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Ultinational and 2Ural &ÚRETAGSEKONOMISKAINSTITUTIONEN $EPARTMENTOF"USINESS3TUDIES -ULTINATIONAL#OMPANIES AND(OST0ARTNERSHIPIN 2URAL$EVELOPMENT !.ETWORK0ERSPECTIVE ONTHE,AMCO#ASE -OHAMMAD,ATIl Doctoral Thesis at Uppsala University 2004 ABSTRACT Latifi, M., 2004, Multinational Companies and Host Partnership in Rural Development - A Network Perspective on the Lamco Case, 236 pp. Distributor: Uppsala University, Department of Business Studies, Box 513, S-751 20 Uppsala, Sweden. ISSN 1103-8454. Multinational companies’ (MNCs) market activities in less developed countries (LDCs) are regularly contracted to undertake rural development around their sites. Likewise, they regularly fail. How can a profit-making MNC encourage agricultural and rural development in an undeveloped area of a host LDC? How can the MNC fulfill its contractual commitment and bridge the gap between commercial activities and rural development? The purpose of this research is to investigate how an MNC could fulfill its contractual commitment for local development in a way that benefits MNC and also the involved parties. While the major emphasis of the available studies is on MNCs’ relationships with buyers from LDCs, this study concerns the urgent and interesting issue of how MNCs manage their relationships with non-business and business organizations in LDCs for local development. The theoretical discussions are adapted to the subject. The starting points are community development and network theories. The main area concerns non-business actors in business networks, as this proved to be the most relevant aspect to describe and analyze the interaction of business and non-business organizations with the emphasis on actors’ relationships in a network. The theoretical discussions explore the infusion of intermediary actors in order to bridge the gap between business and non-business actors. The theoretical model identifies four major actors who are business, non-business and intermediary actors in a network of relationships. Beside some case studies for manifestation of this problematic issue, the study conducts two field studies at the site, with direct observations and with interviews with the partners in the network: directly with the MNC officials, the PVO (an intermediary actor), and some seventy small local entrepreneurs. Written information, minutes from meetings within the network, and correspondence between the actors were studied. This study followed ten years of Lamco Joint Venture Operating Company (Lamco), a multinational mining company in Liberia which promised success in rural development, had it not been for drastically falling prices for iron ore and a civil war. Other MNCs have tried a one- directional way to help rural people, whereas this case changed this common way and the MNC in our case started to co-operate in a network. Apart from the MNC and the host government, a PVO (as an intermediary actor) and the rural people were actors in the network. The main result of this study is that the use of an intermediary PVO is an effective and efficient means for an MNC to fulfill its contractual commitments related to rural development. The main theoretical contributions of this study are the infusion of non-business intermediary actors to connect business and non- business actors, to enhance our understanding of relationships between MNCs and business and non-business actors in LDCs, and to understand the side-effects of business activities. The empirical contributions discuss the implications for MNCs, host governments, local communities and PVOs. Mohammad Latifi, Uppsala University, Department of Business Studies, Box 513, S-751 20 Uppsala, Sweden. ISSN 1103-8454 © Mohammad Latifi Printed in Sweden 2004 by Universitetstryckeriet, Ekonomikum, Uppsala ACKNOWLEDGEMENT Writing about Lamco in Liberia was itself a real adventure, especially the time I spent in Liberia. I must really thank that Liberian soldier who shot “over my head” instead of “at my head” (I still wonder if he missed intentionally, or he missed because he was drunk!). I must also thank that crocodile for not attacking me when I fell into the water, and that snake for not biting me when I tramped on its tail! However, writing this thesis has been like the proverbial painting of a long bridge. By the time one end is reached, the other end needs redoing! But unlike the bridge, the content has been richer each time, and when I look back now I see the work as a trial and error process. During my long work on this study I have benefited from the help of many people from four continents, far too many to mention all of them here. However, I am indebted in particular to my academic advisors Amjad Hadjikhani and Mats Åkerblom, Department of Business Studies, who followed the last years of my work with keen interest and intellectual criticisms. My thanks to Bo Malmberg, Department of Social and Economic Geography, for his valuable comments on a fairly unstructured final draft of this work. I benefited from the insightful comments from Mats Utas, Department of Cultural Anthropology and Ethnology, and Clas Lindberg, Department of Social and Economic Geography, University of Uppsala. In Liberia, there were many who assisted me. My special thanks to folk in Yekepa, particularly John-Erik Eriksson, Frank Manley and Rune Österlund for their valuable assistance and very constructive conversations which were important sources of inspiration. I would like to express my sincere gratitude to Bernt Karlsson and Olle Wijkström for assisting me in the final stage of this study and for re-establishing my ties to the “old” Lamco. Olle, former general manager of Lamco, and Bernt, former community administrator of Yekepa, were valuable sources of information after nearly 20 years. This acknowledgement would be incomplete if I did not dedicate some words to my wife Afsaneh for her understanding and support, especially during the last months of this work. Finally, I am grateful to SAREC (Swedish Agency for Research Cooperation with Developing Countries) that financed the pre-study phase of this thesis, and the Scandinavian Institute of African Studies in Uppsala for covering my traveling expenses during my second trip to Liberia. TABLE OF CONTENTS PART I: INTRODUCTION AND BACKGROUND...............................7 1. THE RESEARCH AND ITS PURPOSE...................................................7 1.1. INTRODUCTION................................................................................................................................. 7 1.2. MNCS AND VIABLE SITE DEVELOPMENT.................................................................................. 8 1.3. NEGATIVE EXPERIENCES OF MNCS IN COMMUNITY DEVELOPMENT: SOME RECENT CASES ........................................................................................................................... 10 1.3.1. Case 1: Mining Companies in South Africa and Zambia. ....................................... 10 1.3.2. Case 2: Mining Companies in Colombia and Peru.................................................. 11 1.3.3. Cases 3-6: The World Bank Group Study. .............................................................. 12 1.3.4. A Reflection on the Cases........................................................................................ 14 1.3.5. What Could Be Learned From the Cases................................................................. 15 1.4. RESEARCH PROBLEM .................................................................................................................. 16 1.5. THE PURPOSE OF THE STUDY ................................................................................................. 20 1.6. THE ORGANIZATION OF THE STUDY ....................................................................................... 21 2. MULTINATIONAL COMPANIES’ ACTIVITIES IN LESS-DEVELOPED COUNTRIES ......................................................................................25 2.1. INTRODUCTION............................................................................................................................... 25 2.2. CONFLICTING ISSUES ON MNCS INVESTMENT IN LDCS..................................................... 26 2.3. RELATIONSHIPS BETWEEN MNCS AND HOST LDC GOVERNMENTS................................ 29 2.4. MNCS AND TRANSFER OF TECHNOLOGY TO LDCS............................................................ 34 2.5. THE IMPACT OF MINING MNCS ON HOST LDCS.................................................................. 36 2.6. THE THEMES OF THIS STUDY................................................................................................... 37 PART II: THEORETICAL DESCRIPTION .........................................39 3. BUSINESS ACTORS AND COMMUNITY DEVELOPMENT ....................41 3.1. INTRODUCTION............................................................................................................................... 41 3.2. SOME PERSPECTIVES ON LOCAL COMMUNITY DEVELOPMENT........................................ 41 3.3. A PARTICIPATIVE APPROACH TO LOCAL COMMUNITY DEVELOPMENT.......................... 43 3.3.1. Collective Action Theory......................................................................................... 46 3.3.2. Resources and Management for Local Development .............................................. 46 3.4. INTERORGANIZATIONAL RELATIONS ........................................................................................ 47 1 3.5. BUSINESS NETWORK ..................................................................................................................
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