Contact:
Jing Li, SFU Beedie, jingli@sfu.ca
Ross MacDonald-Allan, SFU Beedie, 778.782.9492, rossm@sfu.ca
Derek Moscato, SFU Beedie, 778.782.5038, derek_moscato@sfu.ca

Photo: http://at.sfu.ca/fKoQZy

New research from the Beedie School of Business at Simon Fraser University shows that China is edging ahead in the race for natural resources in Africa with the use of a new bargaining model by the Chinese government.

The research suggests that the model provides Chinese firms with a distinct competitive advantage over their western counterparts and has been the cause for unparalleled growth in the sector over recent years.

The study, entitled The Two-Tier Bargaining Model Revisited: Theory and Evidence from China’s Natural Resource Investments in Africa, was authored by Jing Li and Daniel Shapiro from SFU’s Beedie School of Business, Victor Z. Chen, from the University of North Carolina at Charlotte’s Belk College of Business, and Aloysius Newham-Kahindo, from the University of Saskatchewan’s Edwards School of Business.

The research reveals that the Chinese government was playing an active role in negotiations for access to natural resources in Africa on behalf of its companies, a model the research calls a “modified one-tier” bargaining process.

In this new model, the Chinese government typically represents the collective interests of Chinese natural resources multi-national enterprises (MNEs) in dealing with the host country government. Additionally, the model does not usually require second-tier negotiation between Chinese natural resource MNEs and the host country government.

Traditionally, western governments and firms engage in a type of two-tier bargaining with the host country government. The western governments will negotiate, with the goal being to create a friendly environment for all home country firms.

However, in contrast to the Chinese model, western governments do not seek out investment opportunities for specific firms as part of their negotiations, but instead leave their firms to bid for opportunities themselves.

As part of the new model, the Chinese government offers several incentives to sweeten the deal for the host country. In exchange for investment deals in the natural resources sector, the Chinese government will offer a package with loans that support multiple purpose development projects in various sectors, such as infrastructure and agriculture. The Chinese firms will then act together as a group in order to fulfill the Chinese government’s commitments to the host country government.

“The research explains why Chinese firms are experiencing such high growth in the natural resources sector in Africa in recent years,” explains Beedie associate professor Jing Li. “Their success is aided by the aggressive approach undertaken by the Chinese government, which is in stark contrast to the approach taken by that of western governments, who do not typically seek out investment opportunities for their firms.”

The research is covered further in the latest issue of Ideas@Beedie, the new digital research magazine from the Beedie School of Business.

Simon Fraser University is Canada's top-ranked comprehensive university and one of the top 50 universities in the world under 50 years old. With campuses in Vancouver, Burnaby and Surrey, B.C., SFU engages actively with the community in its research and teaching, delivers almost 150 programs to more than 30,000 students, and has more than 120,000 alumni in 130 countries.

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