Multinational Enterprises and Sustainable DevelopmentMNEs and Capabilities Building in GhanaXiaolan Fu, George Essegbey, Godfred Frempong,

Article information:To cite this document: Xiaolan Fu, George Essegbey, Godfred Frempong, "MNEsand Capabilities Building in Ghana" In Multinational Enterprises and SustainableDevelopment. Published online: 19 Sep 2017; 173-193.Permanent link to this document:https://doi.org/10.1108/S1876-066X20170000033008

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Chapter 8

MNEs and Capabilities Building in Ghana

Xiaolan Fu, George Essegbey and Godfred Frempong

Abstract

This study investigates the impact of multinational enterprises (MNEs) on eco-nomic and human development in Africa. Specific focus is placed on the local managerial capability building. Capability building is an important part of the Millennium Development Goals (MDGs) framework and is considered a neces-sary prerequisite for achieving poverty alleviation targets. The low level of local capabilities is a well-recognized issue in Africa. The study also addresses the emerging stream of research devoted to MNEs from developing countries. Such MNEs have a different level of managerial capabilities, a different corporate cul-ture, and different operation models compared to MNEs from developed coun-tries. This study analyzes the industrial development of Ghana and compares cases of Chinese and European MNEs operating in this country. On the basis of multimethod analysis, we provide extensive policy implications.

Keywords: Multinational enterprise; emerging countries; capability building; Ghana; Africa

1. Introduction

Among the 17 Sustainable Development Goals (SDGs), very few have anything to do with industrialization and industrial performance in any given country. SDG 9 is specific to industry, innovation, and infrastructure, which in broad terms underscores efforts to build a resilient infrastructure and promote inclusive and

Multinational Enterprises and Sustainable Development International Business & Management, Volume 33, 173–193Copyright © 2017 by Emerald Publishing LimitedAll rights of reproduction in any form reservedISSN: 1876-066X/doi:10.1108/S1876-066X20170000033008

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174 Xiaolan Fu et al.

sustainable industrialization and innovation. SDG 8 aims to promote inclusive and sustainable economic growth, full and productive employment, and decent work for all. SDG 1, SDG 2, and SDG 3 broadly put the spotlight on fundamental development challenges of developing countries linked to the minimal industrial capacity in these countries. Eliminating poverty and hunger and creating a soci-ety of good health and well-being are the herculean challenges faced by develop-ing countries currently. Thus with the seeming global consensus on sustainable development, nations are strategizing to enhance industrialization and promote economic competitiveness. As they do this, a major challenge that remains is the building of local capabilities that will broadly provide a launchpad for enhancing economic competitiveness.

While the traditional approaches of international development practice such as aid still play an important role, recent frontiers of development research have argued for economic growth as a fundamental mechanism for poverty reduction and human development. The direct and indirect effects of economic growth, of which foreign direct investment (FDI) serves as one of the major engines, may lift masses from poverty just as China has in the past three decades. The managerial and technologi-cal knowledge transferred or spilled over to the local community may increase the capability of the local management and workforce and enhance economic and human development in various aspects.

The objective of this study is to investigate the impact of multinational enterprises (MNEs) on economic and human development through local managerial capabil-ity building, which is often the bottleneck for economic growth in Africa (Sutton & Kpentey, 2012) but very much under-researched. We will focus on the linkages through which knowledge is transferred to local people. We pursue how this contributes to capability building at the individual level and how this empowers local people and changes their personal aspirations, especially for women and young workers.

We investigate this research question by using a case study of Chinese and European MNEs in Ghana. The focus on Chinese and European MNEs reflects two important characteristics of Ghana’s industrialization. First, Ghana’s colonial heritage has led to the establishment of European MNEs, which still play key roles in the nation’s industrial activities. Though originally these European MNEs were in mining and commerce, they have over the years extended their activities into other sectors of the economy. Second, China has emerged as a major industrial partner not only in Ghana but also in all of Africa, and China is likely to play a greater role in Ghana’s indus-trialization. It is therefore important to investigate the research questions using the selected MNEs.

This study employs a mix of qualitative and quantitative methods to explore our research questions. These include in-depth interviews, statistical analysis, and social network analysis. At the base of this work was a large-scale individual-level survey of managers and workers at eight broadly comparable European and Chinese MNEs across four industries in Ghana.

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MNEs and Capabilities Building in Ghana 175

The rest of the chapter is organized as follows: Section 2 provides a review of the literature and the analytical framework for the research. Section 3 explains the design and methods of the research. Section 4 provides an overview of FDI and industrial sectors in Ghana. Section 5 reports findings from the research. Section 6 concludes.

2. Literature Review

The impact of 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 mana-gerial knowledge to the host countries, benefitting their economies by enhancing pro-ductivity and competitiveness (Athukoralge, 2007; Dunning, 1958; United Nations Conference on Trade And Development [UNCTAD], 1995). However, despite the huge volume of literature on various forms of spillovers from FDI (Görg & Strobl, 2001), research on managerial knowledge spillovers from FDI is limited, fueling con-tinuous 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 to be considered (Moran et al., 2005). These include the technological intensity of the FDI in question, the managerial and busi-ness organization background of the investing country, and the absorptive capacity of the host country.

2.1. FDI, Knowledge Transfer, and Local Capability Building

Knowledge spillovers can be achieved between firms and across regions and countries through various transmission mechanisms (Pietrobelli, 1996). These include the move-ment 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; interna-tional research collaboration; diffusion through media and Internet of disembodied knowledge; and integration into global value chains to benefit from the foreign tech-nology transferred within the supply chain.

When starting businesses and setting up productions, MNEs bring advanced tech-nologies to the host countries. Knowledge is nonrival 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 tech-nologies has created opportunities for local actors to learn via forming multiple link-ages. 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).

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2.2. FDI 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 developmental potential as managerial knowledge is likely to spill over from MNEs to indigenous firms through several channels. One channel is the movement of labor from foreign to local firms. Most MNEs invest in labor through training to improve their own productivity. When trained employees move from foreign to indigenous firms for higher salaries or sen-ior positions, they carry with them new management practices, which they acquired in foreign firms (Almeida & Kogut, 1999; Fosfuri et al., 2001). The second chan-nel 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 through word of mouth. These can allow both industry-specific and general managerial knowledge (e.g., equal opportunities and performance related pay) to diffuse within and across industries (Fu, 2012). Third, the diffusion of management practices may take place within the supply chain, through unintended leakage of knowledge (Fu, 2012).

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 indigenization 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 sala-ries 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 & Kogut, 1999; Fosfuri et al., 2001). The move-ment of labor 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’ loy-alty programs. 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

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MNEs and Capabilities Building in Ghana 177

demonstration effects on local banks (Fu, 2004). 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 labor movement, MNEs may purposely transfer relevant knowledge to their sup-pliers or customers. For example, they may transfer relevant knowledge to their sup-pliers 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 interfirm linkages within the sup-ply 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 prac-tices, especially for supply chain management, production quality management, and marketing management. This increases the vertical spillovers of management prac-tices as a result of intended or unintended knowledge transfer through forward and backward linkages.

Engaging in the internal communication systems in MNEs has enabled local workers to effectively acquire better management skills such as socialization, decision-making, and problem-solving. The effective relationships among individuals and groups foster the team’s communication practices that helps them coordinate activities to achieve their goals (Harris & Nelson, 2008). Through daily interactions with foreign expatriates and other domestic workers, local employees not only learn about their jobs, organiza-tion, environment, and colleagues but 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).

3. Background: Industrial and Economic Development in Ghana

Ghana’s development goals and the means of achieving them are enshrined in the national development framework – Ghana Shared Growth and Development Agenda (GSGDA) 2014–2017 – prepared by the National Development Planning Commission (NDPC). Having achieved lower middle-income status in 2012 with a per capita income of US$1,550.00, the overall development vision focused on ensuring that the divi-dends of growth benefit all Ghanaians, irrespective of gender, location, socioeconomic and physical status. In this regard, the GSGDA identifies key pillars of transforma-tion such as institutional capacity and management; a growing infrastructure base; an enabling environment for business; and an abundance of relatively high-quality labor (NDPC, 2014).

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The development framework of GSGDA connects with several of the sector poli-cies formulated by the respective ministries. The Ministry of Trade and Industry (MOTI) formulated the Ghana’s Industrial Policy with the aim of providing a policy tool to promote increased competitiveness and enhanced industrial production, with increased employment and prosperity for all Ghanaians. There are related documents to support the implementation of the policy. However, on its own, the Industrial Policy also provides the guidelines of strategies to enable the production of a broader range of fair-priced, better quality products for the domestic and international markets. It is seen as Ghana’s long-term strategic policy that underpins national efforts to achieve higher middle income status by 2020, through transformation into an industry-driven economy capable of delivering decent jobs with widespread, equitable, and sustainable growth and development. The policy provides some specific guidelines for the imple-mentation of the government’s industrial development agenda, with emphasis on the growth, diversification, upgrading, and competitiveness of Ghana’s manufactur-ing sector (GSS, 2013). Specifically, the key development objectives of the Industrial Policy are (1) to expand productive employment in the manufacturing sector, (2) to expand technological capacity in the manufacturing sector, (3) to promote agro-based industrial development, and (4) to promote spatial distribution of industries in order to achieve reduction in poverty and income inequalities.

Analyzing the economic development trends in Ghana, the point has been under-scored on the importance of the need for major structural transformation of the coun-try’s economy that goes beyond agrarian production to intensive industrial production of goods and services (Aryeetey et al., 2000; Essegbey, 2015; NDPC, 2014). Such struc-tural transformation is to address the inordinate dependency on primary commodities and extractive exports of cocoa, gold, and diamonds. It means that the industrial base of the economy needs serious expansion with the appropriate capabilities.

Fig. 1 illustrates the performance of the key economic sectors (in terms of their contribution to the gross domestic product [GDP]) over a 55-year period during which Ghana had largely been self-governing and in control of its own economic policies and programs. The overriding lessons highlighted in Fig. 1 are that no significant industrial transformation has occurred during the 55 years. Between 1960 and 2015, the share of the industrial sector contribution to GDP has ranged between 12.3% and 28.8% as shown in Fig. 1. In the last 20 years, the industrial sector contribution has averaged 25.7%, which apparently is the best for the preceding years. Aryeetey et al. (2000) emphasize the point that the structure of Ghana’s economy has not transformed sig-nificantly since independence and it is evident in Fig. 1.

With the huge development challenge of lack of jobs especially for the youth, the lack of expansion of the industrial sector needs to be immediately addressed. The experiences of other countries have shown that the industrial sector holds the key to job creation and production of value-added goods, which contributes to increasing export earnings. The examples of India and China illustrate the point. In fact, the industrial sector’s contribution to GDP is not significantly different from that of India which is about 26%. However, it employs 22% of the labor force and India’s industrial

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MNEs and Capabilities Building in Ghana 179

manufacturing GDP was the sixth largest in the world at about $559 billion (United Nations Statistics Division, 2013). Since the opening up and reforms in 1978, China has enjoyed remarkable economic growth. It has risen to be the second largest econ-omy in the world by GDP since 2010 and has also become the largest manufacturing economy in the world (with a 23.2% share of manufacturing activity in 2014). Clearly, Ghana has to expand the scope of industrial activities to achieve its developmental goals.

In making efforts to achieve its development goals, there is the need for radical implementation of national policies relating to the industrial sector including MNEs’ operations. The implementation of Ghana’s Industrial Policy depends a great deal on the extent to which the country attracts FDI and MNEs coming to operate in the important subsectors of the economy including telecommunications, ICT, and con-struction. The setting up of the Ghana Investment Promotion Centre (GIPC) under the reestablishment law of 2013 was a move to position the country better for attrac-tion of FDI. The GIPC was established to encourage and promote investment in Ghana and to provide for an attractive incentive framework for a transparent, predict-able, and facilitating environment for investment in Ghana (GIPC Act, 2013).

MNEs are important partners in most economies. There have been a lot of litera-ture on MNEs and their relevance (or lack of relevance) to development in the host countries. See, for example, Rugman and Doh (2011), Dunning and Lundan (2008), and Fu (2003). In more recent years, the MNEs’ contribution to national development in their implementation of programs of corporate social responsibility (CSR) has pro-vided more tangible pieces of evidence of MNEs’ impact in host countries. Many MNEs are encouraged to commit seriously to social responsibility and that economic profit can be pursued alongside social development and within the overall framework of sustainable development. Many countries expect this of MNEs especially in the light of the growing international pressure on MNEs to commit to CSR (McIntyre

Fig. 1. Ghana’s Industrial Sector Contribution to GDP – 1960–2015.Source: World Bank, 2016, World Development Indicators

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180 Xiaolan Fu et al.

et al., 2009). In African countries such as Ghana, MNEs have played important roles in contributing to industrialization and the enhancement of industrial activities. In the specific subsector of mining, MNEs have been operating in Ghana before the 19th century. MNEs have continued to play important roles in the various subsectors. From 1994 to 2006, a total of 2178 FDI projects were registered at the GIPC with a total investment outlay of $4.6 billion, which increased to a significantly high level of $5.6 billion in 2007 (Sarpong & Otoo, 2009).

3.1. FDI Inflows Africa and Ghana

Ghana has recognized the significance of FDI as critical for national development. There have been great efforts to improve the climate for FDI considerably in the past three to four decades. In recent years, China has become a key investor in Africa investing in strategic sectors of the economy of many countries including infrastructure and mining. Chinese FDIs in Sub Saharan Africa (SSA) increased rapidly in recent years focusing mostly on Ghana and Nigeria (UNCTAD, 2012). Currently, SSA attracts about $9 bil-lion out of the total $16 billion of China’s FDI stock in Africa. Ghana has over the years achieved moderate success in attracting FDIs. It is ranked 6th largest recipient of FDI in Africa and the 4th in Sub-Saharan Africa (The Africa Investment Report, 2015). Egypt, Angola and to some extent Nigeria were leading recipient of FDIs in Africa

Whereas Ghana’s attraction of FDI is significant given that in terms of per capita, it attracts more FDI than Nigeria, South Africa, Kenya, and several other sub-Saha-ran African countries, and it needs to redouble its efforts for more FDI. In this regard, the establishment of the Ghana Investment Promotion Centre (GIPC) is very impor-tant. According to the GIPC, Ghana attracted over 2,000 foreign investors from more than 20 different countries with the majority of them coming from China. Projects registered in Ghana by Chinese investors in 2012 were 56 with an estimated value as US$236.03 million (GIPC, 2012).

It is apparent that the building and construction sector is attracting a significant portion of the FDI, which is 51%( see Figure 2). This is understandable given the prioritization of infrastructure development in Ghana and the environment created for public–private partnership in the sector. Manufacturing also attracts some FDI (of 24%), but there is obviously the need to attract more especially in connection with job creation. However, when considering the overall period from 1993 to 2013, United States and South Korea were major sources of FDI in Ghana contributing about 35% and 40%, respectively. The countries that invest the least were Japan, Pakistan, Indonesia, and Germany each contributing less than a percentage point to total FDI recorded over the same period according to the GIPC. The World Investment Report 2015 stated FDI inflows for Africa at $54 billion in 2014 (UNCTAD, 2015). Africa’s share in the global FDI inflows increased from 3.7% to 4.4%. The critical drivers accounting for the increase were intra-African FDI flows, the expansion of the emerg-ing market firms from Western, Asia and nontraditional actors such as private equity and the growing consumer markets in the food and beverage industry.

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MNEs and Capabilities Building in Ghana 181

Africa attracts a lot of FDI from emerging economies in Asia. China’s share of Africa’s trade of FDI stood at 7% in 2014 making it the continent’s fourth largest trading partner after France, Greece, and the United States (The Africa Investment Report, 2015). China’s FDI stock in Africa currently amounts to $6.1 billion (The Africa Investment Report, 2015). The United Kingdom and France remained top investors in Africa with $18.3 billion worth of investment in 2014. However, the United States ranked number one, followed in descending order by the United Kingdom, France, South Africa, Germany, UAE, China, Portugal, Spain, and India (The Africa Investment Report, 2015). The highest on the African continent for quality of trade and transport is related to infrastructure in 2014. This among others factors may have contributed to significant inflow of FDI projects into the country. Ghana is ranked 7th, after Nigeria, in the total number of projects registered.

South Korea’s investment is mainly in the building and construction sector, USA in manufacturing, India in agriculture, Canada in services, and China in manufactur-ing (see Figure 2). It is expedient on the government and all stakeholders to make concerted efforts toward attracting more investments to the agricultural sector if the country looks forward to achieving the goal of food security.

The argument for attracting increased FDI is stronger when seen in the light of the potential for technology transfer, local capability building, and knowledge spill-overs. These are the critical ingredients for sustainable development driven largely by enhanced local capacity (by the technology transfer modalities including from MNEs). It brings out the need for investigating and understanding how MNEs are operating to bring about technology transfer, local capability building, and knowl-edge spillovers.

Agriculture 4%TOURISM 0%

SERVICE18%

BUILDING/CONST.

51%

EXPORT TRADE1%

GEN.TRADING

2%

LIAISON0%

MANUFACTURING24%

Fig. 2. FDI Flow to Africa by Capital Investment in 2014.Source: GIPC (2014).

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4. Methodology

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, within the framework of the MNEmerge Project, a study was conducted in Ghana among other things to study the transfer of the managerial knowledge from MNEs to local firms and workers and to examine the impact that such knowledge transfer has on local capability building and the impact it has on economic and social development. Ghana is chosen for its openness to FDI and strong growth performance in recent years, which makes it an interesting and representative case to understand the impact of MNEs on African countries.

The sample for the study was drawn from the range of small, medium, and large enterprises we have in Ghana. Two researchers from the Technology and Management Centre for Development (TMCD) of Oxford University and two researchers at CSIR-Science and Technology Policy Research Institute (STEPRI) teamed up for the data collection. 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. This number and quality of enumerators was used to carry out the research given the size of the sample and the rather technical nature of the data collection. The researchers collected the data in the face-to-face interviews with the managers in United Kingdom and Chinese MNEs. The main facets of the methods of data collection at the employee level are from four main economic subsectors, and a total of eight MNE firms were selected. For each subsector, there were two firms – one of UK origin and the other was of Chinese origin. The firms are listed in Table 1.

The researchers went into these companies and conducted face-to-face inter-views with the managers and workers using semi-structured questionnaires.

Table 1. Selected Firms of the Subsectors.

Type of Economic Subsector Firms

ICT (High-tech) Vodafone Ghana (UK) and Huawei Ghana (China)

Textile (Low-tech) 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

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MNEs and Capabilities Building in Ghana 183

The questionnaires were developed by the research team of TMCD and CSIR-STEPRI led by the authors. There were discussions among the team members on what should go into the questionnaires on the basis of the theme of the study. In all a total of 61 managers and 173 workers were interviewed in the course of the interviews. These categories of employees were the subject of the interviews essentially because of the aim of the study. Thus the questions were on managerial practices, linkages with local firms, workplace attitudes and practices, knowledge spillovers, and technology transfer.

At the firm level, there were also face-to-face 1-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 each year of 2013 and 2015. The questions focused on issues such as inter-action with MNEs, firm labor management, and productivity and technology acquisi-tion and management.

5. Main Findings

We found in our analysis that in both European and Chinese MNEs managerial knowledge did transfer and spill over within the MNEs to their local employees and managers. Managers and workers gained skills in a number of areas such as production capability, leadership, communication, problem-solving, customer relation, and ICT (Table 2). There are diversities between groups, but most of the differences are statistically insignificant. We have discussed the cases significant at 5% or less.

The Chinese low-tech MNEs emphasized more on improving production capabil-ity in the skill development of managers. About 91% of the managers of the Chinese low-tech MNEs said that they have improved production capability and this is much higher than other groups. Most of the differences between high-tech and low-tech companies are found in the case of workers. European high-tech companies provided more workers with leadership skills. Both European and Chinese high-tech companies provided more workers with skills in customer relations and ICTs.

The Chinese MNEs provided skills more similar to the skills necessary for the Ghanaian firms (Table 3). In comparison with the low-tech European MNEs, the Chinese low-tech MNEs provided managers with significantly higher production capability and ICT skills, which are similar to the skills that Ghanaian firms require. This implies that the knowledge gap between low-tech firms from China and Ghana is narrower than the low-tech firms from Europe. The Chinese low-tech firms paid more efforts to the development of leadership and customer relation skills of workers (the bottom right panel in Table 3).

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184 Xiaolan Fu et al.

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MNEs and Capabilities Building in Ghana 185T

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186 Xiaolan Fu et al.

Two things had a significant and direct impact on workers’ aspiration for their future development: longer working time experience at the firm and the training they received. We found that advanced management practices adopted in the MNEs also increased the levels of aspiration of the local workers for future development, such as skills enhancement opportunities and spiritual recognition in the form of non-monetary rewards or positive feedback. However, we found that management prac-tices and activities that only serve to exploit workers’ existing skills and capabilities may well enhance the productivity of the workers but not their aspiration for future development.

Among both workers and managers, we found that learning potential was higher in the Western MNEs than in Chinese MNEs. Cultural and language barriers are brought forward to contextualize such evidence. The Chinese companies do make efforts in order to bridge this gap. It emerged that employees in the European MNEs perceived the foreign managerial staff to be less approachable. While the foreign managerial style was preferred in both cases, local management staff was preferred. The combina-tion of this evidence highlights the role of cultural embeddedness, which should be investigated at length when evaluating the knowledge diffusion potential of FDI.

With regard to the diffusion of managerial knowledge between organizations, our case studies have shown that for both European and Chinese MNEs, much is still left to be achieved in terms of local outsourcing, partnership creation, and collaboration. The extent of local–foreign exchange between MNEs and local firms was found to be limited, with variations between sectors and firms; and a clear improved performance in those instances where national policy took an active role in promoting the diffusion of knowledge. Such results highlight the crucial role of national policy in reaping the numerous potential benefits of FDI.

Moreover, the research found that some Chinese MNEs outsource to local contrac-tors, while others do not because of quality concerns. This suggests that local capabil-ity building is also crucial for successful FDI-facilitated knowledge transfer. Our case study also evidenced the ongoing deepening of localization strategy among Chinese MNEs in Africa.

Our survey data finds that gender and skill inequality patterns are not elimi-nated by MNEs’ presence. Indeed, male and more highly educated workers are more likely to be employed by MNEs. On the other hand, MNEs are more likely to offer permanent than fixed term contracts, which provides certainty and stabil-ity to employees. However, overall, in both Chinese and European MNEs, workers were found to be more satisfied with foreign sector employment due to improved working conditions, health and safety enforcement, learning opportunities, and employment benefits.

With respect to local firms and MNEs, knowledge transfer is rather absent between MNEs and local firms. Thus, there is lack of benefits from knowledge spill overs, partnerships, and subcontracting. This is contrary to the general literature, which pos-its that the operations of MNEs in a local country can facilitate knowledge transfer (Kampik & Dasch, 2010).

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MNEs and Capabilities Building in Ghana 187

5.1. Chinese MNEs

In the specific case of Chinese MNEs, the following were the findings:

•Chinese MNEs were competitive•General aptitude for hard work•An adaptability to technologies in the developing countries context•Flexibility in their hands-on management style and maintaining low costs•Chinese firms employed more Ghanaians with low educational background, and

knowledge spillover to young and junior workers are significantly stronger in Chinese MNEs.

•Managerial knowledge transfer in Chinese MNEs is challenged by language and culture barrier

Much of the practices of the Chinese MNEs derive from their culture and their soci-etal norms. Chinese MNEs being competitive with a general aptitude for hard work reflects the Chinese value system, which comes into play in their business operations in Ghana. That kind of societal norms and attitudes are important in creating capabili-ties and knowledge transfer. Another important characteristic of the Chinese MNEs is the use of technologies with high adaptability to the developing country’s context. It means that the less sophisticated technologies could be absorbed locally and used in productive processes. Such technologies are also price competitive and easier to oper-ate. The emphasis on price competitiveness is the hallmark of the Chinese industry and it is what connects it effectively to the Ghanaian (if not the African) context.

One challenge that the Chinese MNEs encounter is related to the language. Most of the Chinese expatriates cannot communicate effectively in English language, while Ghanaians cannot speak Chinese as well. Welch and Welch (2008) underscore the importance of language in knowledge transfer, and it served as the antecedent for the transfer process. Given the seriousness attached to this problem, the Chinese govern-ment has funded the establishment of a Chinese Language School at the University of Ghana and also provides scholarships to Ghanaians to study in China.

Nevertheless, Chinese MNEs have seen a rise in the employment of locals for management positions. Generally, there are on-going efforts to remove any barriers to knowledge transfer, especially of the linguistic kind. Interpreters are hired and in the long term, the Chinese government offers scholarships for Ghanaians to study in China. It is a far-sighted policy, which will contribute greatly to the strategic expan-sion of the Chinese industry in Ghana and Africa. Overall, one sees a definitive strat-egy for globalizing on the part of Chinese MNEs. The efforts to achieve this come from both within the MNEs as well as externally – from the MNEs’ place of origin.

One interesting finding of the study was that the Chinese companies employed more Ghanaians with low educational background. This may be linked to the low sophisticated technologies employed in their operations, which do not require higher education to operate. This provides opportunity for Ghanaians with low educational

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background to acquire employable skills, which can later be enhanced through upgrad-ing their educational background.

The flexibility in their hands-on management style connects fairly well with the Ghanaian sociocultural management practice as most local Ghanaian enterprises are family-centered. Morck et al. (2008) in analyzing perspectives on China’s outward FDI have highlighted the advantages of the Chinese management model and the emphasis on maintaining low cost. It is a model that resonates well in the developing country’s context of Ghana.

5.2. European MNEs

The study has shown that the European MNEs have quite contrasting approaches to their operations in Ghana and the managerial knowledge transfer. Going by the findings of the survey, the European MNEs are more gender sensitive in their employ-ment. They engage more locals in managerial positions that have higher levels of edu-cation and offer better job security. It has facilitated better knowledge flows to local managers.

Indeed as far as learning is concerned, local managers learn more in European MNEs than in Chinese MNEs. We found that, for both workers and managers, learn-ing potential was higher in European MNEs than in Chinese MNEs. The role of cul-tural and language barriers has been brought forward to contextualize such evidence, and the efforts that Chinese companies are making in order to bridge such gaps have also been discussed.

In the case of the European MNEs, the main findings were the following:

•European MNEs engaged more locals with higher educational background in man-agerial positions.

•European MNEs were more gender sensitive in their employment.•Local managers learnt more in European MNEs than in Chinese MNEs.

The importance of these findings cannot be overemphasized since utilizing the benefits of MNEs largely depend on the absorptive capacity of the recipient country (Rehman, 2016). The building of capabilities goes with the educated human resource getting employment and at the managerial grade. Annually, an estimated number of 50,000 students graduate from Ghana’s tertiary educational institutions comprising universities (public and private), polytechnics, and miscellaneous colleges. Many of these graduates are not getting employment especially in their particular areas of spe-cialization. For MNEs to offer locals with higher educational background employ-ment and in managerial positions, they are creating opportunities for knowledge flows as these graduates will learn the basic tenets of running large enterprises and oversee-ing their production systems.

The issue about gender sensitivity is also about change in cultural tendencies. The typically male-dominated Ghanaian society tends to deemphasize the role of women.

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In the MNEs where gender equality is entrenched, there is respect for women and meritocracy reigns. It links to openness and a stimulus to learn, which is what facili-tates knowledge flows.

6. Conclusions

There is no doubt that both European and Chinese MNEs covered in the study have shown that MNEs generally have impact on the local employees and local firms as there is knowledge transfer and spillovers. However, there are differences between the European and Chinese MNEs. It means that policies intended to build and strengthen capabilities should be structured such as to take advantage of the best practices in these MNEs.

There is need to promote policy relevance and implementation of the policies. There is the overall development vision of attaining medium income status. That vision should reflect in the sectoral policies as well as the subsectoral policies. Local content policies should emphasize training and capability building so that the human resources available should contribute effectively to the respective industrial production.

A major challenge of Ghana’s policy cycle is the dysfunctions in some components of the policy cycle such as monitoring and evaluation. It is one thing to formulate policies and even enact regulations to back them. The key to the success of the policies is enforcement. The key to effective enforcement is to institute procedures and mecha-nisms for monitoring and evaluation. The enforcement of the policies and regulations should be strengthened in the same manner as monitoring and evaluation.

Indeed the policy cycle can be devoid of dysfunctions if steps are taken to strengthen institutional functions and linkages. The organizations set up to perform particular roles such as the Ghana Investment Promotion Centre should ensure that they are effective in their roles to provide the needed oversight to the operations of the MNEs.

Research such as in MNEmerge Project are also necessary in generating knowledge on how best to engage with MNEs and encourage their greater positive impact on the local firms and in broad terms, national development. Studies in the Ghanaian context contribute to greater understanding of MNEs’ operations and provides a basis for evidence-based policy making.

7. Policy Implications

There are policy implications of the findings. If really the local employees in MNEs have things to learn from their foreign managers and counterparts, then there must be mechanisms to create the incentives for such knowledge transfer activities in the MNEs. There can be policies to promote knowledge transfer and to the extent pos-sible, there can even be regulations. For example, the Petroleum Local Content and

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Local Participation Regulation of 2013 (LI 2204) was passed with the aim of pro-moting value addition and job creation through the use of local expertise, goods and services, businesses, and finances in the petroleum value chain and their retention in Ghana. The purpose of the regulation is to ensure the development of local capabili-ties in the petroleum value chain, enhance employment of local skills, and the com-petitiveness of domestic businesses. What this regulation LI 2204 does is to strengthen the national policy of promoting local content in the fledgling oil and gas industry. Similar policy direction has been set in the power industry. There is the Local Content Policy Document produced by the Volta River Authority (VRA), which has as a key rationale the creation of value in-country through deliberate utilization of Ghanaian human and material resources and related services (VRA, 2012). The example in the oil and gas sector suggests that there is need for legislation to give teeth to the local content policy. However, companies need to have a natural propensity to encourage local employment and capability building. It is in this regard that the European MNEs’ practices, which encourage knowledge transfer, should be commended.

A policy to promote education that it is important in ensuring Ghana maintains a highly skilled workforce that is qualified for employment in technology-intensive sec-tors such as telecommunications and pharmaceuticals. In the European and Chinese MNEs studied, managerial positions go to educated employees, and skilled employees must have the technical basis to perform their duties in the MNE plants. Ghana’s higher educational strategies especially in science, technology, and engineering should aim at producing high-quality graduates capable of not only working in the MNEs but also contributing to innovations within the firms.

Incentives for knowledge spillovers must be reflected in Ghana’s industrial policies and investment promotion programs. While tax rebates and concessions seem appro-priate so far, there must be clearer incentive structures to encourage MNEs to transfer knowledge. This includes knowledge transfer to the local employees and transfers to local firms. In some cases, this implies the enforcement of existing policies such as those regulating local content creation.

There is also the need to establish mechanisms for policy implementation relating to the industrial sector. For example, industrial policy lays a strong emphasis on subcon-tracting to enable SMEs to learn and benefit from the capabilities of the MNEs and large local companies. In practice, this has been left in the hands of the operatives in the market. This is evident in the construction sector where our results show little sub-contracting activities among indigenous and MNE companies. Consequently, there is the need for establishing a mechanism that will encourage and reward companies that subcontract locally. Ghana needs to institute policies to encourage MNEs operating in the country to adopt management practices which enhances skills, welfare, aspira-tion, and empowerment of the local employees and managers, for example, training, nonmonetary rewards, and positive feedbacks.

There is also the subject of CSR. The Ministry of Trade and Industry finalized the National Policy on CSR this year. While CSR remains an optional commitment, economic actors including MNEs are encouraged by imposing moral obligations for

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MNEs and Capabilities Building in Ghana 191

CSR programming. MNEs already have a number of CSR portfolios that contrib-ute to socioeconomic development in the realms of education, healthcare, recreation, environment, etc. The CSR policy, when launched and implemented, should enable Ghana to experience enhanced socioeconomic development associated with the pres-ence of MNEs.

Acknowledgment

The authors would like to thank Serena Masino, Jun Hou, Mavis Akuffobea, Hao Xu, and Chiyi Tan for excellent research assistance in fieldwork and preliminary data anal-ysis. Some parts of this chapter are extracts from Fu et al. (2016), a project reported to the European Commission.

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