Host countries’ economic is one of the aspects that need to be concerned when TNCs doing business abroad. TNCs play an important role in developing host countries’ economy. Initially, when TNCs are to apply Greenfield Foreign Direct Investment (FDI) in host countries, it will inject a sum of capital to the host country. This inflow of capital to the host country indeed aids the countries development such as infrastructure, especially when they are facing capital shortage issue. For example, in China, due to the joint ventures with TNCs and domestic firms, it has helped China in enhancing its infrastructure (Wang 2008, cited in Impact of TNC, 2008). While doing business there, TNCs would certainly create linkages with domestic suppliers. Hence, indirectly, TNCs lifted a boost for them in terms of sales, products quality and payment system and etc. For instance, as shown in figure 1, most of the domestic suppliers in Malaysia agree that, foreign hypermarket has benefited them in different area.
Figure 1: Benefits of business relationship with foreign hypermarkets in Malaysia
Source: (Kaliappan S.R. et al, 2008)
Undoubtedly, TNCs has benefited host countries in such way, but it creates problem such as monopolies market, affect counties’ BOP and transfer pricing. Accordingly, TNCs are supposed to increase the competition of the host market so that domestic firm will compete vigorously to obtain market share. However, some TNCs are too vigorous. They want to acquire the total market share of the particular industry. One of the potential example of monopolise market would be the TNCs in New Zealand. New Zealand has attracted massive TNCs to open business in its country. Due to the small and unsophisticated economy, most of TNCs has monopolised the market in several sector. As a result, the national share market is mainly dominated by foreign companies. Hence, it has an adverse effect to the local citizens as they faced a significant high price for the product that sell in the oligopoly market. (Marc T. Jones, 2000). Besides that, Figure 2 is the data that shows the percentage of telecommunication companies that gain control on the market of host countries.
Figure 2: TNC controls market share of Telecommunications in selected countries
Source: (Impact of TNC, 2008)
TNCs can provide a positive impact on balance-of-payment (BOP) of the host countries as well as negative. It creates a positive BOP to host countries when the overall export is greater than import which in turn increases the GDP of the countries. However, it has an adverse affect when TNCs imported materials from other countries to serve host countries. For example, JAMA (Japan Automobile Manufacturers Association) has almost the full control over import and export of U.S. automotive industry. As shown in figure 3, though JAMA has expanded its production to U.S, it still imports a numbers of cars from its home country. This shows that, U.S did not benefit anything, in fact, it loses it trade balance. Besides that, as shown in figure 4 JAMA exports cars from the U.S based plant. Yes, this has contributed to the U.S. economy as the GDP has increased. On the other hand, it harms the U.S exchange rates as JAMA remitted profits that earned in U.S back to its home country. This scene is not favourable because the decrease of circulating money of the local market will affect the currency exchange rates. When TNCs send profits back to its parent company, it’s actually selling the local currency which resulting a degrading in the currency exchange rate of the local market.
Another issues that TNCs affect the host countries’ economic is the transfer pricing. TNCs have an advantage of intra-firm trade to avoid taxes. According to Martin Feil (director of tax expert and electronic international trade service) says that, company uses transfer pricing to escape from paying tax in Australia ( Foreign Ownership Facts, n.d). In U.K., a study found out that 83% of 210 TNCs involved in transfer pricing (Peter Dicken, 2007). For example, Google as one of the large multinational companies are manipulating the transfer pricing to avoid taxes. Google’s subsidiary company that based in U.K had avoided £450 million of corporate taxes with the use of transfer pricing in 2009 (Simon Bowers, 2009). Hence, by manipulating the intra-firm strategy, TNCs will transfer its prices back to its home country or another subsidiary company if the taxes in host countries are higher. Hence, host countries will suffer from losing a fair payment of taxes or even suffer zero taxes profits from foreign corporation.
Figure 3: Import and Export of JAMA
Source: (JAMA, 2007)
Figure 3: U.S exports from Japanese firm based in U.S
Source: (JAMA, 2007)
Other than economical, technological is also one aspects that need to be considered. According to Hill, TNCs technology transfer has a positive impact on host countries (Hill Charles W.L, 2007, pg 245). Technology transfer establishes a rapid technology change in host countries and shaped the distribution of production and trade to a better development growth. Technology transfer can be in terms of machinery and equipment, quality control, process and product design, management know-how and also research and development. Therefore, with the advance technologies, it can facilitate the product and labour productivity in that particular industry. Besides that, when TNCs are to invest significantly on technology R
Analysis Of The Burj Khalifa Tower Project
The UAE, located in Middle East, is the third largest oil-producing country in the world. Currently, and over the past few years, a variety of construction projects have been taking place in the UAE, for which the main source of funding has been oil money. This is especially true of Dubai, one of the seven emirate states of the UAE. Dubai has become a significant emerging economy in recent years and has also become a popular tourist attraction for visitors to the Middle East. Dubai has also become famous for its many skyscrapers. One of the most impressive of those towers is the “Burj Khalifa”, which as built over a five-year period from 2004 to 2009 (www.burjkhalifa.ae).
The “Burj Khalifa Town” was a construction programme envisioned as a multi-complex town. The programme included the construction of the Burj Khalifa Tower, nine residences, a shopping mall and entertainment facilities. This essay will focus especially on the Burj Khalifa Tower.
Burj Khalifa tower received a lot of attention even before its construction, as it was designed to be the tallest building in the world. There are many constructions in the world but there are rarely instances where many people have a concern about the project from the beginning to end of construction. This is why I chose Burj Khalifa as my topic. This essay will evaluate the project of Burj Khalifa, and examine the success or failure of that project. The following recommendations are made as suggestions that might improve the result of the project.
2. The Burj Khalifa Project Projects are distinguished from routine business activities which usually follow regular procedures or policies. Generally, projects bring measurable outcomes and changes and these bring about other developments and opportunities (Tuner, 2009). According to Atkinson (1999) project management is the set of aims and methods in order to achieve a unique task that should be accomplishment within a given amount of time, within a certain budget, and at a certain standard or quality.
The aim of Burj Khalifa was not just to build the tallest building. It was designed to be a milestone of ingenuity, inspiration and achievement. An architectural characteristic of the tower is that it represents a flower on the desert to express a sense of national characteristic and prosperity. Technically, the tower applied a mixed structure type between reinforced concrete and steel frame. Also, in order to increase safety and security against the strong winds from the coast, Burj Khalifa adopted a Y-typed plan shape. It provides a breakthrough in architectural possibilities (Baker, Korista and Novakm, 2007). Like this, the project tried to do something that has not been done before. In this sense, this construction can be seen as unique project. Frigenti and Comninos note (2002) that “uniqueness is important to project management. It helps identify new organisation risk area, enabling management to develop and implement timely risk management strategy.”
From a functional point of view, the Burj Khalifa project has several features.
It can be seen from figure 1 that the Burj Khalifa project was conducted from January 2004 to October 2009. This is the one of key factor of the project; definite date of start and finish (Kerzner, 2009). The whole construction period of the project was 57 months and there are key features at each stage as time advanced (Figure 1). The tower was made up of 160 stories and was scheduled to be completed within given periods. To this end, the project adopted a new construction technology called the “3-day cycle”, a method which aims to raise the entire construction one story per every three days (Abdelrazaq, 2008). As it described before, due to the exceptional efforts required for this construction, the project could be regarded as a technological innovation. Finally, it is important to examine the objectives of project. Projects are usually judged by two criteria: goal-oriented and ways to accomplish the projects (Kerzner, 2009). The Burj Khalifa project tried a combination of human ambition and hard science. Table 1. explains the goals and methods of the project.
According to Tunner (2009), the concept of a project is a vision to use resources in order to meet a wished future. Burj Khalifa was planned by the Dubai government with the aim of becoming a hub for finance, trade and tourism in Middle East (Dubai eGovernment, 2010). Its facilities were designed not only for business purposes but also for tourism and local citizens (Table 1). It can be seen from table 1; tower has entertainment and leisure facilities for domestic people as a respect of contribute to society. Burj Khlifa set clear aims based on measurable outcomes. This is why Burj Khalifa can be defined as a project.
3. Success or failure of the project Dobson states (2007) that “the internal measure of project success may be whether the project accomplished what it was supposed to accomplish.” The important thing is that an evaluation of the project should focus on the whole process from the planning phase to the outcome (ibid). The prime criterion of success is what has been called the “Iron Triangle”, a criterion which measures the project based on three perspectives: cost, time and quality (Atkinsin 1999). This project evaluating criterion has continued in the last few decades as a basic way to measure a success of failure of project. In this sense, Burj Khalifa project also can be measured by the “Iron Triangle” method of evaluation.
Before examining the project by Iron Triangle, It is possible to measure the cost and time variance in between initial plan and actual result by the earned value analysis to view the overview of project. The EVA uses measure the performance of project (Anbari, 2003). Figure 2 shows how the project worked.
From the point of view of cost, the initial planned costs of the Burj Khalifa project was $876 million dollars. The final cost, however, was approximately $1.5 billion dollar  . It is important to find reasons why this increase in cost occurred. First of all, a rise in prices of raw materials had gone up significantly due to the downturn of the global economy in 2008. According to report of Global InformineI  (2008), the price of iron had increased by 75% within a year. Other materials such as aluminum and cement also increased (appendix 2). Increase of price of commodities caused a factor to increase construction cost.
On the other hand, a change of design was also responsible for the cost increase. The Emaar property which is ordering company of project decided to change the final height of building: the final construction was 100 meters higher than the original design (Al abbar, 2008). Thus, unexpected costs were incurred. Moreover, changes in interior design planning were another reason for the increase in costs. The Burj Khalifa aimed at being the world’s best building and wished for that building to have the best facilities. Thus, Emaar made a contract with luxury hotel chain Armani. The Armani wanted to change the initial interior design of hotel. It is clear that the project spent more money in order to change the design of the lobby and to add more luxurious fittings and furnishings to the rooms.
Due to the overrun of its budget, as it can be seen in fiure2, the project’s earned value is decreased compare to initial plan and cost. The project’s cost management did not perform well.
Naturally, these cost factors are linked to time, which is another important criterion of the “Iron Triangle” method of evaluation. Originally, the duration of project was set for forty-seven months, starting from February 2005 to December 2008, although excluding excavation time. However, the Burj Khalifa project was completed nine months later, on September 2009. As examined above, a change of design influenced not only costs of project, but also the duration of the construction as, needless to say, additional work was required with respect to changes in the design planning. In addition to this, Dubai’s deteriorating economic condition caused a delay in construction. This was called the “Dubai shock”, and was caused by the bubble in real estate investment (Brach and Loewe 2010). As a result, this economical decline halted construction for four months in 2008. Figure 3 shows the comparison between original plan and actual duration of project.
Finally, it is possible to use quality as a critical measure of the success or failure of a project. Jha and Iyer (2007) insist that the most significant factor is the project manager’s competence in order to achieve the stated goals. In this sense, resources management can be a one of key factors that could contribute depends on who build the building. The main constructor, Samsung engineering and Besix, introduced new technologies based on previous experiences with tall building construction. For example, Burj Khalifa was built using “mixed reinforced concrete” in order to stand against heavy wind and pressure. The bottom of the building receives massive amounts of pressure, thus the strength of the concrete is very important (Abdelrazaq, 2008). To achieve this successfully, the engineers did practice tests several times prior to the construction of the tower (ibid). The purpose of the tests was to see how the building would function under certain conditions. This testing phase was important because it allowed engineers to plan according to successful test-case studies. If these tests were not carried out, and problems were found later during the construction of the building, the cost of the project might have increased significantly. Also, from the service perspective, the facilities of tower met requirements of its stakeholders such as customers and interested parties. This fact is necessary to measure the quality of project as unfavourable project to stakeholders can cause the unexpected problems and uncertainty to the project that contribute to failure of project (Kalsen, 2002). As mentioned above, the reasons for delay were due to the Emaar wanting to change the exterior and interior design plans, and the unexpected economic costs that this incurred for the project. From the point of quality, the project is successful.
Although the Burj Khalifa project spent more money and time that initially planned, this is not enough to assume that the project was a failure. For example, the Sydney opera house project spent 16 times more than the original budget estimated. Yet, it is still regarded as a successful project (Litsikakis, 2009). Thus, a more nuanced and sophisticated application of success and failure is required, one which goes beyond using basic standards such as time and cost.
4. Other performance indicators Success of a project should not be measured simply according to whether it finished on time and within the estimated budget. According to Wideman (1996) definition: “project success is seen as a strategic management concept where project efforts must be aligned with the strategic long-term goals of the organization” This means that the project can have a value when the project meets objectives from short-term to long-term. In this sense, the Burj Khalifa project can also be measured by the following criteria.
Benefits over time remain an essential standard by which to measure the project. Wideman states (1996) that projects can be evaluated as time passes: short-term, medium-term and long-term (Table 2). Furthermore, it is crucial to define success who is the users of Burj Khalifa and what kind of benefits brought to its stakeholders.
When the project evaluated in this aspect, firstly, the project achieved its initial functional objectives of design. There are no functional changes with respect to the project. The facilities of the tower, such as hotel or residences, are available for use by the customers. These benefits are not limited only to domestic people. Burj Khalifa has become the landmark of Dubai and plays a role as one of the most popular tourist attractions in Dubai. Many people come to see the tower and enjoy luxurious facilities.
Secondly, the project just finished one year ago and thus it is hard to calculate exactly its success or failure in terms of the mid-term time-frame. However, the financial statements of Emaar could be the criterion for measuring its performance after the opening of the tower. The net profit increased about 10 times compared to 2009. Furthermore, the portion of revenue which came from external customers and sales of residence also dramatically increased (Appendix 3). When one considers the fact that there were no big constructions last year at Emaar, a large portion of the increased revenue can therefore be attributed to the Burj Khalifa project.
It is true that the Burj Khalifa project did not successfully meet its schedule and budget in terms of the internal project objectives (table 2). However, from the perspective of the society level, Dubai has struggled with debts which were generated due to indiscriminate urban development planning and spending (Brach and Loewe, 2010). Many experts were concerned whether the project would be completed or not. Although the project was delayed by nine months, it was eventually completed. One of notable features of the project is that there are many constructions in a ‘suspended’ state in Dubai as a result of current economic situation. Thus, the fact that the Burj Khalifa project was completed can be a yardstick for measuring its success as a project. If construction was continually delayed, the possibility of the project failing (and incurring even more costs) would have been increased because risk also grows as well (Barkely, 2004).
Consequently, in a number of respects, overall outcomes of Burj Khalifa met its objectives. Hence, the project can be regarded as a successfully completed project.
5. Contributions of project outcomes There are some reasons for believing that the Burj Khalifa project contributes to the Dubia society. The Burj Khalifa tower has value per se. People across the globe paid great attention to the building from the planning stage of construction, because it was known that the project would become the world’s tallest building. According to Lynch(1996) “landmark structures might be encouraged at significant locations.” This is why many countries and cities make efforts in building landmark constructions. For example, when people think about Paris they naturally imagine the tower Eiffel. Beautiful and significant architecture increases people’s pride in cities. It improves citizen’s moral and social development (ibid). In 2000s, Dubai had been described as an emerging economic power. People surged into Dubai to capitalize on this rapid economic growth. However, as stated previously, due to the excessive real estimate investment, the economy of Dubai deteriorated in 2008 (Brach and Loewe, 2010). In this situation, the successful completion of Burj Khalifa could boost the economy again as Burj Khalifa would be play an important role as a business hub of Dubai and as a tourist attraction. Many people already consider Burj Khalifa as the symbol of Dubai. Burj Khalifa has not only been an architectural feature of the city but has also had a socio-economical impact.
On the other hand, it is possible to evaluate the internal business perspective of the organisation. In terms of the construction company, successful accomplishment of the project gave them competitiveness of market. For example, Samsung engineering, which is the main construction company of the Burj Kharifa project was able to involve itself in Dubai because of its previous construction experiences such as working on the world’s third and fifth tallest building’s construction (Taipei 101 and Petronas Tower respectively) (www.samsungcnt.co). The participating companies had important previous experiences and these experiences enhanced the organisation’s capabilities in specific areas. Like this, throughout the process of construction of Burj Khalifa, companies obtained a reputation as the main constructor of the world’s tallest building, a development which required the use of various cutting edge technologies
6. Recommendations Up to now, this essay examined the project according to its constituent’s purpose: individual level (in the short-term), organisation level (in the mid tem) and society level (long-term). And, project outcomes’ effects on society were also examined. Based on above analysis, some of following recommendations are proposed in order to enhance the outcomes of the project.
This project did not meet its previous objectives in terms of time and costs. In other words, the project was not able to meet the expectations of the shareholders’. The project did not reach clear pre-negotiation commitments and understandings with their partner. As a result of a change in interior design, additional costs were incurred. Griffiths (1989) insists that even though the concept of project is right, if a planning and execution is not adequate, this can still diminish its profitability. Thus, fully negotiated planning is recommended because repeated changes of plan eventually increase risk to customers (Barkely, 2004). In contrast, a thoroughly reviewed plan can maximize the effectiveness of the project.
It is a well known fact that increasing the duration of the project increases the probability of risk (ibid). There was a serious economical deterioration from 2008 in Dubai. In the case of the Burj Khalifa project, it is possible to estimate the downturn in the economy. However, this project’s priority was its scale of building. As a result of this, and because it did not consider the external situation, increases in costs were generated. There were no specific reasons to raise the height of the building as Burj Kharifa already reached the world’s tallest building at September 2007 and the original plan of 700 meters was reached at April 2008. Because the situation was that UAE’s economy was going steadily down, there was no need to increase the height and incur the additional costs. A much more pragmatic, and certainly much more affordable decision, would have been to stay with the original plan.
Finally, to improve further outputs of the project, maintaining communication and cooperation with the Dubai people, especially the government and the local society, is most important. Someday, the title of ‘world’s tallest building’ will be surpassed by other buildings. Even then, to maintain its own sustainable competitiveness without the title, Burj Khalifa should have characteristics like the Empire State building. That is why cooperation with the outside society is important. To achieve this, it is recommended that Burj Khalifa offers a variety of benefits to citizens and tourists rather than entirely focus on the luxury of its customers. Cooperation between society and continued effort to develop a tourism programme is an essential factor for evaluating a successful project in the future.
The Sydney Opera House used sixteen times more funding and took four months longer to complete than initially planned. But nowadays there is no one who says the Opera House was a failed project (Litsikakis, 2009). From this example, it is possible to know that the project review and the effort to learn from the past can be a success factor for long term strategy. Furthermore, Burj Khalifar, in order not to remain merely a tall building in Dubai, needs to emphasise that further investment can make Burj Khlifa town a citizens’ communal, leisure, and relaxation space. If citizens cannot use Burj Khlifa freely, it will be a place only for people who have money. As such, Burj Khalifa would become a huge building but without any direct links to the community and citizenry.
7. Conclusion This essay has evaluated the construction project: world tallest building Burj Khalifa. The project of Burj Khalifa was widely regarded as a project which would be cemented the aspiration of UAE to be a symbolic place of the Middle East.
There are different opinions over whether this project was successful or not. At any rate, it seems too early to determine that the project was a complete success. But when we just think about the whole process of the project, one might say that this project was success in terms of the benefits that the stakeholders derive from using the facilities. Furthermore, this project’s impacts on society have also had positive outcomes. First, the methods in order to accomplish the project have had a great influence on construction technology. Second, world sheds new light on the Dubai thus further investment is expected. In this sense, it is possible to say that the tower was successful within certain parameters. If a successful operation is supported in Burj Khalifa, this project will bring a massive positive result to Dubai as a long-term.