Success Determinants when Tendering for International Consulting Projects

Abstract

A unique database on individual proposals is used to analyse competition among consulting firms (CFs) for international projects. CFs, which sell services based on human capital, focus on developing countries when operating abroad and, thereby, are highly dependent on development agencies (DAs). The DAs have strict tender rules and claim that skill and experience are the most important factors when proposals are evaluated. Both economic theory and the results of the estimations suggest, however, that long-term relationships (LTRs) between the CFs and the clients are at least as important as traditional skill and experience factors. The LTRs are here measured by means of information about whether the CF has previously worked for the client (repeat purchases) or has visited the client. The results indicate that the client in some cases has pre-decided which CF to select. The client invites several CFs to compete for the tender anyway, either because he is forced to do so by the financier, or because he wants to subject an old supplier to competitive pressure. As the tender rules do not seem to be followed, a policy implication would be that the DAs can skip, or at least relax, their strict tender rules, or strengthen the sanctions associated with violations of the rules.

Keywords: Consulting firms, Export proposals, Procurement, Development agencies, Long-term relationships, Asymmetric information

JEL Classification: F14, L84