AR50126_AKHTAR_J

Assignment AR50126J AKHTAR

In submitting this assignment, I certify that all this material is my own work, except where I have indicated otherwise with appropriate references.


Executive Summary

East Timor (Timor-Leste) recognises that construction, improvement, and maintenance, through sustainable and environmental construction of the countries infrastructure i.e. roads, energy, water, and sanitation, is critical to all sectors of the economy. Funding of development will mainly come from the governments’ oil and gas revenue. Private work is non existent because of the political instability of the country. (The World Bank, 2009).

The strategy

A subsidiary should be formed which represents the corporate values and culture of both the Sandford Group and Freemantle. The subsidiary should be independent from the main corporate body which will give it flexibility to deal with its uncertain environment. I suggest calling the new company Sandford-Freemantle.

Our long term goal to develop a relationship with the government through maintenance of our corporate values, diversification of our capabilities, into road, energy, water and sanitation infrastructure construction, management and maintenance. Not enter into any BOOT (Build own operate transfer) or governmental partnership agreements initially would be prudent because of the political and developmental stage of the country.

Create special relationships with suppliers i.e. contractors or material suppliers inside or outside the country.

Concerned with the governments short term and long term interests by constructing the infrastructure that lead to the resorts we build.

Sandford-Freemantle strategy: takes into account the following:

Sandford-Freemantle strengths, weaknesses, opportunities, and threats (SWOT analysis) Assessment of the existing construction climate in Timor-Leste Available work opportunities in Timor-Leste. The structure to facilitate the business portfolio. Identifiable risk and solutions of working in Timor-Leste: Political, Economic, Social, technical, legal,

Environmental.


1. Existing construction Industry

Foreign government and non government NGO’s provide much of the existing technical and managerial supervision of projects. Existing contractors are mainly local and relatively small and competition amongst them is quite healthy .The contractors fall into three distinct categories of relating to size of work they can undertake: contractors (i) $500,000 and above (ii) $150,000 to $500,000 (iii) below $150,000. Category (iii) is where the majority reside (The Louis Berger Group, 2006).

Evidence suggests that due to the urgency for construction of vital infrastructure works after the civil war there was a lack of technical and managerial supervision which resulted in substandard specification and construction. The aim of the government is now towards quality, sustainable and environmentally sensitive construction but remain cost sensitive, for example: opening up single or multiple tendering opportunities to the international market based on technical and financial capabilities, and revamping of existing standards such as the Indonesian Regulatory Standards for roads (The Louis Berger Group, 2006).

2. How the government is financing the development

The government wants to maintain 8% economic growth and is aware of a lack of private investment therefore is financing development through a combination of its own money and grant aid from donors such the Asian Development Bank, United Nations, European Union (Asian Development Bank, Report of the President to the board of directors on a proposed developement fund grant for the Democratic Republic of Timor-Leste road sector improvement project, 2005).

Petroleum and gas revenues , as part of the requirements of the Petroleum Law, is invested in US treasury bonds that yield sustainable income in perpetuity which the government is using as its main source of income towards the budget (Bank, 2009).

3. Government short term strategy for development of the country and opportunities for Sandford- Freemantle

I. Infrastructure: the governments’ primary goal is to stimulate economic growth and employment through investment in its road network.

Opportunity- since 2001 initially as part of Emergency Infrastructure Rehabilitation Projects (EIRP) significant improvement has been made to the critical road section. The government 10 year vision has now evolved to represent key steps to address improvement and management of a degrading road system, bridges, and flood control (Asian Development Bank, 2005).

II. Water and sanitation: less than half the population don’t have access to potable water or sanitation which increases the chances of illness (AusAID, 2009).

Opportunity- The emphasis for the government is towards its urban and business areas to gain income, NGO’s seem to be tackling the rural areas. Both are severely underdeveloped with existing installations of poor quality (Asian Development Bank, 2004), therefore it requires competent management and contractors. Maintenance of the water and sanitation network is another requirement which the government is in need off.

III. Energy: providing the energy needs of the country through investment in power generation. In 2007, around 22 percent of households in Timor-Leste had access to electricity which also effects development of business (The World Bank, 2009).

Opportunity- 3no heavy oil power generating plants are to be built, although the plants are already contracted to The Chinese Nuclear Industry Construction Company (CNICC) in 2008 (Bell L, 2009). There is opportunity in the construction of the energy distribution infrastructure and possibly in the plants themselves.


IV. Development of the Governments capabilities: currently the government is receiving foreign assistance in technical and managerial issues regarding its capacity to deliver services (Asian Development Bank, Timor-Leste: Infrastructure Project Management, 2007).

Opportunity- The government is providing the opportunity to tender for consultant design and project management work. Further to this considerable training of government employees within the Ministry of Public Works (MPW) is needed because it is lacking the capability to effectively manage and procure quality and sustainability public works.

4. The implementation of strategy is facilitated through the organisations structure

Sandford-Freemantle (SF) should work as a subsidiary which is licensed to facilitate the business portfolio i.e marketing, finance, human resource management etc which will give it flexibility to adapt and align itself with the strategy of the government and an its uncertain environment i.e. political ,financial and social uncertainty.

5. Fund positioning

Initial working capital for Sandford-Freemantle could be achieved from investment by the parent companies which could be paid back in dividends or interest.

6. Where should Sandford-Freemantle position itself to achieve successful integration into Timor-Leste construction market?

Sandford-Freemantle must position itself based on Freemantle’s technical and construction management ability coupled with the Sandford’s Groups financial capabilities and area of expertise. This will align our organisation to the governments short and long term strategy. Maintaining corporate standards and quality will pay dividends in the long term.

The opening up of both consultant and contractor work packages in the public sector gives us the opportunity to decide the level of initial involvement in the country and ultimately the level of risk we want to take.

7. Diversification options for Standford-Freemantle

Important rule when diversifying the services of our organisation is not too radically move away from our core capabilities (construction and management) without developing the necessary skills (Howes R, Tah J.H.M, 2003).

Option 1, development of facilities management and employment of locals: The government is currently looking at maintenance of the road network but has not the expertise to carry it through. The combination of Sandfords facilities management expertise gained in managing its hotels and Freementle’s expertise in construction and management will prove an excellent alternative for the government to consider.

The benefits to the government would be a competent central body that can action sooner the necessary maintenance regimes, also improve employment as local people are employed and trained to gradually replace the more expensive foreign expatriates (which will also benefit Sandford-Freemantle’s bottom-line).

Option 2, material supplier: control of this area is strategically important; it will give Sandford-Freemantle a competitive advantage over its rivals and be positioned to take advantage of an expanding market resulting from the countries development, wealth accumulation and easing of trade barriers (Timor-Leste application to join the ASEAN trading group in 2012).


Difficulties could arise due to the lack of understanding and inefficiencies of the nations import system, therefore a joint venture or the development of special relations with existing material importers would be advantageous.

8. Key factors that contribute to our strategy (SWOT analysis)

9. Identifiable risks in Timor-Leste and possible solutions (PESTLE)

Political risks The extension to the stay of the United Nations (U.N) peace keeping and security forces within the country until 2010 following civil unrest in 2008 underlines the fragility and uncertainty of the countries democratic political system. The UN leaving will pose a serious test for the stability of the country (European Union, 2008).

Timor-Leste dependence reliance on imported food goods has made the country highly susceptible to increases in global commodity prices. East Timor has one of the fastest growing populations, without significant improvement in its agricultural sector the country will see inflationary pressures on local commodity prices as demand exceeds supply. Higher prices in basic foods results in discontent amongst the poor which was part of the reasons for 2006 civil unrest (Bank, 2009).

Major investment in East-Timor is not recommended at present as there is still a danger of civil and political unrest erupting but taking public contracts is OK.

Economic risk US dollars Currency of Timor-Leste- exchange rates fluctuations which can both benefit or damage our invoice receipts therefore it is recommended that payment be split between Euro, Stirling, and Dollar.

Petroleum and Gas fund- Recent rapid increases in spending have been above Petroleum Funds


Estimated Sustainable Income (ESI), continuation of this policy could result in depletion in fund reserves. Another major factor that affects the Fund is the price of oil and gas, lower prices affect the income (The World Bank, 2009).

The sustainability of the countries finance dictates the budget which will have an impact on work opportunities for our organisation.

Therefore it is recommended that a dedicated accounts manager be employed to analyse best payment ratio relative to currency and the governments’ financial position. The terms of the construction contract must take into account these concerns.

Public sector - inefficient and slow government bureaucratic system which results in significant increases in time. Existing communication infrastructure is poor.

I would recommend a prestart preliminary visit to organise all the formalities such as business framework set-up, interview of candidates, and communication set-up (possibly invest in GPRS phones).

Banking sector -there is a shortage of lending opportunities with non performing loans remaining a problem for the banks. Microfinance is mainly secured on public sector salaries which hamper the development of agribusinesses (Sugden C, Ryan T, 2009).

An possible funding option for Sandford-Freemantle

Investments- The main donor organisation to infrastructure i.e The Asian Development Bank (ADB) are gradually phasing out its grants aid towards emergency infrastructure rehabilitation projects (EIRP) in favour of assisting the Ministry of Public Works (MPW) with quality and sustainability of the road network through providing technical design ,procurement of goods and services, monitoring and supervision of rehabilitation. This means that the majority of finance for new construction will come from the government.

ADB is an influential partner within the governments’ decision making process, by directly marketing our organisation to both could pay dividends.

Importing material into the country- the transport and import costs negates the advantages of the low labour costs. It also places the material supplier in strong negotiating position.

Recent world depression had little affects on this oil and gas economy.

I recommend developing relationship with suppliers inside or outside the country as one of the priorities

Social risk Weak Human and Institutional capacity- The human resource base is low as a direct result of conflict. Administration, entrepreneurial, technical, and vocational skills are in short supply in all sectors of the economy. The vast majority of civil servants are either untrained or inexperienced for the roles they are undertaking. The government as a result relies heavily on foreign experts for daily administrative operations, policy formulation and procurement of development projects.

Corruption- although anti-corruption laws are in use the prevalence of poverty makes the country increasingly susceptible to it.

Culture and Language-the official language is Portuguese , the local language is Tatum


Time difference -UTC/GMT +9 hours

Indigenous capable staff members must be fluent in English, Portuguese, and Tatum languages.Expatriates must be capable, culturally sensitive, have previous international working experience or adequately trained, and fluent in both English and Portuguese if possible.

The time difference makes pre-planning meeting with the head office essential to co-ordinate and update effectively.

Technological risk

See pt 1

legal risks The legal and institutional framework –with international help it is taking shape but is still evolving which creates risk and uncertainty for foreign organisations (The World Bank, 2009).

Competent legal advice must be employed to interpret, give advice, and to review any contractual matters. Compensations and litigation procedures must be clearly identified. Payment system must be ratified.

Environmental risks

The country it is prone to natural disasters with extremes of long drought periods and short intensive rainy periods causing landslides, floods which are exacerbated by climate change, deforestation and over grazing (SOTL, 2007).

Sandford-Freemantle must take into account and advise the client on the importance of environmental issues, it must try to uphold these values because it will benefit the company in the long term.

Appendix

10. Country Profile of Timor-Leste


11. Infrastructure budget over the past decade


Taken from (The Louis Berger Group, 2006)


Reference

ADB. (2007, May). Infrastructure Project Management(Cofinanced by the Government of Australia). Retrieved from Asian Developement Bank: //www.adb.org/Projects/project.asp?id=39151

Amery P. (2008, Nov). How safe are government bonds? - MoneyWeek. Retrieved from How safe are government bonds? : http://www.moneyweek.com/investments/how-safe-are-government-bonds-13986.aspx

Asian Development Bank. (2005, September). Report of the President to the board of directors on a proposed developement fund grant for the Democratic Republic of Timor-Leste road sector improvement project. Retrieved from http://www.adb.org/Timor-Leste/default.asp

Asian Development Bank. (2007, May). Timor-Leste: Infrastructure Project Management. Retrieved from Asian Development Bank: http://www.adb.org/Timor-Leste/default.asp

Asian Development Bank. (2004, December). Water Supply and Sanitation Rehabilitation Projects Phase I (Grant 8185-TIM[TF]) and Phase II (Grant 8189-TIM[TF]) in Timor-Leste. Retrieved from Asian Development Bank: http://www.adb.org/Timor-Leste/default.asp

AusAID. (2009, Feb-May). Piping water. Retrieved from Water and Sanitation: www.ausaid.gov.au/publications/focus/feb09/focus_feb09_12.pdf

Bank, A. D. (2008). Asian Development Bank & Timor-Leste- Fact sheet. Retrieved from www.adb.org/Documents/Fact_Sheets/TIM.pdf

Bank, A. D. (2009). Asian Development Outlook 2009: Rebalancing Asia’s Growth - ADB.org. Retrieved from Asian Development Bank: http://www.adb.org/Documents/Books/ADO/2009/default.asp

Bell L. (2009, March). The Heavy Oil Power Deal A Dark Cloud over East Timor’s Bright Future. Retrieved from The National Toxic Network Inc: www.ntn.org.au

DEUTSCH, A. (2009, September 8). AP IMPACT: E. Timor aid _ where did billions go? Retrieved from World news Feed Article | World news | guardian.co.uk: http://www.guardian.co.uk/world/feedarticle/8695995

Economic Update. (2009, April). Retrieved from The World Bank: http://siteresources.worldbank.org/INTTIMORLESTE/Resources/TimorLesteApril2009.pdf

European Union. (2008). Country strategy and national indicative programme 2008-2013. Retrieved from European Commission - Development - Regional Strategy Papers: http://ec.europa.eu/development/geographical/methodologies/strategypapers10_en.cfm

Howes R, Tah J.H.M. (2003). Strategic management applied to international construction. London: Thomas Telford Publishing.


INTERNATIONAL DEVELOPMENT ASSOCIATION, INTERNATIONAL FINANCE CORPORATION. (2009, Aug). INTERIM STRATEGY NOTE FOR THE DEMOCRATIC REPUBLIC OF TIMOR-LESTE FY 2010 – 2011. Retrieved from The World Bank: http://web.worldbank.org

MCOT English News : Thailand, Timor-Leste sign MoU on energy development. (2009, January 12 ). Retrieved from MCOT English News: http://enews.mcot.net/view.php?id=8112

Presse, D. (2001). East Timor cabinet bans controversial hotel construction. Retrieved from www.etan.org: http://www.etan.org/et2001a/march/11-17/15etcab.htm

SOTL. (2007). Country Operations Business Plan - Timor-Leste 2008-2010. Retrieved from www.adb.org/Documents/CPSs/TIM/2007/COBP-TIM-2007.pdf

Sugden C, Ryan T. (2009). Democratic Republic of Timor-Leste. Asian Development Bank.

The Louis Berger Group. (2006, October). ROAD SECTOR INVESTMENT PLANNING. Retrieved from www.louisberger.com/berger/macro-iqc/papers/rsip_timor_leste.pdf

The World Bank. (2009). Timor Leste - Timor-Leste and Energy. Retrieved from The World Bank: http://go.worldbank.org/6RWFNXUD90

Timor Leste - Interim Strategy Note -DEMOCRATIC REPUBLIC OF TIMOR-LESTE. (2009). Retrieved from The World Bank: http://go.worldbank.org/R7W88O81N0

TIMOR LOROSAE NAÇÃO news in english: 18-01-2009 - 25-01-2009. (2009, 01 24). Retrieved from TIMOR LOROSAE NAÇÃO: http://timorlorosaenacaonewsinenglihs.blogspot.com/2009_01_18_archive.html

AR50126_AKHTAR_J

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