Multinationals, Local Capacity Building and Development: The Role of Chinese and European MNEs 1788113578, 9781788113571

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Multinationals, Local Capacity Building and Development

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NEW HORIZONS IN INTERNATIONAL BUSINESS Series Editor: Peter J. Buckley, Centre for International Business, University of Leeds (CIBUL), UK The New Horizons in International Business series has established itself as the world’s leading forum for the presentation of new ideas in international business research. It offers pre-eminent contributions in the areas of multinational enterprise – including foreign direct investment, business strategy and corporate alliances, global competitive strategies, and entrepreneurship. In short, this series constitutes essential reading for academics, business strategists and policy makers alike.   Titles in the series include: Innovation and Institutional Embeddedness of Multinational Companies Edited by Martin Heidenreich The Changing Face of US Patent Law and its Impact on Business Strategy Edited by Daniel R. Cahoy and Lynda J. Oswald The Global Brewery Industry Markets, Strategies, and Rivalries Edited by Jens Gammelgaard and Christoph Dörrenbächer Restoring America’s Global Competitiveness through Innovation Edited by Ben L. Kedia and Subhash C. Jain Collective Knowledge Management Foundations of International Business in the Age of Intellectual Capitalism Haruo H. Horaguchi Internationalization of Firms from Economies in Transition The Effects of a Politico-Economic Paradigm Shift Edited by Mai Thi Thanh Thai and Ekaterina Turkina Emerging Markets and the Future of the BRIC Nations Edited by Ben L. Kedia and Kelly Aceto Emerging Dynamics of Sustainability in Multinational Enterprises Edited by John R. McIntyre, Silvester Ivanaj, Vera Ivanaj and Rabi N. Kar The Evolution of the World Economy The ‘Flying-Geese’ Theory of Multinational Corporations and Structural Transformation Terutomo Ozawa Emerging Asian Economies and MNCs Strategies Edited by Robert Taylor and Bernadette Andreosso-O’Callaghan The Development of International Business A Narrative of Theory and Practice Robert Pearce The Global Factory Networked Multinational Enterprises in the Modern Global Economy Peter J. Buckley CSR and Climate Change Implications for Multinational Enterprises Edited by John R. McIntyre, Silvester Ivanaj and Vera Ivanaj Comparative Capitalism and the Transitional Periphery Firm Centred Perspectives Edited by Mehmet Demirbag and Geoffrey Wood Multinationals, Local Capacity Building and Development The Role of Chinese and European MNEs Xiaolan Fu, George Owusu Essegbey and Godfred Kwasi Frempong

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Multinationals, Local Capacity Building and Development The Role of Chinese and European MNEs

Xiaolan Fu Technology and Management Centre for Development (TMCD), Department of International Development, Oxford University, UK

George Owusu Essegbey Science and Technology Policy Research Institute (STEPRI), Council for Scientific and Industrial Research (CSIR), Accra, Ghana

Godfred Kwasi Frempong Science and Technology Policy Research Institute (STEPRI), Council for Scientific and Industrial Research (CSIR), Accra, Ghana NEW HORIZONS IN INTERNATIONAL BUSINESS

Cheltenham, UK • Northampton, MA, USA

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© Xiaolan Fu, George Owusu Essegbey and Godfred Kwasi Frempong 2019 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2018967385 This book is available electronically in the Social and Political Science subject collection DOI 10.4337/9781788113588

ISBN 978 1 78811 357 1 (cased) ISBN 978 1 78811 358 8 (eBook)

02

Typeset by Servis Filmsetting Ltd, Stockport, Cheshire

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Contents About the authorsvi Acknowledgementsviii 1 Introduction 2 MNEs, managerial knowledge transfer and local capability building: Conceptual framework 3 MNEs and the industrial sector in Ghana 4 Management practices of MNEs in Ghana 5 Knowledge transfer in MNEs in Africa: A comparison between Chinese and European MNEs in Ghana Xiaolan Fu and Hao Xu 6 MNEs and managerial knowledge transfer to Africa: A comparison between Chinese and European MNEs in the construction sector in Ghana Cyrielle Auffray and Xiaolan Fu 7 MNEs and their impact on local capabilities building and sustainable development 8 Conclusions and policy implications

1 15 26 46 67

95 119 132

References142 Appendix: Questionnaires156 Index213

­v

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About the authors Xiaolan Fu is Founding Director of the Technology and Management Centre for Development (TMCD), Professor of Technology and International Development, University of Oxford. Her research interests include innovation, technology and industrialisation; trade, foreign direct investment and economic development. She is appointed by the SecretaryGeneral of the United Nations to the Governing Council of the Technology Bank for the Least Developed Countries and to the 10-Member HighLevel Advisory Group of the UN Technology Facilitation Mechanism. She has published extensively in leading international journals. Her recent books include China’s Path to Innovation, China’s Role in Global Economic Recovery, The Rise of Technological Power in the South and Exports, Foreign Direct Investment and Economic Development in China. She is Editor-in-Chief of Journal of Chinese Economic and Business Studies, and serves on the editorial boards of Industrial and Corporate Change and International Journal of Technology Management. George Owusu Essegbey is the Director of the Science and Technology Policy Research Institute (STEPRI) of the Council for Scientific and Industrial Research (CSIR) in Ghana, which is a partner in the MNEmerge consortium. He has served as a member of the country’s National Development Planning Commission (NDPC) until the Commission was reconstituted. He has several years of experience in Science and Technology (S&T) policy research, innovation studies, research on new technologies, climate change and sustainable agriculture. He has published widely. Dr Essegbey has served various national and international organisations with his expertise including FAO, UNESCO, UNCTAD, UNEP, WIPO and the World Bank. He was a member of the 10-Member Expert Group supporting the United Nations Technology Facilitation Mechanism with the UN Inter-agency Task Team on Science, Technology and Innovation (STI) for the SDGs. Godfred Kwasi Frempong is a Chief Research Scientist and former Deputy Director of the Science and Technology Policy Research Institute (STEPRI) of the Council for Scientific and Industrial Research (CSIR) in Ghana. He has been involved in policy research for several years in ­vi

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About the authors ­vii

diverse disciplines such as SMEs and industry development, innovation studies, STI and ICTs. He has published extensively in diverse disciplines. Godfred Frempong has attracted research funding from several international organisations such as UN Economic Commission for Africa, International Development Research Centre of Canada, European Union, Danish Development Agency, INREF of Wageningen University and Research and World Bank Institute among others. He is a member of the Steering Committee of the African Academic Network on Internet Policy based in Ibadan, Nigeria. He is a member of AEH Development Institute and AIRNET all based in Lusaka, Zambia. AIRNET is an independent and continental interdisciplinary research network  that seeks to infuse entrepreneurship into technology and innovation research, project design and implementation to support development.

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Acknowledgements The growth and development in the African continent for greater prosperity have been very important for policy making and academic research. More importantly, rapid and sustained development of Africa will improve the life of the people as well as meeting the targets of the various global development agenda. This has been our passion. Multinational enterprises (MNEs) can play a very important role. The experiences of East Asia and China suggest such a possibility. However, we know very little about its role in Africa, especially in terms of developing managerial capabilities, which, as argued by some, is the bottleneck of industrialisation in the continent. This book emanated from four years’ collaboration between the authors. We are grateful to Juha Vaatanen, Pervez Ghauri, Shyama Ramani, Bruno Woeran, Suraksha Gupta, Michiko Iizuka, Augusto Luis Alcorta (Project Consortium members), Peter Buckley and other colleagues for helpful comments. We are grateful to Serena Masino, Jun Hou, Mavis Akuffobea and Shaheen Akter for their excellent research assistance and contributions to some of the chapters of this book. The authors extend their gratitude to the management and staff of Vodafone Ghana, Huawei Ghana, Ghana Textiles Printing Company Ltd. (GTP), Akosombo Textiles, GoKalsLaborex, Sanbao Pharmaceutical, Acticon and Top International who generously agreed to participate in the study. Chapter 5 is co-authored by Xiaolan Fu and Hao Xu. Chapter 6 is mainly extracted from a published paper co-authored by Cyrielle Auffray and Xiaolan Fu which appeared in the Journal of Chinese Economic and Business Studies. We are grateful for the kind permission of Taylor and Francis for the reuse of this material and to the co-authors for their agreement to include their work in this book. The authors are grateful to the European Union under the Seventh Framework Programme for financial support on a research entitled ‘MNEmerge: A Framework Model on MNE’s Impact on Global Development Challenges in Emerging Markets’ (Grant Number: 612889). The study also benefited from the support of the United Nations Industrial Development Organization (UNIDO). ­viii

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Acknowledgements ­ix

For their invaluable support and assistance in the field, in ­coordinating the project and in editing this report, Chiyi Tam, Zifu Wang, Justina Onumah, Portia Adade-Williams, Nana Yamoah Asafo Adjaye, Emmanuel Jumper, Geraldine Adiku and the enumerators are greatly acknowledged.

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1. Introduction Multinational enterprises are everywhere engaging in a myriad of economic activities. The perceptions of their impact on the nation’s economy range from negative at one extreme to positive at the other extreme. Granted that the truth is somewhere in between, the crucial issue is the impact of the MNEs on the nation’s economy and how national policies are shaped to enhance that impact. In this regard, there is the need for empirical research that unravels the contextual ramifications, which either constrain or facilitate positive impact on the national economy. This is particularly vital given that the role of MNEs in the economic activities and development of various countries is deepening with globalisation. Such a role can be expected to increase as globalisation continues to be fuelled by the advancement of technology, regionalisation and geopolitics, among others. Indeed, MNEs are increasingly able to pursue their economic interests across geographical and national boundaries. On the one hand, countries ought to welcome this development and eagerly promote the participation of MNEs in their national socio-economic activities, given the potential for impact on economic growth. On the other hand, countries need to ensure that MNEs’ engagement in the host countries remains positive and with the least negative outcomes on growth and development. There are several ways of doing this. For example, ­appropriate, homegrown policies and regulatory practices which are informed by knowledge of the nature and extent of MNEs’ activities in the host countries are important approaches to enhancing the positive impacts of MNEs. To a large extent, the effectiveness of engaging MNEs in ­socio-economic development depends on how countries are able to strategise to create the necessary conditions for their activities on the basis of researched evidence and proven knowledge of MNEs’ capacities  and potential for impacts in the national contexts of their operations.

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Multinationals, local capacity building and development

1.1  MNEs AND THE CHALLENGE OF CONTRIBUTING TO ACHIEVING THE SDGs IN AFRICA Africa generally remains a challenging region in modern development compared to most parts of the world in spite of some promising economic signals. Africa’s real gross domestic product (GDP) growth rate of 3.6 per cent in 2015 is higher than the 3.1 per cent for the global average and 1.5 per cent for the euro zone, according to the African Development Bank (2018). Yet there are rather discouraging indicators which do not buttress the positive economic indicators. For example, three out of every four Africans live under poor human conditions unlike the global average of one out of five persons. About 48.5 per cent of people living in Sub-Saharan Africa are living on less than $1.25 a day. The situation is not helped by the serious state of unemployment on the continent with about 60 per cent of jobs considered vulnerable (Economic Commission for Africa, 2017). There seems not to be any immediate solution to these problems as the potential sectors of employment are constrained. For example, Africa’s weak manufacturing infrastructure translates into manufacturing value added being only 10.3 to 10.5 per cent for the period 2013 to 2015 (Economic Commission for Africa, 2017). Against the global challenges encapsulated in the Sustainable Development Goals (SDGs), Africa’s performance, in spite of some fairly good individual country efforts, is not commendable and there is a need to take radical measures to turn the situation around (Economic Commission for Africa, 2017). To achieve more meaningful growth and development, Africa needs structural economic transformation stimulated through appropriate policies and programmes, which will take advantage of opportunities available in the various countries including what MNEs offer with their participation in the local economies. Despite the rather lacklustre performance of the continent against the targets of the SDGs, some countries are considered to be making progress. One such is Ghana, which is acclaimed widely as a model for African development through the Western lenses of democratic practice. Currently its economy is performing significantly better than that of most African countries. Economic growth was as high as 14 per cent in 2011. However, this was largely fuelled by crude oil exports and in 2016 economic growth slumped to 3.5 per cent – the lowest in two decades. There was resuscitation in 2017 with economic growth increasing to 6.3 per cent stimulated by growth in non-oil sectors, lower inflation and prospects for increased crude oil production (African Development Bank, 2018). In January 2017, the government of Ghana changed from a ruling political party to the opposition political party after a successful and peaceful election. Such a

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Introduction ­3

credential justifies the decision to conduct the research on the theme of the book for two main reasons. First, democratic practice is important for the attraction of MNEs in Africa. Thus currently, most African countries are making strenuous efforts to keep on the democratic track and are going to extremes to generate the kind of peer pressure that ensures that democracy is not derailed on the continent. Second, Ghana, in spite of the development challenges, has quite impressive socio-economic indicators, which point to a promising economic and potentially sustainable future. For example, even though the economic growth rate of GDP in 2016 was lower than the projected 3.9 per cent, it was expected to increase to 8.5 per cent in 2018 and moderate to 6.2 per cent in 2019 (African Development Bank, 2018). Ghana is able to consistently engage with multilateral organisations such as the World Bank and International Monetary Fund (IMF) as well as private investors to map out economic strategies for growth. Yet, there are challenges, which require more innovative approaches to stimulating growth. About 24.2 per cent of the population is below the poverty level and inflation hovers around 18 per cent. Table 1.1 summarises the socioeconomic indicators of Ghana, which can be compared to those of other African countries including Nigeria and South Africa. The income per capita puts Ghana in the lower middle-income class but it is below those of Nigeria and South Africa. However, the annual GDP growth rate is fairly acceptable at 3.6 per cent. This increased to 6.3 per cent in 2017 (African Development Bank, 2018). As far as its economy Table 1.1  G  hana and other African countries – summary of socioeconomic statistics Economic Statistics

Ghana

Nigeria

Kenya

Zambia

South Africa

Income per capita ($) Annual GDP growth rate (%) Incidence of poverty (%) Life expectancy (years) Infant mortality rate (per 1,000   live births) Maternal mortality rate   (per 100,000 live births) GDP per capita ($) Population growth rate (%) Debt to GDP ratio (% of GDP)

1,380 3.6 24.2 63 32

2,450 −1.6 49.4 53 72

1,380 5.8 36.1 67 39

1,360 3.6 54.4 62 42

5,480 0.3 55.5 63 38

319

576

362

398

138

1,513.5 2.2 69.2

2,175.7 2.6 17

1,455.5 2.6 52.7

1,269.6 3 60.5

5,274.5 1.3 51.7

Source:  Various reports and World Bank (2016).

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Multinationals, local capacity building and development

is concerned, the debt to GDP ratio is the main challenge. Compared to the other countries, the 69.2 per cent is the highest and it is an insidious threat to sound economic management. The other indicators in Table 1.1 are fairly commendable. Life expectancy of 63 years is only exceeded by that of Kenya (67 years). Infant mortality in Ghana of 32 per 1,000 live births is the lowest among the listed countries in Table 1.1. Such indicators point to the importance of formulating and implementing policies and programmes to enhance the participation of major economic actors like the MNEs. Over the past four decades, poverty incidence has generally been falling as illustrated in Figure 1.1. At 24.2 per cent, Ghana’s incidence of poverty is lowest among the countries listed in Table 1.1. However, there are geographical disparities, with poverty being more pronounced in the north of Ghana and in the rural areas. According to the Poverty profile in Ghana (2005–2013), Ghana Living Standards Survey Round 6 (Ghana Statistical Service, 2014c), the Savannah populations account for nearly three-fifths of those living in extreme poverty whereas only 0.9 per cent of the population of the Greater Accra Metropolitan Area (i.e. the 70

Poverty incidence

Poverty incidence (%)

60 50 40 30 20

2012

2006

2005

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

0

1981

10

Year Source:  Various census reports and Ghana Living Standards Survey.

Figure 1.1  Poverty incidence in Ghana

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Introduction ­5

capital city and its environs) live in extreme poverty. In particular, rural Savannah contributes a significant 68.5 per cent to extreme poverty in Ghana (Ghana Statistical Service, 2014c). A major factor in addressing poverty incidence is talking about inequality in the distribution of national welfare. The GINI coefficient is rather high and it increased from 41.9 per cent in 2005/2006 to 42.3 per cent in 2012/2013 (Ghana Statistical Service, 2014c). It underscores the importance of addressing the key challenge in sustainable development – elimination of poverty anywhere. This calls for the right policies and programmes, which will create opportunities for all actors in the economic space including MNEs, to make appropriate contributions. The changes over time in the sectoral shares of Ghana’s GDP are pointers to the policy options for enhancing economic performance. As illustrated in Figure 1.2, the relative importance of the three conventional sectors of 70.0 Agriculture

Industry

Services

60.0

GDP share by sector (%)

50.0

40.0

30.0

20.0

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

0.0

1974

10.0

Year

Source:  Construction from data of Ghana Statistical Service (2018).

Figure 1.2  Sectoral shares of GDP: 1974–2016

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Multinationals, local capacity building and development

agriculture, industry and services has shifted from agriculture to services. In the 1970s and up to the early 2000s, the share of agriculture of GDP was higher than the other sectors, ranging between about 40 and 60 per cent. The share of agriculture since the early 2000s consistently has fallen to a current share of less than 20 per cent, whereas the share of the services sector of GDP increased steadily to the current 55 per cent approximately. The key sector of industry experienced fluctuating shares from the 1970s to the present and only showed a slight increase from 18.3 per cent in 1974 to 25.5 per cent in 2017 (Ghana Statistical Service, 2018). The growth rate of the industrial sector in recent times has been spectacular. From −0.5 per cent in 2016, the growth rate shot up to 16.7 per cent in 2017 (Ghana Statistical Service, 2018). However, the spectacular increase in growth rate can be attributed to the Mining and Quarrying sub-sector including oil and gas, which showed a growth rate of 46.7 per cent in 2017. Oil and gas play a major role in the growth of the sub-sector. The important manufacturing sub-sector with its potential for creating jobs across the different levels and categories of skills is not performing as expected. From the early 2000s when it accounted for about half of the industrial sector contribution to GDP – specifically 10.2 per cent against the industrial sector GDP share of 20.8 per cent – the share of the manufacturing sub-sector in 2017 was only 4.5 per cent against the industry sector GDP share of 25.5 per cent. The dominant sub-sector is the construction sub-sector with a GDP share of 13.7 per cent (Ghana Statistical Service, 2018). The whole of the industry sector provides avenues for MNE investment. Already some of the significant industrial operations are on account of significant MNE investment and commitment in industries or firms in the sub-sectors. However, the positive impact can be enhanced with appropriate national policies and strategies, especially in the case of the manufacturing sector which holds a key to job creation and income distribution.

1.2  MNEs IN GHANA – THE HISTORY AND CURRENT STATUS MNEs’ participation in Ghana’s economy goes back to the colonial times with the prospecting and mining of gold, diamonds and other minerals. The cocoa industry, which became the mainstay of Ghana’s economy, also attracted MNEs’ participation in the economy. The pre-independence and early post-independence (after 1957) era was dominated by Western MNEs mainly in mining, commerce, banking, construction, energy and manufacturing. Unilever, Barclays, CFAO, Taylor Woodrow, LONHRO and Paterson Zochonis (PZ) were some of the European MNEs that were

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Introduction ­7

the stalwarts of Ghana’s economic activities during that era. For example Unilever and Barclays are still actively playing major roles in Ghana’s industrial and financial sectors respectively. New MNEs such as Huawei and Vodafone are important players in the telecommunication sector and Tullow is a leading MNE in the oil and gas sector. Today, the landscape of MNE economic activities has changed and Chinese MNEs have made important inroads into Ghana’s economic space. The nature, types and gravity of the economic activities have also changed since the early pre-independence years as a result of the dynamics in the global economic trends. The emerging sectors of telecommunication and communication services have created conditions for the establishment of other major players in the economy. Major evidence of socio-economic transformation of the country is in the built environment where roads, bridges, dams and apartment buildings have transformed the physical landscape of the country. The role of MNEs in bringing about these examples of the country’s transformation cannot be gainsaid and the construction sub-sector is one, which illustrates the prominence of Chinese MNEs in Ghana (and Africa). On the whole, it is important to know the economic and socio-cultural contexts of MNEs to effectively engage them. In the case of technology transfer, understanding the peculiarities of their approach in business operations determines how the host economies can benefit from them. Such understanding must shape the policies and strategies aimed at attracting and retaining MNEs in the local economies.

1.3  THE RATIONALE, GOALS AND OBJECTIVES OF THE BOOK This book narrows its scope to MNEs and capability building and development in Africa using Ghana as a case study. There are questions as to the extent of gains in real terms especially in capability building, knowledge transfer and the resultant development of local capacity for socio-economic development on the back of local enterprises. MNEs and development is an area of substantial research. There has been a wealth of research exploring the impact of MNEs on economic development. For example, Dunning and Lundan (2008) extensively discuss the theories, history and organisational structures and strategies of MNEs. They assess the impact of MNEs on host countries in terms of foreign direct investments (FDIs), linkages, clustering and employment conditions, among other issues. Rugman and Doh (2011) also debate the traditional assumptions about economic development and address

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the controversies surrounding MNEs in their book Multinationals and Development. Based mainly on work in Asia, the authors present their observations on the role of multinationals in the future. Other books on the role of multinationals and development include Narula and Dunning (2010), Narula and Pineli (2016) and Fu (2004b). However, as far as we know, there have only been a few books or edited volumes on MNEs in Africa, for example Gilroy et al. (2005). These books are mostly case studies, focused on discussing MNEs, FDIs and the economic development of Africa. Moreover, emerging market multinational (EMNEs) has been a recent phenomenon that has attracted substantial research interest. Most of the existing books focus on the determinants and behaviour of EMNEs. For example, Ramamurti and Singh (2009) contribute to the literature on the basis of studies in the BRIC economies (Brazil, Russia, India and China) and four other emerging economies (Thailand, Mexico, South Africa and Israel). Their book gives insights into how MNEs in these economies are equally making strides on the international business arena. Besides, research on the impact of EMNEs on African development mostly focuses on its impact on the environment. Research on knowledge transfer from EMNEs and local capabilities development is rare except for a seminal work by Brautigam (2011). So, while one can say there is a good number of publications relating to our theme, there are gaps in the literature. Really, the key difference between these books and the current volume is that our book is focused on MNEs, knowledge transfer and local capabilities building supported by first-hand empirical evidence from Africa. In particular, the discussions in the eight chapters are enriched with the contextualisation of theory and practice from African country perspective. Finally, managerial knowledge transfer is an important possible gain from MNEs. However, this thematic area is seriously under-researched. Although there are works examining management such as human resource management in MNEs, so far the only book that examines the transfer of managerial knowledge from MNEs to local community is Dunning (1958) which examines the transfer of management practices in American MNEs in the UK. Myloni et al. (2004) and Fu (2012a) also provide interesting analysis of the transfer of management practices within foreign subsidiaries or between MNEs and local firms in various host countries but not in Africa. The objective of this study is to investigate the impact of MNEs on economic and human development through local managerial capability building, which is often the bottleneck for economic growth in Africa (Sutton and Kpentey, 2012) but very much under researched. Despite its lower middle-income country status, Ghana has all the char-

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Introduction ­9

acteristics of a developing country including poverty incidence, prevalence of communicable and non-communicable diseases and unemployment. Addressing these challenges and bringing about sustainable development will come in large part from building local capability that exploits the full potential of Ghana’s economic capacities. It is against the background of these issues that the research project was implemented on MNEs in Ghana to investigate their contributions to local capability building and knowledge transfer with particular focus on European and Chinese MNEs. The research project in turn gave rise to this book, the first aim of which is to fill the gap in academic, policy and practical research by examining the transfer of managerial knowledge from MNEs to local enterprises in Ghana. The second aim is to investigate the nature of this managerial knowledge transfer: What are the possible transmission mechanisms in the context of a lower middle-income country? How is this process affected by exogenous factors, such as country of origin of the MNEs? How do the effects differ between Western MNEs from developed countries and the MNEs from other developing countries such as China? Overall this case study focuses on the linkages through which knowledge is transferred to local firms and people. We aim to understand how this contributes to capability building at both the firm and individual level. We analyse how this empowers local people and changes their aspirations and how it precipitates national development with sustainability. The book shares knowledge and insights from the empirical research work and provides analysis of the trends in MNEs’ engagement in Ghana, the advantages and disadvantages, which apparently are shaped by some socio-cultural norms of their home countries. Firm-level studies of selected MNEs of Chinese and European origins contribute new knowledge about how these MNEs are structured and positioned to successfully compete in their respective business sectors. The study of the linkages of these MNEs with the local enterprises in the empirical work has yielded interesting findings. The insights from the study of managerial practices in the MNEs should inform how policy initiatives could accentuate the gains of MNE operations in the country especially in relation to the knowledge flows for enhancing operations of local enterprises. On the whole, the book is not merely a book on MNEs in Ghana. It is a book on MNEs in the African context, which should excite policy makers, development practitioners in the public and private domains and students of development studies generally. Beyond Africa, there should be readers whose main concern is how to get the African continent to engage better with the key economic actors operating in its respective countries. In sum, there has been little systematic and comprehensive analysis

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of the role of MNEs on managerial knowledge transfer and local ­capabilities building, and the consequent impact on socially and economically inclusive and sustainable development in the low-income countries (LIC) context, based on both statistical analysis of large survey data and in-depth case studies. Moreover, the book focuses on the transmission mechanisms for managerial knowledge transfer, the role of work and social network and the differences between European and Chinese MNEs, which have not been systematically addressed in the existing books in the field.

1.4  METHODOLOGY The book draws extensively on findings of the research work in Ghana. Thus to a large extent the inferences and conclusions are delimited to the national context of Ghana. However, there are extractable lessons for the rest of the countries in the African region which must interest a wide spectrum of stakeholders in development. A notable trend in global economic relations is the very proactive, if not aggressive, manner in which China is engaging with Africa. UNCTAD estimates Chinese FDI in Africa to be about 4.4 per cent of the total inflows to the continent for the period 2013–2014 (UNCTAD, 2017). Whereas substantial FDI is coming from European countries such as France, UK and Germany, the FDI and economic opportunities coming from China–Africa relations are increasing significantly and intensively. There is probably no better gain for Africa than understanding how Chinese economic relations will lead to local capability building to promote more energised and productive enterprises of indigenous origins. The impact of MNEs on national development depends on the extent to which the country benefits from their abundant resources, technology and innovation and their contribution to the building of capabilities. It is against this background that the MNEmerge Project was conducted in Ghana in 2015/2016. Among other things, this study covered the transfer of managerial knowledge from MNEs to local firms and workers and examined the impact that such knowledge transfer has on local capability building and the impact it has on economic and social development. Another reason why Ghana was chosen for the study is its openness to foreign direct investment and strong growth performance in recent years. It makes it an interesting and representative case to understand the impact of MNEs in the context of African countries. The sample for the study was drawn from the range of small, medium and large enterprises doing business in Ghana. Two researchers from

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Introduction ­11

Table 1.2  Selected firms of the sub-sectors Type of Economic Sub-Sector

Firms

ICT (high-tech) Textile (low-tech)

Vodafone Ghana (UK) and Huawei Ghana (China) Ghana Textiles Printing Company Ltd (GTP)  (Netherlands) and Akosombo Textiles (China, Hongkong) Pharmaceutical (high-tech) GoKals-Laborex (France) and Sanbao   Pharmaceutical (China) Construction (low-tech) Acticon (Portugal) and Top International (China) Total sample 61 managers; 173 workers Source:  Fu, Essegbey and Frempong (2017).

the Technology and Management Centre for Development (TMCD) of Oxford University and two researchers at CSIR-STEPRI teamed up for the data collection. Given the thematic nature of the study, questionnaires were designed targeting the relevant respondents in the enterprises, namely managers and workers. A total of 12 enumerators holding first or second degrees were trained in the administration of the data collection instrument in the survey of the firms. The researchers collected the data in face-to-face interviews with the managers in the EU and Chinese MNEs. The main facets of the methods of data collection at the employee level were that from four main economic sub-sectors a total of eight MNE firms were selected. For each sub-sector, there were two firms – one of EU origin and another of Chinese origin. The firms are listed in Table 1.2. The researchers went into these companies and conducted face-to-face interviews with the managers and workers using semi-structured questionnaires. A total of 61 managers and 173 workers were interviewed in the course of the study. The questions were on managerial practices, linkages with local firms, workplace attitudes and practices, knowledge spillovers and technology transfer. Efforts were made in the field work to tap into the knowledge at all the levels of the hierarchy of the enterprises. Generally, communication is not uni-directional and there are a variety of transmission channels of information linking the units of the organisations and the respective human resources in these units. So we consider a two-way flow of knowledge between different levels and between people at the same level. The field work took account of this structure to sample the respondents in respect of the theme of the study. Before the 2015/2016 MNE study, TMCD and STEPRI collaborated

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on empirical research at the firm level. This was carried out under the Diffusion of Innovation in Low Income Countries (DILIC) research project conducted in 2012 to 2015. In carrying out the research, the researchers worked towards the following specific objectives: 1. understand the barriers to innovation creation and diffusion in LICs and the space for innovation policy; 2. analyse the determinants of knowledge diffusion in LICs, especially the role of university–industry linkage and inter-firm networks; 3. examine the effect of external knowledge diffusion to LICs, in particular the role of South–South trade and FDI; and 4. develop an SME (small and medium-sized enterprise) open innovation network model to increase frugal innovation in LICs. There were also face-to-face one-hour interviews involving the use of enumerators. It was a national survey with the sampling frame drawn from lists of firms of earlier surveys conducted at STEPRI and the Ghana Statistical Service as well as the lists of members of the Association of Ghana Industries and Ghana National Chamber of Commerce and Industry. A total of 500 firms in Ghana were surveyed in 2013 and in 2014. The questions focused on issues such as interaction with MNEs, firm labour management and productivity and technology acquisition and management. This study of knowledge transfer within MNEs complement the earlier study on knowledge diffusion between organisations, including from MNEs to local firms, but goes further to examine the knowledge flow between individuals through various channels.

1.5  ORGANISATION OF THE CHAPTERS The study conducted in Ghana by the TMCD and STEPRI provides profound insights into MNEs’ operations in Ghana with respect to technology transfer and capability building. The eight chapters present the various facets of the findings and conclusions. The current chapter presents the fundamental rationale for the book, highlighting the arguments for engagement with MNEs. It also includes a summary of the methodology. Chapter 2 draws on managerial knowledge transfer and local capability building for development. The chapter defines capability building, highlighting its relevance and importance for African countries. More importantly, the chapter discusses the concepts of m ­ anagerial knowledge transfer and the implications for capability building in the developing

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Introduction ­13

country context. Being the conceptual chapter of the book, it surveys the relevant literature and underscores the fundamental propositions. Chapter 3 provides the background information on MNEs’ operations and the industrial sector of Ghana. What stands out clearly is the relatively little change in the structure of the industrial sector in terms of the contribution to the country’s GDP. The chapter describes the broad subsectors and points to the relevant areas of research in the book. It provides the justification for the selection of the sub-sectors for the research and the consequential analysis of the MNEs. The discussion of management practices of MNEs in Ghana is contained in Chapter 4. The various management practices are described and discussed in relation to industrial development. Of particular interest are the differences between the European and Chinese MNEs, which are the two main categories of MNEs researched and analysed in the book. The chapter presents the research findings of these MNEs relating to management practices of engagement of employees, performance appraisal, creating incentives and motivation and systems for promotion and advancement. Chapter 5 is about the specific case of knowledge transfer in the Chinese and European MNEs in Ghana. It examines the various work and social links between employees at these MNEs, and the channels for the diffusion of knowledge. The authors mapped out the network structure and calculated the network properties for the firms and individuals. They then tested whether the knowledge transfer within the MNEs is influenced by the social network structure and compared the social network and the knowledge transfer in MNEs of different backgrounds: that is, the European and Chinese MNEs. Chapter 6 compares the managerial knowledge transfer of Chinese and European MNEs. There are various dimensions to managerial knowledge transfer, which are discussed in the chapter including capital flow, knowledge spillovers and new business relations. This chapter points to the various ways in which MNEs could ensure effective managerial knowledge transfer. The impacts of Chinese and European MNEs are discussed in Chapter 7. Chapter 7 using a model, identifies several impacts which Ghana’s economy has benefited from the operations of MNEs in terms of improving the skill base of Ghanaians through capability building and transfer of managerial know-how. It also emphasises the contributions of MNEs to achievement of SDGs through employment creation, welfare improvement and poverty alleviation. Chapter 8 is the concluding chapter, which summarises the key issues and prospective solutions for policy considerations. MNEs generally

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contribute to national development. However, the effectiveness of public policy and the promotion of MNE interation with local enterprises determine the extent to which a host nation like Ghana achieves optimal benefit.

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2.  M  NEs, managerial knowledge transfer and local capability building: Conceptual framework 2.1 MNEs AND DEVELOPMENT The impact of MNEs through the provision of foreign direct investment (FDI) on host economies has long been of interest to academics and policy makers. FDI is expected to bring a bundle of capital, technological and managerial knowledge to the host countries, benefiting their economies by enhancing productivity and competitiveness (Dunning, 1958). However, despite the huge volume of literature on various forms of spillovers from FDI (Görg and Strobl, 2001), research on managerial knowledge spillovers from FDI is limited, fuelling continuous debates on the topic. This is because of the interest in its potential for growth in both the host and home economies. On the other hand, it has become apparent that beneficial impacts and spillovers are by no means a necessary consequence of FDI, and that several mediating factors need be considered (Moran et al., 2005). These include the technological intensity of the FDI in question, the managerial and business organisation background of the investing country, and the absorptive capacity of the host country. In this study, we are particularly concerned with the developmental effect of inward FDI in a relatively advanced Sub-Saharan African economy, Ghana. We will therefore present a literature background that bears relevance to this context, in an attempt to draw on general evidence available so far and to contextualise its applicability to the case at hand. We should bear in mind that FDI can influence various equilibria in the host country at once, including its impact channels. In this study, we focus specifically on employment and knowledge transfer dimensions, including the indirect impacts linked to them. In doing so, we pay close attention to the transfer of tangible (i.e. technologies) and intangible knowledge (i.e. know-how and managerial capability). One of the most recognised development effects of FDI on low-income countries is the overall employment levels and any associated income, gender and regional inequality patterns. Such impacts can not only be ­15

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negative or positive, but also direct or indirect (Te Velde and Morrissey, 2004; Jenkins, 2005). More specifically, the employment effect of FDI can be direct – through the labour creation directly generated by MNEs – or indirect by sparking activities involving a large number of local subcontractors, suppliers and service providers (Sibunruang and Brimble, 1988; Pigato, 2000). Meanwhile, employment creation can at the same time effectively impact income and skill inequality in the host country. Robbins (1996) explains that higher demand for labour in the sectors where MNEs concentrate translates into higher wages in those sectors. This can lead to rising unemployment among the traditional sector labourers. Feenstra and Hanson (1997) explain that the activities outsourced by developed countries’ MNEs are low-skill from the perspective of developed countries, but are relatively skill-intensive to the developing country host. The skill premium might therefore be increased by FDI. Technology spillovers to the domestic sector can contribute to increasing domestic firms’ demand for skilled labour too, thus raising the skill wage and the skill premium even further (Driffield and Taylor, 2000). In addition, MNEs may offer greater job security relative to locally owned firms, as their resilience better insulates employees from economic cycles. Employees in larger enterprises tend to be better protected by labour legislation and are more likely unionised and receiving benefits (Braunstein, 2006). On the other hand, it has been argued that to cut costs and maximise profits, MNEs are increasingly adopting the practice of subcontracting to locally owned firms. This implies labour standards enforcement becomes weaker (Richards and Gelleny, 2007). Similar considerations can be made with regards to the gender gap. Whether FDI will widen or close these gaps will depend on a series of factors. For example, MNEs operating in sectors such as textile and electronics tend to employ more women. So job opportunity and employment creation are boosted in the long run, and women’s empowerment is encouraged (Cotton and Ramachandran, 2001; Braunstein, 2006).

2.2 MNEs AND KNOWLEDGE TRANSFER The role of MNEs through FDI in bringing advanced technology to host economies has been confirmed in many previous studies (Dunning, 1994a; Lall, 2003). With a relatively abundant resource pool, FDI induces technological spillovers, as well as managerial knowledge. MNEs’ presence in developing countries therefore means that the availability of accessible technology increases, given the internal incentives to transfer technology across borders between parent companies and subsidiaries (Markusen, 2002).

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Conceptual framework ­17

MNEs face several difficulties when investing abroad – for instance, linguistic issues, cultural distance or unfamiliarity with the local market (Lall and Streeten, 1977). For their foreign investments to be profitable, MNEs must therefore possess a substantial advantage over their local competitors, for example cheaper access to capital, advanced management skills or new technology (Lall and Streeten, 1977). With the shift to a knowledgebased economy in the 21st century, managerial and technological capacities are now the main assets of MNEs (Powell and Snellman, 2004). When MNEs invest abroad, they are not always able to fully internalise their stock of knowledge and domestic firms can then benefit from these assets: this is a knowledge spillover (Crespo and Fontoura, 2007). Knowledge spillovers can take place through different mechanisms – horizontal and vertical. Horizontal technology spillovers may occur from foreign firms to local firms in the same industry and/or the same region via demonstration effects and the movement of trained labour from foreign to local firms (Caves, 1974; Fosfuri et al., 2001). By imposing strong competition in the industry of the host economy, the presence of MNEs is expected to increase local productivity by crowding out inefficient domestic firms and to force innovation in other local firms in order to remain competitive. There may also be vertical technology spillovers taking place between foreign and local suppliers and customers within the value chain through forward and backward linkages (Javorcik, 2004; Pietrobelli and Rabellotti, 2007; Pietrobelli and Saliola, 2008). Driving by the profit maximisation orientation, MNEs intend to help local suppliers upgrade their technological capability to international standards so that they may avoid choosing high transaction cost suppliers globally. Local contractors can also benefit from the demonstration spillover effect while collaborating with MNEs. They are also likely to offer training to their workers, albeit in an uneven fashion depending on the case/industry. Technology spillovers from MNEs may also take place along the spatial/regional dimension. Although knowledge is a non-rival public production asset, which can generate positive externalities or spillovers to others (Nelson, 1959; Griliches, 1979), knowledge spillovers are known to be geographically localised (Jaffe et al., 1993; Audretsch, 1998), and there may be geographic boundaries to information flows or knowledge spillovers among the firms in an industry (Marshall, 1920; Krugman, 1991). Social bonds fostering trust and frequent face-to-face exchanges may facilitate knowledge and information flows among agents located within the same area (Breschi and Lissoni, 2001). These spatially bounded knowledge spillovers allow companies operating nearby important knowledge sources to introduce innovations at a faster rate than rival firms located elsewhere.

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Therefore, it is expected that in the long run, local firms benefit from MNEs’ spillovers and linkages. Empirical research shows that technology transferred through FDI has positive effects on developing countries (Kokko et al., 1996; Eden et al., 1997; Buckley et al., 2002). It is worth noting that some of these studies suffer from several limitations: they are carried out at the industry level and are likely to be affected by the endogeneity between industry productivity and industry-level FDI intensity, and they fail to control for firm-level heterogeneity. Knowledge spillovers can be achieved between firms and across regions and countries through various transmission mechanisms (Pietrobelli, 1996). These include: the movement of goods through international trade; the movement of capital through inward and outward foreign direct investment (FDI and OFDI); the movement of people through migration, travel and foreign education of students and workers; international research collaboration; diffusion through media and internet of disembodied knowledge; and integration into global value chains to benefit from the foreign technology transferred within the supply chain. When starting businesses and setting up productions, MNEs bring advanced technologies to the host countries. Knowledge is non-rival and the public-good nature of knowledge suggests that it can generate positive externalities (spillovers) to others who are also exposed to this knowledge in various ways. The presence of FDI and technologies has created opportunities for local actors to learn via forming multiple linkages. The geographic proximity and face-to-face interactions will not only allow local firms to acquire codified technologies, but also technological knowledge which is tacit (Jaffe et al., 1993). Despite the possible benefits of technology transfer and FDI spillovers, these may also have significantly negative effects on technological upgrading within local firms. This may be due to a variety of reasons. First, FDI may make the competing domestic firms worse off, and even crowd them out of the market (Aitken and Harrison, 1999; Hu and Jefferson, 2002). The strong competition from foreign subsidiaries may reduce local firms’ R&D efforts (OECD, 2002). Moreover, foreign subsidiaries may remain as enclaves in a developing country with a lack of effective linkages with the local economy. Demonstration effects are perhaps the most obvious spillover channel: domestic firms can observe new practices and techniques in MNEs and reproduce those they perceive as productive (Blomström and Kokko, 1998; Crespo and Fontoura, 2007). Local firms interacting with the MNE (suppliers, subcontractors, clients) are the most likely to benefit from demonstration effects (Lall, 1980). Labour mobility, domestic firms employing workers trained by the MNE, is a second possible channel (Motta, 1999).

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Conceptual framework ­19

Finally, knowledge may also circulate through informal social networks by word of mouth (Inkpen and Tsang, 2005; Fu, 2012a). The empirical evidence of knowledge spillovers from FDI is, at best, mixed (Görg and Greenaway, 2004:171), and suggests they are highly dependent on the investment context. There is strong evidence that absorptive capacity, understood as the level of human capital in the FDI-recipient country, is a positive determinant of spillovers (e.g. Girma and Görg, 2003; Durham, 2004; Fu, 2008). Host-country institutions and policies also impact knowledge spillovers, although there are considerable debates on which are most suitable. The source country of FDI can affect its potential for knowledge spillovers. For instance, Keller (2001) shows that knowledge spillovers decrease with the geographic distance between source and host countries. This is due to increasing costs of communication between headquarters and subsidiaries but can also be a consequence of cultural and linguistic distance. Others argue that cultural distance could actually favour knowledge spillovers by exposing domestic firms to more diversity (Rodriguez-Clare, 1996; Zhang et al., 2010). Finally, the level and type of knowledge embedded in the investment determine significantly the extent of spillovers. The literature emphasises the importance of the ‘technological gap’ between MNEs and local firms (Findlay, 1978; Wang and Blomström, 1992; Kokko, 1994). If the knowledge of the MNE is too far ahead or too close to that of domestic firms, spillovers risk not taking place: either domestic firms will lack the ability to assimilate foreign knowledge, or the amount of knowledge they will be able to grasp will be insignificant for productivity improvements. This argument is close to the ‘appropriate technology’ (AT) theory. The AT hypothesis argues that technology from developed countries might only lead to limited productivity gains in developing countries because it would not match their specific endowments in skills, labour and capital. Appropriate technology fits the socio-economic characteristics and the technological level of the recipient country (Stewart, 1983; Willoughby, 1990; Fu et al., 2011). Following this argument, MNEs from emerging economies, such as China, could bring more appropriate technology to other developing countries (Fu and Gong, 2011; Fu, 2012b).

2.3 MNEs AND MANAGERIAL KNOWLEDGE TRANSFER While all these factors have been studied at length in the literature on FDI, another powerful channel for FDI impact has received much less attention: the transfer of management know-how. This has strong

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­ evelopmental potential as managerial knowledge is likely to spill over d from MNEs to indigenous firms through several channels. One channel is the movement of labour from foreign to local firms. Most MNEs invest in labour through training to improve their own productivity. When trained employees move from foreign to indigenous firms for higher salaries or senior positions, they carry with them new management practices which they acquired in foreign firms (Almeida and Kogut, 1999; Fosfuri et al., 2001). The second channel for managerial knowledge spillovers is the demonstration effect. The concept and routines of explicit management practices used by MNEs can be observed by their competitors, suppliers and clients through demonstration-by-implementation and word-of-mouth. These can allow both industry-specific and general managerial knowledge (e.g. equal opportunities, performance-related pay) to diffuse within and across industries (Fu, 2012a). Third, the diffusion of management practices may take place within the supply chain, through unintended leakage of knowledge (Fu, 2012a). Management practices are likely to transfer from MNEs and expatriates to local managers and employees within an MNE. Training domestic employees is a commonly adopted strategy to improve MNEs’ productivity. Although the volume and quality of training by MNEs is uneven, with the increasing indigenisation of the workforce in MNEs, more and more local employees receive managerial training (Gershenberg, 1994). When trained managers move from foreign to indigenous firms for higher salaries or senior positions, they carry with them new management practices which they acquired in foreign firms. This could be the most important channel for the diffusion of management practices (Almeida and Kogut, 1999; Fosfuri et al., 2001). The movement of labour not only facilitates the diffusion of codified international practices but also enables the diffusion of tacit practices and allows for further knowledge-building (Kim, 1997). Another channel for managerial knowledge spillovers is the demonstration effect. The concept and routines of explicit management practices used by MNEs can be observed by their local competitors, suppliers and clients through demonstration-by-implementation and word-of-mouth. Examples of such explicit practices include: teamwork methods, management briefing groups, staffing plans and customers’ loyalty programmes. These potential local adopters may also observe the consequence of a practice and decide whether to imitate the practice. Because of the explicit nature of these practices, local adopters will be able to take on the concept of a practice although the interpretation and implementation may vary. The Chinese banking sector is one such example. When multinational banks entered the Chinese market, their modern management practices in human resources and marketing management had strong d ­ emonstration

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Conceptual framework ­21

effects on local banks (Fu, 2004a). Kipping and Bjarnar (1998) also suggest that MNEs played significant roles in disseminating management know-how across national borders by acting as successful examples in Europe. All this suggests the possible existence of horizontal spillovers within the same industry. Unintended spillovers often take place through this channel. Moreover, the diffusion of management practices may take place within the supply chain. In addition to unintended leakage of knowledge through demonstration effects and labour movement, MNEs may purposely transfer relevant knowledge to their suppliers or customers. For example, they may transfer relevant knowledge to their suppliers in order to improve product quality and reduce production costs. They may also be asked to demonstrate their advanced management practices to assure customers of the quality of their products and services. Such inter-firm linkages within the supply chain are found to be a critical mechanism for the exchange of tacit knowledge (Saxenian, 1991). It provides an effective channel for spillovers of management practices, especially for supply chain management, production quality management and marketing management. All this increases the vertical spillovers of management practices as a result of intended or unintended knowledge transfer through forward and backward linkages. Managerial knowledge tends to be overlooked in the literature on knowledge spillovers from FDI. Yet, just as technology, management practices can have a significant impact on a firm’s productivity (Fu et al., 2007). The elusive nature of managerial knowledge may explain this lack of research. Indeed, managerial knowledge includes both tacit and explicit components. On the one hand, tacit knowledge – ‘that which we know but cannot tell’ (Polanyi, 1967) – refers to the subconscious mechanisms that are used by managers to guide their decisions. Tacit knowledge builds on the socio-cultural context and on previous experiences (Ancori et al., 2000; Smith, 2001). Because tacit knowledge is intrinsically individual, it is difficult to formalise and communicate. On the other hand, explicit knowledge consists in identifiable rules of action that are easy to translate into formal language (Ancori et al., 2000). These two categories of knowledge do not have set boundaries. Tacit knowledge can be made explicit through a codification process (Ancori et al., 2000). Codification facilitates knowledge flows within the MNE and increases the likelihood of knowledge spillovers – codified knowledge is easier to identify and replicate than tacit knowledge (Ancori et al., 2000). Fu (2012a) provides the first systematic analysis of managerial knowledge spillovers from FDI. She concludes that despite having similar channels and determinants to technological knowledge spillovers, managerial knowledge spillovers bear

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their own characteristics. In particular, she highlights the importance of cultural distance and local context for managerial knowledge spillovers. Engaging in the internal communication systems in MNEs has enabled local workers to effectively acquire better management skills such as socialisation, decision-making and problem-solving. The effective relationships among individuals and groups foster team communication practices that help them coordinate activities to achieve their goals (Harris and Nelson, 2008). Through daily interactions with foreign expatriates and other domestic workers, local employees not only learn about their jobs, organisation, environment and colleagues, they also learn workplace social skills such as how to motivate, build trust, create shared identity and spur engagement with their colleagues, which will eventually benefit their future career and life (Jones et al., 2004). Figure 2.1 illustrates the nature of the organisational structures of the MNEs and the knowledge flows.

CEO Dept. manager Dept. manager

Dept. manager

Expatriate peers

Worker

Meetings

Telephone

Email

Team work

Local peers

Training

Manual

Social events

Notes:  Solid lines: sources of knowledge; dashed lines: transmission channels.

Figure 2.1  F  ramework for the analysis of channels for the diffusion of managerial knowledge within a MNE subsidiary

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Conceptual framework ­23

2.4 CONDITIONS FOR MNE-FACILITATED KNOWLEDGE TRANSFER The process of knowledge transfer is neither automatic nor costless. The same applies to FDI embedded knowledge. There are many necessary preconditions to meet for effective technology transfer and knowledgereceiving process. First, investment and trade policy instruments matter. It is argued that openness facilitates linkages and directs resources to the ‘right’ sectors, as well as creating a competitive and dynamic environment (Balasubramanyam et al., 1996). Heavy restrictions on foreign investors and import substitution policy provide foreign affiliates with low incentives for technology transfer (Aitken and Harrison, 1999). Second, legal and regulatory schemes, especially those related to intellectual property rights (IPR) are important. It is unlikely that MNEs would bring core technology to their subsidiaries if IPR protection in the local economy was weak. They would also have little incentive to invest in R&D and become innovative. Third, forming sufficient linkages is necessary to make effective technology transfer. For a period, China required joint venture as a condition for FDI inflows. China and Brazil both negotiated export and local content requirements on FDI in certain industries such as the automobile industry. This enforces linkages between foreign and local firms. They also imposed training requirements on FDI in some cases, for example Motorola in China. Fourth, technological gaps between foreign and local firms also matter. The relationship between the strength of spillovers and the technology gap follows an inverted U shape. Spillovers are found to be present when the technology gaps are moderate and also when they are much larger (Kokko et al., 1996; Meyer, 2004). Finally, the most necessary condition for effective technology transfer is sufficient absorptive capacity, which we will discuss below. Several studies have investigated the role of FDI in helping developing countries upgrade their technological capability. Fu and Gong (2011) contributed to this debate in an original fashion. They explored the sources/drivers of technology upgrading in China and their results suggest that FDI serves as an effective vehicle transferring advanced foreign technology from global reservoirs of knowledge. Firm-level evidence from India further supports this hypothesis. Using an unbalanced set of panel data from 1,843 Indian manufacturing firms operating during the period 1994–2005, Sasidharan and Kathuria (2011) examined the relationship between FDI and domestic firms’ R&D in the post-liberalisation regime. In most regression specifications, they found that the foreign equity participation acts as a disincentive for investment in R&D. The presence

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of foreign firms in the local industry had a positive effect on the R&D intensity of only new domestic firms, which were incorporated after 1985, during the newly liberalised regime.

2.5 MNEs, LOCAL CAPABILITIES BUILDING AND SUSTAINABLE DEVELOPMENT The capabilities of local workers develop through the adoption of advanced management practices, and through knowledge transfer and to local employees. As a result, we see a rise in income, skills development, aspirations and welfare among the local employees. This not only empowers the local employees financially, but also alters their skills and aspirations. The increase in income levels and job opportunities enables households to spend more on education, healthcare and familial obligations. Figure 2.2 provides a framework which summarises the mechanisms through which MNEs may impact economic and human development through an increase of knowledge, capability and management practices in the MNEs. The MNEs operating within the national space are likely to exert two impacts – one on their employees and the other on the domestic firms with which they interact in the business sphere. Figure 2.2 espouses certain benefits to the employees of the MNEs. The MNEs transfer superior knowledge or technology to their staff through training (formal or tacit) about the business operations to enhance their competitiveness. Indigenes Income increase

Knowledge transfer MNEs Adoption of advanced management

Capabilities building of local workers and managers

Greater skills

Greater aspiration

More spending in household education, healthcare, support to wider family

Empowerment (econ., skills, aspiration) and Entrepreneurship

Welfare improvement

Figure 2.2  F  ramework of knowledge transfer in MNEs, local capability and development

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Conceptual framework ­25

in management positions in the MNEs have access to improved management practice which will enhance their competences and make them more effective in their managerial activities. The knowledge transfer to workers and access to advanced managerial practices by managers will enhance local capability in the MNEs which spill over to the national economy should these staff leave the MNEs to establish their own companies. Further, such capability as already discussed in this chapter can be transferred to other domestic firms through business relations (subcontracting) or informally through social interactions. The net effects, which will be discussed in detail in Chapter 7, include increased income, greater skills, greater aspiration and welfare improvement, among others.

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3.  M  NEs and the industrial sector in Ghana 3.1 INTRODUCTION Multinational enterprises (MNEs) have been engines of global economic development, technological transfer and deepening globalisation. They have developed not only within their domestic corporate framework but also by setting up new subsidiaries in host economies and by purchasing subsidiaries through mergers and acquisitions. The MNEs or corporations cover the entire spectrum of business activity from manufacturing to extraction, agricultural production, chemical processing, service provision, and finance among others and therefore there is no peculiar line of activity of the multinationals. According to Dunning and Lundan (2008), multinational companies (MNCs) are enterprises that engage in foreign direct investments (FDIs) and own, or in some ways control, value added holdings in more than one country. MNEs, also known as MNCs, establish subsidiaries in countries other than their home countries with several motives, a few of which are to expand their market access, to increase their revenue and return on investment. MNEs contribute significantly to global production of goods and services. It is estimated that over 60 per cent of international trade is handled by MNEs.

3.2  OVERVIEW OF MNEs IN GHANA MNEs’ operations in Ghana date back to the colonial era with companies such as United African Company (UAC), United Trading Company (UTC), Kingsway, Lever Brothers (UniLever) and Paterson and Zochonis (PZ) among others. Some of these companies are still in operation in modern-day Ghana. Prior to 1983 the economy of Ghana was plagued with price controls, heavy state involvement, newly established parastatal organisations, inflation, an unstable political environment and so on. These conditions were hostile to both foreign and domestic investment decisions and so did very little to attract potential foreign investors. ­26

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MNEs and the industrial sector in Ghana ­27

In 1983 there was a total collapse of the economy due to mismanagement on the part of the government. As a result, the government of Ghana, with the help of the Bretton Woods Institution, the International Monetary Fund (IMF) and the World Bank, initiated the Economic Recovery Program (ERP) in April 1983 in order to stabilise the economy and reform the market. The need to attract FDI became a major policy objective of the ERP (Abdulai, 2005). During the second phase of the reform (1987–1992) most state-owned enterprises were privatised due to inefficiencies. Price controls were removed and the export retention programme for non-traditional exports was discontinued to ensure exporters retained all their revenues. Ghana remained one of the first Sub-Saharan African countries to execute market-friendly economic reform programmes, commencing with the implementation of the ERP in 1983, the adoption of the Mining Code in 1986, the enactment of the Investment Code in 1994 and the Free Zone Act in 1995. There were other economic policy initiatives linked to the overriding goal of transforming the economy from state-controlled to free-market. The successful implementation of these reform programmes and policy initiatives put in place the key structures of Ghana’s freemarket economy. Ghana has attracted a lot of investment from a variety of multinational enterprises due to its liberalised economy, political stability, wealth of natural resources, an excellent geographic position, easy access to markets in Europe and the sub-region and favourable fiscal incentive packages especially under the Investment Code. The burgeoning oil industry has also played a large part during the past three to five years in attracting large numbers of oil companies and their service providers into Ghana. In addition to the reform, Ghana enacted a series of laws such as the Minerals and Mining Law of 1986, the Investment Code of 1994 and the Free Zone Act of 1995. These laws were considered market-friendly and they helped to attract investors into the country. Foreign capital participation in the economy of Ghana can be traced back to the pre-independence era. The colonial era saw foreign companies trading in raw materials which they acquired from what was then Gold Coast (now Ghana) and exporting them to Europe. Due to the composition and nature of the economy at that time, multinationals were dominant in the extraction industry (GIPC, 2014). As such, MNEs have contributed significantly to the development of this industry. Since then the activities and operations of multinational enterprises have spread to other sectors of the economy. The World Rainforest Movement (2002) has noted that foreign companies own more than 70 per cent of the ownership structure in Ghana’s

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$4,000,000,000 $3,500,000,000 $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000

$0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$500,000,000

Source:  Based on data from http://www.indexmundi.com/facts/ghana/foreign-directin​vestment.

Figure 3.1  Ghana – foreign direct investment (1991–2016) mining sector. Statistics from the Ghana Investment Promotion Centre (GIPC) show that about one third of all FDI to Ghana in the past 10 years is registered in the manufacturing sector. The third-quarter report of GIPC in 2017 shows that out of 39 registered manufacturing companies, only seven are wholly owned by Ghanaians while the rest were either owned by foreigners or joint ventures between Ghanaian investors and foreign investors (GIPC, 2018). Also, the construction sector has attracted a considerable number of foreign companies in large-scale projects such as the construction of roads, dams, stadiums, office complexes, hospitals, and others. It can be said that Ghana has created the enabling environment – security, infrastructure and human capital – to facilitate the smooth operations of MNEs over the years. The current trend in Ghana’s FDI is mainly a 2000s phenomenon as shown in Figure 3.1.1 There was a distinctive and sharp increase from about $145 million in 2005 to $3,222.2 million in 2011. Between 2005 and 2011 there was such a huge leap in FDIs that Ghana could be said to have attained an enviable position in the sub-region in terms of attraction of FDIs. Foreign capital has had a long history of contributing to the economy of Ghana. During the colonial period in Ghana, foreign firms taking the form of itinerant merchant capitalists traded between the Gold Coast (now Ghana) and Europe basically in raw materials. As a result of the nature and purpose of the colonial economy, foreign firms were not so visible in the manufacturing and construction sectors of the colonial economy.

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However, multinationals have always been dominant in the extractive industry. Wage employment, for example, was introduced in the mining sector in Ghana in 1894 (Baah, 2005) and MNEs have played a prominent role in the development of this industry. Since then the activities of MNEs have spread to other sectors of Ghana’s economy. In Ghana, MNEs can be identified within the transport and communication, banking and insurance, mining and quarrying, real estate, construction, manufacturing, distribution and oil and gas as well as the retail industry in recent times. As noted previously, according to the World Rainforest Network, foreign companies own over 70 per cent of the ownership structure of mining in Ghana. Again, data from the Ghana Investment Promotion Centre (GIPC) show that about one third of all FDI to Ghana in the past decade has been registered in the manufacturing sector (GIPC, 2014). The construction sector has also witnessed considerable participation of foreign companies in large-scale construction of roads, dams, stadia and other infrastructural projects. Ghana therefore has over the years provided an enabling environment including security, infrastructure and human capital to facilitate the smooth operations of these businesses.

3.3  NATIONAL POLICIES ON MNEs Ghana’s overall performance with regards to the regulatory environment for companies has been relatively good. In fact, Ghana did not belong to the group of countries with overall excessive regulations, for which Busse and Groizard (2008) found a negative impact of FDI on economic growth. Moreover, Ghana has further improved the overall quality of regulations considerably in recent years. The World Bank (2008) ranked Ghana as a top reformer for the second year running and the government of Ghana continues to enhance the efficiency of its public services, partly by cutting bottlenecks in property registration, by improving the port handling operations to speed up imports, and by reducing the time needed to enforce a contract through the introduction of new civil procedures. In 2013, the World Economic Forum report indicated that in Africa, Ghana ranked 14th on the business impact of rules on FDI indicator. This indicator simply measures the extent to which rules and regulation encourage or discourage FDI operations in a country. Ghana beat giant African countries like South Africa. This implies that national policies on foreign investments are attractive and not repulsive. Ghana also ranked 7th on the strength of investor protection indicator in Africa and 41st in the world (out of 148 countries). On the prevalence of foreign ownership indicator,

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Ghana ranked 5th in Africa and 30th in the world, beating countries such as South Africa, Rwanda, Tanzania, China and Japan (World Economic Forum, 2013). In overall performance, the World Bank (2013) also reports that Ghana places 5th as easiest place of doing business in Sub-Saharan Africa with Rwanda placing 1st and South Africa 2nd. This further supports the assertion that Ghana has good national policies that create a favourable environment for foreign investors to operate within. The operations of multinational enterprises extend all over the world, and the Organisation for Economic Co-operation and Development (OECD) is a unique forum where the governments of 30 democracies work together to address economic, social and environmental challenges of globalisation. The OECD has Guidelines for Multinational Enterprises, and these guidelines are recommendations addressed by governments to multinational enterprises all over the world. The purposes of the guidelines are to ensure that the operations of these enterprises are in accordance with government policies, to ensure mutual confidence between enterprises and the societies where they operate, to help improve the foreign investment climate and to increase the contribution to sustainable development made by multinational enterprises. Nonetheless, observance of these guidelines by MNEs is not legally binding; it is comprehensive, voluntary but reflecting expectations, government-backed and not a substitute for domestic law. Ghana, like most developing and emerging economies, has over the past two decades introduced numerous measures to attract FDI. Among these measures is the establishment in 1994 of the Ghana Investment Promotion Centre (GIPC). The country has also offered investors very generous incentives. Ownership rules have been sufficiently relaxed. Start-up capital requirements were also relaxed. Foreign companies in the Free Zones enclave (manufacturing) and in the mining sector were granted long tax holidays. They were also allowed to retain large portions of their profits in foreign accounts. These were supplemented by high-profile investment promotion tours to various countries around the world. Furthermore, the new labour law (Labour Act, 651) was enacted in 2003 to replace the previous labour laws as a means of achieving a more flexible labour market. The main objective of the new law is to end the ‘monopoly’ of the Ghana Trades Union Congress. Currently, Ghana is in the process of drafting a CSR policy that is expected to encourage innovative approaches and continuing development and application of best practice, as well as ensure that the country has at least decent levels of performance in areas such as health, safety and environment. The process is being led by the Ministry of Trade and Industry (MOTI), the ministry responsible for all trade and investment relations in the country.

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Also, the government, through the Local Content Law and Trade and Industry Promotion Policies, is providing an environment which will allow MNEs in the manufacturing of parts and equipment to use local raw materials and the government is progressively promoting the local processing of raw materials. In the oil sector, a local content policy has actually been formulated to enhance local participation in the oil industry, which is anticipated to be a source of ‘accelerated growth, poverty reduction and general prosperity of the people of Ghana (Ministry of Energy, 2010:2). For an industry where the main actors are MNEs, a local content policy is necessary and this principle of providing policy guidance to enhance local content is being extended to other sectors.

3.4 CONTRIBUTIONS OF MNEs TO INDUSTRY GROWTH AND DEVELOPMENT IN GHANA The role MNEs play in expanding the frontiers of globalisation raises both opportunities and challenges for a country’s economic development needs. Some scholars believe MNEs are crucial to economic and social development of developing countries with inadequate domestic sources of investment capital, while others are of the view that MNEs are a threat to national development and sovereignty. Nonetheless many governments, especially those of developing countries, have increased their promotional efforts in order to attract MNEs and FDIs for socio-economic development. Ghana, like other developing countries, has an abundance of labour and natural resources but lacks the capital to harness these important economic resources. For this reason, investments by MNEs are important. They provide access to foreign capital and investments which enable the host country to invest in human and physical capital. The investments by multinational firms serve as a major source of capital for the development activities in developing countries. Table 3.1 presents the amount of investments projects in Ghana since 2010. The number of investment projects registered was highest in 2011 (514 projects). The number increased in 2013 following a decline in 2012. By 2015 the number of registered investment projects was 170 and increased to 180 in the following year and 192 in 2017. In Figure 3.2, investment by FDI and their local counterparts is displayed. Again the FDI component of the total registered projects over the years reached a high in 2011. But it declined consistently until it was lowest in 2015 with an estimated value of $1,978.69 million. Meanwhile the local component largely followed the same trend (with the exception of 2015 when it went up).

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Table 3.1  Investment projects in Ghana since 2010 Year

Projects

2010 2011 2012 2013 2014 2015 2016 2017

385 514 305 477 184 170 180 192

Amount of investment (million USD)

Source:  GIPC (2018). 6,820

7,000

FDI Local

6,000 4,380

5,000

3,946.41

4,000

3,387.50

3,000 2,000 1,000 0

1,978.69 1,110

864.08

170.74

2010

2011

593.94

2012

315.91

2013

190.97

2014

351.31

2015

Year Source:  GIPC (2016).

Figure 3.2  Investments by MNEs in Ghana 2010–2015 3.4.1  Employment Created by MNEs MNEs and their activities significantly contribute to employment creation, resource mobilisation and technology transfer. Figure 3.3 presents employment created by MNEs in Ghana. Similar trends can be observed in the employment created for Ghanaians and expatriates (except in 2015). More jobs were created in 2010 (103,099 job for Ghanaians and 16,479 for expatriates) compared to all other years under review. Growth in employment generation for both Ghanaians and foreigners followed the same declining trend until 2013, which saw an increase; this then declined.

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MNEs and the industrial sector in Ghana ­33

Employment, numbers

120,000

Ghanaians Expatriates

103,099

100,000 76,304

80,000 60,000

43,172

40,000 20,000 0

16,479 3,589

2010

2011

13,094

14,560 1,804

2012

2013

11,670 1,452

2014

13,534 1,414

2015

Year Source:  GIPC (2016).

Figure 3.3  Employment created by MNEs in Ghana 2010–2015 Yet while the number of jobs created for Ghanaians increased in 2015, for expatriates the number continued to decline from 2014. The MNEs provide a lot of assistance to firms that supply them with raw materials (suppliers) including the provision of training to their suppliers’ employees. For instance, Nestlé Ghana and Blue Skies PLC collaborate with the local farmers to build their capacity for supplying quality raw materials. Nestlé Ghana collaborated with the Ministry of Food and Agriculture (MOFA) and the International Institute of Tropical Agriculture (IITA) in programmes such as the Northern Rural Growth Programme, which developed training programmes to help farmers increase the quality of cereals (maize and millet) used to produce their Cerelac infant cereal. More than 50,000 farmers, including 24,000 women, and 1,200 agriculture extension officers have been trained through this intervention.

3.5  FDI FLOWS INTO GHANA Ghana has recognised the significance of FDI as a critical issue in ­development, which has led to a considerable improvement in the local climate for FDI after it shifted into a market economy (Amoah, 2014). This has exerted a positive impact on the country’s standing in attraction of FDIs in Africa. Ghana is ranked 7th, after Nigeria, in the total number of projects registered. In terms of capital investments, Egypt recorded the highest in FDI in Africa with $17.9 billion worth of investments, with Angola r­ anking

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Multinationals, local capacity building and development 20.0 15.0 10.0 5.0

O th er

0.0

Eg yp t A ng ol a N ig er M ia oz am bi qu e M or oc co G ha So na ut h A fr ic a Za m bi a Et hi op ia K en ya

Investment amount (billion US$)

34

Source:  The Africa Investment Report (2015).

Figure 3.4  FDI flow to Africa by capital investment in 2014 2nd, as shown in Figure 3.4. Ghana emerged 6th with $4.4 billion of investments. It is worth noting that, although South Africa was ranked 1st in terms of FDI projects, it was ranked 7th in terms of investment capital. China is perceived as a key investor in Africa. Chinese FDIs in SubSaharan Africa increased rapidly in recent years, focusing mostly on Ghana and Nigeria (UNCTAD, 2012). Currently, Sub-Saharan Africa attracts about $9 billion out of the total $16 billion of China’s FDI stock in Africa. Ghana has over the years achieved moderate success in attracting FDI. According to Ghana Investment Promotion Centre (GIPC), Ghana attracted over 2,000 individual foreign investors from many different countries across the globe, with the majority of them coming from China. Projects registered in Ghana by Chinese investors between 2000 and 2015 totalled 636 mainly in general trading and manufacturing. However, in terms of value, China placed 4th with $2.5 billion, while Great Britain topped with $5.6 billion largely in building/construction and service sectors of the economy (GIPC, 2017). Korea had projects with a value of $5.0 billion, followed by the USA with $4.2 billion. Nigeria ($1.6 billion) and British Virgin Islands ($1.7 billion) became part of the 10 top sources of FDI flow into the country (see Figure 3.5). South Korea’s investment is mainly in the building and construction sector, general trade and service; USA in the manufacturing and building and construction; United Arab Emirates, building and construction; and China in manufacturing and service as well (see Table 3.2). It is expedient on the government and all stakeholders to make concerted efforts towards attracting more investments to the agricultural sector if the country looks forward to achieving a goal of a domestic food security.

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MNEs and the industrial sector in Ghana ­35 5.60

6.00

5.00

5.00

4.20

4.00 2.50

3.00

2.10

1.80

2.00

1.70

1.60

1.40

1.20

s rla nd

us

he et N

M au r

ig er N

iti

ia

s la nd Is

ba no

V irg in

sh

d

Br

iti

te ni U

n

s Le

Em

ira te

na C hi

A ra b

U

SA

ea or K

Br

–

ita in

1.00

Source:  GIPC (2017).

Figure 3.5  Sources of investments registered by FDI value (2000–2015) Table 3.2  F  DI sector contribution by country in million(s) USD, 2000–2015 Country Britain Korea USA China United Arab  Emirates Lebanon British Virgin  Islands Nigeria Mauritius Netherlands

Agriculture

Building/ Manufacturing Construction

Service

Tourism

21.4 10.8 31.9 4.9 0.6

222.3 4,959.3 939.2 303.3 2,066.9

5,013.2 12.5 2,306.4 1,432.2 9.0

157.2 23.0 838.8 569.3 7.5

7.2 1.8 14.6 10.4

1.3 13.2

24.4 956.5

1,576.9 18.0

11.8 77.5

3.9 646.0

3.0 1.0 24.7

81.3 914.2 159.9

7.8 4.8 119.3

701.6 120.5 918.5

5.9 68.6 3.4

Source:  GIPC (2017).

Again, data from GIPC show that about 30 per cent of all FDI inflows to Ghana in the past decade were directed to the service sector and the ­previously dominant sector (manufacturing) was next. Agriculture attracted the least share of FDIs (see Figure 3.6).

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Multinationals, local capacity building and development Tourism 7%

Agriculture 4%

Service 30%

Building/ Construction 9% Export Trade 4%

General Trade 19%

Liaison 6% Manufacturing 21%

Source:  GIPC (2017).

Figure 3.6  FDI by sector (2000–2015)

3.6  ROLE OF FDI IN GHANA FDI has contributed to the country’s development in diverse ways, including injecting capital and creating employment. Between 2010 and 2015, Ghana registered 2,035 foreign projects with a total investment value of about $21.6 million. For the same period, the projects provided over 262,000 jobs to Ghanaians. The provision of these jobs reduce poverty and contribute to the general well-being of the Ghanaian economy, since income from jobs will increase the purchasing power of the people to consume goods and services. FDI also brings the technology and management skills needed for economic growth and development through enhanced productivity. However, there is uneven distribution of FDI across the various sectors of the Ghanaian economy. Sectors such as agriculture, where issues of backwardness and capital constraints prevail, are not benefiting much from foreign investments. Only 4 per cent of total FDI received went into the agricultural sector. This is relatively far less than to the other sectors like the manufacturing (21 per cent), services (30 per cent) and construction (9 per cent) among others (GIPC, 2017). FDI constitutes an important resource for Ghana and Africa in general. It remains critical to the developmental efforts of most African countries. Africa attracts huge FDI from emerging economies in Asia with China

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being the continent’s third largest trading partner after the United States and France. Ghana has over the years achieved moderate success in attracting FDIs and has attracted over 2,000 foreign investors from more than 20 different countries, with a significant proportion of them coming from China. The greatest share of the FDI that Ghana receives goes into industry (mainly building/construction and manufacturing). While this sets the country on its path towards the building of its industrial base, the agricultural sector has been relegated to the background in spite of the fact that it still employs the majority of the rural population and has been the backbone of the economy for years.

3.7  GHANA’S INDUSTRIAL SECTOR 3.7.1  Institutional Framework for the Industrial Sector The core public institutions managing the sector are the Ghana Investment Promotion Centre which currently operates under the Office of the President and the Ministry of Trade and Industry and its allied agencies such as Ghana Export Promotion Authority (GEPA), National Board for Small Scale Industries (NBSSI), Ghana Standards Authority and the GRATIS Foundation of Ghana. There is also the Association of Ghana Industries (AGI), which is a voluntary organisation of all industry players in the country which plays an advocacy role in policy making and implementation. The Ministry of Trade and Industry develops the industrial policy which guides all activities and actions of the industrial sector in Ghana. 3.7.1.1  Industrial policy2 The main document driving industrialisation in the country is the Ghana Industrial Policy developed by the Ministry of Trade and Industry. The Industrial Policy is designed to promote increased competitiveness and enhanced industrial production, with increased employment and prosperity for all Ghanaians. It is also designed to provide a broader range of fairpriced, better quality products for the domestic and international markets. The key development objectives of the Industrial Policy are to: 1. expand productive employment in the manufacturing sector; 2. expand technological capacity in the manufacturing sector; 3. promote agro-based industrial development; 4. promote spatial distribution of industries in order to achieve reduction in poverty and income inequalities.

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The various issues that the policy aims to address are: ●● ●● ●● ●● ●● ●● ●● ●● ●●

labour and industry relations; incentive frameworks for industrial development; privatisation and public–private partnership for development; technology in industry; intellectual property rights in industrial development; financing for industrial development; gender equity in industry; health and safety guidelines in industry; micro, small and medium-sized enterprises development.

The Industrial Policy underscores that Ghana’s manufacturing sector has not responded well to the various economic and trade policy reforms pursued over time. Manufacturing firms have faced considerable challenges in the form of increased competition in the domestic and export markets and high production and distribution costs arising from high interest rates, obsolete equipment, inefficient infrastructural services and low productivity. As part of the policy, the government intends to initiate and implement programmes to develop requisite skills, ensure adequate and cost-competitive production inputs and services, and also provide financing for industrial development. The overdependence of Ghana’s industrial sector on exports, resulting in higher pricing of raw materials, was acknowledged by the Industrial Policy. The policy objective for this particular constraint is ‘to ensure availability of competitively priced imported raw materials for manufacturing’. Hence, the government has spelt out policy directions to ensure that this is achieved, and it includes the following: 1. encouraging the private sector to set up consignment stocking of critical imported raw materials in a customs bonded warehouse by the government; 2. supporting industry groups to negotiate favourable port charges and shipping costs; 3. improving handling facilities and turn-around times at the ports; 4. exploring opportunities with private sector partners for regional and sub-regional joint sourcing arrangements. In recent times, the industrial sector has suffered some setbacks owing to the poor electricity and water supplies in the country. This has led to some industries reducing their outputs drastically, causing the retrenchment of labour, thereby increasing the unemployment rate in the ­ country.

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The  policy clearly addresses this issue with an objective to ‘ensure adequate, sustainable and cost-effective delivery of electricity and water to industry and also to promote efficient use of electricity and water’. In addressing this issue, the government has pledged a commitment to the following policy prescriptions: ●●

●● ●●

ensuring that industry’s requirements of electricity and water are met at competitive prices and in an environmentally sustainable manner; encouraging private sector participation in the supply of electricity and water; designing and implementing energy and water efficiency and conservation programmes.

Even though all these plans have been targeted by the government to boost the industrial sector, much of it has not materialised as the country continues to experience serious setbacks of power cuts every now and then. The majority of the policy directions for a ‘cost-effective and adequate supply of electricity and water’ have not been met, and these plans are still being debated. If the industrial sector is to see a significant boost and a greater contribution to the country’s growth, adequate infrastructure systems are critical. 3.7.1.2  Composition of the industrial sector The industrial sector of Ghana comprises the following industries: ●● ●● ●● ●● ●● ●●

mining and quarrying (bauxite, gold, manganese and diamonds); manufacturing (e.g. iron and steel, food and beverages, cement, metal, pharmaceuticals, sawmill and wood products); electricity; water and sewage plants; construction; petroleum.

The mining industry has been a huge contributor to the growth of the industrial sector in Ghana, though it has been faced with a number of challenges in recent times resulting in staff retrenchment to reduce operational costs. In 2012, the sector performed appreciably well with gold leading the industry at a growth rate of nearly 24 per cent. According to the Gold Fields Mineral Survey, Ghana was the 8th leading producer of gold in the world, and its output increased by 6 per cent, a rise in position from 9th in 2011. The strong performance of the mining industry was reflected by its

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impact on the country’s economy in 2012. The Bank of Ghana reported that the mining industry’s contribution to total merchandise export earnings was about 43 per cent in 2012. In terms of tax collection, the sector maintained its lead, as the largest contributor to the country’s domestic tax revenue. The payments from the mining industry to the Ghana Revenue Authority (GRA) totalled approximately GH¢1.5 billion in 2012. This amount represents about 27.04 per cent of GRA’s total domestic collections in the year, an increase of 45 per cent from 2011 levels (Ghana Chamber of Mines, 2013). Although an under-developed sector in Ghana, manufacturing is nevertheless an important contributor to the country’s GDP. The sector is characterised by a narrow industrial base dominated by agro-industries, limited diversification, reliance on imported inputs of raw materials and intermediates, relatively under-developed industry linkages, prevalent use of obsolete technologies and production that is mainly focused on the domestic market (UNESCO, 2010b). In terms of importance, the manufacturing sector, though not as strong as it should be, continues to play a respectable role in the economy, contributing about 2.7 per cent to GDP (Ghana Statistical Service, 2017). Ghana’s most important manufacturing industries include aluminium smelting, agro-food processing, oil refining and cement. Other industries include the production of beverages, textiles, apparel, glass, paints, plastics, chemicals and pharmaceuticals, and the processing of metals and wood products (UNESCO, 2010b). The sector provides employment for an estimated workforce of less than 10 per cent of the labour force (Ghana Statistical Service, 2014). About 25,000 firms are registered. More than 80 per cent of them are small enterprises with fewer than 50 employees, while it is estimated that 55 per cent of all enterprises are located within the Greater Accra/Tema region. However, the contribution of Ghana’s manufacturing sector to overall growth is still marginal (UNESCO, 2010a). The construction industry plays an essential role in the socio-economic development of the country. The activities of the industry have significant impact on the achievement of national socio-economic development goals of providing infrastructure, sanctuary and employment. It includes hospitals, schools, townships, offices, houses and other buildings; urban infrastructure (including water supply, sewerage, drainage); highways, roads, ports, railways, airports; power systems; irrigation and agriculture systems; telecommunications among others (Osei, 2013). Being among the top drivers of the Ghanaian economy, including agriculture, manufacturing and mining, its importance cannot be overemphasised, especially as the country is one of the most active economically

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in West Africa. It is well known that an active construction industry adds to growth as it employs skilled and unskilled labour, from engineers and consultants to artisans and labourers. Construction and maintenance of buildings, housing, roads, bridges and other physical infrastructure are crucial to generate employment, development and growth (UNESCO, 2010a). Petroleum was part of the manufacturing sector until 2012 when the country began producing oil in commercial quantities. The sector was based on the state-owned Tema Oil Refinery (TOR), which produces refined products from imported crude oil. It accounted for about 19 per cent of manufacturing output. The major products are petrol, kerosene and diesel. After 1996, locally refined petroleum products were no longer exclusively supplied to oil marketing companies in Ghana by the TOR. The state-owned Bulk Oil Storage and Transport Company (BOST) was established to deal with bulk distribution of petroleum products nationwide. The first production of petroleum products locally was recorded in 2012 and since then it has made great contributions to the growth of the sector and the country at large. 3.7.1.3  Performance of the industrial sector in Ghana The industrial sector is the second largest sector in Ghana. The sector grew by only 0.8 per cent in 2014, a far cry from its growth rate of 6.6 per cent in 2013 (ISSER, 2015). Performance over the years in the sector has been underpinned primarily by growth in the mining and quarrying industries, with petroleum being the main contributor. The exception to this is the manufacturing and the water/sewage plant industry, which recorded a marginally higher growth rate in 2014 than in 2013. All other sectors grew more slowly than this in 2014 (ISSER, 2013, 2014, 2015). In spite of the industrial sector being the second largest contributor to the Ghana economy, it employs only 14.4 per cent of the labour force while agriculture and the service sectors employ 44.7 per cent and 40.9 per cent respectively of the labour force (Ghana Statistical Service, 2014a). According to Ghana Statistical Service (2017) the industrial sector contributed about 24.2 per cent to Ghana’s GDP. As shown in Figure 3.7 the industrial sector has been the second highest contributor to GDP since 2011, taking over from the agriculture sector. This is because Ghana began the exportation of crude oil in 2011 and this contributed immensely to the growth of the sector (ISSER, 2017). Figure 3.7 also shows a steady increase in the sector’s contribution to GDP. In 2016, the contribution of the industrial sector to GDP decreased by 1.4 per cent, while the services and agriculture sectors’ growth rates increased by 5.7 per cent and 3.0 per cent respectively, as indicated in Figure 3.8. In addition it can be observed that the growth rate of the

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Multinationals, local capacity building and development 60.0 Services, 56.9

GDP %

50.0 40.0 30.0

Industry, 24.2 Agriculture, 18.9

20.0 10.0 0.0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Years

Source:  Adapted from Ghana Statistical Service (2017).

Figure 3.7  GDP trend of the economy by sectors 45.0

41.6

40.0 Growth rates (%)

35.0 30.0 25.0 20.0 15.0

11.0

10.0

6.9

5.0

6.6 0.8

0.0 –5.0

2007

2008

2009

2010

2011

2012

2013

2014

Services, 5.7 Agriculture, 3.0 Industry, –1.4 2015 2016 –0.3

Years

Source:  Adapted from Ghana Statistical Service (2017).

Figure 3.8  Growth rates trend of the economy by sectors i­ndustrial sector increased rapidly to 41.6 per cent (2011) from a growth rate of 6.9 per cent (2010) but dropped sharply to 11.0 per cent (2012). Since 2012 the growth rate of the industrial sector has decreased annually: 6.6 per cent (2013), 0.8 per cent (2014), 0.3 per cent (2015) to −1.4 per cent (2016). The continuous decrease in the industrial sector has been caused largely by two sub-sectors, as shown in Table 3.3, namely mining and quarrying as well as oil and gas. These two sub-sectors’ growth rates have consistently dropped from 2012 to 2016. In 2016 the oil and gas sub-sector decreased by 16.9 per cent, followed by the mining and quarrying sub-sector with a

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MNEs and the industrial sector in Ghana ­43

Table 3.3  Growth rates of the industry sector from 2007 to 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Mining and 6.9 2.4 6.8 18.8 206.5 16.4 11.6 3.2 −6.1 −10.7  quarrying Oil and gas 21.6 18 4.5 0.9 −16.9 Manufacturing −1.2 3.7 −1.3 7.6 17 2 −0.5 −0.8 2.2 2.7 Electricity −17.2 19.4 7.5 12.3 −0.8 11.1 16.3 0.3 −10.2 11.7 Water and 1.2 0.8 7.7 5.3 2.9 2.2 −1.6 −1.1 20 −3.2  sewerage Construction 23.1 39 9.3 2.5 17.2 16.4 8.6 0 2.2 2.9 Source:  Ghana Statistical Service (2017).

decrease of 10.7 per cent. According to the State of the Ghanaian Economy (ISSER, 2017) the decrease in growth rate of the oil and gas sub-sector was caused by a decline in world crude oil prices and by disruption in the production of oil at the Jubilee Field as a result of damage on the FPSO Kwame Nkrumah which finally reduced the total growth rate in the mining and quarrying sub-sector by −10.7 per cent in 2016. On the other side, FDI in the mining sector provides little employment, because mining is a relatively capital-intensive activity that provides foreign exchange primarily through increased exports and government revenue. Therefore, few technology spillovers result from mining FDI, in contrast to efficiency-seeking FDI into manufacturing and assembly, which typically have more technology spillovers (Ofori and Asumadu, 2017). Moreover it is worth noting that the electricity sub-sector increased to 11.7 per cent in 2016 after a decrease by 10.2 per cent in 2015. This was attributed to an improvement in electricity generation and power supply, in other words an improvement in the black-out challenges popularly called ‘Dumsor’ (ISSER, 2017). However, Ghana’s performance in terms of global industrial innovation has improved over the years. The World Economic Forum Global Competitiveness Index Report in 2018 indicates that out of the 137 countries that were studied, Ghana was ranked 111th, an improvement over its ranking of 119th in 2015/2016. Ghana’s performance in some key areas of innovation, which is Pillar 12 of the Global Competitiveness Index, indicates the following rankings: ●● ●●

capacity for innovation – 63rd (a decline from 56th in 2015/2016); quality of scientific research institutions – 74th;

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Multinationals, local capacity building and development

availability of scientists and engineers – 81st; university–industry collaboration in R&D – 65th.

The statistics suggest that globally Ghana’s capacity for innovation and scientific capability (in terms of human resources and institutions) is respectable. However, the low score for university–industry collaboration suggests there is need for an improvement. This further implies that should Ghana create an effective bridge between the R&D system and industry, Ghana’s global competitiveness could be enhanced. Therefore, the industrial sector of Ghana could have an improved outlook if it were augmented with effective R&D support systems and collaboration.

3.8  SUMMARY OF FDI IN GHANA Foreign capital participation in the economy of Ghana can be traced back to the pre-independence era. Since independence in 1957, the post-reform era has seen much more MNE activities compared to the pre-reform era. This is owing to the liberalisation measures pursued during the reform, which led to a significant inflow of private foreign capital into the economy. Ever since then market-friendly initiatives have been introduced, including the Minerals and Mining Law (1986) and the Investment Code, among others. Moreover, the heavy presence of multinational enterprises in the Ghanaian economy today can be attributed to the following factors: having a stable political climate since the 1980s, an abundance of natural resources, ease of access to European markets and those in the sub-region, and, finally, incentives offered under the Investment Code. Additionally, the oil and gas industry has contributed to attracting a large number of oil companies and their service providers into Ghana during the past five years. Several policy measures and initiatives have been introduced to attract foreign investors into the country, including incentive packages such as tax exemptions, long tax holidays for companies, permitting enterprises to retain large proportions of their profits in foreign accounts; and guarantees such as profit, interest or dividend transfers arising from any investment. The role of government and its institutions has changed markedly due to changes in overall economic policies. Government’s intervention in the economy has been reduced and institutions regulating investment are working to create an investor-friendly environment for FDI. New laws including the Ghana Investment Promotion Centre (GIPC) Act 2013 (Act 865) and the Free Zones Act 1995 (Act 504), amended by

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MNEs and the industrial sector in Ghana ­45

the Free Zones (Amendment) Act in 2002, have been enacted to substitute obsolete ones that were considered to be stifling investment. This was to encourage and promote both foreign and Ghanaian investments to promote economic development. The role that MNEs play in expanding the frontiers of globalisation raises both opportunities and challenges as far as the country’s economic development needs are concerned. MNEs provide access to foreign capital and investments which enable the host country to invest in human and physical capital. They also significantly contribute to employment creation, resource mobilisation and technology transfer. Further, MNEs provide assistance to local firms that supply them with raw materials including training to the latter’s employees.

NOTES 1. See the article at http://www.ghana.gov.gh/index.php/2012-02-08-08-32-47/features/5716gha​na-targeting-20-fdi-increase-in-2014. 2. Retrieved from http://www.moti.gov.gh/home/index.php?option=com_docman&task=​ doc_view&gid=24&tmpl=component&format=raw&Itemid=128 on 3 June 2016.

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4.  M  anagement practices of MNEs in Ghana 4.1 INTRODUCTION Management practices, as we have indicated in the literature review chapter, are likely to transfer from MNEs and expatriates to local managers and employees within an MNE. Training domestic employees is a commonly adopted strategy to improve MNEs’ productivity. Although there are differences in the types and quality of training provided MNEs, with increasing indigenisation of the workforce in MNEs, more and more local employees receive managerial training (Gershenberg, 1994). The acquisition of such managerial skills will invariably improve their performances in the organisation. The capabilities of local workers develop through the adoption of advanced management practices, and through knowledge transfer and to local employees. As a result, we see a rise in income, skills development, aspirations and welfare among the local employees. This not only empowers the local employees financially, but also alters their skills and aspirations. The chapter provides analysis of survey results on the transfer of managerial skills by European and Chinese MNEs to their Ghanaian employees.

4.2 BACKGROUND AND GENERAL INFORMATION 4.2.1  Education across European MNEs and Chinese MNEs Education plays a key role in skills development and diffusion. One of the questions addressed in the Ghana survey focused on the educational levels of workers who participated in the interview. The pie chart in Figure 4.1 displays that more than half of the employees in the sample MNEs have received tertiary-level education or technical training. There are exactly one third of the workers who completed secondary school before moving to the job market, whereas 14 per cent of the workers only completed basic ­46

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Management practices of MNEs in Ghana ­47

14.04%

52.63% 33.33%

Basic Secondary Tertiary

Figure 4.1  Education levels of workers: All MNEs surveyed education. What the data depicts is that the MNEs from both sources are more interested in Ghanaians with higher education since they might have the capability to grasp the intricacies of advanced managerial practices. Graduates of higher education are available for hiring. Since the last decade, the public and private universities have been producing at least 20,000 graduates in all disciplines in the humanities, business and the basic and applied sciences. Getting employment for them has become a national development challenge, especially as the unemployed graduates have organised themselves into an Association of Unemployed Graduates. Employment in MNEs is a good option for addressing the challenge. Figure 4.2 compares the difference in workers’ educational level between the European MNEs and their Chinese counterparts. Compared to the Chinese MNEs, European companies in Ghana tend to hire more skilled and educated employees. About 66.25 per cent of employees obtained a tertiary-level education. Workers who completed secondary school comprise one fifth of employees within the MNEs. A different pattern regarding the education level of workers was observed among the Chinese MNEs. Nearly 60 per cent of the individuals interviewed among the Chinese MNEs were below tertiary-level education. Secondary school graduates take the majority of employment. Workers with the lowest education level are less likely to be employed by both the European MNEs and the Chinese MNEs. This is because the job opportunities in these MNEs are more knowledge- or skills-intensive and education is the means to acquire the necessary knowledge and skills. However, the employment of Ghanaians with lower skills by Chinese MNEs gives opportunities for

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Multinationals, local capacity building and development EU MNE

Chinese MNE

13.75%

14.29%

20% 66.25%

Basic Secondary Tertiary

40.66%

45.05%

Figure 4.2 Education levels of workers: European MNEs vs Chinese MNEs such Ghanaians to be employed and reduces the unemployment situation in the country. For the non-tertiary-educated youth, getting employment is particularly difficult and avenues of employment such as Chinese MNEs are very crucial. Also, it will provide skills to these Ghanaians who can later on engage in productive ventures that are commensurate with their skills and contribute to the socio-economic development of the country. 4.2.2  Gender Composition Corporations that operate globally are acknowledged to have a great capacity to influence women’s empowerment and gender equality in developing countries. Their impacts can be reflected by patterns of employment, wage differentials and potential transfers of knowledge. In general, multinationals’ investments in developing countries have increased women’s employment, particularly in the more labour-intensive sectors (UNCTAD, 2014). Despite progress made, gender gaps still remain and MNEs in developing countries do not have uniform outcomes for women. In Ghana, however, the Labour Act of 2003, Act 651, while protecting the rights of employers, protects the rights of employees including receiving equal pay for equal work ‘without distinction of any kind’. In theory, women in Ghana therefore enjoy a status in their employment equal to their male counterparts generally. In practice, however, there are socio-cultural factors that constrain the realisation of the full measure of the Labour Act. Generally the woman is the one to cook and look after the children at home. All house chores are culturally assigned to the female gender freeing the male to pursue his professional ambition and advance

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Management practices of MNEs in Ghana ­49 Gender composition EU MNE

Gender composition

Chinese MNE

8.791% 17.92%

28.05%

71.95%

91.21%

Female

Male

82.08%

Female

Male

Figure 4.3  G  ender composition of all employees: European MNEs vs Chinese MNEs his career. The effect of this is the dominance of males at the helms of organisations in Ghana. What is generally referred to as the ‘glass ceiling’, which challenges the advancement of women in their careers, definitely exists in Ghana. Figure 4.3 summarises the number of male and female workers who participated in our individual interviews. In general, the gender distribution in our sample is consistent with the proportion of male and female workers within the MNEs surveyed.1 As the right-hand pie chart shows, 82.2 per cent are male and only 17.92 per cent of workers are female among the 173 workers in our sample. It is worth noting that the statistics are based on the employees in different positions across different departments within the MNEs. Employees in managerial positions are not included. There is clear evidence that gender inequality exists in the employment pattern of MNEs. The number of male employees is four times more than the number of female employees. Owing to the differing cultures and understandings of social responsibility between European and Chinese MNEs, there was a large variation in gender composition between them in our interview sample. Typically female labour-force participation is addressed in European MNEs’ employment policies while Chinese MNEs spend comparatively less effort on this issue. Specifically, Western MNEs, for example Walmart, emphasise gender equality, a diverse workforce and appointing women to top management positions (Torres et al., 2012). As shown in Figure 4.3, female labour-force participation is significantly greater in European MNEs than in Chinese MNEs. Of course, we need to be cautious in

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Table 4.1  Employment types across all MNEs surveyed Type of Employment European MNEs Chinese MNEs Total

Permanent

Fixed Term

Total

53 (58%) 70 (85%) 123 (71%)

38 (39%) 12 (15%) 50 (29%)

91 (57%) 82 (43%) 173

­ rawing strong cross-group difference based on only eight firms which d come from four different industries. The nature of the job requirements are quite different in different industries and determine the labour employable. Further research based on a large sample of firms is needed and control for industry and size differences. 4.2.3  Working Conditions With regards to working conditions, we asked about their contract lengths to proxy for employment certainty, duration and stability. We found that the majority of contracts for the sample labourers were permanent, as shown in Table 4.1. This was the case both for European and Chinese MNEs, though the latter were considerably more likely to offer a permanent contract than the European MNEs. In European MNEs, 38 per cent of the workforce was on a fixed-term contract, while this figure was 15 per cent in Chinese MNEs. As will be clear in the case study on the Ghanaian construction sector, work stability and continuity is one of the main reasons behind workers’ preference for being employed by MNEs, as opposed to local construction companies. This evidence is therefore important when assessing the impact of MNEs on working conditions and living standards in the country. 4.2.4  Employment Type In Table 4.1, about 91 per cent of the employees were secured in their employment either on permanent or on fixed terms in the European MNEs whereas 82 per cent were secured in the Chinese MNEs. It shows that in the study sample, the European MNEs offered more secured employment to the locals than their Chinese counterparts. MNEs need to appreciate the importance of securing employment in the national context of their operations.

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Management practices of MNEs in Ghana ­51

4.3  PERFORMANCE REVIEWING AND TRACKING Although multinationals have normally accumulated a significant amount of experience in their country of origin before investing abroad, the challenge of successfully running a global operation requires an effective managerial skill set. A lack of these skills would make them less efficient global players or, worse, lead to the failure of their overseas investments. Managing daily operations in developing countries, which include working with local regulations and a limited skilled labour force, has proven challenging to many MNEs in the past. In particular, MNEs from Europe and China operating in Ghana have to seek ways to bridge gaps in culture. They are dealing with unfamiliar legal and institutional environments and very different compliance landscapes from those of their homeland. Adopting appropriate managerial practices will not only ensure the quality and consistency in operations, but also have a large impact on cost efficiency and business performance. The MNEmerge Ghana survey covers a series of managerial practices adopted by the European and Chinese MNEs. Each of the 173 individuals in our sample was asked if they had a supervising team leader to guide and track their performance during the past three years. Almost all interviewees in our sample reported having at least one supervisor at their place of work, as Table 4.2 presents. Only one worker said they were not under someone’s supervision. The questionnaire also asked if the respondent played the role of supervisor to other colleagues. Among the 173 MNE workers, 60 per cent of them were involved in tasks relating to supervision, monitoring or training of any workers in his/her team or in another team within the firm. The remaining 40 per cent were exclusive learners and under someone’s supervision within the MNE. It is a strong indication of empowerment in the MNEs for workers to assume responsibility in the operations of the MNEs. Table 4.2  Teaching or learning: Across all MNEs surveyed

Do you have a supervisor or team leader within the  firm? In this firm, do you supervise, monitor, or train any   workers in your team or in other teams?

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Yes

No

172 (0.99)

1 (0.01)

103 (0.60)

70 (0.40)

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4.3.1 Reward and Incentive Practices Received by European MNEs and Chinese MNEs Performance appraisals and incentive packages play a vital role in assisting MNEs to achieve performance goals. When operating in developing countries, correctly understanding cultural nuances and devising reward programs with the consideration of local contexts will increase an employee’s interest in work, attract quality employees and eventually improve the performance of the organisation. Moreover, rewards and incentive systems may also determine whether a local employee decides to remain with a company, or resigns to accept a more lucrative offer from a rival. Four practices with respect to any appraisals and incentive systems were listed in the questionnaire. Workers were asked to report if they received any rewards and incentives during the three years between 2012 and 2014. These included reward packages such as bonuses in the form of a cash award for high performance; non-monetary rewards such as products from the business, coupons to shop, travel tickets and so on; incentives to improve performance such as a promotion, the best employee of the month award; and, finally, positive feedback such as praising good performance and various other forms of encouragement. Figures 4.4 and 4.5 exhibit the statistics of workers benefiting from the aforementioned rewards and incentive practices. Figure 4.4 is based on the total of 173 workers while Figure 4.5 shows the comparison between European MNEs and Chinese MNEs. Apparently, all four types of appraisal and incentive practices are commonly adopted among these MNEs in Ghana. Eighty per cent of the workers in the sample claimed 0.8

0.80 0.71

0.6

0.49

0.47

0.4 0.2 0 Monetary

Non-monetary

Incentives such as promotion

Praising good performance

Figure 4.4  R  eward and incentive practices adopted (or used) by all MNEs surveyed

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Management practices of MNEs in Ghana ­53 European MNE

Chinese MNE

0.87 0.76

0.8

0.75

0.65 0.6 0.46

0.52 0.44

0.51

0.4 0.2 0 Monetary

Non-monetary

Incentives such as promotion

Praising good performance

Figure 4.5  R  eward and incentive practices of Chinese and European MNEs surveyed to have received positive feedback from their managers in the past three years. The proportion of workers who had taken advantages of monetary rewards reached 71 per cent while relatively fewer (less than half) of them were motivated by non-monetary rewards and incentives to improve performance. Non-monetary incentives were rather low due to the fact that, socio-culturally, very little emphasis is placed on these types of rewards. For example, going on vacation or getting a ticket to travel is not a priority for most Ghanaian workers. However, MNEs may encourage this as it leads to better conditioning of the employees for work. As shown in Figure 4.5, the most common reward practice among European MNEs is giving positive feedback on good performance (87 per cent) whereas the Chinese MNEs tend to use monetary rewards to motivate their workers to achieve high performance (76 per cent). It is worthwhile noting that more than half of the workers in Chinese MNEs had appraisals during 2012–2014. Several questions were also included to understand intra-organisation supervision systems from the perspective of workers. Respondents were asked to confirm whether the targets they are given are clear, whether they receive frequent feedback on their performance and whether they have opportunities to take up initiatives and responsibilities. Compared to domestic companies in the same industry in Ghana, MNEs are normally characterised as having advanced and efficient management systems. This was also confirmed by workers who participated in our interviews.

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Table 4.3  R  eward and incentive practices of Chinese and European MNEs surveyed During the three years 2012 to 2014, did you receive  any of the following: supervision regarding targets, feedback or empowerment?

Yes (1)

No (0)

Are the targets you are given quite clear or could   they be clearer? Do you receive frequent feedback on your   performance from your manager? Do you have enough space to take up your own   initiative and responsibility?

144 (0.83)

29 (0.17)

148 (0.86)

25 (0.14)

138 (0.80)

35 (0.20)

As  Table 4.3 displays, the majority of the workers have received clear targets and frequent feedback, and have been encouraged to take on responsibilities in the past three years. Less than 20 per cent of the workers reported not having received any of these aforementioned points. The issue of setting targets and communicating such targets to the employees is taken very seriously in the MNEs. It is the basis of the sound management practices in the MNEs. The interesting point to note in Table 4.3 is the relatively very high acknowledgement of space to take up ‘own initiative and responsibility’. The setting of targets and frequent follow-ups by supervisors do not constrain the sense of initiative and responsibility. 4.3.2  Information and Communication Technology ICT is one of the major components of organisational capability. Since the early 1990s, Ghana has considered the use of ICT as a means to leverage the country’s development process. To this effect, the first five-year plan for accelerated development was launched in 1994. Ghana has developed its ICT for Accelerated Development (ICT4AD) policy statement, which was officially adopted in 2004. The ICT4AD is a product of the National ICT Policy and the Plan Development Committee set up by the government. They were tasked with developing an ICT-led socio-economic development policy for the country. It aims to help Ghana to formulate a number of socio-economic development policy frameworks and has identified a number of key developmental objectives to address the developmental problems facing the country. Since the formulation of ICT4AD policy document a number of initiatives have been carried out to enhance ICT application for development. The Ministry of Communications is to facilitate reliable, cost-effective

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Management practices of MNEs in Ghana ­55

and world-class communications infrastructure services for Ghana. More specifically, there is the Ghana Investment Fund for Electronic Communication (GIFEC) established by the Electronic Communications Act 775 in 2008. It addresses the need for electronic (or digital) services including ICT, broadcasting, internet and multimedia especially in the marginalised areas. MNEs from Europe and China have participated in diverse ways in the development of Ghana’s ICT infrastructure and services. However, beyond enhancing the national capacity in ICT, all segments of the populace including workers of MNEs need to improve on ICT adoption and usage in socio-economic activities. The survey therefore assessed the extent of ICT capability building in the European and Chinese MNEs covered in the study. Upgrading specific ICT capabilities within an MNE subsidiary in developing countries can effectively enhance their competitive advantage, especially against the backdrop of cultural gaps and an unfamiliar working environment. Accompanied by direct investment in the host country, advanced managerial skills and ICT infrastructure are also expected to arrive with MNEs from Europe and China. During the process, local employees may also receive opportunities to upgrade their ICT capabilities via directly interacting with foreign expatriates and participating in ICT skill training. Therefore, knowledge spillover effects may be induced with the improvement of human IT resources and intangible IT-enabled resources, including technical IT skills, managerial IT skills, customer orientation and knowledge assets. Several aspects regarding ICT have been addressed in the MNEmerge questionnaire. Table 4.4 summarises the average number of hours that workers spend on computers, telephones and the internet in their daily work. There is a general increase in adopting these three practices in MNEs located in Ghana during 2012–2014. Computers are the most commonly used ICT equipment among the three. The average time a worker Table 4.4  The use of ICT across MNEs surveyed in 2012 and 2014 2012 (Mean) How many hours per day do you spend on   the computer for work purposes? How many hours per day do you use the   mobile phone for work purposes? How many hours per day do you spend on   the internet for work purposes?

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2014 (Mean)

Europe

China

Europe

China

2.33

1.50

2.90

2.07

0.96

1.03

1.19

1.20

0.97

0.59

1.01

0.78

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spends on a computer increased from 1.83 hours in 2012 to 2.46 hours in 2014. During these three years, the average number of hours per day that European MNEs’ workers spend on computers increased from 2.33 to 2.90, while a significant increase was also found among Chinese MNEs, from 1.50 to 2.07 hours per day. Slight increases were also observed in the time spent on mobile phones and the internet during the period under survey. In general, the workers in the European MNEs spend more of their working hours with ICT compared to workers in Chinese MNEs. Given the different roles and positions, workers in MNEs use and learn ICT skills for various reasons. Among those who reported using ICT practices in their daily job, the survey also captured the purposes of using them. Respondents were given five options regarding why they use computers and mobile phones during work. Figure 4.6 presents the summary statistics. The prominent function of ICT usage in European and Chinese MNEs is to facilitate efficient communication among colleagues, partners, clients and the public. The results are consistent between European and Chinese MNEs. The second critical purpose of using computers and mobile phones is to facilitate administrative and management tasks within the company. Very few respondents agreed that the ICT practices have helped them in production or advertising. The low application of ICT in advertising is a point of concern given that ICT has become a veritable platform for market penetration. Social media are currently providing immense advantage in advertising and marketing. Workers may need to be more oriented to the applications of ICT to enhance market advantage. More than 20 per cent of workers from the Chinese MNEs (among those who reported using ICTs) used c­ omputers and mobile phones for the R&D of new products and services. A clear Production 1.00 0.80 0.60 0.40

Administrative tasks

0.20

Advertising

0.00

European MNEs Chinese MNEs

R&D

Communication

Figure 4.6  T  he purpose of using the ICT technology across European and Chinese MNEs

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Management practices of MNEs in Ghana ­57

discrepancy was found among workers employed in European MNEs with regard to computer usage. To further investigate which specific ICT knowledge workers have gained, Figures 4.7 and 4.8 report the statistics on seven types of ICT practices from both the learners’ and tutor’s perspectives. Learners and tutors are not mutually exclusive groups. One can be a learner in a specific type of ICT and, at the same time, a tutor who transfers knowledge to other 0.62

0.6

0.4

0.44

0.42

0.40 0.33 0.21

0.2 0.05 0 Basic

Professional software

Purchasing

Production

Marketing

Intra-communication

Administrative

Figure 4.7  Learning and teaching ICT practices – ‘learner’s perspective’ 0.5 0.4

0.46 0.33

0.31

0.29

0.3

0.23

0.2 0.11

0.1

0.04

0 Basic

Professional software

Purchasing

Production

Marketing

Intra-communication

Administrative Note:  Statistics are at mean values.

Figure 4.8  Learning and teaching ICT practices – ‘tutor’s perspective’

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colleagues. As the learner’s graph (Figure 4.7) and tutor’s graph (Figure 4.8) exhibit, the types and extent of knowledge flow between two groups are highly consistent. Sixty-two per cent (learner) and 46 per cent (tutor) of workers acknowledged learning and teaching a specific type of ICT software through 2012–2014. It also indicates that specific professional software, such as accounting and inventory records of supplies and products, is the type of ICT knowledge that actively flows within the organisation. More than 40 per cent of the workers claimed that they gained new knowledge in basic computing skills (e.g. Windows, Microsoft Office products, etc.) during the surveyed period whereas 33 per cent of workers stated that they taught someone else in the company this knowledge. ICT practices also assist production, operations, intra-organisational communication, and management information systems. Such skills are also commonly taught and learned among workers in MNEs. Purchasing is the area in which ICT practices have been least adopted. As ICT applications advance in Ghana, their use for networking, sales and purchases, and financial management will need some knowledge and skills transfers. MNEs can be the vehicles for promoting business operations by harnessing the potential of ICT and the Internet of Things. Interesting patterns are revealed when comparing European and Chinese MNEs in internal ICT knowledge flow. Figures 4.9 and 4.10 depict the same types of ICT skills but when separated into Chinese and European clear gaps emerge. The extent of knowledge learned and taught within the Chinese MNEs is significantly greater than in their European counterparts, especially in the areas of the basic computer use, intraorganisational communication and management information systems 0.80 Administrative

0.60

Basic Professional software

0.40 0.20 0.00

Intra-communication

Purchasing European MNE

Marketing

Production

Chinese MNE

Figure 4.9 Learning of ICT practices across European and Chinese MNEs

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Management practices of MNEs in Ghana ­59 0.80 Administrative

Basic

0.60

Professional software

0.40 0.20 0.00 Intra-communication

Purchasing European MNE Marketing

Chinese MNE Production

Figure 4.10  Teaching of ICT practices across European and Chinese MNEs (e.g. human resources database, customer database). The differences are more profound in the statistics reported from the tutors’ perspective since almost all ICT practices are reported more in Chinese MNEs than in European MNEs. 4.3.3  Learning Patterns in Management Practices This section presents descriptive statistics on cost, marketing and HR management practices adopted by managers of interviewed MNEs. Those surveyed were asked questions of the following nature: ‘During the years 2012 to 2014, have you learned any new cost/marketing/HR management practices?’ A number of categories were created to classify MNEs and employees according to nationality (Ghanaian vs non-Ghanaian; European vs Chinese); and to the nature of the business (low tech vs high tech). Section 4.3.4 presents evidence comparing Ghanaian to nonGhanaian managers, Section 4.3.5 presents evidence comparing European to Chinese managers, and, finally, Section 4.3.6 compares managers in high-tech companies to those in low-tech companies. Each section presents a category break-down as well as summary evidence. 4.3.4  Ghanaian vs Non-Ghanaian Managers Table 4.5 refers to cost management practices. It is worthy of note that although both Ghanaian and non-Ghanaian managers learned to a similar extent, Ghanaian managers were also more likely to have learned nothing new compared to non-Ghanaian managers. This somehow d ­ ampens the

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Table 4.5  C  ost management practices: Ghanaian vs Non-Ghanaian managers Learned New Cost Management Practices Ghanaian Non-Ghanaian Total

Yes

No

Total

20 19 39

17  5 22

37 24 61

Table 4.6  Marketing practices: Ghanaian vs non-Ghanaian managers Learned New Marketing Practices Ghanaian Non-Ghanaian Total

Yes

No

Total

15 13 28

22 11 33

37 24 61

overall knowledge transfer effect. However, a possible explanation is that the Ghanaians, who may be well qualified, may have acquired their knowledge via previous training in cost management. In Section 4.2.1, the point is made about the MNEs employing tertiary graduates. These may already have the knowledge transferred to them. Table 4.6 refers to marketing management practices. It shows a similar pattern to the above, although significantly more non-Ghanaian managers also did not pick up new marketing management techniques. The ­finding shows that the non-Ghanaians understand the importance of learning marketing practices, which address the contextual challenges. Marketing management techniques should be tailored to the socio-cultural situation of the country. It means that non-Ghanaians need to learn and be properly oriented. In terms of HR management, many more Ghanaian managers picked up new management techniques than non-Ghanaians (Table 4.7). This could reflect that HR functions tend to be a prerogative of local managerial personnel. The difference between the two categories of managers is also considerably smaller with regards to non-learning patterns. It also relates to the organisational approach to HR management, which is often unique to particular enterprises. All those in management therefore have to learn appropriately. A variable was created (taking the value of one) if a manager had

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Table 4.7  H  R management practices: Ghanaian vs non-Ghanaian managers Learned New HR Management Practices Ghanaian Non-Ghanaian Total

Yes

No

Total

26 15 41

11  9 20

37 24 61

Table 4.8  S  ummary of management learning: Ghanaian vs non-Ghanaian managers Learned any New Management Practice Ghanaian Non-Ghanaian Total

Yes

No

Total

35 23 58

2 1 3

37 24 61

learned any one management practice among those listed above. The variable equals zero if a manager has learned no management practice at all. Overall it appears both categories learned at least one new managerial practice, but Ghanaian managers more so than non-Ghanaians (Table 4.8). Only 5 per cent overall did not learn new practices at all. This supports the hypothesis that knowledge transfer is occurring and is concentrated mostly among local managerial staff. 4.3.5  European vs Chinese Firms It appears that out of 61 responding managers, two thirds of them learned new practices (Table 4.9). While just over half of Chinese MNEs reported learning new cost management practices, for European MNEs the proportion was slightly more than two thirds. Table 4.10 describes the learning of new marketing practices. Managers from Chinese MNEs are split in half between those who have and those who have not learned new practices. For European MNEs, over half of managers have not learned new marketing practices. This finding on European MNEs can be attributed to the long association between Ghana and Europe, as a result of which European MNEs have a significant level of understanding of the Ghanaian conditions.

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Table 4.9  Cost management practices: Chinese vs European MNEs Learned New Cost Management Practices Chinese MNEs European MNEs Total

Yes

No

Total

16 23 39

12 10 22

28 33 61

Table 4.10  M  arketing management practices: Chinese vs European MNEs Learned New Marketing Practices Chinese MNEs European MNEs Total

Yes

No

Total

14 14 28

14 19 33

28 33 61

Table 4.11  HR management practices: Chinese vs European MNEs Learned New HR Management Practices Chinese MNEs European MNEs Total

Yes

No

Total

 9 32 41

19  1 20

28 33 61

Table 4.11 presents the rate of learning new HR management practices. It emerges that two thirds of the Chinese MNEs’ managers did not learn new HR practices, while almost all European MNEs’ managers said they learned new HR practices. HR management is culturally influenced, and often is at the core of the MNE’s organisational policy. The Chinese approach to HR management is different from the European approach because of cultural differences. The managers may learn new practices but, invariably, the norms of the HR management practices will dominate especially in the case of the Chinese with relatively higher cultural rigidity. Finally, in Table 4.12, it appears that almost all managers but three have learned at least one new management practice. The three managers who have not learned any new management practices are concentrated in the

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Table 4.12  O  verall learning of management practices: Chinese vs European MNEs Learned any New Management Practice Chinese MNEs European MNEs Total

Yes

No

Total

25 33 58

3 0 3

28 33 61

Chinese MNE sector, and two out of three are in high-tech sectors. The point about cultural rigidity as relating to HR management in the Chinese MNEs is further illustrated in this finding. 4.3.6  Low Tech vs High Tech When considering the difference between low tech (construction and textile sectors) and high-tech (telecommunications and pharmaceuticals), it appears that over two thirds of the low-tech MNEs’ managers have learned new cost management practices, while for high-tech companies the amount is just over a half (Table 4.13). For learning new marketing practices, in Table 4.14 two thirds of the managers of low-tech MNE have not learned any new marketing practice, while just over half of the managers of high-tech MNEs have. Marketing management practices are also influenced by the business philosophy and strategy of the MNE. One may therefore not expect managers to learn much given their commitment to their organisational marketing practices. Table 4.15 presents the rate of learning of new HR management practices and shows that two thirds of both categories have learned new practices in this area. It is interesting that both low-tech and high-tech MNEs have exhibited learning of new HR management practices. It is rather in contrast with the finding in Table 4.11 where not much learning has taken place. The specific MNE categories of low tech and high tech account for the observed differences. Table 4.16 confirms again that almost all managers but three have learned at least one new management practice. Two of the three managers who have not learned any new management practice are in the high-tech sectors.

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Table 4.13  Cost management practices: Low-tech vs high-tech MNEs Learned New Cost Management Practices Low-tech MNEs High-tech MNEs Total

Yes

No

Total

20 19 39

 9 13 22

29 32 61

Table 4.14  M  arketing management practices: Low-tech vs high-tech MNEs Learned New Marketing Practices Low-tech MNEs High-tech MNEs Total

Yes

No

Total

10 18 28

19 14 33

29 32 61

Table 4.15  HR management practices: Low-tech vs high-tech MNEs Learned New HR Management Practices Low-tech MNEs High-tech MNEs Total

Yes

No

Total

20 21 41

 9 11 20

29 32 61

Table 4.16  O  verall learning of management practices: Low-tech vs hightech MNEs Learned any New Management Practice Low-tech MNEs High-tech MNEs Total

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Yes

No

Total

28 30 58

1 2 3

29 32 61

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Management practices of MNEs in Ghana ­65

4.4 CONCLUSIONS Our study of management practices of the EU and Chinese MNEs in Ghana has unearthed certain lessons which are useful for strategising on enhancing the management of business entities in the country. The salient differences between the EU and Chinese MNEs point to the influence of the socio-cultural contexts of these MNEs as embedded in their broad business tenets and practices. In the abundance of well educated Ghanaian labour force, both employ a significant number of graduates of tertiary educational institutions. However, Chinese employ significantly less tertiary level graduates and more of workers of secondary level education. Though giving tertiary graduates employment is important in the face of current challenges with graduate unemployment, providing employment avenues for secondary graduates contributes significantly to addressing the bigger problem of youth unemployment in the country. Furthermore, a strong point of MNE management system is its performance review and tracking system with its components for supervision, reward and incentives, target setting, among others. Almost without exception, the employees in the MNEs have supervisors to oversee their work. There is target setting which generally is well communicated to the employees but with significant space to exercise ‘own initiative and responsibility’. It is an important lesson for Ghanaian business entities. The findings on ICT in the MNEs point to the extent to which MNEs prioritised the provision of inputs and tools for delivery on the job. In the modern workplace, computer hardware and software, internet connection and telephones are fundamental to almost all the performance of functions in the workplace. Between 2012 and 2014, ICT usage in terms of hours has increased on the average. However, the purpose of usage mostly pertain to communication within the workplace and for performing administrative and management tasks. ICT is a tool for performing more knowledge-intensive functions, including operations and systems analysis and control. There is need for value addition in the use of ICT. Reward and incentive practices are key ingredients of good management systems. Though all four types (i.e monetary, non-monetary, incentive to improve performance and positive feedback) covered in the study prevailed in the EU and Chinese MNEs, there are differences. The Chinese tend to resort to monetary reward systems giving bonuses to deserving employees. It resonates well within the Ghanaian context in which at the workplace, monetary rewards are better appreciated. Still, the other reward and incentive practices are important especially as positive feedback such as praising good performance does not cost anything. Overall, we find significant correlations to say that the existence of

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learning patterns is concentrated among local managers. This supports the hypothesis that transfer of knowledge from foreign companies to local managerial staff takes place. It is mostly concentrated in the HR sector, where local managers tend to be preferred over foreign managers. From the tables presented above, the most interesting results are the contrast between Chinese and European MNEs when it comes to HR management learning. In fact, two thirds of the managers in the Chinese MNEs indicated that they did not learn any new HR management practices, while the near totality of the managers in European MNEs indicated that they did. This could point in the direction of a culture effect, as HR management is a discipline in which cultural differences may play the biggest role. The other interesting result relates to the learning of marketing practices: in all sectors but marketing, the majority of managers indicated they had learned new practices. Only with regards to marketing, do we find that there is a slight majority of managers who have not learned any new management practices. Nevertheless, it is important to underscore the point that learning is a two-way phenomenon. The MNE non-Ghanaian managers can learn new management practices in the same way that Ghanaian managers can learn from their superiors and tutors. For the non-Ghanaian, understanding the socio-cultural context and how it affects management practices is crucial. For the Ghanaian managers, gaining new knowledge in line with the specific business models and strategies of the MNEs is fundamental to their career advancement and, more essentially, to the enhancement of their capabilities.

NOTE 1. The gender statistics are derived from the sample in our study. The gender distributions do not represent other Chinese or European MNEs in Ghana, nor the industry gender structure at large.

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5. Knowledge transfer in MNEs in Africa: A comparison between Chinese and European MNEs in Ghana Xiaolan Fu and Hao Xu 5.1 INTRODUCTION Knowledge transfer and local capability building are crucial for sustainable industrial development in developing countries. This has significant implications for income growth, job creation and hence poverty reduction. Cross-border direct investment by multinational enterprises (MNEs) and human mobility are important channels for international knowledge transfer (Fu et al., 2012; Lall, 1997; Dunning, 1998). While there is substantial literature on knowledge transfer by MNEs, the research on managerial knowledge transfers is rare with only a few exceptions (e.g. Child et al., 1999; Fu, 2012a; Auffray and Fu, 2015), especially in the context of low-income countries in Africa. Moreover, the existing literature on FDI and knowledge transfers mostly focused on inter-organisation transfer and spillover at the firm, regional or national level (e.g. Kokko et al., 1996; Fu and Gong, 2011; Javorcik and Saggi, 2003). Individuals are important agents in the economy who undergo the learning, creation and production activities. Despite this, how knowledge is transferred at an individual level is underresearched. Existing research in this area is mostly case-study-based. Large-survey-data-based statistical analysis and evidence is rare. In addition to this, MNEs in Africa from other emerging economies (EEMNES) such as China have grown rapidly in the past century. Large investments have been made in Africa by such EEMNEs. Do these new EEMNEs have different characteristics, and hence a different impact on host economies, especially in terms of knowledge transfers to the local communities? These are new research questions that await exploration. The new literature in this area mainly focuses on the determinants of FDI, and ­67

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the political or environmental effects of these FDIs. The impact of Chinese FDI in Africa, especially on local managerial capabilities, is limited. We are not aware of any study on this question using large survey data. Using a new unique employee and manager survey in eight MNEs in Ghana in 2015, this study analysed the transfer of knowledge at individual level using social network analysis. This study systematically examined the various work and social links between employees at these MNEs, and the channels for the diffusion of knowledge. We mapped out the network structure and calculated the network properties for the firms and individuals. We then tested whether the knowledge transfer within the MNEs is influenced by the social network structure and compared the social network and the knowledge transfer in MNEs of different backgrounds: that is, the European and Chinese MNEs. The research found that decentralised networks of the MNEs enhance knowledge transfer in the firm. In addition, more channels of communication mean more knowledge transfer. We also found that the Chinese MNEs and European MNEs have no significant difference in knowledge transfers except that subordinates in Chinese MNEs benefit more from knowledge transfers.

5.2  DIFFUSION OF KNOWLEDGE In every organisation diffusion of knowledge is very important as it provides every member of staff with the opportunity to acquire such knowledge. Therefore, it is important to look at the sources of knowledge, channels of diffusion and experiences gained. 5.2.1  Sources of Knowledge Table 5.1 shows that most managers thought that their newly acquired practices in cost management, marketing and HR within the last three years (2012–2014) were learned from their current company. In each of the Table 5.1  Sources of knowledge in management practices

Cost management Marketing management HR management

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Previous Education/ Work Experience

From the Company

0.27 0.13 0.25

0.53 0.31 0.47

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Knowledge transfer in MNEs in Africa ­69

three fields, the number of managers who thought that the new practices were the result of their own previous education and work experience amounted to approximately half the number of managers who thought the practices were acquired from their current company. 5.2.2  Channels of Diffusion Figures 5.1 and 5.2 show that meetings and teamwork are the most used and useful sources of knowledge transfer among workers. When asked how they learned and transferred their knowledge, they mostly mentioned joint work and face-to-face interaction. Training was also ranked highly in terms of knowledge diffusion potential. Telephone and emails were less useful in this sense, but this could be because workers in construction sites or on textile production lines communicated much less via telecommunications than in person. Similarly, manuals and expert advice did not seem to be very common as a channel of knowledge. Finally, channels involving social dimensions such as social events and industry association meetings were not used to transfer knowledge either. Industry association meetings, in particular, were the least used source of knowledge diffusion. This is most likely due, in the workers’ sample, to the fact that unskilled workers tend to participate less in industry association activities than managers do.

expert advice 7%

industry association 3%

manuals 9%

meetings 18%

email 10%

teamwork 16%

social events 11%

training 14% telephone 12%

Figure 5.1  Channels of knowledge diffusion (workers)

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teamwork 9%

telephone 7%

manuals 14%

industry association 14%

technical advice sent by MNE 11%

email 11% social events 11%

training 12%

expert advice 11%

Figure 5.2  Channels of knowledge diffusion (managers) In fact, Figure 5.2 shows that industry association meetings are one of the top two sources of knowledge diffusion for managers. The first is ‘manuals’ and the third is ‘training’. Training, therefore, is a dominant and useful source of knowledge diffusion among both workers and managers. However, it is visible from Figures 5.1 and 5.2 that knowledge diffusion channels are otherwise fairly different between workers and managers. Notably, teamwork appears among the least used channels of learning for managers. 5.2.3  Networks of Knowledge In terms of networks, it appears from Figure 5.3 that most workers often exchange knowledge with colleagues of the same level. Around 50 per cent of them indicated they also transfer knowledge to managers often, thus upwards, whereas the least number of workers indicated they often transfer knowledge to subordinate workers. This is due to the fact that most workers did not consider themselves to have subordinates and viewed most other workers as colleagues of the same level. On the other hand, Figure 5.4 shows that managers were most likely to transfer their knowledge to subordinate workers, whereas they transferred knowledge to senior managers and to colleagues of the same level to a roughly equal degree.

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Knowledge transfer in MNEs in Africa ­71

colleagues of same level Who do you exchange knowledge with often?

managers subordinate workers 0

0.2

0.4

0.6

0.8

Figure 5.3  Networks of knowledge diffusion (workers)

subordinate workers Who do you exchange knowledge with most often?

managers at superior level colleagues of same level 0

0.2

0.4

0.6

0.8

Figure 5.4  Networks of knowledge diffusion (managers) 70 60 50 40

yes

no

30 20 10 0

Workers

Managers

Figure 5.5  Training patterns: Workers vs managers 5.2.4  Training Patterns Figures 5.5 and 5.6 indicate that, with regard to training, 64 per cent of workers thought their production capabilities had increased in the past three years. This is gained mostly through ‘on-the-job training’ as a result of employment for the MNEs. On the other hand, only 44 per cent of managers had the same opinion regarding their capabilities, although

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1 0.8 0.6

pre-employment training

0.4

on the job training

0.2 0 workers

managers

Figure 5.6  Training types: Workers vs managers ‘on-the-job training’ in the MNEs is still a major source of their managerial knowledge. 5.2.5  Impact of Managerial Innovation Managerial respondents were asked to rate how innovative managerial practices impacted their companies’ success under a variety of dimensions. The dimensions were cost management, marketing, HR, and IT management practices. A list of success indicators in terms of adoption of these practices was provided and the impact of innovative management was rated on a low to high scale, as shown in Table 5.2. The question that was asked in Table 5.1 relates to the impact of cost, marketing and HR managerial practices on the identified targets. It appears that most managers recognised a medium to high impact of managerial innovation. In their opinion, increased productivity, ­conformity to governmental regulations, increased sales and improved working conditions were the most frequent improvements. This was followed by improved Corporate Social Responsibility (CSR) strategies, reduced costs and reduced environmental impacts. 5.2.6  Workers’ Capability and Well-being Outcomes As a result of their employment with the MNE, 72 per cent of the interviewed workers gained an understanding of how management is done. In addition, 88 per cent of workers indicated they feel they would be able to lead their own team and 81 per cent their own company (Figure 5.7). When divided by company nationality, heterogeneities emerge. Specifically, 64 per cent of the employees of Chinese MNEs felt they

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Table 5.2  Impact of managerial innovation on success indicators Success Indicators (Targets) Reduced cost Increased productivity Increased sales Reduced environmental impacts Improved working conditions   (health & safety) Met governmental regulatory  requirements CSR Understanding of management practices

Low Medium High (% Managers) (% Managers) (% Managers) 0.05 0.05 0.03 0.04 0.02

0.32 0.18 0.19 0.16 0.2

0.37 0.72 0.53 0.37 0.52

0.02

0.1

0.56

0.12

0.1

0.4

Ability to lead own team 12%

27% 73%

Yes

No

Abilitity to lead own company 19% 81%

88%

Yes

No

Yes

No

Figure 5.7 Workers’ learning and aspirations as a result of working for MNEs learned how management is done, but this proportion stands at 82 per cent in European MNEs. The perceived ability to run their own team is similar for employees of Chinese MNEs (87 per cent) and European MNEs (90 per cent). Finally, the perceived ability to run their own company stands at 84 per cent in the Chinese MNEs and 78 per cent in the European MNEs. Thus, overall, it seems that learning is more explicit in European MNEs, while in Chinese MNEs the perceived autonomy and capacity of employees is more accentuated (Figures 5.8 and 5.9). Furthermore, we find that, overall, 34 per cent of the interviewed workers perceived that if they worked in the domestic sector as opposed to the foreign sector, their pay would be higher; fewer workers (22 per cent) thought it would be lower, while 7 per cent thought it would be similar, and 37 per cent did not know (Figure 5.10). When dividing the patterns by MNE nationality, we find that such

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Ability to lead own team 13%

36% 64%

Yes

Abilitity to lead own company 16% 84%

87%

No

Yes

No

Yes

No

Figure 5.8  W  orkers’ learning and aspirations as a result of working for MNEs – Chinese MNEs

Understanding of management practices

Ability to lead own team 10%

18% 82%

Yes

Abilitity to lead own company 22%

90%

No

Yes

No

78%

Yes

No

Figure 5.9  W  orkers’ learning and aspirations as a result of working for MNEs – European MNEs

If you did the same job for a Ghanaian company, do you think your salary would be: 34%

37%

22%

7%

higher same lower not know

Figure 5.10  Workers’ perceptions on remuneration: Overall

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Knowledge transfer in MNEs in Africa ­75 If you did the same job for a Ghanaian company, do you think your salary would be (EU MNEs) 29% 37% 4% 30%

higher same lower not know

Figure 5.11  Workers’ perceptions on remuneration: European MNEs

If you did the same job for a Ghanaian company, do you think your salary would be (Chinese MNEs)

37%

39%

13%

11%

higher same lower not know

Figure 5.12  Workers’ perceptions on remuneration: Chinese MNEs average results are driven by heterogeneities. In fact, in European MNEs slightly more workers believed their pay would be lower if they worked for Ghanaian companies (30 per cent) than the 29 per cent that believed the pay would be higher in the domestic sector (Figure 5.11). These shares change considerably in Chinese companies, where only 13 per cent believe the pay they earn is higher than in the domestic sector, while 37 per cent think they would be better off working for Ghanaian companies (Figure 5.12).

5.3  DESCRIPTIVE STATISTICS Figure 5.13 shows the descriptive statistics of the knowledge transfer and channels of communication. The dark grey boxes indicate knowledge

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Multinationals, local capacity building and development Statistics by Male or Female

Statistics by High-Tech or Low-Tech firms

0

0

1

1 –4

–2

0

2

Knowledge transfer

4

6

–4

Channel

Statistics by Chinese or EU firms 0

1

1 –2

0

2

Knowledge transfer

4 Channel

0

2

4

6

Channel

Statistics by Ghanaian or non-Ghanaian

0

–4

–2

Knowledge transfer

6

–4

–2

0

2

Knowledge transfer

4

6

Channel

Figure 5.13  Descriptive statistics transfer and the light grey boxes indicate channels of communication. The comparison of males and females; high-technology and low-technology firms; Chinese and European firms; Ghanaian and non-Ghanaian are presented. The vertical lines in the boxes are the mean statistics while other lines are the quantiles. Figure 5.13 shows the distribution of the average knowledge transfer. It’s noted that on average, males have more knowledge transfer compared with females, but the channels of communication are similar. High-tech firms have more channels of communication but less ­knowledge transfer than low-tech firms. Chinese firms have more channels of communication but less knowledge transfer compared with European firms. Ghanaian individuals have few channels of ­communication but more or less the same knowledge transfer with non-Ghanaian.

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5.4 ANALYSIS We present econometric analysis beginning with the bench mark model, analysis of how social network characteristics work in the knowledge transfer in the MNEs and then apply the propensity score matching methods to find out the treatment effects. 5.4.1  Benchmark Model Consider the following linear model: Knowij = a + b1Ghanai + b2Channeli + b3Xij + eij where Knowij is the knowledge transfer of individual i in firm j, Ghanai is a dummy variable indicating whether individual i is Ghanaian or not, Channeli is the number of communication channels of individual i, and Xij is a set of controls of individuals and firms. The lists of the dependent and independent variables and their meanings and measurements are presented respectively in Table 5A.1 and Table 5A.2 in the Appendix to this chapter. The regression results in Table 5.3 show the estimation of the model in three specifications. Model 1 and Model 2 are different as Model 2 has extra control variables, while both models include the firm fixed effects and robust standard errors are clustered at firm level. The R squares of the models are about 0.3, which suggests the linear model fits well with the data. There are 231 observations in total, so it could be argued that such a small sample size would hardly give a good statistical representation of the population. However, we argue that, first, the objective sampling that allows us to study typical and representative firms would make our Table 5.3  Benchmark model

Ghanaian Channel China MNE Worker Reward MNEs Exp Field Exp N R2

(1) Knowledge Transfer

(2) Knowledge Transfer

0.5076* (0.2321) 0.2181** (0.0823) −0.2706 (0.3004) −0.1675 (0.2586) −0.0716 (0.0680)

0.5369** (0.2250) 0.2208** (0.0834) −0.3087 (0.3114) −0.1026 (0.2305) −0.0601 (0.0653) −0.0106** (0.0039) 0.0191** (0.0080) 231 0.3330

231 0.3270

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

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findings more meaningful in this case of MNEs in Ghana. Second, the sample size is not actually small. Macro economists always do carry out regression analysis for about 200 observations: for example, in economic growth, papers choose some countries as their study sample. Finally, we tried many different specifications to show that the findings are consistent: these include the study of different outcomes, different sub-samples and different methods. Overall, the sample size is not an issue in this study and should not lead to major bias of the estimators. Model 1 and Model 2 suggest that having more channels of knowledge transfer leads to more knowledge transfer in the MNEs; this result is straightforward and expected. The channels which are described earlier are important ways for individuals in the MNEs to get information and knowledge. Model 1 and Model 2 both show that there are no significant differences between Chinese MNEs and traditional European MNEs with regard to knowledge transfer within the firm. Considering the fact that managerial knowledge in both Chinese and European firms is high and both transfer knowledge to local firms and individuals, they may perform similarly in knowledge transfer. Model 2 shows that being a Ghanaian would have significantly more knowledge transfer. This shows that the knowledge in MNEs would spread to local individuals. The direction of the knowledge flow goes from the expatriates to local workers or managers. Model 2 also shows that the work experience in the relevant sector would enhance the knowledge transfer while work experience in the MNEs would have a negative effect on knowledge transfer. It may be the case that individuals who have longer experience in a similar field have a stronger ability to absorb knowledge such that they are able to adapt to managerial knowledge in MNEs. As for the experience in MNEs, it can be possible that people who have had enough exposure to knowledge in the MNEs would have obtained a certain level of managerial knowledge, such that they would be reluctant to learn and transfer new knowledge. From the baseline results, we find evidence that Ghanaian individuals benefit from knowledge transfer and the channels of knowledge flow would increase the knowledge transfer in the firm. We will treat Model 2 as the benchmark. Network analysis and matching would be based on Model 2, which includes more relevant controls and dummy variables and provides evidence that local individuals benefit from knowledge transfer in MNEs, while Chinese MNEs have no difference in knowledge transfer compared with European MNEs. The results show that there is no culture difference for knowledge transfer in Chinese and European MNEs, while the knowledge in both types of MNEs goes from the expatriates to the local workers or managers. The other specifications and robustness checks

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in this study would also support the findings. These include analysis with two other methods, the network analysis, the propensity score matching and three robustness checks. 5.4.2  Social Network Network analysis is a growing modelling method in many subjects: sociology, computer science, epidemiology among others. In economics, some model the learning behaviour in social networks, spread of innovation in social network and the network effect of job searching, migration and micro-finance in development and labour economics. However, there is a lack of empirical evidence about the effect of network structure on the knowledge transfer. Information about social networks in the MNEs comes from the following information in the survey: the names of the three people with whom you interact most often; other information about these people, such as their position and department. We first construct a network for each MNE based on the above information and compute the network properties for firms and individuals. A network, or a graph, is a collection of vertices jointed by edges. Vertices are nodes, sites, actors denoted by i. Edges are links, bonds, ties denoted ij between vertices i to vertices j. Number of vertices is n and number of edges is m. Aij = 1 if there is an edge between i and vertices j. The construction of social network of managers, workers and firms comes from work and relationship questionnaires of managers and workers where they are asked to present their three most important linkages in the firm. Each individual is treated as a node, and an arrow directed linkage shows the information path among individuals. We combine the workers and managers, directed and undirected network, and construct the network adjacency matrix. For instance, if individual i presents individual j as a contact, the ij entry in the matrix is then denoted as 1, otherwise it is 0. After constructing the typology of social network structure, we can then calculate the network characteristics of the individuals and firms following Jackson (2008). Given the networks are incomplete, we focused on the degree centrality of the individual and firms (position of individual within the networks, overall network characteristics). However, other characteristics of the network are also presented in the results for robustness reasons. The network analysis results are presented in Table 5.4 and Table 5.5. The results show that the firm network matters and the firm network structures have a significant impact on the knowledge transfer in the MNEs. The firm network characteristics, such as centralisation index,

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231 0.3330

0.5369** (0.2250) 0.2208** (0.0834) −0.5256* (0.2661) −0.1026 (0.2305) −0.1136*** (0.0293)

231 0.3330

−0.4048*** (0.0474)

0.5369** (0.2250) 0.2208** (0.0834) −0.4629 (0.2981) −0.1026 (0.2305)

(2) Knowledge Transfer

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

Ghanaian Channel China MNE Worker Central Index Average Degree Eigen Degree Between N R2

(1) Knowledge Transfer

Table 5.4  Firm network

231 0.3330

−0.0139*** (0.0019)

0.5369** (0.2250) 0.2208** (0.0834) −0.2439 (0.1432) −0.1026 (0.2305)

(3) Knowledge Transfer

−0.0862*** (0.0222) 231 0.3330

0.5369** (0.2250) 0.2208** (0.0834) −0.5050 (0.2703) −0.1026 (0.2305)

(4) Knowledge Transfer

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170 0.3539

0.8118* (0.3559) 0.1718* (0.0841) −0.0999 (0.3539) −0.1026 (0.2305) −0.1340*** (0.0357)

170 0.3539

−0.2325*** (0.0570)

0.8118* (0.3559) 0.1718* (0.0841) 0.0676 (0.4037) −0.1026 (0.2305)

(2) Knowledge Transfer

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

Ghanaian Channel China MNE Worker Central Index Average Degree Eigen Degree Between N R2

(1) Knowledge Transfer

Table 5.5  Firm network for worker sample

170 0.3539

−0.0131*** (0.0025)

0.8118* (0.3559) 0.1718* (0.0841) 0.1277 (0.1288) −0.1026 (0.2305)

(3) Knowledge Transfer

−0.1017*** (0.0271) 170 0.3539

0.8118* (0.3559) 0.1718* (0.0841) −0.0755 (0.3600) −0.1026 (0.2305)

(4) Knowledge Transfer

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average degree of connections, eigenvector degree and betweenness, have a significantly negative impact on the knowledge transfer. As the networks are not complete, these results should be explained with caution. However, the degree centrality – the number of connections, which reveal the average degree or the eigenvector degree connection of the firm –is more trustable. The results suggest that the decentralised firm network would enhance the knowledge transfer. Different from the bureaucratic organisations, the decentralised firms are easier and flexible to communicate, among workers and between workers, managers and CEO. The decentralised firms are also more open to new ideas and managerial knowledge. Decentralised does not mean not organised. However, it means that the firms are organised in a more flat and flexible way than the traditional bureaucratic and hierarchical firms. Thus it makes sense that the more decentralised MNEs in Ghana would help to transfer knowledge in the firm. Table 5.4 provides consistent results with the baseline model, which shows that Ghanaian individuals benefit from knowledge transfer, there is no culture difference in knowledge for Chinese and European firms and more channels of communication means more knowledge transfer. Decentralised structure of the firm helps the knowledge transfer within the firm. This evidence is also provided in Table 5.5, which shows the same models as Table 5.4 but for worker sample only, thus the number of observations is restricted to 170. The findings on network structure of the MNEs have good implications, especially for China, where we could predict more outward FDI in the future. Traditionally Chinese firms are centralised. They have multiple levels of management and various company rules that may restrict the productivity of the workers or employees. Chinese firms would like to reform their organisation structure so as to embrace the enhancement of knowledge flow in the firm and thus the increase of productivity of the firm. Chinese MNEs in Africa, such as the four observed in this study in Ghana, would also consider that this reformation of the firm would improve their knowledge and enable them to adapt more to the local economy. This is also important to international development as human capital is important to economic growth for African countries. 5.4.3 Matching After conducting the baseline modelling and the network analysis, this study presents another strand of analysis, which is the propensity score matching. There are many ways of matching: the idea behind this is that for each observation in the treatment group we look for one or more

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Table 5.6  Propensity score matching (1) Knowledge Transfer Average Treatment Effect Ghanaian vs Non-Ghanaian N

0.6417*** (0.2444) 231

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

(based on matching method applied) of the same characteristics in the control group based on observables in the data. This study applies the propensity score matching; for each Ghanaian individual, we find a similar non-Ghanaian individual based on the firm, age, education, gender, position, experience, communication channels and so on. We calculate the propensity score for each individual and then match the observations to find out the average treatment effect. The result is presented in Table 5.6, which shows that on average, compared with the non-Ghanaian, Ghanaian individuals have about 0.6 units more knowledge transfer. This result is significant at the 1 per cent level. Compared with the results in the baseline and the network analysis (0.54), the matching method shows slightly larger coefficients. The little change of the magnitude of the coefficients may be due to some factors that may lead to a bias in the estimation that is eliminated by the fixed effect, but not in the matching method. However, the propensity score matching method shows a slightly different but consistent result with the previous analysis and shows that local individuals in MNEs would benefit from the knowledge transfer. One important assumption about matching method is the ‘common support’. We draw the overlap graph for the propensity scores for the treatment and control group. Although the treatment and control group do not overlap perfected (they are of course very different and hard to match), their propensity scores both expand from 0 to 1. This study does also implement two other sets of propensity score matching by matching not only the individual and firm characteristics, but also the firm and individual network properties. The results are presented in Table 5.4 and Table 5.5 which are consistent with the findings in this section.

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5.4.4  Robustness Checks 5.4.4.1  Detailed outcomes This part conducts a robustness analysis that provides a more detailed study on the knowledge transfer. We divide the knowledge transfer into three types: knowledge transfer with subordinate, manager and colleagues. Table 5.7 and Table 5.8 show the baseline results for the detailed outcomes. The results show that in MNEs, especially Chinese MNEs, the Table 5.7  Detailed outcome for subordinate

Ghanaian Channel China MNE Worker Reward MNEs_Exp Field_Exp N R2

(1) D2a CKT Subordinate

(2) D2a CKT Subordinate

0.2272 (0.1986) 0.1146*** (0.0298) 0.9236*** (0.2460) −0.3801 (0.3009) −0.0347 (0.0435)

0.2598 (0.1844) 0.1136*** (0.0295) 0.7603*** (0.2106) −0.1026 (0.2305) −0.3215 (0.2719) 0.0009 (0.0060) 0.0195** (0.0074) 231 0.2880

231 0.2688

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

Table 5.8  Detailed outcome for manager

Ghanaian Channel China MNE Worker Reward MNEs_Exp Field_Exp N R2

(1) D2a CKT Manager

(2) D2a CKT Manager

0.2661* (0.1381) 0.0928* (0.0489) −0.4076** (0.1513) −0.0792 (0.0804) 0.0031 (0.0257)

0.2767* (0.1372) 0.0942* (0.0496) −0.4096** (0.1450) −0.0543 (0.0839) 0.0083 (0.0258) −0.0051* (0.0027) 0.0071 (0.0076) 231 0.2978

231 0.2949

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

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knowledge transfer happens with subordinate workers, but not managers and colleagues. Thus Table 5.9 and Table 5.10 would look more in depth at the knowledge transfer with subordinate. Table 5.11 is a regression table, where we look at the knowledge learned from managers. It is interesting to find that in Chinese MNEs, workers do not report significant learning from managers. Table 5.12 and Table 5.13 show the detailed outcomes for knowledge transfer with subordinates, combining the network structure of firms in Table 5.11 and individual network properties in Table 5.7. First, it is Table 5.9  Detailed outcome for colleagues

Ghanaian Channel China MNE Worker Reward MNEs_Exp Field_Exp N R2

(1) D2a CKT Colleagues

(2) D2a CKT Colleagues

0.1503 (0.1878) 0.1175* (0.0526) −0.5221*** (0.1270) 0.1776 (0.1384) −0.0696 (0.0496)

0.1521 (0.1778) 0.1177* (0.0533) −0.5227*** (0.1263) 0.1819 (0.1487) −0.0687 (0.0496) −0.0009 (0.0068) 0.0012 (0.0077) 231 0.3456

231 0.3456

Notes: Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

Table 5.10  Detailed outcome: Learn from managers

Ghanaian Channel China MNE Worker Reward MNEs_Exp Field_Exp N R2

(1) Learn from Managers

(2) Learn from Managers

0.0563 (0.0525) 0.0172 (0.0248) −0.2971*** (0.0623) 0.0078 (0.1046) −0.0151 (0.0133)

0.0517 (0.0476) 0.0181 (0.0250) −0.2506** (0.0738) 0.0022 (0.1038) −0.0134 (0.0125) −0.0026 (0.0019) −0.0024 (0.0023) 231 0.4784

231 0.4714

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

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231 0.2920

0.3131 (0.3042) 0.1253** (0.0424) 1.2015*** (0.2613) −0.5154 (0.4107) −0.0660** (0.0266)

231 0.2920

0.0740 (0.0652)

0.3131 (0.3042) 0.1253** (0.0424) 1.3557*** (0.2917) −0.5154 (0.4107)

(2) Subordinate

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

Ghanaian Channel China MNE Worker Central Index Average Degree Eigen Degree Between N R2

(1) Subordinate

Table 5.11  Detailed outcome with firm network: Subordinate

231 0.2920

−0.0151*** (0.0019)

0.3131 (0.3042) 0.1253** (0.0424) 1.3209*** (0.1190) −0.5154 (0.4107)

(3) Subordinate

−0.0501** (0.0202) 231 0.2920

0.3131 (0.3042) 0.1253** (0.0424) 1.2135*** (0.2651) −0.5154 (0.4107)

(4) Subordinate

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231 0.3033

0.2896 (0.2878) 0.1230** (0.0411) 1.2827*** (0.3108) −0.5168 (0.3611) −0.9661* (0.4891)

231 0.2920

−0.0005 (0.0043)

0.3117 (0.3148) 0.1254** (0.0422) 1.3274*** (0.3036) −0.5152 (0.4117)

(2) Subordinate

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

Ghanaian Channel China MNE Worker Eigen Betweenness Outclose Inclose N R2

(1) Subordinate

Table 5.12  Detailed outcome with individual network: Subordinate

231 0.2920

−0.6195 (3.1875)

0.3154 (0.2952) 0.1256** (0.0427) 1.3245*** (0.2932) −0.5177 (0.4115)

(3) Subordinate

4.0669** (1.7090) 231 0.3002

0.2830 (0.2874) 0.1214** (0.0429) 1.3704*** (0.2909) −0.4530 (0.4275)

(4) Subordinate

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Table 5.13  Worker sample subordinate knowledge transfer (1) D2a CKT Subordinate Ghanaian Channel China MNE Reward MNEs_Exp Field_Exp N R2

0.1368 (0.2353) 0.1188** (0.0382) 0.9689** (0.2955) 0.0087 (0.0514)

170 0.3956

(2) D2a CKT Subordinate 0.1618 (0.2401) 0.1155** (0.0401) 0.9027** (0.2870) 0.0043 (0.0478) −0.0016 (0.0056) 0.0136** (0.0092) 170 0.4016

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

evident from both Table 5.11 and Table 5.12 that more channels would mean more knowledge transfer. In Chinese MNEs, there is significant knowledge transfer to subordinates, the effect is large and very significant (1.3 in magnitude and significant at 1 per cent level). This result is in accordance with our claim that knowledge goes from expatriates to local workers, considering that especially in Chinese firms the locals are mostly workers while expatriates are mostly managers. 5.4.4.2  Worker sample This part of the robustness check is conducted by implementing the base line model with work sample and detailed outcomes for the knowledge transfer to subordinate. The two models in Table 5.13 show similar results. First, the number of communication channels would enhance the knowledge transfer in the MNEs. Second, compared with European MNEs, the Chinese MNEs transfer more knowledge to local subordinate workers. The effect is strong and significant. This result is a significant evidence to support our claim that Chinese MNEs would transfer more knowledge from expatriate managers to local subordinates. 5.4.5  Matching with Network The matching with network is a robust check for the propensity score matching. It is built on the matching method discussed earlier. What we have done for this robustness check is to introduce the network properties as extra matching criteria. The results are presented in Table 5.14 and 5.15, where Table 5.14 uses firm network structure and Table 5.15

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Table 5.14  Propensity score matching with firm network

Average Treatment  Effect Ghanaian vs  Non-Ghanaian N R2

(1) Knowledge Transfer

(2) Knowledge Transfer

(3) Knowledge Transfer

0.3106 (0.3357)

0.7246** (0.3542)

0.5062** (0.2003)

231

231

231

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

Table 5.15  Propensity score matching with individual network

Average Treatment  Effect Ghanaian vs  Non-Ghanaian N R2

(1) Knowledge Transfer

(2) Knowledge Transfer

(3) Knowledge Transfer

(4) Knowledge Tranfer

0.4397* (0.2422)

0.5545** (0.2481)

0.6421** (0.2909)

0.6134** (0.2779)

231

231

231

231

Notes:  Standard errors in parentheses, * p < 0.10, ** p < 0.05, *** p < 0.01.

uses ­individual network properties. The models are different as different network characteristics are included separately in the models. The results in the two tables are consistent with the main matching results in Table 5.11. The average treatment effects are around 0.5 to 0.6. Most of the coefficients are significant. The results show that the average treatment effect by matching method is robust to different matching criteria of social network.

5.5 CONCLUSION This study uses unique firm survey data to study the knowledge transfer in MNEs in Ghana which is a typical country in West Africa that welcomes

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FDI for development. To our understanding, this chapter is the first empirical work that uses the network approach to study the managerial knowledge diffusion in MNEs. This chapter contributes to the literature on the impact of FDI on the knowledge diffusion in host countries, and to the emerging literature that uses social networks in international business studies. The analysis of this chapter starts with a series of statistics on the managerial knowledge and knowledge diffusion from our unique survey data. It shows that about half of the managers claim that managerial knowledge and practices are learned from the current company. This indicates the existence of knowledge transfer within the MNEs. As for the channels of knowledge transfer, meetings and teamwork are the most used and useful ones for workers, while for the managers, the most used channels are industry association, training and manuals. Joint work, face to face interaction and training are the most frequently used channels for workers to learn new knowledge. One innovation in this chapter is the use of social network in the analysis. We find that most workers exchange knowledge with their colleagues of the same level, and managers are very likely to transfer knowledge to their subordinates. Besides social network, training is also an important way for individuals within firms to gain and share new knowledge. Most workers found their productivity increased through on the job training. Knowledge transfer drives the managerial innovation, which leads to better outcomes for the MNEs as well as people working in the MNEs. Most managers report that for the firm operations, there are reduced costs, reduced environmental impacts as well as increased productivity, sales, working conditions, CSR and better met regulatory requirements when there is managerial innovation in the firm. As for workers, knowledge transfer improves their capability as well as well being outcomes in the following dimensions: leadership, management practices, remuneration. We observed a slight difference between the learning patterns and capability among workers in Chinese and EU MNEs: the improvement driven by knowledge transfer is more significant in EU MNEs and this shows that learning is more explicit in EU MNEs. Advanced econometric methods are applied using the individual level survey data within firms. The baseline model which controls for the firm level fixed effects shows that, first, the local individuals benefit from the knowledge transfer compared with the expatriates. This makes a lot of sense and shows that the knowledge in the MNEs flows from the expatriates to local workers. Second, more channels of communication mean more knowledge transfer. Finally, the Chinese MNEs and European MNEs have no significant difference in knowledge transfer. Besides

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the traditional econometric inference, we apply the network modelling techniques using the social relationship date among the individuals in the firms. Network properties of firms as well as individuals are both examined. The network analysis shows that the firm network structure influences the knowledge transfer in the firm. The more decentralised MNEs would perform better in knowledge transfer. The intuition behind this finding is that decentralised organisations would be more flexible and flat, and more open to new ideas and knowledge. The flow of information and knowledge in these firms would be smoother and quicker, within the firms and between different departments and positions. To enhance our analysis on the knowledge transfer within MNEs, we adopted the matching method by paring the individuals based on their social-economic characteristics. The propensity score matching method provides evidence that the local individuals would benefit more from the knowledge compared with expatriates, who are supposed to have more managerial knowledge and are sent to MNEs’ overseas branches in Africa to help the establishment, maintenance and enlargement of the local business of the MNEs. The findings suggest that the FDI not only brings the capital and technology that are needed for Ghana’s economic growth, but also the human capital, particularly the managerial knowledge embedded in the expatriates coming together with capital and technology. This evidence shows the FDI would help improve the local development in the case of knowledge spillover to local workers. In the more detailed outcomes, we find evidence to show that the subordinate workers in Chinese MNEs get more knowledge transferred from their managers. This is in line with the finding that knowledge in the MNEs flows from the expatriates to local people. When considering for detailed roles and positions of the local people working in the MNEs in Ghana, we found that local subordinates in Chinese MNEs benefit more in knowledge transfer comparing with those counterparts in the EU MNEs. This is the only culture difference between the Chinese MNEs and the EU MNEs we observed in the knowledge transfer in MNEs in Ghana. This chapter contributes to the academic literature in several ways, this is the first paper that examines the managerial knowledge transfer using individual level data which differs form previous literature that focuses on the knowledge transfer using firm, industry or country level. There is also limited studies network data from individual social and economics networks. We also contribute to the field by examining the difference between Chinese MNEs and EU MNEs in the developing countries. This study has interesting policy implications in the following ways. First, given the findings from the network analysis, MNEs would like to reform their organisational form in order to enhance knowledge

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transfer within the firm. Second, based on our finding on the managerial ­knowledge transfer, developing countries would like to consider FDI not only for technology and capital, but also the human capital, which is important to economic growth. As the human capital level of a developing country is strongly associated with modern technology absorption and adaptability. African countries should consider human capital policy more closely together with policies of FDI. Besides these, findings from this study shows practical implications for policy makers and managers of the MNEs. First, local employees do benefit from the managerial knowledge transfer from the MNEs through various channels. Therefore, trade policies should continue to encourage the inflow of FDI into the country. Moreover, if network structure and individual characteristics are controlled then there will be no significant difference between Chinese and European MNEs in terms of managerial knowledge transfer in general. The culture difference appears mainly in the knowledge acquired by the subordinates in the Chinese MNEs who reported learning more from their managers. Finally, decentralised MNEs’ subsidiary structure appears to be more of a conduit to knowledge transfer. Therefore, adopting a more decentralised structure will facilitate more knowledge transfer between foreign and local employees in the MNE subsidiaries. This study also bears some limitation. The main drawbacks of our study arise from the data we use, we have only the cross-sectional data for eight firms, which limits our analysis and we are not able to study how the knowledge transfer within firms change over time. A follow-up survey to create a panel data to study the dynamic properties of knowledge transfer of individuals in the firms would be a significant increase of the analysis. Moreover, the survey can be possibly extended to cover local individuals employed in local firms, in order to have a more interesting counterpart for the study.

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APPENDIX: VARIABLES Table 5A.1  Dependent variables Variable Name

Meaning

Measure

Knowledge  Transfer D2a CKT  Subordinate D2b CKT  Managerial D2c CKT  Colleagues Know ML

Knowledge transfer between  individuals Knowledge transfer to or with  subordinate Knowledge transfer to or with  manager Knowledge transfer to or with  colleagues Whether transfer with managers

PCA to combine the 3  variables 0 for no transfer, 1 for learn,   2 for tutor, 3 for both 0 for no transfer, 1 for learn,   2 for tutor, 3 for both 0 for no transfer, 1 for learn,   2 for tutor, 3 for both Binary

Table 5A.2  Independent variables Variable Name

Meaning

Measure

Ghanaian

Whether the individual is   Ghanaian or not Number of channels for   knowledge transfer Whether the firm is Chinese  MNE Whether the individual is a  worker Whether the individual is male The education level of  individual The age level of individual

Binary

Channel China MNE Worker Male Education Age Ht MNE MNEs Exp Field Exp

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Whether the firm is a high  technology MNE Individual’s years of experience   in current MNE Individual’s years of experience   in the relevant field

PCA to combine the 9  channels Binary Binary Binary Education level for basic,   secondary, tertiary Age level for 50 Binary Number of years in current  MNE Number of years in relevant  field

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Ghanaian Channel China MNE Worker Male Ht MNE Age Education MNEs Exp Field Exp Reward

1 −0.0981 −0.079 0.4316 −0.0512 0.079 −0.1759 −0.1657 0.0306 −0.122 0.0496

1 0.2617 −0.0797 0.0336 0.0947 0.219 0.3012 0.1982 0.119 0.2197 1 0.0569 0.2048 0.0218 0.5256 −0.1307 0.2312 0.0995 0.114 1 0.0595 −0.0372 −0.0676 −0.3961 0.0715 −0.149 −0.0521

Ghanaian Channel ChnMNE Worker

Table 5A.3  Correlation among controls

1 −0.1166 0.1634 −0.2355 0.1887 0.1921 0.0387

Male

1 −0.238 0.3973 −0.1597 −0.259 0.1588

ht MNE

1 −0.1346 0.5768 0.6026 0.1565

Age

1 −0.109 −0.0833 0.2073

Education

1 0.6963 0.2738

MNEs Exp

1 0.1402

Field Exp

1

Reward

6. MNEs and managerial knowledge transfer to Africa: A comparison between Chinese and European MNEs in the construction sector in Ghana* Cyrielle Auffray and Xiaolan Fu 6.1 INTRODUCTION Foreign direct investment (FDI) has long been recognised as a potential driver of economic growth in developing countries (Moran et al., 2005). Multinational enterprises (MNEs), firms that operate in more than one country, are the main sources of FD (Dunning, 1994b). Potential benefits of FDI for the host economy include an inflow of capital, job creation and, most importantly, knowledge spillovers. Spillovers occur when the MNE cannot fully internalise its stock of knowledge (which embeds technology and management practices), and domestic companies are able to make use of it (Crespo and Fontoura, 2007). Theoretically, knowledge spillovers can increase domestic productivity, foster economic growth and ultimately lead to poverty alleviation in developing countries (UN, 2002). Managerial knowledge spillovers, which specifically refer to the adoption of foreign management practices by domestic firms as a consequence of FDI, have been understudied in the literature, despite a rising recognition of the role of management practices in increasing productivity (Fu, 2012a). Academic research initially assumed that FDI spillovers were unproblematic (Lall, 1992), but empirical findings suggest that they are determined by a number of factors, including the source country of the investment (Crespo and Fontoura, 2007). In particular, increasing FDI from emerging economies has led some to suggest that this type of FDI could be more prone to spillover knowledge in other developing countries than FDI from developed economies (Fu and Gong, 2011). This debate takes place in the context of deepening economic relations between China and Africa. Indeed, the past decade has witnessed a radical transformation of ­95

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China–Africa relations. While Sino-African trade has increased more than tenfold over the period 2000–2010, turning China into Africa’s biggest trade partner (Ayenagbo et al., 2012), Chinese FDI to Africa accounted for over $2 billion in 2010 – a 565 per cent increase since 2004 (MOFCOM, 2011). This rapid evolution has raised widespread media attention, and generated both hope and fear. Research is lagging behind to analyse this fast-changing phenomenon. Though multiple authors have looked at the specificities of Chinese FDI in Africa, the question of knowledge spillovers from Chinese FDI is yet to be considered. This chapter attempts to fill this gap using a qualitative methodology that is well adapted to underresearched topics and to the study of management systems. The research is based on a case study of the Ghanaian construction sector, which has attracted large amounts of Chinese FDI in the past decade. Research findings suggest that managerial knowledge spillovers from Chinese construction firms, in the Ghanaian context, are restricted by the lack of local employees at the managerial level. This is the result of complex cultural, linguistic, historical and economic dynamics. However, a number of Chinese contractors in Ghana are making concrete attempts to localise their managerial workforce. This localisation process, which is just beginning, could not only increase the capacity of Chinese firms to transfer managerial knowledge, but also significantly enhance their contribution to local development in Africa.

6.2  RESEARCH METHODOLOGY 6.2.1  A Qualitative Case Study The research favoured a case study approach, which is well adapted to the present case. The focus of the study on managerial knowledge, which entails a strong focus on human interaction and the consideration of socio-cultural variables, called for the use of qualitative methods rather than quantitative ones. The case of the Ghanaian construction sector was selected in the hope that it would constitute an exemplifying case for other sectors and countries receiving Chinese FDI across Africa. Nonetheless, the results presented in this chapter need to be understood as contextually bounded. The choice of Ghana was motivated by the dynamism of its economy and its rising attractiveness for foreign investors, most notably Chinese. Chinese FDI outflows to Ghana have soared from less than $1 million in 2006 to over $55 million in 2010, and Ghana was the ninth largest African recipient of Chinese FDI in 2010 (MOFCOM, 2011). Over the period 2008–2010, China was the first foreign investor in Ghana in terms

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of number of projects and the eighth in terms of value of projects (Sutton and Kpentey, 2012). The study was further focused on the construction sector, based on its importance in the Ghanaian economy – construction has been the fastestgrowing industry over the period 2000–2009, observing an 88 per cent growth (Sutton and Kpentey, 2012) – and its relatively large FDI inflows (construction received 33.6 per cent of total FDI inflows to Ghana over the 2008–2010 period (Sutton and Kpentey, 2012)). Moreover, while Chinese FDI to Africa remains low in comparison to European or American FDI inflows (Allix, 2013), the situation varies considerably between sectors: China’s share of the African construction market reached 36.6 per cent in 2010 (Van Valen, 2012). This trend is observable in Ghana, where multiple Chinese firms are challenging longterm traditional investors from the West (Sutton and Kpentey, 2012). 6.2.2  Data Collection and Analysis Semi-structured, in-depth interviews were the main tool of qualitative data collection. Participants were selected through both theoretical and snowball sampling. A total of 31 interviews involving 39 participants were realised (seven interviews involved more than one participant). All interviews took place in Accra. The interviews lasted from 30 minutes to one and a half hours and were conducted in English and, in one case, in French. Interview questions followed general themes and were adapted to the position of the participant(s), with a flexible structure allowing for reactions to the interviewee’s answers and comments. Interviewees included a variety of actors in and out of the construction sector, such as managers and employees in Western and Chinese construction firms, suppliers, subcontractors and consultants to construction firms, civil servants in ministries and government agencies, employees of international development agencies, academics and other relevant stakeholders. This diversity was essential to triangulate the data collected. Table 6.1 presents a breakdown of respondents per occupation and nationality. In addition to interviews, qualitative data was collected during and after the fieldwork period in various sources of grey literature: Ghanaian and international media, websites and reports of local and international organisations, and companies’ press releases and annual reports. A limited amount of quantitative and qualitative data was also collected through interviewees (e.g. unpublished reports, statistics). Data analysis followed the general principles of grounded theory for case study theory-building (Glaser and Strauss, 1967; Eisenhardt,

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Table 6.1  Breakdown of respondents by nationality and occupation Participants

Africana

Construction companies 4 Other private sectorc 7 International development 5  agencies Ministries and government 6  agencies Civil societyd 6 Total 28 (71.8%)

Chinese

Westernb

Total

4 0 0

3 0 2

11 (28.2%) 7 (17.9%) 7 (17.9%)

0

0

6 (15.4%)

2 6 (15.4%)

0 5 (12.8%)

8 (20.5%) 39 (100%)

Notes: a Most African respondents were Ghanaians, with two exceptions (nationals of neighbouring countries). b  Western nationalities are understood broadly and regroup all European respondents. c ‘Other private sector’ interviews included consultancies, suppliers and subcontractors to the construction sector. d  ‘Civil society’ includes academics, trade unions and professional associations.

1989). Data analysis was not separated from data collection, but rather conducted simultaneously as part of a reflexive and inductive process. The analysis relied partly on simple coding techniques to identify themes in the data. Theories developed from the empirical data were strengthened through a systematic comparison with existing literature (both conflicting and supporting). This triangulation process was instrumental in raising the theoretical level of the analysis, and in addressing validity concerns. 6.2.3  Methodological Limitations Two further types of biases may have affected data collection. First, several firms (Chinese and Western) declined interviews. It may be that only firms with best practices in terms of training, local labour and relations with local stakeholders agreed to participate (non-response bias). Second, participants may have biased their answers to be perceived positively, for instance, exaggerating the importance of their training programmes or their commitment to local employment (response bias). Whenever possible, data was triangulated from different sources to mitigate the effects of these biases.

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6.3 OVERVIEW OF THE GHANAIAN CONSTRUCTION SECTOR Before highlighting the main channels and determinants of managerial knowledge spillovers in the Ghanaian construction sector, a few remarks are necessary to understand the underlying dynamics of the sector and the main issues faced by domestic firms. The Government of Ghana (GoG) is the largest client of the construction industry. Most public construction projects are submitted to national (domestic contractors only) or international (open to foreign firms) competitive tendering. Projects are supervised by specialised government agencies, such as the Ghana Highway Authority (GHA), the Department of Urban Roads (DUR) and the Ministry of Works, Housing and Water Resources. Multilateral and bilateral development organisations can provide project funding to government agencies, either as loans or grants. Construction projects usually involve a cooperation between a consultant, in charge of the project design and day-to-day supervision, and a main contractor, who may subcontract parts of the contract to smaller companies. There is a large number of domestic contractors in Ghana, but apart from a few exceptions they are generally small firms (Vulink, 2004). Most belong to one of two professional associations, the Association of Building and Civil Engineering Contractors of Ghana (ABCECG) and the Association of Road Contractors in Ghana (ASROC), which undertake information and advocacy campaigns and provide training facilities to their members. There is a general capacity issue in Ghanaian construction firms, characterised by a lack of access to capital due to high interest rates, which in turn prevents the necessary investments in technical equipment and skilled labour that would create sustainable company growth. Financing issues are complicated by regular delays in government payments: as the majority of projects are government projects, constant delays induce severe cash flow issues for domestic contractors. Several respondents pointed out the lack of managerial know-how of domestic construction firms’ owners, highlighting poor contract management skills and their inability to delegate tasks and retain qualified workers. The predicament of domestic contractors is a vicious circle: with little access to capital and qualified workers, they cannot compete with international firms on largescale projects, which limits them to small-budget government works that pay with delays, and ultimately hinders their access to capital and their ability to retain qualified employees. Foreign firms dominate the construction project, realising the biggest (and most profitable) projects. Foreign construction firms vary widely in

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Table 6.2  Visa quotas for foreign investors Value of Investment

Working Visas Authorised

Under $100,000 $100,000 to $500,000 $500,000 and more

1 2 4

terms of size, type of works undertaken, length of implantation in Ghana, ownership structure and origins. There is a small group of well-implanted foreign contractors (mostly European), which is being challenged by a growing number of Chinese firms (Sutton and Kpentey, 2012). It is important to note that the Chinese contractors do not form a homogeneous group, especially in terms of ownership structure (they can be central-state SOEs, provincial-state SOEs, or have mixed public–private ownership structures). Foreign–local joint ventures or partnerships are rare, partly because of the local capacity issues outlined above. It is important to note that employment of foreign nationals in Ghana is restricted. Foreign companies have a quota of visas for foreign employees, which depends on the amount of paid-up capital they invest in Ghana (Table 6.2). A foreign company may apply for more visas than its quota allows for, but has to justify why it needs to bring in foreign expertise. The effectiveness of these measures is limited by the enforcing capacity of the government. Nonetheless, two foreign participants noted that restrictions on foreign employment had become tougher in recent years, and that the GoG has progressively raised the level of skills required to justify the attribution of extra working visas. 6.3.1  Key Channels of Managerial Knowledge Spillovers Based on the theoretical framework, the research identified five potential beneficiaries of managerial knowledge spillovers in the construction sector: employees, subcontractors, suppliers, competitors and construction consultancies. 6.3.1.1  Employees Because of their direct integration in the MNEs’ management systems, Ghanaian employees in foreign construction firms are the primary recipients of foreign managerial knowledge. Interviews with foreign contractors highlighted three vectors of managerial learning: experience (1), formal training (2) and mentorship (3).

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6.3.1.1.1  Experience  Locals employed in managerial positions in foreign companies accumulate foreign managerial knowledge through observation and experience. As foreign companies undertake the biggest contracts in Ghana, their local managers can be exposed to complex projects involving large budgets and tough time and quality constraints, and to the correspondingly advanced management practices. Employees in non-managerial positions also have limited learning opportunities through observation and interaction – they are also included in a foreign management system – but how much knowledge they will be able to assimilate and reuse will depend on their prior experience and education, as well as on the time they spend with the foreign contractor. 6.3.1.1.2  Formal training   Local managers in foreign construction firms can also benefit from a more active form of managerial knowledge transfers through formal training programmes. Most foreign companies interviewed reported having training sessions for their local managers. Training contents are usually tailored to the development level of the employee and target specific skill gaps. Examples of training modules included time, quality and cost management, as well as more general sessions on project management. Training locations vary, sessions can be internal to the company and conducted by local employees’ own foreign managers, or delegated to an external consultancy. MNEs may also send their local employees abroad for training. 6.3.1.1.3  Mentorship  Mentorship can be defined as a formal or informal dyadic relationship between a foreign senior manager (the ‘mentor’) and a more junior local employee working for the same company. Mentorship supposes the development of a long-term professional relationship between two individuals, with the implicit purpose of building the capacity of the local employee. Among the six companies interviewed for this research, only one indicated having a formal mentorship scheme, but in at least one other foreign firm, interviews revealed the existence of similar dyadic relationships, though at a more informal level. 6.3.1.2 Subcontractors The dynamics of managerial knowledge spillovers for local subcontractors are similar to those of suppliers. Again, the development of a long-term business relationship is essential to an upgrading of subcontractors’ managerial capabilities, and most contractors noted an amelioration of subcontractors’ services over the time of their collaboration. Given the high turnover in subcontractors (the type of works subcontracted varies

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from project to project), the incentive for foreign contractors to provide them with managerial training is low. However, subcontractors have more opportunities than suppliers for learning through observation of the contractor’s management practices. Indeed, subcontractors work on site for the duration of their contract, often under the direct supervision of the foreign contractor’s project manager. Additionally, subcontractors are more likely than suppliers to pick up new managerial practices, as the core of their work is more closely related to that of the contractor’s. 6.3.1.3 Suppliers Local suppliers’ managerial capacity may also improve as a consequence of foreign contractors’ activities. In this case, the most important element seems to be the development of a long-term business relationship involving multiple interactions between the supplier and the foreign contractor. A long-term relationship with frequent interactions creates a pressure on the supplier to upgrade its services to keep clients satisfied. Foreign contractors generally observed an improvement over time in the services of their regular suppliers, such as more timely deliveries and better quality of products purchased. Though this pressure to upgrade, or disciplining factor, is not exactly a managerial knowledge spillover (the supplier is not necessarily adopting the practices of the foreign firm), it is an efficient driver for managerial capacity building in suppliers. Additionally, a longterm business relationship with a foreign contractor can be a factor of financial stability for local suppliers. Regular cash entries can provide an opportunity for a local company to expand and upgrade its management system. Finally, in terms of training, only one foreign contractor mentioned organising formal training sessions for its suppliers, though others indicated providing suppliers with more informal guidance. The extent of these positive externalities remains limited. Given the low development of the Ghanaian manufacturing sector, local suppliers are often import companies: they are generally small in size and may simply not have the space or the need for a more complex management system. 6.3.1.4 Competitors Local competitors can theoretically benefit from knowledge spillovers, through pressures to upgrade, demonstration effects and labour mobility (Cheung and Lin, 2004). Fieldwork findings were inconclusive in that regard – time and budget constraints did not allow for a thorough examination of the sources of managerial knowledge for local ­construction companies. Nonetheless, a few careful hypotheses can be suggested. First, local and foreign contractors do not seem to compete on the same level: local contrac-

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tors bid on smaller contracts reserved to Ghanaian companies, while foreign contractors have a de facto monopoly on larger works. Direct observation of foreign competitors is therefore limited. Second, the capacity gap between foreign and domestic contractors might be too wide for efficient knowledge spillovers through demonstration effects. The management systems used by foreign companies might simply be inappropriate for smaller local firms. Finally, labour mobility could be strongly limited by budget constraints: local contractors might not be able to afford foreign-trained employees. 6.3.1.5  Construction consultancies The specific case of construction consultancies is interesting. These firms do not categorise as local linkages – they are usually brought in by the client rather than the contractor; they also do not qualify as local competitors to foreign contractors. However, the research highlighted possible managerial knowledge spillovers from foreign construction firms to local construction consultancies through labour mobility. Whereas domestic contractors’ development is constrained by a lack of access to finance, consultancies can be set up more easily and require a lower start-up capital. Technical experts (e.g. civil engineers, quantity surveyors) exposed to advanced management practices in foreign construction firms are therefore in an ideal position to start or join a local consultancy firm. Figure 6.1 summarises the different channels of managerial knowledge VERTICAL SPILLOVERS

Subcontractors

Suppliers

Discipline Limited training Direct supervision

Discipline Limited training Informal guidance LOCAL LINKAGES

Foreign contractor Limited demonstration effects

HORIZONTAL SPILLOVERS

Competitors

Training Mentoring Exposure

Labour mobility

Local managers

Labour mobility

Construction consultancies

Figure 6.1  C  hannels of managerial knowledge spillovers in the Ghanaian construction sector

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spillovers in the Ghanaian construction sector, emphasising the most effective ones.

6.4  KEY DETERMINANTS OF MANAGERIAL KNOWLEDGE SPILLOVERS 6.4.1  Absorptive Capacity Educational achievement rates are high in Ghana compared to those in other Sub-Saharan African countries, and they have been improving rapidly. But they remain low, and as a labour-intensive industry, the construction sector attracts many more unskilled workers than universityeducated ones. Assuming that knowledge spillovers can only impact individuals over a certain threshold of human capital,1 it is likely that they will be restricted to the most educated individuals interacting with the foreign entity. In addition to the limited labour mobility from foreign to domestic firms, this implies that the broader impact of those managerial knowledge spillovers on domestic productivity could very well be insignificant in absolute terms. 6.4.1.1  Tacit knowledge and the central role of personal interactions Research findings suggest that tacit knowledge is particularly present in the construction sector, with exposure and mentorship being two key ways of transferring managerial knowledge onto local employees. This makes interpersonal and cross-cultural relationships within the foreign company a strong determinant of managerial knowledge spillovers. Frequent and fluid communication, as well as cross-cultural understanding, appear to be important elements favouring knowledge spillovers. This means the extent of managerial knowledge spillovers will vary depending on the quality of the learning environment within the foreign construction firm and on the personalities of the individuals involved. 6.4.1.2  Structural constraints to further transfers Finally, some of the structural features of the Ghanaian construction sector limit the extent of managerial knowledge spillovers. For instance, labour mobility from foreign to local contractors is constrained: local managers trained in foreign companies are a scarce resource, and local contractors can rarely afford poaching them. Limited access to capital also means that foreign-trained managers wishing to start their own firm may not be able to expand their companies and to transfer their managerial knowledge onto their own employees. Construction consultancies do

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not face the same structural constraints, and could be more successful at keeping the managerial knowledge acquired alive. Table 6.3 presents a summary of determinants of managerial knowledge spillovers in the Ghanaian construction sector, for each of the potential knowledge recipients. Table 6.3  D  eterminants of managerial knowledge spillovers in the Ghanaian construction sector for selected recipients Recipient

Determinants of Managerial Knowledge Spillovers

Ghanaians employed in foreign construction firms

  1. Absorptive capacity   2. Quality of communication with foreign managers   3. Quality of interpersonal relationships with foreign managers   4. Formal training opportunities   5. Mentoring relationship   6. Absorptive capacity   7. Scope of knowledge gap with foreign firms   8. Quality of communication with foreign firms   9. Quality of interpersonal relationships with foreign managers 10. Quality of foreign supervision while working on site 11. Duration of business relationship with foreign contractor 12. Absorptive capacity 13. Scope of knowledge gap with foreign firms 14. Quality of communication with foreign firms 15. Quality of interpersonal relationships with foreign managers 16. Frequency of interactions with foreign managers 17. Duration of business relationship with foreign contractor 18. Absorptive capacity 19. Scope of knowledge gap with foreign firms 20. Appropriateness of foreign managerial knowledge 21. Poaching capacity 22. Structural constraints (access to capital) 23. Absorptive capacity 24. Scope of knowledge gap with foreign firms 25. Quality of communication with foreign firms 26. Quality of interpersonal relationships with foreign managers 27. Poaching capacity 28. Structural constraints (access to capital)

Subcontractors

Suppliers

Competitors

Consultancies

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6.5  CHINESE CONSTRUCTION COMPANIES AND MANAGERIAL KNOWLEDGE SPILLOVERS The presence of Chinese contractors in Ghana is a controversial topic, as is the broader Chinese presence in Africa. Chinese contractors were often criticised by respondents for their (alleged) unwillingness to engage with the Ghanaian society. Government agencies and international development organisations had a more positive perception of Chinese construction firms, possibly because they can see directly the benefits of their price competitiveness. Three main issues impact managerial knowledge spillovers from Chinese construction firms: their vertical integration, which limits local linkages; their lower level of managerial knowledge, which limits the quantity of knowledge that can be passed on; and most importantly all-Chinese management teams, which limits the opportunities for learning-by-doing and mentoring. 6.5.1  Local Linkages and Vertical Integration Chinese construction firms in Ghana have the reputation of using fewer local suppliers and subcontractors than other construction firms. Vertical integration has been a common internationalisation strategy for Chinese MNEs to reduce costs and secure markets (Erdener and Shapiro, 2005). As price competitiveness is one of the main advantages of Chinese contractors, a vertically integrated structure makes sense. Indeed, some respondents noted that Chinese contractors tend to subcontract less than their foreign counterparts to manage to keep their costs under control. The language barrier, or a limited knowledge of the local market, could also explain a preference for vertical integration. A lack of engagement of Chinese contractors with local companies could constitute a major impediment on managerial knowledge spillovers. However, it is extremely difficult to establish with certainty whether Chinese construction companies are indeed using fewer Ghanaian ­suppliers and subcontractors than other foreign contractors. Empirical findings from this research suggest this perception of vertically integrated Chinese construction firms might be exaggerated: the three Chinese companies interviewed confirmed working mostly with local subcontractors. The decision to subcontract seemed to be primarily made on price for all foreign contractors, including Chinese ones.

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6.5.2  Low-performance Management Practices A second issue that might constrain managerial knowledge spillovers in Chinese construction firms could be the lower quality of managerial knowledge available in these firms. This raises the question of the advancement stage of the managerial knowledge of Chinese contractors, in comparison to other foreign contractors. While measuring managerial knowledge is a difficult endeavour, the qualitative findings of this research suggest that Western and Chinese firms do have distinct management practices. Western firms were generally perceived to be better organised than Chinese ones. Participants from the public sector and international development agencies praised the contract and site management skills of Western contractors, while Chinese ones were, for instance, criticised for not always having the equipment or experts announced in the contract available at the start of the project. Safety issues – which can be interpreted as a sign of poor management – were often brought up when discussing Chinese construction companies. A Chinese manager acknowledged himself that management was one of the weaknesses of his company. These deficiencies could affect the potential for managerial knowledge spillovers in Chinese construction companies negatively. However, management systems can adapt and evolve quickly: this relative weakness of Chinese contractors could soon disappear, at least in some firms. Broad conclusions should therefore be avoided. 6.5.3  All-Chinese Management Teams The most systematically observed difference between Chinese and other foreign construction firms is in their ratio of local to foreign employment. Chinese contractors appear to employ a much greater number of expatriates than do other foreign contractors, especially at the managerial level. This was confirmed by all participants, and is coherent with other academic reports on Chinese firms’ management practices in Africa (e.g. Li, 2007; Haglund, 2009; Lee, 2009). As employment statistics provided by interviewed firms demonstrate (Tables 6.4 and 6.5), the difference between Chinese and non-Chinese firms in terms of ratios of local to foreign employees is significant.2 Nonetheless, in terms of absolute numbers, Chinese firms do end up employing more local labour than non-Chinese firms – their local headcount is higher, which may reflect more labour-intensive technologies and working practices, or indicate that they are simply bigger (data on companies’ revenues was not publicly available). These greater numbers of local employees could be favourable to greater knowledge spillovers, as they translate into

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Table 6.4  E  mployment patterns in selected Chinese construction companies in Ghana Company CH_A CH_B CH_C CH_D

Ghanaian Employees

Foreign Employees

1,000 800 2,000 200*

200 100 480 (400 Chinese) 100*

Ratio Foreign/ Ghanaian Local Employment Managers? 1/5 1/8 1/4 1/2*

No Yes No No*

Note:  * The data were not collected in a formal interview and are approximate.

Table 6.5  E  mployment patterns in selected non-Chinese foreign construction companies in Ghana Company

Ghanaian Employees

NCH_A NCH_B NCH_C

223* 300–400 400–800

Foreign Employees 4* 3–5 14

Ratio Foreign/Local Ghanaian Employment Managers? 1/55* 1/100 1/30

Yes (26)* Yes Yes

Note:  * The data given were for one project site only, and may not reflect the totality of the company’s workforce.

larger numbers of local employees being exposed to new management practices. The research presented here focuses on knowledge spillovers to local managers, rather than all of the workers. Local managers are the most likely recipients of managerial knowledge transfers, as they are usually better educated and master more professional skills, which makes them better equipped to absorb new managerial knowledge. In this regard, limited local employment at the managerial level constitutes a major impediment to managerial knowledge spillovers from Chinese construction firms through labour mobility or social networks. However, the potential value of managerial knowledge spillovers to local workers, beyond managerial positions, should be kept in mind when exploring these findings – as they would present a more balanced picture of the contribution of Chinese MNEs to knowledge transfers in Africa. External stakeholders to the construction sector often attributed the absence of local managers in Chinese companies to a desire to keep Ghanaians out of management circles. Some evoked a trust issue, arguing,

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for instance, that ‘[The Chinese] will never let you know how they run things’ or that they simply ‘prefer dealing with their own kind than with the Ghanaians’. However, interviews with Chinese contractors revealed two concrete factors impeding on local recruitment at the managerial level. 6.5.3.1  The language barrier The language barrier can be defined as the loss of rhetorical skills (including negotiation, persuasion and motivation) caused by a limited competency in the working language, resulting in difficulties in ‘achieving and sustaining effective communication and a productive, collaborative relationship’ (Harzing and Feely, 2008). To limit the effects of the language barrier in the HQ–subsidiary relationship, MNEs with headquarters operating in a ‘minority language’ (i.e. not spoken at the global level, such as Chinese) tend to rely more heavily on expatriates in subsidiaries (Feely and Harzing, 2003). This is the case for Chinese contractors operating in Ghana. To achieve fluid communication with the parent company in China, the top management of the subsidiary needs to be Chinese. But as senior expatriates struggle the most with language, they naturally prefer a middle-management team who also speaks Chinese, which in turn favours Chinese entry-level managers over Ghanaian ones. This results in the exclusion of Ghanaians from the management ladder. This is not simply a question of personal preference: linguistic unity leads to more effective communication, resulting in time and economic gains (Bolton and Dewatripont, 1994). This is not something that can be solved by the presence of an interpreter. Realtime interpretation reduces the clarity and the spontaneity of exchanges; it is also extremely time-consuming. Furthermore, the language barrier can cause feelings of exclusion, confusion and frustration (Harzing and Feely, 2008). This is a major impediment to trust-building, which could affect knowledge transfers by altering the quality of interpersonal relationships and restricting the opportunities for formal training and informal learning within the firm (Henderson, 2005). 6.5.3.2  The cultural difference In addition to linguistic issues, a deeper cultural clash between Chinese and Ghanaians could explain the lack of local managers in Chinese firms. Culture is a blurry concept that can be understood here as ‘a collective phenomenon . . . about shared values and meanings’ (Hoecklin, 1995:24). Cultural factors are difficult to discuss because people tend to take them for granted (Pun et al., 2000). Indeed, though half of participants cited cultural difference as a barrier to increased local employment in Chinese

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firms, few were able to give specific examples. Nonetheless, two main points of tension seemed to emerge from cultural conceptions of work and of time. For instance, while Chinese workers are lauded for their hard-working attitude, Chinese managers complained that their Ghanaian employees did not have the same working efficiency and did not express the same commitment to work. This can be explained by different cultural relations to work, rather than by an intrinsic Chinese capacity to work hard. There is a high work centrality in Chinese culture (Westwood and Lok, 2003). While anthropological studies of the meaning of work in Ghanaian culture are lacking, some studies suggest that it places an emphasis on interpersonal relationships, rather than increased productivity (Dzobo, 1992). Traditionally, work is not supposed to take time on important social, familial and religious activities, which may explain the reluctance to do overtime and weekend work. However, globalisation and the associated capitalistic transformation of the Ghanaian economy may have reduced the prevalence of these traditional values. Ghanaians could simply lack a reason to work hard under Chinese management (wages too low, limited perspectives of professional evolution). Similarly, divergent Chinese and Ghanaian conceptions of time seem to foster mutual misunderstandings. While the Chinese seem attached to a strict, mechanical conception of time, Ghanaians traditionally construct time more flexibly (Mbiti, 1990). This issue hinders effective communication within the company, but also with suppliers and subcontractors, resulting in delayed deliveries and works. This cultural clash has a direct impact on the decision to employ, or not employ, locals in managerial positions in Chinese construction firms. These cross-cultural misunderstandings add to the language barrier to prevent the emergence of trust relationships. Previous research has emphasised repeatedly the role of culture in creating trust (Doney et al., 1998; Joynt and Warner, 2002; Yuki et al., 2005; Gelfand et al., 2007). Trust is especially necessary in uncertain legal environments, such as developing countries’, to act as an additional safeguard to formal contracts (Haglund, 2009). In this case, mistrust can explain the Chinese reluctance to include Ghanaians at decision-making levels. 6.5.3.3  Additional factors to consider Three further factors can help explain the impact of language and culture on the recruitment of local managers in Chinese construction firms. First, historical events have shaped the current Sino-Ghanaian relationships. In Ghana, British colonialism imported a European model of the capitalist firm which may clash with the Chinese one. In China, the Great Cultural

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Revolution (1966–1976), which was experienced by the most senior Chinese managers in their teenage years, significantly impacted Englishlearning opportunities and exposure to foreign influences (Adamson, 2004; Hu, 2002). Second, most Chinese construction firms have only emerged on the international scene over the past decade. This limited international experience means they are not only unfamiliar with local markets but also that they lack examples of best practices in cross-cultural management. Finally, Chinese construction companies do not have a strong economic imperative to hire locally. While Western expatriates come at a very high cost, Chinese expatriates remain relatively cheap. They generally do not migrate with their spouse or family, and can live in very basic conditions. The efficiency gains from having an all-Chinese management team may therefore outweigh the costs of hiring large numbers of expatriates. Overall, the absence of local managers constitutes the most stringent impediment to managerial knowledge spillovers from Chinese construction companies. However, this situation could evolve rapidly, as some Chinese contractors develop innovative localisation strategies.

6.6  LOCALISATION: A STRATEGY EMPLOYED TO ENHANCE KNOWLEDGE TRANSFER 6.6.1  An Example of Localisation in the Ghanaian Construction Sector One of the three Chinese construction companies interviewed in Ghana had initiated a managerial localisation programme, progressively including more Ghanaians in its management team. This was a relatively recent (less than two years) strategy, which came about through the personal drive of the CEO of the company’s Ghanaian subsidiary. The localisation programme was inspired by the observation of other successful MNEs, operating in Ghana with a very small number of expatriates. It was part of a move towards a more elaborate management system, with clearly defined positions and formal processes – anticipating a reduction in the number of Chinese expatriates. The firm seemed to put a strong emphasis on the training of local staff, especially on technical aspects. Locals could be paired with Chinese technical experts over a short-time training period, or with a Chinese manager for a more long-term professional development. The firm also organised training sessions in both Ghana and China, tailored to the roles and duties of employees. The company had recently hired a Ghanaian director of Human Resources, which constitutes a strong signal for its commitment to localisation. Cross-cultural issues were addressed in a more informal

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way. An employee reported that Chinese managers were undertaking serious efforts to understand Ghanaian culture and working practices. Team retreats and end-of-year parties also participated in building a local team spirit. A Chinese manager in the firm reported the change in these terms: ‘Chinese people as a whole, they are used to work as they work in China. If they work with other Chinese, they don’t need to pay attention to communication and language. We used to think like that. We did not trust the Ghanaians. We didn’t think they could do the job as well as we do. But we realised we were wrong.’ This firm’s localisation strategy achieved positive results. It first resulted in labour cost reductions. Though Chinese expatriates receive lower wages, on average, than Western ones, they remain more expensive than local managers – who do not require return flights, extra accommodation or travel insurance. Second, localisation improved communication inside and outside the firm (with employees, suppliers and clients), boosting productivity. However, the implementation of this localisation programme was also challenging. It involved a global rethinking of the company’s management system, and the introduction of adequate monitoring tools. This supposes the mobilisation of the entire management team and important financial and technical resources. Managerial localisation is also a lengthy process, requiring a strong commitment from the firm. Poor English remains an issue, especially in more technical positions such as site engineering. Finally, cross-cultural differences cannot be bridged overnight – a respondent stressed the importance of patience in the localisation process: ‘[Ghanaians] have a different educational background. . . . You need to be patient to work with Ghanaians, to understand what is their culture. . . . You need to learn how to deal with the culture.’ 6.6.2  Localisation and Managerial Knowledge Spillovers If localisation strategies were to become more common across Chinese MNEs operating in Africa, this could have a substantial impact on managerial knowledge spillovers from these firms. First, by encouraging the use of local human resources, localisation improves the integration of the foreign firm into the host country’s economic structures. This means increased interactions with local actors (suppliers and subcontractors especially), which multiplies their opportunities to learn from the foreign firm. Second, at the managerial level, localisation is a source of further spillovers by offering local employees specific training, as well as a direct exposure to the management of large projects. Through labour mobility,

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the most experienced local employees might then transfer these acquired skills further into the domestic economy. A successful localisation strategy could also improve the conditions for managerial knowledge spillovers by reducing the cultural and linguistic gap between Chinese management teams and their local employees and partners. The introduction of local managers, directly handling relationships with the firm’s local workforce and stakeholders, is likely to lead to an improvement in communication and interpersonal relationships. This should facilitate the establishment of trust between co-workers, increasing mentorship opportunities and creating a better learning environment, both essential to managerial knowledge spillovers. It is also possible that local managers make better vessels to transfer knowledge to their subordinates and partners. 6.6.3  Towards Fully Localised Chinese Construction Firms The example of the localising Chinese firm presented earlier may seem rather unique at this point. However, there are indications that other Chinese contractors are sensitive to the advantages of managerial localisation and are considering taking that step. Another firm interviewed announced that they intended to hire a local project manager, stressing that ‘local people [were] very helpful to deal with local employees’, and yet another had hired a local human resources manager, which could be interpreted as a desire to localise labour sourcing further in the near future. This tendency to localisation is not limited to Ghana. According to the Chinese International Contractors’ Association (CHINCA), Sinohydro has announced its intention to start recruiting local managers, with an ‘ultimate goal of localisation of middle-management staff’ (quoted in Chen, 2010:23). In Nigeria, the China Civil Engineering Construction Corporation (CCECC) has also received praise for its localisation strategy (Mo, 2010). Localisation strategies may in fact become a necessity for Chinese construction companies in Africa, for three main reasons: growing economic pressures, rising opportunity costs and corporate social responsibility (CSR) considerations. First, expatriate Chinese managers are more and more expensive compared to local ones. This is due to both the rising wages in continental China and a changing perception of expatriation. According to a Chinese participant, emotional needs are now more carefully considered in an expatriation decision, and Chinese firms therefore have to offer more attractive compensation packages to expatriates, including more frequent return travels. Second, as more Chinese contractors are making attempts at managerial localisation, the opportunity cost

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of not being localised is increasing. With savings realised on labour costs, localised Chinese firms could ultimately be more price-competitive than the traditional model of the Chinese international construction firm. Since managerial localisation requires a more complex management system and improves communication and teamwork. Localised Chinese firms are also likely to be more productive in the long run. Additionally, they could benefit from stronger local linkages, and might, for instance, be able to negotiate better deals and maintain more productive relationships with their suppliers, subcontractors and clients. Finally, localisation could become a necessity for Chinese contractors to maintain a good corporate image and develop sustainable business relationships with African countries. Taking the example of Ghana, the poor public perception of Chinese construction companies is often linked to labour issues: Chinese contractors are believed to employ very few Ghanaians and to willingly exclude Ghanaians from management. In the long run, these perceptions can damage the company’s activities. For instance, it could lead to absenteeism of local employees, who do not recognise themselves in the firm’s corporate culture (Buciuniene and Kazlauskaite, 2012), to the inability to attract talented individuals, who do not see any evolution opportunities within the firm (Bhattacharya et al., 2008) or to the loss of potential contracts (Wiig and Kolstad, 2010). Maintaining a good corporate image and gaining the support of local communities will therefore be essential to the long-term sustainability of Chinese investments in Africa (Kabemba, 2010). Furthermore, localisation could help Chinese construction companies tackle other CSR issues, such as the recurrent attacks on their labour standards (e.g. Jauch and Baah, 2009).

6.7  CONCLUSIONS 6.7.1  Key Findings This chapter discussed the contribution of Chinese direct investments in Africa to local development through managerial knowledge transfer, using a case study of the Ghanaian construction sector. It highlighted the key channels and determinants of managerial knowledge spillovers in the construction sector, emphasising the central role of personal interactions in the transmission of managerial knowledge. The chapter also questioned the structural constraints bearing on the diffusion of managerial ­knowledge in the domestic economy, and highlighted the role of institutions in lifting those constraints.

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This work contributes to a better understanding of Chinese contractors’ operations in Africa, joining the burgeoning literature on the topic. Whereas these firms are often regarded to be unwilling to integrate and to hire local labour, empirical findings indicate that they employ most of their unskilled labour locally and seriously consider the issue of managerial localisation. However, Chinese MNEs face constraints that other investors do not face – or at least not with the same intensity: linguistic and cultural distance, fuelled by historical factors, makes local communication and trust-building a difficult endeavour. The absence of strong economic incentives does not encourage them to tackle these issues urgently. The emergence of managerial localisation strategies in Chinese construction firms is likely to become a pressing matter in the near future. Indeed, managerial localisation will soon become a necessity for Chinese construction companies to remain price-competitive, client-oriented and well accepted in local societies – three key elements to ensure their sustainability in Africa. Meanwhile, localisation could benefit FDI-recipient economies by fostering knowledge spillovers, creating local employment and encouraging linkages with domestic firms. 6.7.2  Learning from China, Learning from Africa Although the transfer of managerial knowledge from Chinese MNEs to the local African construction sector is limited due to linguistic and cultural barriers, it would be a complete misinterpretation of this research to suggest that African governments should prefer other investors. First, Chinese construction companies can contribute to local development in Africa in many more ways than just managerial knowledge spill­ overs. Their price competitiveness and their flexibility could transform infrastructure provision in Africa – and economic growth will not be sustainable without considerable infrastructure development across the continent. Second, Chinese contractors have shown great adaptability at the global level. They are more and more aware of CSR issues and their safety and environmental practices seem to be improving quickly (Brautigam, 2011). The development of localisation strategies is yet another proof of this adaptability, and a sign that Chinese management systems are rapidly maturing. For Africa, the learning potential from Chinese firms is therefore very real. Unlike most Western firms operating in Africa, Chinese construction firms have had the recent experience of a rapid build-up of capacity in a developing country context. Domestic African firms willing to take their business to the next level can certainly draw lessons from that experience. But knowledge-sharing is not a one-way street: just as Africa can learn

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from China, China may very well learn from its experiences in Africa. Indeed, Chinese firms operating on the continent face challenges unmet on their domestic market. To be successful, they have to take into account higher CSR considerations, accept a more intense public scrutiny and engage with local civil societies (trade unions in particular). Above all, they have to address cross-cultural management issues urgently, and design systems able to integrate the culture and working practices of their local employees. Localisation strategies are a very important step in that direction. Not all Chinese companies in Africa will solve these challenges – but those who do may become global leaders. 6.7.3  Policy Implications Given the importance of localisation strategies to foster managerial knowledge spillovers, African governments, as well as international development institutions, should aim to develop policies to support these strategies. The first objective of public policy could be to toughen conditions for the permanent employment of foreign nationals. As the Ghanaian case demonstrates, it is still relatively easy to work around foreign employment regulations. Stricter immigration policies, visa policies to foreign expatriates in MNEs in particular, or better enforcement of the existing ones, would push companies to start thinking about localisation. Of course, this should be interpreted flexibly: immigration policies should not deter MNEs from investing, nor should they deprive host countries from valuable foreign expertise. Restrictions on foreign employment have to be paired with extensive provision of information to foreign firms to facilitate their local recruitment process. Public institutions have a role to play in reducing information asymmetry and ensuring that job-seekers are matched with employers. In Ghana, this could include listings of Ghanaian university programmes and the qualifications of their graduates; information on average local wages for specific positions; and a better framework to foster communication between foreign investors and local job-seekers. Where qualified personnel are not available locally, employment contracts for expatriates should include provisions for skill transfers to a local employee. Host country governments could require more managerial training and career development plans for local managers and employees. Governments could also aim to develop support systems for localising foreign firms. Features of the local market, including credentials of local suppliers and subcontractors, should be shared with foreign investors prior to their arrival. Targeted actions could attempt to minimise the cultural clash. This could take the shape of information booklets on local laws and c­ ustoms,

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as well as public workshops covering issues related to cross-cultural management. This would provide an open space for investors to voice their concerns, and find answers on how to approach these issues. Finally, as the main clients of the construction sector, governments could praise publicly successful strategies of localisation, highlighting their benefits and labelling them as examples of good CSR. By getting a more accurate understanding of the costs and benefits of localisation, and by learning from other firms’ experiences, MNEs might be more likely to localise. The policy implications of this research are most relevant for Chinese firms investing in Africa, and they are contextually situated within the Ghanaian construction sector. Yet, they are likely to be applicable in other sectors and other countries where Chinese firms are investing massively. They could also bear useful insights for firms from other developing economies interested in investing in Africa. Indian, Malaysian and Brazilian companies are looking more and more towards the continent, and are likely to face similar cultural and linguistic challenges. 6.7.4  Limitations and Further Research It is important to note that these findings are limited by the scope of the research and the field work undertaken. This study has focused on specific channels of managerial knowledge spillovers, mainly employment of local managers in foreign MNEs, and may have overlooked other channels of transmission, such as the relationships between MNEs and government officials that can be developed in pre-contracts visits or training delivered before and after the handover of ‘turnkey’ projects. As Chinese MNEs work extensively with the public sector on infrastructure projects, these relationships could be significant vectors of knowledge spillovers. Other reservations on the findings of this research include the limited access obtained to private firms (both Chinese and non-Chinese), which made it difficult to actually observe and compare management teams in their day-to-day activities. Furthermore, the research has actively focused on potential managerial knowledge spillovers to local managers employed in foreign MNEs, working on the assumption that they are the primary recipients of those knowledge transfers. However, workers at lower levels of the managerial hierarchy could also benefit from exposure to new management practices, especially those related to day-to-day management of human resources, supply chain, quality and security and more globally project management. These workers may later grow into management positions or start their own firm, and the value of their experience within a foreign MNE should not be ignored. This is a point that deserves additional attention, notably when discussing the impact of Chinese MNEs in

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Africa: as these companies tend to employ greater absolute numbers of local workers (due to more labour-intensive technologies and practices), they could represent a significant source for this type of managerial knowledge spillovers. Ultimately, further research is needed to better grasp the opportunities and challenges created by the international expansion of Chinese MNEs in Africa. Some quantitative data collection, possibly over an extended period of time, would be extremely helpful to consider whether Chinese firms are indeed localising their management teams, at what speed and with what results for their productivity. Additionally, a longitudinal qualitative line of research could study in more depth the localisation strategies and cross-cultural management issues of Chinese businesses in Africa and their impact.

NOTES * This chapter is extracted from a paper, ‘Chinese MNEs and Managerial Knowledge Transfer to Africa: The Case of the Construction Sector in Ghana’, co-authored by Cyrielle Auffray and Xiaolan Fu and published by Journal of Chinese Economics and Business Studies in 2015. The authors are grateful to Cyrielle Auffray and the publisher for kindly granting us permission to reproduce the paper here. 1. This assumption has been tested successfully at the firm (Girma, 2005) and country levels (Falvey et al., 2007), with absorptive capacity measured in terms of R&D investments (rather than human capital). 2. These numbers might fluctuate frequently, as employment varies widely depending on on-going projects and their respective advancement stages. It should also be noted that the construction sector employs significant numbers of casual workers which may not be reflected in those numbers, as they do not usually have formal contracts or engagements with the company that employs them. Though these workers may also be able to assimilate some managerial knowledge from foreign companies, these spillovers are bound to be limited by their position in the managerial hierarchy, their low level of education and skills and the fleeting nature of their engagement with the company – therefore, the choice was made to limit the focus of the study to formal employees of construction MNEs.

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7. MNEs and their impact on local capabilities building and sustainable development 7.1 INTRODUCTION Benefits of MNEs on a local economy can be seen through their impacts on various socio-economic development indicators. MNEs are expected to bring a bundle of capital, technological and managerial knowledge to the host countries and to benefit their economies by enhancing productivity as well as creating more job opportunities (Fu, 2012a). Knowledge is often measured by the number of patents, sales of new products, or R&D expenditure (e.g. Singh, 2007; Driffield and Love, 2007; and Mancusi, 2008). Some studies attempt to infer knowledge spillovers indirectly by estimating the change in productivity of domestic firms as a result of increasing foreign share in total output, employment or assets in the industry or region (e.g. Aitken and Harrison, 1999; Buckley et al., 2002; Driffield and Girma, 2003; Javorcik, 2004). From the literature, the contributions of MNEs to African development have been enormous. Traditionally, Africa had depended largely on MNEs from the West to support their socio-economic development. This may stem from the long interaction with the West through colonisation and transcended to post-independence era. Colonisation also offered the MNEs from the West unfettered advantage to operate in such African countries. In Ghana, British MNEs such as United African Company, United Trading Company, Lever Brothers (Unilever) and Paterson and Zochonis (PZ), among others, established their subsidiaries in the country. The same can be said about other African countries. In the post-2008 crisis recovery, one of the major forces that is pushing forward the world’s economic growth is reliance on the expansion of South–South economic integration. In particular, the increase of SinoAfrica strategic partnerships and economic engagements has attracted much attention in recent years.

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7.2  ANALYSIS OF IMPACTS To discuss the impact of MNEs on socio-economic development, we will use Figure 7.1 as the conceptual framework. MNEs operating in a developing country employ two categories of staff – those in management and production staff. The MNEs transfer knowledge either formally or tacitly to their blue-collar staff to improve their skill base. The ­management staff have the opportunity to improve their managerial capability through the adoption of advanced management styles that persist in the organisation. This can be done through manuals, emails, meetings, teamwork and social events among others. These modes of training have the potential of building capabilities of the management staff as well as the blue-collar workers. The success in building the capabilities of the local workers depends largely on the absorptive capacity of the staff. The existence of pragmatic policy and regulatory regimes can also help the capability building of the local staff. The Ghana Investment Code puts a cap on the number of expatriates MNEs can employ and this enjoins the MNEs to equip the local staff with the required capability to ensure their competitiveness. The outcomes of the capability building include increased skills and income, greater staff aspiration and general welfare improvements resulting from increased incomes. The net effect is the achievement of some of the targets of SDGs which include quality education (foundation for technical and entrepreneurial skills), poverty elimination (improved standard Income increase Knowledge transfer

Greater, better skills Capabilities building of local workers & managers

MNEs

Higher aspiration Adoption of advanced management practices

Welfare improvement

Impact on SDGs such as: – Poverty elimination – Technological upgrading and innovation – Good health & well-being – Quality education – Gender equality – Clean water & sanitation – Decent work & economic growth

Figure 7.1  K  nowledge transfer in MNEs, local capability building and development

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of living), decent work and economic growth, technological upgrading and innovation among others. 7.2.1  Employment and Income One of the contributions to an economy by the MNEs is creation of employment avenues for the local population. Jobs provide incomes to the populace which positively affects the lives of the workers including their households and dependents. Between 2010 and 2015, MNEs operating in Ghana were supposed to have created about 300,171 jobs in the country out of which a significant number (87 per cent) were to be Ghanaians. This will invariably contribute to poverty reduction and improve the living standards of Ghanaians. It is acknowledged that MNEs operations in a host country can create wage inequality. Using their financial strength and access to global markets, the MNEs may be able to pay wages over and above that of domestic firms. The outcome of this study provides a different outlook: the contributions of MNEs to the incomes of the staff. The analysis in Chapter 5 revealed that 34 per cent of the MNEs’ workers interviewed thought that they might receive higher incomes while working in domestic firms, while 22 per cent thought their salaries were better in the employment of the MNEs. Looking at the origins of the MNEs reveals an interesting phenomenon. Relatively more staff (30 per cent) from the European MNEs believed they were better paid than their colleagues in the local firms. In the Chinese MNEs, only 13 per cent believed they received higher salaries than those in the local firms. However, relying on salaries alone may not provide an accurate picture. From the study, the MNEs in Ghana provided a number of incentives to motivate their staff. The proportion of workers who were motivated by monetary rewards was about 71 per cent, while less than half of them were motivated by non-monetary rewards and incentives to improve performance. The provision of more employment benefits by the MNEs underpins the preference for employment in MNEs. Other elements are guarantee, employment stability and continuity which are more associated with MNE construction companies than with domestic ones. The MNEs from the study are able to provide these employment security guarantees. This confirms the work of Jain, Lawler and Morishima (1998) which states that MNEs may offer managers reward packages to attract the best employees. Combining salaries and monetary rewards will improve the financial capacities of the workers of the MNEs and invariably lead to improved standards of living with corresponding welfare improvements for their

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dependents. The provision of stable employment and improvement in the financial position of the workers will contribute to the achievement of some of the Sustainable Development Goal targets (1, 2 and 10).1 Also, the employment avenues provided by the MNEs will empower the workers with skills which can be utilised when they leave MNEs to set up their own companies or work in other local firms. This will increase the skill base and provide technical capability to support the technological development of Africa. 7.2.2  Educational Background and Implications Higher education is important in securing employment in the MNEs since it is the foundation on which improved capability is built. European companies in Ghana hired more skilled and educated employees. About 66 per cent of employees of the European MNEs had tertiary-level education, while those with secondary education constituted 20 per cent (see Figure 4.2). In the case of Chinese 40 per cent had tertiary education and almost 60 per cent had non-tertiary education of which those with secondary education were the majority. Definitely, employment avenues for those with basic education will be limited in both Chinese and European MNEs. This is because the job opportunities in these MNEs are more knowledgeor skills-intensive and education is the means to acquire the necessary knowledge. However, the employment of Ghanaians with lower skills by Chinese MNEs gives opportunities for such Ghanaians to be employed and acquire skills which later can be utilised in productive ventures that are commensurate with their skills and contribute to the socio-economic development of the country. 7.2.3  Skills Development and Aspiration From the literature, one of the significant contributions of MNEs to the economies of developing countries is knowledge spillovers. Knowledge spillover is premised on the point that the MNEs have superior ­technologies/knowledge which, when transferred, will improve the stock of knowledge in the local economy. Knowledge spillovers can be managerial and technical and can take place in many forms – among employees of MNEs and between the MNEs and domestic firms. Normally, the MNEs transfer managerial and technical skills to their staff through formal and informal channels. The formal channel involves training which could be in-house or from formal educational institutions within or outside the country. Informal channels are mainly teamwork, meetings, manuals and social interactions with other industry players.

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Evidence from our study indicates the majority of the local employees reported to have acquired various skills through quality training, materials, access and use of modern machines while working with the MNEs. These provide better opportunities for training and capability enhancement and these are not available in domestic firms. About 72 per cent of the workers had gained greater understanding in management practices. Others (88 per cent) indicated they had acquired the capability to be team leaders. About 81 per cent of the sample had an aspiration to own, operate and manage their own businesses. This aspiration was based on the skills and confidence they had acquired while working with the MNEs which they wanted to utilise to set up their own businesses. One unintended impact is horizontal/internal spillovers from one domestic firm to another, especially from one domestic firm that has benefited from its interaction (through subcontracting, sales agent, suppliers, etc.) with MNEs. The ‘privileged’ local firm may also transfer the knowledge gained to other local firms it interacts with. The implication is that the skills and confidence gained can contribute to the overall national technological capability which is necessary for taking advantage of knowledge spillovers from the MNEs. Technology spillovers and catch-up do not come without conditions; they are determined by multi-dimensional complementarities and hostcountry specifics such as basic technology capability and supportive institutional settings, all of which are crucial to attract and retain MNEs (Fu, 2013). Local capability is critical in attracting more FDIs which will facilitate the building of capability. The experiences of Singapore and Korea are instructive. Both countries have well-qualified and technically skilful labour, and this has aided the two countries to attract more FDIs (Palit, 2006) and boosted their industrial competitiveness. 7.2.4  Managerial Innovation One of the impacts of the MNEs operation in a country is the introduction of innovation in operations. This point is anchored in our study where the main source of managerial capability building was from the employment in MNEs. Managerial practices such as cost, marketing and human resource management were learned largely from the MNEs. The direct effect is for the managers to be effective and efficient in their economic activities. From our study interesting findings emerge in the impact of managerial innovations. Innovations in the key managerial operations (cost management, marketing, human resource, and information and technology management practices) were more pronounced among the higher managerial

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staff (see Table 5.2). The reason for this situation is not far-fetched since the senior managers might have had higher education and absorptive capability to innovate. In MNEs where innovations were frequent, the most common improvements included increased productivity, conformity to governmental regulations, increased sales and improved working conditions. These were followed by improved corporate social responsibility (CSR) strategies, reduced costs and reduced environmental impacts. The least managerial innovations occurred in the junior managers. The variations in managerial innovations underscore the importance of higher managerial staff to drive innovations in companies. Therefore, an increased number of Ghanaians in high and medium managerial positions will have positive repercussions on the general well-being of the country. This underscores the increasing need to train more Ghanaians to occupy middle and upper managerial positions so as to benefit from the innovative opportunities associated with those positions. 7.2.5  MNEs and Domestic Firms’ Interactions The operations of MNEs in developing economies provide opportunities for interaction with domestic firms. The MNEs normally establish business relations with domestic firms with the objective of utilising the comparative advantage they possess in producing certain inputs and access to raw materials. These relationships, though, will help the MNEs to reduce the cost of doing business, and also create market opportunities for the domestic firms. Domestic firms also stand to benefit in terms of acquiring managerial and technological skills and markets for their products. In our study, we found out how foreign–domestic interactions contribute to raising standards in the domestic sector and how national policy can contribute to these types of interaction. Our study on the construction sector revealed that almost no competition exists between foreign and domestic contractors. The situation is underlined by a lack of financial and physical capacity even to prepare tender documents for internationally funded projects. The impact of this situation is that domestic construction firms are crowded out of lucrative projects which require international competitive bidding. There is minimum contractual relation between MNEs and the domestic constructing companies, in spite of the existence of legislation requiring foreign firms to establish partnerships with local firms when entering Ghana. The impact of the minimal interaction between the MNEs and the domestic firms is limited learning and knowledge transfer. The point being emphasised is that it is not in all situations that the MNEs/domestic firms’ interactions can result in capability building. The existence of policy

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and strict implementation thereof is necessary to cradle such interaction to achieve the intended outcomes. 7.2.6  Poverty Alleviation and Welfare Improvements MNEs through their operations in developing countries can contribute significantly towards poverty reduction and general improvement in welfare issues. Increased flow of technologies and FDI to Africa can contribute to the achievement of the SDGs target of reducing poverty rates. Besides the provision of employment, payment of taxes, and dividends to the host economy, there are other mechanisms used by the MNEs, especially their corporate social responsibility (CSR) to support local development. The UN Global Compact Principles provide a comprehensive list of roles and responsibilities for corporate organisations and these cover a wide range of economic, social and environmental issues. Through CSR, MNEs contribute to the social welfare of the host countries by expanding access to basic necessities and securing human and labour rights of citizens (Barkemeyer, 2011). In addition, CSR as a method of corporate self-regulation may also support voluntary initiatives (Utting, 2007). Its effectiveness, however, depends on the existence of a pragmatic policy framework in the host country to guide such activities and to meet the developmental agenda of the country. Further, MNEs through their CSR provide deprived communities with schools in order to increase access to education, which is crucial in acquiring capability and empowerment. Some MNEs in Ghana have formalised the way they undertake their CSR activities. They have established foundations which are managed by eminent personalities in the country. Some of these foundations include: Vodafone Ghana, MTN Ghana, Ghacem Cement, Nestlé Ghana and Coca-Cola Ghana among others. The coverage of the CSRs is varied and includes such diverse areas as education, sports, youth empowerment, health, access to potable water, sanitation, career development and so on. Figure 7.2 lists some of the CSR activities of selected MNEs operating in Ghana.

7.3 IMPACT FROM ECONOMETRIC ANALYSIS2 Table 7.1 presents econometric estimation results on the impact of MNE work experience and management practices adopted on workers’ aspirations. The results are divided across nine columns, with the first presenting the basic model when only baseline characteristics are included and the following ones adding one variable at a time. Specifically, in columns two

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Vodafone Ghana (2008–date)

Ghanacem Ghana (2002–date)

Multinationals, local capacity building and development

• The HQ of this MNE is in the UK. The significant contribution made by the company was in the area of health care issues, through the Vodafone Foundation, an initiative of the company. • Through this MNE, internet penetration increased in the country thereby increasing access to information and knowledge. • It has also contributed to infrastructural development and education through its Foundation by rehabilitating and constructing clinics and schools. • The company has also contributed to education by supporting distance learning (modern virtual classrooms in the universities). The company also installed an astronomy satellite and established a space science centre for the Ghana Atomic Energy Commission (GAEC). • These activities took place in Accra in the Greater Accra region of Ghana. • This MNE is a member of Heidelburg Cement group and its HQ is in Germany. • Ghanacem Cement Foundation was established in 2002. It has a three-tier programme. • The first tier involves the distribution of cement to improve existing health facilities or build new ones. The second tier relates to the distribution of cement to improve existing educational facilities or build new ones. The final tier involves the execution of development projects around quarry sites and other places of influence. • Since its inception, about 420,000 bags of cement with a market value of GHS13.4 million have been distributed to 4,263 communities.

• The mother company is based in China, and since its existence in Ghana it has contributed to solving the energy crises by meeting some of the energy needs in the country. It is located in the Greater Accra region of Ghana and its services are Sunon Asogli nationwide. (2010–date)

Coca-Cola Ghana (1990–date)

Zoomlion Ghana (2010–date)

• Coca-Cola Ghana initiated a marathon race and an interschool sports competition with awards to encourage a healthy lifestyle among the youth. The company implemented these through its CSR role. These are being done in Accra region and all regional centres. • Zoomlion is a regional MNE whose HQ is in Ghana. Since its establishment it has provided logistics and sponsored research in waste management in Ghana with an objective of improving the sanitation conditions in the country. A typical contribution was the support it rendered GAEC in its electronic waste collection initiative. The company has contributed greatly to sanitation improvement in Ghana.

Figure 7.2  Examples of MNE corporate social responsibilities to four, variables related to incentive mechanisms are included one at a time. In columns five and six two variables related to HR management are added, in columns seven and eight variables related to IT sophistication and computerisation of the firm are included, and finally in column nine a variable related to on-the-job training is also added. In each column the regressions are corrected by the inclusion of sectoral dummies. In other

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Clear targets

Space for own initiative

Positive feedback

Non-monetary rewards

Monetary rewards

MNE_Exp_Educ

Field_Experience

MNE_Experience

Education

Age

Gender

0.041 (0.053) −0.002* (0.001) 0.17*** (0.046) 0.014* (0.008) 0.003 (0.004) −0.004 (0.003)

(1)

(3)

−0.057 (0.042) 0.07* (0.04)

0.046 0.049 (0.054) (0.054) −0.002* −0.003** (0.001) (0.001) 0.17*** 0.167*** (0.046) (0.046) 0.014* 0.014* (0.008) (0.008) 0.003 0.003 (0.004) (0.004) −0.005* −0.005* (0.003) (0.003)

(2)

0.16*** (0.048)

0.051 (0.052) −0.003** (0.001) 0.16*** (0.044) 0.013* (0.007) 0.003 (0.004) −0.004 (0.003)

(4)

0.008 (0.047)

0.042 (0.053) −0.003** (0.001) 0.17*** (0.046) 0.014* (0.008) 0.003 (0.004) −0.004 (0.003)

(5)

−0.024 (0.052)

0.046 (0.054) −0.003** (0.001) 0.17*** (0.046) 0.014* (0.008) 0.003 (0.004) −0.004 (0.003)

(6) 0.045 (0.053) −0.002* (0.001) 0.15*** (0.047) 0.015* (0.008) 0.004 (0.004) −0.005* (0.003)

(7)

Table 7.1  Impact of MNE work experience and management practices on workers’ aspirations (9)

0.055 0.038 (0.053) (0.053) −0.002* −0.002* (0.001) (0.001) 0.146*** 0.155*** (0.046) (0.047) 0.015* 0.012 (0.007) (0.008) 0.002 0.003 (0.004) (0.004) −0.004 −0.004 (0.003) (0.003)

(8)

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M4697-FU_9781788113571_t.indd 128

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0.19***

(2)

0.22***

(3)

0.18

0.191

0.195

(0.075) (0.075) (0.041) 0.006 −0.004 0.000 (0.059) (0.059) (0.059) −0.097* −0.093* −0.074 (0.056) (0.056) (0.057) 170 170 170

0.2***

(1)

(4)

0.237

(0.072) 0.006 (0.057) −0.054 (0.056) 170

0.2***

Notes:  Standard errors in parentheses *** p