Developing the Competitive Advantage of Indigenous Construction Firms

Matthew Kwaw Somiah, Clinton Ohis Aigbavboa, Wellington D. Thwala

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000399608
• Edition: 1
• Topic: Business
• Subtopic: Construction Industry
• Index: Business

This book takes a pragmatic approach to develop the competitive advantage of indigenous construction firms in the Global South, using Ghana as a case study. It provides readers with two major practical insights. The first focuses on the theoretical underpinning of firms' competitive advantage and develops a competitive advantage model for indigenous construction firms. This competitive advantage conceptual frameworkaids in explaining the main and sub-attributes underpinning the competitive advantage of indigenous construction firms as well as providing the basis for assessing a firm's competitiveness. Secondly, it highlights and addresses theoretical gaps in existing competitive advantage studies deemed essential for indigenous construction firms. Finally, a detailed two-stage Delphi studyin theGhanaian construction industry is presented as a case study.

The book is therefore of interest to researchers in construction management, strategic management, civil engineering, business administration, marketing, entrepreneurial and economic studies. It is an essential manual for owners and managers of construction businesses. It is also useful for government departments and non-governmental agencies seeking innovative ways to develop the capacity of indigenous firms and/or contractors to make them more responsive to competitive bidding scenarios, delivery of projects, and satisfying the needs of the industry's stakeholders.

1 Introduction and general overview

Introduction

Owing to the notable cost and technological advantages that have characterized the operations of foreign firms in the construction industry in the Global South, among others, foreign firms have been able to create a niche for themselves and most major projects are won and executed by them. This is to the detriment of indigenous firms in the construction industry and the economies in the Global South at large, and Ghana is no exception to this. Nonetheless, there is a dearth of empirical studies that investigate and develop models to aid indigenous construction firms in obtaining a competitive advantage. Thus, this book investigates and develops a cohesive model that will aid indigenous construction firms to obtain a competitive advantage in the construction industry in the Global South using Ghana as a case study. Primarily, the research conceptualizes the extent that firms’ strategies and structures, internal factors, demand factors, competitive intelligence, corporate social responsibility, and the entrepreneurial competencies of firm owners (which were classified as the exogenous variables) predict indigenous construction firms’ competitive advantage. A conceptual integrated holistic competitive advantage model was developed on the basis of the theory developed from the literature review and the findings of the Delphi study. Indigenous construction firms’ competitive advantage is the set of attributes (factors) that will aid indigenous construction firms to outperform their foreign counterparts. Results from the investigation pertained to three broad areas. Firstly, the results related to theory on firms’ competitive advantage studies. The findings were that the study addressed the lack of theoretical information about which factors are most significant in predicting indigenous construction firms’ competitive advantage in the construction industry. Further, the findings revealed that indigenous construction firms’ competitive advantage in the construction industry is multifaceted and that the latent variables lead to firms’ competitive advantage outcome variables which could be used for the measurement of firms’ competitive advantage. The second set of findings related to the Delphi study. The findings from the Delphi study indicated that indigenous construction firms’ competitive advantage could be a six-factor model defined by the influence of firms’ strategies and structures, internal factors, demand factors, competitive intelligence, corporate social responsibility, and the entrepreneurial competencies of firm owners. The study’s contribution to the body of knowledge is significant because it addresses the lack of theoretical information (historical literature data) about which factors are most significant in predicting indigenous construction firms’ competitive advantage in the construction industry in the Global South. The current integrated model advances that indigenous construction firms’ competitive advantage is a six-factor construct, with the inclusion of two new variables, namely firms’ corporate social responsibility and the entrepreneurial competencies of firm owners. Previous studies have tried to conceptualize competitive advantage using other variables without the inclusion of the current two additional variables. Thus, this book has shown that there is more than one factor that influences the competitive advantage of firms.

The study recommends that governmental and non-governmental organizations, as well as construction industry policymakers, should consider the empirically tested constructs as they plan for and implement competitive advantage and capacity-building programmes designed to enhance the competitive advantage of indigenous construction firms in the Ghanaian construction industry. Likewise, the conceptual model of indigenous construction firms’ competitive advantage will provide a reference for researchers who may study competitive advantage in the future.

General overview

Competitive advantage

The concept of competitive advantage seeks to keep a firm, an industry, or a nation appropriately matched to its environment and it is essential for the survival and growth of firms, industries, or nations (Porter, 1990; Yongtoa, 2008; Wang, 2014). Competitive advantage is obtained when a firm, an industry, or a nation either develops or acquires a set of attributes and conditions that allow it to outperform its competitors or rivals (Porter, 1990; Yongtoa, 2008; Wang, 2014). The acquired or developed attributes and conditions are generally referred to as attributes, determinants, or factors of competitive advantage in competitive advantage studies (Porter, 1990; Wang, 2014). Thus, existing literature suggests that competitive advantage is best studied or discussed at three distinct levels since the attributes that influence competitive advantage are unique at each level and differ as well. Again, different theoretical frameworks guide each of the levels of competitive advantage studies (Lu, 2006; Flanagan et al., 2005, 2007). Besides, a quite recent study by Flanagan et al. (2005) and Cetindamar and Kilitcioglu (2013) revealed that studies on competitive advantage have largely focused on industry and nation levels, while the firm level has been neglected (Flanagan et al., 2005; Cetindamar & Kilitcioglu, 2013). As a result, this study focuses on firm-level competitive advantage in an attempt to contribute to filling this gap in the literature.

Concerning firms, competitive advantage is obtained when a firm develops or acquires a set of attributes and conditions that allow it to outperform its competitors or rivals (Porter, 1990; Yongtoa, 2008; Wang, 2014).

Figure 1.1 Levels of competitive advantage studies (Somiah, 2018)

Source: Researcher’s literature review

In other words, firms’ competitive advantage is derived from the attributes or factors that contribute to the firm’s superior performance in a free market or the attributes that give a firm a market advantage in a competitive industry (Porter, 1980, 1985; Lu, 2006; Wang, 2014). According to Lall (2001), firms with competitive advantage do better than competitors in a given industry in terms of market share, profitability, or sales. Hence in this study competitive advantage is proxied by firms’ market share, profitability, client retention, and annual turnover, among others (Porter, 1980, 1985, 2000; Lall, 2001; Flanagan et al., 2005; Wang, 2014) in the Ghanaian construction industry. This is to say that the outcome of firms’ competitive advantage comprises an increase in the firms’ project share, market share, and client base, among others. Further, it could be deduced from the literature reviewed that competitive advantage could be studied as an outcome variable or a predictive variable, and a combination of both will be an innovation. Thus, this study combined the two approaches to competitive advantage studies. The competitive advantage model that this study developed predicts the factors (determinants) of firms’ competitive advantage as well as indicates the outcome of firms which have obtained a competitive advantage.

Further, a plethora of existing literature informs that the term ‘competitive advantage’ has been used interchangeably with competitiveness as they largely connote the same meaning, and this study is no exception (see Porter, 1980, 1985; Lu, 2006). However, some studies associate competitiveness with comparative advantage, in which case comparative advantage or competitiveness concerns a nation having a global edge over (an)other nation(s) with which it competes owing to its abundantly endowed natural resources and military strength, among others (Porter, 1980, 1985; Barney & Hesterly, 2010). However, comparative advantage is not the focus of this current study. It lies outside the scope of this study. As a result, in this study ‘competitive advantage’ is used interchangeably with ‘competitiveness’, and it is widely not different from other contemporary studies that used the terms interchangeably (see Porter, 1980, 1985; Lu, 2006; Wong et al., 2000; Yongtoa, 2008). Additionally, the term ‘competitive advantage’ is also synonymous with ‘competitive achievement’ as preferred in some literature as they imply the same meaning (see Porter, 1980, 1985; Lu, 2006; Wong et al., 2000; Yongtoa, 2008). Firms that have a competitive advantage are said to be competitive or have achieved competitiveness (Peteraf, 1993; Powell, 2001; Lu, 2006; Barney, 2007; Wang, 2014).

Over the past years, competitive advantage has been associated with the productivity, economic strength, and performance of firms (Porter, 2004; Flanagan et al., 2005, 2007; Srivastava et al., 2006). This is because the existence, survival, and success of every firm are greatly dependent upon the firm’s competitive advantage (Ambastha & Momaya, 2004). In lending support, Porter (2004) argued that competitive advantage is a zero-sum game because regardless of the level of competitive advantage (be it national, industry, or firm levels), as one country, industry, or a firm increases its market share of a product or services, it is at the expense of another country, industry, or firm losing its share(s) in the market and risks being marginalized (Porter, 2004). As a result, to prevent firms from being competitively disadvantaged, some nations and unions in the world have set up councils to oversee and ensure the sustainability of firms’ competitive advantage. Some even go to the extent of even providing funding for sustainable competitive advantage studies as Rekabet Forumu (REF), which is a competitiveness forum in Turkey which ensures among others that competitive advantage is consistently achieved and sustained over a period (Cetindamar & Kilitcioglu, 2013). Examples of other such bodies are the World Economic Forum (WEF), the International Institute of Management Development (IMD) (Flanagan et al., 2005), which have been periodically evaluating competitive advantage at the national level (Flanagan et al., 2005), the Competitiveness Advisory Group, the Ciampi Group by the European Union (EU), the Special Commission for Competitiveness by the United States (US), and the US Competitiveness Policy Council.

Moreover, there are several white papers which have been released periodically by some countries and unions in the developed world on competitive advantage. Examples include those of the United Kingdom (UK), the United States, and the European Union (Lu, 2006; Cetindamar & Kilitcioglu, 2013). In Turkey, there is a strong collaboration between industry and academia to help improve and sustain the competitive advantage of Turkish firms in the international market by conducting and funding studies on competitive advantage; and elsewhere in the UK and Belgium, there are bodies that have deliberately designed and funded award schemes to promote competitiveness (Cetindamar & Kilitcioglu, 2013).

Besides, some countries and states in the world have productive development policies or laws such as local content policies or laws that aim, among others, at developing the competitive advantage of indigenous firms to make them locally and globally competitive. A typical example is the South Africa Broad-Based Black Economic Empowerment Act 2003 (Parliament of the Republic of South Africa, 2003); the South Africa Preferential Procurement Policy Framework Act 2000 (Parliament of the Republic of South Africa, 2000; Fernz et al., 2013); and the Queensland Industry Participation Policy Act 2011 (Parliament of Queensland, 2011). All these indicate the importance some nations, industries, and unions attach to their firms having a competitive advantage or edge.

When firms enjoy a competitive edge in competition, especially indigenous firms, there are enormous advantages to the firm(s) or the nation(s). In light of this, the International Institute of Management Development (IMD) (2004) informed that firms’ competitive advantage inspires sustainable growth and ensures capability for long-term development. In consonance, Flanagan et al. (2005) and IMD (2014) asserted that a competitive advantage brings about enormous benefits which include prosperity, high and rising standards of living in the lives of the populace of a nation, or increasing returns on investment to owners of firms as well as employees. Similarly, Porter (2004), in his study, attributed the importance of competitive advantage to include wealth creation and having a significant influence on the standard of living in a particular nation.

However, regardless of the widespread acceptance of its importance, the concept of competitive advantage is not well understood and the attributes of competitive advantage are not well measured or assessed, chiefly in the construction sector (Flanagan et al., 2005). This is attributable to the multifaceted, subjective, and relative nature of the concept (Ambastha & Momaya, 2004); since its understanding spans, business, military, management, economics, politics, culture, and even history literature (Whittington, 1993; Waheeduzzaman & Ryans, 1996). Again, its meaning and definition depend on the values held by the stakeholders of the unit under investigation (Momaya, 2004). This may also be a result of the differences in samples used in the previous studies as the sample for most studies might not be a representati...