Professional Documents
Culture Documents
Factors Affecting The Success
Factors Affecting The Success
The present study is an attempt to find out the factors affecting the success of
joint ventures in construction firms in India. For this purpose, the study identified
several critical factors based on a very comprehensive literature review and
developed a questionnaire. The questionnaire was tested for its reliability and
was pretested. The final questionnaire was administered to respondents having
experience in dealing with joint ventures in the construction sector working on
behalf of clients, contractors and consultants. Factor analysis was performed to
group the items of the questionnaire, and a total of six factors were extracted,
namely, cultural fitness with host nation, organizational fitness, partner synergy,
relationship building and maintaining the relationship, proper management of
joint venture and joint venture drivers. The overall variance explained by all the
factors is 77%, while cultural fitness explained 38% of the variance.
Introduction
Construction industry in India is one of the largest contributors to Gross Domestic
Product (GDP) as per the estimates provided by the Ministry of Statistics and Program
Implementation (MOSPI), Government of India, 2017. The contribution of
construction sector to GDP is 8% (approx.), i.e., 1,064,068. Construction sector is
also the second largest employment generator after agriculture with about
45 million people working in the sector directly or indirectly.
The sector is facing problems of time and cost overrun (Chan et al., 2003; Phua
and Rowlinson, 2003; Hughes et al., 2009; and Famakin et al., 2012) in India (the
problem is universal), which is resulting in disputes among client, contractors and
consultants, between contractor and subcontractors, issues of low labor
productivity, and many more (Rooke et al., 2004). Heal (2010) noted that traditional
Factors
© 2019Affecting the Success
IUP. All Rights of Joint Ventures in Indian Construction Firms
Reserved. 39
ways of resolving such disputes between parties are not yielding the desired results
and alternative solutions are needed. Increasing complexities of buildings, the
need to reduce designs and construction periods and the need to improve project
performance create pressure to find alternative means of project delivery (Chan,
2000). There is an urgent need to change the way construction projects are designed
and delivered.
The construction sector in India is highly fragmented with more than 31,000
large and small construction firms. Most of these firms are small construction firms
with less than 200 employees and a very low annual turnover. At the same time,
there are around 100 big construction firms listed on National Stock Exchange
(NSE) and Bombay Stock Exchange (BSE) with huge employee base and turnover.
Additionally, there are more than 1.25 lakh small contractors and sub-contractors,
who are working on individual projects.1 Such fragmentation prompted the question
as to why this industry is so much fragmented and whether we are really going to
see some degree of consolidation in the construction sector. Such fragmentation is
very rare for an organized sector and can be due to low entry barrier and family-
owned business practices in India.
In order to search for solutions to the problem of time and cost overrun and
handle construction-related problems by bringing operational efficiencies,
consolidation of the sector is the need of the hour, and keeping this in mind, the
Government of India has allowed 100% FDI in construction in India. The consolidation
of the sector is possible through the means of Mergers and Acquisitions (M&A) and
joint ventures. M&A is a collaboration of two firms for an indefinite period of time,
whereas joint venture is a temporary relationship between two or more parties in
the pursuit of completing a single project. The desire to enter new construction
markets around the world has also necessitated construction organizations to
employ the joint venture approach (Mohammed, 2002). Forming joint ventures can
be particularly attractive when the firms are based in different countries (Owens
et al., 2013; and Yao et al., 2013). Joint ventures help in access to the new markets
and distribution networks, increased capacity, sharing of risks and costs with a
partner, and access to greater resources, including specialized staff, technology
and finance. Joint ventures in the construction industry fall broadly into two
categories: integrated and non-integrated (Garb, 1988; and Norwood and Mansfield,
1999). An integrated joint venture is one where all the parties essentially agree to
perform their work as if it were performed by a single corporation having several
stakeholders (Garb, 1988), whereas the non-integrated joint venture is used when
each party to a joint venture has discrete scopes of work and the joint venture is
being formed merely to satisfy a particular requirement necessitating a joint bid
(Garb, 1988).
1
See https://www.workpack.in/2016/03/08/why-is-indian-construction-industry-highly-
fragmented/accessed on November 27, 2018.
Literature Review
When small and medium size contractors want to explore the international market,
they often use the joint venture approach. Such a joint venture has the potential
to provide a contractor with access to potentially lucrative new market places that
would otherwise remain closed. It also has the potential to provide an employer
with the experience and expertise not usually found in the home market at a lower
cost than seeking prices from external sources (Famakin et al., 2012). Joint venture
also offers an advantage to large construction firms by providing dedicated customer
service at a reduced cost with no delay. Dikmen et al. (2005) applied the Artificial
Neural Network (ANN) and multiple regression techniques to rank the factors to
achieve organizational effectiveness and found that joint venturing is the most
useful way to achieve the benefit from market opportunities and create
organizational effectiveness. Wong et al. (2018) noted that a joint venture is only
going to be successful, if conflicts can be managed properly, and it can strengthen
relationships and performance through stimulating communication, resolving issues
and solving problems.
Walker and Johannes (2003) found that trust and commitment building is of
fundamental importance for joint venture success. Ozorhon et al. (2008a) studied
the effect of organizational fit between the partners, quality of partner relations,
managerial skills, financial resources, organizational size, workload, and project
experiences and concluded that all these factors lead to successful joint venture
projects. They developed a Structural Equation Modeling (SEM) in their study to
see the impact of several factors in joint venture firms on project performance.
Ozorhon et al. (2008b) in their study found that culture plays a very important role
in the success or failure of a joint venture. Girmscheid and Brockmann (2010) found
that inter- and intra-organizational trust plays a vital role in the success of a joint
venture. Yuming and Daniel (2014) reviewed the research trends of joint ventures
in construction and came to the conclusion that papers on joint ventures in
construction mainly focus on theory and model development: motives, benefits
and other strategic demands of application; performance measurement or
management; risk assessment or management; influential factors for practice;
problematic issues and challenges in practice; and managerial practices of
construction joint ventures in the industry. Their study also identified that the
Most of the studies have been conducted in China, as China is witnessing huge
growth in joint venture activities in the construction sector.
There exists a gap with respect to such studies in India, as the authors did not
come across papers on similar themes in India.
The questionnaire items were carefully selected based on the literature review
and subjected to expert opinion, before the final questionnaire was administered
to the respondents. The experts’ advice helped the authors to enhance the validity
of the questionnaire. Before data collection, a small pilot study on a group of 10
respondents was conducted to further enhance the validity and reliability of the
questionnaire. Finally based on the recommendation of experts and changes through
pilot study, the final questionnaire was ready with 28 items. Apart from these
questions, information regarding the type of organization, years of experience,
age and number of projects handled was also sought from the respondents.
21 or More 39 42.87
Total 91 100
consultant’s side, 44% from the contractor’s side and 25% from the client’s side.
So there is an appropriate mix of the respondents in terms of the type of
organization. A good proportion of respondents (37%) had work experience of
more than 11 years and 42% respondents had handled 21 or more number of
projects. Before starting the data analysis, the reliability of the questionnaire was
tested through Cronbach’s alpha. The alpha value obtained was 0.862, which is
higher than the desired value of 0.7; so it can be concluded that the questionnaire
has internal consistency. Before going for factor analysis, the adequacy of the
sample was examined through Kaiser-Meyer-Olkin (KMO) test. The value was
obtained as 0.532, which is not great but satisfactory and greater than the desired
value of 0.5 (Field, 2005; and Famakin et al., 2012).
EFA was performed to group the items of a questionnaire that are identifiable
and relatable to each other. EFA, through principal component analysis was used
to perform this process. The results of EFA are presented in Table 3.
A total of six factors were extracted through factor analysis. The overall variance
explained by these six factors is 77.21%. The first factor extracted consists of six
items of the questionnaire, i.e., cultural understanding of host nation, familiarity
with language of host nation, familiarity with business practice of host nation,
familiarity with political and legal system of host nation, familiarity with industry
structure of host nation and familiarity with economic environment of host nation.
The factor is named ‘Cultural Understanding of Host Nation’. This is the most
important factor for the success of joint venture of a construction project. The
factor explained 38% of the variance.
% Cumulative
Cronbach’s
Factors Loading Variance Variance
Alpha
Explained Explained
% Cumulative
Factors Loading Cronbach
Variance Variance
Alpha
Explained Explained
Factor three consisted of five items and was named ‘Partner Synergy’ as all the
items were related to partnership synergy. The items are agreement of contract,
commitment, cooperation, management control and financial stability. The factor
accounted for nearly 10% of the variance.
The fourth factor items were related to ‘Relationship Building and Maintaining
the Relationship’ in a joint venture. The items were motivation, knowledge transfer,
inter-partner trust, criteria for partner selection and partner experience. The factor
contributed nearly 6.6% of the variance explained.
The fifth factor had only three items, namely, communication, coordination and
conflict resolution, which are related to ‘Proper Management of Joint Venture’. It
explained 5% of the variance.
Finally, the sixth factor had four items, which are profits, equity control, mutual
understanding and compatibility of objectives. This factor is named ‘Joint Venture
Drivers’ and explained only 3% of the variance.
The study findings are similar to those by Munns et al. (2000), Adnan and Morledge
(2003), Ozorhon et al. (2008b) and Famakin et al. (2012).
Conclusion
The study on the success factors of a joint venture in construction projects found
that some factors are more important than others. Cultural fitness with host nation
The paper finds the important success factors that joint venture partners need
to take care of before they initiate a deal or even during the execution and
maintenance stage of the deal. If any of these factors is avoided by the partnering
firms, the desired results of joint venture will not be achieved.
Limitations and Scope for Future Studies: Despite all the efforts, the study is not
free from limitations. First and foremost, the sample size of the study is very small.
Further, if such a study can be supplemented with some amount of secondary
data, it enhances the importance of results. However, it is felt that the paper does
contribute to the literature and can be of great importance for future research in
the area as well as to partnering firms in construction sectors for joint ventures. @
References
1. Adnan H and Morledge R (2003), “Joint Venture Projects in Malaysian
Construction Industry: Factors Critical to Success”, in D J Greenwood (Ed.),
19th Annual ARCOM Conference, Vol. 2, Nos. 3-5, pp. 765-774, Association of
Researchers in Construction Management, University of Brighton, Brighton.
10. Field A (2005), Discovering Statistics Using SPSS, 6th Edition, Sage, London.
11. Gale A and Luo J (2004), “Factors Affecting Construction Joint Ventures in
China”, International Journal of Project Management, Vol. 22, No. 1, pp. 33-42.
15. Hughes D, Williams T and Ren Z (2009), “The Role of Incentivisation in Partnering
Projects – A Case Study of South Wales”, Paper Presented at the Construction
and Building Research Conference, Royal Institute of Chartered Surveyors,
University of Cape Town, September 10-11.
17. Killing J P (1983), Strategies for Joint Venture Success, Routledge, New York.
20. Munns A K, Aloquili O and Ramsay B (2000), “Joint Venture Negotiation and
Managerial Practices in the New Countries of the Former Soviet Union”,
International Journal of Project Management, Vol. 18, No. 6, pp. 403-413.
23. Ozorhon B, Arditi D, Dikmen I and Birgonul M T (2008a), “Effect of Partner Fit in
International Construction Joint Ventures”, Journal of Management in
Engineering, Vol. 24, No. 1, pp. 12-20.
26. Park S H and Ungson G R (1997), “The Effect of National Culture, Organizational
Complementarity, and Economic Motivation on Joint Venture Dissolution”,
Academy of Management Review, Vol. 40, No. 2, pp. 279-307.
28. Rooke J, Seymour D and Fellows R (2004), “Planning for Claims: An Ethnography
of Industry Culture”, Construction Management and Economics, Vol. 22,
No. 6, pp. 655-662.
30. Tung R L (1984), Business Negotiations with the Japanese, Lexington Books,
Lexington, Mass.
33. Wong A, Lu Wei, Wang X and Tjosvold D (2018), “Collectivist Values for
Constructive Conflict Management in International Joint Venture Effectiveness”,
International Journal of Conflict Management, Vol. 29, No. 1, pp. 126-143,
available at https://doi.org/10.1108/IJCMA-08-2017-0071
34. Yang J and Lee H (2002), “Identifying Key Factors for Successful Joint Venture
in China”, Industrial Management and Data Systems, Vol. 102, No. 2,
pp. 98-109.
36. Yuming Hong and Daniel W M Chan (2014), “Research Trend of Joint Ventures
in Construction: A Two-Decade Taxonomic Review”, Journal of Facilities
Management, Vol. 12, No. 2, pp. 118-141, available at https://doi.org/10.1108/
JFM-04-2013-0022
Reference # 02J-2019-07-03-01