 Hello everyone. Before I start I would like to thank UNU wider for inviting me to speak today and welcome to my presentation. So I'm a graduate student at the University of Oxford and this is the work I've been doing over the past 18 months under the supervision of Cheryl and Fu at the Technology and Management Development Centre in Oxford. So today I'm going to tell you about Chinese FDI, managerial knowledge spillovers and localization strategies and I'm going to present findings from a case study of the guinea and construction sector. So a few words about the presentation. I'm going to start with a short introduction. So a few words about the methodology. Then we'll talk about managerial knowledge spillovers in general in the guinea and construction sector. Then we'll turn to the specific case of Chinese construction companies and finally we'll talk a bit about localization strategies before concluding. So my research is basically at the convergence of two strains of literature. The very large literature on foreign direct investment, FDI and economic development and the literature on China-African investment flows. So in terms of literature on FDI and economic development it's been debated very largely over the last two days in the conference. So there is a general consensus today that FDI can contribute to economic growth in developing countries by providing capital, creating jobs and most importantly by leading to productivity improvements through spillovers. So just a little recap on what exactly is a spillover from FDI. So when transnational firms invest in a country they have to overcome a certain disadvantage because for instance they don't have a very good knowledge of the local market. So they have to have another advantage to overcome this weakness and usually it's technology or advanced managerial skills. But when they invest in that new market they're not always able to internalize that advantage and domestic firms can learn from that. So this is what we call a FDI spillover. So in the literature numerous authors have shown that spillovers from FDI are not systematic, that they only occur under certain circumstances and the literature has tried to identify those determinants of FDI. And especially there's been an emphasis on the source country of FDI. So different authors have shown that depending on where FDI comes from it can have different impacts on the recipient country. For instance there's a question of the technological gap that is how different the technology used by the transnational firm is from the technology used by domestic firms and how much they're going to be able to internalize that new knowledge. But also cultural distance, geographic distance are also factors that matter. So in that context we have increasing China-African investment flows and so of course the question is do these investment flows from China have a different impact in terms of knowledge spillovers than FDI flows from maybe more traditional sources such as Europe or the United States. The focus of my research was specifically on managerial knowledge spillovers for several reasons. So first in the two previous presentations we've seen how important management is to lead to productivity improvement especially the last one. But for some reason managerial knowledge spillovers have been understudied in the literature. Most of the literature focus on technology transfers and technological knowledge spillovers. There's also the fact that management as we've all also seen is very culturally determined and it's composed of both explicit and tasted components being related to experience and culture. So it's likely that managerial knowledge coming from China is going to have a sort of different relation to managerial knowledge coming from Europe or the US. So my research question was what is the impact of Chinese FDI in Africa in terms of managerial knowledge spillovers. And I studied that question in the context of the Ghanaian construction sector. So why Ghana? Why is the construction sector? Ghana as probably most of you know has been one of the few success stories in Africa and it's been receiving a lot of FDI most recently because it discovered all in offshore. Anyway there's quite a lot of FDI going on so it's a good potential for knowledge spillovers. And especially more and more FDI is coming from China. Why is the construction sector? Well it's the most dynamic sector in the Ghanaian economy at the moment. It's also a sector that's very dominated by foreign firms, both long term European firms that have been there for 20, 30, 40 years. Some of them have actually settled in Ghana during colonization. But it's also a sector where Chinese firms are increasingly challenging those long term actors. So there is a good potential for managerial knowledge spillovers from Chinese firms or European firms that are present there. So I used a qualitative approach. So for those of you that are not very familiar with qualitative research it means that there is an inductive and iterative research process. So data collection and data analysis are conducted simultaneously rather than sequentially. I can tell you more about this in the questions if needed. And in the tradition of development studies it was an interdisciplinary research. I used insights from management studies but also anthropology and history and economics to sort of come to a coherent ensemble. So I did 10 weeks of fieldwork in Ghana over the summer 2012 and I worked mostly via interviews. I interviewed actually 39 people through 31 interviews including six foreign construction firms, three of them European and three of them Chinese, plus a lot of actors connected to the construction sector in different ways. So government agencies, trade unions, academics and also domestic firms, suppliers or subcontractors to foreign firms in the construction sector. And I triangulated my results with the existing literature on those topics. So both conflicting and supportive literature to strengthen my analysis. So I first look at how spillovers, managerial knowledge spillovers occur in the Ghanaian construction sector. So actually I'm going to show you the next slide, hopefully everyone can read. So basically you have different channels of spillovers. So the foreign contractor is here and the main recipient of spillovers are the employees in the foreign construction companies, mostly managers because they have the absorptive capacities of the education and the training necessary to understand foreign managerial practices. So local managers can learn new management skills through different channels. So I'm not going to expand too much on that, but basically you have formal training, but you also have a mostly experience that plays a very big role in managerial learning and also mentoring which is sort of at the crossroad between training and exposure. So it's a dietic relationship between a foreign manager and a local manager that leads to skill development for the local manager. So how does this transfer into the local economy through labor mobility? So basically those local managers that have been foreign trained can then move on to working for competitors, domestic competitors or for construction consultancies which are not exactly competitors. So it's important to note that this labor mobility is constrained by simply the means of the domestic firms to acquire foreign trained employees. So my research was not exactly on this, but it's possible that those managerial knowledge spillovers are actually insignificant, first because there is a limited number of local managers that are trained in those firms and then because it might be difficult for them to return to the domestic sector afterwards. But that's sort of another issue. Then you have local linkages that are another way for managerial knowledge to be transferred and they distinguish between subcontractors and suppliers. Subcontractors are actually really important in the construction sector. It's one of the specificities of the sector. So through their interaction with the foreign managers in the foreign firm, they can also acquire some form of managerial knowledge and I believe that these spillovers are more important for subcontractors because they tend to work on site for an extended period of time and directly under the authority of foreign managers. Whereas suppliers, especially in Ghana that has a little developed manufacturing sector, it's mostly import companies. They have different processes and different managerial needs and they also have limited interactions with the foreign firm. So those are basically the channels of managerial knowledge spillovers. Then I looked a bit at the determinants. So absorptive capacity, it's been covered a lot in the literature. So it's about the educational level basically of the recipients of managerial knowledge. So in Ghana, education levels have been rising quite fast. So that's a good thing. But in the construction sector it means that really it's mostly going to be local managers that benefit from managerial knowledge spillovers and most of the unskilled labor that is very numerous in the construction sector is not going to benefit that much maybe because they just don't have the capacity to learn and reproduce those foreign managerial techniques. Something that is very specific to managerial knowledge is, for me, the importance of interpersonal interactions and trust. So we've seen that local managers within the firm are the most likely recipient of managerial knowledge spillovers. But this will only happen if they have a good and constructive relationship with foreign managers. This means that there needs to be trust between the two parties and a desire to learn and to teach on both sides. So that's really important and that's actually going to support my next point. So those structural constraints, I mentioned them a bit before. So there's limited labor mobility and for domestic construction firms there's also limited access to finance. Construction is very capital intensive so to start a construction firm you need quite a lot of startup capital. So this means that for local managers that have been training for in firms it's very difficult to start their own firm afterwards because they may not have the access to the capital that's needed to start their own firm and reuse that managerial knowledge. So now for the case of Chinese construction companies. So there are three main challenges that are I think specific to Chinese companies. The two first ones very quickly because it's going to be very dependent on each firm and we should not generalize to all Chinese firms because they are all very specific and we really cannot make them into one homogeneous group. What I observed is that there tends to be less local linkages in Chinese firms. It's also something that has been observed in the literature. Chinese firms tend to be more vertically integrated to control their costs better because their primary advantage is the price when they enter a new market especially in construction. So if they are more vertically integrated it means they use less local subcontractors, less local suppliers so those channels of spillovers are reduced. So the second question is about the level of advancement of the managerial knowledge in Chinese firms. So this is very difficult because it's something that's very difficult to quantify. It's hard to rank managerial systems or to say that one is better than the other precisely because you have all those cultural elements. But in Chinese firms themselves, at least those that I interviewed in Ghana recognize that management was one of their weaknesses compared to other foreign competitors. So there might be less managerial knowledge to be transferred from those firms. So this is sort of an open question. The most serious impediment in my opinion is that in the firms that I interviewed and the information I got about other Chinese firms is that you tend to have all Chinese management teams so no or very few local managers integrated in those firms. So as we've seen that local managers are the primary recipients of managerial knowledge spillovers. If you don't have local managers you basically don't have managerial knowledge spillovers. So it's the most significant difference. One point that I would like to make is that very often there is this perception of Chinese firms in Africa not having any locals at all. This is not true, at least not in what I observed in Ghana. The unskilled positions are filled by local workers in construction, especially where you have a lot of unskilled labor. It was all sourced locally. So I then wondered why you had only Chinese management teams because on the Ghanaian side people tended to interpret this as a political agenda or an exclusive desire to keep Ghanaians out of management teams. I think it's actually reasons that are much more practical. The thing is that you have very high transaction costs within Chinese construction firms if they want to integrate local managers. And these costs arise from the language barrier and from a cultural clash. So the language barrier there's actually been a lot of work on communication within the firm but not so much on language. So I would really recommend the work of housing and Philly on this. It's something that has been observed in other companies where managers may have more limited foreign language skills. The case of Japanese companies has been raised, especially in that regard. So the language barrier tends to create ineffective communication and mistrust. And it's pretty much the same thing for cultural differences which are particularly salient between Chinese managers and local managers. So you really had complete misunderstandings on both sides and that made it very difficult for Chinese managers to feel comfortable with integrating local managers in their management teams. So the intra-firm relationships were also very much affected by those differences and by this language issue. That means that not only you had no local managers in the management teams but also that relationships within the firm were affected which also could reduce any sort of knowledge transfers between the two parties. I argue that those two main impediments are actually supported by additional factors. So in terms of history I'm not going to expand too much on this but you do have factors that can explain why you have this cultural clash and why you have this language barrier. You can look at the history of British colonialism in Ghana and what kind of work structures it imported but also on the Chinese side the impact of the pre-reform years on working structures and also the relationship to English learning, for instance. In terms of time, Chinese firms have a limited international experience in Ghana in particular. Most of them were there for only five to ten years. That means they also have less best practices to refer to in terms of cross-cultural management. And finally in terms of money, Chinese expatriates today are still relatively cheap at least if you compare them to Western expatriates. So it's still affordable for Chinese construction companies to have very large Chinese management teams. So they're not under the same economic constraints to localize a managerial labor. But what I found out in my research and that's really important is that this is not a sort of definite statement about how Chinese construction companies can transfer managerial knowledge. So there was one of the firms that had started a very successful program of managerial localization. So they were preparing to replace progressively their Chinese managers by local managers. So this was inspired by the observation of other foreign firms operating in Ghana with very limited expatriate teams. So that was actually quite exciting because it was another form of managerial knowledge transfer in a way. And this was implemented with a complete rethinking of the management system. So basically before the program, you had this huge Chinese expatriate team trying to, like, each Chinese worker could cover different functions at the same time. And what they were trying to do was to redefine the management system so that everyone would have a specific function and to assign a specific process for each task. Okay, I'm going to conclude soon. So in terms of achievements, this had led to cost reduction because the local managers were cheaper than foreign managers. But it also led to and also better relationships within the firm. It was really clear in the interviews with employees that they had a much more cooperative relationship with their Chinese managers. In terms of challenges, it required a really strong commitment from the foreign management team and a certain number of resources to train the new employees and accept the productivity losses resulting from just the time needed to train those new employees. And this, of course, could impact managerial knowledge pillars very positively. So if you have more local managers, you're going to have more managerial knowledge pillars. So I argue, and this is my last point, that we could be moving towards fully localized Chinese firms. So there was only one firm that I interviewed that did that, but I heard about other firms that were starting similar programs in Ghana. There's also been several reports about firms in Nigeria that started similar localization programs. And it was really in the mind of the Chinese managers that I interviewed. I think this is because you have growing economic pressures, so Chinese expatriates are going to be more and more expensive, but also raising opportunity costs, because localization can lead to cost reduction but also productivity improvements. That is, if you have a local management team, it's going to be much more efficient to communicate with your local partners, your suppliers, subcontractors, your clients. So the firms that don't localize are going to become less and less competitive. And finally, localization could become a corporate social responsibility issue in Africa for Chinese firms, and I think Chinese firms are very aware of that. That is, if local populations, local governments keep perceiving Chinese firms as not inclusive and being very secretive in a way, this could become a significant problem in terms of public relations. So, yeah, just to conclude, I think I've pretty much said this already, but some manager-in-large believers from Chinese firms are at the moment more limited because there's limited major localization. But we should definitely not assess the contribution of Chinese firms to economic development based on this sole remount. There's also a lot of other factors to consider. There's great adaptability showed by Chinese firms, so it's important to keep researching this to see how this is evolving and developing. And there is a potential for learning between African and Chinese firms, not only for African firms to learn from the Chinese experience, but also for Chinese firms to learn from the local practices and the cultural management that is required by the local operations. And in my work, I developed a bit more on the role of the government to support localization strategies, and I'm happy to take questions on this if you want. So, thank you.