Partner Selection in Public-Private Partnership and Its Influence on Project Success
Student thesis: Doctoral Thesis
Related Research Unit(s)
The trend of broad economic liberalization and reforms in emerging economies provides new opportunities for private foreign investors to participate in infrastructure projects. However, foreign infrastructure investments are still a risky, politically sensitive business. To date, a number of academic studies in international business have focused specifically on the bargaining process between multi-national enterprises (MNEs) and host country governments. Nevertheless, there is no consensus on the variables that can influence the choice of private partners for an infrastructure project, the size of private ownership, project type, and the probability of success. This study aims to investigate whether and how domestic pressure and international relations at the firm and country levels influence actors’ bargaining power and, consequently, bargaining outcomes including project characteristics and project success in the context of PPI projects. Based on Putnam’s (1988) two-level game and economic diplomacy, this study extends Ramamurti’s (2001) bargaining model by including domestic actors in the negotiation process. The study also proposes to model bargaining as a network of actors at the international and domestic levels. Drawing on a large World Bank database of private participation in infrastructure (PPI) projects from 121 developing and transition economies, I find that there is a significant influence of domestic actors on a host country government’s decisions. In countries with higher levels of industry concentration, foreign firms have a lower probability of being chosen as private partners for PPI projects. MNEs are also less likely to participate in divestiture (i.e., privatization) of PPI projects in countries with highly concentrated industries. The results show that successful corporate political activity is a result of collective actions performed by a group of domestic firms, rather than actions of a sole company. The study also proves the assumption that MNE-host country bargaining should be examined as part of a complex broad network, since actors’ relations with other parties have a significant impact on bargaining outcomes and project success. Thus, the study reveals that foreign firms’ relations with domestic partners (i.e., establishing a joint venture with a local firm(s)) and economic agreements between the MNE’s home and host countries have positive significant effects on PPI project characteristics (i.e., the proportion of private ownership) and project success. The study contributes to a deeper theoretical understanding of the PPI phenomenon and provides practical insights into factors influencing the bargaining process at the country, industry, firm, and project levels from both the international and domestic perspectives. The results also show how bargaining outcomes affect project characteristics and the probability of project success.
- PPI, PPP, Public-private sector cooperation, project success, World Bank database, partner selection