Success Strategies and Knowledge Transfer in Cross-Border Consulting Operations

Transcription

1 Success Strategies and Knowledge Transfer in Cross-Border Consulting Operations

2 Economics of Science, Technology and Innovation VOLUME 19 Series Editors Cristiano Antonelli, University a/torino, Italy Bo Carlsson, Case Western Reserve University, USA. Editorial Board: Steven Klepper, Carnegie Mellon University, USA. Richard Langlois, University o/connecticut, USA. 1.S. Metcalfe, University o/manchester, UK. David Mowery, University o/california, Berkeley, USA. Pascal Petit, CEP REMAP, France Luc Soete, Maastricht University, The Netherlands The titles published in this series are listed at the end of this volume.

3 Success Strategies and Knowledge Transfer in Cross-Border Consulting Operations by Roger Svensson The Research Institute of Industrial Economics Stockholm, Sweden... " Springer Science+Business Media, LLC

4 Library of Congress Cataloging-in-Publication Data Svensson, Roger. Success strategies and knowledge transfer in eross-border eonsulting operations / by Roger Svensson. p. em.-- (Economics of scienee, teehnology, and innovation ; 19) Inc1udes bibliographical references and index. ISBN ISBN (ebook) DOI / Business eonsultants. 2. International business enterprises- Management. 1. Title. II. Series. HD69.C6 S '6--dc by Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 2000 Softcover reprint of the hardcover 1 st edition 2000 All rights reserved. No part of this publieation may be reprodueed, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo-copying, recording, or otherwise, without the prior written permis sion of the publisher, Springer Science+Business Media, LLC. Printed on acid-free paper.

5 CONTENTS List of Figures List of Tables Preface and Acknowledgements ix xi xv Chapter 1 Introduction The Consulting Sector Deserves more Attention The First Book about International Consulting Operations Unique Data on Tender Documents The Role of Consulting Firms and their Services Outline of the Book Theoretical Framework The Nature of Consulting Services: Long-Term Relationships The Nature of Consulting Firms Independent Firms Knowledge-Based Firms The Market Structure: Scope Economies The Customers: The Clients International Consulting International versus Domestic Consulting The Demand Shock Theory The Entry Mode Choice by Nordic Consulting Firms Summary Development Agencies, Clients and Consulting Firms The Role of Development Agencies Bilateral versus Multilateral Development Agencies Procurement Rules Summary... 61

6 VI 5 Knowledge Transfer Knowledge Transfer in the Consulting Sectors Organization Mode and Development Level Transfer through Training and Cooperation Summary Success Factors when Tendering Alternative Tender Systems Competition Step 1: Prequalification and Invitation Competition Step 2: Tender Document and Final Selection Hypotheses Bivariate Analysis Multivariate Analysis Interpretations, Consequences and Policy Implications Negotiated Contracts Summary Management Services and State-Owned Consulting Firms Engineering versus Management Services Consequences of the Trend toward Management Services Privately Owned versus State-Owned Consulting Firms Predation by Putting Rivals at a Cost Disadvantage Consequences of the Exclusive Dealing Contract Summary Success Strategies and Competitiveness in the Global Market Focus on Specific Host Countries The Modern Consulting Firm Typical Mistakes Cooperation with Contractors Government Assistance and Subsidies Swedish Consulting Firms and Multilateral Development Agencies Summary Conclusions 149

7 VB Appendix A Swedish and Nordic Consulting Exports 157 Al Databases and Sample Selection A2 History of Swedish Consulting Finns A3 Basic Statistics on Finns A4 Statistics on Sectors and Regions A5 Statistics on Tender Documents B Questionnaires 179 B.l Questionnaire on Finns B.2 Questionnaire on Proposals..., References 187 Abbreviations 193 Index 195

8 LIST OF FIGURES 1.1 Flow diagram for an investment project Flow diagram for a restructuring project Alternative tender systems The relationship between success ratio for tenders in competition and negotiated contracts as a proportion of all awarded contracts for Swedish CFs in percent of contract values Composition of services in projects that Swedish CFs tendered for between 1995 and 1997 across financing in percent of tender values Composition of services in projects that Swedish CFs tendered for between 1995 and 1997 by sector in percent of tender values Composition of services in awarded and lost tenders that Swedish CFs competed for between 1995 and 1997 across financing in percent of tender values Composition of services in awarded and lost tenders that Swedish CFs competed for between 1995 and 1997 by sector in percent of tender values Composition of services in projects that Swedish CFs tendered for between 1995 and 1997 by firm group in percent of tender values The relationship between state-owned operators and CFs A.l Swedish sales in Sweden, developed countries and emerging markets by CFs in 1996 in gross sales and MSEK A.2 Swedish, Norwegian and Danish exports to emerging markets by CFs distributed on financing in percent A.3 Distribution of tender values for all, awarded and lost tenders for Swedish CFs across financing between 1995 and 1997 in percent

9 LIST OF TABLES Extent and division of infrastructure sectors included in the analysis.. 6 A model for the choice of entry mode strategy in foreign markets for consulting firms Sales from permanent foreign offices and exports from Sweden by Swedish CFs distributed on emerging and developed markets in 1996 in MSEK Permanent and representative offices located abroad by Swedish CFs in Permanent and representative offices abroad by Danish CFs in Awarded contracts in the whole sample and when the CF has no previous experience with the host country or the client across financing groups in number and percent Awarded contracts in host countries with which the CF has previous experience distributed on new and old clients in number and percent Sida's and Danida's budget in 1998 distributed on implementing organizations in MSEK, MDKK and percent Procurement rules across some multilateral development agencies Training included in projects in emerging markets across financing groups for all tender and negotiations in number and percent Training included in projects across development level of the host country for all tenders and negotiations in number and percent Joint ventures with local CFs in projects in emerging markets across financing groups for all tenders and negotiations in number and percent Joint ventures with local CFs in projects across development level of the host country for all tenders and negotiations in number and percent Factors that may influence the invitation of CFs (number and percent) Basic statistics and hypotheses for the explanatory variables The tenderer's previous experience w ~ the t h host country related to awarded and lost tenders (number ani percent) The team leader's degree of education related to awarded and lost tenders (number and percent) The team leader's international experience related to awarded and lost tenders (number and percent)... 88

10 XlI 6.6 The tenderer's experience with the client related to awarded and lost tenders (number and percent) The tenderer's visits to the clients related to awarded and lost tenders (number and percent) The tenderer's local offices related to awarded and lost tenders (number and percent) The influence of different factors on the outcome of the tender evaluation by probit analysis The influence of different factors on the outcome of the tender evaluation across fmancing groups Explanatory factors for negotiated contracts and comparisons with tenders in competition in averages of number, years and percent Classification of services supplied by CFs Combination of services included in contracts that Swedish CFs tendered for between 1995 and 1997 in percent Combination of services included in awarded and lost tenders that Swedish CFs competed for between 1995 and 1997 in percent Terms of employment and exclusive right to professionals in private and state-owned CFs Proposals submitted to, and awarded contracts in, host countries in which Swedish CFs have a represenatative, a permanent or no office between 1995 and 1997 in number and average number Proposals submitted to, and awarded contracts in, host countries with which Swedish CFs have and have not previous experience between 1995 and 1997 in number and average number Consulting contracts in Eastern Europe financed by EU divided on supplying countries between 1995 and 1998 in MEUR and percent Consulting contracts financed by the World Bank and AsDB divided on supplying countries between 1967 and 1998 (disbursements) in MUSD (current prices) and percent Success ratios for Nordic CFs when tendering for projects financed by AsDB between 1992 and 1996 in number and percent Al Swedish CFs includedin the surveys and their main foreign infrastructure sectors of operation A2 Sales and exports by Swedish CFs in 1992, 1994 and 1996 and comparisons with CFs from other Nordic countries in current prices and MSEK A3 Swedish sales and exports by private and state-owned CFs in 1992, 1994 and 1996 in current prices and MSEK

11 Xlll A.4 Swedish and Norwegian foreign sales and exports by CFs across sectors in 1996 in percent and MSEK A5 Swedish, Norwegian and Danish exports by CFs across regions in 1996 in percent A6 Sample of awarded and lost tenders in competition for Swedish CFs across sectors between 1995 and 1997 in number, MSEK and percent A 7 Sample of awarded and lost tenders in competition for Swedish CFs across regions between 1995 and 1997 in number, MSEK and percent A8 Sample of awarded and lost tenders in competition for Swedish CFs across financing between 1995 and 1997 in number, MSEK and percent A.9 Negotiated contracts for Swedish CFs across financing groups between 1995 and 1997 in number and MSEK AlO Negotiated contracts for Swedish CFs across sectors between 1995 and 1997 in number and MSEK All Average size of negotiated contracts and tenders in competition in MSEK

12 PREFACE AND ACKNOWLEDGEMENTS This book about cross-border consulting operations was completed at The Research Institute of Industrial Economics (lui) in Stockholm. lui has a long tradition of studying international trade and foreign direct investment. However, previous research has only concerned manufacturing firms, which can be partly explained by the fact that detailed data on other sectors has not been available. The purpose of this book is to analyze several issues related to the international operations of consulting firms (CFs); for example, success factors when tendering for new contracts abroad, the choice between establishing permanent offices and exporting from the home country, knowledge transfer to emerging markets when consulting projects are implemented, the role of development agencies, and the consequences of state-owned CFs competing with private CFs are some of the issues that are investigated. These issues are examined on the basis of theories about consulting firms and services. For the empirical analysis, I use a unique database on individual tender documents submitted by Swedish CFs. To the best of my knowledge, this is the most detailed database on consulting exports and the only one in the world on individual tender documents. The book and research project were possible thanks to the executives at the Swedish CFs who spent many hours filling in hundreds of questionnaires. Among these executives, I would like to express special gratitude to Jonas Belfrage, SWECO International, and David Montgomery, Hifab International, from whom I received insightful comments and with whom I had an endless number of discussions. Constructive comments were also received from Claes Hugo, Swedish Trade Council, Per-Goran Carlsson, Ministry of Foreign Affairs, Johan Akerblom and Johnny Andersson, Sida, and Thomas Andersson, OECD. Thanks also to the Swedish Federation of Architects and Consulting Engineers which supported the research project and persuaded its member firms to participate in the project. At lui, the author is grateful to Pontus Braunerhjelm, Magnus Henrekson, Ulf Jakobsson, Lars Oxelheim, Lars Persson, Johan Stennek and Per Thulin for constructive suggestions. In addition, I am thankful to Elisabeth Gustafsson who helped me fit the chapters into a coherent manuscript. Finally, I would like to acknowledge generous financial support from the Marianne and Marcus Wallenberg Foundation. Roger Svensson November, 1999