Underground Construction Business in Russia - Essay Example

? Research Proposal: Underground Construction Business in Russia Introduction Over the past five years, the construction industry has been awash with tunnelling projects with there being a lot of enthusiasm globally from industry players. This has mainly been due to advancements in tunnelling technology and techniques which have occurred over the past decade, and also due to increased awareness of the need for ‘green’ projects which have less environmental impact (Deloitte, 2012). This excitement has been an impetus to the rapidity with which the underground construction industry has grown and also the extent to which it has attracted a lot of attention from key players within the construction industry (Beer, 2009). Notably, emerging countries such as China, India, Russia, and Brazil which are experiencing high levels of economic growth have been the melting pot of major infrastructural improvements and developments, with tunnelling and underground construction being at the core of these developments. Tunnelling and underground constructions occur in a wide array of sectors and areas. These include highway construction, sewerage system, metro / subway systems, electricity cables and transmissions systems, nuclear power facilities, water systems, flood management systems, natural disaster and war underground hiding bunkers, and hydropower plant systems (Beer, 2009:112-119). With the recognition of the benefits that come along with underground construction, such as reducing congestion, lowering environmental degradation, reducing pressure put on land and efficient utilization of strategic resources, many countries have increasingly invested towards this form of construction (Brown, 2001; Beer, 2009). The high business opportunities in the emerging countries within the construction industry have attracted a plethora of construction entrepreneurs into these markets. Russia in specific has attracted a lot of attention not only due to its growing economy, but specifically also due to the upcoming high profile World Olympic Games to be held in Sochi, Russia in 2014, and the 2018 Fifa World Cup, which has seen the development of a number of high scale underground systems(Kral, 2009:9; Deloitte, 2012). The exponential growth rate of Russian cities and economy attracts investors into the country. It is therefore imperative that the current business climate for underground construction in Russia be understood clearly to enable effective decision making for the wide array of potential investors (Datamonitor, 2011; Deloitte, 2012). While the business environment may prove promising, it may also present a number of challenges to various investors, both local and foreign, who seek to do business in underground construction. The industry conditions and economic, political and financial factors that impact a business need be taken into consideration when opening or expanding a business (World Bank Report, 2009). In essence therefore, this research study will seek to investigate the current business conditions within the tunnelling and underground construction in Russia, and specifically will look at the economic, political and financial factors that impact the businesses and the ability of various potential entrepreneurs investing in this industry. Statement of the Problem The construction industry, especially underground construction has been growing exponentially in Russia with substantial underground constructions in electricity systems, sewerage system, metro, water systems and highway developments having occurred over the past decade (Deloitte, 2012). Increased recognition of the viability and benefits that underground construction offer especially in view decreasing land space relative to the rising populations and structures on land, has seen increased investments in underground construction in Russia. With Russia’s economy continually growing as any other emerging economy (Brezhnev et al, 2005:596), a wide array of investors globally and even within Russia in the underground construction industry may wonder the viability of establishing business in Russia within this industry. This presents the need to understand key trends in the industry and a wide array of external factors that would impact business success. The problem is that rapidly changing business environment highly impacts the ability of a wide array of entrepreneurs investing in a business venture (World Bank Report, 2009). With the drastic changes that have taken place both in the global and Russian economy over the past decade, for instance the recent great recession of late 2000s, the rapidity with which the Russian economy is growing and changing, and development of policy towards market liberalization (Datamonitor, 2011: 13), understanding the new business environment in underground construction within Russia is an imperative resource for such construction businesses. While various research studies have been carried to understand factors that impact doing business in Russia, none so far have focused on the underground construction and further more none have looked at the trend of critical economic, political and financial factors within this industry over the past decade. In essence therefore, this research study seeks to investigate the business environment of underground construction business in Russia by focusing mainly on factors that enhance or hinder the business. Key factors to be considered include economic, political and financial factors, and how these impact business in the underground construction in the Russia. In addition, how such factors have changed over the past decade andthe implication of such changes to the underground construction industry in Russia will be elucidated. Research Question and objectives of the study The key objective of this research study will be to investigate the business opportunities of underground construction business in Russia by focusing mainly on factors that enhance or hinder the business. Key factors to be considered include economic, political and financial factors, and how these impact business in the underground construction in the Russia. In essence, the specific research questions for the study will be: 1. What is business climate within the tunnelling and underground construction industry in Russia? 2. What economic, political and financial factors impact the tunnelling and underground construction industry in Russia? 3. How have these factors changed over the past decade, and what has been the implication of such changes to the tunnelling and underground construction industry in Russia? Significance of the Study This study is very important both to business practitioners within the underground construction industry and scholars as well. The conclusions from the research would serve as a base for further research in the area and would also provide a point of reference for scholars. In addition, the research study seeks to increase knowledge in the area of underground construction business environment within Russia, where it focuses on the changing nature of external factors impacting the industry and various businesses within the industry. There is sparse literature that focuses on business conditions within the underground construction industry in Russia, and the recent trend towards more of underground constructions, sets the tone for the need of research in this area. This research seeks to contribute in this sense, in essence providing businesses with knowledge to ensure that they continually seek to remain efficient in their operations and competitiveness. Literature Review Underground construction is divided into two: mining and civil tunnelling (Timofeeva 1999). Civil tunnelling is driven majorly by the need to improve on the public infrastructure. The government will mainly invest in the business to improve on efficiency and effectiveness of service provision. The urban space has continually reduced, which has driven the governments to consider underground construction as an alternative. On the other hand, mining construction is developed mainly due to the need to keep up with the fast changing economic growth in the world today. The Tunnelling and Underground Construction Report publication (Kral, 2009: 4, 12) showed that the global underground construction industry was on a strong growth, and this was projected to continue over the next decade as more construction move from on-ground to underground. This section reviews literature on underground construction in Russia, and economic, political and financial factors of doing business in Russia, so as to identify the gap of research study. Tunnelling and Underground construction in Russia Tunnelling and construction in Russia has been in existence for years. For instance the Lefortovo tunnel and underground water and disposal systems within Moscow which have been developed over the past half century. Notably, most of the underground constructions that have involved downward extension of buildings have mainly been dedicated to parking lots (Lezhava & Golubev, 2004: 120). There are a wide array of procedures and techniques that are adopted to ensure safety in tunnelling and construction industry. The key technique in development of substructure and superstructure of a building adopted in Russia is top down method of underground construction where the top floors are first completed before the lower underground floors are finished in order to utilize the completed floors as the others are developed (Yurkevich, 2009; Buchatskii, et al, 2001:137). As with regard to civil engineering and construction such as construction of sewer systems, and underground tunnels ways, three technologies that are most commonly used are the open cut, microtunneling and conventional tunnelling, based on whether the ground is soft or hard (Bobylev, 2011:1035).The construction and design of the various underground tunnels involve complex decisions that have to take into account a wide array of technical, economic, geotechnical and political considerations (Peila and Pelizza, 2009:602). Over the past decade there have been increased underground construction activities in Russia ranging from electricity systems, water systems, sewerage disposal, underground nuclear reactors, war bunkers, highway development, underground parking lots, shops and malls, underwater tunnels and highly established subway system (Deloitte, 2012). Indeed Lezhava and Golubev (2004:120-123) projected in their analysis of the Russian underground construction that by 2020, key areas within Moscow will mainly have deep seated underground operations with key areas likely to develop fully integrated and functional underground systems including the Belorussain Terminal, Kiev terminal, and Smolenskaya square. These views are consistent with Datamonitor’s (2011:2) projections which show that the Russian industry will grow by 31% in 2015 to a value of $61.3 billion from $46.8 billion in 2010. Currently there is an overriding interest in investments in Russia’s construction industry and most notably tunnelling and underground construction. This is because Russia is increasingly focusing on efficiently rearranging its transportation systems, increase parking spaces, ensure safe and efficient electricity system, develop safety bunkers in the case of nuclear wars to protect citizens, and connect major islands to the mainland through underground systems (Brezhnev et al, 2005; Deloitte, 2012).Indeed the Russian Tunnelling Association has over the past two years been organizing forums, conferences and exhibitions which mainly seek to provide an impetus in the development of underground systems using unique and innovative techniques (Russian Tunnelling Organisation, 2011; Underground City Forum, 2012). These forums and exhibitions have mainly been aimed at attracting innovative technology in underground construction to help thrust forward the ‘underground city’ strategies forward. Aside from a growing economy, and a projected growing Russian construction and engineering industry which is put at 5.4% per annum (Datamonitor, 2011), two high level world events coming to Russia within the next six years, that is, 2014 world Olympics and 2018 Fifa World cup, have been an impetus for the need in taking into consideration underground constructions technologies to increase space and ease of accessibility of a wide array of services. For instance, already two railway tunnels and three service tunnels which connect Adler, a sea coast town near Sochi, to the Olympic sites, are being constructed in preparation for the 2014 World Olympic Games (Kral, 2009:9).Aside from these events, the need to develop better and efficient ways of doing things without adversely impacting the environment has been an impetus for development of the underground construction industry in Russia. Graud, et al (2010: 31-33) elucidates that the environmental and security threats from nuclear reactors necessitate the construction of underground facilities. Nuclear facilities which are built underground would improve security concerns concerning leakages, while survival bunkers developed also help in protecting people adverse impacts of nuclear disasters. These factors that have contributed to growth in the industry and tunnelling projects within Russia have also attracted a wide array of investors both global and local into the country. Understanding external factors that impact the business and how these have been changing over the past decade is essential in enabling effective investments decisions within the industry. There is sparse literature that focuses on business conditions within the underground construction industry in Russia, and the recent trend towards more of underground constructions, sets the tone for the need of research in this area. Economic, Political and Financial factors Just like other businesses, underground construction businesses are also impacted with a wide array of economic, political and financial factors. In tunnelling business, careful analysis is often required in order that various other monumental artefacts and buildings which would be impacted by the building be taken into consideration (Beer, 2009:357). In addition, environmental impacts need be take into consideration as well as the economic factors, political motivation for various projects that are developed (World Bank Report, 2009: 4-7; Broadman, 2000). All these factors impact business, and impact the decision as to whether or not to invest in a venture. While different research studies have focused on Russia’s business environment as a whole and the reasons for various cost overruns in projects (Broadman, 2000; Barinov, 2007; World Bank Report, 2009), while others have focused on regulations needed within the underground construction business in Russia (Osipov, et al, 2010; Bulychev et al, 2008), and the different design requirements for safer and effective tunnels (Dixon, 2011 ), none have specifically looked at factors that characterise the tunnelling / underground construction business in Russia and how these factors have been changing over the past decade. Others have increasingly focused on safety measures and design techniques by which underground construction need be carried out in order to prevent collapse or disasters (Bulychev, Fotieva, Levchenko, & Gilshteyn, 2008). For instance, in a recent enterprise survey study conducted by the World Bank (2009) to understand the various factors that shape the decision on whether or not to invest in the Russian federation, a wide array of economic, political, financial and social factors were identified and benchmarked against the regional average in Eastern Europe region as shown in figure 1. Some of the core problems identified was higher tax rates, inadequate skilled and educated workforce, political instability, access to finance, licenses and permits access, and corruption among others with each one of them given magnitudes as shown in the figure 1 below. In addition, Osipov et al (2010) elucidates that understanding the procedures for zoning land for underground construction and tunnelling within Russia is essential as well as understanding environmental impact requirements for such projects. In view of this lack of research on external factors which impact Russian underground construction industry, this research study seeks to investigate the business environment of underground construction business in Russia by focusing mainly on factors that enhance or hinder the business. Key factors to be considered include economic, political and financial factors, and how these impact business in the underground construction in the Russia. In addition, how such factors have changed over the past decade and the implication of such changes to the underground construction industry in Russia will be elucidated. Source World Bank Report 2009, p.4 Methodology Research Design and Data Collection In completing this research study, Saunders and Lewis (2007:8-10) research process flow will be adhered to. Therefore, within the methodology section, this paper will employ qualitative methodology in investigating the research questions and objectives in the paper in order to arrive at a solution. This research design is appropriate for this research study as the topic seeks to bring forth new knowledge as to the economic, political and financial factors that impact the tunnelling / underground construction industry and the changing trends in these factors over the past decade that is 2001-2011. Observed trends from within the industry, based on interpretist view, would imply that such trends determine the market and industry conditions for underground construction industry. Data will be collected through interviews in order to get deep rich information on how businesses respond to changing business climate and practises (Bryman and Bell, 2003:302). In order to complete the research, semi structure interviews will be used to gather data from business management executives within underground construction firms in Russia, both local and foreign. In their research study, Olorunniwo, Jolayemi, Fan, and Li, (2011:160) analysing the challenges companies face with the business environment, elucidated that interview method is the way to get deep rich information on such challenges faced. Therefore, this implies that it would also be an appropriate and effective method for this research, and therefore understand the changing external factors that impact the underground construction businesses. Participants of the Study This research will interview management executives from twenty five tunnelling /underground construction companies, both local and foreign, within Sochi, St Petersburg and Moscow cities. These cities have been chosen as they are the one that are experiencing strong growth in underground construction within Russia at the moment and therefore tend to have quite a considerable number of tunnelling businesses. The twenty companies will be selected through stratified sampling with each organisation carefully selected and considered (Saunders and Lewis, 2007). However, each company would be allowed to produce as much executives as it chooses. In order to have access to the executives from the companies, three key methods will be used. These are directly approaching a desirable organisation and requesting for an interview, attending exhibitions and fairs and interacting with company personnel in order to network and set an appointment, and finally through using already established networks to make appointments for an interview Materials and procedure of the study In carrying out the research study, key materials that will be used will include the writing pads for capturing information, interview guidance pad comprising of ten key interview questions, a video recorder for capturing real data for clarity. Ina addition, participants who will not be able to take part in face to face interview will conduct it through Skype. Ten key guide questions will be used to conduct the interview with some of the key questions including: What are some of the economic and financial factors that impact your business and the underground construction industry at large? What are the political factors that that impact your business and the underground construction industry at large. Have these been changing over the past ten years? If yes how? And how have you had to modify the way you do business based on any of the factors mentioned?, among other questions. With the semi structure questionnaires, the interviewees will be able to veer off and provide additional helpful data, discussing an issue sin detail and with examples. Each interview will last thirty minutes with data collected on different days from different companies. In order to further clarify a given point from the interview, a follow up phone call will be made to the specific interviewees from who clarification is required. Data analysis As noted above, this research study will follow a qualitative research design. In essence, collected data will be qualitatively analysed. This method will mainly entail narrative analysis and constant comparison where key themes from the collected data are identified and compared. Afterwards, the comparisons are then linked to research objectives in analytical induction in order to bring meaning conclusions as to their relationship (Walter, 2010). While analysing data, key ideas and themes will be extracted from the interview results, and these will be compared both with the research questions and the reviewed literature to in order to give meaning and pattern to factors that impact the underground construction industry, and the changing trends. The analysis of these data will mainly be interpretist narrative and inductive approach. These will useful in identifying new knowledge to the already existing regarding to the economic, political and financial factors that impact the business environment in Underground construction industry in Russia, and how these have changed over the past decade. Table and figures will be essential tools through which clear themes from the research study will clearly be presented in a concise and coherent manner. Ethical considerations Important ethical considerations for this research study include obtaining individuals consent before videotaping their answers. Those who do not wish to be recorded will not be recorded but rather notes will be taken. In addition, confidentiality concerning information obtained and who provided it will be upheld, as much as the company identities will be held in confidence. The participants in the study will choose to take part research voluntarily. In addition, no part of the interview would be discussed with other third parties, most especially the company management, or any other concerned party. Since the research will mainly entail the researcher’s stance and interpretation on the information gathered, then a more objective will need to be taken in order to arrive at validly interpretable results. References Barinov, AE 2007, ‘Systemic and Political Factors Affecting Cost Overrun,’ Studies on Russian Economic Development, 18,6, pp.650-658. Beer, G 2009, ‘Technology Innovation in Underground Construction,’ Routledge, London. Bobylev, N 2011, 'Comparative analysis of environmental impacts of selected underground construction technologies using the analytic network process', Automation In Construction, 20, 8, pp. 1030-1040, Academic Search Premier, EBSCOhost, viewed 29 May 2012. 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