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Global Development Institute podcast
Global Development Institute podcast
Flexible Embeddedness: In Conversation with Elisa Gambino
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In this episode, Rory Horner speaks with Elisa Gambino about her latest paper 'Flexible embeddedness: how Chinese lead firms internationalise in Africa' with Costanza Franceschini.
The ‘rise of the South’, and particularly that of China, has promoted lively debates around the centrality of Southern firms in shaping the contours of twenty first century economic globalisation. This paper contributes to these debates by examining the internationalisation of Chinese lead firms.
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Intro [00:00:02] Welcome to the Global Development Institute podcast. Based at the University of Manchester, we're Europe's largest research and teaching institute addressing poverty and inequality. Each episode, we'll bring you the latest thinking, insights, and debate in development study.
Rory Horner [00:00:24] I'm Rory Horner from the Global Development Institute, and I'm here with my colleague, Elisa Gambino. Hi, Elisa.
Elisa Gambino [00:00:30] Hi, Rory.
Rory Horner [00:00:31] Congratulations, Elisa, on your recent paper in Review of International Political Economy, Flexible Embeddedness: How Chinese Lead Firms Internationalise in Africa. Congratulations on this paper. I'm really keen to learn a little bit more about it. So China, Africa, it's what, how significant really is China and Africa? I mean, many people have probably heard of China. It's so prominent, but can you tell us a little bit about why it's so important in Africa today?
Elisa Gambino [00:00:57] Yeah, absolutely. Thanks so much for having me on the podcast. I think for a decade, the global economy has been really dominated by actors based in the global north and by companies that come from Europe, the US, or Japan. But since the turn of the 21st century, Chinese firms and also other companies from other global south countries have become central players in the Global Economy. There's been many shifts that have themed the rise of South-South engagement, for example, in the context of trade and Africa-China relations has really been a huge part of this story. Initially, it was thought that Chinese interests in African economies was mainly related to resource extraction, but as the decades have gone by, it became quite clear that that's not, it's not just the case. Of natural resource extraction, but there's many other areas in which Chinese companies and Chinese actor are interested in. So it's not just a question of development needs or resource extraction. But this is really the shift, especially in patterns of trade and the increasing centrality of South-South trade in the global economy really is a China story. And it has increasingly become an Africa-China story. Many Chinese companies are market leaders in Africa in sectors such as construction, for instance, which is the topic of the paper. But Africa-China is also Africa's largest bilateral trade partner and the largest bilateral development financier. This has been a crucial part of Africa- China relations in the 21st century, because lending from Chinese state-backed sources like policy banks. Has contributed significantly to the development of, for example, African infrastructure. Although it should be mentioned that the largest infrastructure development financier still remains African governments, rather than other sources. But between 2000 and 2020, so in the span of 20 years, Chinese funding commitments to African nations have totaled to almost $183 billion. And of these, $52 billion were for transport infrastructure alone. But since then, the lending landscape has really changed. Not a lot of Chinese lending is being devoted to African infrastructure. I would argue that it has dried up. And at the same time, Chinese companies really continue to expand in African markets. And so we thought when we set off to ride this bike road, that it would be really, really interesting to understand how they do so, and not just understand the scope of their presence.
Rory Horner [00:03:52] Okay, so China-Africa clearly is, it's a very important relationship. People have been talking about this for quite a long time now. So how does this paper that you've done with Akos Sanza from Ciaspini, how does it add to that debate? And I can remember people talking in a very kind of macro context about, oh, China in Africa, then people in turn critiquing the idea of a singular China and a singular African. Summary, perhaps, for India and Africa. So how much of that literature move beyond that, and how does your paper help with that?
Elisa Gambino [00:04:29] So I'd say the literature, in a way, has moved a bit forward in this regard, especially when it comes to centering the agency of African actors in shaping Africa-China relations. A lot has actually been written about the agency of African Actors, although this has largely been done in the context of state-to-state relations, so it still remains quite macro level. And the same is true for literature that looks at the expansion of Chinese companies. Especially Chinese state-owned companies, they're often equated with the Chinese state or seen as a branch of the Chinese State or supporting the Chinese States in reaching specific policy goals. And Costanza and I wrote this paper partially as a response to this large body of literature, which we felt wasn't really representative of what we saw every day on the ground during our research, which is... Mainly centred around long periods of fieldwork, a lot of ethnographic work in construction sites. For this paper, Costanza worked in Ghana and I worked in Kenya and in China as well. And our work often felt, in a way, almost fighting with this sort of macro level. Discussions around Africa-China economic engagement, especially because of the nature of the companies that we were studying, which are both state-owned enterprises or subsidiaries of a large state-own enterprise. And both in academic literature and in media and policy narrative, state- owned enterprises are really seen as a part of the Chinese State. And this is something that's when we were engaging with African policy makers or officials, as well as with Chinese company managers and workers, it wasn't discussed in the same way. And the role that they thought they had was very, very different from these discussions. And we noticed that very little is known about how these companies are actually behaving in their everyday operations. How are their everyday strategies of market expansion like in the context of African economies? And the debates have always often focused on why they're there. So whether it's state incentives or resource extraction, market-seeking motives, but very, very little is known of how they actually internationalise their businesses and what strategies are they using? Who are they working with? How do they adapt or shape local conditions in the market? And so that's what we set off to sort of look at in the paper. We specifically look at how Chinese firms are internationalising in African markets. And this is our way of shifting the conversation around Chinese companies, sorry, around companies from the global north into. Looking at companies from the global south, which has been one of the debates now in the global production network approach, right? And so sort of moving beyond a focus on global north firms and their strategies.
Rory Horner [00:07:49] Certainly, I mean, when we think of the origins of research in global value chains, it was heavily oriented around the idea of the big lead firm, the multinational, both from the United States or Europe and looking at the suppliers that were often in the global south, of course. And with the rise of South-South trade being well-recognised as still being a sort of lack of understanding of southern lead firms and. I think I was looking recently at the Global Fortune 500. Now 25% of the biggest 500 companies in the world are from China. That was only 2% in the year 2000. So there's been such a rapid shift in this century that I think this paper seems like it can really help us understand southern lead firms too. Can you tell us a bit about the construction case then where. Why construction and how does the construction, how does internationalisation of Chinese companies in the construction case.
Elisa Gambino [00:08:53] So we do focus on the construction sector because this is one where Chinese companies really have a market leadership position when it comes to African context. CCCC, China Communication Construction Company, which is our main case study, is actually Africa's largest international contractor. And it has branches all across the continent. One of the first headquarters of CCCC in Africa was the Kenyan headquarters of China Road Bridge Corporation, which is China Road bridge corporation. Yes, which is one of the two subsidiaries of CFFC that engages in international construction. That was opened in 1984. How long? Yeah, it was a very long time ago, almost 30 years. And it was way before the going out policy of 1999 and the initiation of the Belt and Road Initiative and the sort of second wave of state backed internationalisation. CRBC in Kenya has a very interesting story because when they opened. Their headquarters in 1984, it was more of a representative office because this company was working as subcontractor for some of the other Asian construction companies that had more experience in African markets, such as, for example, Japanese construction companies. But it expanded very, very rapidly thereafter in a sort of trial and error approach. And already by the end of the 1990s, this company was building projects by themselves. So it had moved to the sole contractor role. And when Chinese lending for African infrastructure started to pick up in the early 2000s, this company expanded rapidly in the market. And in Kenya, it did really become the go-to contractor for Chinese funded projects. But interestingly, one of the projects that we focus on in the paper was built by CRBC, but it was not funded by Chinese sources. And so we use this case to also highlight other ways beyond state backed funding in which Chinese companies can expand their market. This was also the case for our other subsidiary, China Harbour Engineering Company, CHEC, which arrived in Ghana in 2012 to build a state backed. A Chinese state backed project that was suspended shortly thereafter. And before this project was picked up again, the company worked with other multinationals across the region to sort of keep busy while they were waiting for this project to restart. So there are some similarities in terms of how these companies expand their markets, for example, through state backed projects and Chinese lending. But in both cases, as well as other works by colleagues elsewhere have shown for other Chinese state owned companies, Chinese lending is really not a guarantee for market survival. It can help to enter a market, but what is crucial to continue expanding the market and further the internationalisation of the firm is the ability of the company to... Leverage their different networks and to engage with African actors in different ways in order to scout projects and continuing to have infrastructure to build. So this could be, for example, leveraging their state relations in China to seek funding for projects that they have perhaps heard of or scouted in Loco, in Kenya or in Ghana. Or relying on their networks of other companies to search for new markets to enter. And these are just two, for instance, two examples.
Rory Horner [00:12:59] Despite the sort of all powerful China and the seeming perhaps inevitability these days of China's presence in Africa, there's nothing automatic or guaranteed about the presence of these companies in a way where you're saying this is a lot of negotiation and various practises needed to actually make this happen.
Elisa Gambino [00:13:18] Yes, absolutely. And we do see, obviously, we do consider the comparative advantage that Chinese companies and state-owned companies in particularly have in the fact that they can continue to access Chinese state incentives, preferential exchange rates and similar. However, we do very much recognise the role that the networks and connections that companies have established in their process of internationalisation. And of the managers of the overseas subsidiaries have in sustaining the market. So for example, in the paper, we discuss three different ways in which different individuals within the companies can support the broader firm in finding projects to build. And we find there's sort of three different areas that they often tap into. One is to. Undertake unsolicited feasibility studies. And so companies would often engage with politicians or officials in African context in order to find projects to build. And then if finance is needed and it cannot be funded domestically, then perhaps approach Chinese banks to find funding. One of the examples we make is a bridge in Kenya. This is just out of Mambaza. There is a channel that is usually crossed by ferry, the Likoni ferry. And during COVID-19 pandemic, the ferry was becoming very crowded and Kenya had a curfew at 7 p.m. So people couldn't go be outside after 7 p?m. And so the ferry was becoming a health and public safety risk because it would become very, very crowded towards the time of the curfue. Plans for a bridge had already been in place. They had been in places for around 20 years, but it had never been built. But because it became such an important infrastructure project during COVID-19, the company CRBC proposed the project after doing a feasibility study and drawing a design for a temporary floating bridge, brought it to the Kenyan ministry. And eventually got it approved and built the project in three months. This project ended up being funded by the Kenyan government. So this is, for example, one of the avenues. Another one that we observed is the practise of buying contracts that have been earmarked for local companies. So in many African economies, and this is for example the case in Kenya as well, there are contracts that are only tendered to local companies. And this is a way to support the development of local industry and expand capacity in the construction sector. But often these projects are awarded to companies that are companies in name only, and they don't have effectively the machinery or the technical skills to undertake the project. But these companies then sell the projects, the contracts for a lower value to other companies. And while often Chinese officials have denied formal engagement in this, this is a practise that is not specific to Chinese companies, but it's very common in the construction industry more broadly across the African context and is very characteristic of public procurement in general. And lastly, we've also observed how Chinese companies they often face barriers at entry because of the often stereotypical image of Chinese infrastructure in terms of their quality or the image that the companies have that doesn't seem particularly international. And one of the things that Chinese construction companies have begun to do is to hire foreign consultants, mainly Western consultants that have been working in the region. In the sector for many years, often decades, and this is a way to challenge some of these notions associated with Chinese contractors to present the company as being more international, more efficient, and at the same time to tap into the networks of these very well-connected and very knowledgeable individuals and experts in order to scout further projects.
Rory Horner [00:17:54] Okay, and did you find much difference between Ghana and Kenya in terms of the internationalisation?
Elisa Gambino [00:17:59] So we found that because of the different timeline in which this company has entered the market, there were already other competitors, right? So we've found some similarities in terms of the strategies that have supported this company in gaining a foothold on the market compared to their competitors. So by looking at their internationalisation, we perhaps found shortcomings in the internationalisation strategy of other Chinese data enterprises who seem to have an approach and become very closely linked to specific factions within the electoral system of the political. Sphere in Kenya and Ghana, which are both democratic countries with generally like sort of two parties, two main parties at elections. And for example, both in Kenya Ghana, we observed that a competitor of CCCC had gotten really close to the opposition party and after the party did not win the election, they never got another project funded by Chinese sources or they slowly faded away from the market. Instead, what we noticed is that the strategy of approaching all political parties and retaining relations with both opposition leaders and the party currently in power would reduce the risk of a shock after elections. And so a connection to political elites is of course one crucial part of the networks that Chinese companies establish.
Rory Horner [00:19:40] Okay, and so going back to this whole idea of Chinese firms and how they internationalise. Explain very clearly there how some of the various processes in order to conceptualise this, you've come up with this term flexible embeddedness. But what is flexible embedded in this?
Elisa Gambino [00:20:00] I think to explain what flexible embedded in is, maybe I should first mention how we understand embeddedness. So what we did is we draw from the global production network approach and economic anthropology and anthropology of public action. And we consider embeddedness broadly as the ways in which economic activities are anchored to host markets, both in terms of their material production, but also their relations to institutional, political and economic practises. And when it comes to the internationalisation of companies is very well known that being embedded is important to a successful internationalisation. But often embeddedness is seen as either like a precondition or an outcome of internationalisation so you either expand in a market where you are embedded or you expand in the market and you become embedded in it. But instead, what we want to show in the paper is that embeddedness has different forms. There are localised manifestations of state support, of corporate strategy and individual action. And so what we do with the concept of embeddedness, we decided to call it flexible embeddedness to capture the strategic movement across different forms of embedded or the combination of different forms of embeddedness that firms can leverage in order to support their internationalisation. And so instead of being a static outcome or a precondition, embeddedness become like a negotiated process and internationalisation as a result is often quite improvised. And we start by operationalizing Martin Hess's multiple embeddedness framework for the case of Chinese SOEs. And so we have sort of three forms of embeddedness that we see companies strategically moving or combining to support internationalisation. The first is state embeddedness. And this is the ties that bind SOEs, state-owned enterprises and the Chinese state. We consider how they've evolved over the course of the past 40, 45 years and highlight how in their overseas operations, companies often have a large degree of operational autonomy which allows them to, for example, build specific connections with different actors. This leads us to the second form of embeddedness which is firm level linkages. So we see this as trust-based connections that companies develop with a range of actors regardless of where they're located. So this could be, for example, other multinational corporations, both Chinese and non-Chinese. So for instance, in Francophone, West Africa is very common for Chinese state-owned enterprises to partner with Western construction companies. The Western companies will undertake the design of the project. While the Chinese companies would undertake the construction. So there's a sort of implicit division of labour between them. Sometimes there will be connections with government officials or regional bodies or international funders as well. And this network structure sort of set the scene for... Relationships on the ground. This is the form of embeddedness that we refer to as individual and individualised action. And these are the localised manifestations of the linkages that I just mentioned. And specifically here is where we draw from economic anthropology and anthropology of public action to consider also the meets, the rituals, the taking for granted expectations that... Are part of or taking for granted practical norms sort of that are part of doing business. And therefore Chinese companies have to navigate and negotiate in the process of market entry and expansion. And so we argue overall that it is the combination of these forms of embeddedness that sustains firm internationalisation. And therefore embeddedness is not... Static, but is very, very dynamic.
Rory Horner [00:24:36] You can give a little bit of an earlier example of what flexible embeddedness actually looks like. Mm-hmm. It's like Dan O'Rourke, yeah.
Elisa Gambino [00:24:45] Yes, so you would, for example, if we consider the Kenyan case, which is the one that I've worked on the most personally, and Sustenza worked on, the Kenyian case. So in Kenya, CRBC has had a very, very long history that is really kept characterised in sort of three periods for me. The first is the subcontractor phase. So this is the learning how to operate in a market. Very much trial and error. Working across small projects, often subcontracted informally, in order to learn about the context. Who are the key actors? Who are key ministers? Who are competitors? And what can be learned from them? The second phase is the state-backed expansion phase. And these are large infrastructure projects that often sit at the intersection between the priorities of the Kenyan political elite. And the kind of broader development agenda of the continental development agenda. So things like transport corridor development, large ports, logistics hub, and things, this type of infrastructure. And in this phase, what it was very interesting to observe is the fact that not to extending the state-backed funding, the companies were still seeking other projects to expand into. And so for in Kenya to be able to build a bridge, one needs to have a specific certification to be to build the road, you need another qualification that is issued by a government authority. And so throughout this period, through the Chinese funding, the company was able to target specific projects that they didn't have the qualifications in yet, in order to have a full set of certifications, so that they could start bidding. On other projects that were not Chinese funded. And so over the course of time, they started bidding for increasingly bidding for World Bank projects, for projects that we're open international tenders, and sometimes even proposing projects. And one of the things that changed quite dramatically, the strategy of the company, was the transfer of the former director of the Kenyan branch of CRBC to Angola. So before he was transferred, a lot of the connections that the company had were related to prominent business people that were often acting as intermediaries between the company and the officials. But after the transfer of this manager, the incoming managers instead, decided to refocus the company in serving as the client. And so the Kenyan government was in this case, the client, and so they're increasingly, you would find events and joint conferences or projects where managers of CRBC would stand side by side with ministers, with general secretaries of ministries. And so they started being much more embedded in the official government sphere, rather than relying on business people and intermediaries. And this is both a result of, of course, the individual strategy or individualised strategy of the company after the new managers arrived, but also a result of the process of embeddedness during the state back expansion phase, where obviously because of the state-to-state deals, there was much more engagement between prominent political figures and the company managers.
Rory Horner [00:28:35] Oh, that's great. And I think especially when we think of embeddedness, it often has been kind of conceptualised in a very much in relation to lead firms from the global north and how they anyway enter into territories in other parts of the world. So I think this really helps bring a very different perspective and I know too the understanding of embedded. What do you see as the kind of major research? Agenda and what are you working on that kind of follows on from this?
Elisa Gambino [00:29:06] And I think in terms of what this paper, I hope at least that this paper brings up is more discussions on the everyday realities of Africa-China engagement. So kind of moving beyond this almost deterministic kind of big picture debate.
Rory Horner [00:29:26] But still, I exist today, right?
Elisa Gambino [00:29:29] Yeah, and very much dominates the discussion, I think, especially now that we are in a context of heightened geopolitical rivalry. I think what is happening in terms of development in Africa has become much of... It feels it's being discussed at least as it's much of a contested space between the US and China. While effectively on the ground, I think things are much more fluid and dynamic than this broad. Narratives might suggest. I think one of the points is the fact that while South-South engagement is obviously a key feature of the global economy, there are still a lot of power asymmetries within the South as well. So if we think about the case we've been discussing now, and it is the focus of the paper, we have on the one hand China, a country that has very many powerful corporate actors that are leaders in the global economy. And on the other hand, we have Kenya and Ghana, which are very stable economies that are however, having a lot of FBI attraction policies, import substituting industrialization agendas, and sort of focusing on attracting foreign capital to support development. And this means that they have a very different position in the global economy, right? And so there's different actions and strategies that their respective firms or governments can obviously deploy. And I think in the context of China global South engagement, the power asymmetries are ever visible. And therefore I hope that this paper sort of can start more debate around what the strategy of Southern firms. Can look like, what is their relationship to different actors within the, for example, within China, within their context, as well as relations with African governments and other economic actors. And I think, I hope that this will start a broader strength of research that specifically looks at how Chinese Southern firms are expanding their markets. And so that focuses on this kind of everyday realities of internationalisation that I think would help also fill some of the gaps in theory, especially around concepts that might have been developed for Northern firms and therefore might need some reconceptualizing. Hopefully it encourages more people to do so and also to sort of engage with methods that are perhaps not as common when it comes to studying lead firm strategy. Currently at the moment, I've shifted away from focusing on Chinese state capital and I'm focusing on private companies. This is because while the largest companies in African market, Chinese companies in African markets are state owned, the largest number of companies is private. And so I'm trying to look at how.
Rory Horner [00:32:50] There's all kinds of people that associate all big Chinese companies are state owned, but there's a real significant Chinese private presence in Africa too.
Elisa Gambino [00:32:57] There's absolutely a huge presence of Chinese companies in Africa of all sizes. Some are very large multinational corporations with production clients in seven, eight different African countries. Others are smaller entrepreneurial ventures. One thing that brings them in common, brings them together is sort of a similar approach to different forms of embeddedness and kind of leveraging. Different aspects of their linkages both within China and in the context of operation and somewhat in between in this internationalisation journey. And private companies in my opinion are very, very, very embedded in African political economies. And this is what I'm trying to do now. In this project that is broadly looking at the impact of Chinese private capital on industrialization and regional integration in West Africa. And what is doing specifically is to study the different expansion strategies of Chinese, private companies to try and understand the extent to which it is supporting the development agendas in the region.
Rory Horner [00:34:13] Congratulations, Elisa and also Costanza again. I think this paper clearly makes a very important contribution, not just of course to China-Africa discussions, but also to work on global value chains in terms of thinking of the how of how a southern lead firm in this case from China internationalises and also a very useful conceptual contribution in terms to this idea of. Flexible embeddedness, which I'm sure many people will pick up on. So congratulations again on this paper and best of luck with your continued research agenda.
Elisa Gambino [00:34:47] Thank you so much, Fari, and thanks for listening.