Construction Management in Developing Countries (Chapter 6)

Choice of Technology (3 hrs)

6.1 Concept of Construction Technology6.2 Labor Intensive Technology (LIT)6.3 Capital Intensive Technology (CIT)6.4 Merits and Demerits of LIT and CIT6.5 Factors Determining Choice of Technology6.6 Transfer of Technology (ToT)6.7 Objectives of ToT6.8 Positive and Negative Aspects of ToT6.9 Issues Related to ToT6.10 Channels and Methods of ToT6.11 Provisions of FITT Act 1992 related to ToT6.12 Impact of ToT in Construction Industry

6.1 Construction Technology

• Technology is the making, modification, usage, and knowledge of tools, machines, techniques, crafts, systems, methods of organization, in order to solve a problem, improve a preexisting solution to a problem, achieve a goal or perform a specific function.

• Technology refers to the collection of such tools, machinery, modifications, arrangements and procedures.

• Technologies significantly affect human as well as other animal species' ability to control and adapt to their natural environments.

Construction technology

• Construction technology means the study of the methods and equipment used to build structures

6.2 Labor Intensive Technology• Labor intensive is a process or industry that requires comparatively a

large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods/services; the higher the proportion of labor costs required, the more labor intensive the business/project.

• Possible to raise output by using large amount of labor and small amount of capital

Labor intensive and labor based are used interchangeably. See Employment for Poverty Reduction and Food Security, edited by Joachim Von Braun, Int’l Food Policy Research Institute, USA, 1995. pp 278-280

6.2 Labor based technology

The main goals of labor-based construction method are to maintain cost competitiveness and an acceptable engineering quality standard, use of locally available materials, and maximize opportunities for the employment of labor with some support of light equipment. Numerous studies carried out by several agencies including the World Bank and the ILO in many countries have demonstrated that when the right conditions are present in a given area, labor-based technology is the most cost-effective approach to rural infrastructure development.

"Labor-Based" consists of using the unemployed labor intensively to speed up take-off of a large number of developing countries where the outlook for the absorption of underemployment and unemployment by conventional- style development methods leaves Little hope. Used as a shock therapy, special public works programs were initiated that aim at developing the infrastructures as well as the land and water resources by making the widest possible use of available labor supply. These programs reflect a strong social orientation of development objectives. This orientation is likely to have medium-term structural effects on the economy of the countries concerned, such as:Creation of a large number of jobs in the short and medium terms;Possibility of "in-service" training for unskilled labor by having them acquire basic skills liable to eventually ease their subsequent integration into the modern industrial or tertiary sections

6.2 LBES Technology1 .Labor-based equipment supported (LBES) technology is a technology which combines labor and equipment in a different ratio ( more labor and less equipment) from that adopted in purely equipment-based methods, which set out to minimize labor content (more equipment and little). LBES methods optimize the use of labor but do not however use excessive amounts of labor. 2. While the minimization of labor through equipment-based methods is very understandable in countries and economies where there is a high cost of labor and lack of suitable unskilled labor, in many developing countries such as the Solomon Islands the opposite is the case. In Solomon Islands there is a very high level of “un” and under-employment and the cost of unskilled labor is as low as $3 per day. 3. In such circumstances, LBES methods have a very useful application in the rural roads sector and can usually produce the same standard of specified work (as for equipment based methods) and within the same budget and timeframe provided that they are properly set up, labor is willing to work under agreed labor-productivity terms and there is available the necessary intermediate support equipment. 4. There is tremendous opportunity for the wider and improved application of LBES work methods in the rural roads sector in Solomon Islands as this method is likely to produce as much as five to ten times the number of jobs as are currently engaged using equipment-based work methods in the rural roads sector and with no additional overall costs.

6.3 Capital based technology

• Comparatively larger proportion of capital• Relies more on larger input of capital to

increase production

6.4a Merits of LBT– Employment generation– Utilization of local resources– Decentralization– Fair distribution of income– Higher level of consumption– More production at cheaper rate– Saving of socio-economic overhead– Reduce urban migration– Saving of foreign currency– Scope of employment for women– Labor cost is variable, can

increase/reduce as per needExperience has shown that for the same level of investment in local infrastructure, the use of labour-based technologies can create between two and four times more employment (mostly unskilled), drop foreign exchange requirements by 50% to 60%, decrease overall cost by 10 to 30%, and reduce environmental impacts.ILO: http://www.ilo.org/public/english/employment/recon/eiip/about/lbt.htm

Labor-based Construction Methods: Labor-based methods are currently the suitable and economic in Nepal. Significant benefit of labor-based road construction methods is that they generate massive local employment opportunities, and recycle financial resources at the local level. Green Roads projects are integrated into "poverty alleviation" programs. Experience has shown that the construction of a Green Road requires about 12,000 person days per kilometer.

Source: Hare Ram Shrestha, 2009, Harmonizing Rural Road Development with Mountain Environment: Green Roads in Nepal

Labor-based technology in road works is an approach in which major means of production or input of labor is performed with non-mechanical tools; for those activities that cannot be performed efficiently or effectively by labor alone, simple or intermediate equipment is deployed. Appropriate techniques have been developed to ensure that this approach is applied utilizing all required, locally available resources. In many developing countries, this approach has advantages over more technological methods. LBT can be easily transferred to individuals of varying skill levels for sustainability.

6.4b Merits of CBT

• Rapid economic growth• Modern and efficient method of production• Raise in living standard• Higher level of output per worker• LBT turned into CBT (in long run)• Emergence of most efficient production unit• Far reaching effect• Creation of social overhead• More profitable• Skill development• Can reduce unit cost by scaling up• Standard interchangeable production

Potential Thesis topic: (a) Detailed comparative analysis of application of LBT and CBT in ABCD Project. (b) Development of a guideline to choose technology type in infrastructure development projects in developing countries.

6.5 Factors determining choice of technology• Economic and social objectives• Availability and quality of local resources (human

resources and materials)• Existing technological level including infrastructure• Willingness and absorption capacity of the society

Spider Excavator

Benefits to Construction Companies with CBT in developing countries

• Score more points in bid evaluation; better chance to win project; points allocated for possession of equipment(no points allocated for environment friendly construction practices and providing jobs to local residents)

• More financial profit from each project• Better prestige; clients and people look up to• Better trust; considered more reliable• Can rent equipment, when not in use; additional income• Can use equipment as mortgage• Management of less number of workers, and facilities to workers• Need to train less number of workers• Good resale value of older equipment• Timely completion of projects, with less management of time and

resources

Order these parameters according to importance. What are the risks?

Benefits to Construction Companies with LBT in developing countries

• More cooperation from local people, when they get job. LBT can provide jobs.• More flexible, labor can be hired when needed; get stuck with equipment, once purchased• Less affected by blockade, no need to purchase fuel from black market• Mostly small-budget/piece-meal projects, so investment sin large equipment do not pay off• High interest rate to buy equipment; unless equipment is constantly in use, cannot pay loan• Very few development projects; low possibility of continuous job, so equipment get unused• Unpredictable availability of fuel in CBT, no such problem in LBT• Unpredictable availability of spare parts, takes long time to change parts• High O and M cost in CBT (costly fuel, unpredictable power supply, diesel/petrol

unpredictable, extra cost for fuel tank• Trained equipment handlers often to abroad or hired by competitor or start demanding high

salary after getting training, much difficult to replace trained plant handler• Labor available at cheaper rate• Most of the contractors are new, hence cannot invest in expensive equipment• Access roads are often not good to transport equipment• Heavy equipment cannot be transported over bridges in rural area, no such problem in LBT• High quality is not a major concern in developing countries, hence can complete job with

less investment

Order these parameters according to importance. What are the risks?

6.6 Technology TransferTechnology transfer [and commercialization] is defined as the transfer of results of basic and applied research to the design, development, production, and commercialization of new and improved products, services or processes. That which is transferred is often not really technology but rather a particular kind of knowledge that is a precursor of technology. The transfer process emphasizes the value and protection of the intellectual product of the researchers.Gary Matkin, Technology Transfer and the University, 1991

6.7 Objectives of ToT• From transferring institute/country perspectiveBenefits for suppliers• Market access and control: financial imperialism• Name, fame and goodwill: socio-cultural imperialism• Full value for older technology: financial benefit• Control on technology: selective transfer of technology• Potential influence over future policies and programs

From receiving institute/country perspectiveBenefits for receivers• Easier access to latest technology without basic/expensive/risky research• Rapid economic growth, cheaper goods and services• Rapid human resources growth, lower unemployment

Some issues in technology transfer, Technology Transfer Task Group of the NGO Strategy Group for UNCED, at PrepCom II, Geneva, 4/91, Robert Pollard

6.8 Positive Aspects of Technology Transfer

• Increase in demand and opening up of new markets

• Availability of quality and cheaper products• Increased competition leading to new product

improvement and innovation• Long term employment generation due to

industrial growthExamples: China, India, Brazil, Malaysia, Indonesia, South Korea…

6.8 Negative Aspects of Technology Transfer

• Reduced incentive for indigenous R&D• Redeployment problems due to new

technology and skill requirement• Emergence of new competition in domestic

marketsExamples: Sub-Saharan countries

6.10 Channels and Methods of Technology Transfer

• Consulting• Graduating students (“moving heads”)• Faculty moving on (“moving heads”)• Collaborative research (Northern and

Southern institute working together)• Patenting and licensing• Service and outreach (“extension”)• Spin-off companies

6.11 ToT related provisions in Foreign Investment & Technology Transfer Act, 1992

1. Foreign investors are permitted to own up to 100% equity shares in Energy based industries.

2. Foreign Investment means following investment made by a foreign investor in any industry:

a) Investment in share, (Equity),b) Reinvestment of the earnings derived from the clause (a) above, c) Investment made in the form of loan or loan facilities.

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Contd……… FITTA, 1992

3. Technology Transfer means any transfer of technology to be made under an agreement between an industry and a foreign investor on the following matters:

a) Use of any technological right, specialisation, formula, process, patent or technical know-how of foreign origin,

b) Use of any trademark of foreign ownership,c) Acquiring any foreign technical Consultancy, management and marketing

service

4. Technology transfer is possible even in areas where foreign investment is not allowed.

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Contd……… FITTA, 1992

5. Permission of the DOI is required to get approval for foreign investment, technology transfer, loan investment and other related agreements

6. For projects with fixed asset of over NRs. 2 billion, Director General of DOI can approve the FDI. Proposal with investment above that, Investment Promotion Board (IPB) grants approval.

7. 100% repatriation possible on the proceeds obtained from the sale of shares, profit or dividend earned on investment on shares, loan principal and interest, fees/royalties in lieu of Technology Transfer

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Contd……… FITTA, 1992

8. Provision Related to Visa: On recommendation of the DOI, following types of visa can be granted by the Department of Immigration

• Non-tourist Visa for up to 6 months, to conduct study or research for making investment

• Business Visa (to foreign investor, dependent family, authorised representative) up to 5 years at a time till the foreign investment is retained. This visa can also be granted to experts deputed under TTA.

• Residential Visa: Investment > USD 100,000 at a time30

Contd……… FITTA, 1992

9. Provision Related to Dispute Settlement:

– Parties to settle the dispute in the presence of DOI

– Arbitration, in accordance with the prevailing arbitration rules of the UNCITRAL at Kathmandu

– However, in case of projects with fixed asset investment of over NRs. 500 million, disputes may be settled as mentioned in the JVA.

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Impacts of ToT in Construction Industries

• Impacts on construction materials• Impacts on construction methods• Impacts on construction tools• Impacts on Construction Labor (skill level and

availability and requirements/employment)• Impacts on safety provisions