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Competition by Effective Management of Cultural
Diversity: the case of international construction
projects
Article in International Studies of Management and Organization · December 1992
DOI: 10.1080/00208825.1992.11656594
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Hossein Dadfar
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Linköping University
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Int. Studies ofMgt. & Org., Vol. 22. No. 4, pp. 81-92
M.E. Sharpe. Inc.. 1992
HossEiN
DADFAR AND PETER GUSTAVSSON
Competition by Effective Management
of Cultural Diversity
The Case of Intemational Construction Projects
Many of the multinational construction firms working in developing countries
and in the Middle East in particular have been facing serious problems managing
and carrying out their assignments. Many project managers have returned home
from their Middle East assignments with strange stories about sociocultural mishaps that had resulted from misinterpretations, frustrations, and conflicts. For
example, project managers experience a cultural shock when appointments are
not met, a delay of two hours is not unusual, workers stop work twice a day for
prayers (religion has influence in all aspects of life) and intertribal conflicts lead
to intergroup conflicts on the work site. These problems have most often resulted
not only in wastage of valuable resources but also in delay in completion of the
projects.
The decade of the 1970s was a booming period for the construction business in
the Middle Eastern oil-rich countries, and it created a lucrative market for multinational construction firms, including firms based in Sweden. This was due to the huge
oil revenues, the massive and ambitious investment programs in infrastructure, and
the lack of local qualified constructors. However, decline in oil revenues turned the
propitious into tough competition. As a result of price competition, shortage of a
local labor force, and the high cost of Swedish labor, in some countries the construction firms hired labor from Thailand and Pakistan that was several times cheaper
than that from Sweden. Furthermore, the consulting engineers came from different
countries such as Japan and Britain. Such cultural differences appeared as an important issue in all aspects of project management—^from the tendering and negotiation
phase to construction operations. The question was, then, how to manage such
culturally diversified groups effectively.
The authors are Assistant Professors of Industrial Marketing and Business Administration
at Department of Management and Economics. LinkBping University. They wish to thank
Professor Ove Brandes and Professor Clas Wahlbin for their comments on an early
version of this paper. The authors wish also to thank the Swedish Council for Building
Research for their financial assistance and encouragement.
81
82
DADFAR AND GUSTAVSSON (SWEDEN)
Although the importance of cultural awareness and human behavior aspects
has been emphasized by earlier writers (e.g., Cleland, 1988; Harrison, 1981;
Stallworthy and Kharbanda, 1983) and the effective management of cultural
diversity has received attention in recent years (e.g.. Cox and Blake, 1991;
Jackson, 1989), to our best knowledge, there is still a lack of systematic and
scientific studies on management of multicultural groups in construction projects. This is, perhaps, due to the complexity of the “construction jungle”
(Stallworthy and Kharbanda, 1983) and of the concept of “culture.” In addition,
the earlier researchers on project management, coming mainly from industrial
engineering, have concentrated on technical aspects and showed less interest in
the social aspects of project management Therefore, the issues of cultural management have not been seriously tackled in project management studies. The
problem becomes more complicated when it concems intemational constmction
projects involving various actors with different cultural backgrounds.
The intention of this article is twofold: (1) to call attention to the importance
of cultural influences on performance of project management, and (2) to discuss
some aspects of effective management of cultural diversity in the case of construction projects.
Background
In Sweden, the building sector plays an important role in the country’s economy.
Over half a million workers are directly engaged in this sector. Furthermore, it
accounts for a large portion of GNP (around 15 percent). After the Second World
War end until 1970, it was a booming situation for this sector. There was a
substantial increase in housing consumpUon per capita, measured either by quality or quantity standards. The demand for housing was affected mainly by the
growth of the population, from 6.7 million to 8.3 billion inhabitants, and by
urbanization.
However, in the 1970s, the situation changed. Demand for housing declined
and building costs doubled due to the rising costs of wages and materials as well
as norms and regulations that increased the cost of construction projects. As a
result, the structure of the industry changed. The number of medium-size companies (50-499 employees) decreased by nearly one-half during the 1970s and the
large companies enlarged their operations outside Sweden. For example, construction abroad increased from 1 billion SEK in 1972 to 5 billion in 1980. The
two largest companies had 25 percent of their construction activities abroad.
A research project called SIMBA’ was initiated to explore strategic changes
and strategic behavior of the Swedish building industries (Dadfar et al., 1986,
1987; Bonora et a l , 1990). As a part of this ongoing project, the intemationalization of building industries and the problems of Swedish firms in their overseas
operations were included in our concems. At the early stage of the study we
discovered that some companies did not continue with intemational projects and
EFFECTIVE MANAGEMENT OF CULTURAL DIVERSTTY
83
retumed to their domestic market, while others were able to increase their activities. This, encouraged us to undertake a further examination of the firms’ operations at the project management level.
Framework
The views on effective management of diversity in general, and cultural diversity
in particular, are scattered and it is hard to find a common line of agreement
among the earlier writers. In one stream, there are writers arguing that a culturally mixed work force holds a potential competitive advantage for organizations
(e.g.. Cox and Blake, 1991; Mandrell and Kohler-Gray, 1990). In another stream
are the writers who stress that similarity helps to develop cohesion which, in
tum, is related to the success of a group (Shepard, 1964). There are some other
authors whose position lies in the middle of these streams (e.g., Adler, 1986).
However, there seems to be a general agreement that if diversity is managed well
it can be an asset to performance and if the diversity is overlooked or misconducted it may diminish the performance.
Among others. Cox and Blake (1991) stressed that cultural diversity creates
competitive advantages. The authors highlight six areas where the “sound” management of cultural diversity can create a competitive advantage. These areas
are: cost, resource acquisition, marketing, creativity, problem solving, and organizational flexibility. However, the authors did not specify the criteria for “sound”
management.
Nevertheless, the previous views are still at the abstract level and their application to intemational constmction project management is not yet examined.
Therefore, a framework for studying the effective management of culturally
diversified groups in constmction projects has still to be developed.
A construction project is a complex entity that can be conceived as a system.
Accordingly, the system approach has been used as a point of departure to tackle
this complexity. This approach has been adopted by several authors in studying various
aspects of management for constmction projects (see, e.g.. Walker and Hughes, 1986).
Besides, being inspired by Thompson (1967), a project can be conceived as a
sociotechnical system. Both social and technical systems are important.
However, as Harrison (1981) stressed, “people problems” are much more
difficult to solve than technical problems in the short lifespan of a project. Thus,
for alleviating these problems, skills in managing people are critical. For this purpose
we are focusing here on the social aspects of the Project Management System
(PMS). We have also assumed that communication is central to the management of
the social system, and that culture is a vehicle for this communication.
Conceming culture, several perspectives have been developed within organization theory (Smircich, 1983), sociology, and anthropology (Keesing, 1974). In
spite of such growing interest, industrial engineering and project management
are far behind other fields in incorporating cultural perspectives. This is perhaps
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DADFAR AND GUSJAVSSON (SWEDEN)
because the field of project management is dominated by views from industrial
engineering which are based on the assumption of a “rational behavior” that
largely disregards the cultural context within which the behavior is shaped. Instead, a comprehensive framework should cover the “cultural reality” of the
PMS as well.
Theories of culture are reviewed elsewhere (Dadfar, 1990). The conceptual
confusion surrounding culture is due to the differences in the usage of the concept between sociologists and anthropologists, as well as the objective and subjective aspects of the culture. After all, three aspects of culture can be delineated.
First, central to the concept of culture is the notion of system. Second, central to
both anthropological and sociological uses of the term is the integrative concept
of custom, that is, traditional and regular ways of doing things. Third, a distinction can be made between material or objective culture, and ideational or subjective (nonmaterial) culture. The material culture refers to the artifacts and material
products of society, such as technology, art, science, or literature. By contrast,
the ideational culture is a cultural group’s characteristic way of perceiving the
man-made parts of its environment (perception, values, beliefs, morals, ideas,
rules and conventions about behavior).
From an observational point of view, the elements of any culture can be
classified into two groups: (1) observable elements that constitute “surface culture,” and (2) hidden elements called “deep culture.” The surface culture includes easily observable elements such as customs, dressing, eating, technology,
arts, behavior, and the like. The deep culture iticludes elements that are not easily
observable such as values, beliefs, and systems of thinking, but manifestation of
these elements can be observed in the surface culture. Both material and nonmaterial elements of culture as well as surface and deep aspects of culture are
important in this study.
A project as an open system has interrelationships and interaction with its
surrounding environment. In this respect, interorganizational theories (e.g.,
Negandhi, 1980) have some contribution to make to our theoretical framework.
We looked at a construction project as a focal organization in an organization set
(Aldrich and Whetten, 1981; Evan, 1966) consisting of those actors with which a
PMS has direct links. In this respect, cultural factors appear at three levels: (1) as
intemal forces when it concerns the project personnel and work groups; (2) as
external forces when it concerns adaptation to the cultural environment of the
host country and interaction with other actors involving in the project; and (3) as
organizational culture when it concerns the PMS relationship with the headquarters and as a product of the construction firm.
Methodology
Since the nature of the study is exploratory, the case study approach was
adopted. We focused on the PMS in the context of its operating environment
EFFECTIVE MANAGEMENT OF CULTURAL DIVERSITY
85
rather than in the context ofthe finn’s organization. By this concentration, we chose
a “project center approach,” which led us to explore the internal and external factors,
including cultural factors, that impact on performance of the PMS. This approach
seemed to be appropriate in this case since the management of cultural diversity in
construction projects appears to be insufficiently searched.
A detailed case study was carried out on a sample of six intemational construction projects during 1986. The main criteria for choosing the projects were
that they should have been completed within the last five years or that they were
currently being implemented by a Swedish construction firm. Five clusters of
variables—including project characteristics, project management, project organization, composition of work force, the actors involving in the project, and project
performance—^were studied in detail.
Project characteristics were examined in terms of project type, complexity,
size, cost, and duration (urgency). Project management was characterized by the
background and composition of the management team—^in terms of cultural and
professional background, training, and experience in intemational project management. The project organization was examined with respect to structure or
pattem of responsibility and authority, number of sites, and the interrelationship
among them. The composition of the work force was studied in terms of diversity in cultural backgrounds and skills. The external actors were studied regarding their roles and objectives in the projects as well as their (national)
background.
For the purpose of simplification, cultural diversity was analyzed in terms of
national diversity, and the emphasis was put on the work-related elements of the
culture. Project performance was assessed on the basis of cost, time, and quality.
The effectiveness of project management was examined in terms of its success in
getting the project implemented on time, on budget (optimum cost), and with the
right quality and client satisfaction. Group productivity was measured in terms of
construction/function rate. This was expressed as a ratio between construction/function cost and time.
Information and data were collected by in-depth interviews with managers
(project manager, assistant project managers, personnel managers, site managers,
and even supervisors) as well as consultants and the clients’ representatives and
other public authorities involved in the projects. The presentation of each case in
detail is beyond the capacity of this article. However, a short description of each
case provides an overview of the project managers’ issues.
Case 1. After a long negotiation process—^much longer than Europeans are
used to—the contract for building a hospital, commissioned by the Saudi
govemment, was signed with a Swedish contractor. The project cost was
about $15 million, with a duration of 26 months. The constructor went directly to negotiate the project on a turnkey basis, which was the most favorable delivery system for the constmctor. The project was simple in terms of
86
DADFAR AND GUSTAVSSON (SWEDEN)
technical complexity and rather small in terms of cost. The project organization was also not complicated. A five-member diversified project management team consisting of a project manager and assistants with different
nationalities (three Swedes, one Arab, and one British) managed the project.
The workers were of Arab and Pakistani nationalities arranged in homogeneous groups supervised by foremen of the same nationalities. Negotiation,
conflict resolution, raising productivity, and delay in releasing funds were the
major managerial issues.
Case 2. A major harbor and road construction project costing more than $500
million was commissioned by the Saudi govemment. The project was complex and urgency was an important factor; the project duration was forty
months. The project delivery system was general contracting. The consulting
engineers were from Britain and the United States, and the client was Arab,
while the work force were of different nationalities. A diversified project
management team headed by a Swedish project manager was arranged. The
constructor used an intensive construction technique. The scrapers (grader
bulldozers) perfomied more than 70 percent of the earth-moving operation.
The piling for bridges and the road surfacing were also highly mechanized.
An increasing number of non-Swedes took part in the organization of the
projects. More skilled workers were involved in the project, working in more
than twenty sites. More than 1,000 Thai and Pakistani workers were hired for
the project. The funds were released based on the project performance. At the
early stages the project overran in terms of time and cost. The main managerial issues were to speed up the construction work, to optimize the labor cost
by leaming how to evoke pride in workers, giving multiskill training, and
creating competition (rivalry) among the work groups.
Cases 3 and 4. These two cases represent simple construction projects including a hospital project in Qatar and a commercial building in the United Arab
Emirates. The projects were not complex in terms of building technique and
were small (each about $10 million). They were both general contracting, but
the managerial issues were different. In case 3, the project management
changed twice and the project overran in both cost and time but within accepted limits. In case 4, cost and speed were not outside the constraints, but it
proved tougher to work with a Swedish consultant than with the other Europeans. Workers in both projects were Pakistanis and Indians. Examples of the
managerial issues in this projects were: high tumover of labor, lack of consistency in project management, and the importance of getting undemeath the
culture.
Case 5. Heavy civil engineering construction is the type of project in which
Swedish contractors are most interested. After many attempts and each time
facing Japanese competition in one way or another, a Swedish contractor won
the tender for the construction of a hydropower plant in Thailand. The project
EFFECTIVE MANAGEMENT OF CULTURAL DIVERSITY
87
involved complex civil engineering with a cost of over $100 million. The
project management team was composed of Swedes and Thais, while the
workers were only Thais. Although the project managers had experience
working with Thais, the main issue appeared to be that the workers were not
as productive in their home country as they were abroad. Therefore group
productivity—the ratio between construction/function cost and time—^was
lower than on similar projects.
Case 6. This case also represents a complex project of civil engineering work
(tunnel construction) in Hong Kong. The constructor acquired a local company which one year later won the contract for the project, costing over $50
million. The project management were Chinese and Swedish. The work force
were Chinese with some Thai engineers and technicians. Management of
cultural diversity was left mainly to the local company. However, it was the
project management’s experience that a democratic management (the Swedish way) did not seem to work in Hong Kong.
Discussion
The cases studied revealed that cultural impacts on project management are
likely to be evident from the very early days in the project process. This impact
is felt eve …
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