Part 7-3: Working Overseas, Advanced Civil Engineering, (NTUST, 5908701)
MT KAO (Blog: http://mtkaoforum31.blogspot.tw/)
7) License, Registration, Special Permit for Foreign Contractor
In many countries, the locals and the foreigners are not offered equal right in conduct business, owning property, or exercising civil rights. People from countries considered liberal enough sometimes are astonished at the restraint imposed on the foreigners at the places they go for works. But it’s normal there’re reasons out of custom, religion and history to justify the differentiation with foreign people or companies, who need to learn everything beforehand for what they can and what they can’t do according to the laws.
(1) For ownership on land, housing and factory:
Many countries don’t permit or only allow conditional and partial ownership for holding land, house or factory for foreigners. The reasons to deny or restrain is that the government and the people are still in fresh memory that the huge capital imported will overwhelm the locals and thus a new form of exploitation; And in certain area it will be labeled like come-back of the colonialism. Politically it will not be accepted.
In certain nations, not only the foreigners won’t be granted for any property titles, also not all the citizens are treated equal. For example, that in Malaysia and Indonesia, natives identified as “Bumiputra” will have full right for property titles while those their ancestors emigrated over hundred years won’t have the same rights.
For example, according to the law governing land holding in Indonesia, the Agrarian Law, title to land may be divided in two categories: Primary and Secondary.
The category “Primary” further divided in 4: “freehold, does not have a validity period”; “the right for construction, valid for 30 years plus 20 years of the extended period with additional 30 years renewal period”; “the right for farming, is granted for the period of 25 or 35 years and may be extended for another 25 years”; “the right of use, granted for the period up to 25 years and may be extended for another 20 years”.
And the category “Leasehold”, grant tenant right to construct and/or use buildings on the land owned by the primary ownership right holder during some fixed period of time. So, the foreign private persons and foreign legal entities, will use this to obtain the land for use of business purpose.
Normally, a foreign construction company signing the construction related contract with his Indonesian client needs to go through many local partners and sub-tier assistant for performance. For example, if he wants to set up inventories, fabrication shops, secure quarry and borrow sites, or build camp and office for staff, he need land and permit to run the minimum processing plants. And it has to be obtained by his local collaborators; with whom he must be establish trust and confidence; effort and expense that can be easily overlooked at tender stage.
(2) For business operation to sign the contract
The types of legal entities, for example, in Indonesia also divide into foreign-owned limited liability company PMA, local company (PT), representative office (RO). When a foreign entity wants to conduct the construction related business in the country, he needs to check the law whether it would grant PMA or RO to perform the works.
Technically, a foreigner is not permitted to have ownership of a local company (PT) in Indonesia, which should be only owned by Indonesian nationals. And the point is most of the public works will be tendered among PT. There may be remaining few for PMA and RO, but also require the joint operation between the foreign and local entities to safeguard the national’s interest.
Because for PMA, the capital shall be sizable enough that the international contractors have to keep enormous money in a place where the chance for tendering may be rare. So, in practice, the foreign companies will have to select to open branch offices in Indonesia to qualify themselves for tenders open to foreigners, it’s so called RO operation. Compared to PMA, of which the liability is limited to the capital registered and paid up in local, RO operation means the mother company will sign and theoretically the debtors and claimers will be able to sue up to the home country. In the cases that the foreign companies need to joint operation with the locals, it seems risky for Representative Office to sign, and become guaranters of the local.
But unlike public procurement, the law doesn’t specify that the private companies are not allowed to sign with PMA or RO for construction or engineering works. For now, that BOT or BT are more popular than before and the ability to accomplish the critical works in an infrastructure project by renown foreign companies are widely recognized by stakeholders. The foreign companies may have more opportunity to assert themselves in the future.
Similar to Indonesia, many developing countries have the same ideas to protect native firms and guarantee the of the locals for employment. The requirement will be translated into the law and regulation that the foreign companies shall respect and understand.
(3) To import the machine, permanent equipment and material
Countries are different in their pace, requirement and conditions to develop the economics. Sometimes, they pay whole attention to groom certain industries open the opportunity for foreign investment, and the other times they may design a negative list for outsiders as they deem the native production are worth for protection.
Import permit and tariff rates are often used to fend off foreign competition. Additional review or cumbersome procedure may be imposed to procrastinate the import process if bureaucrat and business find custom duty alone may not be sufficient to guarantee the sales of the local products.
The local products will not be limited to material or manufactures; the equipment and facilities to be incorporated into the permanent works will also be the subject. The construction equipment and plants despite its temporary usage nature are also hindered in the process of construction mechanization because the labor employment need to be ensured .
However, the host country needs the loans for projects development more than their intention to nurture the relevant industries; they may go for the agreement with the giver international organizations or foreign governments in specified projects earmarking permits to import definite products, equipment and facilities as conditions of lending. Always the importation of construction machines will be included in such loaning agreement with the guarantees the construction equipment and plants will be re-exported after works finished.
(4) To hire local engineers of required qualification and numbers
The host countries always want to minimize the impact to the national employment when they allow the foreign companies to undertake construction works. In general, labor employment is of less concern, because through immigration departments the number and quality of imported labor can be controlled and also the income and fees required to import the foreign labor will be more expensive than the locals.
But for both administrative and engineers, the issue to man the project is more complicated than calculating the cost difference in blending the foreigners with how many locals in what level of the hierarchy.
Usually, the contractors like to assign engineers and staff having long time work experience with them for projects undertaken. Because it’s clear they need to get familiar with the locals to be hired in the project for their unknown performance in technicality and personality; which will be converted into monetary terms not mentioning the possibility that the newly recruited will cause any incorrigible trouble.
In particular countries like Singapore, the personal income is high or comparable to the expatriates, therefore the possibility existed that the general contractor may select third country personnel (TCN) to fill positions and thus not good to the employment of the educated. So, in most of the public work contracts the authority will ask the winning contractor to hire certain number of professionals, of which the definition is the citizens graduated from relative department with years of work experience.
The sort of enforcement has tilted supply and demand between the employees and the employers, and in the worst case causing the difficulty to recruit local engineers in addition to pushing up the manning cost drastically in a country not so big. So, construction and engineering companies shall read the tender document and investigate the market closely.
8) Acknowledge of difference and handicaps:
(1) Handicap in language.
People always think language problem shall be the most difficult part for working overseas, to certain extent, it’s true. But what make it big problem is the personality of the persons in charge of the works. Because the contract with the Client or subcontractor or vendors though may be written in local language, but translation can be made in English. And translators will be available in many cases and if the expatriates want to know the true meaning of everything from his counterpart that shall not be any problem.
English shall be basic for persons assigned for overseas works. We always see people complain about its complexity as foreign language; but it could be an excuse that people involved don’t have good work habit to read not because it’s a strange language. In other words, the same people may not read files and document in his own language very well, and their access to foreign contracts and works won’t be possible.
If a person is anxious to know the project and how the assigned task proceed, he will try all means to interpret the situation for necessary actions; and the language shall not be a problem. If a person dedicates to his overseas work long enough, he may be able to conversant with different language, either English or local language; that’s why we say the language problem can be overcome.
However, company management shall establish criteria to encourage their staff to learn new languages, not necessarily only English, and we understand some companies in Taiwan have responded to people draw high score or obtain license in foreign language tests such as TOE, Thai, and Japanese.
(2) Difference in cultural perception
Overseas construction or engineering works require big degree of interaction with local people, the contracts, deals or simply daily life are much influenced by custom, religion or politic. The foreign companies have to be aware that they’re actually surrounded by host of people in different culture.
Maybe there were the days that the local economic development lagged much behind the contractor’s country, that the foreigners always have feeling of supremacy and individuals will be proud of themselves and imbue disregard on the locals unknowingly. But thanks to the globalization and enhanced education, the locals in many countries get much confidence on tradition, religion and history.
And it means the people will be provoked for minor offence, among them, the most sensitive topic is religion. There’re many things that is sacrosanct and can’t be remedied in association with the belief. People working for any project, in any country shall be told to respect the believers for their religious activities even work efficiency at the expense.
Understanding is the only approach for foreign people to appreciate different culture. It may be one way, but it is only one way especially foreign contractors can’t afford to work like aliens.
(3) Difference in applicable code and standard
Every country has its own code and standard for engineering and construction,
When the market size isn’t big enough so the country may not be able to establish their own rules, they follow the big country, usually consider the language, economic connection, geographical vicinity, or in the dramatic sense follow former colonial practice.
Code and standard applied will determine how calculation and checks will be going on; and also, what the test and experiment shall be done. People have to get familiar with them because engineering work shall be carried out within months nowadays.
When construction or engineering companies go abroad, they have to determine before contract start whether or not they can deliver in time and in quality of the works; and it will affect the cost tremendously for difference in applicable code and standard.
For example, Taiwan establish its own code and standard, CNS, over long time mainly follow American ASTM, ASSHTO alike. Sometimes people understand JIS, DIN or BS, but when it comes for competition they will have handicap and sometimes large companies with many engineers may be able to send hordes of people to meet specified contractual requirement, but not always it could overcome the difference.
(4) Difference in executing safety and environmental protection rules
Safety, hygiene, health and environmental protection are vital for construction and engineering works since the stage project planning, work completion, commissioning and operation. But the rules, either its stipulation or implementation differ from place to place.
It’s not only a matter for cost or competition, sometimes the regulations are too stringent, and it’s a tendency in developing economies that the officers or legislators copy the “best” clauses from the developed countries, and aren’t implementable, if we call it idealism. Usually, the foreign companies won’t stand good chance to find a solution satisfactory to the parties concerned, and it means he has to decide to pursue the project or not before the tender.
It seems like that the difference in executing safety and environmental protection requirement is not so significant, but its implication in execution is enormous and only the locals will tell as a faithful partner.
(5) Difference in Tax codes interpretation and application
The cost of taxation as it appears in terms of corporation and personal income, stamp, excise, property and withholdings tax may not be different to everybody undertaking the contracts, but knowledgeable people know how to save tax starting from the lowest tier of vendor/subcontractors, not to mentioning evading tax.
Tax codes interpretation and application need to take good accountants; however, the foreigners will never expect advantage for all their understanding and maneuver, Again, they’ve to rely upon their local partner, agent or employees; and absolutely a handicap compare to local competitors.
(6) Difference in labor management
It’s difficult for a foreign company to hire labor directly for whatever the project need. Normally, he would try to sub-let all the works to local subcontractors with a view that he won’t be further bothered by how to pay the labor at guaranteed efficiency.
Actually, the good local partner that a foreign company can expect is working as if he were a “comprador”. On the surface he has to take responsibility to take care the labors and at the same time to promise that their work will be done within budget.
The sub-contractors need to pay overtime, absorb idling hours and days, and naturalizing the unions if any of them exist and active, all of these can’t be tackled by the outsider. So, under the circumstance, they have to take the works for rates more than enough, and get compensated if something goes wrong including their own false estimation.
And theoretically, the foreign company come to a country can choose and sub-let the works to whoever he thinks appropriate, but the management and efficiency problems are always there that he can never transfer them to local partner or subcontractors unless they’re knowledgeable and sizable enough to manage the labor problem.