydroelectric power plant (HEPP) project in Turkey, documented in Bakatjan et al. (2003). All necessary information pertaining to financial factors on the project were provided in the source paper. However, due to the purely financial nature of the paper, details of the non-financial factors surrounding the project were not given. Thus, in order to demonstrate the full capabilities of ECCO in combining financial with non-financial factors surrounding a project, the generic risk factor framework (including interdependencies) was adopted as the project’s risk factor network, while opportunities were simply omitted from the model. The paper’s first author, upon request, kindly provided the risk factor importance and likelihood values presented as Table 1, whilst factor interdependency values came from the generic RFF developed and validated via a pilot study involving academics, researchers and industry practitioners. Table 1. Risk Factor Ratings – Project A RISK FACTOR IMPORTANCE LIKELIHOOD C1 - Approval and Permit 2 2 C2 – Change in Law / Justice Reinforcement 5 3 C3 – Corruption 2 2 C4 - Political Instability 5 3 M1 - Local Partner’s Creditworthiness 3 1 M2 - Corporate Fraud 2 1 M3 - Termination of Joint Venture 7 3 M4 - Inflation and Interest Rates 5 5 P1 - Cost Overrun 5 3 P2 - Improper Design 5 2 P3 - Improper Quality Control 3 3 P4 - Improper Project Management 5 2 N.B. Scale is from 1 (weak) to 7 (extreme), zero (0) represents no importance/likelihood. It is evident from Table1 that the most likely risk factor to affect the project was “M4 Inflation and Interest Rates” (“strong likelihood”), which was also rated as “strongly important” to the project. Additionally, the financial data contained in the paper was deterministic (single values). Hence, in order to demonstrate the full capabilities of ECCO in modeling uncertainty surrounding financial factors, each financial factor was transformed into triangular possibility distributions using information given in the source paper. Financial input for Project A is presented as Table 2. Project B input came from a case study by Abdel-Aziz (2000), the data of which closely reflects actual data acquired from a 45km, 4-lane highway (Hwy) project in Eastern Canada delivered by PPP. All necessary information pertaining to financial factors on the project was provided in the paper. Project B has a construction period of 2 years, and a subsequent operations period of 30yrs, with a loan grace period of 9 years. Possibility distributions were again developed using data given in the source dissertation pertaining to uncertainty in inflation rates of toll growth and maintenance, in interest rates, in equity fraction, in major maintenance costs and in certain construction costs. Table 3 presents all financial input for Project B. Individual risk factors affecting the project were not identified in the source paper. Thus, the generic RFF was again adopted as the project’s risk factor network, while opportunities were simply omitted from the model. The source author also provided all risk factor importance, likelihood and interdependencies for the project upon request (Table 4). 764 McCowan and Mohammed Table 2. Financial Factor Possibility Distributions (US$, 000) – Project A Financial Factor Min. Least Likely 28 3.5 9 9 11 13,843 30,454 33,223 33,223 35,168 33,410 31,739 30,152 28,645 27,213 25,852 24,559 23,331 22,165 6,590 715 Most Likely Max. Least Likely 35 4.5 11 12.5 11 16,571 36,455 39,770 39,770 39,826 37,835 35,943 34,146 32,439 30,817 29,276 27,812 26,422 25,101 10,328 1,053 Equity Fraction (%) Escalation Rate (%) Interest Rate (%) – Loan rate Discount Rate (%) – Average Tax Rate (%) Construction Cost – Year 1 Construction Cost – Year 2 Construction Cost – Year 3 Construction Cost – Year 4 Revenue – Year 1 (of operation) Revenue – Year 2 (of operation) Revenue – Year 3 (of operation) Revenue – Year 4 (of operation) Revenue – Year 5 (of operation) Revenue – Year 6 (of operation) Revenue – Year 7 (of operation) Revenue – Year 8 (of operation) Revenue – Year 9 (of operation) Revenue – Year 10 (of operation) Annual Revenue – Years 11-20 Annual O&M Costs –Years 1-20 31.69 4.1 10 12 11 15,206 33,455 36,496 36,496 37,411 – 37,723 35,540 – 35,837 33,763 - 34,045 32,075 - 32,343 30,471 - 30,726 28,948 - 29,190 27,500 - 27,730 26,125 - 26,344 24,819 - 25,026 23,578 - 23,775 8,278 - 8,529 752-1,003 Table 3. Financial Factor Possibility Distributions ($million) – Project B FINANCIAL FACTOR Equity Fraction (%) Interest Rate (%) Discount Rate (%) Escalation Rate (construction &operations costs) (%) Tax Rate (%) Design Cost minus Govt. Contribution – Year 1 ($mil) Road Construction – Year 1 ($mil) Road Structure – Year 1 ($mil) Road Construction – Year 2 ($mil) Road Structure – Year 2 ($mil) Annual Operations Costs ($mil) Annual Maintenance Costs ($mil) Annual Inflation of Maintenance Costs (%) Annual Increase in Inflation of Maintenance Costs (%) Major Maintenance – Year 12 (execl. Inflation) ($mil) Major Maintenance – Year 22 (execl. Inflation) ($mil) Major Maintenance – Year 32 (execl. Inflation) ($mil) Annual Revenues in Operations ($mil) Annual increase in Revenues ($mil) Sinusoidal Revenue Inflation (%) VALUE {44.2,48,48,50.4} {10.52,10.63,10.63,11.2} 8.25 2.35 0 {12.35,13, 13, 13.65} {11.424,12.025, 12.025, 12.626} {6.148, 6.472, 6.472, 6.796} {41.539, 43.275, 43.275, 45.439} {8.339, 8.778, 8.778, 9.217} 2.259 0.65 1.5 {0.03,0.04,0.04,0.05} 11.3 11.3 11.3 7.777158 0.393529 /yr Start - 2.35, amplitude - 0.3, cycle length -10yrs, Annual increase - Evaluation of construction projects 765 Government Contribution – Year 3 of project ($mil) {0.04,0.05,0.06} 26 Table 4. Risk Factor Ratings – Project B RISK FACTOR IMPORTANCE LIKELIHOOD C1 - Approval and Permit 5 5 C2 - Change in Law / Justice Reinforcement 5 1 C3 – Corruption 5 0 C4 - Political Instability 5 0 M1 - Local Partner’s Creditworthiness 3 1 M2 - Corporate Fraud 3 1 M3 - Termination of Joint Venture 3 1 M4 - Inflation and Interest Rates 5 3 P1 - Cost Overrun 5 4 P2 - Improper Design 5 1 P3 - Improper Quality Control 3 3 P4 - Improper Project Management 5 3 N.B. Scale is from 1 (weak) to 7 (extreme), zero (0) represents no importance/likelihood. ANALYSIS RESULTS The results for the evaluation and comparison of the two projects are presented as Table 5, Fig. 3 and Fig. 4. ECCO ranked the projects in the following order according to their B/CR rating due to the absence of Opportunity Ratings data: 1) Project B – Canadian BOT Hwy (7.633); and 2) Project A - Turkey HEPP Project (4.630). It should be noted that financial results for Projects A and B compared reasonably well to those stated in their respective source papers, despite various differences between ECCO’s financial analysis model and those described in the papers (e.g. inclusion of uncertainty via use of possibility distributions). Project A’s equity holder NPV calculated by ECCO represented a 6.9% difference from that calculated by Bakatjan et al.’s (2003) financial model, while the average DSCR value represented only a 0.5% difference. The variation in the NPV results could be attributed to the difference in formulae used to model the particular performance measures (modifications made to Bakatjan et al.’s (2003) formulae in the DSS). Also, the IRR determined by ECCO was within the range reported in the source paper (0.74-0.94). For Project B, both the overall project and equity cumulative cash flow graphs presented in the paper resembled those produced by ECCO. However, the overall investment cost NPV was reported to be $116million, IRR as 13.9%, and aggregated B/C ratio of 1.543 compared to $128million, 12.47%, and 1.527 (overall project) calculated by ECCO, respectively. From the cumulative cash flow graph provided in the source paper, the payback period was taken as approximately 10 years, compared to ECCO’s values of 12 years for equity holders and 11 years for the overall project. From the equity holder’s perspective, looking at the financial feasibility of the projects, Project A has a lower NPV ($22million) than Project B ($25.82million), yet a greater B/C ratio (1.714) and IRR (19.66%). In other words, a greater percentage return is likely for the least capital outlay. Hence financially speaking, Project A would rank first as an investment option. However, looking at the two projects’ non-financial aspects, Project A 766 McCowan and Mohammed has been evaluated as a more risky investment (project risk rating of 0.370 vs. 0.188). This acts to reduce the B/CR rating, so much so that the ranking of the two projects is reversed, and Project B is now considered the better investment. Table 5. Analysis Results – Performance Measure Equivalent Single Values Construction Cost NPV ($mil) Equity holder NPV ($mil) Equity holder B/C Equity holder Payback Period (yr) Equity holder IRR (%) Overall project NPV ($mil) Overall project B/C Project Payback Period (yr) Average Annual DSCR Project Opportunity Rating (0-1) Project Risk Rating (0-1) Project B/CR Rating PROJECT RANKING Project A 114.82 22.00 1.714 8 19.66 33.85 1.35 9 1.675 0 0.370 4.630 2 Project B 128.439 25.82 1.435 12 12.47 38.23 1.527 11 2.334 0 0.188 7.633 1 N.B. Equivalent values are calculated as the centre of gravity of the possibility distribution. From the debtor’s perspective, the annual Debt Service Coverage Ratio (DSCR) should be at least equal to one for the project to be considered feasible. In other words, the net revenue must be able to meet the debt installment due on loans throughout the repayment period. Looking at Fig. 4, it is evident that lenders would consider both Project A and B, feasible. The three spikes in Project B’s DSCR graph are caused by the major maintenance required every 10 years of operations. Apart from these spikes however, Project B has a DSCR greater than one at all times, with an average value of 2.334. Project A seems to be most able to service its debt consistently, having a minimum DSCR value of 1.293 and an average value of 1.675. Fig. 4. Analysis Results – Annual DSCR Values Evaluation of construction projects 767 Fig. 5. Analysis Results – Overall Project B/C Ratios From an overall project perspective, excluding financing concerns would produce a slightly different ranking of the projects. Based solely upon overall single equivalent B/C ratios, Project B would be ranked first (1.53), followed by Project A (1.35). A more careful investigation of the distributions reveals that the maximum least likely overall B/C ratio for Project A is, in fact, slightly greater than that of Project B (1.718 vs. 1.688). However, Project A’s single equivalent value is reduced by the large spread of its distribution {1.035, 1.285, 1.312, 1.718} compared to that of Project B {1.346, 1.547, 1.688}. 768 McCowan and Mohammed Thus, greater uncertainty in Project A’s B/C ratio has decreased its attractiveness as an investment option. SUMMARY An effective yet efficient DSS capable of evaluating and ranking various CPI options by incorporating both financial and non-financial aspects of an investment, as well as the uncertainties commonly encountered at the feasibility stage, was developed and fully implemented as a stand-alone computer software program, ECCO (Evaluate and Compare Concession Options). ECCO’s design was based upon techniques in the area of mathematical modeling, financial analysis, risk factor frameworks and decision-making considered to be most appropriate for the task. This paper has briefly outlined the DSS design, and provided a numerical example of its application to the modeling, evaluation and ranking of two real-life CPIs. It has successfully demonstrated ECCO’s ability to evaluate and rank two very different CPI opportunities, taking into account the combined effect of finance, risk, and uncertainty on the overall CPI attractiveness, and also provide a set of economic performance measures that would satisfy the needs of various stakeholders involved (financiers, government or developers). There are many benefits that the developed DSS could deliver including: • • • • Time and resource efficiencies; Increased confidence that predictions are realistic; The facilitation of a Go/No-go decision through quantitative results; The clear identification of project risk factors that may have otherwise been overlooked; • The identification of critical risk factors for input into the project’s risk management plan via sensitivity analysis; and • Output that could be used in contractual negotiations between various project parties. Although this paper did not include a demonstration of ECCO’s sensitivity analysis module, ECCO is also able to compare the sensitivity of up to five projects to changes in any single factor (financial or non-financial) common to all projects selected. REFERENCES Abdel-Aziz, A M (2000) Generalised economic model, risk analysis framework and decision support system for the analysis and evaluation of capital investment projects. PhD Thesis, University of British Columbia, Canada. Bakatjan, S, Arikan, M and Tiong, R L K (2003) Optimal capital structure for BOT power projects in Turkey. Journal of Construction Engineering and Management, Vol. 129, No. 1, pp. 89-97. Halligan, I J (1997) Queensland- The state of infrastructure Public/Private Partnerships. Master Thesis, Queensland University of Technology, Australia. Evaluation of construction projects 769 McCowan, A K and Mohamed, S (2002) A classification of decision support systems (DSSs) for the analysis and evaluation of concession project investments (CPIs). Journal of Financial Management of Property and Construction, Vol. 7, No. 2, pp.127-137. Mohamed, S and McCowan, A K (2001) Modelling project investment decisions under uncertainty using possibility theory. International Journal of Project Management, Vol. 19, pp. 231-241. Saaty, T L (2001) Decision making with dependence and feedback: The Analytic Network Process. 2nd Edition, RWS Publications, USA. Wang, S Q, Dulaimi, M F and Aguria, M Y (2002) Building the external wing of construction: Managing risk in international construction project. Research Report, National University of Singapore, Singapore. 770 McCowan and Mohammed CHALLENGES ON PROCUREMENT IN THE OIL AND GAS INDUSTRY: DEVELOPING NEW STRATEGIES M. F. MOHAMMAD and A. D. F. PRICE Department of Civil and Building Engineering, Loughborough University, Leicestershire LE11 3TU, United Kingdom. [email protected] ABSTRACT With the background of volatile oil and gas prices, marginal oilfields, extreme locations and new global business trends, the oil and gas industry is forced to seek better solution to overcome these challenges, among others, to look at new procurement strategies. Although some changes have taken place in the development of innovative procurement strategies in other sectors, more needs to be done to the oil and gas industry. This is perhaps because the oil and gas industry needs to be considered as an individual and complex industry in its own right. The other probable reason why there appears to have been little development away from the traditional approaches is because there are relatively few major players, that is project initiators (clients/owners) and implementers (drilling contractors etc.) in the oil and gas sector. Clients/owners have also been found to have a wide variety of method for selecting contractors. The direct transfer of other industries’ experiences on procurement may not be suitable, as they are different in nature and many other aspects of the business which could have given a different impact to the overall management of oil and gas field exploration and production. Procurement lessons learnt from other industries have also been tested but with mixed outcomes. This includes Partnering/Alliancing/Joint Ventures, Design and Build/Engineering, Procurement and Construction, and Performance-Based approaches. However, procurement issues and problems in the oil and gas industry is not so pronounced as in other sectors due to the small number of players and the need to maintain good image, reputation and goodwill amongst them. The overall aim of the research is to improve procurement strategies in the oil and gas industry. This paper will present a review of current literature on the subject within the industry. Keywords: Contractor, Management, Oil and gas, Operator, Procurement, UK INTRODUCTION The oil and gas industry has always made a major impact to the world and UK’s national and local economies. According to the UKOOA (2003) Report, the UK economy alone has benefited from £190 billion (2002) in taxes since extraction began in the mid-1960’s. Less productive and smaller oilfields are also being given a new breath of life through innovative technological plant and equipment, and more economic management approaches such as joint venture exploration with shared risks. However, there has been 772 Mohammed and Price insufficient development away from traditional approaches in procurement, with most of the procurement systems being mere carbon copies from other industries. According to Pedwell et al. (1998), this is probably due to the fact that there are relatively few players, that is project initiators (clients/owners) and implementers (contractors) in the industry. Furthermore, clients/owners have been found to have a wide variety of method for selecting contractors. The oil and gas industry must also be looked upon as an individual and complex industry in its own right. Direct application of lessons learnt in other industries, such as construction, may not be appropriate, as the two industries differ in many aspects relating to both the construction, operation and maintain phases. For example, under the operation stage, the main goal for the oil and gas industry is production with high return whereas in construction the use of the finished asset to produce goods or provide a service is the key goal. According to Wright (1996), other characteristics associated with the oil and gas sector include high capital investment, high level of uncertainty/risk due to its exploratory nature, high technology/heavy engineering, large scale/magnitude, large number of engineering disciplines and specialists from exploration to first oil and from production to decommission and tight delivery/supply and installation schedule. Challenges on procurement Throughout the review of relevant articles and papers, it was obvious that a gap exists in the literature whereby little was found, mentioned or deliberated on regarding procurement aspects of the oil and gas industry. Out of approximately 200 articles found, only about 40 articles were closely related to procurement. This does not necessarily mean that there are no problems but may be a result of the commercial sensitivity associated with disclosing and sharing problems among what constitutes only a few players within a very specialized industry. Also, such disclosures could have a negative impact on image, reputation and goodwill within a high-return industry. Changes are beginning to take place within large corporations, for example Halliburton have announced that it will no longer pursue the traditional Engineering, Procurement, Installation and Commissioning (EPIC) contracts, as there was “the growing imbalance in the risk and reward available on these offshore EPIC projects” (Halliburton 2003). Partnering, alliancing and joint ventures have also had their fair share of problems. Creating trust, unclear roles and responsibilities and alignment to common goals in this high-risk industry are some of the problems faced by these types of procurement arrangements (McHaffie et al. 1993; Donnelly, 2003). Short and long-term relationships within partnering arrangements have to be dealt with accordingly to avoid pitfalls and any untoward relationship that could be costly (Stevenson et al 2003). The UKOOA (2003) Report stated that further research on the area is required more now than ever before. This is because of considerable changes in the oil and gas scenario throughout the world today with clients and contractors looking more for a win-win situation in their procurement arrangements. With the high cost of exploration and production today, the profit margins for clients are decreasing. Selecting the right contractor with the right price can be a time consuming and risky business. The volatility of the current oil and gas prices have added to the need to reconsider clients’ cost control Challenges on oil & gas procurement 773 procedures, in particular procurement strategies. The recent development of marginal fields with tight budgets and high risks has resulted in traditional procurement approaches becoming unsuitable leading to the introduction of partnering/alliancing/joint ventures. Traditional contracting structure according to Scott (2001), frequently create misalignment between the individual contractors and has no incentive to work in a way that is most efficient for the project as a whole or to work proactively (by pooling skills, expertise and resources if appropriate). The decline in production output of matured oil and gas fields in the United Kingdom has increased market prices for oil and gas as well as operational costs. This has also created the need for further exploration and production with poor combination of higher costs and increased risk. Aims statement and objectives The aim of the main research is to improved procurement strategies for the oil and gas industry. However, the objectives of the paper are to: • identify challenges that the oil and gas industry may have to face with current procurement strategies; • study the magnitude and importance of the problems/issues to the industry and prioritise it accordingly; • conduct current literature search on procurement to identify previous research in the area and the gaps that needs to be filled; and • develop the most appropriate research methodology in order to address the problems/issues highlighted; This paper focuses on the first three objectives as stated above. This has been achieved through a literature search and review which will form an important foundation to further work. The main research programme started in April 2003 and is expected to be completed in 2006. Problems identification Within the literature reviewed most common problems/issues within the oil and gas industry currently were associated with EPIC contract failures and partnering/alliancing ventures turning sour. The high cost associated with the sustainable development of marginal oil and gas fields has becoming an increasingly important issue among operators and contractors alike (Ehret, 1992). This is a direct result of the depleting oil and gas production in the United Kingdom’s Continental Shelf (UKCS) and the rising operating and maintenance costs of installations in matured and marginal field. The Cost Reduction In the New Era (CRINE) (Westbrook 1994) and PILOT initiatives by the Department of Trade and Industry (DTI) were introduced as a means of reducing if not overcoming these challenges. Independent organisation such as Leading Oil and Gas Industry Competitiveness (LOGIC) were set up only to address specific contractual and supply chain issues and training. 774 Mohammed and Price Scope of main research The main research will cover procurement problems/issues faced by clients/owners and contractors in the oil and gas industry throughout the world as experienced within major oil and gas exploration and production regions of UK, US and the South China Sea, predominantly Malaysia. The research will take account of the different types of oil and gas activities such as: offshore/deepwater in the UK; onshore/dry land in the US; and offshore/shallow water in Malaysia. Malaysia has been chosen because it also represents a country with potential growth in the South China Sea region. This will also create an opportunity to explore cross-regional learning from different levels of cultural, technological, geographical and political perspective. The scope of the main research will also extent its coverage towards cross-sector learning, with the construction industry chosen as the point of reference and source of information. Outline of main research methodology In order to achieve the objectives of the main research, the information will be gathered through primary and secondary data. The source for primary data collection will comprise the following groups, which include oil and gas operators – Shell, BP, ChevronTexaco, Petronas(Malaysia) etc., statutory and regulating authorities/bodies and oil and gas contractors. Primary data will be collected from the above groups in order to prioritise the problems and help to develop solutions through interviews, survey questionnaires and case studies. Secondary data will be gathered through literature in order to identify problems, previous research and gaps from libraries – books, databases, journals, newsletters etc., professional societies/bodies, international forum/conference/seminar papers and the Internet. Current literature in the oil and gas industry Many regional issues have surfaced from articles read to date, these include: Iraq with no central authority and trying to mend and picking up the broken pipes from the effects of war MSNBC News (2003); the Russians are in hot pursuit claiming their promised oil share during the pre-war era (Neftegaz RU 2003); Venezuela’s oil and gas industry collapse with workers on strike and political pressure as reported by Coronel (2003); China’s emergence as the new global player in the oil and gas industry with joint ventures investment with major contractors (Clifford 2001); and the UKOOA (2003) Report on UK oil and gas industry agreeing to improve on capital and operational efficiency. Other key issues that have emerged include: • • increased cooperation rather than competition among oil and gas contractors (Stabell and Sheehan, 2001; McHaffie et al. 1993); effective supply chain management offering great scope for increased efficiency and improvements in client/supplier relationships (UKOOA 2003; Bento, 2003) Challenges on oil & gas procurement 775 • • • • • • • partnering/alliancing/joint value enhancement in today’s market environment (Wood, 2003; Manning, 2003; Bruce and Shermer, 1993; Donnelly, 2003); environmental issues and costs to be addressed by the industry (Gao, 1994; Westbrook, 1994); cost effectiveness with regards to technological factors (Adams, 1992); Engineering, Procurement, Installation and Commissioning (EPIC) procurement system failures and why some major contractors are shying away from it (Halliburton, 2003; Stevenson et al, 2003); contract risk management (IQPC, 2003; Stell, 2002); standardisation/best practices (Fowler et al, 2003); and industry initiatives in leading and delivering changes (Todd et al, 2003) Procurement problems Not many issues on procurement problems seem to appear in the papers or articles but that does not mean everything is plain sailing. Already at least one major oil and gas contractor, Halliburton, (Halliburton 2003) has decided that “it will no longer pursue EPIC contracts for the oil and gas industry where it is required to make lump sum, fixed price commitments” but “will continue its active participation and leadership in the offshore engineering and construction market through cost reimbursable arrangements”. This is due to “the growing imbalance in the risk and reward available on these offshore EPIC projects”. Another issue that was discussed and deliberated at length was the integration of supply chains and critical chain concepts in EPIC contracts in order to enhance some of its flaws and weaknesses (Yeo and Ning 2002). According to Stevenson et al (2003), in order for a supply chain management system to work, integration is needed instead of fabrication. The usual conventional versus EPIC contracts is also becoming a key issue. Among the problems encountered in EPIC contracts, apart from the above, is that the contractor shoulders the risk when there is a variation order. Variation orders are common in the oil and gas industry because there are many uncertainties associated with the exploration and production of oil. Yeo and Ning (2002) also added that among the challenges faced by EPIC projects are the interdependence of activities, phase overlaps, work fragmentation, complex organisational structure and uncertainty in accurate prediction of desired outcomes. Partnering and alliancing have also had their fair share of problems. Creating trust, unclear roles and responsibilities and alignment to common goals are some of the problems faced by this type of procurement arrangement. Poor definition during conceptual stage of the project between parties and whether the share of the rewards will commensurate to the risk they are taking can also lead to volatility in the execution and outcomes (Donnelly 2003). He also reiterated that some of the major companies have in the past shared risk with mixed results due to naive appreciation of the risks being taken and the gaps in understanding of the risk/reward model between parties. The non-existence or rarely used Whole Life Costing (WLC) in procurement practices in the industry is another aspect that causes concerned over the rising costs of material and plants during the production period that covers operational and maintenance costs. 776 Mohammed and Price Deployment of an inappropriate contracting strategies and failure to reflect the complex multi-cultural influences which include geographical, nature, safety, environment and political according to Stevenson et al (2003) are evident in current contract and commercial models in the oil and gas industry. This is sadly the common features of disastrous projects, which is the joint responsibility of clients and contractors. Procurement strategies In order to overcome some of the existing problems and offer potential solution, a few innovative approaches to procurement have been put forward by players in the industry, these include: • • • • • • • • • cooperation rather than competition among contractors and suppliers (Wright, 1996; Stabell and Sheehan, 2001; McHaffie, et al. 1993; and Adam, 1992); effective supply chain management to increase efficiency and improvements in clients/supplier relationship (Yeo and Ning, 2002; Stabell and Sheehan, 2001; Stevenson et al, 2003; Bento, 2003); partnering/alliancing/joint value enhancement to be looked at in accordance to today’s market environment (Chan, et al. 2003; Brunsman, et al. 1998; Bruce and Shermer, 1993; Donnelly, 2003); cost effectiveness with regards to operational management (Wright, 1996); effective incentive schemes for contractors and supplier (Richmond-Coggan, 2001); leasing (Wright, 1996); contract to produce (Wright, 1996); whole life costing (Mohammad, M.F. 1996; Best, R. and de Valence, G, 1999); and incorporating multi-cultural complexities factors (Stevenson et al, 2003) There is also a need for innovative procurement strategies in the oil and gas industry, as cited by Dittrick (1999) in a survey of integrated oil and gas companies in the US. It stated that project procurement process in the oil and gas industry is a capital-intensive industry. As 90-95 per cent of project costs are paid to contractors and suppliers, to ensure project success, it is critical that procurement strategies should incorporate and integrate with the capital project procurement process from start to finish. It must also submit to total system of cost and evaluation throughout the procurement process such as Whole Life Costing (WLC). Some form of standardization programme and specification reviews must also be included. A strategic outsourcing, such as in supply chain management, must be in place. Finally, a management and incentive programme for all key contractors and suppliers must exist in order to secure the commitment of contractors and suppliers to the overall success of the project. Wright (1996) stated that the adoption of these new procurement strategies by the key players in the UK North Sea has been instrumental in rejuvenating the industry by allowing cost-effective development of smaller and more marginal oil and gas fields. The industry’s initiatives such as PILOT and CRINE have also helped to create the appropriate environment for a more standardised and cost reduction contractual arrangements. Challenges on oil & gas procurement 777 CONCLUSION During the literature search, most of the papers found were either technological, economics or strategic planning based but also included aspects of procurement and contracts. Little appears to have been written on this ‘softer issues’ of procurement systems/strategies in an industry that generates billions of dollars per day in revenue. This could be due to the complexity and nature of the industry itself. The challenges on procurement for the oil and gas industry appears to have been the little development from the traditional to the latest approach in procurement where most of the procurement systems used appear to be mere carbon copies taken from other industries. Throughout the general reading of articles and papers, it was obvious that there was a gap in the literature whereby little was found, mentioned or rather the few numbers of research work that has been done on the procurement aspects of the industry. In order of priority, it has been established that cost cutting, cost reduction and risk management appeared quite frequently in recent articles, thus needs to be addressed first. Cooperation, competitiveness and organizational strategy are the keywords in most of the articles although no linked to procurement system/strategy are directly mentioned in the articles. However, Wright (1996) has identified key trends and factors in procurement, particularly in the UK North Sea oil and gas industry, that need to be addressed accordingly which include the increased contractors’ risk, market polarisation, cultural changes, oil company specialisation, project timescales, technology and product-oriented solutions. During the Offshore Europe 2003 conference, Stevenson et al (2003) stresses that as far as procurement strategy is concerned, contractors should not confuse risk transferences with commercial integrity in their execution. They must be sensible in allocating risk within their capabilities and must also be able to become flexible to revert to reimbursable scopes where definition, local content or other variables dictate. Finally, as de Valence, (1997) cited in Best and de Valence, (1999) argued: “…owners and clients are increasingly using a variety of alternative procurement methods aimed at reducing cost, achieving time schedules and milestones, shortening duration, reducing claims and improving constructability and innovation. The overall trend is toward versions of design-build and turnkey construction because of the advantages of a project delivery system that combines designers, builders and sometimes suppliers into a single entity, to solve the problems inherent with traditional low-bid procurement”. Whether this will apply successfully in the oil and gas industry is remain to be seen. 778 Mohammed and Price REFERENCES Adam, L.J. (1992) Offshore contracting, a changing environment, Proceedings of IOCE 92 Conference on New Contracting Strategies, Oct, Aberdeen. Bento, J. (2003) Supply chain logistics require attention, Journal of Petroleum Technology, Aug., pp 29 Best, R. and de Valence, G. (1999) Building in value, pre-design issues, Arnold, pp 108127 & 21 Bruce, G. and Shermer, R. (1993) Strategic partnerships, alliances used to find ways to cut costs, Oil and Gas Journal, Nov., Vol. 91, pp. 71-76 Brunsman, B., Sanderson, S. and Van De Voorde, M. (1998) How to achieve value behind the deal during merger integration, Oil and Gas Journal, Sept., Vol. 96, pp. 21-28. Burton, N. and Lanciault, D. (1999) Creating supply advantage for oil and gas companies with strategic procurement, Oil and Gas Journal, Nov., Vol. 97, pp. 54-64. Chan, A.P.C., Chan, D.W.M. and Ho, K.S.K (2003) Partnering in construction: critical study of problems for implementation, Journal of Management in Engineering, July, Vol. 19 (3), pp. 126-135. CIOB (2003) Code of Practice for Project Management for Construction and Development, Third Edition (Reprinted), Blackwell Publishing, London. Clifford, M.L. (2001) An oil giant stirs: PetroChina is evolving into modern profit machine, Business Week, May 7, New York, pp. 83-84. Coronel, G., (2003) PDVSA’s crisis a tragedy for Venezuela, Oil and Gas Journal, Mar., Vol. 101, pp. 20-23. Dittrick, P.M. (1999) Purchasing savvy to boost the bottom line, Oil and Gas Investor, Denver, June, Vol. 19 (6), pp. 46-49. Donnelly, J. (2003) Q & A with Michael Fleming, CEO, WellDynamics, Journal of Petroleum Technology, Aug., pp 19 Dronfield, M.and Wood, D. (2002) Paving the way – Supplier relationships, UKOOA Energy Breakfast, May, Aberdeen. Ehret, T.M. (1992) Keynote address at the IOCE ‘92 Conference on New Contract Strategies, Oct., Aberdeen. European Construction Institute (ECI) (2003) The study of the effectiveness of incentive strategies in aligning the goals of collaborating organisations, ECI Report, http://www.eci-online.org/visitors/inscon.html. Loughborough, UK. Fowler, C., Todd, I., Stanton, A. and Toole, S. (2003) Competitiveness of international matured basins- roundtable discussion, Offshore Europe 2003 Conference, Sept., Aberdeen Gao, Z. (1994) International Petroleum Contracts: Current Trends and New Directions, Graham and Trotman, London, pp. 221-242. Goodman, P.S., (2003) Iraq ill equipped to exploit oil: industry is hobbled by absence of rules for foreign activity, MSNBC News, June, http://www.msnbc.com/news/921881.asp?cp1=1. Halliburton, (2002) Halliburton announces second quarter charges, 2002 Press Release, July 22, http://www.halliburton.com. Henry, K. (1992) Partnering – A new word for an old idea, Keynote Speech for the IOCE ’92 Conference on New Contract Strategies, Oct., Aberdeen. Challenges on oil & gas procurement 779 Huse, J.A. (2002) Understanding and negotiating turnkey and EPC Contracts, Second Edition, Sweet and Maxwell, London. IQPC Oil and Gas, (2003) Contract risk management for oil and gas: How to avoid contractual hazards to protect your business from financial damage, PreConference Overview, June, Texas, http://www.iqpc.com/cgi-bin/template/. Luu, D.T., Ng, S.T. and Chen, S.E. (2003) Parameters governing selection of procurement system – an empirical survey, Journal of Engineering, Construction and Architectural Management, Vol. 10 (3), pp. 209-218. Manning, M. (2000) Joint value enhancement: the process. In: Opportunities for Service Industries, UKOOA Energy Breakfast, Nov., Aberdeen. McHaffie, E.R., Jarvis, M.G. and Barber, S.A. (1993) Governments, Contractors seen headed for era of cooperation, Oil and Gas Journal, Apr., Vol. 91(17), pp. 54-59. Mohammad, M.F. (1996), Total life cycle costing for a piece of offshore equipment – A case study on its application to a platform Christmas tree, MSc. Dissertation, Robert Gordon University, Aberdeen. Mueller, J. (2003) Maintaining the upstream development tempo, Asian Oil and Gas Journal, June, http://www.oilonline.com/news/features/aog/20030619. Neftegaz.RU., (2003) The future of Russian oil contracts in Iraq, Comments, June 2003, http://www.neftegaz.ru/english/analit/comments.php?one=1&id=1086 Pedwell, K., Hartman, F.T. and Jergeas, G.F. (1998) Project capital cost risks and contracting strategies, Journal of Cost Engineering, Vol. 40 (1), pp. 37-41. Percival, D.R., London, C.J. and Westly, D. (1992) Partnering – Not for the faint-hearted, Proceedings of IOCE 92 Conference on New Contracting Strategies, Oct , Aberdeen. Richmond-Coggan, D. (2001) Construction contract incentive schemes – lessons from experience, Construction Industry Research and Information Association (CIRIA), London, CIRIA C554. Scott, B. (2001) Partnering in Europe, Incentive based alliancing for projects, (ECI), Thomas Telford, London, pp 13 Snieckus, D. (2003) The year of spending thriftily, Journal of the Offshore Engineer, Feb., http://www.oilonline.com/news/features/oe/20030203. Sohmen, V.S. (1992) Capital project commissioning: Factors for success, Journal of the American Association of Cost Engineers, Morgantown, Vol. 2, pp. J.4.1 Stabell, C. and Sheehan, N. (2001) Competitive advantage in petroleum exploration, Oil and Gas Journal, Apr., Vol. 99(17), pp.30-35. Stell, J., (2002) Worldwide construction update: Construction project costs increase due to risk insurance, Oil and Gas Journal, Nov., Vol. 100 (48), pp. 54-59. Stevenson, N., Lihou, C., Lacy, K., and Dingwall, H. (2003) Competitiveness in the supply chain – exportability of knowledge, panel debate, Offshore Europe 2003 Conference, Sept., Aberdeen Todd, I., Harris, S., Ellix, D., and Blackwood, D. (2003) Industry initiatives in leading and delivering change: are they working? Offshore Europe 2003 Conference, Sept., Aberdeen UK Offshore Operators Association (UKOOA) (2003) Competing in a global economy, 2003 Economic Report, Feb., London. Westbrook, B. (1994) United Kingdom: Energy and Resources Law, International Financial Law Review, Oct., London. 780 Mohammed and Price Wright, P.J.C. (1996) The North Sea contracting industry – Key issues and companies, Pearson Professional Limited, London. Yeo, K.T. and Ning, J.H. (2002) Integrating supply chain and critical chain concepts in engineer-procure-construct (EPC) projects, International Journal of Project Management, Vol. 20, pp. 253-262. FACTORS AFFECTING ARCHITECTURAL SPACE PROGRAMMING FOR UAE PUBLIC HEALTHCARE PROJECTS Space programming factors in healthcare projects S. AL-ZAROONI, and A. ABDOU Architectural Engineering Department, College of Engineering, United Arab Emirate University, P. O. Box: 17555, Al Ain, UAE. [email protected]. J. LEWIS School of Architecture and Building Engineering, University of Liverpool, Leverhulme Building, Abercromby Square, Liverpool, L69 3BX, UK. ABSTRACT In the United Arab Emirates (UAE), the effects of globalization are best seen in the construction industry with professionals, from different countries and nationalities, working in the design and construction of large engineering projects. Several factors affecting the preliminary and design stages such as local culture, climate and environmental factors and needs are likely to be neglected causing consequential changes during these stages. Space programming is the architect’s first task and often the most important one. Its main objective is to determine the internal space required for the building in order for it to function properly. For a healthcare project, developing Architectural Space Programming is considered one of the most important tasks in its appraisal stage. Because of the high degree of repetition that exists in healthcare projects, it is expected that the same types of risk and uncertainty are likely to take place in similar future projects. By assessing and documenting these factors and their impact on space programming and cost parameters, more accurate conceptual cost estimate along with its space programming can be achieved. This paper presents an approach to establish space programming utilization factors for UAE healthcare projects that respond to cultural, climate and environmental factors and needs. The study is guided by a comprehensive literature review on healthcare space programming related issues, a case study analysis, as well as interviews to senior engineers, personnel from public sector and industrial experts involved in the UAE healthcare project lifecycle. Keywords: Healthcare projects, risk, space programming and uncertainty. 784 Al-zarooni, Abdoe and Lewis INTRODUCTION Architectural space programming is the architect first task and often the most important one. It is defined as determining the space required for the building to function properly, whereas space planning or design is developing an actual floor plan of the space. For healthcare facility, the designing process is a hard and very complicated task. It involves the coordination of many groups and agencies on many different levels, which is local, government and nongovernmental entities that enforce healthcare requirements. A successful operated facility depends heavily on the initial architectural space programming stage preceding its design. During this stage, many options with a very large amount of information must be generated and analyzed in a short period of time. In the United Arab Emirates (UAE) and over the past few years, improvement in the level of medical healthcare services associated with increase in the number of hospitals is clearly noticed. With a population of about 3.1 million, the country has achieved a remarkable progress in its healthcare services since its independence 33 years ago. It became a member of the World Health Organization (WHO) in March 30, 1972. According to UAE Ministry of Health (MOH) statistical book, [2000], there has been a tremendous improvement in the number of hospitals and level of medical healthcare services over the past few years. There is a clear government vision to improve the healthcare services in all Emirates. This fact is supported by the establishment of the General Authority for the Health Services (GAHS) for the Emirates of Abu Dhabi (GAHS). Different government agencies and private consultants are involved in the UAE public healthcare project lifecycle. With reference to interview sessions with different UAE government agencies' personnel involved in the conceptual and design stages of the healthcare project, there is no proper or clear methodology for space programming process during appraisal stage. In some cases simple “rules of thumb” or simple estimate based on the number of in-patient beds are used. In others cases, it become the responsibility of the consultant designing the facility. All too often designers undertake their work in the absence of both a function program and a space program. Several factors affecting the preliminary and design stages such as local culture, climate and environmental factors and needs are likely to be neglected in the space programming process. Such a situation will lead to consequential changes during these stages that will normally cause cost and time overrun. There is a need to develop a space programming guidelines for UAE healthcare projects. This will assist in developing more clear scope of work during the appraisal stage, which will contribute in reducing consequential changes during design stage. This paper reports on the first phase of an ongoing research project aimed at developing space programming guidelines for UAE healthcare projects. These guidelines will be used to determine their space requirements based on the type of information that would typically be available before detailed programming studies and design is performed. In order to achieve this, the paper main objective is to present an approach to establish space programming utilization factors for UAE healthcare projects that respond to local culture, climate and environmental factors and needs. The study is guided by a comprehensive literature review on healthcare space programming, a case study analysis, as well as interview sessions with senior engineers, personnel from public sector and industrial Space programming factors in healthcare projects 785 experts involved in the UAE healthcare project lifecycle. The paper is divided into two main parts. Part one provides an introduction and background to the space programming related issues. A case study is analyzed and a preliminary space programming utilization factors is presented in the second part. Finally, conclusions and recommendations as well as future work plan are presented. HEALTHCARE FACILITY SPACE PROGRAMMING The process of planning, design and construction of any healthcare environment goes through different phases and in a sequential manner. It begins with master planning and finishes with construction and occupancy. According to Abdou et al (2003), three major phases can be identified as follows: (1) master planning, (2) pre-design and (3) design, construction and occupancy. The master planning phase involves a series of problemsolving activities such as research, generation of conceptual alternatives, refinement and development of these alternatives, and resolution of concepts within constraints. Arneill (1997 identified the major processes that occur respectively during the master planning phase. These include: data gathering; evaluation and assessment; preliminary facility programming; conceptual master plan alternatives; resolution of a master plan and finally action planning. The pre-design phase concerns with developing and defining a general idea for the project. It involves assessing existing resources, identifying proposed needs, developing and refining a detailed building space program, and establishing a realistic budget for the project. The last phase, which is design, construction and occupancy, is the traditional phase of project delivery process starting from design through construction and occupancy. An overview of the planning, design and construction process during healthcare project lifecycle is shown in Figure 1. Programming is an important process in any healthcare project lifecycle. It is an important process in determining the proposed project function/master program. According to [Hardy and Lammers, 1977], architects, in many instances, have simply constructed a space program for in the absence of a functional program, which is considered a start to a bad design for the healthcare facility. Programming normally starts during the master planning phase and continues during the pre-design phase. During master planning, a preliminary facility space programming process is developed using existing or projected census data, the assessment of existing services and facilities, and strategic directives for expansion or contraction of services [Arneill, 1997]. The main objective of preliminary programming, some times called master/function programming [Hardy and Lammers, 1977], is to develop hospital function program that identify general departmental or functional area needs to develop a preliminary budget. Arneill [1997] identified six major elements that should be in the preliminary facility function program. These include: tabulation (by department or function) of existing space; a statement describing the general intentions of the program by function; form (what spatial/ physical organization is required); economy (cost/ benefit implications); time; and future growth projections and space needs. Based on the preliminary facility program information, conceptual master plan alternatives could be developed, refined and finalized. The major activities during in master planning and pre-design are shown in figure 1. The programming process continues during the pre-design stage. Using forecasted workloads and other information, this process should focus on estimating key patient care 786 Al-zarooni, Abdoe and Lewis spaces (for example, patient beds, exam rooms, operating rooms) and then developing estimates of other space elements necessary to support these preliminary activity areas [Tusler and Zilm, 1997]. The quantity of space necessary for a given hospital department can usually be approximated if one of the following factors are known: (1) workload; (2) hospital size (usually the number of licensed beds); and (3) inpatient utilization (patient days of admissions). Although these factors could be quantified for a certain location, there are Master Planning Data Collection and Assessment Data Collection and Assessment Pre-design Design, Construction, and Occupancy Strategic and Role Planning Physical & Function Evaluations Workload projections Function Programming/ Preliminary Space Programming Space Programming Block Drawing Layout Schematic Design - Design Development Construction Documents Bidding Construction Occupancy Master Site planning Financial Planning Figure 1: An overview of the planning, design and construction process during healthcare project lifecycle. Adapted from [Allison (1997), Hardy and Lammers (1977)] other risk factors that affect the overall project cost and its final space program. Tusler and Zilm [1997] discussed the importance of facility space programming. They indicated that the ability to quickly generate or confirm preliminary estimates of space needed is essential to early information of project scope and cost. However, they advised not to use simple "rule of thumbs" guidelines to estimate space needs as these can easily overlook unique characteristics of an institution and the enormous changes occurring in the healthcare environment. Space programming objectives and its calculation methodology The approved projections of censuses, outpatient visits, and workloads are the basic start point to develop master/function programming. Following that, detailed space programming will take place in order to develop appropriate net and gross space program for the healthcare facility, all before the beginning of the design stage. Space programming serves several objectives and purposes. According to [Hardy and Lammers, 1977], among its important purposes are the following: (1) guidance to architect/designer; (2) assurance for users. The detailed list of all rooms with their proposed areas provides all hospital department heads assurance that agreed-upon rooms and spaces will appear in the design from the start; (3) control by client executives. The space program represents a control mechanism over the designer from the standpoints of scope management (room and departmental sizing and basic characters of entire hospital) and project cost management; (4) provide early needed information for other members of Space programming factors in healthcare projects 787 the professional planning team of the project, such as the financial consultant and the project manger. The hospital spaces and departments can be zoned and classified using different approaches, James and Tatton-Brown (1986) group them into three main zones: (1) the nursing zone for patients' services; (2) the clinical zone for diagnostic and treatments; (3) the support zone for other spaces serving the previous two zones. Similarly, Zilm and Spreckelmeyer (1995) had three classification zones as: (1) patient-care area; (2) Diagnostic-treatment areas; (3) Support areas. Dickerman (1992) classified hospital spaces into five zones: (1) inpatient nursing services; (2) Medical ancillary services; (3) administrative services; (4) support services; and finally (5) other services areas. All previous classifications are more or less the same and their sorting key issue is the function use of space. From space programming point of view, spaces in healthcare project can be classified into two major groups: (1) workload driven spaces; and (2) support spaces. The workload driven space is the activity space in the department that can be translated and calculated from the projected workloads. To be able to perform the transformation, the applicable workload units (patient days, visits, procedures, etc) as well as the space function planning unit (such as patient beds in nursing units and operation theatres in surgical department) should be identified and utilized. Table 1 list all hospital departments, their main functions, workload units and function planning units. Following that the support spaces can be determined based of the calculated areas of the workload driven spaces for a particular department, usually by using percentage factors. By summing all workload driven spaces and support spaces, the department net area could be calculated. The gross department area, which is a conversion of net area to gross area most commonly accomplished by applying empirical conversion/grossing factors, can then be established. The department grossing factor stands for the architectural spaces required to house all department net spaces and their activities, such as department corridors, wall and partition thickness, public rest room facilities and stairways and elevators. Building gross area can be calculated following the same methodology by summing up all departments gross area and apply building conversion/grossing factor. This factor stands for building main circulation/corridors, wall and partition thickness between departments, public rest room facilities, stairways and elevators. An over view of space programming process is shown in figure 2. Workloa d Driven Spaces Projected Workloads Support Spaces Department total net area Department total gross area Hospital total gross area Figure 2: An overview of the space programming methodology for healthcare projects 788 Al-zarooni, Abdoe and Lewis Table 1: Hospital departments, their functions, workload units and function planning units Departments Workload Unit Function Planning Unit 1.1 Ambulatory Care/ Outpatient Services Patient Days Exam Rooms Visits Treatment station/ Room 1.3 Inpatient Nursing Units Patient Days Patient Bed – Patient rooms (Single, Double & Multi bed) Cubicles / Bed space Patient rooms/ Suites Systems (Cath Labs) NA Medicine, Pediatrics, Family practice, Obstetrics, ENT, Audiology, Gastroenterology, psychology, Ophthalmology, Dermatology, Hemo-Dialysis, etc. Treatment stations (General, ENT, Audiology, Psychology, Ophthalmology, Gastroenterology, and Dermatology Etc.) Medical Surgical, Labor &Recovery, Obstetrics, Pediatrics, Cardiology, Etc. Medical, Surgical, Pediatrics, Others. Nursing Units and Suites, small operations, Labor and delivery facilities etc. Cardiac Catheterization, Cardiopulmonary. EKG, EEG, etc Hematology, Histology, Chemistry, Urology, Pathology, cytology, Mycology, Microbiology, Blood Bank, Special Chemistry, etc Standard Radiation, Fluoroscopic, Chest Unite, MRI Unite, CAT Unit, IVP/Tomo. Upper GI, Lower GI, Broncoscopy, others. Labor and Delivery, Baby Nursery (Intensive care Nursery, Intermediate Care Nursery, Normal Nursery) Inpatient Dispensing, Retail Dispensing, Administration, Storage, Shelving, Waiting. Physical therapy, Occupational therapy, Speech and Audiology, Radiation therapy, Respiratory therapy. Operation Rooms, Recovery, Service and Support area Gamma Camera test, Offices, Treatment Cubicles Executive suit, Medical Administration, Nursing Administration, Purchasing, Accounting and Finance, Personnel, Public relations, Communications, Information systems, Education and Library Admitting, Medical records. Main Functions 1. Patient-Care Services 1.2 Emergency 1.4 Intensive Care Unit 1.5 VIP Department 2.1 Cardiology 2.2 Clinical Laboratories Patient Days Patient Days Patient days/Procedures Tests/CAP unit 2. Diagnostic & Treatment Services 2.3 Diagnostic Imaging 2.4 Endoscopy 2.5 Labor and Delivery Procedures (examinations by imaging types) Procedures Deliveries/ Patient days Procedure Room Procedure Room (Traditional, / C-section/ Labor/ Recovery) rooms + Nursery Bed NA NA Operating Room (OR) NA 2.6 Pharmacy 2.7 Rehabilitation/Therapy 2.8 Surgery & Recovery 2.9 Nuclear Medicine Licensed Beds Treatment/ Licensed Beds Procedures 3. Administrative Services 3.1. Administrative Services Licensed Beds/ admission/ Patient Days Workstations/ Rooms 4.1 Central Sterile 4.2 Dietary and Food Services 4.3 Engineering and Maintenance 4.4 Environmental & Laundry services 4.5 Material Management Procedures Meals Licensed Beds Sterilizer System NA NA Terminal, sterilizers, Washer/Sterilizers, Clean Supply storage, sterile Supply storage, staff, etc. Dietary area, Dining area, Storage areas, Staff area, services. Mechanical shop, Elect. Shop, storages, directors, and other services area (Elect, Mech. AC, Power rooms etc). Washer and driers, Equipment storage, Supply storage, etc. Storages areas, Receiving areas, Purchasing workstation, etc. 4. Support Services Licensed Beds Licensed Beds NA NA UAE HEALTHCARE SPACE PROGRAMMING: CASE STUDY ANALYSIS One of the early objectives of this research project is to trace the practices used for healthcare space programming in the UAE. Eleven structured and unstructured interview sessions were organized and conducted, during the period October 2003 till June 2004, Space programming factors in healthcare projects 789 with different government agencies' personnel involved in the conceptual and design stages of UAE healthcare project. It was observed from the interviews that there is no proper or clear methodology for space programming process during appraisal stage. In some cases simple “rules of thumb” or simple estimate based on the number of in-patient beds are used. In others cases, it become the responsibility of the consultant designing the facility. All too often designers undertake their work in the absence of both a function program and a space program. Most of these consultants have no local experience and follow their own standards in their origin countries. Several factors affecting the preliminary and design stages such as local culture, climate and environmental factors are likely to be neglected causing consequential changes during these stages which will normally lead to cost and time overrun. In previous studies, authors have conducted a survey on cost estimates variations. Thirty UAE public projects were examined, statistics show that variations between the actual and contract cost were at an acceptable level, while there were high variations (positive or negative) between feasibility and contract cost with the average ranging between (– 28.5%- + 36%) with no clear pattern for those variations [Al Zarooni and Abdou, 2000]. The respondents were asked to identify the major reasons responsible for time and cost overrun during the conceptual and design stage. The consequential changes arising from insufficient scope definitions were identified as one of the major factors for time and cost overrun during these stages. Another identified reason, from designer point of view, was the lack of appropriate communication and coordination between government's bodies involved during the healthcare project lifecycle. In addition, other factors were reported to have implications on the project form and total areas during the design development stage. Among these factors, local culture, climate and environmental factors were reported. All too often the approved final project design has a variation in area, normally in positive side, compared to its original master/function program if there is any. There is a need to develop a space programming guidelines for UAE healthcare projects. This will assist in developing more clear scope of work during the appraisal stage that will help in reducing possible changes during design stage. As possible sources for cost overrun the inflation rate, exchange rate fluctuations, and technical problems were also reported. The architectural area analysis methodology To trace the effect of design forces, local culture needs, climate and environmental factors on the space programming of UAE healthcare project, architectural area analysis for existing case studies is needed. This will help in determining different associated utilization grossing factors. As a result, gross areas for different hospital departments as well as building total gross area can be calculated more accurately. In sight of the space programming process shown in Figure 2, a methodology was developed for the Architectural area analysis. Detailed architectural floor plans of existing case studies are needed for area calculations and analysis. The major steps for this methodology are as follows: • Calculate the net area for each function space from its actual interior dimensions. 790 Al-zarooni, Abdoe and Lewis • • • • Calculate total net area for all function spaces in a certain hospital department by summing up their net areas from previous step and calculate the department total gross area from its centerline dimensions. Calculate the department conversion/grossing factor by dividing department gross area by the net area. The department grossing factor stands for the architectural spaces required to house all department net spaces and their activities, such as department corridors, wall and partition thickness, public rest room facilities and stairways and elevators. Repeat previous steps for each department and calculate the total departments gross area Calculate the Building conversion/grossing factor by dividing Building total gross area by the departments' total gross area. The building conversion/grossing factor which stand for building main circulation/corridors, wall and partition thickness between departments, public rest room facilities and stairways and elevators. Case study analysis A recently constructed two-story hospital building that accommodates several departments was selected as a pilot case study. The new building is located in an existing hospital site with existing facilities in Ras Al Khaima Emirate, UAE. The previous established methodology for architectural area analysis was used to calculate departments' conversion/grossing factors, which are shown in table 2. Two groups of grossing factors values are presented in the same table. The first one, by [Hardy and Lammers, 1977] while the other, is a recent one by [Zilm and Spreckelmeyer, 1995]. Both are published industrial guidelines for healthcare space programming. When compared with previous two groups, the calculated grossing factors values of the examined case study have a variation mainly in the positive side. Most of these sorted factors were from the patient-care departments and administrative services. This could be understood as a result of different reasons. For example, in the UAE, the social values preference is to have a separation in male and female gender especially in waiting areas, some times with different entrances as well. Other possible reasons could be due to the thickness of walls, climate condition, as well as the concept of open courts as climate responsive solution, which is normally recommended for hot climate. Preliminary risk and uncertainty factors affecting UAE healthcare projects All projects involve uncertainty and risks of various scales and types. In construction projects, risks and uncertainties are of several types. Some of these are: political, financial, economical, environmental and technical. Many of these uncertainties will involve a possible range of financial outcome that could be better or worse than predicted. The construction industry in particular has been slow to realize the potential benefits of risk management [Flanagan and Norman, 1993]. Space programming factors in healthcare projects 791 Table 2: the calculated departments' conversion/grossing factors for the case study Departments Grossing Factors Hardy's Factors 1. Patient-Care Services 1.1 Ambulatory Care/ Outpatient Services 1.2 Emergency 1.3 Inpatient Nursing Units 1.4 Intensive care unit 2.1 Cardiology 2. Diagnostic & Treatment Services 2.2 Clinical Laboratories 2.3 Diagnostic Imaging 2.4 Endoscopy 2.5 Labor and Delivery 2.6 Pharmacy 2.7 Rehabilitation/Therapy 2.8 Surgery & Recovery 2.9 Nuclear Medicine 3. Administrative Services 4.1 Central Sterile 4. Support Services 4.2 Dietary and food Services 4.3 Engineering and Maintenance 4.4 Environmental & Laundry services 4.5 Material Management 3 1.5 1.5 1.6 1.6 1.6 1.33 1.5 1.5 1.7 1.25 1.5 1.7 1.5 1.25 1.25 1.33 1.25 1.25 1.25 Zilm's Factors 1.4 1.5 1.5 1.5 1.5 1.2 1.5 1.45 1.6 1.4 1.3-1.7 1.6 1.45 1.3 1.2 1.2 1.2 1.2 1.15 Case Study 1.86 2.0 2.18 1.55 1.74 1.4 1.58 1.78 1.2 1.7 - Kenneth Dickerman [1992] discussed the importance of hospital space programming and several factors that affect its development. He identified the rapid development of medical technology and the social changes as important factors affecting the facility planning and design. He gave an example, as the space allocated yesterday for a certain diagnostic area may not be suitable today for new medical equipment. However, the effect of medical technology development, which normally affecting the facility’s function planning units, can be taken care of during the space programming process by following up the latest guidelines references for healthcare design and their minimum requirements for the facility’s function planning units. 792 Al-zarooni, Abdoe and Lewis A comprehensive literature review was conducted to identify possible risk and uncertainty factors that might occur during master planning, pre-design and design stages and could have an impact on space programming and cost parameter of healthcare projects. The list was enhanced through the conducted interview sessions. The respondents were asked to identify possible risk and uncertainty factors associated with UAE healthcare project type during these stags. Respondents identified several factors in which some of the important ones are listed in the following paragraphs: • Design/scope frequent changes by the client and particularly the additional requirements that take place during design stage. • The slow approval process by public agencies was reported as source of political risk. • Lack of experienced consultants in local environment and the ultimate reliance on foreign firms in studying the accurate requirements of healthcare facility. • Under financial/economical factors, inflation and exchange rates fluctuation were reported. • Lack of communication and coordination between the different involved entities in the pre-design and design stages has been identified as a source of operational and managerial risk. The preliminary list for risk and uncertainty factors is shown in Table 3. Table 3: Preliminary risk/ uncertainty factors that occur during early stages of UAE healthcare project Financial and economical risks • Inflation • Exchange rate fluctuations • Interest/finance charges • Tender price changes • Taxation on materials • Market condition Operational and managerial risks • Lack of communications • Lack of coordination • Misguided by clients Political risks • Changes in polices and lows • Delays of government approvals Design risks • Incomplete project scope • Design changes by client • Lack of expert consultants • Inadequate specifications • Defective designs • Errors and emissions • Labors shortage CONCLUSIONS AND RECOMMENDATIONS This paper reports on the first stage of an ongoing research project aimed at developing space programming guidelines for UAE healthcare projects. These guidelines will contribute in reducing the timeline for consequential changes that occur during preliminary and design stages, which arise from unclear scope definition of UAE healthcare project. One of the most important factors that were found to be responsible for UAE healthcare project cost and time overruns is the consequential changes arising from insufficient and poor scope definitions during the early stages of project development. The accuracy of space programming process is very important to develop a facility function plan and its detailed program. The establishment of space programming utilization factors that respond specifically to the UAE environment will lead to a better Space programming factors in healthcare projects 793 and more accurate space programming. Therefore this will lead to more accurate cost estimating during master planning, pre-design and design stages. FUTURE WORK A formal questionnaire survey will be organized to filter and rate the sensitivity of risk and uncertainty factors that were identified during master planning, pre-design and design stages. It will also measure the impact of such factors on space programming and cost parameter of healthcare projects. By taking these factors into account during these stages, more accurate facility space program and its capital budget can be developed. Several functioning healthcare facilities with their detailed floor plans are currently being analyzed. This will lead to identify the actual UAE utilization factors needed to develop the space programming guidelines. REFERENCES Abdou, A., Lewis, J. and Radaideh, M. (2003) Utilizing architectural space programming for early cost estimating: A web-based solution for UAE Healthcare projects, Proceedings of 2nd International Conference on Innovation in Architecture, Engineering and Construction (AEC), Loughborough, UK, 25-27 June, pp. 387399 Al Zarooni, S. and Abdou, A. (2000) Risk management in pre-design stage and its potential benefits for UAE public projects, Proceedings of 28th World Congress on Housing Challenges for the 21st Century, Abu Dhabi, UAE, 15-19 April, pp. 109-118 Allison, D. J. (Ed.) (1997) Planning, Design, and Construction of Health Care Environments, Joint Commission, Oakbrook terrace, IL, USA. Arneill, B. P. (1997) Master planning- before you begin a project, In Planning, Design, and Construction of Health Care Environments (Ed, Allison, D. J.) Joint Commission, Oakbrook terrace, IL, USA, pp. 63-88. Dickerman, K. (1992) Hospital Space Programming: Guidelines for Departmental Space Requirements, Health Facility Publishers, Jacksonville, Florida, USA. Flanagan, R. and Norman, G. (1993) Risk Management and Construction, Blackwell Science Ltd, London, UK. Hardy, O. B. and Lammers, L. P. (1977) Hospitals, The Planning and Design Process, Aspen Systems Corporation, Maryland, USA. James, W. P. and Tatton-Brown, W. (1986) Hospitals: Design and Development, The Architectural Press Ltd., London, UK. Ministry of Health (2000) Yearly Statistical Book, Ministry of Health, Abu Dhabi, UAE. Tusler, W. H. and Zilm, F. S. (1997) Pre design: focusing the project, In Planning, Design, and Construction of Health Care Environments (Ed, Allison, D. J.) Joint Commission, Oakbrook terrace, IL, USA, pp. 89-118. Zilm, F. and Spreckelmeyer, K. (1995) Space Planner Toolkit: Hospital Edition, The American Society for Healthcare Engineering of the American Hospital Association, Chicago, IL, USA. APPLIED DYNAMIC STRATEGIC PLANNING FOR CONSTRUCTION DECISIONS UNDER UNCERTAINTY V. LIKHITRUANGSILP Department of Civil Engineering, Chulalongkorn University, Bangkok 10330, Thailand. [email protected] ABSTRACT Complexity and uncertainty in construction contribute to a significant amount of risk in project management. Dynamic strategic planning is a combination of several powerful tools that can be used to determine optimal choices for risky construction decisions. Since this approach can systematically address important risks associated with construction decisions, especially uncertain future outcomes, it can be used to establish the optimal plans that not only take into account all vital risks but are also adjustable to the prevailing circumstances. Moreover, the best possible decisions provided by this approach can achieve long-term benefits, rather than myopic, short-term benefits. This paper presents the application of dynamic strategic planning to construction decisions under uncertainty. It outlines the general principles of this approach and describes the modeling steps. The application of dynamic strategic planning is illustrated by using two examples: construction equipment management and tunnel construction planning. Both examples contain the formulation and solution procedure to determine the optimal policies by using a decision tree and a risk-sensitive Markov decision model. The influence of the decision maker’s risk sensitivity on the optimal policies is investigated in the tunneling problem. Keywords: Construction planning, Decision analysis, Dynamic programming, Dynamic strategic planning, Risk analysis, Risk sensitivity. INTRODUCTION Construction projects are dynamic in nature. Construction project management can be characterized as a sequence of decisions uncertainty over a time horizon. Dynamic strategic planning has been successfully applied to complex system analysis and design. This paper presents general principles and applications of this approach for construction decisions under uncertainty. CONSTRUCTION DECISIONS UNDER UNCERTAINTY Construction projects are complex and dynamic in nature contributing to a significant amount of risk in all phases of construction: the pre-construction, the construction, and the post-construction phases. In the pre-construction (construction planning) phase, the 796 Likhitruangsilp contractor uses all available information as well as his professional experience and judgment to establish a best possible (optimal) construction plan for a project. Comprehensive and realistic construction plans must strive for optimal decisions that minimize construction time and cost while addressing important factors, especially project risks. Several major decisions must be made in construction planning, including construction methods, construction equipment, site layout, sequence of construction operations, and construction resource (labor, equipment, material, and space) management. This decision process is influenced by a variety of uncertainties such as imperfect knowledge of site conditions and uncertainty in construction productivity. Thus, construction planning can be characterized as a sequence of decisions under uncertainty. DYNAMIC STRATEGIC PLANNING Dynamic strategic planning is the application of several efficient planning tools to define the best possible action for decision making under uncertainty. This approach systematically characterizes uncertainty associated with the forecast of system performance and develops strategic plans that are adjustable to the prevailing circumstances. Dynamic strategic planning seeks long-term benefits, rather than myopic, short-term benefits of the system. Dynamic strategic planning is considered the third generation of systems analysis, the evolution of which can be listed in chronological order as follows: (1) system optimization, (2) decision analysis, and (3) dynamic strategic planning [de Neufville, n.a.]. The first generation, system optimization, primarily focuses on maximizing system performance by determining how to use resources most effectively. Its principal tools are mathematical models such as linear programming, nonlinear programming, and integer programming. These optimization techniques have been widely applied to a variety of management problems, including construction management. In applying these techniques, the system must be described by a strictly defined set of conditions, which is generally valid over a short period only. Thus, system optimization can limitedly define optimal strategic plans over long term horizons. The second generation, decision analysis, provides a systematic methodology for structuring and evaluating sequences of decision making. This approach focuses on integrating system optimization as well as modeling risk and uncertainty explicitly. Decision analysis has been used to determine the optimal dynamic strategy for the system involving uncertain future. In addition, this approach also recognizes the value of flexibility, which makes it possible to gain benefits from new opportunities and to avoid adverse events that might occur in the future. For example, a business strategy for the expansion of a manufacturing plant developed by decision analysis might be: (1) in the first stage (e.g., at the beginning of business), build a small plant; and (2) in the second stage, take different actions depending on the customer’s demand in the first period. If the demand is high, expand the plant. If sales are disappointing, the owner should not expand the plant. Dynamic strategic planning for construction 797 Constructing a complete decision analysis model for a realistic practical problem strives for enormous effort. The analyst must identify all possible alternatives to evaluate, recognize the value of each alternative’s flexibility, apply analytical tools to evaluate its flexibility, and select the most effective plan. Due to these limitations of decision analysis, dynamic strategic planning, the third generation of systems analysis, was introduced. Dynamic strategic planning is the latest stage in the evolution of systems analysis. It can deal with the above issues addressed by system optimization and decision analysis. In addition, it can also identify the most valuable flexibility as well as incorporate the influence of decision makers (stakeholders) in systems analysis. Dynamic strategic planning recognizes risks and incorporates strategic approaches into the plans by using two main analytical methods: decision analysis and real options. The flexibility inherent in system designs is known as “real options,” which can be evaluated by using techniques recently developed to price financial options and other derivative instruments (e.g., option pricing theory). In brief, an option is the right to take an action some time in the future for a predetermined price and a given period. A purchaser can take advantage of an opportunity either to enter a good situation, known as “calls,” or to get out of a bad situation, known as “puts.” In order to value real options, the techniques for financial options need to be adjusted to the reality of system design and planning. In practice, real options can be analyzed by using decision analysis as a basis. Applications of real options to management problems can be found elsewhere [e.g., Brealey and Myers (1996), Schwartz and Trigeorgis (2001), and Likhitruangsilp (1997, 2003)]. PROBABILISTIC SEQUENTIAL DECISION MODELS Dynamic strategic planning can be structured by using a probabilistic sequential decision model, which can be symbolically represented by Figure 1. A c tio n k A c tio n l C u rre n t S ta te i E poch n T ra n s itio n fro m s ta te i to j N e x t S ta te j E poch n+ 1 R e w a rd = f ( k , i, j ) Fig. 1 Probabilistic Sequential Decision Model At a particular decision epoch n, a decision maker observes the current state of the system (state i). Based on this state, the decision maker chooses an action k (alternative k) from the set of available actions for state i. The action leads to two consequences: (1) the system evolves to a possibly different state at a new epoch based on the transition probabilities of the system (here the system evolves from state i to state j) and (2) the decision maker receives a reward (or a cost is incurred). Both the transition probabilities 798 Likhitruangsilp and reward may depend on the decision epoch, the choice of action, and the current and next system states (i.e., the transition). At the subsequent epoch n + 1 , the decision maker encounters a similar problem, but now the system may be in a different state j, and they may be a different set of actions to choose from. As this process evolves through time, the decision maker receives a sequence of rewards [Puterman, 1994]. A probabilistic sequential decision problem can be structured and solved by several tools, including decision trees and mathematical models. DECISION TREE For a small probabilistic sequential decision problem, a decision sequence can be diagrammed by using a decision tree. The tree consists of three main components: decision nodes, chance nodes, and branches, as shown by Figure 2. A decision node (a small square) represents each decision, and its branches to the right represent all alternatives, which may be chosen. A chance node (a circle) represents the random variable which is the outcome of the decision. Its branches are mutually exclusive events, which include all samples points in its sample space. D e c is io n N ode C hance N ode D e c is io n N ode B1 x1 A 1 C hance N ode z1; p (z1) z2; p (z2) p (x 1) x2 p (x 2) B 2 C1 C 2 D y1 A 2 1 p (y 1) y2 p (y 1) D 2 E1 E2 Fig. 2 Decision Tree of Sequential Decision Problem This particular decision tree consists of two decision stages (steps). The decision maker must first choose between action A1 and action A2. Action A1 leads to two possible outcomes (events): x1 with the probability of p(x1) or x2 with the probability of p(x2). Since x1 and x2 are mutually exclusive and collectively exhaustive events, p ( x1 ) + p( x2 ) = 1 . If event x1 occurred, the decision maker would choose between action B1 and B2 (second decision stage). Action B1 will lead to two possible outcomes: z1 with the probability of p(z1) or z2 with the probability of p(z2). Again, since z1 and z2 are mutually exclusive and collectively exhaustive events, p ( z1 ) + p ( z2 ) = 1 . Dynamic strategic planning for construction 799 A typical decision rule used to choose among available alternatives is maximizing the expected monetary value (EMV). That is, at any decision node the decision alternative leading to the highest EMV is chosen. This decision rule however is appropriate if the cost associated with an outcome is relatively small as compared to the decision maker’s wealth. Otherwise, utility theory, which addresses the decision maker’s risk sensitivity, needs to be applied, as will be discussed later. A sequential decision problem can be solved on a decision tree by proceeding from the outcomes at the right side and moving to the left. This solution procedure, called rollback analysis, consists of two main steps: (1) determining the EMV of each chance node and (2) selecting the alternative with the highest EMV at each decision node. MARKOV DECISION PROCESS (MDP) Mathematical models are appropriate for analyzing complex probabilistic sequential decision problems. A Markov decision process (MDP) is a powerful stochastic model that has been widely used for solving this type of problem. A MDP consists of five basic elements: decision epoch, system state, action, transition structure, and reward structure. Detailed discussions of MDP can be found in Bellman (1957), Denardo (1982), and Puterman (1994). Consider a MDP with a finite set of decision epochs T = (1, 2,..., N ). Let S denote the finite set of systems states and the finite set of actions is defined by A. The state and the action at decision epoch n are represented by sn and an, respectively. For n < N , if the system occupies state i at epoch n and action k is chosen, a transition to state j at epoch n + 1 can be determined by the transition probability Pijk (n) = P( sn +1 = j | an = k ) (1) k Resulting from the transition the decision maker earns the reward at epoch n, Rij (n). A policy π is a decision procedure that specifies a decision for each state at a given epoch. Let π ( n, i ) denote any decision made according to policy π given that the system occupies state i at epoch n. Assume that the decision maker has a linear utility function; that is, he is risk neutral and wants to maximize the total expected reward (EMV). Thus, the optimal decision policy can be obtained by determining a policy that maximizes the total EMV among the finite set of all possible policies. Given that k = π ( n, i ) and let f i (n) be the maximum EMV earned from epoch n through the end given that the system occupies state i at epoch n. According to the principle of optimality, f i (n) uniquely exists for all i and n, and can be computed by the optimality equation [Denardo, 1982]: 800 Likhitruangsilp k f i (n) = max ∑ Pijk (n) ⎡ Rij (n) + f j (n + 1) ⎤ ⎣ ⎦ k j (2) Solving a MDP begins with the boundary condition, f i ( N ), for all states i. Eqn 2 is then applied recursively to determine the maximum EMV from epoch N − 1 through the end, from epoch N − 2 through the end, and so on. Finally, the maximum expected reward for any beginning state, f i (1), can be determined. This computational procedure is called backward recursive fixing or stochastic dynamic programming. Solving Eqn 2 also provides the optimal policy π * for the system: k π * = arg max ∑ Pijk (n) ⎡ Rij (n) + f j (n + 1) ⎤ ⎣ ⎦ k j (3) MODELING RISK SENSITIVITY The risk sensitivity of a decision maker can be encoded by a unique utility function [Howard, 1977]. A utility function u (v) assigns a real number u in an ordinal scale to each of the possible outcomes v of an uncertain proposition (termed lottery). According to the properties of the utility function, the decision maker’s preference in ranking alternative lotteries with uncertain outcomes can be quantified by the expected utility value (EUV) of each lottery [Luce and Raiffa, 1957]. If the larger value of v is preferred, then u (v) is a monotonically increasing function of v. When the decision maker has to choose between several lotteries, the one with the greatest EUV is the most desirable option. % The certain equivalent (CE) or selling price of a lottery v is defined as the value of the outcome that has the same utility as the EUV of the lottery. % u (v ) = E [ u (v ) ] (4) The decision maker is indifferent between facing the uncertain outcomes of a lottery and receiving the CE with certainty. The CE of a lottery must be interpreted algebraically. For example, the CE of a lottery involving monetary loss (e.g., construction cost) is negative, which represents the amount of money the decision maker is willing to pay (e.g., subcontract) in order to sell the risk of that lottery to other parties (e.g., subcontractors) [Ioannou, 1989]. Risk-sensitive dynamic strategic planning can be formulated by integrating utility theory into the probabilistic sequential decision models presented above (i.e., decision tree and MDP). For example, by integrating utility theory the optimality equation for a risksensitive MDP, parallel to Eqn 2, can be written as: Dynamic strategic planning for construction 801 k % % u * (vi (n)) = max ∑ Pijk (n) × u ⎡ Rij (n) + v j (n + 1) ⎤ ⎣ ⎦ k j (5) % The term u * (vi (n)) represents the maximum EUV of the reward earned from decision epochs n through the end given that the system occupies state i at epoch n. The transition from state i at epoch n to state j at epoch n + 1 and action k is chosen follows the k transition probability Pijk (n) , leading to the reward Rij (n) and the remaining transitions % whose the certain equivalent is v j (n + 1) . The computational procedure of Eqn 5 is very similar to that of Eqn 2; that is, it can be solved by using stochastic dynamic programming. Detailed discussions of this topic can be found in Likhitruangsilp (2003). APPLICATIONS Construction Equipment Management A contractor is choosing between purchasing and renting construction equipment for new construction projects. The initial cost of the equipment purchased is $90,000 with the total maintenance cost of $10,000 per job. The salvage value of the equipment is $65,000 after the first job. The salvage value will additionally decrease $10,000 for each job thereafter or $5,000 if the equipment is left unused for six months. The rental rate of the equipment is $26,000 per job without any maintenance cost. The total profit earned from each project without considering the equipment cost is $50,000. The probability the contractor would be awarded for each project is assumed to be 0.6, which is independent of its decision on purchasing or renting the equipment. If the contractor purchases the equipment and does not win a job, it has two options: (1) keep the equipment for six months and look forward to using it for the next project it wins, or (2) sell the equipment and purchase or rent the equipment as the new project is awarded. Figure 3 shows a decision tree for developing a dynamic strategic equipment management plan for two new construction projects. The costs and profits associated with each decision and event are shown on the corresponding branch in the tree. Figure 4 illustrates rollback analysis of this decision problem. The results show that the contractor should rent equipment for both projects because this alternative maximizes the maximum expected profit (i.e., $52,800). 802 Likhitruangsilp 0.6 p= 0.6 WinWork 50,000 (10,000) 40,000 Win Work (50,000) 50,000 40,000 (10,000) 85,000 45,000 75,000 85,000 None 55,000 (50,000) 40,000 55,000 45,000 0.4 Buy Equipment (90,000) (10,000) 50,000 (50,000) 0.6 Keep 6 month Win Work (50,000) 50,000 90,000 (10,000) 40,000 50,000 90,000 None 60,000 (50,000) 60,000 10,000 0.4 p= 0.4 None 0.6 New Job Sell 65,000 0.4 Win Work (50,000) 50,000 65,000 (26,000) 24,000 24,000 39,000 None 0 (50,000) 65,000 15,000 24,000 24,000 24,000 72,000 0.6 p= 0.6 WinWork 50,000 (26,000) 24,000 Win Work 50,000 (26,000) 24,000 0.4 None 0 Rent Equipment (26,000) 50,000 24,000 p= 0.4 None 24,000 24,000 48,000 24,000 24,000 48,000 0.6 Win Work 50,000 (26,000) 24,000 0.4 None 0 24,000 Fig. 3 Decision Tree of Construction Equipment Management Dynamic strategic planning for construction 803 0.6 Win Work 75,000 p= 0.6 WinWork E[V] = 0.6x75000 + 0.4x45000 = 63,000 0.4 None 45,000 Buy Equipment E[V] = 0.6x63000 + 0.4x29400 = 49,560 Keep 6 month 0.6 Win Work 40,000 E[V] = 0.6x40000 + 0.4x10000 = 28,000 p= 0.4 None 29,400 ( 28,000 < 29,400) Sell New Job 52,800 (49,560 < 52,800) E[V] = 0.6x39000 + 0.4x15000 = 29,400 0.4 None 10,000 0.6 Win Work 39,000 0.4 None 15,000 0.6 Win Work 72,000 p= 0.6 WinWork E[V] = 0.6x72000 + 0.4x48000 = 62,400 0.4 None 48,000 Rent Equipment E[V] = 0.6x62400 + 0.4x38400 = 52,800 p= 0.4 None E[V] = 0.6x48000 + 0.4x24000 = 38,400 0.6 Win Work 48,000 0.4 None 24,000 Fig. 4 Rollback Analysis of Construction Equipment Management Tunnel Construction Planning 804 Likhitruangsilp The second application of dynamic strategic planning in construction management is the determination of the optimal tunneling sequence and risk-adjusted cost for a tunneling project by using a risk-sensitive MDP. The model is formulated by analyzing the tunneling decision process performed by the contractor in each tunneling round. The basic elements of this risk-sensitive MDP consists of: (1) decision epochs – beginning of each tunneling round, (2) states – current geologic conditions (ground classes) and excavation method, (3) actions – excavation methods and primary support systems, (4) transition structure – ground class transition probabilities, and (5) cost structure – probability distribution of tunneling costs Parallel to Eqn 5, the optimality equation of this tunneling problem can be written as: % % u * (v (n, i, k )) = max ∑ PijGC (n) × u [CM (k , k ′) + C (k ′, j ) + v (n + 1, j , k ′) ] k ′∈K j∈J (6) % The term u * (v (n, i, k )) represents the maximum EUV of tunneling costs incurred from the current epoch n through the end of tunnel, given that the current state is defined as the combination of currently being in ground class i and using excavation method k. PijGC (n) is the ground class transition probability; that is, the probability that the ground class makes a transition from state i at the current epoch n to state j at the subsequent epoch n + 1. CM (k , k ′) is the total cost resulting from adapting the excavation method at epoch n. C (k ′, j ) is tunneling costs incurred if excavation method k ′ is chosen and the actual % ground class after excavation is j. v (n + 1, j , k ′) is the certain equivalent of tunneling costs incurred from epochs n + 1 through the end of tunnel, given that the ground class at the next epoch is j and the excavation method selected for the current stage n is k ′ . J is the set of possible ground classes in the project. K is the set of the excavation methods used. N is the set of tunneling stages (locations). Solving Eqn 6 by applying stochastic dynamic programming provides the risk-adjusted tunneling costs (certain equivalents) and the optimal tunneling sequence for different degrees of risk aversion. Figures 5 and 6 show part of results from optimization. CONCLUSIONS This paper presents general principles and applications of dynamic strategic planning to construction management problems. A decision tree and a risk-sensitive Markov decision process are used as tools for analyzing two sequential probabilistic decision problems. Both tools develop the optimal strategic plans providing the maximum expected value (EMV and EUV) for the systems considered. Dynamic strategic planning can also be applied to other construction engineering and management problems involving sequential probabilistic decision makings such as multiple-phase construction projects. Dynamic strategic planning for construction 805 -25 -20 -15 -10 -5 $(26,000,000) $(28,000,000) $(30,000,000) $(32,000,000) $(34,000,000) $(36,000,000) 0 5 10 15 20 25 Risk Aversion Coefficient Risk-Adjusted Tunneling Costs ($) Fig. 5 Risk-Adjusted Tunneling Costs for Different Risk Aversion Coefficients (γ) Tunne ling D ire ction 2470 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Location (ft) M o s t Lik e ly G ro und C la s s P ro file 2470 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Location (ft) Ground Class 1 EM 1 Curre nt EM : EM 2 EM 3 2470 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Location (ft) Ground Class 2 EM 1 Curre nt EM : EM 2 EM 3 2470 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Location (ft) EM 1 Curre nt EM : Ground Class 3 EM 2 EM 3 Ground C lass 1 Ground C lass 2 G round C lass 3 Excavation M ethod 1 Excavation M ethod 2 Excavation M ethod 3 Infeasible C ases Fig. 6 Optimal Tunneling Sequence for Risk-Averse Contractors with γ = 5 806 Likhitruangsilp REFERENCES Bellman, R E (1957) Dynamic programming. Princeton University Press, Princeton, NJ. Brealey, R A and Myers, S C (1996) Principles of Corporate Finance (5th ed.). McGraw-Hill, Inc. Denardo, E V (1982) Dynamic programming: Models and application. Prentice Hall, NJ. de Neufville, R. (n.a.) Dynamic strategic planning for technology policy. Class notes. Howard, R A (1977) Risk preference. Readings in Decision Analysis, R A Howard and J E Matheson, Eds., Stanford Research Institute, Menlo Park, CA. Ioannou, P G (1989) Dynamic probabilistic decision processes. Journal of Construction Engineering and Management, ASCE, Vol. 115, No. 2, pp. 237-257. Likhitruangsilp, V (1997). A model for pricing guarantees of large privately financed infrastructure projects. Department of Civil and Environmental Engineering, the University of Michigan (Unpublished Report). Likhitruangsilp, V (2003) “A risk-based dynamic decision support system for tunnel construction,” thesis presented to the University of Michigan, in partial fulfillment of the requirements of the degree of Doctor of Philosophy. Luce, R D and Raiffa, H (1957) Games and decisions: Introduction and critical surveys. Dover Publications, Inc., NY. Puterman, M L (1994) Markov decision processes: Discrete stochastic dynamic programming. John Wiley & Sons, Inc. NY. Schwartz, E S and Trigeorgis, L, Eds. (2001) Real options and investment under uncertainty: Classical readings and recent contributions. The MIT Press, Cambridge, MA. AN INVESTIGATION INTO THE MANAGEMENT OF ENVIRONMENTAL RISKS ON INTERNATIONAL CONSTRUCTION PROJECTS MELISSA M. M. TEO University of New South Wales, Australia. [email protected] MARTIN LOOSEMORE University of New South Wales, Australia. [email protected] ABSTRACT The construction industry is one of the largest consumers of natural resources and its activities have a major impact upon the natural environment. With growing public interest in environmental issues, the industry is being held increasingly accountable for the environmental impact of its activities. Recently, because of increased public and political interest in the social impact of globalization, increasing attention has been paid to the industry’s environmental record on very large international construction projects in developing countries. The process of globalization has led to the industrial emergence of developing countries, which with limited construction capacity, are increasingly reliant on overseas construction expertise to help in upgrading their support infrastructure at a pace which does not restrict economic development. This paper explores this vulnerability and describes a research project (funded by the RICS Research Foundation) which investigates the environmental risk management practices of major international contractors on such projects. The rationale and methods underpinning the research are explained. It is hoped that the proposed research will produce a set of recommendations that will improve the construction industry’s performance in this area, enabling it to improve its environmental image and thereby, to make a positive contribution to the process of globalization. Keywords: Globalization, developing countries, environment, risk management, stakeholders, perceptions. INTRODUCTION An emerging area of concern within the construction industry is how environmental issues can be incorporated into existing work practices on construction projects to make them more sustainable and environmentally friendly. The construction industry is one of the largest exploiters of natural resources, both mineral and biological, and its activities often cause an irreversible transformation of the natural environment [WCED (1987), UNCHS (1993), Thompson (2000)]. For example, large construction projects can easily destabilize fragile hill slopes; deforestation associated with construction can cause loss of land by soil erosion, silting of reservoirs and disruption of aquatic ecosystems [CIRIA (19930, UNCHS (1993), Tedd (2000)]. With growing public interest in environmental 808 Teo and Loosemore issues, the industry is being held increasingly accountable for the environmental impact of its activities [Owens et al. (1991), Post (1991)]. This is exacerbated on large international construction projects because of increased public and political interest in the social impact of globalization. For example, Greenpeace is currently targeting the construction industry and particularly firms involved in large international infrastructure projects. Indeed, as a result of their activities, both Balfour Beaty and Skanska have recently pulled out of the Llisu Dam project in Turkey in fear of bad publicity and share price implications [Richards, 2002]. While there has been research into risk management practices on international construction projects [Yeo (1990), Lowe (1996), Lam (1999)], none has focused on environmental risks. In the context of increased environmental consciousness and globalization, this is a deficiency which needs to be addressed. For this reason, the research reported in this paper aims to investigate environmental risk management practices on large international construction projects. More specifically, its aims are: • To investigate the nature of environmental risks that can arise on international construction projects. • To assess varying stakeholder perceptions of environmental risks of international construction projects. • To determine if environmental risks are adequately identified, assessed and managed by construction companies working on international projects. • To establish the impediments, if any, to the adoption of efficient strategies for managing environmental risks on international projects. The objective of this research is to produce a set of recommendations to help managers better manage the environmental risks that may arise on international construction projects. It is hoped that the recommendations will aid in improving the construction industry’s performance in this area, enabling it to improve its environmental image and thereby, to make a positive contribution to the process of globalization. An Imbalance in Risk Management Research in managing Environmental Risk It has taken a considerable amount of time for the construction industry to take greater responsibility for managing the environmental risks that arise from its activities. Indeed, while the concept of sustainable construction is not new to the industry, it is only recently that construction companies are realizing that the adoption of environmentally sound work practices will provide competitive advantages and significant improvements to corporate image [Owens et al. (1991), Ishino et al. (1992)]. This is prompting construction firms to rethink the corporate environmental decision-making process and to manage their environmental risks more effectively. While there has been some research into environmental risk identification, assessment, impact and management strategies on domestic construction projects, there has been no research into how these strategies are applied on international construction projects. Currently, the key instrument for understanding the environmental effects of proposed projects is the environmental impact assessment (EIA). Yet the EIA has been widely Management of environmental risks 809 criticised as often being too technical and narrow in scope and failing to take into account the cumulative and indirect environmental effects and their time horizons, as well as the wider and far-reaching social and cultural effects of these developments [Flyvberg et al., 2003]. Indeed, a significant problem within the construction industry relates to its unhealthy reliance on technical solutions to solving environmental risk problems while neglecting the broader social and cultural implications of environmental risks. In particular, little is understood about the environmental risk perceptions and assessment processes on international construction projects, how this differs on a country-to-country basis and how these risks are prioritized, managed or mitigated. While an understanding of the principles of sustainability and risk management may aid environmental risk management processes on domestic projects, this approach may be insufficient for construction firms seeking to work on international projects. These projects pose special problems, related to their size and complexity, particularly in terms of the stakeholders involved, procurement approaches, legal arrangements, diverse cultural considerations and political and social sensitivities. Globalization of the Construction Industry The globalization of the world’s economy, made possible by WTO and other trade associations like ASEAN and APEC, is internationalizing the way business is being conducted around the world. The construction industry and most other goods and services procurement sectors have benefited tremendously from the international trade liberalization process, including access to open market economies that was not possible before [Bryon (2001), Neumayer (2001)]. According to ENR (2000), the world construction market was worth an estimated $3.4 trillion dollars in the year 2000. Out of that, $1.113 trillion dollars, or approximately a third of the world construction spending came from Asia, which is also the world’s largest regional market. For construction firms within developed countries like Australia, Japan, USA and Germany for example, the prospect of working on international construction projects has become a necessary part of their business strategy, motivated mainly by shrinking domestic market share and economic slowdown in their home countries [Neumayer, 2001]. Indeed, with increasing frequency, foreign firms are venturing overseas to establish market presence in foreign economies. For example, Singapore has an open market economy which does not restrict foreign competition. Foreign contractors, e.g. Australian contractors, have long established a strong local market presence, securing an average of 42% of the overall construction volume in Singapore between the years 1996 to 2001 [SSTI, 2002]. In this sense, trade liberalization and globalization has created many potential commercial opportunities, but has also created a potential minefield for foreign companies that do not effectively manage the environmental risks that can occur on international projects. One of the major problems to be overcome is the different priorities given to the management of environmental risks in developing and developed countries. Developing Vs Developed Countries The approach and priorities for managing environmental risks differ between countries with developed market economies, transition economies and developing countries [CIB 809 810 Teo and Loosemore (1999), Neumayer (2001)]. For example, mature economies are in a position to devote greater attention to creating a more sustainable building stock by the invention and use of new technologies while there is a greater urgency in developing countries to focus on social equality, economic growth, sustainability and infrastructure construction e.g. roads, housing [CIB, 1999]. In this sense, the emphasis on environmental protection in developing economies would seem to be less urgent and in some cases deemed a “luxury good”, compared to developed countries, especially when there are more pressing concerns at hand, like basic survival of its people [Neumayer, 2001]. Developed economies also have in place, a more advanced political, legal and administrative infrastructure that is necessary for the design and enforcement of strong environmental protection. This distinction in economic and social developmental priority between developed and developing economies would suggest that construction firms would have to realign their environmental risk strategies according to the country in which the project is commissioned. For the above reasons, this research focuses on the understanding of environmental risk assessment processes of projects within developing countries by firms operating from developed countries. This area could make an important contribution to strengthening construction firm’s environmental risk management capabilities and thereby, to increase the contribution that the developed world can make to the environment and sustainability of the developing world. The Environmental Risk and Impact of the Construction Industry The construction industry, through its production of physical assets such as buildings and infrastructure which form the basis of virtually every aspect of development, contributes significantly to different areas of environmental stress [WCED (1987), UNCHS (1993)]. This is because its activities have an irreversible impact upon the natural environment by virtue of the very large quantities of resources it utilizes, directly or indirectly, in the construction of buildings, structures, roads and other infrastructure [CIRIA, 1993]. For example, the construction of the Three Gorges dam project in China, arguable the world’s largest water conservancy project, necessitated that 632 sq. km of land, spread out over twenty counties to be flooded, inundating 24,5000 hectares of farmland and some 35 million sq m. of housing accommodation, and the resettlement of more than 1.1 million people to new towns located on higher ground [CIOB INS, 2002]. It is also estimated that the volume of water shifted by the dam is so large that it might even slightly alter the tilt of the world’s rotation on its axis. The environmental impact of a project of this scale needs to be studied and better understood so that the stakeholders involved can make more informed decisions that may minimize the negative environmental impact that the project has on the natural environment. Figure 1 depicts the relationship between the source of an environmental change and its interconnectedness with the surrounding environment in terms of the sphere of influence of its environmental impact locally, provincially, nationally, regionally and globally. In this sense, as long as public fear of the environmental impact of a project is high, political pressure can be effectively exerted on business and government to reduce such perceived risks and its impact on the natural environment [Post, 1991]. In the absence of an effective or concise governmental framework to govern the effects of economical Management of environmental risks 811 developments on the natural environment, the onus is on the business community to take on the role of environmental crusader. Consequently, there is a moral obligation on construction companies operating in developing countries to develop more efficient methods for managing the environmental risks that may occur on their projects. As Post (1991) highlighted, all industrialised corporations, including those in construction, have a corporate responsibility to integrate environmental risk concerns into the corporate decision-making process. Global Regional National Province Local Household Individual Source/consumption Consequences/extraction Single local point source affecting a province Figure 1 ~ Relationships in global environmental change [Kasperson, Kasperson & Dow, 2000] METHOD It is important to point out, that until specific propositions have been developed, it is difficult to propose a definitive research method. Never-the-less, in undertaking research, researchers are faced with an array of qualitative and quantitative methods that have contrasting implications for the manner in which data is collected and analysed. Bryman (1992) suggests that qualitative research is exploratory in nature and places strong emphasis on the subject’s interpretation rather than the researcher. In contrast, qualitative research typically focuses upon static relationships among variables, takes place within a highly structured framework and in relative terms, isolates the researcher from the phenomenon being studied. However, according to Ruesch and Bateson (1968), Denzin (1970), Jick (1979) and Bryman (1992), the best social research combines qualitative and quantitative research, treating them as complementary rather than competitive. By combining different methods, a researcher can focus on different dimensions of the same phenomena, producing a mutually corrective effect, which provides the richest, least biased description of a particular phenomenon. It is our intention to combine different methods of data collection and analysis. However, given the behavioural nature of the research, it is likely to have a strong qualitative element. 811 812 Teo and Loosemore A CASE STUDY APPROACH In combining qualitative and quantitative methods, this research will be undertaken in a case-study framework of four large international construction projects which have had a significant impact upon the environment. In line with the exploratory nature of this research and, its focus on behavioural issues, the adoption of the case study approach is particularly appropriate since it permits phenomena to be intensively investigated and encourages insight [Fielding and Fielding, 1987]. According to Yin (1995), case studies can provide a richly detailed longitudinal portrait of a particular social phenomenon in a real life context, and the adoption of a multiple case study approach would aid to increase the robustness of the case study research findings. Also, large-scale projects were of particular interest in this project because of their greater potential for causing damage to the environment [Flyvberg, Bruzelius & Rothengatter, 2003]. At this stage, it is anticipated that data collection will be undertaken retrospectively and that it will employ two phases of data collection and analysis. Retrospective data collection will be necessary because of the timescale of such projects, which can last many years. This makes reliable longitudinal or cross-sectional data collection difficult, if not impossible within the time constraints of a PhD project. The aim of the first stage of data collection and analysis will be to identify issues and themes which can be followed up in a second, more detailed and focused phase of data collection and analysis. Phase one – Exploratory Survey The first phase of data collection will involve a preliminary survey of key stakeholders typically involved in large-scale international construction projects. This will be an exploratory survey designed to tease out issues for further, more in-depth investigation in phase two of the method. Blumer (1979) suggests that exploration is a process that develops an accurate picture of the research project and is a central element of qualitative research, offering assistance in the formulation, modification and testing of hypotheses and theories. In this sense, the survey will be designed to provide insights into the following issues: • • • To investigate key stakeholders’ prevailing attitudes, beliefs and perceptions of environmental risk. Stakeholders’ assessment of their past experience(s), if any, of the environmental risk management processes on international project(s) and its outcome/ impact on the environment. To determine stakeholders’ knowledge-base, awareness and implication of their roles in the environmental risk management process. The survey will target both internal and external stakeholders on international projects, ranging from the design and project team that encompasses architects, contractors, engineers, consultants, to external parties like local residents, environmentalists, the mass media, pressure groups and local authorities etc. This will enable a holistic perspective on the range of perceptions of environmental risks and their management processes on each case study project. An important issue of consideration will be the geographical barriers that international projects present, and the high likelihood that the stakeholders of interest in this research would be located overseas. To overcome this, the survey technique was Management of environmental risks 813 proposed as a more practical, cost-effective and meaningful method of assessing stakeholders’ attitudes and perceptions of environmental risks. Indeed, surveys have been widely employed and well tested in research on environmentally conscious attitudes and behaviours. The survey data collected will be analysed using the Statistic Package for Social Scientist (SPSS) program to check for significant bi-variate associations and to identify trends or themes which would justify more detailed exploration in phase two of this research that involves case studies. Phase two – In-depth qualitative research Behavioral issues are central to the study of environmental risk management processes because their implementation is dependent on stakeholders' perception of their compatibility with, and contribution to the attainment of project goals. Indeed, it is likely that everyone involved in the environmental decision-making process can influence its outcome in a whole range of ways that can be both helpful and destructive to the environmental risk management process on projects. In this sense, it is only through indepth insights into the formal and informal group structures, communication patterns, attitudes and behaviors of the stakeholders that the effectiveness of the environmental risk management process can be assessed. To investigate the risk-related communications that arise on each case study, social network analysis is proposed. This has been applied successfully on other projects relating to risk management practices, although not specifically in an environmental context [Loosemore (1996), Swan et al. (2001)]. Social network analysis provides a useful mechanism to analyze communication patterns in groups of people or organizations. It focuses upon relationships rather than individuals and brings dynamic and structural issues to the fore. It is particularly concerned with the structuring and patterning of those relationships over time and seeks to identify both their cause and consequences. For example, by using social network analysis, it is possible to identify central and peripheral actors within the construction organization, to identify factions and coalitions, to identify gatekeepers of information and thereby to identify those who hold power. In this sense, the social network perspective provides a powerful tool to unscramble the complexities of how stakeholders’ communication patterns, perceptions and attitudes influence the environmental risk management process on projects. Bernard et al.’s (1982) analysis of the reliability of various data collection techniques indicate that a combination of semi-structured interviews, focus group sessions and diaries would be meaningful ways of collecting this relational data. In addition, the social network analysis will be complemented with a content analysis of risk management interactions and of documents utilized in the construction firm’s environmental risk management practices. Indeed, data about the risk management framework are contained in various locations, including manuals, corporate mission statement, articles of association, statutes, annual reports and so forth. An analysis of information contained herein will allow a more comprehensive assessment of the construction organization’s commitment to environmental risk management efficiency. The framework for the content analysis will be adapted from Berelson’s (1971) categorization system that utilizes well-defined categories to distil the communication content into meaningful information relating to environmental risk management practices. 813 814 Teo and Loosemore The techniques of content analysis have been developed to help researchers examine artifacts of social communication such as written documents or transcripts of verbal discussions in order to derive some meaning from them [Berg, 1989], and has been used with some degree of success in past construction management research to examine design team communication patterns [Wallace, 1987]. Berelson (1971: 18) defines content analysis as “a research technique for the objective, systematic and quantitative description of the manifest content of communication”. According to Berelson (1971), all communication content has subject matter, direction, values, methods, traits, actors, authority, an origin, a target, the communication content and thus can be easily analyzed. The technique is most useful when applied to unstructured data such as that collected in the second phase of this research and essentially involves categorizing communication into its component parts and quantifying it [Smith, 1975]. In this sense, the application of Berelson’s framework will help to reduce analytical bias and result in codified data which could be meaningfully analyzed to provide insights into environmental risk management processes on the case study projects. It also compliments the social network perspective which recognizes that the “transactional content” of network data can complement the “structural content” in providing explanations of social and behavioral phenomena [Tichy et al., 1979]. CONCLUSION The construction industries of developed countries are coming under increasing pressure to better manage the significant environmental risk factors that may arise on its international projects in developing countries and have a morale obligation to respond effectively. Currently, very little is known about effective practices in this increasingly important and high-profile area of construction activity. The proposed research project is important in meeting this challenge since it will facilitate a better understanding of environmental risks, perceptions and current risk management practices. Utilising a twophase research method, phase one of this research will use an exploratory attitudinal survey to identify stakeholders’ expectations, perceptions and experiences. Using social network analysis and content analysis, phase two of this research proposed the case study approach to better understand the risk communications between stakeholders on projects and their contribution to environmental risk management efficiency. The result will be a set of recommendations that will improve the construction industry’s performance in this area, enabling it to improve its environmental image and to make a positive contribution to the process of globalisation. ACKNOWLEDGEMENTS: This research project is funded by the RICS Research Foundation and the authors would like to thank them for their support. REFERENCES Berelson, B. (1971), Content analysis in communication research. Hafner Publishing Company, New York. Management of environmental risks 815 Bernard, H. R., Killworth, P. D. and Sailer, L. (1982), “Informant accuracy in social network data V an experimental attempt to predict actual communication from recall data”. Social Science Research, 11, 30-66. Bryman, A. (1992), Research methods and organisational studies. Routledge, London. Byron, N. (2001), “Risk, the environment and MEAs” in Globalisation and the environment: Risk assessment and the WTO, Robertson, D. & Kellow, A. (Eds.). Edward Elgar, Cheltenham, UK, 27-40. CIB (1999), Agenda 21 on sustainable construction (CIB report publication 237). CIB, Rotterdam. CIOB International News Services (2002), “Preparing for the flood along the Yangtse’s three gorges”. CIOB. Construction Industry Research and Information Association (1993), Environmental issues in construction: A review of issues and initiatives relevant to the building, construction and related industries (Vol. 2). CIRIA, London. Denzin, N. K. (1970), The research art: A theoretical introduction to sociological methods (1st edition). Prentice-Hall, Englewood Clffs, NJ. Engineering News Record (2000), “World market overview: A look at a $3.4 trillion market”. ENR, December 4, 30-36. Fielding, N. G. and Fielding, J. L. (1987), Linking data: Qualitative research methods series 4. Sage Publications, London. Flyvbjerg, B., Bruzelius, N. and Rothengatter, W. (2003), Megaprojects and risk: An anatomy of ambition, Cambridge: Cambridge University Press. Ishino, K., Ide T., Morishita, K., Tachibana, H. Ikuta, T., Ichikawa, H., Kumamoto, K., Yamaguchi, M., Yorimoto, K. and Okita, S. (1992), Tackling the waste problem: Environmental concerns and recycling efforts. Foreign Press Centre, Japan. Jick, T. D. (1979), “Mixing qualitative and quantitative methods: Triangulation in action”. Administrative Science Quarterly, 24, 602-611. Kasperson, R. E., Kasperson, J. X. and Dow, K. (2001), “Vulnerability, equity, and global environmental change” in Kasperson, J. X, Kasperson, R. E. (Eds.), Global environmental risk, Earthscan Publications Limited, London. Lam, P T I (1999) “A sectoral view of risks associated with major infrastructure Projects”. International Journal of Project Management, 17 (2), 77-87. Loosemore, M (1996) Crisis management in building projects, Unpublished PhD Thesis, University of Reading, UK. Lowe, J and Whitworth, T (1996) “Risk management and major construction Projects”, In Langford, D A and retik, A, The Organisation and management of construction: Shaping theory and practice, Volume 2, E and F N Spon. Neumayer, E. (2001), Greening trade and investment: Environmental protection without protectionism. Earthscan Publications Ltd, London. Owens, S. and Owens, P. L. (1991), Environment, resources and conservation. Cambridge University Press, Cambridge. Post, J. E. (1991), “Managing as if the earth mattered”. Business Horizons, Jul-Aug 1991, 32-38. Richards, M (2002) Under the spotlight, Building, 14th June, 41-43. Ruesch, J. (MD) and Bateson, G. (1968), Communication: The social matrix of psychiatry. W W Norton & Company Inc., New York. Singapore Straits Times Interactive (2002), “China’s construction firms build up presence in Singapore”. SSTI, 11th June 2000. Somers, E. (1995), “Perspectives on Risk Management”. Risk Analysis, 15 (6), 677-684. 815 816 Teo and Loosemore Sudman, S. (1976), Applied sampling. Academic Press, London. Swan, W., Cooper, R., McDermott, P. and Wood, G. (2001), “A review of social network analysis for the IMI trust in construction project” in Akintoye, A. (Ed), Association of Researchers in Construction Management Conference 2001, vol. 1, 59-67. University of Salford, Association of Researchers in Construction Management. Tedd, P. (ed) (2000) Dams 2000, Thomas Telford Publishing, London. Tichy, N. M., Tushman, M. L. and Fombrun, C. (1979), “Social network analysis for organisations”, Academy of Management Review, Vol. 4 (4), 507-519. Thompson, D. (2000), Asphalt jungle, In Alexander, C P (ed) Earth day 2000: Time Special Edition, April-May, 50-51. United Nations Centre for Human Settlements-Habitat (1993), Development of national technological capacity for environmentally sound construction. UNCHS, Nairobi. Wallace, W. A. (1987) "Capital costs versus costs-in-use: A content analysis of design team member communication patterns." Construction Management and Economics, 5 (4), S73-S92. World Commission on Environment and Development (1987), Our Common Future (The Brundtland Report). Oxford University Press, Oxford. Yeo, K. T. (1990), Risk, classification of estimates and contingency management, ASCE Journal of Management in Engineering, 6 (4), 458-471. THE EFFECT OF GLOBALIZATION ON SAFETY IN THE CONSTRUCTION INDUSTRY IN NIGERIA G. I. IDORO Department of Building, University of Lagos, Akoko, Yaba Lagos, Nigeria ABSTRACT The growing awareness and relevance of globalization suggest that the world will soon become a global village. The Construction Industry in Nigeria and the applicable safety regulations have been integrated already. This paper therefore focuses on the impact of globalization on safety practice and performance. To examine this, a model was developed to show that there is relationship between globalization of business ownership and business coverage, safety awareness, practice and performance. The paper examines these relationships by conducting a survey involving forty Expatriate and Indigenous firms. The survey reveals that Globalization of Business Ownership promoted multinational business. It also witnessed reduced accident rate. However, Globalization has not increased the awareness of safety regulation and it has not promoted better safety practice. It is therefore concluded, that although Globalization of Construction Business Ownership has not improved safety practice, however, it has put the construction industry in a better position to participate in globalization. The paper suggests greater collaboration between local and foreign investors in construction business ownership and the setting up of effective safety control structures as ways of ensuring that the construction industry in Nigeria reaps maximum benefit from globalization. Keywords: Globalization, Construction Industry, Construction Safety, Safety Practice and Safety Performance INTRODUCTION The awareness that no economy can develop in isolation seems to be growing daily among nations all over the world. Every economy whether developed or developing relies on others to grow therefore all economies now embrace international integration. Kwanashie (1999) noted that virtually all countries in the world today are faced with the realities of increased integration of world trade and capital flows indicated by the rapid growth of information technology and the opening up of hitherto closed societies and economies. The world has realized the need for economic integration and the slogan at present is not whether to get integrated or not but how best to be integrated. Today, the focus is mainly on the challenges of globalization, how to meet them and reap the rewards. The concept of globalization rests virtually on the various sectors or components of every economy getting integrated to outside economies. One important driver of economic 818 Idoro growth is the construction industry. The industry plays a major role in the growth and development of every economy providing the environment for the growth of other sectors. Based on its importance, the industry is expected to take the lead in economic integration. An important area of concern in construction is health and safety. Since construction is a risk-prone industry, the issue of safety goes beyond national concern. The construction industry no doubt has a major role in harnessing the benefits of globalization however; one of the issues that suggest that the industry in developing nations may not be well prepared for the challenges of the future is safety [Ogunlana and Chareonngam 2003]. The place of safety in construction and the importance of construction in every economy call for their globalization. This paper therefore examines the effects of globalization on safety in the construction industry. RATIONALE FOR THE STUDY Construction involves series of operations that require the use of complex materials, tools and machines. These resources coupled with the work environment often create an accident-prone work situation. Accident generally is inimical to construction causing damages to materials and machines, injuries and at times loss of lives to people. Ogunlana and Chareonngam (2003) observed that next to mining, construction kills more people than any other industry and its per capital death rate is more than that of any other industry. There has always been an international approach on the issue with international bodies leading the vanguard in the formulation of policies, regulations, standards and codes on safety. One noticeable area of this international integration is safety regulations. In Nigeria, the existing regulations on safety can best be regarded as foreign products. Since regulations have significant impact on behavior or habit, foreign safety practice and improved safety performance are expected. In Nigeria, the construction industry is dominated by foreign construction firms. The question that arises is ‘has the international integration in safety regulations and construction business promoted integration in safety practice and performance? Do the expatriate construction firms adopt better safety practice and maintain better safety performance than their indigenous counterparts? The answer to these questions will be very useful to developing countries in their drive toward global economic integration. The role of the construction industry in Nigeria The construction industry is no doubt one of the most important sectors of every economy. It accounts for between 5% and 10% of the Gross Domestic Product (GDP), over 50% of the Gross Capital Formation (GCF) and about 10% of the workforce of most countries (Ogunlana 2002). In Nigeria, the industry plays a greater role than it plays globally. Adeniyi (1984) described the industry as the largest contributor to GCF, the largest employer of labour and the major agent of social development. The Federal Ministry of Economic Development (1975 & 1980) put the share of construction to GCF of Nigeria from 1967/68 to 1972/73 and 1974/75 to 1979/80 at 56% to 66% and 71% to 79% respectively. Globalization effect on construction safety 819 The Federal Government of Nigeria (1984, 1985, 1986) put the same share of construction to GCF at 60% to 68%. The construction industry is indeed the leading sector and a big player in economic growth in Nigeria. This industry is expected to play the same leading role in international economic integration. Globalization and the construction industry in Nigeria The phenomenon of globalization has been an integral part of Nigeria history and the construction industry is no exemption [Idoro, 2003]. Construction practice and technology in Nigeria have witnessed significant foreign participation from colonial era to date. Edmonds (1974) maintained that the few large construction companies who are all expatriate firms carry out 90% of the total construction works in Nigeria. Ogunpola (1984) added that though the numerical strength of big contractors who are expatriates is about 7% of the number of contractors, they accounted for a substantial proportion of construction works. Samuel (1999) identified thirty construction companies from ten countries in Europe and Middle East as some of the multinationals operating in Nigeria. Olateju (1991) in a study of contracts awarded by the Federal and Oyo State Governments between 1974 and 1984 discovered that the value of contracts got by indigenous companies translated to 7% of the total contract value. The Federal Ministry of Works and Housing (1979) reported that foreign construction companies accounted for between 97% and 100% of the value of Federal Government construction contracts between 1974 and 1978. Although recent report is not available however, the Federal Ministry of Works and Housing (2003) report shows that the entire N350.6 billion road projects embarked upon by the Federal Government between 1999 and 2003 was executed by contract. Relying on the foreign companies’ share in the past, it is expected that the substantial value of these contracts would have gone to expatriate firms. These reports confirm that the construction industry in Nigeria is indeed dominated by foreign companies. In fact, the problem in Nigeria is not that of attracting foreign participation but rather that of promoting indigenous participation. This is what the Indigenization Decree is set to achieve. Globalization and construction safety in Nigeria Safety is an issue that has drawn considerable global attention. In Nigeria, almost all existing regulations on safety originated from foreign countries. The 1987 Factory Act, which is the most popular safety regulation, was adapted from the 1961 Factory Act of Great Britain. The 1970 Occupational Safety and Health Act which is another safety document of reference in Nigeria has its origin and even application in the United States of America (US) and it is administered by the Occupational Safety and Health Administration (OSHA) of US Department of Labour. The 1988 Control of Substances Hazardous to Health Regulations, the 1992 Personal Protective Equipment at Work Regulations and the 1999 Management of Health and Safety at Work Regulations are British laws that are applicable to European Countries (EC). The Manual Handling Operations Regulations of 1992, the New Construction Design and Management Regulations of 1994 and similar others of reference in Nigeria are products of foreign countries. The origins of these regulations are clear manifestation that globalization has been and still remains an integral part of construction safety in Nigeria. 820 Idoro MODEL OF THE STUDY The discussion above has shown that the Construction Industry and Safety regulations in Nigeria have global integration. If this is so, an appraisal of globalization in the industry should focus more on the impact of the global integration on performance. Considering safety which is the thrust of this paper, one may then ask the question ‘does global integration of the Construction Industry and Construction regulations have any positive impact on construction safety practice and performance? Do the expatriate firms from whose home countries the existing safety regulations in Nigeria originated maintain better safety practice and performance than the indigenous firms? This paper attempts to answer these questions by evaluating the effects of foreign dominance of the construction industry in Nigeria on safety practice and performance. To carry out this investigation, the author selected two characteristics of globalization namely Company ownership (Type) and Business Coverage, two characteristics of safety practice namely Safety Regulation Awareness and Safety Practice and one characteristic of Safety Performance namely Accident Rate. A model shown in figure 1 is thereafter developed to show the relationship between globalization, safety practice and safety performance. Company Type 1. Indigenous 2. Expatriate Safety Practice Safety Awareness Safety Regulations 1. Inspection 2. Management 3. Meeting 4. Equipment 5. Incentive 6.Training Safety Performance Accident Rate Business Coverage 1. National 2. Multinational Fig. 1: A model showing the relationship between Globalization and Construction Safety The model assumes that Company Type will influence Business Coverage, Safety Awareness, Safety Practice and Safety Performance. The paper thereafter proceeded to examine these assumptions. Company Type can be Indigenous or Expatriate while Business Coverage is either National or Multinational. Safety Awareness is determined by Company’s Knowledge of selected regulations that are directly applicable to safety in construction sites namely Factor Act (FACT) 1974, Occupational Safety & Health Act (OSHA) 1970, Manual Handling Operation Regulation (MHOR) 1992, Personal Protective Equipment at Work Regulations (PPER) 1992, New Construction, Design and Management Regulation (CDMR) 1993, Management of Health and Safety at Work Regulations (MHSR) 1992, Control of Substances Hazardous to Health Act (CSHA) 1998, Construction (Head Protective) Regulations (CHPR) 1989, Construction (Lifting Operation) Regulations Globalization effect on construction safety 821 (CLOR) 1961, Construction (General Provisions) Regulations (CGPR) 1961 and Construction (Working Place) Regulations (CWPR) 1996. Safety Practice is measured by the frequency of visitation to construction sites by Safety Inspectors and the frequency of Safety Meetings. Both can be fortnightly, monthly, bimonthly, quarterly or not at all. Others are Safety Management which measures the personality of the safety manager who can be a Safety Manager, Site Manager/Builder/Engineer, Foreman or nobody; Safety equipment a company possesses from a selected number of equipment; the safety incentive rating of a company which is a measure of the number of incentives provided to workers from selected incentives namely safety bonus, promotion, increase in wages, award of certificate and gift presentation. The last measure of safety practice is the frequency of safety training provided to workers, which can be fortnightly, monthly, quarterly, annually or not at all. Safety performance is measured by the number of accidents recorded by a firm in 2003. METHODOLOGY OF THE STUDY To evaluate the safety practice and performance of expatriate and indigenous firms, forty construction firms were selected for a study. The study involved a survey, which was conducted using structured questionnaires that were administered on the respondents. The study area is Lagos metropolis, which is the social, economic and industrial nerve center of Nigeria and the base of majority of the notable construction firms operating in Nigeria. From this study area, twenty expatriate and twenty indigenous construction firms were randomly selected. PRESENTATION AND ANALYSIS OF DATA The data collected from the survey conducted are basically the measurement of the variables in the model of the study. The data are presented according to the relationship to be established. Relationship between Type of Company and Business Coverage The data collected on Company Type and Business Coverage are presented in table 1. Table 1. The business coverage of selected construction firms in Lagos metropolis in Nigeria. Company type Business Coverage National Multinational Total Indigenous 20 0 20 Expatriate 3 17 20 Total 23 17 40 Source: Field Survey, March 2004. The data in table 1 are used to test relationship between the type of company and business coverage using the χ 2 test at 5% significant level. Since χ 2 calculated (12.9) > χ 2 822 Idoro (3.8), it means that there is a relationship between the type of company and business coverage. Expatriate firms encourage multinational business coverage. Relationship between Type of Company and Safety Awareness The data collected on the safety awareness rating of the respondents are presented in table 2 Table 2: The Safety Awareness rating of selected Construction Firms in Lagos, Nigeria. Company Safety Awareness Rating Type FACT OSHA MHER PPER CDMR MHSR CHPR CLER CGPR CWPR CHPR TOTAL Indigenous Expatriate Total 5 4 9 20 20 40 15 20 35 20 18 38 5 13 18 5 13 18 5 16 21 20 18 38 15 17 32 10 16 26 5 14 19 125 169 294 Source: Field Survey, March 2004. The data in table 2 are used to test relationship between the type of company and safety awareness using the χ 2 test at 5% significant level. Since χ 2 calculated (13.964) < χ 2 (18.307), it means there is no relationship between the type of company and the level of awareness of safety regulations. Relationship between Types of Business and Safety Practice From table 3, the Safety Practice Rating of the respondents is very low in Safety Inspective, Meeting and Incentive. The data on the safety practice rating of the respondents are presented in table 3 Table 3: The Safety Practice Rating of Selected Construction Firms in Lagos, Nigeria. Company Safety Practice Rating Type Safety Safety Safety Safety Safety Safety Inspection Management Meeting Equipment Incentive Training Indigenous 20 33 20 47 27 20 Expatriate Total 33 53 67 100 41 61 108 155 31 58 59 79 Total 167 339 506 Source: Field Survey, March 2004. From the table 3, the Safety Practice Rating of respondents is very low in Safety Inspection, Meeting and Incentive. The data in table 3 are used to test relationship between the type of company and safety awareness level of construction firms using the χ 2 test at 5% significant level. Since χ 2 calculated (8.32) < χ 2 (11.07), it means there is no relationship between the type of company and the level of safety practice. Globalization effect on construction safety 823 Relationship between Type of Company and Safety Performance The data collected on the number of accidents recorded by the respondents in 2003 are presented in table 4 Table 4: Accident record of selected construction firms in Lagos, Nigeria in 2003 Company Respondents Type 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Number of Accidents Recorded in 2003 Indigenous 11 12 16 14 13 10 12 25 21 18 15 28 33 26 11 8 23 17 Expatriate Total 3 3 1 5 12 6 21 18 14 8 4 2 30 22 55 12 38 17 14 3 28 22 26 4 21 19 20 Total 18 16 8 8 347 185 532 14 15 17 19 25 16 33 43 35 26 19 26 24 Source: Field Survey, March 2004 From the data in Table 4, the mean number of accidents recorded in 2003 for both Indigenous and Expatriate Construction Firms in Nigeria are 17 and 9 respectively. The data in table 4 are further used to test relationship between the Type of Company and Accident Rate of construction firms using χ 2 test at 5% significant level. Since χ 2 calculated (61.4) > χ 2 table (30.1), it means that there is a relationship between Type of Company and Accident Rate. FINDINGS OF THE STUDY The study carried out in this paper reveals that the involvement of expatriate firms in the construction industry in Nigeria has encouraged multinational business and reduced accident rate. However, the expatriate firms have not shown evidence of better awareness of safety regulations and better safety practice than their indigenous counterparts. This may not be unconnected with the prevailing low level of inspection of construction sites by safety regulatory bodies as revealed in table 3. CONCLUSION This paper has examined globalization from the perspective of foreign involvement in company ownership and business coverage. From the relationship between the variables in the model examined, it is concluded that foreign involvement in the ownership of construction business will put the industry in a better position to participate and reap the benefits of globalization. It is also concluded that although the expatriate firms have low accident records however, their levels of awareness of safety regulations and safety practice are not better than their indigenous counterparts. 824 Idoro RECOMMENDATIONS The author believes that globalization involves a symbiotic relationship where the two countries involved in economic cooperation and integration benefit from one another. In this drive, economies will need to be re-structured and re-positioned to be able to maximize the benefits of the relationship. Against this background, two strategies are suggested. The construction industry should encourage greater involvement of foreign ownership in construction business through collaboration between local and foreign investors. Such partnership should strive to acquire adequate financial and technical capacity to make them participate in global construction. In addition, the industry should strive to put in place an effective safety control structure for the purpose of enforcing safety regulations and promoting good safety practice that will compare favorably with existing standards in developed economies. Such a structure should be jointly formulated and implemented by government and the organized private sector in Nigeria. This will put the industry in Nigeria in a good position for global economic integration. REFERENCES Adeniyi, E. O. (1984) Housing and the Construction Industry in Nigeria. Proceedings of The Annual Conference of Nigerian Economic Society. Nigerian Economic Society, University of Ibadan, Nigeria. February. Pg. 91 Edmonds, G. A. (1979) Macrofirms; Costruction Firms for the Computer Age. Journal of Construction Engineering and Management, Vol. 109 (1). Pg. 13-24. Federal Government of Nigeria (1984) Budget, Federal Government Press, Lagos. Federal Government of Nigeria (1985) Budget, Federal Government Press, Lagos. Federal Government of Nigeria (1986) Budget, Federal Government Press, Lagos. Federal Ministry of Works & Housing (2003) Report of Federal Road Projects Between June 1999 and January 2003. Quarterly Construction Progress Report, The Statistics Division, Federal Ministry of Works & Housing. Pg. 5-10 Federal Ministry of Works & Housing (1979) Annual Shared Value of Construction Contracts in Nigeria Between 1974-1978. Quarterly Construction Progress Report, The Statistics Division, Federal Ministry of Works & Housing. Federal Republic of Nigeria (1975) 2nd National Development Plan 1970-74: Second Progress Report. The Central Planning Office, Federal Ministry of Economic Development, Lagos, Nigeria. Pg.14. Federal Republic of Nigeria (1980) 3rd National Development Plan 1975-80. Vol. 1. The Central Planning Office, Federal Ministry of Economic Development, Lagos, Nigeria. Pg 54. Idoro, G. I. (2003) Effect of Globalization on Capital Inflow into the Construction Sector of Nigeria. A Paper Presented at an International Conference on Globalization and Capacity Building in the Construction Sector. Organized by the Department of Building, University of Lagos, Lagos, Nigeria. 1-5 December. Globalization effect on construction safety 825 Kwanashie Mike (1999) Concepts and Dimensions of Globalization. Globalization and Nigeria Economic Development. Proceedings of a Seminar of the Nigerian Economic Society, 11 February. Pg. 15-27.. Ogunlana, S. O. (2002) Training For Construction Industry Development Best Practice. In Ogunlana, S. O. (Ed.) Training For Construction Industry Development. Chapter 1, CIB Publication No. 282 ISBN 974-8208-52-4. Pg. 1-6. Ogunlana, S.O. & Chareonngan, C. (2003). Meeting the Challenges Of Construction in a Global Economy: Suggestions for Developing Countries. A Paper Presented at an International Conference on Globalization and Capacity Building in the Construction Industry. Organised by Dept. of Building, University of Lagos, Lagos, Nigeria. 1-5 December 2003. Ogunpola, Akin (1984) The Structure of Building Costs and Implication for Economic Development. Proceedings of the Annual Conference of Nigerian Economic Society. Nigerian Economic Society, University of Ibadan, Ibadan, Nigeria. Pg. 28. Olateju, B. (1991) Enhancing The Contract Management Capabilities of The Indigenous Contractor: Effective Contract Management in the Construction Industry. Publication of the Nigerian Institute of Building, Lagos, Nigeria. Pg.132-142 Samuel, M. O. (1999) The Causes of Foreign Dominance of the Nigerian Construction Industry & the Prospects for the Indigenous Firms. An Unpublished M. Sc. Construction Management Thesis, University of Lagos, Nigeria. Pg. 21-22. SUMMARY OF CORRECTION 1. Pp.3 ‘and’ is inserted into title 4.0 to read Globalization and the Construction Industry in Nigeria. 2. Pp.4. Line 7 second word. 7% replaces 70% 3. Pp.6 Fig.1. The number and title moved from top to bottom of the figure. In the first rectangle in the figure, ‘Company Type’ replaces ‘Computer Ownership’ and ‘Expatriate’ replaces ‘Expenditure’. 4. Pp.9 The sentence “from table 3, the Safety Practice Rating of the respondents is very low in Safety Inspection, Meeting and Incentive” is inserted after table 3. Table 4: Top column, the word ‘Respondents’ is placed top, followed by the number 1-20 while ‘Number of accidents recorded in 2003’ is placed below the numbering. The sentence ‘From the data in Table 4, the mean number of accidents recorded in 2003 for both Indigenous and Expatriate Construction Firms in Nigeria are 17 and 9 respectively’ is inserted after table 3. Line 1 after table 4, fourth word ‘the’ is deleted and ‘further’ is inserted after seventh word. Last line ‘Accident Rate’ replaces ‘Safety Performance’. 5. Pp.10 Line 1 in 9.0. The last word ‘table 2’ is changed to ‘table 3’. Line 2 in 11.0. ‘Existing standards in developed’ replaces ‘what obtains in other’. 826 Idoro CRITICAL SUCCESS FACTORS OF PROJECT MANAGEMENT SHAMIL NAOUM and DANIEL FONG Department of Property, Surveying and Construction, London South Bank University, 103 Borough Road, London, UK, SE1 0AA. [email protected] GARY WALKER Mace Limited, Atelier House, 64 Pratt Street, London, UK, NW1 0LF. ABSTRACT Although project management has proven its success in construction as a procurement method, there are problems associated with the manner in which the system has been selected and/or implemented that have led to project delays and cost overruns with low client satisfaction. The objective of the study was to identify the factors that contribute to the success and failure in project management system, particularly in the case of large projects. 159 questionnaires from experienced personnel in construction engineering companies were statistically analysed to establish a theoretical framework, which was validated by referencing to 32 detailed case studies obtained from the interviews of the key personnel involved. The results suggested that the overall performance of project management as a procurement system is high, although the analysis revealed that it performed better in cost and quality than in time. The study also identified the factors that have significant impact on the success and failure of large projects, with results indicating that a project can be viewed as a combination of four interdependent subsystems that relate to the strategic, structural, technical, and managerial aspects driven by the project management team. Keywords: Construction, engineering, failure, project management, success. INTRODUCTION “Project management” is similar to “professional construction management” (PCM) which was first originated in the U.S. PCM was a rather informal method until the late 1960’s, but as construction costs increased during the early 70’s and delayed projects became more frequent, the need for the new approaches and techniques for managing the total construction programme became more evident. The Chartered Institute of Building (1996) has defined project management as the overall planning, co-ordination and control of a project from inception to completion aimed at meeting a clients requirements in order to produce a functional and financially viable project that will be completed on time within authorised cost and to the required quality standard. 828 Naoum, Fong and Walker In professional project management, a contractor performs a management function under a professional services contract with the client, treating project planning, design and the construction plan as integrated tasks [Barrie and Paulson, 1976]. As a professional of the construction team, the project manager works with the client, designers, cost consultants and the construction manager, from the brief through the completion of construction, providing leadership in regard to time, cost and quality. The project manager can be a firm or an individual and is paid a fixed fee based on the value of the work. According to Rad and Miller (1978), the PCM practice had greater growth in the design sector of the industry. This process contrasts with U.K. experience, where (formally) prime contractors were first to offer PCM service to clients [Naoum, 1994]. Project management is a form of procurement designed to act as an integrating function, to pull together combinations of resources into temporary organisations to achieve a required purpose. The main advantage of the project management system is that it offers integration by including a professional site management service in addition to architects, cost consultants, structural, mechanical/electrical engineering consultants, site managers, planners, and buyers. Although project management has proved its success in many construction projects, there are however some problems associated with the manner in which the system has been selected and/or implemented. A number of projects have been completed late or over budget with low client satisfaction, particularly in the publicly funded projects. Some projects overrun on time by 40% - 200% and others have been cancelled before they have even started, resulting in poor expenditure of public spending money. With this background in mind, the authors pursued the development of project management and aimed to measure its success in large construction engineering projects, with a view to providing some indication of how the PM system performed under different circumstances. RESEARCH METHODOLOGY In order to achieve the aim of the research, the following methodology was adopted: Stage one – literature review: Literature on procurement methods was reviewed and analysed, which resulted in the establishment of four categories of variables that may influence the project management outcome, these are: organisational, managerial, system and control. Stage two – exploratory research: An exploratory research was conducted which took the form of face-to-face interview with three personnel of a large construction client, four project managers, three partners of design consultants and four directors of contractors who were experienced in construction engineering projects. The purpose of the exploratory interviews was to elicit their views regarding the success or failure factors of project management. Stage three – the pilot study: After the exploratory interview, a pilot survey questionnaire was composed which contained 46 critical success factors grouped under the four Critical success factors of Project management 829 categories which were established in stage one. The questionnaires were sent to over 300 personnel working for the same or different construction engineering companies and which have been involved in project management arrangement for a considerable number of years. The response rate was 51%. The sample returned included 44 client’s organisations, 46 contractors, 54 design consultants and 45 project managers. In the postal questionnaire, the respondents were asked to rate each of the factors presented using a range from “No influence on project management success” (rating of 1), to “Major influence” (rating of 5). The date gathered from the 159 questionnaires was then analysed statistically using SPSS and the result was published in the Association of Researchers in Construction Management (ARCOM) conference [Walker and Naoum, 1999]. The 46 variables, which were identified to having an effect on project success, were reduced into the 25 influencing variables (V1 to V25) listed in Table 1. Stage four – the main study. The exploratory interview and analysis of the pilot study questionnaires have led to the developing of a theoretical framework. The proposed framework consists of the 25 influencing factors (established from the pilot study), which were seen as the independent factors affecting time, cost, and the quality of the project. The validity of the research framework was tested by gathering information and data from completed construction engineering projects. This took the form of face-to-face interviews with key personnel who were involved in each project, supplemented by documentation. The sample contained 16 outstanding projects and another 16 projects that experienced some form of difficulties during design and construction. The influencing factors (i.e. the cause) and the success factors (i.e. the effect) were examined in each of the 32 case studies. The influencing factors were measured using a rating system of 1-5. For example, if the project demonstrated evidences that project goals and client criteria were clearly established at the outset of the project, then that particular case was given a high score of 5 for this factor. On the other hand, if the project went ahead without a firm understanding to the project goal and client criteria, then the case was given a low score of 1. Performance on time was measured by the increase or decrease on the estimated programme in months. This was calculated after the +/- authorised time by the client was taken into consideration. Average performance on time was determined by evidence that the project was completed by the original programme date and with the issue of project completion certificate. Outstanding performance was determined if the project completed ahead of schedule. Accordingly, the following rating system was applied: 3 months late = 1 (poor) 1-3 months late = 2 (below average) On original programme = 3 (average) Up to 3 months ahead = 4 (above average) > 3 months ahead = 5 (outstanding) Performance on cost was measured by increase or decrease on budget in pounds. This was calculated after the +/- authorised value of variations by the client was taken into account. Average performance on cost was determined by evidence that the project was completed within the original budget. Outstanding performance was determined by 830 Naoum, Fong and Walker evidence that the project was completed under the budget, and the following rating system was applied: > 5% of orig. budget = 1 (poor) 1-5% of orig. budget = 2 (below ave.) On budget = 3 (average) Up to 5% below budget = 4 (above ave.) > 5 % below budget = 5 (outstanding) The quality standard was measured subjectively based on the functionality of building and whether the building team has delivered the project in accordance to the client requirements. An outstanding rating was assigned to the project if there were evidences that the building team adopted an effective quality management system for auditing and controlling the project. Quality of projects were rated from poor – 1, to outstanding - 5. Stage five – analysis of the results. An overall success factor (ranging from 1-5) of a project was computed by averaging its time, cost, and quality performance ratings. Testing of association between each of the 25 variables and the overall project success factor was conducted statistically in order to determine the significant influencing variables that contribute towards the success or failure of a project. VALIDITY OF THE RESEARCH FINDINGS The prime objective of the main study was to examine the causes of success and failure in project management system. Naturally, it is difficult to determine causality with appellate certainty. However, this research was designed to include a number of controlled variables. In particular, all 32 case studies were constructed on “pure” project management concept, and were commissioned by the same client who had similar goals and organisational structure for each project but with various business strategies. Furthermore, the characteristics of the projects were to a large extent the same, i.e. nature of the work, complexity and technology. The cases were also selected with their contractual arrangements more or less standard and tailored for the client. Hence, one of the fundamental differences among the 32 cases was the manner in which the projects were managed by the project management team. RESULTS Data from the 32 case studies was inputted into Excel and the relationship between each of the 25 influencing variable and the overall success factor was tested. The objective of the test was to establish the strength of relationship between each influencing variable and the overall project success factor, in order for the significant and dominate variables to be identified. Due to the uncertainty of small sample size for adequate normality testing in the measurement of coefficient strength with parametric methods, nonparametric Chisquare χ2 was evaluated in addition to Pearson’s correlation coefficient r to reaffirm the measure of relationship. Interval data was demoted into ordinal when Chi-square method was used as the parametric assumptions may be invalid. The 10 highest significant factors which determined the success or failure of the 32 project management case studies were found and the research findings were then Critical success factors of Project management 831 interpreted by referring to the 32 case studies and examining the causes which led the project to perform outstandingly or poorly. The main findings are presented below. Table 1. Summary of variable significance Influence Variable Factor V1. Client goals / criteria establishment V2. Contractor involvement and enthusiasm V3. Project team adaptability performance V4. Client authority performance V5. Project manager capabilities and experience V6. Project manager goal commitment V7. Project team atmosphere V8. Project manager authority/influence V9. Project team decision participation V10. Project manager involvement V11. Project team motivation V12. Scope and work definition V13. Planning efforts V14. Project cost estimate V15. Project objectives V16. Contractor oriented design V17. Project team reviews V18. Designer/contractor selection V19. Communications V20. Reporting systems V21. Regular meetings V22. Design interface management V23. Risk identification V24. Project control system V25. Safety r 0.55 0.34 0.33 0.46 0.31 0.22 0.30 0.24 0.29 0.22 0.41 0.50 0.33 0.38 0.42 0.30 0.42 0.29 0.43 0.50 0.12 0.34 -0.13 -0.15 0.54 χ2 14.18 0.15 5.25 5.44 5.77 1.12 0.43 4.41 7.08 2.10 3.02 6.46 4.58 3.95 3.14 1.94 1.88 4.58 3.12 3.68 1.58 3.95 0.00 3.02 2.94 Significance p