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In Spain

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An estimated 20,000 joint ventures have been formed worlwide over the past two years. Such
strategic alliances can provide business owners with long-term security, new revenue channels,
and , often, the anchor needed to maintain stability in otherwise turbulent waters. A successful
joint venture can open the door to a wold of future partnership opportunities (Robert L.Wallace
2004)

Factors now at play in our economy make it more feasible and more critical than ever for small
business owners to leverage the power of joint venturing. These factors include:

The emergence of the customer economy

Advances in technology that have neutralized time and space contraints

Change brougt on by shifting demographics

More entrepreneur- and more oportunities- as a result of downsizing

In the midst of these world-changing trends, what is often missing from a succesffull business
strategy are the critical alliances and strategic partnerships that will help leverage the strenghts
and minimise weaknesses. Forging joint ventures and strategic alliances will allow business to
win millions contracts as the partner with large companies to offer with, breadth, and depth
demanded in the marketplace.

Done well, joint ventures provide both participating businesses with a chance to learn and benefit
from each other, and to achieve results neither could achive alone. In this dissertation will be
explained- how to enter into joint ventures well so a company can prosper in ways it never could
by doing it alone

CONTENTS
Page

ACKNOWLEDGEMENTS i

ABSTRACT ii

CONTENTS iii
LIST OF TABLES v

LIST OF FIGURES vi

INTRODUCTION 1

1.1 Introduction 2

1.2 Objectives of Dissertation 2

Contents 3

JOINT VENTURE EXPLAINED

2.1 Joint Ventures Explained

2.2 The Rationale of Joint Venture Formation

2.3 Joint Venture Formation

2.4 Management and Implementation

LITERATURE REVIEW

3.1 Forms of Joint Venture

3.2 Motives of forming a Joint Venture

3.3 Selection of Partners

3.4 Preliminary Agreement and Negotiation

Research Methodology

4.1 Research Approach 40

4.2 Research Ethics 41

4.3 Interviews 42

4.4 Survey 46

FINDINGS AND DISCUSSION

5.1 Basic Conflicting Interests


5.2 Loss of Autonomy and Control

5.3 Findings

CONCLUSIONS AND RECOMMENDATIONS

LIST OF TABLES
LIST OF FIGURES
Chapter One

Introduction and Objectives of Dissertation

Introduction
“Business once grew by one of two ways: grass roots up, or by acquisition. Today business grow
through alliances- all kinds of dangerous alliance, joint ventures, and customer partnerign, which
by the way, very few people understand�?

(Peter F.Drucker 2007)

Experiences of joint venture management in the construction industry traced back to the early
60´s. It appears that characteristics of this industry favor the proposition of joint ventures
formation. Although statistics are not available, this is obviously true in relation to the
infrastructure development of Spain at the present moment

The determination of the .

1.1 Objectives of Dissertation


This paper attempts to review the existing literatures on management of joint ventures its merits
and problems, particular issues arisen and suggested management techniques to cope with such
obstacles in operating a joint venture.

Interviews were conducted with two senior staffs of one of the partners of a joint venture formed
by four construction firms. The joint venture is currently undertaking one of the Train Station
Core Projects to be completed before July 2011. It is hoped that hand-on experiences of these
senior staffs, at the level of Management Committee of the joint venture, as well as the
operational level of the joint venture, would provide us valuable insight and opinion on the art of
joint venture management, as a reflection and complement to the general review of the
literatures.

The key objectives are:


To critically appraise the existing literature to Corporative alliances issues and the role of
International Strategy in applying these issues.

To establish the importance Strategic alliances with competitors in the international market.

To evaluate the purposes of strategic alliances as well as to what extent might be successful a
company.

To determine other factors that influences companies in seeking Joint Ventures.

To assess the sources of value creation.

To study possible pitfalls in doing a Strategic Alliance.

To draw conclusions upon a joint venture in a case study.

1.2 Contents
In Chapter 2, the organization of interest is described in detail along with an explanation of its
forms. In Chapter 3 the literature in relation to joint venture and strategic alliances in general and
its application within the company is critically reviewed. Chapter 4 describes and justifies the
research methods employed and includes a section on the ethical considerations of the project. In
Chapter 5 the findings of the one-to-one interviews, In Chapter 6 the findings are analyzed and
evaluated in relation to the published research literature. In Chapter 7 a joint venture framework
for the SMART Services is presented along with a plan for its implementation. Finally, in
Chapter 8 conclusions are drawn and recommendations are made for future work.

A list of references is provided and the appendices contain pertinent information, documents
(including, the survey questionnaire) and collated data.

Chapter Two

Joint Venture Explained

2. Joint Venture Explained


A joint venture is the coming together of two (or more) independent business for the sole
purpose of achieving a specific outcome that would not have been achievable by one of the firms
alone.

(Source: Wallace 2004)

2.1 The Rationale of Joint Venture Formation


The form of joint venture provides benefits and a skeleton, based on which the management
philosophy of the joint venture builds up. . (See Figure 1)

Figure 1: Joint Venture. Business Benefit


Source: Trendsetter Barometer, PWC

In respect of share of management, there are dominant parent ventures, share management
ventures and independent ventures. Degree of involvement of parents in these types of joint
ventures differs, and in turn these joint ventures face different types of nature and management
problems. At operational level, there are approaches of integrated structure and non-integrated
structure. The nature of the business and the share of responsibilities in various aspects of the
business will be the determination factors of choice

Generally speaking, the choice of form of joint venture should be made in accordance to what
contributions are required of the parents in order to achieve the purpose of forming the joint
venture. Companies forming joint ventures basically intend to develop markets and products.
Common reasons are: to suit government policies, pooling resources, risk sharing, building
business relation and to reduce competition.

The first step to form a joint venture, after realizing that such tactics is desirable, is to select a
partner. Consideration on selection of partners concentrates on three major themes: shared
objectives, mutual trust and co-operation, and abilities of the potential partners.

Appropriate partners should be compatible in their objectives of forming the joint venture and
their expertise/Knowledge on the business. Right partners also should possess similar
management styles normally. Lastly it is important that potential partner’s real intention is
realizes, to avoid future major disagreements.

2.2 Joint Venture Formation


When the partners have reached initial agreement to form a joint venture, often a preliminary
agreement is signed. It forms a basis for the drafting of the detailed agreement, and provide
framework for the partners to work together and proceed to more detailed planning works. But
subsequent negotiations following for the preliminary agreement often provide good chances for
the partners to understand more thoroughly the expectation of potential partners. It is not
uncommon that a final agreement cannot be reached because major conflicts are revealed in the
process of subsequent negotiations after preliminary agreement.

It is always intended to write agreements to cover all contingencies. But some managers consider
that it is not so practically possible in view of the rapidly changing environments nowadays.
Instead, emphasis should be placed on building up mutual trust and thus it is important to
incorporate a sense of fairness into the joint venture agreement. Generally defined, well
understood mutually, and respectful to each other´s rights in return to their contributions
committed.
It is suggested that the best solutions should be an agreement covering all possible contingencies,
together with the design of a flexible mechanism allowing changes to be agreed between
efficiently while promoting cooperation and mutual trust.

A very important aspect in drafting the joint venture agreement is the design of reward system
for the partners. Pay-off in the form of product flow between the parents and the joint venture is
often the source of major management problems and conflicts. Such product flow diverts
attention of the parents from the joint venture´s benefits. Again, fairness and willingness to co-
operate are the keys to resolving such problems. If at all possible, market comparison is a useful
guide to fix the transfer price in a fair sense.

The primary concern of a partner in forming a joint venture is probably the degree of control
over the business. In respect of split of ownership, majority-minority shares are sometimes
preferred, as the majority of partner can act as leader for the joint venture and thus gives
direction in a less ambiguous manner for the operation of the joint venture. On the other hand,
come companies prefer equal shares to ensure willingness of all partners to contribute efforts as
required and they may also feel more comfortable that all partners have equal “status�? in the
joint venture.

Ownership distribution is less important than how operation control is actually apportioned.
There is no rule on thumb on allocating operation control. General guidelines are that each parent
should be motivated to make necessary commitments continuously in accordance to their
abilities, and that each parent should be protected in its interests. To enhance long term co-
operation, exploitation of other partner´s interests must not be attempted. It must be emphasized
that full equality in operating control requires much more efforts from all partner, and the joint
venture would have to be operated in day-to-day on-going negotiations and compromise among
the partners.

2.3 Management and Implementation


Standard joint venture organization consist of two components - the management board and
operation organization. The management board is the highest authority of the joint venture. The
composition of the board and jurisdiction of the board determine largely the share of power
among the partners. To build an effective board, board members should be delegated enough and
necessary authority by their own companies in making decisions and vote in the board. They
should endeavor to maintain mutual trusts among the partners, to sustain the common goal and
objectives of the partners and to the exercise effective control over the joint venture. This is
better to clearly separate the operation organization independently from the management board,
to avoid biases or perceived biases towards one particular partner.

As mentioned earlier, staffing is a possible and often effective way of controlling the joint
venture operations. But overact may generate resentment from other partners. It will be
extremely difficult to build up cohesiveness of the operation organization from all the partners.
The organization will possibly segregate into groups of their own companies. Theoretically,
secondly is desirable only if considered necessary for the needs of the joint venture. Otherwise
recruitment from outside can more easily maintain the independence of the operation
organization.

The joint venture manager is an important role, as the leader for the operation organization, the
bridge between the child and the parents, and sometimes as the “mediator�? for the parents if
disputes arose among them. He has to possess negotiation skills, people skills, and selling skills
to bring together mutual co-operation form all parties concerned. He is often found to be
involved in ambiguous relationship, with his sub-ordinates and supervisors, and wit the parent
companies. In order to achieve his task of pleasing everybody and avoiding conflicts and tension
between the parties concerned, he has to be highly tolerant and ambiguity.

The joint venture manager should be loyal only to the joint venture, not to any of the parents. He
has to be perceived as neutral, otherwise his opinions will never be convincing to other people.
Biased loyalty of the joint venture manager will arouse other parents taking harmful measure
against smooth operations of the joint venture. Being neutral is an important qualification of the
joint venture manager in order to gain autonomy and trust, which in turn makes the joint venture
more likely to succeed.

The joint venture agreement implied an independent operation organization separated from the
parents to be fully responsible for daily management of the business and that the operation
organization enjoyed a high degree of autonomy. In practice, the independence and autonomy
were granted to the operation organization, only if all parents, in particular the joint venture
manager, will act truly neutral. Without such belief, parents were able to exercise disruptive
negative measures to hinder the normal implementation of management for the joint venture
operations.

The case also supported that the quality if the joint venture manager in negotiation skills and
human relations, and its relationship with the parents was a paramount importance of the success
of the joint venture. A strong leader might be harmful for a joint venture, but a practical and
flexible manager surely is very useful.

Chapter Three

Literature Review

3.1 Forms of Joint Venture


3.3.1 Share of management
The fundamental question in management of joint ventures is the degree of involvement of
partners in decision making processes on major policies as well as day-to-day operations of the
joint ventures. In this respect, joint ventures are often categorized into three types:

(Stephen I. Glover and Craig M. Wasserman 2003)


Dominant parent ventures: in which management decisions are dominated by one parent, either
formally by majority voting rights in all major aspects or informally by management settings to
control key decisions makings without significant involvement from the other party.

Shared management ventures: in which management of joint venture operations are shared
between the parents, either shared by each providing resources in certain functional areas or
shared by pooling resources at most levels of the joint venture operations. Characteristics of this
type of joint venture are the necessity of frequent negotiation and agreement between the
partners at most all levels and aspects of the business management.

Independent ventures: in which parent´s involvements in the management of the joint venture is
very little, as it is left almost entirely to an independent group of personnel employed under the
joint venture. The roles of parents are not too much different from shareholders, except that they
may be providing other distinct types of resources as well as capital and there are only a few
shareholders.

Dominant parent ventures and independent ventures are thought to be more trouble free, as they
require less interaction and thus less potential conflicts between the parents. However, there are
no concrete evidence to suggest that these two types of ventures will be more likely to succeed
than shared management ventures. Obviously the choice of joint ventures types is dependent on
the situation and nature of the business and the parent’s ´characteristics.

Circumstances often call for shared management but no other choices, simply because joint
efforts are required to achieve what is intended. Pooling of resources, and thus a mixed input of
management efforts from both parents, may be the fundamental desire of forming the joint
venture. In such cases, dominance of one parent certainly cannot fulfil the purpose of the
strategic alliance and the question is to overcome the difficulties of shared management on joint
ventures operations.

Legal Form
In terms of the legal form of the joint venture, there can be three choices: (Dennis Campbell and
Antonida Netzer 2009)

Consortium: it refers to a grouping, formed on a one-off basis, which is governed by a


contractual agreement. The contractual agreement is made to define clearly the position of each
of the parents, including a specification of the authority, responsibility, liability and power of
each party.

Parnership: it can take a form of formal partnership. The parties are then effectively recognised
in law as partners. The joint venture is considered as a business entity on its own, in legal terms,
separated from the individual parties. As partners, each of the parties is legally liable for any debt
or default committed by other partners on behalf of the joint venture, which may not be the case
if formed as a consortium depending on details of the contractual agreement of constituting the
consortium.
Incorpotation: joint ventures which are intended to be a permanent business are usually
constituted as an incorporate entity. This would enable the parties being insulated from the risks
of the business of the joint venture, as a limited company. The major disadvantage is that the
profit and loss sustained by the joint venture as incorporation cannot be set off against that of the
parent companies for tax purpose.

3.1.3 Operational Structure


The two extreme categories of operational structure of a joint venture are integrated joint venture
and non integrated joint venture (Dennis Campbell and Antonida Netzer 2009)

Integrated Structure: the parties agree on a certain proportion of capital and resources investment
and a prescribed profit or loss sharing formula, and they both participate on every level of
execution of the joint venture business.

Non-integrated Structure: in such case, the joint venture usually provides for general
management machinery, which looks after overall administrative and coordinative roles for the
joint venture business. The whole business is then divided into packages or portions which are
assigned to the parents to execute and operate such packages or portions as designated in the
joint venture agreement (Appendix A)

In practice joint ventures are usually a mixture of these two approaches. The question is the
degree of integration to be adopted for the given set of circumstances faced by the joint venture.
For that joint venture business that can be divided into clear cut portions and such divided
portions will suit the capability and resources of different partners, non-integrated approach will
usually be adopted. While the joint venture business is complex and it requires a centralised
management of all aspects of the business, the management will be integrated.

Integrated approach is more difficult to manage. Conflicting interests and ideas between the
partners can arise more often than non-integrated approach. But it is often unavoidable as the
nature of the joint venture business mar not is possible to be divided neatly into portions.

On the other hand, for non-integrated approach, complicated contractual argument can arise
between partners. In case of joint venture agreement in a basis of joint and several
responsibilities, it is not uncommon that the partners lodge contractual claims against each other
on non-performance or default of the other parties in executing their portion of the joint venture
business resulting loss to the whole joint venture from third party claims.

The Case Study

The parents attempted to adopt a mixture of shared and independent management for the joint
venture under study, as implied in the conditions of the joint venture agreement. The
management committee of the joint venture, which was the highest level of decision making and
policy setting, were composed of one representative each partner.
In respect of operational structure, a mixture of integrated and non-integrated approach was
adopted. While a separate joint venture organization supposedly independent from the partners
managed and operated the whole joint venture business integrally, the project was divided into
portions and packages which were then subcontracted back to the partners under the joint venture

3.2 Motives of forming a Joint Venture


Companies forming joint ventures basically intended to develop markets and products i.e. to
strength the firms’ existing business, to take the firms existing products to new market, to obtain
new products that can be sold in the firm´s existing markets, and to diversify into new businesses
(Mark de Rond 2003) These objectives can be achieved through various ways, as shown in figure
1.1

But why choose a joint venture to try to achieve these objectives? Common reasons are: (Das y
Teng 2000)

Government Policies: because of licensing requirements of the government for undertaking a


certain type of business in a country, e.g. for construction works in Spain many foreign
companies may wish to form joint ventures with local companies who have the required licenses
at hand in order to enter the market first, while they at the same time apply for the necessary
licenses which may take months or even years in some cases. Many governments, who attempt
to protect the development of certain industry of their countries, establish regulations that
prohibit foreign companies to set up wholly owned subsidiaries. If foreign companies wish to
explore the market of those countries, they have no choice to form joint ventures with local
companies.

Risk Sharing: in very large and risky projects that companies feel uncomfortable to bear but
unwilling to give up the business opportunity, several companies share the risk by undertaking
the project jointly. These risk may be commercial risks (finance, source of materials, technical
uncertainties, etc) or political risks (change un government policies, unstable political status of
the country, etc)

Figure 1: Motives for joint venture formation


New Markets
Existing Makets
To Take Existing Products To Foreign Markets
Open Markets

Closed Markets
To Diversify into New Business
Learning from your partner

Learning with your partner

To Strengthen the Existing Business


Achieving economies of scale

Acquiring technology

Reducing financial risk

To Bring Foreign Products To Local Markets


Marketing and distribution

“Screwdriver “assembly

Developing local technology

Technology flow back to parent

Existing Products New Products

Source: (Das y Teng 2000)

Pooling of resources: companies often join to develop business that requires a combination of
different resources (finance, technology, market access, local experience, etc) that none of these
companies possess all of them, e.g. a combination of market access by one company and
technical knowledge of a product by another, combination of different technical skills that are
necessary to develop a product, or a combination of several companies ‘resources to achieve
economies of scale.

Building business relation: some companies form joint ventures with in order to build up wide
business relations among the industry. They believe that this will enable them to widen their
networks of business and that it may be helpful for their further business developments in long
term.

Reduce competition: joining with your competitor automatically reduce the degree of
competition. This is particularly useful if there are only a few potential competitors only. It is not
uncommon to find in certain industry that formations of joint ventures effectively create
monopolistic or oligopolistic conditions.
The Case Study

In the construction industry inherent risks involved in the projects are the major concern of a
company´s business strategy. Sharing of commercial risks (financial burdens on the company,
source of raw materials, technical uncertainty involved with the works) for large scaled projects
is the major reason of forming joint ventures. Because of the huge amount of resources involved
and the multi-disciplinary nature of the projects, pooling if resources from several companies is
necessary to gain sufficient competence in order to tender for the works. Not a single company
may have all the necessary skills and sufficient amount of resources that are required for those
Train Station Core Projects. Formations of joint ventures become the most common tactics for
the construction firms to undertake those projects.

Political risk is also a major concern especially for foreign firms who are not familiar with the
policies. Most foreign firms conceive that formation of joint ventures is an effective way of
securing the safety of the business, particularly when undertaking infrastructure development
projects of payment terms. Large construction firms (both local and international firms that were
interested and had potential to undertake these large projects) gradually formed into groups of
consortium to tender for these jobs. As a result, the industry transformed into competing allied
groups, instead of competing among individual firms. Although such transformation might be
unintentional at the time these companies first formed joint ventures, they now became aware of
such advantage and might use this again as one of the useful tools in future when considering the
company’s strategy competitions in the industry.

3.3 Selection of Partners


3.3.1The Criteria of Choosing a Partner
Considerations on selection of partners concentrate on three majors themes: (Lynn Krieger 1991)

Shared objectives

Mutual trust and willingness to co-operate and

Having necessary skills/resources

The task is to find a compatible partner in respect of these three major themes. The right pair or
group of partners often implies an asymmetry of partners, i.e. the right partners often have
different quality and characteristics so that they will complement with each others on the need of
the business. Basic consideration is whether the potential partner can provide what you need and
the confidence of the potential partner´s willingness to co-operate.

They may not have the same objective but their co-operation should fulfill each other´s
objectives. They may not have the expertise on the same area, and they should possess different
knowledge so that when combined together their competence will be strengthened. In fact two
partners having expertise on the same area often is the source of conflicts as both will consider
their own approach is superior without due respect on the other partner´s expertise on the field.

But right partners should desirably have similar management styles and outlooks so that their
overall business strategy would go along the same direction. Otherwise, conflict on major
business policy that is originated from the incompatibility of the partners expectation on what the
joint venture should achieve eventually arise someday Lyn Krieger put forward two prepositions:

The more similar the culture of firms forming a shared management joint venture, the easier the
venture will be to manage.

The more similar in size are the parents of a shared management venture, the easier the venture
will be to manage. A significant size mismatch between a venture´s parents can create a lot of
problems for the venture.

Culture here refers to both corporate culture and the culture of the country from which the firms
are based. These propositions are based on the principle that managers, to be effectively working
together, need to be able to evaluate each other´s judgment and the way of working before they
can build up a cohesive team. The second proposition is an extension of the first one as size of
the company can contribute to difference in corporate culture.

One should also be alert on any hidden agenda of your potential partner (Kathryn Rudie 2003).
Confidence on the observation of your potential partner´s real intention and objective to form the
joint venture is a pre-requisite condition before a decision can be made on the choice of partners.
The classic tragic case of Beijing Jeep is a good example of hidden agenda. Both partners did not
spell out clearly their real intention of what was to be achieved, and both partners did not
understand thoroughly the other partner´s real intention before signing the joint venture
agreement. Unreasonable conflicts arose not long after formation of the joint venture, when both
parties realized that they were expecting something beyond the wishes of the other party. The
tragedy ought to be avoidable if both parties made clear of their expectations before signing on
the joint venture agreement.

3.3.2 The Process Selection


It is suggested that a step-by-step approach should be adopted to develop relationship with
potential partners (Kathryn Rudie 2003):

Prepare a checklist desirable quality of the partner

Searching out for potential partners based on the checklist

Prepare proposals and issues to study and negotiate with the potential partner

If possible, try out a joint venture of small scale before committing long term and large scaled
joint venture business
Theatrically, this process enables the partners to develop faith and mutual trust and allows better
mutual understanding before placing large financial stakes on joint ventures with unfamiliar
partners. Obviously, this takes a long time and in practice the ever changing business
environment often does not wait for such long process of partner selection. Business
opportunities simply slip away before the good partner relationship can evolve in this way.

In real life, it is often founded that good joint venture partner relationship is assumed at the time
of signing the joint venture agreement, and the assumption is often based on personal
relationship between the CEOs of the companies.

The Case Study

Major consideration in selection of partners was what resources the partner could bring in to
supplement his shortages and strengthen the competence of the company to successfully tender
for the job. Reputation and track record in the international construction industry was the first
item to check on, particularly as the potential partner was new-comers to Spain.

It was admitted that the other partner’s intention of choosing the company was not fully known
at the time of forming the joint venture. At that time, it was only understood that the company
was chosen by other partners because of its local experiences in Spain and the feeling of political
security that the firm could provide as a whole owned company. It was now gradually revealed
that the partners also intended to build up long term business relationship with the major
company on future prospects of exploring the company, obviously because of the relationship
with municipal government. In fact, one partner had already been discussing with the company
on the possibility of undertaking infrastructure development project in Spain. There was hidden
agenda although it was not detrimental in this case. In the contrary, it helped to enhance their co-
operation spirit in the present joint venture.

The selection process was not systematic and objective at all. It was in fact a very quick decision
to form the joint venture after very brief discussions with the potential partners and examining on
the partner´s information such as auditor´s report and the partner´s previous track records of
large construction projects undertaken. Two major factors contributed to the quick decision:

Reputation of the companies in the construction industry: this gave confidence to other partners
in believing that the partners could bring in the right resources as promised

Personal relationship between CEOs of the companies: the CEO of the company had been
previous colleagues of the CEO of one foreign partner, who in turn had very close personal
relationship with the CEOs of the other two foreign partners. This was probably the most
important factor of making the bold assumption of mutual trust and faith in future joint venture
works.

3.4 Preliminary Agreement


When the partners have reached initial agreement on the formation of joint venture, often a
preliminary agreement is signed to confirm the intention of the partners
Chapter Five

Findings and Discussion

5. Findings and Discussion


To sum up the discussion above, major drawbacks and difficulties encountered of forming a joint
venture can be categorized into two main types: basic conflicting interest and loss of autonomy
and control.

5.1 Basic Conflicting Interests


Those ventures formed with parents of basic conflicts in their intentions and directions on what
the joint venture should achieve are bound to failure. Typical examples of such joint ventures
happen in some countries that are starting to open internationally such Venezuela or Cuba. In
those countries real intentions of foreign firms were to import into huge markets, while state
owned enterprise only intended to import a minimal amount of foreign goods together with
technology for the development of the industry. These different intentions required two
completely different approaches to be adopted in the joint venture to develop business.
Compromise could never be reached in such cases and the results were often disastrous for both
parties.

Such joint ventures should not be formed at all in the very first beginning. They existed only
because of the misinterpretation of the other parties’ intention, or there were hidden agenda of
the parties at the negotiation stage. It is therefore important that when choosing the partners,
through mutual understanding and realizing each other´s intention are the basic starting point, to
make sure that at least the overall direction of the joint venture as expected by all parties would
be the same.

Like most construction joint ventures, partners in the studied case had no doubt on the overall
direction of the joint venture, to undertake the particular construction project as contracted with
the client and construct the work within the time and budget as planned. Failure to achieve the
very specific target would incur substantial loss to every parent. This basic characteristic ensured
the common efforts of all parents in future to strive for a common goal, which was the
fundamental factor leading to success of the joint venture.

But there were some secondary conflicts of interest, arising from the transfer price of sub-
contracting packages back to the parents. But because of the appreciation from all parents that
failure of the basic goal would be disastrous for all parents, they presented a high degree of
tolerance and willingness to compromise on such issues of secondary conflicts of interest. This
assisted a great deal to ensure smooth operation of the business and to avoid deadlock between
parents.

As discussed previously, there were hidden agenda revealed from foreign parents. Fortunately,
the hidden agenda (develop business relationship with the company parent in order to explore
further business opportunities) Compromise could be reached more easily in such a commercial
atmosphere between the parties, although this might give opportunities to the company parent to
exploit more benefits from the joint venture.

It can be concluded here that joint ventures are preferred to have a very specific and clearly
defined goal of physical achievement, which are shared and deeply concerned by all parents.
This will almost guarantee co-operation attitudes and contribution of efforts from the parents.
Appreciation of long-term business relationship among the parents is also a determining factor in
this respect.

Most construction joint ventures were formed to undertake a specific project, with clearly
defined scope of works and time limit. This basic characteristic is probably the most important
factor that joint ventures in the construction industry have a very high rate of success.

5.2 Loss of Autonomy and Control


It is repeatedly emphasized that problems of joint venture arise simply because there is more
than one parent. Each parent wants to control its child´s activities in its own way. They are often
concerned about perceived loss of control over invested capital, technical resources and propriety
information. They are worried that such valuable assets may be undesirable distributed to
outsiders and other partners.

Unanimous decisions makings are often required in order to protect interests of all parents fairly.
As a result, the mechanism of decision making on major policies as well as day-to-day
operations if not carefully designed in an appropriate manner will be a major bottleneck for the
efficient and effective management of the business. Poorly structured joint ventures often
encourage political behavior problems.

Parents exercise formal and informal tactics to gain control over the business, in a way not
expected by the joint venture agreement. This often generates deterioration and degrading of
trust among parents, which in turn create more political behavior.

To avoid such political scenario, very clearly defined responsibilities (either in the joint venture
agreement, or to be agreed from time to time) are a pre-requisite condition. The best approach
would be the sharing of responsibilities in accordance to the capabilities of the parents. In
relation to sensitive issues that involve conflicting interests among parents or between a parent
and the joint venture as a whole, it is advisable to confer the jurisdiction to a truly independent
party. But it is recognized that to find a truly independent party, who also has to be an insider
knowing details of the issues, is often practically difficult. Negotiation remains the last resort. If
all parents can overcome the fear of being exploited, the extent of political behaviors will be
reduced.

5.3 Findings
In the studied case, management control was ideally designed to separate operational
management policy makings. Almost full authority was entrusted to the joint venture
organization, as stipulated in the joint venture agreement, on all matters of operational
management. To avoid bias to any parent, the joint venture organization was composed only by
staffs recruited from outside. No from any if the parents was allowed. Policy making was
decided by the management committed, in which all decisions was expected to be under full
control, without disruptions from interference by the parents, by the joint venture organization.
Practically, two loopholes were found. First of all, flexible interpretation of major policies and
operational matters resulted in a unclear division of authorities among the joint venture
organization and the management committee. Second of all, expectation of truly independence of
the joint venture staffs was impractical, as it was impossible to prohibit personal and private
relationship between managers of parent companies and the key staffs of joint venture
organization.

Political scenario was unavoidable, especially when there were more than two parents. It was
also inevitable that some of the parents, who were more experienced in joint venture
management and more capable in the business, gained more control formally and informally on
the operation and overall direction of the business. At the same time, certain degrees of
exploitation of benefits over other parents from the joint venture were inevitable. Co-operation
among the parents, stopped from the fact that joint venture still expected a good profit.
Commercial advantages were fundamental consideration.

Chapter Six

Conclusion & Recommendations

6.1 Conclusion and Recommendations


It must be emphasized again that the picture of the case revealed from the interviews were one
sided story only. But nevertheless it represented opinions and feelings of the partner concerned
on the experiences and insights drawn from real life in relation to joint venture problems.

Both Manager A and Manager B considered that the joint venture was a successful one so far,
but only looking from the position an employee of the Spanish company, obviously because the
joint venture itself expected reasonable profit and most importantly product flow between the
wholly owned company and the joint venture resulted in good profits. It was also considered
successful in the sense that Spanish company could exercise effective control in most important
policy makings of the joint venture management to suit the interest of the effective control
stopped from the political position of the company with its partners and the commercial
environment at the moment.

The characters and culture, reasoning of the parents to form the joint venture, and the real
expectations of the partners to be gained from the joint venture contributed to the overall
atmosphere and management settings of the joint venture. Difficulties encountered in the early
stages of the studied case could eventually be resolved only if all partners were willing to
compromise and sacrifice short term benefits. It was not easy for partners who had no long term
business relationship previously, in which case faith and mutual trust in other partners looking
forward to future mutual benefits could not be expected.

It appears that, from the experience of the Spanish company in this joint venture, the selection of
partners in the outset of the formation of joint venture almost fixed the fate of the joint venture.
Whether the partners matched with each other, in respect of both resources and management
styles determined to a large extent the atmosphere of co-operation amongst them.

It is also noted that the current strategic position of the company which allowed him very
beneficial conditions to gain or exploit from the joint venture business, was not a planned
strategy of the company.

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