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DATE D331?” DATE DUE DATE DUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PERFOMLK‘K

PERFORMANCE IN INTERNATIONAL COLLABORATIVE VENTURES: CASE OF
THE GLOBAL CONSTRUCTION INDUSTRY

By

T. Cuneyt Evirgen

A DISSERTATION
Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Marketing and Logistics

1995

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ABSTRACT

PERFORMANCE IN INTERNATIONAL COLLABORATIVE VENTURES: CASE OF
THE GLOBAL CONSTRUCTION INDUSTRY

By

T. Cuneyt Evirgen

The importance of collaborative ventures for competitiveness in today’s highly
competitive global marketing environment is becoming more evident every day. A clear
trend towards formation of such ventures is observed in many industries.

Following an interdisciplinary approach, this dissertation draws concepts and
constructs from difl‘erent disciplines together and develops and tests a model of
international collaborative venture performance. Performance is modeled as being
multidimensional and its associations with the six relationship constructs derived Sam the
literature are examined. These six constructs are partner fit, mutual commitment,
interdependence, mutual trust, two-way communications, and balanced power.
Additionally, a thorough analysis of the global construction industry is made using
secondary data

The data used to test the model were collected through a mail survey of the top
225 international and top 400 US contractors. Furthermore, twelve in-depth interviews
were conducted with executives and industry experts that provided qualitative data used
to enrich the interpretation of the results.

Pearson correlation and regression analyses were used in data analysis. The results

suggest that partner fit and commitment are the most critical factors afl‘ecting overall

 

collaborative v
M W“?
through their t

among the raid:

 

collaborativeventureperfonnanceanditsvarious dimensions. Ontbeotherhand, mutual
trust, two-way communications and interdependence appear to afi‘ect performance
through their efl‘ects on commitment. Further, some significant relationships are found

among the relationship constructs.

Copyright by
T. CUNEYT EVIRGEN

1995

Dedicated to my wife and daughter
Giiniz Evirgen & Tugce Evirgen

for their faith, love and support

ACKNOWLEDGMENTS

I would like to express my sincere thanks to many people for their contributions
duringmygraduate career, andespeciallyduringthe dissertationphase.

First ofall, I am grateful to the members ofmy dissertation committee - Professor
S. Tamer Cavusgil, Chairman, Professor Roger J. Calantone, Professor W. Paul
Strassmann, and Professor Stanley Fawcett - for their contributions in guiding and
assisting me through my dissertation research.

I am indebted to Professor Cavusgil for the inspiration he has provided as my
mentorandthepositiveimpacthehashadonmycareer. Iexpressmyspecialgratitudeto
him for helping me to meet various challenges during all stages of my dissertation
research. I am gratefill to him for the invaluable intellectual, academical, professional, and
personal support he has provided. He helped me and my family to untangle and stand a
variety of pressures and overcome many challenges throughout my doctoral study. His
expertise and vision in international business and marketing, and encouragement of my
research interests helped me in my professional development. I am also delighted to have
worked as a research assistant and project leader for him which has been an invaluable
experience in its own right.

I am grateful to Professor Calantone for- his constant encouragement and support

as I went through the doctoral program and research. His contributions, particularly in

regards

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regards to methodological issues, in my dissertation research have been invaluable. His
open and constructive suggestions have been instrumental in my research and professional
development.

To Professor Strassmann, I express my gratitude for being on my dissertation
committee and helping me in my research on the construction industry. His expertise in
the construction industry has been an invaluable contribution to my research His
constructive suggestions have helped me to design and implement a successful research.

To Professor Fawcett, I express special thanks for finding time in his busy schedule
to serve on my committee and for his supportive interest in my research His practical
suggestions, in particular, have been very helpfiil in designing and implementing this
research.

I would like to extend my gratitude to MSU-CIBER (Center for International
Business Education and Research) for the generous dissertation research grant that was
awarded to me. Without such support, conducting this research would not be possible.

I also thank my parents, Ilhan Evirgen and Gitzin Evirgen, and my brother Mehmet
Evirgen for their never ending love and support fi'om overseas. Additionally, I thank
Zuhal Uzun, my aunt, and Ozkan Karakisla and Seval Karakisla, my parents-in-law, for
their overseas love and support.

I thank my aunt Professor Eser Belding and my uncle-in-law Thomas Belding for
their continuous support and encouragement from within the United States.

I would like to say a special thank you to Cern Akyol for his warm and sincere

fiiendship, and support, helping us to overcome various challenges.

 

 

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Finally, my deepest appreciation are extended to my wife, Guniz Evirgen, for her
outstanding support, encouragement, love and patience. Her understanding, appreciation
and support have been invaluable. Without her love, fiiendship and encouragement, my
pursuit for a doctoral degree would not have come to a successful conclusion. Thank you

Gunizforbeingtherewithmeandformewhenlneededit.

LIST 1

LIST

 

CHAPTER]
1.1
1.2
1.3
1.4

 

CIWTER 2

2.1
2.2
2.3
2.4
2.5
26

2.7

CWTER:
3i
32
3,3
3.4
3.5

CHAPTER
4.1

4.2
4.3

4.4
4.5

 

TABLE OF CONTENTS

1’18:
LIST OF TABLES .............................................................................. xi
LIST OF FIGURES ............................................................................. xiv
CHAPTER 1. INTRODUCTION ................................................................... 1
1.1 Perspectives on Marketing Relationships .................................. 2
1.2 Perspectives on Alliances .......................................................... 4
1.3 Evaluation of the Current Literature ......................................... 10
1.4 Purpose of the Study ................................................................ 12
CHAPTER 2. THEORETICAL FOUNDATIONS AND MODEL
DEVELOPMENT .................................................................... 14
2.1 Social Exchange Theory ........................................................... 14
2.2 Power and Resource-Dependence Theories .............................. 18
2.3 Interorganizational Relations .................................................... 21
2.4 Relationship Literature in Marketing ......................................... 24
2.5 Collaborative Venture as an Exchange Process ......................... 30
2.6 Theoretical Model of International Collaborative Venture
Performance ............................................................................. 34
2.7 Research Hypotheses ................................................................ 48
CHAPTER 3. RESEARCH DESIGN ............................................................. 54
3.1 Phase 1: Analysis of Secondary Data ....................................... 54
3.2 Phase 2: In-Depth Interviews .................................................. 56
3.3 Phase 3: Empirical Testing ...................................................... 56
3.4 Measurement ........................................................................... 57
3.5 Data Collection ........................................................................ 61
CHAPTER 4. THE GLOBAL CONSTRUCTION INDUSTRY ..................... 63
4.1 Introduction ............................................................................. 63
4.2 Trends in World Construction Exports ..................................... 66
4.3 Concentration of the World Market for Construction
Exports & Internationalization of the Top Contractors ............. 118
4.4 Industry Strategy ..................................................................... 123
4.5 Alliances in International Construction .................................... 135

 

CiflPTERS
5.1
5.2
5.3
5.4

CKKPTERE
6 l
62
63

CHAPTER?
7.1
7.2
73
74
7,5
7.6

BIBL

 

CHAPTER 5. SURVEY RESPONSES AND PROFILES .............................
5.1 Survey Responses ...................................................................
5.2 Respondent Profiles ................................................................
5.3 Partner Profiles .......................................................................
5.4 Profiles of the Collaborative Ventures .....................................

CHAPTER 6. UNIVARIATE & MULTIVARIATE ANALYSIS ...................
6.1 Univariate Analysis and Reliability of the Construct Measures.
6.2 Pearson Correlation Coeficients ..............................................
6.3 Multiple Linear Regression ......................................................

CHAPTER 7. CONCLUSIONS AND IMPLICATIONS ...............................
7.1 Evaluation of the Model ..........................................................
7.2 Contributions to the Literature ................................................
7.3 Managerial Implications ..........................................................
7.4 Public Policy Implications .......................................................
7.5 Limitations of Research ..........................................................
7.6 Suggestions for Future Research ............................................
BIBLIOGRAPHY .............................................................................

148
148
151
158
162

169
169
185
191

200
200
212
214
223
226
228

230

 

TABLE
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Tuk4l

Table 4.2

Table 5.1
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Table 5.9
Table 5.10
Tabit: 5.11
We 5.12
Table 5.13

Table 5.14

 

TABLE
Table 3.1
Table 4.1

Table 4.2

Table 5.1
Table 5.2
Table 5.3
Table 5.4
Table 5.5
Table 5.6
Table 5.7
Table 5.8

Table 5.9

Table 5.10
Table 5.11
Table 5.12
Table 5.13

Table 5.14

LIST OF TABLES

Construct Measures and References ..........................................
Top Contractors in the World in 1993 .......................................

Internationalization of the Top Contractors by Nationalities
in 1993 ......................................................................................

Survey Response Rates .............................................................
Number of Respondents in the ENR Rankings ..........................
Total Billings of Respondents (in million USS) .........................
Total International Billings of Respondents (in million USS) .....
Years in Business ......................................................................
Years of Involvement in International Contracts ........................
Current Involvement in International Contracts .........................
Country of Origin of Respondents .............................................

Region of Origin of Respondents ...............................................

Whether Respondent is a US or Non-US Contractor .................
Country of Origin of Partners ....................................................
Region of Origin of Partners ......................................................
Whether Partner is a US or Non-US Contractor .........................

# of Employees of Partner Contractors .......................................

Base
58

119

122
149
152
152
153
153
154
154
155
155
155
160
160
161

161

Irhle
Table 5.15

Table 5.16
Table 5.17
Table 5.18
Table 5.19

Table 5.20

Table 5.21
Table 5.22
Table 5.23
Table 5.24

Table 5.25

Table 5.26
Table 5.27
Table 5.28
Table 5.29
Table 5.30
Table 5.31
Table 5.32
Table 6.1

Table 6.2

Em

Whether There Has Been Any Prior Transactions with

the Partner .................................................................................. 161
Likelihood of Doing Business Again ........................................... 161
# of Firms in the Collaborative Venture ...................................... 163
Whether the CV is On-going or Not ........................................... 163
Project Timing (for completed projects only) .............................. 163
Whether Project Within Budget or Not (for completed

projects only) ............................................................................. 163
Project Location ......................................................................... 164
Project Region ............................................................................ 165
Partner-Project Location Combination ......................................... 165
Project Owner ............................................................................. 165
Whetha Local Government Influenced the Relationship in

the CV ........................................................................................ 165
Nature of Project ........................................................................ 166
Type of General Building (only for general building projects) ...... 166
Form of Collaboration ................................................................. 166
Type of Collaborative Venture ..................................................... 167
Type of World Done in the Project .............................................. 167
Type of Contract Bid ................................................................... 167
Whether There Was Any Team Building Program ........................ 167
Efi'ectiveness Measures ................................................................ 174
Eficiency Measures ..................................................................... 174

xii

ma
Table 6.3

Table 6.4

Table 6.5

Table 6.6

Table 6.7

Table 6.8

Table 6.9

Table 6.10
Table 6.11
Table 6.12
Table 6.13
Table 6.14
Table 6.15
Table 6.16
Table 6.17
Table 6.18
Table 6.19
Table 6.20
Table 6.21
Table 6.22
Table 6.23

Table 6.24

Em
Stability Measures ........................................................................ 174
Client Satisfaction Measures ......................................................... 175
Success Measures ......................................................................... 175
Overall Performance Measures ...................................................... 176
Structural Fit Measures ................................................................. 177
Strategic Fit Measures .................................................................. 177
Partner Fit Measures ..................................................................... 178
Commitment Measures ................................................................. 178
Value of Resource Measures ......................................................... 179
Interdependence Measures ............................................................ 179
Trust Measures ............................................................................. 180
Communication Measures ............................................................. 180
Balanced Power Measures ............................................................ 181
Construct Measures and Their Reliabilities .................................... 189
Pearson Correlation Coefficients ................................................... 190
Pearson Correlation Coeflicients - Partner Fit ............................... 192
Pearson Correlation Coefficients - Commitment ............................ 193
Pearson Correlation Coefficients - Trust ........................................ 193
Pearson Correlation Coeflicients - Balanced Power ....................... 194
Results of Regression Analysis ...................................................... 195
Multiple Regression Analysis - Partner Fit ..................................... 198
Multiple Regression Analysis - Commitment ................................. 199

 

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Figure 2.1

Figure 4.1

Figure 4.2

Figure 4.3

Figure 4.4

Figure 4.5

Figure 4.6

Figure 4.7

Figure 4.8

Figure 4.9

Figure 4.10

Figure 4.11

LIST OF FIGURES

Proposed Model for International Collaborative Venture

Performance .................................................................................

World Construction Exports: Total International Contract
Awards ........................................................................................

World Construction Exports: Contract Awards by Regional
Markets .......................................................................................

World Construction Exports: Percentage of Contract Awards
in Regional Markets ....................................................................

World Construction Exports Contract Awards in Project
Markets .......................................................................................

World Construction Exports Percentage of Contract Awards
in Project Markets .......................................................................

World Construction Exports: Contract Awards by Nationalities.

World Construction Exports: Percentage of Contract Awards
by Nationalities ............................................................................

World Construction Exports: Number of Contractors in the
Top 225 by Nationalities ..............................................................

World Construction Exports: Contracts Awards by Nationalities

Within Europe ..............................................................................

World Construction Exports: Percentage of Contract Awards

by Nationalities Within Europe .....................................................

World Construction Exports: Number of European Contractors

in the Top 225 by Nationalities .....................................................

xiv

Km

35

70

73

74

77

78

8O

81

82

83

84

85

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Figure 4.12

Figure 4.13

Figure 4.14

Figure 4.15

Figure 4.16

Figure 4.17

Figure 4.18
Figure 4.19

Figure 4.20

Figure 4.21
Figure 4.22

Figure 4.23

Figure 4.24
Figure 4.25
Figure 4.26

Figure 4.27

Figure 4.28

Figure 4.29

1489
Middle East Construction Exports: Overview .............................. 88

Middle East Construction Exports: Contractors by Nationality. 89

Middle East Construction Exports: Percentage of Total by

Contractor Nationalities ............................................................... 90
Asia Construction Exports: Overview ......................................... 92
Asia Construction Exports by Contractor Nationalities ................ 94
Asia Construction Exports: Percentage of Total by Contractor
Nationalities ................................................................................ 95
Afiica Construction Exports: Overview ...................................... 96
Africa Construction Exports by Nationality .................................. 98
Afiica Construction Exports: Percentage of Total by Contractor
Nationalities ................................................................................. 99
Europe Construction Exports: Overview ..................................... 100
Europe Construction Exports by Contractor Nationality ............... 102
Europe Construction Exports: Percentage of Total by Contractor
Nationalities ................................................................................. 103
North America Construction Exports: Overview .......................... 104
United States Construction Exports Overview .............................. 105
Canada Construction Exports Overview ....................................... 106

North America Construction Exports by Contractor
Nationality .................................................................................... 108

North America Construction Exports: Percentage of Total by

Contractor Nationalities ................................................................ 109

US. Construction Exports by Contractor Nationality .................... l 10

Elm Ease
Figure 4.30 US. Construction Exports: Percentage of Total by Contractor

Nationalities .................................................................................. l 1 1
Figure 4.31 Canada Construction Exports by Contractor Nationalities ............. 112
Figure 4.32 Canada Construction Exports: Percentage of Total by Contractor

Nationalities .................................................................................. 1 13
Figure 4.33 Latin America Construction Exports: Overview ........................... 115

Figure 4.34 Latin America Construction Exports by Contractor
Nationality .................................................................................... 116

Figure 4.35 Latin America Construction Exports: Percentage of Total by
Contractor Nationalities ................................................................ 1 17

Figure 6.1 Proposed Model for International Collaborative Venture
Performance ................................................................................. 173

CHAPTER ONE

INTRODUCTION

Cooperativcventuresoralliancesamong companiesinthehighlycompetitiveglobal
marketingenvironrnenthavebeenontherise. The consensusamongthecompanypresidentsat
the 1992 Business Week Presidents' Forum was that "those senior executives who negotiate
themostsuccessfiilalliancesandpartnerships ..... willbethechampionsoftheglobalized
firture" (PetersandPeters 1992). Itwasalso noted atthe sarnefonnnthatallianceswill provide
the springboard to move to new levels of innovation, growth and profitability. Revesz and
Cowley(1986)notethatcompaniesarefindingoutthatinorderto competetheymust
cooperate. An article in Chicago Tribune (April 26, 1992) points out that America's electronics
companies are forming strategic alliances with their Japanese and European rivals in order to
surviveandrernainintheglobalmarketplace. Thistrendisalsoevidentinmanyotherglobal
industries. Johnston and Lawrence (1988) cite many industries where what they call ”value-
adding partnerships" have evolved or are evolving such as the construction, automobile, book
publishing, movie, drugs and pharmaceuticals industries. Nevaer and Deck (1990) have
concluded that “only the largest of companies today are capable of competing on their own in
the growing international markets” (p.197).

Inthemarketingliterature, ontheotherhand,itissuggestedthatmarkctingis
experimcing a paradigm shift fi‘om transaction-oriented to relationship-oriented marketing with
its recent focus on the concept of relational exchange and relationship marketing (Kotler 1991;

Webster 1992). This new focus also fits well into the study of international cooperative

2
venuessimedwympreseuafomofhneorgmfinfionaluneacfionmvolvingmerdmnge

relationship (Hamel 1991).

1.1 PERSPECTIVES ON MARKETING RELATIONSHIPS

Therehasbeenashifiinthefocusofmarketingovertheyears. In 1970s, tlnefocushas
been on the transaction Creation, valuation, stimulation and fincilitation of the transaction has
beenemphasizedasthedomainofmarketing Inthispespectiveimilatealtransactionshave
been emphasized and investigated. In other words, either buyer‘s or seller's perspective has
been considered (or of course the efi'ect of the transaction on the external environment).
Amdwrhnpomfeatumhasbemthmbusmessnamacfiomhavebeenemhasindmode
1967). However, later on in the broadened concept of marketing the domain has been
expanded to include all types of transactions involving an exchange (Bagoza' 1975; Kotle' and
Levy 1969). That is marketing has been expanded to include social organizations and other
nonprofit! nonbusines organizations as well (Alderson 1957; Amdt 1983; Hunt 1983; Sten
and Reve 1980).

Recently, however, the attention is turned on to the concept of relational exchange and
with that to relationship marketing (Webster 1992). Kotler (1991) calls this a paradigm shift:
shifi fiom transaction-oriented to relationship-oriented marketing. The basic premise of this
new approach is that marketing is characterized by exchange relationships (e. g. buyer-seller,
seller-seller relationships) and the key to success lies in developing and maintaining effective
and eficient relationships. According to Webster ((1992), a new conception of marketing will
focus on managing strategic partnerships. In this regard, strategic alliances, partnerships or
collaborative an'angenents among firms have received consideable attention (Anderson and

3
Narus 1991; Bowersox 1990, Bucklin and Sengupta 1993; Devlin and Bleackley 1988; Lewis

1990;Morganandert1994;Robicheauxand Colenan 1994; Stoltrnan, GentryandMorgarn
1993).

Johnston arnd Lawrerce (1988) has suggested the term "value-adding partnership" to
referto "asetofindependentcompaniesthatworkcloselytogethetomanagetheflow of
goodsandservicesalongtheentirevalue-added chain" (p.94). Ihebasicmotiveistoeeatea
veymngammghlywnmefifiwvdueaddedchainbybnngingdwmmplenenaqsnmgflu
of the partners together (Kogut 1985). Collaborative arrangenents allow firms to have access
mcapabflifiesdnatdwydomthavethemsdveswlfichmcfificalmauviveandrenain
connpetitive in what Stalk, Evans and Schulrnan (1992) call ”capabilities-based competition”.
Similarly, such arrangenents allow transfer of tacit knowledge which is highly valuable.
Drucker (1992) notes that in today's knowledge society ”knowledge is the primary resource for
individuals and for the economy overall” (p.95). For instance, NUMMI (a joint venture
betweenToyotaMotorsandGeneralMotors) hasbeenvey successful infacilitatingnmtual
learning of critical know-how and technological transfer (JAMA-Forum 1993). This is an
instance of an interfinn collaboration for the transfer of knowledge.

Asaresultofthesetrends, more and more studiesarebeingreportedinthemarketing
liteature that focus on marketing relationships (eg. Anderson and Narus 1990, Bucklin and
Sergupta 1993, Dabholkar, et al. 1994; Dwyer, Schurr and Oh 1987, Heide and John 1992,
Moorman, Deshpande and Zaltman 1993; Morgan and Hunt 1994; Robicheaux and Coleman

1994).

4
Inannmary,adearnendtowardsfomfingcoflaborafivemangenenisobsevedin

nunyirndusnies Sucharrangenentshavealsobeguntoroceiveconsideableattentionfiom
marketing researclners.
1.2 PERSPECTIVES ON ALLIANCES

Dnsnidyofhnefinnwflabomfionsinintenmfionalbusinesshasatnactedalotof
irnterest among academicians and such collaborations have found a great deal of popularity
arnongfirms.Inthe1iterature,however, most ofthestudiestendtofoersonjointventures
(Bearnish 1987; Bearnish arnd Banks 1987; Buckley and Casson 1988; Geringer and Hebert
1989; Hennart 1988;1(ogut 1988; Salk 1993; Wallace 1993). A buzz word in this area ofstudy
isstrategicalliancewlnichisusedbysome authorsto descn’becooperativeventuresO-Iarnel
1991; Harrigan 1988; Jain 1987; Killing 1988; Ohmae 1989; Osborn arnd Bauglnrn 1990;
Spekrnan arnd Sawhney 1990; Sengupta 1993) and joirnt ventures are regarded as one type of
alliance (Harrigan 1987). On the other hand, in another approach, joirnt ventures, outsourcing
agreements, product licensing and cooperative research are grouped together and called
"competitive collaboration” (Hamel, D02 and Prahalad 1989). Furthermore, Buckley arnd
Casson (1988) refer to cooperative ventures in international business which they see to be
some altenative to wholly owned (100 per cent equity) foreigrn operations. Hence, in their
view, a cooperative venture ”may indicate a joirnt venture, an irndustrial collaboration
agreement, licensing, franchising, subcontracting, or even a management contract or counte-
trade agreement" (p.19).

Moreover, such global collaborations are firrther referred to as coalitions (Porter and

Fuller 1986), cooperative arrangements (Contractor and Lorange 1988; Root 1988),

5

competitive alliarnces (Revesz arnd Cowley 1986), irnternational corpOrate linkages (Auste
1987),collaborativeageernents(1\dorrisandHeget 1987), cooperativeventures(Roehland
anitt1987),orpartnerships(Root1988).]nthisstudy,wewillrefetosuchventuresas
collaborativeventures tobetteretlecttheelementofcollaborationinheerntinallsuch
ventures Following on the definition mggested by Mowey (1988), an irntenational
collaborativeventureisdefinedas:

'aninstanceofinterfinncollaborafioninpmrbrcrdewlqment, "interference, or

naketirrgflratmnatiomlbowdaries, isnotbasedonarm's-Iengrhmket

transactions and includes substantial contribution by par-om of apital, technolog,

orathermts“(pp.2—3).

Hence, these ventures are more than arm's-length or open market transactions, but fall
short of merger (Forte arid Fulle 1986; Root 1988). This definition clearly coves joirnt

vemHesmndoflnertypesofalfimceswchasficensingageenenampplyageenens,

nnarketirngagreenentaetc.

1.2.1 Motives Behind Collaborative Ventures

A comparison and analysis of collaborative ventures between US and foreign fimns irn
dgummrficmfinghfluMeshasshownflmmemofivesbdfindmenvmyaeosshflusnies
although sonne do overlap (Mowey 1988). Some of the identified motives are market access
(botln access by foreign partner to the US market and access by US firms to foreign nnarkets),
risk sharing, product line expansion, access to capital, joirnt development ofnew processes arnd
products, access to technological and managerial expertise and advanced techrnological and

marnageial techniques.

 

 

 

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6

Indefiteannevanmnsmofivesforenteinghnoaconaboradvevemmamidenfified.
These are risk reduction, econonnies ofscale, scope and/or leaming, nnarket, teclnrnology and/or
knowledge access, arnd shaping competition (Auster 1987; Badaracco 1991; Contractor and
Lorange 1988; Harrigan 1987; Henrnart 1988; Jain 1987; Kogut 1985, 1988; Morris arnd
Heget 1987; Porter arnd Fulle 1986). The relevance of tlnese motives for a collaborative
ventnn'ewilldependonthefonnoftheventure. Intechnological transfersarndexdnanges, for
hnstamednnninnwfiwwiflbemobtainorslmretechnologyflmismtavaihblemmo
codytoproducein-housemuste 1987). Ontheotherhand, hedgingriskarndshaping
hndusnywucnnewifldsobepmfimhdyrdevamwfiveshnmmgenensmonemd
Fulle 1986). Nevae and deck (1990) have observed that “firms are increasingly becoming
specialized arnd seek divesification through alliances” (p.198).

Studies on joint ventures have also shown that these are also motivated by reducing
irncerntive to clneat arnd enabling implementation of counterthreats (Buckley arnd Casson 1988),
allayirng natioml reactions in the foreign country (Hennart 1988), enhancing market power
(Kogut 1988) arid providing revenue enhancing and/or cost reducing opporturnities (Beannisln
arnd Banks 1987).

A major motivator of collaborative ventures is the fact that in today‘s rapidly changing
ervirornrnerntal conditions (especially the technological developments and their rapid diflinsion)
nothing stays proprietary for long No one firm can internalize an of its opeations arid achieve
efliciency. A complenerntary fact to this is the rapid surge towards global competition and the
rneed to be globally competitive for long-term viability. Hence, firms must work with partrners

to be able to operate and compete globally (Ohmae 1989). Another trend that promotes

7
coflaborafiwvmisthmdevdopmgnewproduesandpewmfingnewnwkeshave

becomeverycostlyforanirndividualfinnto afl‘ordwithout losing connpetitivenessandfew
cornpam'escangoaloneirneverysitnrationfiiarniDozandPrahalad1989).Firmsneedto
haveupsfieamanddownshwnlmow—howmndtheycangeaccesstowhattheydo nothave
byfonningcollaborativeventuresthroughwhich non-marketablelanow-howcanbetransferred
(Hennart 1988).

Coflaborafivevenmresalsohelpindeafingwiflnthepmblensofuncetaimymnd
opporturnism (Williamson 1975, 1981) since the partner. contribute assets to the venture arnd
mhueenedmnsmcceu.0mfinalpomtflmtneedsmbeaddressedisdBtcoflaborafiw
ventures enable the transfer of tacit or nonmarketable knowledge (Hennart 1988; Kogut 1988).
This type of krnowledge can not be transfered otherwise, unless a complete meger or
acquisition takes place, because it is embedded in an organization. Today's global competitive
enviromnernt is characteized by irntense knowledge-driven competition arnd rrnarny firms use
collaborative ventures to form krnowledge links with othe organimtions to capitalize on
krnowledge arid remain competitive. Such links enable the firms to get access to both migatory
(that can be transfered easily in a formula or product) and embedded (resides primarily in
relationships within the firm and defines how a particular firm does business) knowledge in the
otlne fimns (Badaracco 1991).

1.2.2 Classification of Collaborative Ventures

Various classifications of collaborative ventures suggested in the literature can be used

to identify what is exchanged based on the context of collaborative ventures.

8
Orne such classification distinguishes between horizontal vs. vetical relationslnips. In

flufonnetypeofvemireeachpmmepmvidessinfihrmputsmdwvemnewheeashndw
latte type partrnes make complementary contributions (Contractor and Lorange 1988;
Harrigan 1988). In otlner words, irn horizontal collaborative ventures partners are engaged irn
themupsueunmdownsuwnacfivity,andmveficdcoflabomfivevemireswhfleom
pumisengagedmmupsneunacfivitytheotheisengagedmadownsneamacfivhy.
Sirm’lardistinctionsarenotedbyotheauthors althoughtheyusedifl'eentteminologysuchas
symmetrically vs. asymmetrically positioned (Buckley and Casson 1988), scale vs. link
(Hennart 1988), quasi-horizontal vs. quasi-vertical irntegation (Root 1988), horizontal vs.
vetical integation (Kogut 1985) and Y vs. X coalitions (Porte and Fulle 1986).

In arnotlner approach the value-added chain (Porte 1986) is suggested as a fiarnework
to distinguish among collaborative ventures. In that case, the location on the valueadded chain
oftheresourcesexchangedthroughtheventurebytheparmesisusedtoclassifyitRoot
(1988) notes that "a firm may enter into a cooperative agreeneit or joint venture to obtain
resources that pertain to any link or set of links in its value-added chain" (p.71). For example,
Porter and Fulle (1986) distinguish between technology, opeations and logistics, and
marketing, sales and sevice coalitions.

Yet anothe type of classification for collaborative ventures can be based on the
motive(s) behirnd their formation. In that respect Root ( 1988) distinguishes among technology
sourcing, components/assembly sourcing and market entry collaborative ventures, whereas
Porter and Fuller (1986) discuss access (to knowledge or ability), risk-reducing arid economy

(of scale or learning) coalitions. Hakansson and Johansson (1988) add anothe dimension to

9
classification ofinter-firm irnteactions iii tems of formal vs. informal coope'ation In their

view,“fornulcoopeafionismomvieblebothwiflfinflwwopeafingfimumdomndem
othe actors ...[arnd]... informal cooperation is based on trust developed tlnrough social
exchange” (p.374).

Arnotlnerwidelyusedtype ofclassificationisbased onowne'shipwhere collaborative
ventures are classified as equity (e.g. joirnt ventures) or contractual (e.g. licensing ageennents)
arrarngernnents (Harrigan 1988; Killing 1988; Root 1988). In the former type, partners have
equityintlneventurewhereasinthe lattecaseno equityisinvolved. Lorange (1989), onthe
othehand, identifiesfourtypesofcooperativeventures: projectbasedcoopeativeventures,
ficensingcoopeafiwvennnewithpermnenflycomplenmtmymlesbydnpmand
jointly owned business ventures. Kantei’s (1988) classification of partnerships include nnulti—
orgarnization service alliances, opportunistic alliances, and complementary alliances.

In regards to the global construction industry which is the focus of the present
researcln, Seaden (1992) notes that “globalization is evident at evey level of the construction
irndustry ..... not only are building materials markets and companies becoming global, so too are
design arid contractor services” (p.53). Moreover, this industry has been characteized by a
number of collaborative relationships (Hoffmann 1992; Rudy 1992). According to Johnston
and Lawrence (1988), the construction industry has always operated like a value-adding
partnership where geneal contractors subcontract almost all the work on a construction
project. Such arrangements have also been called "quasi-firms” in the construction irndustry
(Eccles 1981). Other types of collaborations are also observed among contractors and owners

and in consortia formed for mega-projects such as the Channel Tunnel (UK) or the

10
Bosplnorous Bridge (Turkey). Strassrnann and Wells (1988) note that irn recent years botln

teduucdmd‘eundfimncehavebecomeassodatedudthjohuvemuingmdnegobal
Furthernnore, global construction represents a multi-billion dollar industry which is vey
mwhmdesmdiedbymarkefingreeardies.Despneadgnifimmdedhwmdweany8Usflw
hxhistryhasbeenondnefisesime1987althoughtheehasbeenasfiglndedmein1992.1tis
dsooneofflwgobalhndusuieswheeUSfinnsrenaincompefifiveundammnongflnemp
playes.
These clnaracteristics of the global construction industry are compelling reasons to

sdeathishndusnyasatargeforreseamhonintenafionalcoflabomfivevenmres.

1.3 EVALUATION OF THE CURRENT LITERATURE

Altlnough the amount of studies on collaborative ventures have been accumulating at an
increasing rate, only a limited numbe of conclusions have emeged. In reviewing the literature,
various obsevations can be made. First of all, as Sheth and Parvatiyar (1992) have observed a
comprehmsive theory of alliances is lacking in the literature. Although various conceptual
models have been suggested, very few have been empirically tested. There appears to be a
gear deal of ambiguity and confusion in the literature about relationship development and its
efl‘ects on collaborative venture performance. Particularly, very few studies have fowsed on the
effects of relationship constructs (e. g. trust, commitment, interdependence) on collaborative
venture performance. Furthemore, most of these studies have used a urnidinnensional
representation of peformance though its multidimensional nature has been recognized (Salk

1993).

 

 

appears
Point n
dt'veiop:

mum ii

11
Iheeseensmbeamnnbeofcausesofdwambigutymndconfiisionnuroundingdus

areaofresearch Firstofall,tlneredoesnotappeartobeaconsensusontlnedefinitionsoftlne
constructsandtheiroperationalizations. Researchers do notevenseemtoreachconseisus on
tlneterminology. Mostoftlne constructs ofintenestareborrowed fiom otherdisciplinessuchas
sociology, social psychology, and organizational behavior and their operationalizations in
marketing pose fiirther problems (Sheth arnd Parvatiyar 1992). Moreover, relationslnips among
thoseconsUudsamMyedeanydefined.Conuadie0iyfindhngshavebeeireponed
regarding the direction of some relationships (Anderson and Narus 1990).

Thee also appears to be a lack of integation of relationship marketing and alliarnce
www.myusefidmdghumdsynegsficefimmbeobmnedbyhnegafingdneseMO
streams of research.

The liteature also lacks studies focusing on consumer or industrial services irndustries.
Services tend to be understudied in the marketing literature and study of collaborative ventures
in sevice industries appears to be no exception.

On the othe hand, the literature provides usefiil frameworks and a list of relevant
constructs. Many relationslnips suggested in conceptual studies wait to be tested. There also
appears to be challenging concepts and provoked interest in theory building in this area. At this
poirnt, it might be better to focus on convergent thinking (Kuhn 1970) and synthesize the
developments achieved so far. Building up on and integrating previous studies can be very

fruitfiil to advance krnowledge in this area of research.

12
1.4 PURPOSE OF THE STUDY

Tlnereviewofflnwnabomfivevenmmfiteaturerevealsdnatflneeamsfiflmydark
areasthatneedclarificationandgapstobefilled. Thisstudyattenptstoaddressissuesrelated
to relationship developnnent and performance in irnternational collaborative ventures. The study
spedficaflyfomseonflnrdafionslfipbeweenthepumesinahonzomalwflaborafive
ventnireandhowvariousaspectsofthatrelationship afl‘ectventurepe'fonnance. Ihprtriiay
mofflwmumdewlopwdmminwgrweddnmfimlmodelofmnnfiaul
coflabomrive venture performance.

Intlnisconterttheprimaryresearchquestionthatthe studyattenptsto addressis:
whatistheimpactofeachoftherelationship constructs(partnefit, mutualcommitment,
natural trust, interdependence, two-way communications arnd balanced power on the difl'erent
performance dimensions (effectiveness, efiiciency, stability/durability, client satisfaction, and
managerial wccess assessment)? The othe two research questions are: (1) what are the
irnpactsofsti'uctural andstrategicfit on overall partnerfit; and (2)whatistheimpactofva1ue
of resource on commitment?

This study aims to contribute to the marketing liteature in the following ways: (1)
integating relationslnip and alliance literatures to develop a theoretical model to bette
understand the performance factors in intenational collaborative ventures; (2)clarifying the
relationships annong various relationship constructs; (3) providing an enpiiical assessment of
the proposed model; (4) focusing on horizontal collaborative ventures which tend to be

understudied; and (5) providing a thorough analysis of a service industry which is understudied

13
Inaddifionmcormibufingtodneacadenfichteatureflwsmdyisalsoerpectedto

geneueremhswhhmamgeidhnpficafiomflnatudnsiguficanflymrmihnewmageial
undestandingandenhancedecision—maldng. 'I'hemacroanalysisoftheglobalconstiuction
mdusuywiflhdpnmmgeswbenecompmhenddiesuuctmeofflwindusuymdassess
wheretheircornpaniesstandirntlneindustryand whee competitioniscomingfrorn Since
hnenafimnlafliamummnmrfiampresenawmmonwayofdomgbusinessmdfismdusuy,
tlneresultsoftlnestudywilllnelp managestobetteundestandthefonnationandconduct of
sucharrarngennerntsarndsuccessfactors. Suchunderstandingisespeciallyimportantsincesuch
consortia typically irnvolve multi-million dollar mega-projects. Since construction represents
orneofthesignificantirndustrieswheretheUnited Statesiscompetitive, theanalysisofthe
industryaswellasthefindingsrelated to horizontal alliances orconsortiaintheindustryofl‘er
significarnt public policy implications. Policy makers are expected to benefit from the results of
the studyirn developingtheirplans to enhanceUS competitiveness.
'I'lneremainderofthisdisseitationisorganizedinfivechaptes. Chapteerresentsa
review of the theoretical foundations upon which the proposed tlneoretical model is based It
also includes description of the model and the hypotheses to be tested. Chapter 3 describes the
research design irncluding data collection, measurements and methodological issues. Chapter 4
ofi‘ers a review of the global construction industry. Chapter 5 presents the survey response
rates arnd the profiles of the respondents irncluded in the arnalyses. Chapter 6 presents the
findings of the study arid discussion of the results. Finally, Chapter 7 provides the conclusions

and implications for future research, manageial practice and public policy.

 

 

1.1 8(

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CHAPTER TWO

THEORETICAL FOUNDATIONS AND MODEL DEVELOPMENT

2.1 SOCIAL EXCHANGE THEORY

Exchange is defined as the type of association that involves “actions that are
contingent on rewarding reactions from others and that cease when these expected
reactions are not forthcoming“ (Blau 1964, p.6).

The exchange approach focuses on the "benefits people obtain from, and
contribute to, the process of social interaction" (Emerson 1981, p.31). Hence, the central
concept in exchange theory is benefit which is called with difi‘erent names in difl‘erent
disciplines such as value (sociology), utility (economy), reinforcement (psychology),
reward or payofi‘ (social psychology). One of the important assumptions in exchange
theory is that the flow of benefits from one actor to another tlnrough social interaction is
contingent upon the benefits received "in exchange”. In this context, a resource is the
capacity to provide some benefit to another. Moreover, it is goups rather than individuals
that carry on the exchange and these are bound by obligations to each other (Turner
1986).

In his exchange theory, Simmel describes the social exchange process in temns of
four steps (Turner 1986). First, one party desires for an object that he values, but does not
have. Second, another party is identified as possessing the valued object. At the third
stage, the desiring party offers the other party an object of value already owned in return

for the desired object. Finally, the other party accepts the offer and exchange takes place.

14

 

 

litnecess

receives il

S"
\i

siege 1

 

systematic

below itit

 

111
they Viln-
peoplc er
Wards,

“Change

dfilied 1

Elmer '

 

15
The necessary condition for exchange to take place is that both parties perceive what they

receive is more valuable than what they give.

Some basic principles of social exchange emerge fiom the approaches of difi‘erent
exchange theorists. Turner (1986), in his review of the works of these theorists, provides a
systematic overview and codification of these principles which will be briefly described
below referring to the original authors.

The attraction principle basically states that actors of exchange interact because
they value (some at) each others resources. Blau (1964), for example, assumes that
people engage in social exchange because they perceive the possibility of deriving some
rewards. Hence, as the parties get more attracted to each other, the likelihood of an
exchange to take place increases.

Sirnmcl has argued that value is a fiinction of the need for and the scarcity of the
desired object. Hence the value principle states that value of a resource for a party will be
greater when that resource is less available and when that party has greater need for it.
Emerson (1981), however, discusses the value of a reward and argues that such value is
determined by its deprivatiorn, the need for it, the uncertainty regarding its acquisition, and
the conditional and generalized enforcers that it is associated with.

The power principle notes that the geater one party values the resource(s) of
another party, the power of the latter over the former will be geater. Moreover, the
power of a party will increase as the liquidity of its resources increases since it will have
more exchange options and alternatives. (Simmel 1907, translation 1978).

Levi-Strauss has pointed out that the norm of reciprocity governs all exchange

relations which requires all those receiving valued sources to give their benefactors other

 

 

 

 

 

tilted its

 

slit stile
receinitg‘
etchings:
taken pla
(Turner
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16
valued resources in return. The reciprocity principle is also put forward by Blau (1964)

who states that “the need to reciprocate for benefits received in order to continue
receiving then serves as a 'starting mechanism' of social interaction” (p.92). Subsequent
exchanges are regulated by the norm of reciprocity which emerges once an exchange has
taken place. “Thus, inherent in the exchange process, per se, is a principle of reciprocity”
(Turner 1986, p.265).

This principle is also important in ensuring the continuity of the relationship since it
"induces individuals to remain socially indebted to each other” (Dixon 1984, p.15).
Moreover, certain obligations for all members of the exchange emerge out of the norm of
reciprocity. Expectations are formed regarding rights and obligations of exchange partners
in an exchange relationship (Jones 1983). The more these obligations are violated, the
more those deprived will tend to retaliate to the violators.

Blau (1964) notes that people establish certain expectations about the level of
reward that they must receive in an exchange relationship. He fiirther argues that these
expectations will be more likely to be normatively regulated through the norms of fair
exchange as the exchange relations get established. These norms play an important role in
the stability of the exchange. The more these norms are violated, the more those deprived
will tend to retaliate to the violators. Turner (1986) labels these as the justice principles.
Related to these principles are the issues of cheating, opportunism and forbearance in the
exchange relationship (Williamson 1975).

Emerson (1981) notes that different aspects of the relatiorn, such as trust,
comnnitrnent, solidarity, justice and equity concerns are developed through the exchange

process. There is also the tendency for actors to become mutually dependent tlnrough the

 

 

 

 

Q3

it}

of

de

Pit

17
exchange. Indeed, the focus of social exchange theory is on tlnese interdependent

transactions which distinguishes it from economic exchange theory (Cook and Emerson
1978; Emerson 1981).

In his social exclnange theory, Emerson (1981) also draws attention to productive
exchange which involves productive independence. In such an exchange both (or all)
parties to the exchange contribute to collective gain of the goup and the benefit can only
be obtained by such nnutual contribution. If either party fails, nobody benefits. Hence, the
parties identify themselves with the interest of the collectivity. They attempt to maximize
goup gain In other words, the parties are interdependent which reflects positively on the
relationslnip since both (or all) contribute to obtain the benefit and value positive outcomes
of the group. Thus, interdependence of the parties facilitate the exchange relationship to
be productive.

Power and dependence appear to be two constructs that relate to the social
exchange process. However, exchange theory emphasizes exchanges that are mutually
beneficial to both (or all) parties. Exchange facilitated through coercion is not taken into
account in the theory. Social exchange theory states that unequal or asymmetric exchanges
lead to power inequalities (Blau 1964). These asymmetric exchanges reflect unequal
dependence of the parties to each other. This results in the less dependent party to have
more power over the more dependent party, hence, power inequality (Emerson, 1962).
The possible violation of the norms of reciprocity and fair exchange due to imbalance of
dependence will, then, tend to destabilize the exchange relationship and reduce its

productive aspects.

me

uni:

call:

M01

prc

rel.-

 

 

 

 

 

18
2.2 POWER AND RESOURCE-DEPENDENCE THEORlES

In his theory of power and dependence, Emerson (1962) argues that ”power
resides implicitly in the other's dependency” (p.32). Any relation referred to in this theory
can be person-person, group-person or group-group relation where a person or a group is
called an actor. Central to the theory are the definitions of dependence and power.
Dependence of actor A upon actor B is defined to be ”(1) directly proportional to A's
motivational investment [italics in original] in goals mediated by B, and (2) inversely
proportional to the availability [italics in original] of those goals to A outside of the A43
relation,“ and power of A over B is defined to be ”the amount of resistance on the part of
B which can be potentially overcome by A " (Emerson 1962, p.32). Hence, power is seen
as the potential to influence the other. Emerson (1962) views power of A over B to be
equal to 3'8 dependence on A for some reward.

Power relations are significant in social relations because such relations involve
mutual dependence ties between the actors. Through these ties, each actor has some
degree of potential influence over the other. Mutual dependencies that exist between the
actors shape these ties. 0n the other hand, an actor is likely to have different levels of
dependencies on others in different-relations.

Jacobs (1974) suggests that there are two components of dependence which can
be used to rank dependencies. These are dependencies resulting from the essentiality of
the item received in the exchange and the availability of that item fi'om alternative sources.
It follows that the more essential and the less available the item is, the more dependent the
actor that wants to obtain it is on the other that can provide it. Such a situation results in a

power imbalance. Since an exchange relation is balanced only when both (or all) actors

 

 

 

depend:
in ccm

{Source

”Em:

 

19
have equal power or equal levels of dependence, power difl‘erentials reflect unbalanced

relations (Cook 1977). Emerson (1962) argues that an unbalanced relation is unstable
since it increases the likelihood of use of power. Such power difl‘erentials will increase the
opportunism potential if the more powerful party decides to exploit its power advantage
(Williamson 1975, 1979, 1985). Hence, exchange relations with equally powerful actors
tend to be preferred due to fewer costs of the exchange process. (Cook 1977).

It is argued that resource-based theory is the new theory of the firm (Conner
1991). Being in this tradition, the resource-dependence theory (Pfefi‘er and Salancik 1978)
also focuses on the resources (inputs and capabilities) in the possession of an organization
It argues that the ability to obtain and maintain resources is critical for survival of
organizations.

Borrowing fi'om exchange and power-dependence theories (Emerson 1962), the
dependence of organizations on resources and the concept of environmental uncertainty
are central in this approach. Interdependence arises due to uncertainty over access to
resources. The environment is viewed as a source of scarce resources resulting in
organizations that need them to be dependent on it. On the other hand, due to
environmental uncertainty, the environment is not dependable itself. The theory assumes
that organizations try to minimize their dependence on the environment and maximize the
dependence of the environment on themselves (Spekman and Sawhney 1990). This way
they can have more control over the allocation of resources.

Thompson (1967) argues that in their attempt to reduce uncertainty and to have a
more predictable environment, organizations enter into exchange relationships. On the

other hand, dependence arises out of these relationships (Emerson 1962). If there is any

‘/_/ .

20
imbalance of dependencies, power difl‘erentials will be created that might result in unstable

relationships as noted above.

In the resource-dependence approach, the notion of dependence used is similar to
that of Emerson's (1962). This perspective suggests that dependence is derived fiom the
irnportanoe of the resource, the discretion of the other party over the resource it has and
the availability of alternatives (Pfefl'er and Salancik 197 8). Expanding on this notion Heide
and John (1988) distinguish between four ways that can afi‘ect the level of dependence:
magnitude and/or importance of exchange, the outcome of the exchange in comparison to
other possible exchanges, availability of alternative sources of exchange and replaceability
of the otha party. They firrther assert that “transaction-specific assets create dependence,
which is described by the extent of the replaceability of the exchange partner” (p.24). In
this regard, they distinguish between potential dependence and realized dependence. Their
model suggests that transaction-specific assets increase potential dependence which can be
reduced by safeguarding those assets. The resulting level of dependence is realized
dependence which can be measured by the replaceability of the exchange partner.

In other words, safeguarding the transaction-specific investments increases the
replaceability of the exchange partner. In their study of manufacturer-agency relationships,
Heide and John (1988) have found that any offsetting investments used as safeguards by

one exchange partner reduces its dependence by increasing the replaceability of the other

partner.

21
2.3 INTERORGANIZATIONAL RELATIONS

The notion of exchange has also been central in the study of interorganizational
relationships (Levine and White 1961). In fact, Cook (1977) argues that exchange theory
has been the dominant perspective in the study of interorganizational relations. Van de
Ven (1976) defines interorganizational relationship as the occurrence of two or more
organizations transacting resources among each other. Such relationships have also been
defined as the occurrence of transactions, flows and linkages between organizations
(Oliver 1990). Similarly, an exchange relationship between organizations is defined as ”a
formal or informal set of arrangements between organizations involving the transfer of
resources or services ( Seabright, Levinthal and Fichman 1992).

Van de Ven (1976)'s theory of interorganizational relations posits that the
organizations involved in a relationship with each other form a social system. Hence,
interorganizational relations are viewed as a social action system. The objective of the
organizations is to attain goals that they can't achieve independently. In this respect,
interorganizational exchange has been defined as any voluntary activity between
organizations involving transfer of resources for mutual benefit (Cook 1977; Levine and
White 1961). Hence, as in any organized form of collective behaviour, organizations
behave in such a way that collective and self-interest goals are attained. What is also
important is that through the division of responsibility among the organizations
interdependent processes emerge. In other words, actions of the organizations in the
relationship are interdependent. This leads to specialized roles for the parties and

development of behavioural expectations fiom each other (Van de Ven and Ferry 1980).

22
Inasimihrveintotheresourcedependencetheofies,itisalsoarguedthat

interorganintional relationships arise due to resource dependencies. Cook (1977)
suggests that organizations enter into interorganizational exchange relationships either
because of specialization or scarcity of resources. Organizations and to exchange with
other organizations to obtain necessary resources. In fact, resource scarcity has been
noted as an important condition facilitating development of interorganintional relations
(Aiken and Hage 1968; Levine and White 1961; Oliver 1990; Pfefi‘er and Salancik 1978;
Thompson 1967; Van de Ven 1976; Van de Ven and Walker 1984). A second condition
suggested by difl‘erent authors is domain consensus among the organizations (Levine and
White 1961; Oliver 1990; Schermerhorn 1975; Thompson 1967; Van de Ven 1976; Van
de Ven and Perry 1980; Van de Ven and Walker 1984).

On the other hand, the scarcity of resources creates resource dependencies
fostering organizational interdependence and specialization (Cook 1977). In other words,
organizations’ need for resources push them into such interdependencies (Aiken and Hage
1968). Organizational interdependence is noted as the lowest common denominator in
interorganizational c00peration (Schermerhorn 1975). In this context, Schermerhorn
(1975) defines interorganizational cooperation as "the presence of deliberate relations
between otherwise autonomous organizations for the joint accomplishment of individual
operating goals " (p.847).

Levine and White (1961) have suggested that there are four main dimensions to an
exchange relationship. These are the parties to the exchange, kinds and quantities
exchanged, agreement underlying the exchange and the direction of exchange. In terms of

direction, they difi'erentiate between unilateral, reciprocal and joint exchange based on the

 

 

 

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Oliver (]
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23
direction of the flow of resources. Reciprocal exchange is where there is a two-way flow

of resources between the exchange partners.

Van de Ven (1976) suggests that resource and information flows between the
organizations are the major processes within an interorganizational relation. Resource
flows refer to the tangible or intangible items of value transacted between the
organintions whereas information flows are the communications between the
organizations about the items of exchange or the nature of the relationship. The intensity
and directions of these flows define the degree of linkage between the organizations in the
relationship (Van de Ven and Perry 1980).

Difl‘erent determinants for interorganizational relationship formation have been
suggested in the literature. In her review of the interorganizational relations literature,
Oliver (1990) points out six contingencies that facilitate interorganizational relation
formation which are necessity (legal or regular mandates), asymmetry (potential to
exchange power), reciprocity (mutual benefits), efliciency (internal input-output ratio),
stability (reduce uncertainty) and legitimacy (demonstrate reputation, image or congruence
with norms). She concludes that multiple contingencies may be in efl‘ect in the formation
of an interorganizational relation. Van de Ven and Walker (1984) further argue that an
interorganizational relationship or cooperation is likely to arise under conditions of domain
consensus.

Interorganizational relationships are viewed as dynamic processes (Schermerhorn
1975; Van de Ven and Walker 1984). In this view, the process starts with a need for
resources and communicating with other organizations that can provide them. Since an

organization enters relationships with others to obtain needed resources, the resource fit

24
between its needs and the others' resource provisions is an important criterion in partner

selection. In the course of the relationship, however, any change in resource fit may lead
to dissolution (Seabright, Levinthal and Fichman 1992). During the process, resources are
«changed incrementally to allow gradual development of trust and commitment and

interdependence of the organizations increases in the process.

2.4 RELATIONSHIP LITERATURE IN MARKETING

There are a growing number of articles appearing in the marketing literature that
reflect a change in the focus of marketing thought. The emerging paradigm of marketing
focuses on relational exchange rather than discrete exchange (Webster 1992). The findings
of a group of European researchers called the Industrial Marketing and Purchasing (IMP)
Group have refuted the assumption that marketing involves discrete transactions only
(Shanna 1993). Moreover, exchange has been one of the central concepts in the
development of marketing thought (Alderson 1957; Amdt 1983; Bagozzi 1975,1979;
Hunt 1983; Kotler and Levy 1969; Kotler 1972; Stern and Reve 1980). Recognizing
marketing as a process, the relationship paradigm emphasizes the relational aspects of the
interaction between buyers and sellers in the context of both consumer and
organizational/industrial marketing.

Published material in a discipline reflects the current way of thinking in the that
field. Interest in and diversity of various dimensions of marketing relationships are clearly
evidenced in a stream of empirical studies reported in the literature in two of the top
marketing journals in the past few years (Dam and Schul 1992; Heide and John 1990,

1992; Moorman, Zaltrnan and Deshpande 1992; Bucklin and Sengupta 1993; Crosby,

 

Ems tn-
Johnson
Nair 19
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Offers 1
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25
Evans and Cowles 1990; Anderson and Narus 1990; Anderson and Weitz 1992; Hallen,

Johsnson and Seyed-Mohammed 1991; Morgan and Hunt 1994; Noordewier, John and
Nevin 1990; Moorman, Zaltrnan and Deshpande 1993). In addition to those suggested in
these empirical studies, there have also been a number of conceptual fi'ameworks
suggested in the literature to describe buyer-seller relationships such as the network
approach (Thorelli 1986,1990; Shams 1993; Hakansson 1990; Hakansson and Johanson
1988, 1993; Johanson and Hallen 1989; Easton and Araujo 1989) and a number of otha
interdisciplinary approaches drawing from sociology, social psychology, economics and
marketing (Dwyer, Schurr and Oh 1987; Frazier, Spekrnan and O'Neal 1988; Webster
1992; Frazier 1983; Stern and Reve 1980 ; D02 1988; Robicheaux and Coleman 1994).
The perspectives, notions and concepts suggested by these fi'ameworks will be briefly

reviewed below.

2.4.1 Network Approach

The network approach developed by researchers at the Uppsala School in Sweden
offers many useful insights to understanding relationships among industrial firms
(Cavusgil 1989, 1993). It is contended that this approach may be emerging as the
dominant paradigm in organizational buyer behaviour and organizational marketing
(Easton and Araujo 1989). Thorelli (1986) defines networks as two or more organizations
involved in long-term relationships. Networks can be identified as connected exchange
relations between independent companies (Johanson and Hallen 1989). They consist of
three inter-related components: actors, resources and activities (Shanna 1993). The actors

refer to the firms who own and control resources and carry out activities. They occupy

26
posifiominthenetworksndthefinksbetweartheseposifionsrefleabondingand

nonbonding relationships (Easton and Araujo 1989). Hellgren, Melin and Pettersson
(1993) clearly articulate how positions of firms with respect to each other are viewed fiom
a relational perspective: “From a relational perspective, the strategic position of an
industrial firm is given a difi‘erent meaning compared to its factual view. Here position is
“a matter of the exchange relationships of the actor and the identities of the counterparts”
in those relationships (Johanson and Mattson 1988), where the identities of the
counterparts in turn are partly shaped by their relationships to others (Emery and Trist
1965)” (p.92).

The central concepts in the network approach are power, influence,
interdependence and trust (Thorelli 1988). Power is seen as the potential to influence
others whereas influence reflects actual use of power. Trust, on the other hand is based on
reputation and past performance. Moreover, trust among network members is required for
network stability (Thorelli 1990). Networks represent an alternative to both vertical
integration and diversification. In this perspective they lay between the extremes of
Williamson's (1975) markets and hierarchies (Thorelli 1986).

The Interaction Approach adopted by the IMP Group sees industrial marketing
and purchasing as an interaction process between two parties (Li and Cavusgil 1991).
Hence, the importance of the relationship existing between buyers and sellers and the
long-term aspects of that relationship are emphasized. In fact, Hakansson and Johansson
(1993) define business relationships as " exchange relationships between autonomous
business units" (p.14). Tomroos and Moller (1993) suggest that the interaction in buyer-

seller relationships takes place through the processes of exchange of resources, social

27
exchange, adaptation and control. As a consequence of interaction industrial networks

emerge and firms exchange tangible or intangible resources through the interaction
(Hakansson and Johansson 1988). In other words, networks facilitate resource exchange.
Each network actor is expected to carry out specific activities and through these activities
complementary relationships develop (Shanna 1993).Exchange can be identified as
product/service exchange, information exchange, financial exchange or social exchange
(Hakansson 1990).Mutuality is of particular importance in relationship development as
interaction increases and in non zero-sum type situations (Hakansson and Johansson
1993).

In this regard, development of mutual trust is essential for the development and
stability of the relationship. Relations between the organizations are built gradually in a
social exchange process through which mutual trust may be developed (Blau 1964). In
addition to trust, the atmosphere of the relationship can be described in terms of power-
dependence relationship between the organizations, cooperation, closeness and mutual
expectation. Shanna (1993) suggests that marketing of power relationships in a network is
critical. In this regard, tnrst and commitment are two important factors to achieve

coordination.

2.4.2 Relationship Marketing

As it can be seen above, the network approach focuses on relational exchange and
the interactive relationship between buyers and sellers. A similar focus can be traced in the
marketing literature leading to the concept of relationship marketing which we will explore

next.

 

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Exchange has been the central notion in various frameworks suggested in the

marketing literature on buyer-seller relationships. These fi'ameworks draw attention to the
relationship aspects and social processes involved in buyer-seller behaviour such as the
political economies fi'amework (Amdt 1983; Stern and Reve 1980), interorganizational
exchange framework (Frazier 1983), relational exchange framework (Dwyer, Schurr and
Oh 1987) and HT exchange fiamework (Frazier, Spekrnan and O'Neal 1988). Despite
these developments, Heide and John (1990) argue that there is no theoretical fiamework
that gives a detailed explanation of these relationships.

There have also been a number of empirical studies reported in the marketing
literature investigating various aspects of buyer-seller relationships. These have been
particularly prevalent in the channels literature where relationships between channel
members have been studied. Other studies have focused on relationships outside the
traditional manufacturer, dealer/retailer context of channels of distribution. These include,
among others, studies on alliances in industrial purchasing (Heide and John 1990),
relationship quality in services selling (Crosby, Evans and Cowles 1990), interactions
across functional units (Ruekert and Walker 1987), adaptations in business relationships
(Hallen, Johanson and Seyed-Mohammed 1991), industrial buyer-vendor relationships
(Noordewier, John and Nevin 1990), role of norms in marketing relationships (Heide and
John 1992), co-rnarketing alliances (Bucklin and Sengupta 1993), trust in marketing
research relationships (Moorman, Zaltrnan and Deshpande 1992; Moorman, Deshpande

and Zaltrnan 1993), conflict resolution processes in fianchiser-fianchisee relationships

(Dam and Schul 1992) and tire trader-retrader relationship (Morgan and Hunt 1994).

 

 

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To be able to understand relationship marketing, the distinction between discrete

and relational «change needs to be recognized (Dwyer, Schurr and Oh 1987). Discrete
«changereferstomarket «changesthattakeplaceat onepointintime. It isunilateral in
nature and identity of the parties to the «change are not important. Relational «change,
on the other hand, involves bilateral interaction and has a long-term orientation. The
identity of the parties are important and the relation is seen as an ongoing one.

The important point to consider in making the distinction between discrete and
relational «change is that «change is multidimensional (Dwyer, Schurr and Oh 1987).
Hence, discrete and relational «change differ from each other on a number of dimensions
(Macneil 1980). Some of the situational differences were pointed out above. In addition to
these, there are important process differences between relational «change and discrete
«change. The former emphasizes joint efl‘orts, mutual gains, cooperation, trust, self-
regulation, conflict resolution processes, sharing of costs and burdens, and
interdependence between the «change partners. Moreover, mutual commitment becomes
critical (Frazier, Spekrnan and O'Neal 1988). Relational «change also points out
noneconomic satisfactions derived from the exchange (Dwyer, Schurr and Oh 1987).

There are a number of benefits to relational exchange or forming an exchange
relationship. Some of these include reduced uncertainty, improved efliciency through
synergy created, joint payoffs and satisfaction from association with the exchange partner
and the relationship. The point is that all of these combined or separately helps to increase
the competitive advantage of the firm against rivalry (Porter 1980).

However, such «change relationships are not without their costs. One such cost is

the maintenance of the relationship. This may require development of trust, committing

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30
resources and adaptations. It is important to stress that in relationship marketing «change

is taken to be voluntary. Hence, coercive use of unjust power to maintain a relationship
will be counterproductive for the relationship. Secondly, there are costs associated with
conflict processes and conflict management. Finally, there may always be the opportunity
cost of missing a more attractive opportunity (Dwyer, Schurr and Oh 1987).

There are also important factors that facilitate the «change relationship. First of
all, motivational investment of the «change partners must be high for the «change to be
bilateral which is central to relational «change. That is partners must «pect to derive
high net benefits fiom the relationship (D02 1988). Moreover, factors such as
commitment, trust, interdependence, power, norms and expectations and cooperation
come into play. These factors have important roles in the «change relationship
development. In addition to these, partner fit or complementarity is also pointed out as
another factor critical in relationship development and maintenance.

Relationship marketing with its focus on relational «change and relationship
aspects of interorganizational arrangements fits well into a lot of topics related to
marketing. One such «ample can be given from the international context which is

international collaborative ventures.

2.5 COLLABORATIVE VENTURE AS AN EXCHANGE PROCESS

It has been suggested that exchange can be used as a unifying construct for the
study of international business (T oyne 1989). Moreover, it has been recognized that
collaborative ventures among firms are based on an exchange relationship (Mowery 1988).

Kogut (1988 a,b) points out that joint venture is a vehicle to exchange organizational

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31
knowledge. A better understanding of «change relationships is possible within the

framework of collaborative ventures. Hamel (1991) argues that success of a competitive
collaboration is determined by a process of collaborative «change. Through this process
"access to people, facilities, documents, and other forms of knowledge is traded between
partners" (Hamel 1991, p. 100). In other words, collaborative ventures represent a form
of interorganizational interaction involving an exchange relationship (Evirgen and
Yaprak 1992).

Collaborative ventures are used to exchange technology, products, services, and
other forms of knowledge (Contractor and Lorange 1988; Harrigan 1987; Hennart 1988;
Porter and Fuller 1986; Osborn and Baughn 1990). Moreover, in their Interaction
Approach, Hakansson and Johansson (1988) note that through interaction firms «change
resources, products and services. This interaction takes place through a social «change
relationship. Moreover, in this interaction ”relationships are built gradually in a social
«change process through which the parties may come to trust each other (Hakansson and
Johansson 1988, p.373).

What is «changed, however, difl‘ers depending on the context of the collaborative
venture. Some collaborative ventures involve pooling technologies of the partners in a
single product or product line. Some others involve combining one partner's upstream
capabilities, such as technological abilities with another's downstream capabilities, such as
marketing or distribution know-how. The contributions of the partners may be providing
market access, technological and/or managerial know-how, capital, R&D capabilities, or

sharing risk For «ample, an analysis of collaborative ventures between US and foreign

32
firms reveals that in a majority of cases collaboration is motivated by market access which

is «changed for technology (Mowery 1988).

2.5.1 Exchange Principles in Collaborative Ventures

The «change principles pointed out in the social «change theory can be observed
in collaborative ventures. As briefly described above, the notion of reward (expected or
received) is central in social «change theory. Partners enter a collaborative venture
because they «pect some net benefits fi'om the relationship as in social «change (Blau
1964). In the context of collaborative ventures, these benefits correspond to difl‘erent
motives behind the formation of the collaborative ventures which were discussed before. A
collaborative venture will be preferred to internal development, arm's length transactions
or merger when it provides benefits that can not be obtained otherwise (Porter and Fuller
1986; Van de Ven 1976). Hence, just as in social «change, partners in a collaborative
venture are motivated by the benefits that the venture is expected to bring .

The steps in the social exchange process can be traced in the formation of any
collaborative venture. For illustration, consider a collaborative venture where market
access is «changed for technological know-how. First, one firm desires to have access to
a foreign market which it values, but does not have. Market access is a resource in the
social «change fiarnework since it will provide benefit to the firm by enabling entry to the
market (Emerson 1981). It is also very valuable if there are high entry barriers to the
market. Then, another firm is identified as possessing that resource after which the firm
desiring to have it offers the other firm to provide technological know-how in exchange

for market access. Finally, a vertical collaborative venture is formed if the other firm

33
accepts the ofi‘er. Another «ample might be a joint R&D venture which is a horizontal

collaborative venture. In that case, the resource of value would be complementary R&D
capabilities and knowledge. The partners to the venture will «change their
complementary resources to obtain benefits such as shared risk economies of scale and/or
leaming, synergy in product/process development/enhancement (Porter and Fuller 1986).
If neither firm has enough R&D and technical resources to go alone, they can «change
their complementary resources through a collaborative venture.

Hence, there appears to be an isomorphism between the social «change process
and collaborative ventures. As noted before, exchange of resources of value to the
partners is the main characteristic of collaborative ventures. Furthermore, based on

the above discussion, collaborative ventures can be proposed to have the following

characteristics:
1. In collaborative ventures, cooperation takes the form of «change.
2. Partners in a collaborative venture exchange resources that are perceived by each

partner to be valuable and to bring benefits or "rewards”.

3. Collaborative ventures involve an exchange process in the relationships between
partners whereby principles of exchange govern.

4. Collaborative venture may befrs influenced by behavioral and perceptual

considerations.

34
2.6 THEORETICAL MODEL OF INTERNATIONAL COLLABORATIVE

VENTURE PERFORMANCE

The proposed theoretical model represents an interdisciplinary approach (Dunning
1988) to studying collaborative ventures using constructs and notions fi'om social
«change, sociology, interorganizational behaviour, strategy and marketing literatures.

The proposed theoretical model for the study of relationships in international
collaborative ventures is presented in Figure 4. The key constructs used to «plain
finer-national collaborative venture performance are structural fit, strategic fit, partner fit,
value of resource, mutual commitment, mutual trust, interdependence, twocway
communications and balanced power. As noted, the dependent variable is international

collaborative venture performance which is modeled as being multidimensional.

2.6.1 Partner Fit

The marriage analogy has been used in characterizing collaborative ventures
(Levitt 1983; Stoltrnan, Gentry and Morgan 1993; Business International, Jan 23, 1989).
As in a marriage, selection of the right partner appears to be a critical factor for the
”marriage“ to work. Similarly, selection of a partner in a collaborative venture is one of
the most critical decisions faced by a company (Geringer 1991). Prior research has
suggested that partner choice is an important decision affecting international collaborative
venture performance (Hanigan 1985). Of particular importance is the amount of "fit”
between the partners. Since the partners in an international collaborative venture enter a
working relationship, fit between their goals, phiIOSOphies, strategies and structures will

have an important efi‘ect on the performance outcomes of the partnership.

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Based on their analysis of 49 cross-border alliances, Bleeke and Ernst (l991)point

out that complementary skills and capabilities of the partners are important for the alliance
success. Lasserre (1984) suggests that in evaluating a local partner for technology
transfer, strategic fit and resource fit are the two important criteria to use.

In their study of co-marketing alliances, Bucklin and Sengupta (1993) view partner
match as similarity between marketing styles and company cultures of the partners. Their
results show that partner match has a direct efl‘ect on the perceived effectiveness of the
alliance. Specifically, they have found that organizational compatibility and prior history of
business relationship with the partner are two strong predictors of alliance effectiveness.

In the proposed model, partner fit is modeled as being driven by structural fit and
strategic fit among the partners. The former refers to organizational compatibilities
whereas the latter points to the match between goals and objectives and strategic

resources.

2.6.2 Structural Fit

The compatibility of operational and financial procedures of the partners appear to
be facilitating factors for the smooth operation of activities in a collaborative venture.

The relationships or afliliations of the partners with third parties may also help or
adversely afl‘ect the development of the partnership. Moreover, compatibility of the
organizational cultures of the partners is suggested as an important requirement that
enhances partner fit. In her analysis of joint ventures, Harrigan (1985) has found a positive
relation between cultural homogeneity of the partners and the success of the joint venture.

This is reflected in the values and social norms prevalent in the organizations.

37
Compatibility of the technical capabilities of the partners is a firrther factor enhancing the

fit between them. Badaracco (1991) has observed that match ofvalues and capabilities are
necessary for the partners to be "fit" for each other. Moreover, compatible marketing
philosophies of the partners will facilitate conflict reduction and provide a better match
between the operations and organizational processes of the partners. These factors tend to
reflect the operational structures, philosophies and capabilities of the partners which need
to be compatible for the fit between them to increase. Hence, overall organizational
compatibility is a necessary, but not aficient, condition for partner fit (Porter and Fuller

1986).

2.6.3 Strategic Fit

A second important dimension of partner fit is strategic fit. We define this in terms
of the extent that the goals and objective of the partners are compatible, resources are
complementary and there is consensus on the domain of the partnership. Goal
compatibility has been stressed as one of the crucial aspects of a healthy partnership
(Radclifl‘e and Cowles 1993). The partners may have difi‘erent strategic goals in entering
the venture, but, they need to be compatible with each other so that each partner can reach
its objectives without endangering the other's (Root 1988). Hamel, D02 and Prahalad
(1989) note that in a collaboration mutual gain is possible if partners’ strategic goals
converge while their competitive goals diverge. Incompatible goals or objectives in a
partnership, indicate a misfit between the partners which will negatively afl‘ect relationship

development and performance of the collaborative venture.

38
Geringer (1991) suggests that complementarity is essential for the efi‘ectiveness of

an international joint venture. The main motive behind collaborative ventures is the
«pectation to obtain benefits that the partners can't obtain themselves. Hence,
complementarity is a critical factor in assessing partner fit (Sengupta 1993). Jain (1987)
points out that two of the factors leading to success are the complementarity of the needs
and strengths of the partners. Similarly, Contractor and Lorange (1988) points out that
partner fit increases when the partners have complementary strengths and compatible
strategies. By bringing together resources that are complementary to each other, firms can
enhance the competitiveness of an alliance (Harrigan 1985). Porter and Fuller (1986)
further argue that complementary contributions of the partners will enhance collaborative
venture stability. The alliance provides a governance strategy through which each firm can
«change valuable resources with each other. Moreover, Seabright, Levinthal and Fichman
(1992)have found support for the hypothesis that "change in resource fit provides an
impetus for dissolution " (p.152).

Similarly, domain consensus is an important factor in development of
interorganizational relationships (Van de Ven and Feny 1980). The domain of the
collaborative venture will consist of the specific goals it wishes to pursue and the functions
it undertakes to implement them (Levine and White 1961). Consensus regarding the
domain of the collaborative venture is essential to shape the «pectations of the partners.
Domain consensus is essential for an exchange agreement to be reached and implemented
(Levine and White 1961). Moreover, Frazier, Spekrnan and O'Neal (1988) point out that
the partners must have realistic «pectations for the «change relationship to be

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39
2.6.4 Value of Resource

Getting access to resources that it does not have appears to be a major motive for
a firm to enter into a partnership or collaboration with other firms. The value ofthe
resource to be obtained through the partnership is determined by the need for and scarcity
of that resource (Emerson 1981). On the other hand, Seabright, Levinthal and Fichman
(1992) suggest that value of a resource might decrease if resource requirements change.
Thefirminneedofaresourcecanobtainitfromanotherfirrnpossessingitthroughthe
«change relationship that can formed in a collaborative venture (Hamel 1991). In their
review of empirical studies on joint ventures, Bearnish and Banks (1987) note that in
successful joint ventures, both partners significantly value each other's contributions. In
fact, the success of a collaboration very much depends on the unique contributions of the
partners (Hamel, D02 and Prahalad 1989).

Furthermore, when the value of the resource to be obtained through the
collaborative «change is high, the party in need of that resource will tend to be more
committed to the venture. If the resources to be «changed through the collaboration are
valuable for both partners, both will be more committed to the partnership. In other
words, mutual commitment of the collaboration partners will increase when they perceive

the value of the resource(s) they will be obtaining through the partnership to be high.

2.6.5 Commitment

Commitment of the firms in a collaborative venture has been noted as a critical
factor for venture success. In their model of development of buyer-seller relationships,

Dwyer, Schurr and Oh (1989) suggest that commitment is the most advanced phase of

 

 

 

40
buyer-seller interdependence. Anderson and Weitz (1992) suggest that "commitment to a

relationship entails a desire to develop a stable relationship, a willingness to make short-
term sacrifices to maintain the relationship, and a confidence in the stability of the
relationship“ (p.19). Moorman, Zaltrnan and Deshpande (1992) further suggest that
commitment reflects a positive valuation of a relationship. Commitment helps to reduce
opportunism (Williamson 1975) that would increase the cost associated with the
partnership (Lewis 1990).

Subieta (1991) has found that commitment impacts joint venture efl'ectiveness
positively. The efl‘ect of commitment on performance of collaborative ventures have been
suggested in many conceptual and empirical studies reported in the literature (e.g.
Bearnish and Banks 1987; Jain 1987; Badaracco 1991; Sheth and Parvatiyar 1992; Ohmae
1989). Moreover, Jain (1987) suggests that mutual commitment in international strategic
alliances will extend the duration of the alliance. Furthermore, Ohmae (1989) notes that

for good partnerships to develop, effort and commitment are required fi'om both partners.

2.6.6 Trust

The importance of trust in interpersonal relations that involve reciprocal «change
have long been recognized (Corazzini 1977; Aguilar 1984; Larzelere and Huston 1980).
The role and importance of trust in cooperative relationships have also been clearly
recognized in the marketing literature (Ring and Van de Ven 1992; Sullivan, et.al. 1981;
Moorman, Zaltrnan and Deshpande 1992; Dwyer, Schurr and Oh 1987; Frazier, Spekrnan

and O'Neal 1988; Dant and Schul 1992; Anderson and Narus 1990; Buckley and Casson

41
1988). In fact, Sheth and Parvatiyar (1992) view trust as one of the main constructs in

alliance formation

Moorman, Zaltrnan and Deshpande (1992) define trust as "a willingness to rely on
an «change partner in whom one has confidence” (p.315). They argue that this definition
encompasses the two approaches taken in the literature, which are viewing trust as a belief
or «pectancy about an «change partner’s trustworthiness (Rotter 1967; Blau 1964;
Anderson and Weitz 1992) or viewing it as a behavioural intention or behaviour reflecting
reliance on a partner (Coleman 1990; Deutsch 1962; land 1972).

Moorman, Zaltrnan and Deshpande (1992) firrther note that trust has been treated
to have two difi‘erent roles in relationships. Some researchers have viewed it as an aspect
of relationship quality (Crosby, Evans and Cowles 1990) while others have viewed it as a
determinant of relation quality (e. g. Anderson and Narus 1990).

Ring and Van de Ven (1992) point out that partners in a collaborative venture
need to be concerned about the trustworthiness of each other since they will need to work
cooperatively for the venture to succeed. They argue that as the parties trust each other
more, they may rely more on each others actions.

Trust is an essential factor for a partnership to work. Lewis (1990) states that
”since you can‘t monitor every aspect of an alliance, you want to rely on each other to do
things in a way that considers your mutual interests"(p.247). Furthermore, Bearnish and
Banks (1987) note that with a foundation of trust, the partners would be more willing to
be tolerant and persevering so that the joint venture can survive through difficult times.
The importance of trust in alliances or cooperative ventures have been consistently pointed

out in the literature (Bleeke and Ernst 1991; Lorange 1989; Spekrnan 1988; Bowersox

42
1990;Ly1es 1987; Wallace 1993; Buckley and Casson 1988; Ohmae 1989; Sullivan et. a1.

1981).

Various relations of the construct of trust with other key factors in alliance
performance have also been investigated in the literature. D02 (1988) suggests that as
nustwonluneuofeachpumamaeasesmumdcoWwfllgraduaflyincrease. the
positive efl‘ect of trust on commitment is also suggested by Dwyer, Schurr and Oh (1987).
In fact, trust has been found to have a direct positive effect on commitment to a
relationship (Moonnan, Zaltrnan and Deshpande 1992). In their study of manufacturer-
distributor working partnerships, Anderson and Narus (1990) have found support for the
view that communications is an antecedent for trust. They have also found a significant
path fiom trust to satisfaction. In their conceptualization of strategic alliances, Spekrnan
and Sawhney (1990) also note the positive efl‘ect of trust on alliance performance. Frazier,
Spekrnan and O'Neal (1988) also argue that trust between the parties to a JIT «change
relationship is one of the factors leading to success. Badaracco (1991) also sees trust as a
necessary factor in what he calls "knowledgedriven' alliances. This effect has been
empirically supported by Wallace's (1993) study of American and Japanese joint ventures.
Moreover, Subieta (1991) has found empirical support for the hypothesis that trust leads
to efi‘ective formation of international cooperative arrangements and satisfaction with the
arrangement.

In his study of international project selling, Hadjikhani (1993) refers to Hedaa's
(1991) work who has found that increased trust results in increased interdependencies.
This is in line with Dwyer, Schurr and Oh's (1987) model of buyer-seller relationship

development who also posit a positive relationship between trust and interdependence.

43
In their theory of cooperation, Buckley and Casson (1988) suggest that mutual

nustisgeneratedthroughmumalfomeamcebythepannerswhichincreasesthe
emciency of cooperation It is important that trust needs to be mutual, i.e. it must flow in
two directions. Moorman, Zaltrnan and Deshpande (1992) note that unless trust is
bilateral, it is likely to disappear. In fact, when mutual trust degenerates, the collaborative

venture may fail (Lorange 1989).

2.6.7 Interdependence

Schermerhorn (1975) has pointed out that organizational interdependency is the
lowest common denominator for the notion of interorganizational cooperation. Parvatiyar
(1993) has argued that interdependence is the main construct to focus on in studies on
alliances. Moreover, in their conceptualization of strategic alliances, Spekrnan and
Sawhney (1990), identify interdependence as one of the core dimensions of a strategic
alliance. Kanter (1988) has also identified interdependence as one of the six ”P's of
successfirl partnerships.

Contractor and Lorange (1988), hypothesize that the level of interorganizational
dependence will be difl'erent across difl'erent types of cooperative arrangements being
highest for equity joint ventures. Moreover, higher switching costs will reflect higher
levels of interdependence (Anderson and Narus 1991). Holding a similar view, Astley and
Fombrun (1983) have suggested a classification of organizational collectives using the
form of interdependence as one of the two dimensions.

Interdependence arises due to mutual dependencies that exist among alliance

partners. Given that there are mutual dependencies, there is also mutual interest in

44
c00perating (Anderson and Narus 1991). Since performance of the collaborative venture

depends on the mutual contributions by the partners, their interdependence provides an
incentive to have a productive «change relationship (Emerson 1981). On the other hand,
increaseindependencehasbeenpointedoutasoneofthecostsassociatedwithentering
an alliances (Spekrnan and Sawhney 1990).

The functional aspects of interdependence have been noted in the literature which
is the view adopted in our proposed model. For instance, Lewis (1990) states that ”for
both firms to gain, the mutual dependence created by a strategic alliance should increase
each firm‘s independence ..... alliances can support the growth of separate competitive
strengths and create net growth opportunities" (p.50). Lorange (1989) firrther argues that
especially in less formal, temporary cooperative ventures, partners must be willing to
become interdependent in order to achieve a minimum degree of stability.

Firms enter into collaborative ventures because they want to have access to the
resources that their partner(s) can bring in. In other words, each partner needs the
resources of the other. Due to these reciprocal needs, partners will be less likely to resort
to opportunism and stab the other in the back. Since power is derived fiom dependence,
interdependence of partners will lead to a balance of power in the relationship. It is
important to note that this argument is valid for interdependence which implies mutual
dependencies. If there are differences in the relative dependencies of the partners, the
power balance will be lost since the less dependent party will have more power (Cook
1977, Emerson 1962).

Mutual partner nwds, reflecting interdependence, have been found to have a

positive afl‘ect on joint venture performance (Beamish 1987). This is reflected in

45
Emerson's (1981) notion of productive dependence. Contractor and Lorange (1988) have

noted that the viability of a cooperative venture will increase as interdependence among
partners increases. In the relational «change framework suggested by Dwyer, Schurr and
Oh (1987), interdependence is viewed as a driver of commitment. Similarly, Hallen,
Johanson and Seyed-MOhammed (1991) have provided empirical evidence that
dependence increases the extent of adaptation which they argue is an indicator of
commitment. Moreover, Van de Ven and Walker (1984) have found that resource

dependence has a great efl‘ect on stimulating interorganizational communications.

2.6.8 Communication

Two-way communication is an important factor for a healthy relationship to
develop. It plays an important role in realizing mutual benefits in cooperative relationships
by allowing «change of necessary information and reducing misunderstanding (Dwyer,
Schurr and Oh 1987; Frazier, Spekrnan and O'Neal 1988; Anderson and Narus 1990).
Kanter (1988) argues that one of the six "I”s characteristic of successfirl strategic
partnerships is being ”Informed" about the plans and direction of the other partners.

Crosby, Evans and Cowles (1990) note that mutual disclosure is a factor
enhancing relationship quality. Heide and John (1992) have found that norm of
information «change has a significant efl‘ect in the relationships between OEM
manufacturers and their component suppliers.

Two-way communications will demonstrate the willingness of each party to share
information and «change views with their partners. Such an approach is very likely to be

valued positively by the partners which will increase their tnrst in the other party and their

46
commitment to the relationship. In fact, open communication among partners is one of the

factors leading to success of alliances and development of good relations (Badaracco
1991; Lewis 1990). It has also been suggested that such open and honest communication
will result in increased commitment of the partners (Spekrnan 1988) which has been
empirically shown by Anderson and Weitz (1992).

Open communication will help to improve collaborative venture performance by
allowing «change of relevant information that might impact the operations related to the
venture. It is important for the collaborative venture partners to realize that they are in the
same boat. Ifthe boat sinks, both will lose. Art Hitsman, president of Boeing Computer
Services, has stated that "any alliance must have a clear purpose and salient mutual
benefits. The guiding principle here is that you win only if the joint project succeeds"
(Peters and Peters 1992). Hence, it is critical to share any information to keep the boat
sailing. Lyles (1987) notes that poor judgments are one of the causes for mistakes in joint
ventures. Open communication may help to make better judgments. Two-way
communication will also help to reduce misjudgrnent of expectations of the partners

(Frazier, Spekrnan and O'Neal 1988).

2.6.9 Balanced Power

The notion of power has been central in «change relationships (Emerson 1962;
Cook 1977; Gaski and Nevin 1985). Jain (1987) has suggested that shared power is one of
the characteristics of successfirl strategic alliances. Frazier, Spekrnan and O'Neal (1988)

have further argued that balance of power is necessary for the viability of HT «change

47
relationships. Furthermore, in their study of co-marketing alliances, Bucklin and Sengupta

(1993) have found that balanced power enhances perceived efl‘ectiveness of alliance.

Any imbalance of power will create an environment prone to opportunism. The
more powerful party may «ploit the less powerful one which will result in unbalanced
contributions made and/or benefits obtained. Since balanced contributions and mutual
benefits are essential in an «change relationship, imbalance of power will negatively afi‘ect

the collaborative venture relationship and its outcome (Jain 1987).

2.6.10 Performance

The multidimensional nature of collaborative venture performance has been
emphasized in the literature (Salk 1993). Geringer (1991) suggests to use several difi‘erent
performance measures in studying international joint ventures. Geringer and Hebert (1989)
state that "no consensus on the appropriate definition of international joint venture
performance has yet emerged” (p.245). Some of the objective measures have been
financial indicators (e.g. Tomlinson 1970), survival (e.g. Killing 1983), duration (e.g.
Kogut 1988b), and instability in ownership structure (e. g. Gomes-Casseres 1987).

On the other hand, there might have been various strategic motives and objectives
in entering a collaborative venture whose achievement is not necessarily reflected in
objective measures (Geringer and Hebert 1989). Hence, perceptual measures may capture
how the collaborative venture has performed better than objective measures. Perceptual
measures can provide information on whether the collaborative venture has reached its

objectives or not.

48
Perceived efi‘ectiveness has been widely used as the measure for collaborative

venture performance (Bucklin and Sengupta 1993). Van de Ven (1976) views it as the
extenttowhichthepartnersperceivethateachpartyhascanied outitscommitrnentsand
that the relationship has been worthwhile, equitable, productive and satisfying. On the
other hand, since the collaborative venture can be viewed as an «change relationship, it
can be considered to have been efl‘ective only if mutual benefits have been obtained
(Emerson 1981). According to Lorange (1989), success of a collaborative venture can be
measured fi'om each partner's perspective ”since what is successfirl for one partner is not
necessarily successful for another“ (p.217). Since international strategic alliance provides
the opportunity for interpartner learning, the extent of learning that has taken place
appears to be another indicator of performance (Hamel 1991).

The dimensions of performance considered in the proposed theoretical model are
perceived efl‘ectiveness, perceived emciency, durability/stability, client satisfaction, and
managerial assessment of success. These include both subjective, objective as well as

collective, and individualistic dimensions of performance.

2.7 RESEARCH HYPOTHESES

A number of research hypotheses are derived in the proposed model of
collaborative venture performance. The model associated overall collaborative venture
performance and its five dimensions and relationship constructs. The underlying premise
behind the model is that a collaborative venture represents a form of interorganizational
interaction involving an exchange relationship.

The specific research hypotheses are listed below.

49

W
H1 hrcreaseinutesnucnndfitbetweencoflabomfivevennueparmwwiflincrease

theoverallfitbetweenthern.

W

H2 Increaseinthestrategicfitbetween collaborative venture partnerswillincreasethe
overallfitbetweenthem.

W

H3 Whenbothpartnersplaceahighvalueontheresourcetheyobtainthroughthe

collaborative venture, mutual commitment of the partners to the collaborative

venture will increase.
mart

H4a The higher the partner fit in a collaborative venture, the higher will be the
perceived efl‘ectiveness of the collaborative venture.

H4b The higher the partner fit in a collaborative venture, the higher will be the
perceived eficiency of the collaborative venture.

H4c The higher the partner fit in a collaborative venture, the higher will be the stability
of the collaborative venture.

H4d The higher the partner fit in a collaborative venture, the higher will be the
satisfaction of the client with the performance of the collaborative venture.

H4e The higher the partner fit in a collaborative venture, the higher will be the
managerial assessment of the success of the collaborative venture.

H4f The higher the partner fit in a collaborative venture, the higher will be the overall

performance of the collaborative venture.

firm-mm

H5a

H51)

H5d

H5f

In e

H6a

H6b

H6c

H6d

Thehigltaflrenmtualcomnuunerninacoflabomfivevennuethehigherwiflbe
the perceived effectiveness of the collaborative venture.
Thehigherthermrtualcommitmentinacollaborativeventure, thehigherwillbe
the perceived eficiency of the collaborative venture.
The higher the mutual commitment in a collaborative venture, the higher will be
the stability of the collaborative venture.
Thehigherthemutual commitrnentinacollaborativeventure,thehigherwillbe
the satisfaction of the client with the performance of the collaborative venture.
The higher the mutual commitment in a collaborative venture, the higher will be
the managerial assessment of the success of the collaborative venture.
The higher the mutual commitment in a collaborative venture, the higher will be
the overall performance of the collaborative venture.

n
The higher the interdependence of the partners in a collaborative venture, the
higher will be the perceived efl‘ectiveness of the collaborative venture.
The higher the interdependence of the partners in a collaborative venture, the
higher will be the perceived efficiency of the collaborative venture.
The higher the interdependence of the partners in a collaborative venture, the
higher will be the stability of the collaborative venture.
The higher the interdependence of the partners in a collaborative venture, the
higher will be the satisfaction of the client with the performance of the

collaborative venture.

H6c

H6f

H8

H9a

H9b

H9c

H9d

H9c

51
The higher the interdependence of the partners in a collaborative venture, the

higher will be the managerial assessment of the success of the collaborative
venture.

The higher the interdependence ofthe partners in a collaborative venture, the
higher will be the overall performance of the collaborative venture.

The higher the interdependence of the partners in a collaborative venture, the
higher will be the balance of power in the collaborative venture.

The higher the interdependence of the partners in a collaborative venture, the

higher will be the mutual commitment ofthe partners to the collaborative venture.

The higher the mutual trust among the partners in a collaborative venture, the
higher will be the perceived effectiveness of the collaborative venture.

The higher the mutual trust among the partners in a collaborative venture, the
higher will be the perceived eficiency of the collaborative venture.

The higher the mutual trust among the partners in a collaborative venture, the
higher will be the stability of the collaborative venture.

The higher the mutual trust among the partners in a collaborative venture, the
higher will be the satisfaction of the client with the performance of the
collaborative venture.

The higher the mutual trust among the partners in a collaborative venture, the
higher will be the managerial assessment of the success of the collaborative

venture.

H9f

H10

52
The higher the mutual trust among the partners in a collaborative venture, the

higher will be the overall performance of the collaborative venture.
The higher the mutual trust among the partners in a collaborative venture, the

higher will be the mutual commitment of the partners to the collaborative venture.

W

H1 la

H1 lb

H1 1c

H1 1d

Hlle

H1 If

The higher the level of two-way communications among the partners in a
collaborative venture, the higher will be the perceived efl‘ectiveness of the
collaborative venture.

The higher the level of two-way communications among the partners in a
collaborative venture, the higher will be the perceived eficiency of the
collaborative venture.

The higher the level of two-way communications among the partners in a
collaborative venture, the higher will be the stability of the collaborative venture.
The higher the level of two-way communications among the partners in a
collaborative venture, the higher will be the satisfaction of the client with the
performance of the collaborative venture.

The higher the level of two-way communications among the partners in a
collaborative venture, the higher will be the managerial assessment of the success
of the collaborative venture.

The higher the level of two-way communications among the partners in a
collaborative venture, the higher will be the overall performance of the

collaborative venture.

53

H12 The higher the level of two-way communications among the partners in a
collaborativeventure, thehigherwillbethemutual commitment ofthe partnersto
the collaborative venture.

H13 The higher the level of two-way communications among the partners in a
collaborative venture, the higher will be the mutual trust among them.

W

H14a The higher the balance of power among the partners in a collaborative venture, the
higher will be the perceived efl‘ectiveness of the collaborative venture.

H14b The higher the balance of power among the partners in a collaborative venture, the
higher will be the perceived efliciency of the collaborative venture.

H14c The higher the balance of power among the partners in a collaborative venture, the
higher will be the stability of the collaborative venture.

H14d The higher the balance of power among the partners in a collaborative venture, the
higher will be the satisfaction of the client with the performance of the
collaborative venture.

H14c The higher the balance of power among the partners in a collaborative venture, the
higher will be the managerial assessment of the success of the collaborative
venture. .

H14f The higher the balance of power among the partners in a collaborative venture, the

higher will be the overall performance of the collaborative venture.

CHAPTER THREE

asseancnnrrsrcn

TInsuIdyiswnduaedfoflowhrganuflfi-plmereswchdedgnTInphasesinflle
Mmi(l)mm0fmmdmwflwmwmnm(2)mb
depflrhnaviemwnduaedwhhmvesfiomflwwnsmwfionmmsuxmd(3)unphiml
tesfingofflnhypmesproposedmfliecoflaborafiwvmmpafomm.Nad,fltese
phasesintheresearcharedescribed.

3.1 PHASE 1: ANALYSIS OF SECONDARY DATA
Influsphaseofflnreseardramacroperspecfivehasbemtakarwithathomugh
MynsofsecmfluydaaTlesedaammkmfiomErrgimefingNmsRecadfihflbwhich
isaweeklypublicationThistradejoumalspecializesintheconstructionindustryandisa
wmprdmivepubhcafimpmvidingmgmumfonnafiononflwmdtmmddnfirmmdw
indusuy.EachyearENRconduasvadousmweysoffinmmflwwnschfionhrduszmd
publishestheirresults.Oftheseammalsurveys,twohavebeen selected asbeingrelevantfor
thepurposeofthissnrdy.Thesearethetop225irrtemationalcontractorssurveyandthetop
400UScontractorssuryey.
‘I'hefonnatofthepublisheddataforthesetwosurveysaresimilar.Foreachfinnthatis
hrdudedmflnhgnsmnkmflNyear’smeyfistingnamestatemcomuy,mtdbiflmgsof
newconfiaasawardedbflfingsofmwhnmfionalconuactapacmtageofmtalnew
confiactsineachmnsfiucfionmrkamdnsmnkmdwpmviousyem’smeyfisfingan

givenMoreover,forthetop225irrtanafionalconfiactorsthetotalawardsbythelisted

54

55

cowaaoraflwdisufiarfionofnewwmraasaaossdnmajorcomuucfimregiommflw
woddmdflnshuesofconnaaomfiomdifl‘auunafiomfifiesinflwseregiomandflwmnba
ofcontractorsfi’omdifl‘erentnationalitiesthatlnveentered thatyear’slistingaregivenOnthe
ahahMthetmdbmmgsofdmnesficmrdhnanafionalmwwnuaasmgivmmflwmp
400UScmmaaomfisfinghishnponuummteflmteadryear’smeyrendtsreflectfln
newcontractsinfonnationforthepreviousyear.
Thesenrweyshavebearconduaedsincel978alflnughflrefonnatofflnreponed
renrlts have improved over the years. However, the period of 1982-1993 is selected for
analysisduewconsinawyofdatamporfinglnoflrawommedmdesaibedabowm
availablefor1982throughl993. EachyearENRsendsoutaquestionnairetothecontractors
mdflrosewhorespondwflwquesfiommimmpplymemfonmfionreponedeNmeeys.
ENRdsomnlmsomemmespondingconflaaomaccordMgmovaseasconmawuds
reported International Construction Week (ICM ENR’s weekly newsletter (Strassmann and
Wells 1988). In this study, these data have been tabulated for the period 1982-1993 and
midyzedflumghgraphsgaerued.Agraplficdmalysisisvayhdpfiflmfimdlyseemme
trends and deviations in the international construction activities.
ThesesecondarydataobtainedfiommumalsrweyrendtspubfishedbyEMiare
supplemented by information retrieved fiom various other issues of ENR and other industry
and government publications. Moreover, the insights obtained from the in-depth interviews
conductedinfliesecondphaseofthestudyalsosupplememflregraphical analysisThe
interpretationsofthegraphsanddrevanousuendsordeviafionshavebeendonehrcorporafing

the information obtained from these supplementary sources.

56

OnfluofluhmditishnponmutonotevanoushnutafionsofflreENRmeydata
Theseuedisarssedhrthenendnptamrdaflieheadmgofmeaanemanpmblans.
Thereahsofflfisphaseofflwshrdywfllhdpusmdaflandflwsfiucmreofflwglobd
constrmfimhdusuy.Wewfllbeabkmseeuuidsmflnhrduszaswdlastheovaan
picture.
3.2 PHASE 2: IN-DEPTH INTERVIEWS
Displuseofflwnudthhrdespasonalin-depthhnerviewswhhmdumarpats
fiomhrdusfiyassodafiomandmfivesfiomflwconsfiucfionmdusuy.Amtaloftwdw
(12)interviewswereconductedinthisphase.
Afiasdwmrhngflwappohmnausufiflrflwhnafiewmflmtmgmalcomaom
havebemvisitedpasonaflyfllnfomatofflrehna‘viewshasbemsam-struaumd andthe
mtaviewshavebemgtndedbyanhnaviewguideflrathasbemprepamdmadvame.
Following the interview, the interviewees have also been asked to comment on the
relationshipsbetweenthe constructs in the model. Specifically, each has indicated the direction
oftherelationshipsbetweentheconstructsthathavebeenlaidouttothernattheendofthe
interview.Eachinterviewhaslastedaboutanhour.

Such face-to-face interviews have provided valuable information and insights about the

constructionindustryfiomthemtivesintheindustry.

3.3 PHASE 3: EMPIRICAL TESTING

Thelastphaseofthestudyinvolvescollectingtheprimarydatatotesttheproposed

hypotheses. Sincemeanrresofflrekeyconsuuctsarepacepmalinnamm,fltedatafortesfing

57

flrenroddprhnmflyconnfiomanuflmeyofkeymmfltesdectedsampleof
wanaaom.1hekeyhrfonnmutedufique(8ddlal974)hasbemusedwcofleaflndata
Campbell's (1955) criteria of being knowledgeable about the phenomenon under study and
bdngableandudflmgwchaewimflnreseardrahasmnsfimmdflwmajoranaiafor
infonnarusdecfionnfisphaseofflresmdywasahnedtogeneraterenfltsflrat willhelpusto

answerourresearchquestionsandtestourhypotheses.

3.4 MEASUREMENT

Building on previous empirical studies and scales developed, especially those by
Anderson and Weitz (1992), Bucklin and Sengupta (1993), Crosby, Evans and Cowles (1990),
Heide and John (1988, 1992), Kaufinann and Stern (1988), Larzelere and Hudson (1980),
Moorman, Zaltrnan and Deshpande (1992), Ruekert and Walker (1987), Subieta (1991),
Sullivan, etal. (1981), and Van de Ven and Ferry (1980), measures have been developed for
each of the constructs of interest (See Table 3.1).

Asnotedaboveaquesfionmhehasbeurusedasflremweyinsuumaninflresmdy.
Initially, adetafledhsfingofscaleitansweregena’atedwhichwereflrenreducedtoproduce
thefirstdraflofthequestionnaire. 'I'hisquestionnairewasthensenttotheintervieweesthat
werecontactedinthesecondphaseofthestudyandaskedtocommartonit.The
questionnaire was also reviewed by academicians highly experienced in questionnaire
development. Based on the feedback received both fiorn the industry «ecutives/«perts and
fluscadarfidmathewwyWhasbemmvisedmdfinafizequuesfiomnin

contained the following sections for different types of data:

58

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61

A Infomnfionabmnflnetespondau

B. Infonnationabmnthecmnpanyoftlwrapom

C. Informafimabmnflnpmmacompmyofdwrapondauoompanyindnmflabonfiw
ventme

D. Infonnationabwttheoollabomfivevamne

E. Infonnafionabmnflwpafonmofflwcoflabomfivevm

F. Infonmfionabmndlevadunaspectsoftherdafionslfipbetweenflnpms

G. Open-aldedsectionforaddifiomlconmaus
111epohuallphasizedh1quufiommiredevdopmauhavcbemsimpfidty,b\n

wmprdmvmslnmmpmfusonflmmmynfomardnas.

3.5 DATA COLLECTION

IhemailhIgfistsforflxetomeSoormwOfimdflntopZZSituermfional
wmaomfiaswasobtaimdfiomENRJhuemofistshawbemwnbhwdmgmteafist
oftopcomctorswlfichhaswnsfiuneddwwnpleformestudy.mslistindudwaflofdle
majorcontractorsintheworldaswellasthcmajoroontractorsintheUS.munitofamlysis
hasbemindividualprojects involvingaoollabomtivevmture.

Themspondamhavebealspedficaflymaedmreponononlyoneooflabomfive
vwmflldrfinnhasbemhwohedinwhhhflnhsttmymwhhulustomfordgn
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collaborative venture.

62

Amailhgpackagewasthenpreparedmdsaflorfltoaserfiororewfiveineach
Wormflcnmple.Tlnpadmgehwhidedamleua,flwquesfiomaimandasdfi
Musedreunnmvdopelbmrequeaeddnaddresseemfomuddwquesfiomaimfl
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hmttivetoparticipateinthestudy.

Five weeks after the initial mailing, a second mailing was done to those who had
not responded to the first mailing. The mailing package was similar to the initial package,

but a difl'erent cover letter was used.

CHAPTER FOUR

THE GLOBAL CONSTRUCTION INDUSTRY

4.1 INTRODUCTION

Despite its importance and high profile, the global construction industry appears to
be understudied by researchers. Strassmann and Wells (1988) point out that this neglect
may be due to the large number of difi‘erent project types, numerous client types, the
highly diversified market, and the various nationalities of the contractors. An additional
point is also noted by the interviewed construction industry executives that, construction
industry is very much closed and sharing of information is very limited in the US.

Construction is one of the largest global industries. World construction exports
was about $156 billion in 1993 (ENR, August 29 1994). The global construction market,
on the other hand, is estimated to be about $3 trillion a year (U S Department of
Commerce, International Trade Administration 1993). Moreover, the industry is unique in
several aspects and demands a careful analysis. The uniqueness of the industry is due to a
number of its characteristics.

First of all, each “product” in this industry, which is a particular type of
constructed structure and/or its maintenance and operation, is difi'erent. There are different
designs and specifications used and different requirements met for each project. Secondly,
the point of production changes for each product. In other words, there is no central site
where production takes place and from where products are distributed. Eccles (1981)

states that “the construction equivalent of the manufacturing plant is the project [italics

63

64

original], which is built on-site for a specific owner" (p.344). This is due to the third
unique characteristic ofthis industry which is the fact that each product is fixed to the
particular location it is built at. So, production takes place at the site where the product
willbelocated.Thismeansthatproductioncantakeplaceanywhereandeverywherein
the world. Finally, the factors of production used in the construction process are highly
mobile. The construction process is carried out at the production site which is highly
variable as noted above. Hence, many of the resources such as equipment, vehicles,
materials and labor need to be mobile to be able to move from one site to another for
different projects (Strassmann and Wells 1988). Linder (1994) notes that “... at the end of
the twentieth century, rmrltinational construction firms still ship their own equipment from
project to project around the world while importing workers from great distances”(p.4).
Even when some objects such as bridges are prefabricated at home and exported to the
location of the project, on-site processes involving excavation, assembly, and erection are
still necessary (Linder 1994).

Fonfara (1990) notes that the standardization potential of complex construction
projects is limited due to the individualized preferences of the project owners,
dissimilarities of the project locations and the advancement of technology.

Moreover, many construction firms specialize in certain project types. For
instance, among American contractors, Fluor specializes in energy-related work and
petrochemicals, Ebasco in power generation, T.Y. Lin in structural engineering of
prestressed concrete, Guy F. Atkinson in heavy construction, MW. Kellogg in
petrochemicals, Brown and Root in offshore oil projects, and Louis Berger International

in planning, design and construction management (US Congress, Office of Technology

65

Assessment 1987). Hence, not all firms compete on all types of projects. For each project
type, thosewiththespecializedexpertiseinthatareacompeteforconu'acts.

Competition has also dramatically increased in this industry. Contractors fiorn
developing nations arnd newly industrialized countries (NICs) have emerged as legitimate
competition (US Congess, Ofice of Technology Assessment 1987). Contractors from
these areas have developed the capability to handle many types of projects on their own.
USfirmswhowere once donninantininternationalmarketsnowfinditincreasingly
dificult to compete with traditional competitors fiom Europe and Japan as well as with
firms from these developing nations and NICs (Yates, Mukherjee and Njos 1991).
Referring to these new competitors, a construction industry executive who participated in
this study stated the following:

“with their low overhead cost structures, these firms are dificult to compete with,
especially on low bid business.”

Contractors fi'om South Korea, Turkey, Brazil, Yugoslavia, Taiwan and India were
pointed out by him as the most active countries outside the Triad.
Another executive participating in this study made the following comment:
“Fifieen or twenty years ago, when few developing nations had other than the most
rudimentary domestic construction capabilities, US expertise was needed and, in
many cases, welcomed. If a developing country needed a highway or a darn, it
generally had to bring in a foreign company to design and build it. More recently,
however, as the domestic construction industries in a number of countries have
developed to the point that they can handle an increasingly sophisticated range of
project types, these countries are seeking to protect their domestic companies by
excluding or restricting foreign competition.”
Commenting on the US construction industry, Richard L. Tucker, director of the
Construction Industry Institute (haeafier referred to as CII), stated the following in his

opening remarks of the 1992 C11 Annual Report:

66

“Inourconnpanieaweseesignificantg’owthininternationalmarketsand

globalization. No one can deny that our engineering and construction industry is

now truly an industry operating in a global market” (p.3).

Today, American contractors face tough competition, mainly fiom European and Japanese
contractors who often have more financial leverage (US Department of Commerce,
International Trade Administration 1993). The efi‘ect of financing on competitiveness will
be discussed below in more detail.

The basic point to note is that in construction what is sold is actually not the
structure itself; but rather the construction service. Hence, when a construction project in
a given country is carried out by foreign contractors, the construction services are
imported by the country where the project takes place. This is why such international
construction activities are referred to as international construction exports. These are also

referred to as “Irntemational Contracting” which Strassmann and Wells (1988) define as

“fimns fiom one country building under contract in another.

4.2 TRENDS IN WORLD CONSTRUCTION EXPORTS

4.2.1 Overview: 1982-1993

In this section, an overview of the trends in world construction exports through
1982-1993 will be presented. First, some measurement problems related to the data used
for this analysis of world construction exports will be discussed. Secondly, the trends in
total international contract awards will be presented. These will be followed by overviews
of distribution of construction exports by regional markets, by project markets, and by

nationality of contractors respectively.

67

4.2.1.1 Measurement Problems

The only periodically collected data on world construction exports appear to be
those collected by the Engineering News Record (ENR), a McGraw-Hill construction
weekly, which is a trade jourrnal of the construction industry,. The industry experts,
including executives, acaderrnicians and public authorities, tend to ag'ee that these data are
the only and best standard secondary data available on the activities in the global
construction industry despite several deficierncies that demand caution in using them.

Since 1978, each year EM? has been publislning figures for the international
contracts awarded to the top international contractors. The contract awards are given for
the top 200 contractors in 1978 and 1979, for the top 250 for 1980-1990, and for the top
225 since 1991. The data for each year have all been presented in similar formats (ENR,
July 21 1983, July 19 1984, July 18 1985, July 18 1986, July 16 1987, July 7 1988, July
13 1989, July 5 1990, July 22 1991, August 24 1992, August 23 1993, August 29 1994).
Hence, these data have been used in the following analysis of the trends in world
construction exports for the period 1982-1993.

As noted above, however, these data have some caveats leading to some
measurement problems that need to be pointed out. First of all, the published information
is supplied to ENR by the contractors themselves in response to a questionnaire
(Strassmann and Wells 1988). Hence, the objectivity of the data may be questioned. Some
firms may understate their business in some years, while others may have reason to
overstate theirs (US Congess, Ofice of Technology Assessment 1987). Moreover, the

nonresponding contractors are obviously not included.

68

Secondly, the total construction award figures presented in EM? for the top
interrnational contractors are seriously inflated (Strassmann and Wells 1988). This is due to
the efl‘ect of significant amount of “double counting”. Strassmann and Wells (1988) note
that :

“...irncluded in the totals are prime contracts, a firm’s share in joint ventures,

subcontracts, design-construct contracts, and the erected value of construction

management/programme management (CM/PM) contracts. Hence, there is clearly

a substantial amount of ‘double counting’ as much of the work reported may in

factbesubcontracted, allofitinthecaseof CM/PM. Also, designarndconstruct

contracts include the value of installed equipment” (p. 7).

There is also the likelihood of double counting between prime and subcontractors or
parents and subsidiaries since awards are reported by each entity participating in a project
(Price Waterhouse 1985).

Hence, in this chapter, the analysis ofthe ENR data on contract award figures is
based on the general trends exhibited by the data Despite the inflated nature of the
reported figrres, the basic trends do not change. What the inflated figures do afi‘ect are the
steepness of the ascent or descernt of the curves, but not the direction. Moreover, all of the
figures have been converted into constant dollars (1982=100) to standardize the data
against the efi‘ect of rising prices (Gordon 1990). Hence, the data used to generate the
graphs presented in the following pages are not the absolute figures reported in ENR for
each year, but the standardized figures in 1982 dollars.

Another issue regarding the measurement of contract awards is the lag between
contract awards and expenditures. Strassmann and Wells (1988) state that this lag is
generally two years which has also been confirmed by industry experts during the personal
interviews conducted. A project may be carried out over several years before it is

completed (Price Waterhouse 1985). The figures reported in ENR are for new

69

international contracts awarded to the firms arnd not for completed projects. Moreover, the
awards do not represernt the net revenues fi'om construction service exports (Price
Waterhouse 1985).

Thedificultyofobtainingdatsontheworld construction exportsalso needstobe
recognized. In this regard, the efl‘orts of ENR in supplying the industry with standard data
in comparable format from year to year has to be appreciated. The data presented are still
useful, once their deficiencies are recognized, and especially, if they are used to depict
basic trernds, but not absohrte figures.

4.2.1.2 Total World Construction Exports

An overview of the trend in total international contract awards through 1982-1993
is given in Figrre 4.1. The most apparent trernd is the decline of total awards through 1982
and 1987 and the upswing after 1987. A peak can be observed in 1991 followed by a
relative decline in 1992, and then, a relative increase in 1993. Two relative plateaus can
also be observed between 1984 and 1985, and between 1989 and 1990.

There have been various reasons for the dramatic decline of international contract
awards between 1982 and 1987. First of all, the sharp fall of world oil prices in 1983 has
resulted in a substantial decrease in‘oil revenues leading to the substantial shrinkage of the
Middle Eastern market for construction exports. The econonnic recession experienced
worldwide has also contributed to the decline in the demand for new construction.

The following headlines that had appeared in the various issues of ENR exemplify
these trends in that period (The headlines refer to the situation in world construction

eXports in the previous year):

70

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0 “Recession cuts foreign work” (July 21, 1983, p.50)
0 “Foreign contracts take a dive” (July 19, 1984, p.54)
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0 “Foreign contracts inch upward” (July 18, 1986, p.39)

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0 “Foreign contracts hold steady" (July 7, 1988, p.38)

This decline bottomed out in 1987 and the volume of international awards was on
the rise in 1988 as illustrated by the following headline in W:

“Foreign contracts bouncing back” (July 13, 1989, p.42)

However, this rise has not really been due to the growth in construction markets,
but rather due to the new strategies adopted by the international contractors. They have
been able to get more contracts by presenting themselves as “local” firms (ENR, July 13,
1989).

As the top contractors have repositioned themselves to exploit new opportunities,
the growth that started in 1988 continued in 1989. The new opportunities presented by
Europe’s changing borders and Asia’s emerging underdeveloped countries contributed to
this gowth. The relative plateau exhibited in Figure 4.1 between 1989 and 1990 is also
exemplified in the headline in ENR regarding construction export markets in 1990:

“Instability slows gowth abroad” (July 12, 1991, p.30)

This slowdown was due to the rapid econonnic and political changes that were taking
place in Europe. The potential Eastern Europe and the former Soviet Union presented in

1990 had been elusive due to the economic and political instabilities. However, another

72

upswing in the world construction exports was experienced in 1991 due to the strong
gowth of construction markets in Asia, the Middle East and Latin America.

1992 was another year of decline in world construction exports as ENR’s headline
read:

“International contracts dip slightly in 1992” (August 23, 1993, p.28)
Despite this decline, however, the contractors were optimistic about the future as
expressed by Ian Robertson, chairman of John Brown/Davy, UK:

“This has been a tough year, but we see that tlnings are getting better. There are
potential developments in a large number of areas” (ENR, August 23, 1993, p.28).

In fact, this optimism about the future turned out to be realistic for 1993, as the
figures for 1993 exhibited growth in construction export awards. New international
contracts awarded increased 5.9% in 1993 compared to the previous year (ENR, August
29, 1994). International contracts rose again mainly due to the gowth of the Asian
construction market. Asian market is expected to grow even further and appears to remain
to be the largest regional market in the years to follow. For instance, another $12 billion
list of regional infiastructure and power projects in Asia has been approved by the

associated governments (ENR May 16 1994).

4.2.1.3 Distribution of Construction Exports by Regional Markets

There are six main regional markets identified for construction exports which are
Middle East, Asia, Afiica, Europe, North America, and Latin America. Distribution of
construction contract awards among these regional markets during the period fi'om 1982
to 1993 is presented in Figure 4.2. Figure 4.3, on the other hand, presents the same

distribution in terms of the relative shares of each region in the total world construction

73

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exports. Asillustratedinbothfigures, MiddleEasthasbeeninasteady declinebetween
1982 and 1987, losing its dominant position as the largest market. While the Middle East
had accounted for about $51 billion of new contract awards in 1982, this dropped to
$11.4 billion in 1987, and reached $18.4 billion by the end of 1993.

The interesting point, however, is that although the Middle Eastern market has
beenonthe rise interms ofnew contract award amounts since 1987, its share in the world
market continued to decrease until 1990. Even though, by the end of 1993, Middle East
accounted for a little over 17% of the total market, placing it as the third largest regional
market in the world, this share was still less than its shares in the period from 1982 to
1986.

Another interesting observation is that Asia kept a relatively steady profile in terms
of new contract awards until 1991 afier which it has exploded. Furthermore, Asia’s
percentage share in the world market has been rising, positioning it as the largest regional
market since 1991. Continuing their growth, the new international contracts awarded in
Asia increased 20% in 1993 compared to the previous year (ENR, August 29 1994).

Moreover, Europe has also been on a continuous rise although its share has had
relatively minor fluctuations. However, overall, the growth of the European market has
resulted in Europe representing the second largest regional market for construction
exports since 1991.

Not much has changed in Latin America which has always been the smallest
market both in terms of award amounts and percentage shares. Africa, on the other hand,
has been a shrinking market which has had as high as nearly 23% of the world market in

1983. Afi'ica’s share was only a little over 9% by the end of 1993. North America has

76

exhibited an interesting trend working in the opposite direction to world market trends. It
has grown while the world market was shrinking until 1987, and declined while world
market was growing afier 1988. The US market, however, has been on the rise and

climbed 40% in 1993 (ENR, August 29 1994).

4.2.1.4 Distribution of Construction Exports by Project Markets

The distribution of world construction exports by difl‘erent project markets fiom
1989 to 1993 is shown in Figures 4.4 and 4.5. Figure 4.4 presents the distribution in terms
of total award amounts and Figure 4.5 in terms of percentage shares. As it can be seen in
these figures, petroleum, transportation and general building construction projects
represent the top three project markets in world construction exports. Among these,
petroleum projects have represented, by far, the largest market since 1990 both in terms of
award amounts and percentage shares. These projects have accounted for as high as 41%
of all projects in 1992 which has dropped to 37% in 1993. Transportation and general
building projects have had their largest shares in 1989 and since then appear to have
stabilized around 13-15% each.

On the other hand, there has been a dramatic boom in the power market in 1993
which increased 59.6% in 1993 compared to the previous year. The growth in this market
is expected to continue due to the vast energy needs of the Pacific Rim countries. For
instance, China alone needs an estimated 15,000 Mw to 18,000 Mw annually (ENR,
August 29 1994).

The smallest project markets for world construction exports are sewerage/waste
control and hazardous waste. Each of these types of projects have represented 1-2% of

the total through 1982-1993. Interestingly enough, there appears to be a relatively stable

77

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79

distribution of world construction exports among difl'erent project markets, particularly
from 1990 to 1993. The fluctuations in the award amounts have also paralleled those that

have occurred in percentage shares of difl‘erent project markets.

4.2.1.5 Distribution of Construction Exports by Nationality of Contractors

Figures 4.6 through 4.11 present the trends in world construction export activities
of the top contractors with respect to their nationalities. The distribution of contract
awards among the six main groups of contractors in terms of their nationalities (except
that European contractors are represented as a whole) is presented in Figure 4.6 for award
amounts and Figure 4.7 for percentage shares.

Top contractors fi'om Europe and the United States have been clearly dominating
the world market for construction exports followed by Japanese contractors throughout
the period form 1982 to 1993. The Japanese, however, appear to be increasing their share
which rose 63% in 1993 compared to the previous year (ENR, August 29 1994). The
Korean contractors have been very active from 1982 to 1986, with their shares
diminishing thereafter. The Turkish contractors have also been relatively active in the
beginning of the 19803, but, they have also lost their shares. However, they have been
better ofl‘ than the Koreans and hold to about 1% of the world market by the end of 1993.

The major reason behind the relatively high performance of the Korean and
Turkish contractors in the early part of the 1980s and their decline thereafier is the market
situation in the Middle East. Contractors from either of these countries had been very
active in the Middle East. Hence, with the decline of this market through 1987, they lost
their major markets and were not able to compete effectively in the other markets with

contractors fi'om the Triad countries.

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Figure 4.8 presents the number of contractors by nationality (again viewing
European contractors as a whole for the sake of simplicity) in the top 250 between 1982
and 1990, and top 225 fi'om 1991 to 1993. As illustrated in Figure 4.8, while the number
of American contractors has increased after 1989, the number of European contractors has
decreased. On the other hand, the number of Japanese and Turkish contractors have been
relatively steady throughout the period Ban 1982 to 1993.

Figures 4.9 and 4.10 present the distribution of total contracts awarded to
European contractors by their nationalities and their percentage shares respectively. As
seen in both figures, Italian, French, German, and British contractors have been the driving
force behind the success of the European contractors as a whole. By the end of 1993,
British contractors have been the recipient of most of the contracts awarded to European
contractors followed by French, Italian and German contractors.

On the other hand, as Figure 4.11 illustrates, Britain is the third country in the
ranking of European countries in terms of the number of contractors each had among the
top international contractors. Italy has the largest number of contractors followed by
Germany. Hence, it is noteworthy to point out that Britain has performed better than
either Italy and Germany with less contractors. A further note is that Italy has always had
the largest number of contractors in the top 225 compared to the other European
countries since 1984. However, there has also been a decrease in the number of Italian

contractors that enter the top 225 list since 1988.

4.2.2 Geographical Markets for Construction Exports

In this section, the trends in each of the six main regional markets for construction

exports will be reviewed one by one. For each regional market, first an overview of the

87

market through 1982 -l993 will be given Following that, the trends in the activities ofthe
contractors fiom difi‘erent countries will be briefly reviewed. The countries or nationalities
covered are those whose contractors have significant activities in the given market. For
the sake of simplicity, contractors from difi‘erent European countries are all grouped

together and referred to as European contractors.

4.2.2.1 Middle East

Figure 4.12 presents the trend in the Middle East construction exports fiom 1982
to 1993 and the trend in the share of the Middle East in the world market. Middle East
was the largest regional market in construction exports in 1982 as mentioned before. This
market represented nearly 42% of the world total at that time. The amount of new
contract awards, however decreased each year thereafter until 1987. Although new
contracts gradually began to increase after 1987, the decline of Middle East’s share
continued until 1989, bottoming out at 15.8% of the world total. In fact, during 1988-
1990, Middle East dropped to being number four in terms of size among the six main
regional markets in the world.

Since 1989, Middle East has increased its world market share a little bit. On the
other hand, although it is the third largest regional market in 1993, its share is again in a
decreasing trend as Figure 4.12 illustrates.

As Figure 4.13 illustrates, the amount of new contracts awarded to the top
contractors in the Middle East from the five main nationality groups that have been active
there has declined fi'om 1982 to 1993 as this market shrunk significantly. On the other
hand, as presented in Figure 4.14, the shares of the contractors fi'om different nationalities

have exhibited a difi‘erent pattern.

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91

Americandeumpeanconuactorshaveincreasedtheirsharesinashfinldng
market at the expense of Turkish and Korean contractors. By 1990, Turkish and Korean
contractors have practically been out of the Middle Eastern market. American and
European contractors appear to have been particularly successful in retaining most of the
new contracts awarded. The Japanese contractors have succeeded in exhibiting a relatively
stable trend of activities, with small ups and downs.

4.2.2.2 Asia

The trends in the amount of new contracts awarded in Asia through 1982-1993
and the percentage of the Asian market in world total are shown in Figure 4.15. From
1982 to 1987, the Asian construction exports have shrunk which is in parallel to the
shrinkage of the world construction exports in the same period. On the other hand, despite
the decline in the dollar amount of new contracts awarded, the share of the Asian market
in world total has increased in the same period. This points to Asia doing much better than
the other regional construction markets even in those years of recession in the world
market.

After 1987, the Asian construction exports have begun to increase drastically,
benefiting fi'om the growth of the world market as a whole. On the other hand, its share
has been relatively stable indicating that the other regional markets have also grown at a
similar rate.

What is particularly noteworthy is, however, what has happened since 1991. In the
two years following 1991, the Asian market has exploded increasing both the amount of
new contracts awarded and its share in the world market. By the end of 1993, Asia

accounted for over 33% of the new contracts awarded worldwide. Hence, Asia was the

92

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S NOITIIE

93

largest regional market for construction exports in 1993, being the engine for the growth
of the world market for construction exports.

Figures 4.16 and 4.17 present the trends in the activities of the top contractors in
the Asian regional market. American contractors have been the dominant players between
1982 and 1985, dropping to number three between 1986-1988, going up to number two
between 1989 and 1990, and finally regaining and keeping their leadership since 1991. The
European contractors have exhibited the exactly opposite trend. In other words, they have
been weak until 1985, strong between 1985 and 1989, and weak thereafter in terms of
percentage share.

The amount of new contracts awarded to both American and European
contractors have increased since 1991. However, the percentage share of European
contractors has decreased in the same period. In other words, European contractors
appear to have performed much less successfully than their American counterparts in the
Asian market. The Japanese contractors, however, seem to be on the move, increasing
both the amount of new contracts awarded to them and their percentage share in the Asian
market. Finally, although the Korean contractors had about 10% of the new contract
awards in 1982, they do not seem to have any significant level of activities in the Asian

market for construction exports by the end of 1993.

4.2.2.3 Africa

Overall, the Afiican market for construction exports exhibits a declining trend
between 1982 and 1993 as Figure 4.18 illustrates. It has had many ups and downs during
that period. On the whole, the market has shrunk until 1987, grown between 1987 and

1991, and has been shrinking since 1991. The share of Afiica in the world market for

94

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construction exports has followed roughly the same trend exhibited by the amount of new
contracts awardedinthatmarket. Inotherwords, itssharehasincreasedwhenthe market
hasgrown,anddecreasedwhenishassluunk.Asnotedabove, however,theAfi'ican
market has been steadily shrinking.

European contractors have by far been dominating the Afi'ican market for
construction exports as illustrated by Figures 4.19 and 4.20 holding as high as 80% of the
market in 1987. American contractors have been following their European counterparts
and have even outperformed them in 1991. Apart fi'om these, however, Turkish and
Korean contractors also appear to have been major players in the African market,
particularly until 1987.

However, since the African market has been shrinking in recent years, the amount
of new contracts awarded to contractors has been decreasing for all of them. Hence, the

challenge for contractors in this market is to be able to hold on to their market shares.

4.2.2.4 Europe

Europe has been steadily growing as a regional market for construction exports
since 1984 with the exception of a slight decline in 1993 as illustrated by Figure 4.21.
Overall, its share in the world market has also increased from 1984 to 1993. Europe’s
share has declined only in 1988, 1991 and 1993. Among these exceptional years, 1988 and
1991 are interesting to note since the European market has expanded in those years in
terms of the amount of new contracts awarded. Obviously, some or all of the other
regional markets had grown at a faster rate than Europe did in those years. On the whole,
however, Europe appears to be one of the leading regional markets in the world for

construction exports.

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101

As Figures 4.22 and 4.23 show, American and European contractors have, by far,
been the dominant players in the European market for construction exports. Together,
they have accounted for over 90% of the new contracts awarded in this regional market.
The third major group of players come from Japan who follow the leaders form a wide
distance. Finally, the Turkish contractors have had some activities in Europe since 1988,
taking their activities to the same level as those of the Japanese contractors.

One interesting note is that American contractors have been awarded less new
projects and have also lost market share in 1993 compared to the previous year. At the
same time, European contractors have been on the move who have increased both the

amount of new contracts awarded to them and their market share.

4.2.2.5 North America

The North American market for construction exports has exhibited a fluctuating
trend from 1984 to 1993 as shown in Figure 4.24. While the world market was shrinking
until 1987, this regional market was growing. This is also reflected in the fact that its share
of the world construction exports has steadily increased from 1984 to 1988. This growth
period was, however, followed by a decline period afier 1989 which went on until 1992.
Similarly, North America’s share of the world market decreased in the same period. From
1992 to 1993, the market grew again accounting for over 10% of the world market in
1993.

The North American market for construction exports is comprised of the US and
Canadian markets. Figures 4.25 and 4.26 exhibit what was happening in these two markets
from 1988 to 1993. Both of these markets grew from 1988 to 1989, but, shrunk from

1989 to 1992. When Figures 4.24 through 4.26 are compared, however, it becomes

102

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apparent that the growth in the North American market from 1992 to 1993 is due to the
growth of the US market which has also compensated the continuing decline of the
Canadian market.

The comparison of the activities of top contractors from different nationalities in
the North American market &0m 1984 to 1993 is shown in Figures 4.27 and 4.28. It is
important to note, however, that the activities of the US and Canadian contractors in their
home countries are not included in these comparisons. This is apparent in the fact that this
"WY-'58 involves construction exports only, and does not include domestic construction
activities- This will be clear when the activities of the top contractors in the US and
Canadian markets are compared as shown in Figures 4.29 through 4.32.

The European contractors have clearly been the dominant players in the North
American market accounting for at least 50% of all construction exports in this market
throughout 1984-1993. In fact, in 1993, European contractors accounted for almost 70%
of construction exports made to North America. In the analysis of the US market, where
the Amds‘vl‘ican contractors are left out since it is their domestic market, the dominance of
the Europeans is evident as illustrated in Figures 4.29 and 4.30. On the other hand, this
has not been the case in the Canadian market from 1988 to 1993 where the American
“airmen have outperformed their European counterparts (See Figures 4.31 and 4.32).
The PTOXimity of the Canadian market for American contractors appear to have been
efi‘ective in this achievement.

The Japanese contractors have also had some activities in the North American
market accounting for 10-20% of the construction exports to this regional market from

Y“ ‘0 year. However, this has been mainly a result of their activities in the US market as

108

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114

shown in Figures 4.29 through 4.32. Japanese have had a very small scale of construction

activities in Canada
4.2.2.6 Latin America

The amount of new contracts awarded in Latin America for construction exports
has exhibited an unstable trend from 1982 to 1993 as shown in Figure 4.33. The market
shrunk fiom 1982 to 1984, grew in 1985, shrunk again in 1986, grew again in 1987,
shrunk fi'om 1988 to 1990, grew in 1991, and shrunk thereafier. The growth in 1991 was
more of an explosion which doubled the share of the Latin American market for
constl'uction exports in world total (fi'om 4.79% to 9.66%). Overall, however, Latin
America has been a relatively small market for construction exports whose share of the
world total has never exceeded 10%.

As shown in Figures 4.34 and 4.35, American, European and Japanese contractors
have Shared the Latin American market for construction exports throughout 1982-1993.
Among these, however, the share of the Japanese has been at most about 10%, being
3.2% in 1993. Hence, practically speaking, the Latin American market has been divided
between the American and European contractors.

Despite the relative proximity of this market for the American contractors, the
Europeans have dominated the market from 1982 to 1990. In 1991 and 1992, however,
the American contractors have outperformed the Europeans and almost doubled their
share (50111 34.3% to 63.6%). In 1993, however, the American and European contractors

have had about 45% of the Latin American market each.

115

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4.3 CONCEVTRAHON 0F HIE WORLD WT FOR CONSTRUCHON
WORTS & WAITONALEAHON OF ME TOP CONTRACTORS

Inthisseetion, abriefanalysisofthe distribution ofthenewcontract billings ofthe
top contractors in construction exports will be presented. First, the concentration in the
market and the level of international activities of the top contractors will be reviewed.
Secondly, the international activities of the contractors from different nationalities will be
compared.

As the data in Table 4.1 show, the top 5 contractors accounted for 14.6% of the
total contract billings in the world ill 1993. Similarly, top 10 accounted for 24.2%, top 50
6l.O°/o, top 80 75.2%, and top 100 81.3% of the world total. In other words, the top 50
Contractors held nearly two-thirds of the world construction export market in 1993.

What is more interesting, however, is that the top 5 contractors, which constitute
2% of the top 225 contractors, had 29% of all international billings in the world in 1993.
Moreover, top 10 had 41.8% of all international construction billings in the world.
Similar-1y, top so accounted for 81.1%, top so 91%, and top 100 94.4% ofall international
billing?» Those contractors ranked 101st to 225th accounted for only 5.6% of all
international billings in world construction contracts.

As noted above, 2% of the 225 contractors (the top 5) hold 29%, and 55.6% of
the 225 contractors (the last 125) hold 5.6% of the market. This clearly indicates the
”Reina-anon in the market and the outstanding dominance of those few contractors who
are at the very top of the list of top 225 contractors in the world.

In other words, the market for world construction exports is largely held by 50 top

contractors who hold over 80% of the market. Hence, overall, the world market for

119

 

 

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120

constructionexportsappearstobehighlyconcentrated. Ontheotherhand,theremaining
20%» of the market appears to be very fi'agmented. Particularly, beyond the top 100, the
remaining 5.6% of the world market is divided among the last 125 contractors in the top
225 list for world construction exports. In fact, Seaden (1992) observes that cOnstruction
industry is highly fragmented worldwide, but that large, integrated companies, are
becoming more and more important.

The last column in Table 4.1 shows the ratio of the international billings of the
contractors to their total billings. This ratio, which is an indication of the importance of
international activities for the contractors, can be viewed as a proxy for the level of
intel'nationalization of the contractors. Overall, 31.6% of the total billings of the top 225
cOlltt‘actors come liom international billings. On the other hand, when the contractors at
the higher ranks and lower ranks are grouped and compared, different levels of
internationalization are observed.

The data reveal that almost 63% of the total billings of the top 5 contractors come
fmm international activities. This ratio decreases as we go down the list of the top 225
cont“aetors. For instance, the ratio of international billings to total billings for the top 10
contractors goes down to 54.4%. For the top 50, the ratio is 40%, for the top 80 36.7%,
and for the top 100 35.3%. In other words, the level of internationalization of the
contra'ittors decreases as we move down the ranks.

0n the other hand, the internationalization ratio for the tap 100 is still more than
the ratio when all of the top 225 contractors are considered which was 31.6% as noted

above- Hence, it becomes apparent that the amount of international work done by the

121

contractors who are towards the bottom of the list is more or less negligible compared to
the total market.

Table 4.2 presents the data for comparison of the internationalization levels of
contractors form difl‘erent nationalities. It must again be noted that the contractors from
difi‘erent European countries are grouped together for the sake of simplicity only.

When total contract awards are compared, Japanese contractors are number one
followed by the American and European contractors in second and third place
respectively. On the other hand, this ranking changes completely when international
contract awards are compared. This time, European contractors are number one, followed
by American contractors, with Japanese contractors falling down to third place.

The internationalization levels of contractors from difl’erent nationalities are again
compared using the ratio of their international contract awards to their total awards. In
this analysis, the Turkish contractors are found to be the most international. 68.8% of the
total contracts awarded to Turkish contractors are on international contracts. This is a
clear indication of the disposition and commitment of the Turkish contractors to foreign
markets for doing business. Kaynak and Dalgic (1992) have also noted that Turkish
construction firms have gone through a clear internationalization process and have been
particularly successful in the Middle Eastern and North African markets.

The European contractors follow the Turkish firms who have an international
contract awards to total contract awards ratio of 46.3%. American contractors have a
ratio of 41.85 placing them in third place in terms of internationalization. However, when
only the top ten American contractors are considered, this ratio goes up to 51.8%. This

ten point increase clearly shows the discrepancy in the internationalization levels of

122

 

 

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American contractors. The top ten, who account for 85.3% of the total international
contracts awarded to American contractors in 1993, appear to be highly international.
Hence, a few big contractors dominate the export-oriented group of American contractors
(US Congress, Ofice of Technology Assessment 1987).

The Koreans do about a quarter of their work in foreign markets. Interestingly
enough, Japanese contractors are found to be the least internationalized. Only 12.5 % of
thetotalcontractsawardedtothemareoninternational contracts. Thisisrnainlydueto
the fact that they have a very well-protected domestic market that precludes foreign

contractors from entry (Schelesinger 1993).

4.4 HVDUSTRY STRATEGY

Development of a business strategy in international construction involves a number
of decisions. Contractors need to decide “when to enter which country, what to export
there, in association with whom, under what contract form, at what price, and with whose
finance” (Strassmann and Wells 1988, p.227).

Market entry decisions are not too much difi‘erent from those facing firms in
difi‘erent industries who are involved in international business. Among the factors
considered are attractiveness of the market, resource availability and cost, political and
economic stability, etc. The contractors from the Triad countries have been active in all
markets across the world though in varying degrees. 0n the other hand, contractors fiom
developing nations or NICs have targeted specific regions in particular. For instance,
Koreans have been very active in the Middle East which also became their handicap when

this market shrunk drastically through 1982-1987. Similarly, the Turkish contractors have

124

beenveryactiveinthehvfiddleEastandNorthAfiicaand havebeenhurtwiththe decline
of these markets (Kaynak and Dalgic 1992).

Another major decision facing international contractors is on selection of
associates or partner to work with. According to Strassmann and Wells (1988),

“To initiate, organize, and execute work abroad, a construction firm will often
associate itself with others in a joint venture or consortium” (p.227).

Given that such an association is necessary, selection of the “right” partner to collaborate
with becomes a critical decision. In this regard, forming long-term alliances appear to be
very beneficial, particularly in markets where continuity of work is anticipated. The issue
of collaborations among contractors will be discussed in detail later in this chapter.

Another concept or approach that has gained a lot of popularity and attracted
interest in the US construction industry is that of “partnering” between owners and
contractors (Rudy 1992). This view focuses on the relationship between all parties
involved in a construction project including the owners. Partnering approach emphasizes
“making long-term commitments with mutual goals for all parties involved to achieve
mutual success” (Partnering Task Force, 1991). In a C11 (Constnrction Industry Institute)
study, Halpin, et al (1993) note that owners look for long-term relationships with
contractors where nrutual expectancies are met. A relationship based on trust and the
selection of team personnel are identified as the top management concerns in the
partnering approach (Partnering Task Force 1989).

Minimizing uncertainty and maximizing the amount of work and income are the
objectives of the contractors. Hence, they seek large projects with safe turnover. The most

preferred contract type is a design-build package and the least preferred is open

125

competitive bidding A design-build package is very attractive because higher profits can
be obtained (Strassmann and Wells 1988).

Seven key factors were identified in a C11 study which were most likely to
influence competition in the construction industry. These were (1) flexibility in operations
and the ability to adjust to changing client needs rapidly, (2) diversification and expansion
of markets, (3) recognizing the importance and need for establishing people relationships,
(4) formations of strategic alliances, (5) innovation and the capacity to adapt new
techniques, (6) quality in products and services ofi‘ered, and (7) maintaining a strong

financial disposition (Yates, Mukherjee and Njos. 1991).

4.4.1 Financing

Financing of projects is one of the major issues in the construction industry (US
Congress, Ofice of Technology Assessment 1987). In international construction,
financing becomes even more critical and project proposals that include low-cost financing
get preferential treatment (Pheng 1992). Request for financing is also usually part of the
bid process for foreign construction. Several instances of this are reported in the article
“Bankers Construction” (ENR. Jan 27 1983). Provision of low-cost finance is one of the
main criteria used by foreign governments in awarding contracts. Project proposals that
include competitive financing as part of the bid package are the ones that succeed (US
Department of Commerce, International Trade Administration 1993). Similarly, financial
stability of the contractors is one of the decision criteria in contractor prequalification
(Russell and Skibniewski 1988; Russell, Hancher and Skibniewski 1992).

One of the executives who participated in this study has made the following

comment on the issue of financing:

126

“Financing has always been important. But it has taken on a new dimension in the
past few years. In today’s cash-poor markets, many projects simply cannot be built
unless the contractor arranges project financing. New financing methods are being
used, some of them involving countertrade or various forms of privatization. The
build-operatetransfer (BOT) method is being utilized on a mrmber of large
projects. The successfirl bidder must finance the project, design and build it,
operateitforaspecifiedperiodoftimetoearnbacktheinvestrnentandthen
transfer ownership to a public authority”.

For instance, Eastern Europe presents a lot of opportunities for new projects, but
lack of financing in that area poses a serious problem. A recent development is the
formation of the European Bank for Reconstruction and Development (EBRD). One of
the primary objectives of EBRD is to support infiastructure development in the region.
Although the Bank does not finance the total cost of a project, it works to stimulate
investment from other public and private sources (Intematr‘onal Construction Newsletter,
18:4). In other words, in cash-poor countries where there is potential for many projects,
outside financing may be necessary to create a market (US Congress, Ofice of
Technology Assessment 1987).

For instance, in the project to build a terminal at Prague Ruznye International
Airport in the Czech Republic, the Czech government could not raise capital to finance the
project and invited bids for a BOT contract. The government formed a joint venture with
the consortium that got the contract (ENR, August 8 1994).

Strassmann and Wells (1988) note that the market for international constnrction

has switched from being a seller’s market to being a buyer’s market. They state that

“...price becomes an increasingly important issue of contract - hence worldwide
procurement of materials and low-cost but disciplined labor - and then finance”

(p.241).
At the 1993 International Construction Forum, Jack Randolph from the US Department of

Commerce noted that financing was the key for being competitive in international

127

construction contracts. He went on to add that with the growing trend in the world
towards privatization and use of the BOT method, project financing has become even
more critical (International Construction Newsletter 1993, 18:2). For instance, in 1993
the Turkish government announced an $18 billion infi'astructure program which was
intended to be financed through the BOT and build-own-operate (BOO) methods
(International Construction Newsletter 1993, 28:3). Moreover, it is also reported that
European contractors are looking for BOT contracts to expand their business (ENR,
August 24 1992,).

The importance of financing in construction is particularly critical because of the
lag between production and sale which is much more than any other industrial sector.
When a contract is awarded, the contractor starts preparing the construction site, ordering
the materials and digging the foundations. Hence, expenses start to accumulate
immediately, but the project will usually take a number of years to be completed. So, the
contractors need working capital to cover this lag in construction. On the other hand, a
project will provide its income over a number of years causing an income lag. Hence,
project financing is required to cover this income lag (Strassmann and Wells 1988).

The Japanese-led consortium that won the contract to build a bridge across the
Bosphorous in Istanbul, Turkey provides a clear example of the efi'ect of financing
(Ingrassia 1990, reprint). The winning group was led by Ishikawajima-Haima Heavy
Industries Co. (I.H.I.) of Japan. They made a surprising bid overthrowing the consortium
led by Cleveland Bridge and Engineering who was backed up by the Bechtel Group. As
Ingrassia puts it,

“As if its huge price advantage weren’t enough, the I.H.I. group’s finance package
clinched the deal” (p.427).

128

The finance package included Japanese government loans and Italian credits with very
attractive interest rates and payment terms.

Entering collaborative ventures with foreign firms may be one way to have access
to subsidized financing. Moreover, the contractor may need to be financially strong itself
and take equity position in new projects. The protocol signed between Bechtel Power
Corp. And the Turkish Electric Authority to build a $1 billion coal-fired powerplarnt
provides an example of this. Bechtel and its partners will design, build and finance the
project and also enter a lS-year joint venture with the Turkish Government. Some of
Bechtel’s revenues will come fiom the sale of power (US Congess, Ofiice of Technology
Assessment 1987).

Hence, partnerships or alliances provide an alternative medium to use the financial
leverage and government support of foreign firms. Yates, Mukherjee and Njos (1991)
report that US firrrns are seriously considering such partnerslnips to complement their

construction management expertise and win contracts.

4.4.2 Government

Both the local governments in the country where the project is located and the
home-country governments of the contractors effect strategies and competitiveness of the
contractors. These efi‘ects are due to the requirements set by local governments and
assistance provided by home-country governments of the contractors.

Partrnering with a local contractor is a legal requirement set by many foreign

governments which is a prequalification criterion that foreign contractors have to meet.

Hence, foreign contractors have to select a local contractor to form a joint venture or

129

consortium to be able to enter the bidding. One of the executives who participated in this
study nnade the following remark on this issue:

“There are new regulations or established practices in a variety of countries which

require substantial participation by local firms or efi‘ectively exclude US companies

from many types of projects”.
There are, ofcourse, many benefits to collaborating with a local contractor such as
making use of its local contacts, knowledge of the market, etc.. However, when it is a
legal requirement, this mode ofentry is the only way to have access to the market. In
other words, there is no mode of entry decision to be made if that market is selected for
entry.

The remark noted above about exclusion of US companies implicitly points out the
fact that some governments may employ regulations to protect their national markets.
Japan provides a clear example of this phenomernon whose market has been virtually
closed to foreign contractors (US Department of Commerce, International Trade
Administration 1993). Outsiders are excluded and foreign companies get only less than
1% of Japan’s public works construction market (Schlesinger 1993). A foreign contractor
has problems even in hiring subcontractors and suppliers in Japan since they are loyal to
established companies in Japan. More than a year ago, however, Japan has approved a
plan that would open the market for public works and tlnrough open and competitive
government on central government contracts (ENR, Jan 24 1994).

Moreover, many governments insist for the engineering and design work for a

project to be done locally. Transfer of proprietary technology is also sought by many

governments. Hence, contractors desiring to do work in such countries have to satisfy the

80vemment in those countries (US Congess, Ofice of Technology Assessment 1987).

130

Ontheotherhand,thehome—counfiygovanmansofthecontractorsalsohavea
direct efi‘ect on the operations and strategies of their contractors through the assistance
they provide. For instance, Japanese arnd European governmernts provide significant
amount of subsidies and other types of financial assistance to their contractors when they
enter foreign contract bids. In countries such as Japan, France, and Italy, government
agencies provide both developmernt aid and export credits at below-market interest rates
(US Congess, Ofice of Technology Assessment 1987). As noted above, financing is a
critical deciding factor in many contract awards. Hence, contractors fi'om Japan or Europe
have a significant advantage over their competitors fi'om other countries, particularly the
US, and can ofi‘er very attractive tenders. One of the executives participating in this study
stated:

“We are seeing more use of government sponsored “mixed credit” financing

whereby foreign aid finnds are combined with official export financing to effectively

“buy-down” or reduce the efi‘ective interest rate on a project loan”.

The Japanese and French governments are particularly very active in promoting their
construction industries and providing different kinds of assistance to their contractors in
foreign contract bids. The Japanese call the credit provided by the government “foreign
aid”, and not a subsidy (Ingassia 1990, reprint). On this gound, they argue against the
allegations raised against them for subsidizing their contractors. Strassmann (1989) notes
that the French, Italian and Japanese governments are willing to transfer resources abroad
which is the main reason for supporting their firms erntering in international contracts.

The Korean government also appears to be very interventionist, following their

contractors wherever they go (Strassmann and Wells 1988). Similarly, the Turkish

government provides govemment-sponsored export promotion to their contractors. The

131

policies of many developing countries and NIC governmernts have also helped their
construction industries to mature technologically (US Congess, Ofice of Technology
Assessrnernt 1987). The following remark made by one of the executives who participated
in this study clearly show how the US contractors feel about the activities of their

govemnnernt:

“Manyofourforeigncompetitorsreceivewbstanfialassistancefi'omtheir
governments in pursuing overseas business. This assistance generally takes the
form of low-cost export financing, government funding of feasibility studies and
risk insurance, tax breaks, and a variety of other progams. The US construction
industry receives some limited goverrnmernt assistance in these areas, but the
industry has traditionally had a hard time convincing Congress of the importance of
the export side of the US design and construction industry. The US governmernt
has failed to appreciate the dificulties of doing business in foreign markets and has
burdened the industry with regulations and restrictions making it more dificult for
US companies to compete abroad. Among these regulations are the Foreign
Corrupt Practices Act, Anti-Boycott Regulations and Onerous Tax Requirements”.

In addition to providing loans or low-cost financing, home-country goverrnrnents of
the contractors may also provide financial assistance in the form of tax incentives. For
instance, “Italy and Japan do not tax income earned abroad and have further tax
concessions on the domestic income of exporting companies” (Strassmann and Wells
1988, p.239). Again, US government is the most reluctant to reduce taxes or provide
financial leverage to its contractors that enter foreign contract bids. One of the
participants in this study made the following comment on this issue:

“US tax treatment of American firms conducting business in overseas markets
remains a continuing stumbling block to their competitiveness. Complex and
restrictive rules goverrning the use of foreign tax credit provisions present an
unnecessary burden on corporations and their employees. Additionally, despite the
fact that the Foreign Earned Income Act (Section 911) provides a limited
exemption from taxation for certain qualifying income earned overseas, the US is
still the only industrialized country which taxes the foreign earned income of its
citizens abroad. These taxes make US workers more expensive than their
European counterparts to hire and maintain on overseas projects. Studies have
consistently shown that Americans working abroad buy American and sell
American products, creating US exports and US jobs”.

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Home-country governmernts can also help their contractors in developmernt of new
technology which will be discussed in tlne next section below.

Asoneindusfiyexpeflnotes,»farasUSconfiactorsareconcerned,their
governmernt has provided a lot of irnternational project opportunities in the past which
were governmernt firnded. Among these were embassy construction, overseas military
construction projects or AID projects. The trend, however, is that there are less and less
opporturnities for overseas work from government agencies.

Hence, the efi‘ects of both local and home-country governments on the
competitiveness in the industry are apparent. There is a lot of concernns voiced about
government subsidies, but many governmernts still provide them. Moreover, the financial
leverage introduced through these subsidies can be the deciding factors in determining
who wins the contract bid. Furthermore, it is also apparernt that when financing is the
deciding factor in a contract award, US firms typically find themselves at a disadvantage

against their foreign competitors.

4.4.3 Technology

Level of technological development is another factor affecting competitiveness in
the global construction industry. As within most industries, contractors that utilize new
methods and tools, which are a result of the application of new technology, have a
differential advantage in the industry. Development of new technology and methods,
however, requires significant amount of investment in R&D. Governments can have a
significant effect on the technological development of their construction industries by
making the necessary investment, facilitating the coordination of research conducted in the

industry, or encouraging the firms to collaborate and invest in R&D.

133

The American contractors have had the leading edge in construction technology
for many years after the World War II. Today, however, the Japanese have takern over in
many areas. While the US has traditionally been the exporter of technology, it has become
a technology importer with Japan taking over the technology leadership. Actually, as
Strassmann and Wells (1988) note, the Japanese imported all-American construction
technology, learrnt fiom it, moved to European technology, and lastly began developing
their own that now makes them the technology leader. Now, R&D is an integral part of
large Japanese construction companies and The top 50 Japanese contractors are actively
involved in R&D (Sidwell, Metzinger, and Tucker 1988). Large Japanese contractors
annually commit as much as $100 nnillion each to applying robotics and other automation
techniques to construction. On the other hand, the budget for R&D is very limited in the
US. Few of the large American contractors have people working directly on new
construction methods. The following example shows that R&D is seen more as an

expense rather than investment:

“During a visit to a Japanese research laboratory, a vice president of a major US
construction firm has been reported as saying that, if he were in charge, he would
fire all the R&D stafi' and save the company 825 million a year (cited in US
Congess, Ofiice of Technology Assessment 1987, p.144, original citation at Final
Report, Task 3, Technology in Architecture, Engineering, and Constnrction, op.
cit., pp. 6-7).

The US industry is also reluctant to use new construction techniques due to
litigation concerns in case of failure (US Department of Commerce, International Trade
Administration 1993). In a CH study, Sidwell, Metzinger and Tucker (1988) note that:

“The US construction industry undertakes virtually no research. That which is
done is being performed primarily by materials and equipment producers” (p.30).

134

Seadern (1992) has identified three systems in the world for gerneration and transfer
of krnowledge in the construction irndustry which can be labeled the European, the North
Americarn, andtheJapanese systems. IntheEuropeanmodel, thereisahiglnly structured,
formal and centralized national system for research in construction. Specific national
organizations gernerate researcln, while others transfer the results to the irndustry. The
financing of the system comes fi'om both the national government and the industry. As
Strassrrnann and Wells (1988) note, the European governmernts do not only help their
contractors with financial assistance, but also provide technological support.

In contrast to the system in efl‘ect in Europe, “there is little coordirnation or overall
direction in the construction research efl‘ort in North America’ (Seaden 1992, p.51). Most
construction research is conducted at the universities, and national research institutions
play a relatively limited role. Moreover, transfer of research results to the industry is
much less institutionalized than in Europe. The commonality in both the European and
North American systems is that most construction research is firnded by the state and
performed at universities and research institutes. In other words, private sector invests
very little in construction research.

There seems to be more awareness building in the US construction industry that
more attention needs to be given to research and some consolidated efl‘ort. In this regard,
some institutions have been formed such as the Construction Industry Institute (CII)
whose mission is stated as:

“...to improve the total quality and cost efi‘ectiveness of the construction industry

through research and implementation for the purpose of providing a competitive
advantage to US business in the global marketplace” (C11, 1992 Annual Report).

135

Moreover, one of the obligations of memberslnip to C11 is stated as “Willingness to
slureunderappmpfiatesafeguud,mfonmfionufithresearchtwnsandufiththe
membership in general”.

The situation is completely difi‘erent in Japan where private sector is the engine
behind construction research. Such research is conducted inside the large corporations,
who make significant investments as noted earlier (Seadern 1992). Sidwell, Metzinger and
Tucker (1988) have found that “Japanese builders view R&D as an essential investment
for the future and have directly linked R&D to construction activity ...”(p.46).

Therisldnessandhigh cost ofR&D investments also makeithard for individual
companies to handle on their own. Hence, instances of inter-firm collaborations are also
observed in the construction industry with the objective of joint R&D by sharing risks and
cost.

Although American firms have lost the technology battle on a number of grounds,
they are still the unchallenged leader in construction management (CM), process plarnt
design and computer aided design and drafting (CADD) (Sidwell, Metzinger and Tucker
1988). In fact, the edge that American firms have in computer-based technologies has
helped them to hold a competitive place in the international market (US Congess, Ofice
of Technology Assessment 1987). The Europeans and the Japanese lead in developing
new site-oriented construction technology. The Japanese, for instance, are undoubtfully

the leader in tunneling type of work (Strassmann and Wells 1988).

4.5 ALLIANCES HV HVTERNAHONAL CONSTRUCTION

Examples of inter-firm collaborations have been steadily increasing in many

industries and appear to be a global trend for doing business. As noted before,

136

international construction is an industry also characterized by such inter-firm
collaborations that may take various fornns. For instance, the contractor-subcontractor
relationship is an inherent part of the industry, and collaborative ventures betweern
contractors are also typical. The concern of this study, however, is the latter type which
refers to collaborations between contractors.

J.T. Kavanagh (1990), chairman of the National Constructors Association (NCA)
in 1990, had stated that strategic alliances with foreign contractors would be
commonplace for NCA member companies. He had also noted that this would be true for

both domestic and international projects.

4.5.1 Rationale for and Benefits of Alliances

Interrnational contractors have a number of reasons or motives for forming
alliances. Although some of these also apply to firms that form partnerships in their
industries, some are specific to the construction industry. The Construction Industry
Institute in the US (hereafier referred to as CII) has commissioned a number of studies on
the construction industry. One of these studies has specifically focused on alliances in
international construction (Badger, et al. 1993). A goup of researchers at Arizona State
University, USA, has conducted this study which is one of the few that has investigated
the issues surrounding such alliances in detail. Thirty personal interviews with senior level
international construction executives were conducted during this study and the results
presented in a detailed report (Badger, et al. 1993).

According to this study, the reasons for forming alliances in international

construction and the benefits gained can be gouped into seven business areas (Badger, ct

137

al. 1993): (1) FinanciaL (2) Marketing, (3) Operational, (4) Governmernt, (5) Management
and Personnel, (6) Technical, and (7) Labor.

In the financial area, international contractors forrrn alliances to access financing,
slmeandlowadskanhmcepmfiubifity,havemrvivalmdfinmcidsecudty,meet
bonding requirements, and lower overhead costs. Since construction projects are very
costly, contractors may consider them to be very hard and risky to undertake on their
own. Hence, financial motives for forming alliances are particularly strong and efi‘ective in
this industry. Secondly, through alliances, contractors gain a number of benefits from the
marketing point of view as well. Broadening the client base, entering or having access to
new geogaphical markets, increasing competitive position, maintaining arnd increasing
market share, getting firture project information and establishing a network, sharing long
range plans, and being recognized as an international contractor are identified as the
marketing related benefits.

Operationally, the partners in an alliance can service core clients in different parts
of the world, have project and administrative diversity, experience and knowledge, access
supply lines, and increase their flexibility. From a technical perspective, alliances provide a
suitable medium to the contractors for accessing new technology and low-cost
design/build services, and can be a source of R&D. In the management and personnel area,
alliances enable contractors to enhance company culture and locd expertise, increase and
streamline management capabilities, level base the workload, and enhance employee
relationships. Furthermore, in the labor area, the major motives for and benefits gained

fi'om forming alliances are accessing local labor and increasing quality of work and

138

productivity. Finally, contractors form alliances because of some govenrnental factors,
such as government requirennents, some political reasons, and bidding criteria as well.

According to the results ofa study conducted by Price Waterhouse, 24% ofall US
firms who exported construction services in 1982 and 1983 participated in joint ventures.
The main reasons for participating in joint ventures were found to be the complex nature
of the projects, the need to irncrease bonding capacity or enhance financing capabilities,
and foreign govenment requirenents (Price Waterhouse 1985).

For instance, Hofinan (1992) poirnts out that forming strategic partrneships with
environmentaldesignfirmscanbeveyefl’ectiveasanentrystrategytothehazardous
waste remediation market. He notes that the complenentary assets to be brought together
through such partrneslnips will give a significant competitive edge in this growing market.

Among all reasons and benefits noted above, the top four reasons for forming
alliances in irnternational construction appear to be accessing technology, sharing risk,
scarring financing, and entering new markets. The top four benefits, on the other hand,
are enhancing competitive position, increasing market share, obtaining new work, and
broadening client base (Badger, et al. 1993). Hence, technical and financial concerns
appear to drive the formation of alliances in international construction; however, the major

benefits gained seen to be marketing related.

4.5.2 Challenges in Alliances
Firms face many challenges in their own independent operations; however,
entering into an alliance brings additional and different challenges. The major challenge in

entering an alliance is forming the “right” alliance. There are a lot of factors to be

considered for the alliance to be successfirl and for the alliance partners to reach their

139

objectivesinenteingthealliance. InaCII study, some ofthesefactors were identified as
duration arnd docnrmentation of the alliance, dificulties to be encountered, contributions of
the partners, confidentiality, and assessment of rewards and risks (Badger, et al. 1993).

Alliancesarenoteasyandmaytakeasignificarntarnountoftimetofonn. Hence,
once formed, the expectation is for the alliance to last a long time. Contractually, an
alliancemaybebasedoninformalageenents, suchasahandshakeorverbal commitment,
or on complex legal contracts or both Due to the long tem nature and variety of
contractual arrangenents, therewillbeanumberofdificultiesthatmustbeanticipated to
be encountered. An alliance may be vey diflicult to maintain, manage and operate.
Hence, great care and attention should be given to such possible dificulties before the
alliance is formed. Furthermore, the identification of the contributions of each partner need
to be clearly made. In the mutual relationship outlined by an alliance, all partners must
contribute in some way for the alliance to be meaningful and successful. It should be
realized that the alliance is formed in order to achieve objectives that the partners can not
achieve by themselves.

Confidentiality in the alliance is anothe serious challenge. The disclosure of
critical information to the alliance partners need to be carefully evaluated. Disclosure of
some proprietary information may be inevitable during the operation of an alliance. Thus,
confidentiality of such information needs to be ensured so that it does not pose any serious
problems in a relationship based on trust. Finally, assessment of rewards and risks is of
critical importance. This may be true of all business decisions. However, in forming
alliances, a firm is entering into a long-term relationship with another firm and making

commitments at the same time which may be very hard and/or costly to break. Hence,

14o

alternfiveneedmbewefirflyconsideedendthedsksasweatedwiththealfiance
weighed against the potential benefits.

Another major challenge, maybe the most critical one, which is related to the
factors noted above as well as otlne's is selection of the partne(s). This is a critical
challenge since evaluation of a potential partner needs to be done both on measurable or
obse'vable and unobservable characteristics. The conduct and success of the relationship
willbemostlybased onqualitativefactorssuchastrust,honesty, motivatiorn, ethics, and
commitment. Since, once an alliance is formed, the partnes will have to live together for
along time, the “fit” between them and clear undestanding of the expectancies of each

fi'om the othe are very important.

4.5.3 European, Asian and American Philosophies Towards Alliances

European, Asian and American contractors constitute the three major goup of
contractors active in irntemational construction. There are, however, difl‘erences in their
approaches to forming alliances (Badger, et al 1993).

European contractors maintain the same key personnel in the alliances they form.
In other words, key personnel from European contractors who are involved in the alliance
are not replaced in a couple of years. Europeans emphasize establishment of trust between
the partners in an alliance. Establishment of trust is a long process where trust is
deve10ped tlnrough interactions between the partners. Hence, continuity of key personnel
helps to develop and strengthen the level of trust between the partners. Moreover, open
criticism or candor is not well accepted by Europeans. European contractors also tend to
give their site manages a lot of autonomy, responsibility and authority to operate.

Furthermore, they are very willing to change the way they do business when necessary.

141

European contractors are also vey willing to form relationslnips and collaborate
with other contractors. For instance, as Jashapara (1992) notes, joint venture is the most
fiuitful mode of entry to penetrate the French market. Most European contractors tend to
besmaHmddneyenhanceflnerleveageandmekepowethroughcoflabomfingwith
each other. Collaborative ventures involving three or more partners are also not
exceptional among European contractors. For instance, the mega project of the building of
the Channel Tunnel involved a trans-European consortium comprised of five British and
five French construction comparnies (ENR, May 2 1994).

Legal documentation and litigation issues are not too much of a concern for
European contractors. They “rely more on human relationships and less on complex legal
documentation” (Badger, et al 1993, p.4-6). Alliance relationships are based on mutual
trust and long-term commitment of the partners.

The philosophy of the Asian contractors towards alliances exhibits some
similarities to the European philosophy, but also has some unique aspects. The difl‘erences
between the Asian and Western cultures are reflected in how Asian contractors view
alliances. For Asian contractors, an alliance should be based on mutual trust and respect
(Sidwell, Metzinger and Tucker 1988). The alliance is seen as a long-term commitment
and treated as such. Asian contractors select their partners using criteria based on personal
relationships more than anything else. They also value hierarchy, formality and patience in
their interactions. This is also evidenced in their approach to negotiations which is
comprehensive and long paced.

Badger, et a1 (1993) also note that Asian contractors have a strong cooperative

goup orientation and dislike direct confrontation. The time spent and the expenses

142

involved in developing an alliance are not seen as being unnecessary or as waste of
mourcaMmMubehgabwhtdyneceurymesmbfislungasoundandlongtem
relationship.

Alliances have been an integral part of all areas of business in Asia. Keiretsu in
Japan and chaebol in Korea are the outstanding examples illustrating how alliances have
been integrated into the Asian business culture. Not surprisingly, the Asian contractors are
vey willing to form alliances and collaborate with other contractors. In addition to
intenational alliances, Asian contractors are also vey willing to form domestic alliances
either on a long term or project-by-project basis.

Similar to the Europeans, but more so, Asian contractors consider establishment of
mutual trust more important than a contractual agreement. Minimum amount of
documentation is used in defining the alliance terms. Badger, et al (1993) have obseved
that “Asian alliance contracts are typically only a one page letter of understanding which
primarily defines mutually agreed upon joint goals for the alliance” (p.4-13).

On the other hand, as the results of the Badger, et al (1993) study point out, the
American philosophy towards alliances sharply contrasts with those of the Europeans and
Asians. The formal and individualistic business style of the American contractors is very
different fiom the European and Asian styles. American contractors prefer to rely on
formal and detailed contractual ageements which are vey well spelled out covering all
possible contingencies. They are very disturbed if an alliance lacks such a formal
framework and is mostly based on mutual trust and commitment. This is a result of the
high level of litigation concerns and the directness prevalent in the American style of

business. Open criticism and direct confi'ontation are very well accepted and exercised by

143

the Ameicans. Moreover, Ameican contractors tend not to be patient and want to get
right into business in their interactions during and after negotiations.

Moreover, forming alliances is not necessarily the preferred mode of doing
business for the American contractors. They would rather go alone or acquire or merge
with the potential partnes. Hence, American contractors tend to form alliances more out
ofnecessity rather than delrberately seeking then. The turnover ofAmeican expatriates at
construction sites also tends to be rather high which disrupts the continuity of key
personnel. This hampers the development of trust and understanding which requires
continuity of interaction between the partnes’ personnel involved in the alliance.
Moreover, the autonomy and authority given to the oveseas manages of American
contractors tend to be vey limited.

American contractors appear to be delimited by some industry paradigns in their
approaches to alliances. Badge, et al (1993) have identified nine such paradigns in their
study on alliances in intenational construction which are listed below:

1. Lack of trust

2. Resistance to slnaring irnforrnation

3. Competitive spirit

4. Adversial relationship(s)

5. Lack of long-tem commitment

6. A “US methods are always right “ attitude
7. Lack of delegation of authority

8. Direct style of communication

9. US dependency on excessive legal documentation (p.5-6).

144

Eachoneofthesenineparadignsisdetrimental foranallianceinits own right. In
fact, each one describes exactly the opposite of the kind of paradign that should be
prevalent in alliance formation and mairntenance. Most, if not alL of these paradigns are
contrary to the kind ofindustry paradigns prevalent in Europe or Asia For instance, at
the Construction Industry Presidents Forunn, Henry Michel identified parochialisrn of the
US contractors as one of the barries to ovecome in the construction industry (Ihe
American Institute of Constructors Newsletter 1993, 23 :3)

Hence, breaking or changing these paradigns is crucial for American contractors
to be more active and efl‘ective in the world of alliances. On the othe hand, it should also
berecognizedthattlnisisnoeasytasktlnatcanbeaccomplishedinashorttime. Itis
particularly hard in an industry that has been well entrenched domestically such as the
construction industry in the US which operates irn a big domestic market. Old traditions
may be hard to break or change. Thus, oveconning any resistance that is higlnly likely to be
encounteed is the big challenge facing American contractors.

The first step in this direction should be a clear recognition and appreciation of the
global trend towards collaborations and formation of alliances in international
construction. The potential benefits of such collaborations need to be clearly understood.
In their study on Japanese-style partnerships, Dyer and Ouchi (1993) have concluded that
US companies nwd to efi'ectively utilize partnerships and learn from the Japanese
approach. Similarly, a clear undestanding of the factors efl‘ective in the formation and
maintenance of alliances is needed. In this regard, one of the main conclusions of the
Badge, et al (1993) study was the following:

“One necessary prerequisite crucial to prospering in the firture irnternational

construction “arena” will be a company’s awareness of the implications and
ramifications in fornning alliances with foreign entities” (p.5-l3).

14S

Badge, et al (1993) also state tlnat:
“'l‘lneneedforcooperationandmutualtrustofthealliance partnes seemstobethe
underlying “Intenational Implication” behind fornning alliances. In othe words,
what we have observed as being practiced oveseas for many years, especially in
Europe and the Pacific Rinn areas, is a spirit of coopeation and team-work
between competitive construction firms and with their govenments. ...... if a US
company is going to launch an efl‘ort to penetrate the irnternational construction

domain, they would be well-advised to research also the criteria and conditions
necessary to form an alliance” (p.5-l4).

4.5.4 The Future

The future in intenational constnrction is clearly going to be even more
competitive than it is today. Moreove, alliances among construction firms are going to be
even more important in the international construction market. In othe words, forming
well-structured alliances and maintaining them will be the key to renain competitive and
sustain and increase market slnare. This is already evidenced by the increasing numbe of
international alliances, consortia or othe forms of collaboration formed in entering
irntemational construction contract bids.

For instance, nine consortia bided on the project to finance, design, build and own
a $4.1 billion rail link between the Channel Tunnel and London in the United Kingdom
(ENR, May 9, 1994). The $1.5 billion motorway construction project in Turkey was
carried out by the joint venture formed between the Bechtel Corp. of the US and Enka of
Turkey (ENR, July 6 1992). Ebasco Services Inc. of the US has formed a jointly owned
engineering company with a Chinese government agency to handle powe projects in
China (151nm, June 21 1993). Another irntenational joint venture carried out the $1 billion
hydroelectric project in Venezuela (ENR, January 3 1994). The Bechtel Corp. of the US

and IPL of Canada signed an ageement to combine their efl‘orts in intenational markets

146

(ENR, June 28 1994). Such examples of collaborations are absolutely numerous and
clearly show tlne definite trend toward formation of partrnerships to compete in
irntenational markets.

A related trend in the industry is the teannlike approach to projects. Owners and
contractors age that teams bring more value. For example, five of the seven biddes for
the expansion of the Chicago O’Hare Intenational Airport wee teams. The future of the
construction industry lies in collaborative ventures. Such partnerships will cut down
individual company profits, but will allow for the ability to gow and provide jobs at the
same time.

Moreove, ongoing alliances in particular regions are also vey likely to increase.
For instance, a construction industry expert noted that some US contractors made
ageements with some Finnish contractors to pursue work in Eastern Europe and Russia
In this relationship, the Finnish bring in their experience and krnowledge of doing business
in the ex-Soviet Union and Eastern Bloc countries, while the Americans bring in financial
capabilities which the Finnish lack.

Firms also form partrneships with others not only for a specific bid or project, but
also for strategic or long-term objectives. For instance, the Takenaka Corporation which is
a construction firm has partnered with The Architects Collaborative (TAC) which is an
architectural firm to be able to ente new markets worldwide (ENR, Jan 5 1989).
Similarly, Dresse Industries Inc. (a US firm) has formed a joint venture with Komatsu
Ltd. of Japan with the objective of increasing sales and expansion in North and South

America (Krizan 1987). Moreove, as a result of the emergence of large scale

147

construction projects, design firms have been partrnering with contractors to ente world
markets (Reina arnd Hanan 1990).

ThelongtemcompetitivenessofAmeicanfirmswilldependonhowthey
respond to changing conditions in both domestic and foreign markets. Competition which
is already tough will get toughe in projects whee unskilled labor is the main component.
Contractors fiom many countries, irncluding NICs and developing nations, can now
employ technologically based strategies tlnrough transfer of technology. Moreove, the
US appears to be the lage in innovation while the European and Japanese contractors lead
the way. Furthermore, government intervention in competition for international projects
will continue. This may be either through providing aid to their domestic firms or through
following policies aimed at protecting their home markets (US Congess, Ofice of
Technology Assessment 1987).

In short, it is an ea of new competition and the market conditions have changed.
Staying alive and competitive requires recognizing these changes and adapting to them. As
far as the US construction industry is concened, as Yates, Mukherjee and Njos (1991)
state:

“A complete revamping of the US outlook to the international construction

industry and the infusion of innovative methods to win contracts is urgently
needed” (p.60).

CHAPTERFIVE

SURVEY RESPONSES AND PROFILES

5.1 Survey Responses

As noted in Chapte 3, the contractors included in the top 225 international
contractors and the tap 400 (US) contractors listings published by ENR in 1993
constituted the survey sample in this study. Since some US contractors are included in
both lists, when double counting was taken into account, the actual numbe of contractors
included in the sample was 561. The total of surveys returned back was 120 resulting in an
oveall response rate of 21.4%. Some characteristics of the survey response rates
presented in Table 5.1 will be reviewed next.

Before describing survey response rates, howeve, it is important to note the
distinction between a returned survey and a usable survey. The forme simply refers to the
fact that thee has been some kind of mutual correspondence with the respondent. Except
the cases whee the respondent has notified the researche of not being inteested in
participating in the study or where the respondents wee not located at their addresses, a
survey has been returned by the respondents. Usable surveys, on the other hand, refe to
those which have been fully completed by the respondents. The distinction between a
usable and a not usable survey comes fiom the respondent‘s response to the last question
in Section B of the questionnaire. The question asked the respondent whether his/he firm
has "ever been involved in a collaborative venture with a foreign OR domestic partne".

If the answe was "No”, the respondent was asked to stop and return the survey. If the

148

149

 

 

 

 

 

 

 

 

Table 5.1
Survey Response Rates
US Contractors Non-US Contract. TOTAL I

No Interest 4 1.0% 2 1.3% 6 1.1%]
No Address 2 0.5% 3 2.0% 5 0.9%.
No CV 36 8.8% 4 2.6% 40 7.1%
Domestic CV 19 5 24
Intenational CV 15 30 45
Total CV Participation 34 8.3% 35 22.9% 69 12.3°/
CV Participation] Returned 44.7% 79.5% 57.5%
TOTAL (received) 76 18.6% 44 28.8% 120 21.49’
Total sent out 403 100% 153 100% 561 100%]
NOINTEREST: Thecontractorisnotinterestedinparticipatinginthestudy
NOADDRESS: Thesurveyisreturnedwithoutbeingdeliveredduetoaddresschange
NO CV: Thecontractorhas notbeen involvedinanycollaborative venture, domesticor

international
DOMESTICCV: Thecontractorhasreportedonacollaborativeventuretheyhavehad with

another domestic contractor
INTERNATIONAL CV: The contractor has reported on a collaborative venture they have had with a foreign

contractors
TOTALCV Thetotalnumberofsurveysretumedthatreportoneitheradomesticoran
PARTICIPATION : international collaborative venture. These provide the data for hypotheses testing
CV PARTICIPATION! The total number of surveys returned that report on a collaborative venture/The
RETURNED : total # of surveys returrned
TOTAL : The total number of surveys

returrned

150

answer was ”Yes”, however, the respondent went on to complete the questionnaire in
regards to a CV they had taken part in. The usable surveys are those whee the response
to the above cited question was "Yes”. In that case, the respondents provided the
requested information which constituted the primary data for the study. The bottom line is
that the actual response rate to the questionnaire in terns of starting to complete it
following the irnstructions, and returrning it when done was 21.4%. Howeve, of the total
numbe of 120 surveys returned, only 69 wee usable in the sense described above which
constituted 12.3% of the total sample.

M93933; Of the 408 surveys sent out to US contractors only 76 wee
returned resulting in a response rate of 18.6% for US contractors. The interesting point
was that half of the responding firms indicated that they never had any collaborative
ventures with eithe foreign or domestic firms. Hence, only 34 of the total of 76 surveys
wee usable. In other words, almost half of the responding US contractors wee never
involved in CVs. This resulted in a usable/retumed ratio of 44.7%. Moreover, of the 34
that were involved, more than half partnered with domestic contractors rathe than foreign
contractors.

h, Ngn-US Contractor}: Of the 153 surveys sent out to non-US contractors 44
wee returned resulting in a response rate of 28.8% for non-US contractors. The
inteesting point hee is that the picture is completely opposite to what we saw with the
US contractor response rates. First, the oveall response rate was much large in the case
of non-US contractors. Second, only four contractors out of the 44 that responded

reported that they neve were involved in any CV. On the othe hand, the numbe of

151

usable surveys wee 35 which resulted in a usable/retumed ratio of 79.5%. This ratio is
almost twice that of US contractors. Third, of the 35 contractors that wee involved in a
CV, only 14.3% lmd partneed with a domestic contractor and 85.7% had foreign
partners.

Hence, the response rates indicated that US contractors wee involved less in CVs
and when they did they tended to have domestic partners more than foreign partners. On
the other hand, the non-US contractors wee very much involved in CVs and tended to

partne with foreign contractors.

g, ngestig vs. Intgrnatigngl Q2; The split between domestic and interrnational
CVs was not equal among the 69 CVs that were reported on by the respondents. There
wee 24 domestic CVs and 45 international CVs in the data sample. In othe words,
domestic CVs accounted for 34.8% and international CVs accounted for 65.2% of the

CVs included in the analyses.

5. 2 Rapondent Profiles

In this section, the profiles of the survey respondents are given. These are the
contractors who have responded to the survey and reported on a collaborative venture
they had participated in. As presented in Section 5.1, a total of 69 contractors were
included in the study. Their profiles are presented next in Tables 5.2 through 5.10.

Rank 2f Respgndgntg in ENR Listing;
Table 5.2 presents the rank of the respondents in the top 400 and top 225

contractors listings of ENR. 34 of the respondents were among the top 400 US

152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 5.2
Number of Respondents in the ENR Rankings
Top 400 US Contractors T011425 International Contractors
Rank 11 % n %
1-50 5 14.7 9 22.5
5 1- 100 6 17.6 9 22.5
101-150 4 11.7 10 25.0
151-200 3 8.8 8 20.0
201-250 5 14.7 4 10.0
251-300 3 8.8 not relevant -
300 + 8 23.5 not relevant -
Total 34 100.0 40 100.0
Mean 186.03 113.45
Std. Dev. 119.26 66.28
Median 195 1 15
Minimum 11 10
Maximum 372 225
Table 5.3
Total Billings of Respondents (in million USS)

Range 11 %

0-100 17 25.0

101-1,000 32 47.1

1,001-10,000 15 22.1

10,000 + 4 5.8

Total 68 100.0

Mean 1,574.37

Std. Dev. 3,306.26

Median 208.65

Minimum 10

Maximum 15,4772

 

 

 

 

 

153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 5.4
Total International Billings of Respondents (in million US)
Range 11 %
0 26 38.2
1-100 17 25.0
101-500 13 19.1
SCI-1,000 7 10.3
1,000 + 5 7.4
Total 68 100.0
Mean 244.28
Std. Dev. 493.21
Median 9.7
Minimum 0
Maximum 2,731
Table 5.5
Years in Business
Range 11 %
0-25 12 17 .6
26-50 18 26.5
51-75 18 26.5
76-100 8 1 1.8
100 + 12 17.6
Total 68 100.0
Mean 66.24
Std. Dev. 51.48
Median 54.50
Minimum 8
Maximum 360

 

 

 

 

154

 

 

 

 

 

 

 

 

 

 

 

 

Table 5.6
Years of Involvement in International Contracts
, Range 11 %
0 13 20.0
1-25 28 43.1
26-50 18 27.7
50 + 6 9.2
Total 65 100.0
Mean 23.4
Std. Dev. 22.53
Median 22
Minimum 0
Maximum 100
Table 5.7

Current Involvement in International Contracts

11 %

 

155

Table 5.8
Country of Origin of Respondents

 

 

 

 

 

 

of n
Bahrain 1
Brazil 2
Canada 1
Denmark 1
1
1
5
7
Korea 1
' 1
l
1
Slovenia 1
° 1
Taiwan 2
T 2
United 4
USA 35
Y 1
Total
Table 5.9
Region of Origin of Respondents
n %
35 50.7
16 23.2
12 17.4
6 8.7
69 100.0
Table 5.10
Whether Respondent is a US or Non-US Contractor
n %
US 35 50.7
Non-US 34 49.3
Total 69 100.0

 

 

 

 

 

156

contractors in 1993. About one third of these wee among the first 100 and about one
third was among the last 100 contractors in that ranking. The highest rank among the
respondents was 11th place and the lowest was 372nd place in the list. The median rank
was 195 which is practically also the middle poirnt in the list. In othe words, the
respondents represented all levels in the ranking of top 400 US contractors.

Moreove, 40 of the respondents wee among the top 225 intenational contractors
listing ofENR in 1993. The highest rank among the respondents was the 10th place and
the lowest was 225th place. The median rank for this group was 115 which is also more or
less the nnidpoirnt in the total list. Moreove, each ranking range of 50 corresponds to
22.2% of the total of 225. The numbe of respondents falling into each ranking range of
50 presented in Table 5.2 constitutes a comparable pecentage value. In othe words, the
respondents are representative of all levels of ranking of the top 225 international
contractors. Furthernore, it is important to point out that the total numbe of respondents
in the two lists is 74 instead of 69 due to the fact that five US contractors were included in
both lists.

Tgtg Billings and Total International Billings

The distribution of the total billings of the respondents is presented in Table 5.3. It
is important to note that these reflect 1992 billings. A quarter of the respondents (25%)
wee small contractors in terms of their total billings which were below 100 million USS.
Similarly, more than a quarte (27.9%) were large contractors with total billings exceeding
1,000 million USS. Among these five of them were particularly large contractors with

total billings exceeding 10,000 million USS. The average total billings of the respondents

157

was 1,574.37 million USS with the median set at 208.65 million USS. The minimum
amount of total billings was 10 nnillion USS and maximum was 15,4772 million USS

Table 5.4 presents the distribution of total international billings of the respondent
contractors again for 1992. Nearly 40% of the respondents had no international billings
and 25% had international billings of less than 100 million USS. About 20% had
modeately high irnternational billings with the rest reporting intenational billings of ove
500 million USS. Ornly five contractors (7.4%) had a total of international billings irn
excess of 1,000 million USS. The average international billings was 244.28 nnillion USS
with the median set at 9.7 million USS. The minimum was set at zeo by those that had no
interrnational billings and the maximum amount was 2,731 million USS.
Y i i

As presented in Table 5.5, on the aveage, the respondents wee in business for
about 66 years. The youngest contractor was eight years old and the oldest one had been
around for more than three centuries. An equal pecentage of the respondents constituted
the youngest goup (less than or equal to 25 years old) and the oldest goup (more than a
century old). There were 12 contractors in each goup.

Y fInv m n in In rn ti n l ntracts urren Internation l

W

In temns of the years of involvement in international contracts, the respondents
wee relatively less experienced with an average involvement of about 23 years. The data
are presented in Table 5.6. One fifth of the respondents had had no international
involvement at all, whereas, close to one tenth was pretty experienced having been

involved in international contracts for more than 50 years. The majority (43.1%),

158

howeve, had been involved in intenational contracts for not more than 25 years. The
most expeienced contractor among the respondents had one century's worth of
experience in international contracts.

As it can be seen in Table 5.7, close to 70% of the respondents also indicated that
they wee currently involved in an international contract.

1' ri i ' N n s f R n 11

Tables 5.8 through 5.10 present the profile of the respondents in terns of their
origin. Thee wee a total of 19 difl‘eent countries of origin of the respondents. A little
ove 50% of these wee US contractors. The next largest group represented was the
Japanese contractors which constituted 10.1% of the respondents. The European
contractors constituted 23.2% and the Asian contractors constituted 17.4% of the
respondents. The remaining 8.7% of the respondents wee from other regions of the world
such as the Middle East, Latin America and Canada. Overall, nearly half of the

respondents wee non-US contractors.

5.3 Partner Profiles

Only nine of the partners of the contractors out of the total of 69 belonged to the
sarnple used in the study. Hence, we were able to extract the ranks and billings
information only for these nine cases. Two belonged to the top 400 US contractors list
and wee ranked 35th and 142nd. The other seven belonged to the list of top 225
international contractors. These were ranked 1st, 28th, 31st, 38th, 59th, 70th and 94th in

that list.

159

The total billings for these nine partne contractors ranged fi'om 158.1 to 23,6568
million USS. The intenational billings of these contractors ranged fi'om zeo to 15,172.6
million USS. Othe characteristics of the partrners described below and are presented in
Tables 5.11 through 5.16.

ri ’ ' f P

Table 5.11 tlnrough 5.13 present the profiles of the partrners in the collaborative
ventures included in the study in terms of their origin. The partne contractors represented
21 difl‘erent countries. More than one third of the partners wee fi'om the US. The othe
countries that also represented relatively larger goups of partrne contractors were
Gemany (8.8%), Italy (5.9%), arnd Japan (5.9%). Close to one third of the partners wee
European contractors and Asian contractors as partnes constituted 17.6% of the
respondents. The remaining 16.2% represented countries fi'om the Middle East, Latin
America, Afiica, etc. Overall, close to two thirds of the partners in the collaborative
ventures studied were non-US contractors.
# 9f Employgs 2f Par_tner

More than half of the partners were large contractors that had more than 1,000
employees. Furthermore, seven of these had more than 10,000 employees. On the other
hand, 8.8% wee small with less than 100 employees and close to one fifih wee
moderately large that had more than 100 but less than 500 employees. The data for the
distribution of the partners in terms of the number of employees they had are presented in

Table 5.14.

 

160

Table 5.11
Country of Origin of Partners

of
Australia
Canada
France

Holland
Indonesia

Korea
Mexico

Russia
Saudi Arabia

S
T

n
3
l
1
2
6
3
2
4
4
l
3
l
l
1
2
2
1
3
2

 

Table 5.12
Region of Origin 01' Partners

In
24
21

12
ll
68

 

161

 

 

 

 

 

 

 

 

 

Table 5.13
Whether Partner is a US or Non-US Contractor
n %
US 24 35.3
Non-US. 44 64.7
Total 68 100.0
Table 5.14

it of Employees of Partner Contractors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Range 11 %
Less than 100 5 8.8
100-499 1 1 19.3
500-999 10 17.5
1,000-9,999 24 42.1
10,000 or more 7 12.3
Total 57 100.0
Table 5.15
Whether There Has Been Any Prior Transactions With The Partner
11 %
Yes 30 44.8
No 36 53.7
Don‘t know 1 1.5
Total 67 100.0
Table 5.16

Likelihood of Doing Business Again

 

 

 

 

 

 

 

Mean' Std. Dev. n
Likelihood of your firm doing business with
this firm again 4.076 1.127 66
Likelihood of this firm doing business with
your firm again 4.169 1.054 65

 

 

" 1-5 scale, 1 = Very unlikely, 5 = Very likely

162
i h n

As the data presented irn Table 5.15 indicate, more than half of the respondents had
had some business transactions with their collaborative venture partrne prior to the
collaborative venture. On the othe hand, for nearly 45% of the respondents, the
collaborative venture was the first time they had business transactions with the partne
contractor.
Likglihmd 2f Dging Busing; Aggig

The respondents wee also asked to rate their likelihood of doing business with
their partne again as well as the likelihood of their partrne doing business with them in
their opinion. As presented in Table 5.16, the mean values of the responses to these two
questions were pretty high (more than 4.0). Hence, both firms appeared to be inteested in

doing business with each othe again if the opportunity arises in the finture.

5. 4 Profiles of the Collaborative Ventures

In this section, profiles of the collaborative ventures included in the study will be
described and the various characteristics of the CVs will be presented in Tables 5.17
through 5.32.

# 9f Firms in thg Q!

As it can be seen in Table 5.17, a geat majority (72.1%) of the CVs analyzed
included two contractors as partners. On the othe hand, a considerable portion of the
CVs (16.2%) wee three partner collaborations. There wee also some CVs whee four or
more firms partneed together. Thee wee even one 7-firm and one 10-firm partnership

among the CVs studied.

163

Table 5.17
ll of Firms in the Collaborative Venture

# of Firms n %
72.1
16.2
4.4

4.4

1.5

1.5
100.0

 

Table 5.18
Whether the CV is On-going or Not

11 %
24 36.9

41 63.1
65 100.0

 

Table 5.19
Project Timing (for completed projects only)

 

 

 

 

 

 

 

 

n %
Ahead of schedule 7 17.1
On schedule 22 53.7
1-6 months delay 5 12.2
7-12 months delay 2 4.9
1-2 years delay 1 2.4
More than 2 years delay 4 9.8
Total ‘ 41 100.0

 

 

 

 

 

Table 5.20
Whether Project Within Budget or Not (for completed projects only)

In %
Within 13 30.2

Over 30 69.8
Total 43 * 100.0

"' In addition to the 41 completed projects, two of the ongoing projects wee also
found to be already over budget

 

164

Table 5.21
Project Location

Australia
Bahrain

Canada
China

India
Indonesia
J
Lesotho

Mexico
Morocco

Saudi Arabia

Taiwan
Tanzania
Thailand
T
Turkmenistan
United Arab Emirates
United
U.S.A.
Y
Zambia
Afiica
Armenia, Georgia,
.. K 1 l 'stan

n
l
3
l
1
l
2
1
l
l
2
2
1
l
2
3
l
1
1
l
3
2
1
l
l
1
l
2
2

pus—spurs—

TOTAL

 

165

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 5.22
Project Region
lesion .. %

North America 24 35.3
Europe 6 8.8
Asia 19 27.9
Middle East 7 10.3
Afiica 9 13.2
Latin America 3 4.4
Total 68 100.0

Table 5.23

Partner-Project Location Combination

 

11
Domestic in home 21
Domestic in ' 4
F ' in home 11
F ' in his 16
F ° in a third 16
68
Table 5.24
Project Owner

'/e

 

 

 

 

 

 

Local 56.5
Private ' 34.8
Government & ' 4.3
Othe 4.3
Total 100.0
Table 5.25
Whether Local Government Influenced the Relationship in the CV
11 %

Yes 10 14.5

No 56 81.2

Don't krnow 3 4.3

Total 69 100.0

 

 

 

 

 

166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 5.26
Nature of Project
11 %

Industrial/Petroleum 8 1 1.8
Manufacturingplant 4 5.9
Transportation 20 29.4
Powe 9 l3 .2
General Building 19 27.9
Sewerage/waste control 3 4.4
Wate 2 2.9
Othe 3 4.4
Total 68 100.0

Table 5.27

Type of General Building (only for general building projects)

 

 

 

 

 

 

 

n %
Oflice/ 9 56.3
Residential 1 6.3
' 2 12.5
Prison 1 6.3
School 1 6.3
S 1 6.3
1 6.3
Total 16 100.0
Table 5.28
Form of Collaboration
n %
Joint venture 52 77.6
Consortium 11 16.4
Cooperative contract 3 4.5
Joint biddig 1 1.5
Total 68 100.0

 

 

 

 

 

167

 

Table 5.29
Type 01' Collaborative Venture
n %
29 46.0
34 54.0
63 100.0
Table 5.30
Type of Work Done in the Project

Construction

and Maintenance
T

Construction
' of work
Total

 

Table 5.31
Type of Contract Bid

11
bid 38

bid 25
5
68

 

 

 

 

 

Table 5.32
Whether There Was Any Team Building Program
11 %
Yes 10 14.9
No 57 85.1
Total 67 100.0

 

 

 

 

 

168
'n P ° r N

More than one third of the 65 CVs for which the data wee available wee ongoing
projects at the time of the study. The majority, howeve, wee completed projects. The
data wee not available for four of the CVs included in the study. Table 5.18 presents the
results.
W

Project timing information could be assessed for the completed projects and Table
5.19 presents the results. 7 out of the 41 projects (17.1%) wee completed ahead of
schedule and 22 projects (53.7%) wee completed on schedule. The delayed projects wee
delayed 1 month to more than two years. 1-6 months delayed projects constituted 12.2%
of the completed projects. On the othe hand, almost 10% of the projects wee delayed
more than two years.
Projggt Within Budget 9r Not

Budgetary performance of the CVs wee assessed for the 41 completed projects as
well as two of the ongoing projects. The ongoing projects had already exceeded their
budgets at the time of the study. Oveall, more than two thirds of the 43 projects for
which the data could be obtained wee over their budgets.
Pro' t Location R ion

Tables 5.21 and 5.22 present the data about the location of the projects included in
the study. The projects took place in 3 5 different countries plus an unidentifiable Afiican
country. Most of the projects (33.3%) took place in the US. The othe countries whee

relatively more projects took place at wee Australia (4.3%), Mexico (4.4%), and Saudi

169

Arabia (4.4%). More than one third of the projects (35.3%) took place in North America.
The next largest project region was Asia with 27.9% of the projects. Latin America, on
the othe hand, had the least amount of projects (4.4%)
. 'n P . . n

The combination of the country of origins of the partne firms and the project
location was also assessed for the CVs included in the study. The results are presented in
Table 5.23. In most of the projects (30.9%), the respondents had partrnered with anothe
domestic contractor for a project in their home country. Partnering with a foreign
contractor for a project eithe in his country or in a third country also appeared to be very
common. The least common combination was partrnering with a domestic contractor for a
project in a foreign country which constituted 5.9% of the projects.
W

Table 5.24 presents the data for the project owners. More than half of the projects
wee owned by the local governments. Private enterprises wee the project ownes in
34.8% of the projects.
Egg! Govgrnmgnt Influencg

The respondents indicated that in the geat majority (81.2%) of the projects the
local government did not influence their relationship with their partnes in any way. Such
local govenment influence was present in about 15% of the projects.
W

The nature of the projects included in the study wee varied as the data presented

in Table 5.26 indicate. Transportation and geneal building projects constituted the largest

170

groups in terns of project markets with the forme constituting 29.4% and the latte
27 .9% of the projects included in the study. These project markets wee followed by
powe (13.2%) and industrial/petroleum (11.8%) project markets. The smallest project
market among the projects studied was wate with only two projects that constituted 2.9%
of the total.
WEB

Table 5.27 presents the distribution of the types of buildings built in the general
building market. The type of building could be identified for 16 of the 19 geneal building
projects. Among these 16 projects, ofice/garage building was the most common (56.3%)
followed by hospital construction (12.5%).
F ll 1 11

As the data presented in Table 5.28 indicate, joint venture was the most common
forrn collaboration in the ventures studied. 77.6% of the CVs involved joint ventures. The
next most common fornn of collaboration was formation of consortia which accounted for
16.4% of the CVs studied.
W

From a financial stand point, the CVs studied were more or less equally distributed
among equity and non-equity CVs. Non-equity CVs were slightly more than equity CVs
and accounted for 54% of the CVs. Table 5.29 presents the results.
T12; 21' Wgrk Dgng in thg Projegt

The type of work done in the projects were also varied as indicated by the results

presented in Table 5.30. Projects that involved construction only accounted for the

171

majority of the projects (43.5%). The next most common types of work were design-build
projects (17.4%) and turnkey projects (13.0%). On the othe hand, 14.5% of the projects
involved multiple types of work. The least common types of work were operating and
maintenance (1.4%) and design-build-operate (1.4%) which wee identified in only one
project each

1' In B’

Table 5.31 presents the distn‘bution of the CVs in terms of the type of contract bid
used. Open competitive bid was the most common type of contract bidding procedure
followed which was the case in 55.9% of the CVs studied. Negotiated bids took place in
36.8 % of the cases.

W

In the geat majority (85.1) of the CVs studied, thee was no formal team building

program to facilitate the relationship between the partners. Such programs wee identified

in only 10 of the cases.

CHAPTER SIX

UNIVARIATE & MULTIVARIATE ANALYSIS

Univariate and multivariate methods of analyses wee used to analyze the data and
test the hypotheses. The results of these analyses are presented below. Moreove, Figure
2.1 which illustrates the proposed and tested theoretical model is presented hee again as

Figure 6.1 for easy refeence.

6.1 UNIVARIAIE ANALYSIS AND RELIABHJTY OF THE CONSTRUCT
MEASURES

In this study, the proposed model for collaborative venture (CV) performance
included fifteen constructs of interest. As stated in Chapte 3, the data for the model were
collected through a survey instrument. Fifly eight items of the questionnaire wee designed
to measure these constructs and test the proposed hypotheses. Based on the initial results
of the reliability analyses of the construct measures, four items wee deleted and the total
numbe of items used to measure the fifteen constructs was reduced to fifty four. The
results of the univariate analyses of these measures and the reliability of the construct
measures are reported next.

The statistics reported are the statistical means, standard deviations and
fiequencies of the fifty four items used to measure the constructs in the model. In Tables
6.1 through 6.15 these statistics are presented. Moreove, the computed Cronbach's alpha
values used as the measure of reliability for each construct are reported at the end of each

table.

172

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Table 6.1
Effectiveness Measures

ITEM Mean. Std. Dev. 11
The collaboration provided a very effective medium of
learning for both firms 3.70 1.047 69
Both firms carried out their responsrbilities and
commitments in this relationship 4.20 0.867 69
The collaboration met its objectives for both firms 4.19 0.902 68
T'heowner‘sobjectives(intermsd‘specifications, schedule,
quality) were met 4.49 0.680 68
Cronbach's alpha - 0.672
‘ 1-5 scale, 1 = Strongly disagree, 5 = Strongly agree

Table 6.2

Efficiency Measures

ITEM Mean” Std. Dev. 11
In geneal, resources were used very efliciently in
this relationship 3.93 0.896 69
Oveall, the project was efiiciently carried out 4.10 0.866 68
Cronbach's alpha = 0.750
" 1-5 scale, 1 = Strongly Disagee, 5 = Strongly agee

Table 6.3

Stability Measures

ITEM Mean‘ Std. Dev. 11
Oveall, the working relationship in this partnership
was stable 4.12 0.802 68
This partnership lasted as long as it was intended 4.49 0.859 67

 

 

 

 

 

Cronbach's alpha = 0.663

 

" 1-5 scale, 1 = Strongly disagree, 5 = Strongly agree

 

 

 

175

Table 6.4

Client Satisfaction Measures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ITEM Mun‘ Std. D”. II
At the completion of the project, the credibility of
the project partrners was confirmed or enhanced in 4.29 0.776 62
the eyes of the owne
The owne was not satisfied with the outcome of
the project (R) 4.57 0.531 61
The owne was proud of the project at its
completion 4.63 0.554 59
The owne peceived the partneship as one united
team. 3.98 0.967 62
Cronbach's alpha - 0.780
"' 1-5 scale, 1 = Strongly disagee, 5 = Strongly agee
R: Revese scale

Table 6.5

Success Measures
ITEM Mean. Std. DCV. ll
Our strategic objectives going into the venture wee
achieved 4.34 0.940 68
The venture was profitable for our firm 4.23 1.107 66
We reget getting into this venture (R) 4.53 0.969 68
Collaborating with this partne in this project was a

wise business decision 4.35 0.877 68

 

 

 

 

 

Cronbach's alpha - 0.837

 

"' 1-5 scale, 1 = Strongly disagree, 5 = Strongly agee
R: Revese scale

 

 

176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 6.6
Overall Performance Measures

ITEM Mean” Std. Dev. 11
The collaboration provided a very efl‘ective medium
of learrning for both firms 3.70 1.047 69
Both firms carried out their responsibilities and
comrrnitrnents in this relationship 4.20 0.867 69
The collaboration met its objectives for both firms 4.19 0.902 68
The owner’s objectives (in terms of specifications,
schedule, quality) wee met 4.49 0.680 68
In general, resources wee used very efficiently in
this relationslnip 3.93 0.896 69
Oveall, the project was efliciently carried out 4.10 0.866 68
Overall, the working relationship in this partneship
was stable 4.12 0.802 68
This partneship lasted as longas it was intended 4.49 0.859 67
At the completion of the project, the credibility of
the project partnes was confirmed or enhanced in 4.29 0.776 62
the eyes of the owne
The owne was not satisfied with the outcome of
the project (R) 4.57 0.531 61
The owner was proud of the project at its
completion 4.63 0.554 59
ITEM Mean' Std. Dev. 11
The owne peceived the partnership as one united
team 3 .98 0.967 62
Our strategic objectives going into the venture
were achieved 4.34 0.940 68
The venture was profitable for our firm 4.23 1.107 66
We regret getting into this venture (R) 4.53 0.969 68
Collaborating with this partner in this project was a
wise business decision 4.35 0.877 68

 

 

 

Cronbach's alpha = 0.913

 

" 1-5 scale, 1 = Strongly disagee, 5 = Strongly agee
R: Revese scale

 

 

 

177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 6.7
Structural Fit Measures

ITEM Mun‘ Std. D“. II
The orgarnizational values and social norms
prevalent in the two firms wee conguent 3.26 1.080 69
Technical capabilities of the two firms wee
compatible with each othe 3 .75 1.049 69
The organizational procedures of the two firms
wee compatible 3.33 0.995 69
Employees of both firms had similar professional or
trade skills 3.48 1.009 69
Cronbach's alpha 8 0.755
‘1-5 scale, 1 = Strongly disagee, 5 = Strongly agee

Table 6.8

Strategic Fit Measures

ITEM Mean. Std. D“. II
Executives fiom both firms involved in this project
had compatible philosophies/approaches to business 3.67 1.010 69
dealings
Each partner enabled the othe to reach strategic
objective(s) that it could not reach alone 3.91 1.134 69
The goals and objectives of both firms wee
compatible with each othe 4.09 0.781 69
The resources brought into the venture by both
partnes wee complementary 4.15 0.809 69
Cronbach's alpha = 0.627

 

 

"' 1-5 scale, 1 = Strongly disagee, 5 = Strongly agee

 

 

178

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 6.9
Partner Fit Measures
ITEM Mean‘ Std. Dev. 11
Both partners were vey suitable for each othe 4.12 0.832 69
Thee was a poor match between the two firms 4.37 0.976 68
The chernistry was right between the two firms 3.81 0.944 69
Cronbach's alpha - 0.744
"' 1-5 scale, 1 = Strongly disagee, 5 = Strongly agee
Table 6.10
Commitment Measures
ITEM Mean' Std. Dev. 11
Both firms made several adaptations in their
processes and/or procedures to bette satisfy each 3.52 0.949 69
other‘s needs
Both firms wee willing and/or actively seeking for
a substitute to replace each other's place 4.65 0.783 69
Both firms wee willing to dedicate whatever
people and resources it took to make this project a 4.15 0.809 69
success
Both firms provided experienced and capable
people to the project 4.16 0.868 69
Both firms wee committed to making this project a
success 4.54 0.698 69
Cronbach's alpha - 0.716

 

 

"' 1-5 scale, 1 = Strongly disagee, 5 = Strongly agee

 

 

179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 6.11
Value of Resource Measures

ITEM Mean‘ Std. Dev. n
Both firms needed each other's resources to
accomplish their goals and responsibilities 4.07 0.967 68
The resources contributed by both firms wee
significant in getting the bid 4.12 1.015 68
Resources brought into the venture by each firm
wee vey valuable for the othe 4.07 0.935 68
Cronbach's alpha =- 0.778
" 1-5 scale, 1 = Strongly disagee, 5 = Strongly agee

Table 6.12

Interdependence Measures

ITEM Mean‘ Std. Dev. n
Ifthe relationship between the two firms was
terminated, both firms would sufi‘e significantly 3.28 1.282 69
One of the two firms (or both) could easily replace
the othe with anothe firm (R) 3.49 1.133 69
Eithe of the firms could easily leave the partnership
at any time (R) 4.12 1.086 68
Both firms absolutely needed each othe for the
project 3.37 1.280 68

 

 

 

 

 

Cronbach's alpha = 0.671

 

"' 1-5 scale, 1 = Strongly disagee, 5 = Strongly agee
R: Revese scale

 

 

180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 6.13
Trust Measures

ITEM Mean' Std. Dev. 11
Both firms wee pefectly honest and truthful with
each othe 3.87 0.969 69
Both firms treated each othe fairly and justly 4.12 0.850 69
Relyingon each othe was risky for bothfirms(R) 4.06 1.110 69
Both firms found it necessary to be cautious in
dealing with each othe (R) 3.78 1.083 69
Both firms had established reputations for
trustworthiness 4.23 0.910 69
Cronbach's alpha 8 0.799
* 1-5 scale, 1 = Strongly disagee, 5 = Strongly agee
R: Revese scale

Table 6.14

Communication Measures

ITEM Mean“ Std. D”. II
Thee was frequent communication between the
two firms (e.g. visits to each other's firms, 4.36 0.822 69
meetings, written and telephone communications)
Exchange of information in this relationship took
place fi’quently and informally 4.25 0.775 69
Overall, people fi'om both firms found it hard to
communicate with each other (R) 4.09 1.040 69
Making contact with people fi'om the othe firm
was hard for both firms (R) 4.32 0.781 68
Problems between the two firms tended to get
worse before they discussed them (R) 4.22 0.895 68
Both firms kept each othe well informed about
their operations 3.80 0.797 69

 

 

 

 

 

Cronbach's alpha =- 0.721

 

" 1-5 scale, 1 = Strongly disagee, 5 = Strongly agree
R: Reverse scale

 

 

181

 

 

 

 

 

Table 6.15
Balanced Power Measures

ITEM Mean' Std. Dev. 11
Decisions regarding the project wee made
unanimously in joint meetings with managers fiom 4.03 0.977 68
both firms
Both partnes had equal potential to irnfluence each
othe 3.59 1.102 69
Powe in this relationship was equally distributed
between the partners 3.33 1.245 69
Eithe you or your partne dominated the decisions
regarding the project (R) 3.24 1.294 68

 

 

 

 

 

Cronbach's alpha = 0.860

 

*1-5 scale, 1 = Strongly disagree, 5 = Strongly agee
R: Revese scale

6.1.1. Effectiveness

For this construct, data are presented in Table 6.1. All of the items had pretty high
mean values which indicated, on aveage, that the managers were in agreement about the
efl‘ectiveness of the collaborative ventures (CVs) they reported on. Meeting the project
owner‘s objectives had the highest mean value (4.49). On the othe hand, the CVs included

in the study wee less effective in providing an efi‘ective medium of learrning for both

partners in comparison to other aspects of effectiveness.

Oveall, the results suggest that the CVs were efl‘ective in terms of their

perfornnance. The four items resulted in an alpha value of 0.672 as the reliability measure.

Hence, four items wee used to measure CV effectiveness.

 

182

6.1.2. Efficiency

Two itensweeusedtomeasureCV efliciencyandbothhadhighmeanvaluesas
presented in Table 6.2. Of these, overall eficiency of the project had a slightly lnighe
mean value than that of eficient use of resources in the collaboration. Hence, overall, the
manages reported that the CVs wee eficient in terms of their performance. The alpha

value computed for eficiency was 0.750 which was measured by two items.

6.1.3. Stability

As presented in Table 6.3, two items wee used to measure this construct both of
which had high mean values. In particular, managers reported that their partneslnips lasted
as long as they wee intended. The results also suggest that, oveall, the working
relationships between the partners in the CVs studied wee stable. The alpha value

computed for CV stability measured by two items was 0.663.

6.1.4. Client Satisfaction

This construct had four items as its measures all of which had high mean values.
Two of them wee particularly high (more than 4.5) indicating that the ownes wee (a)
proud of the project upon its completion, and (b) satisfied with the outcome. Although the
othe two items had relatively lower mean values, the manages also agreed that the
project owner‘s peception of the credibility of the project partners was confirmed or
enhanced and they peceived the partneship as one united team. The results are presented

in Table 6.4.

183

Hence, oveall, the results suggest that the CVs pefonned well enough to satisfy
the project ownes. The measures wee found to be reliable as indicated by the alpha value

of 0.780.

6.1.5. Success

Four itens wee used to measure managers' peceptions of CV success. All four
itens had high mean values (more than 4.2). Managers strongly indicated that they did not
regret getting irnto the CV (mean = 4.53). Moreove, the results suggest that the
responding contractors achieved their strategic objectives they had for going into the
venture and that the collaboration was a wise business decision. Oveall, the ventures had
also been profitable for the responding contractors.

All in all, as the data in Table 6.5 indicate, the managers perceived the CVs as
being successful. The four items used to measure the success of the CV also resulted in a

high alpha value of 0.837 as the reliability measure.

6.1.6. Overall Performance

The sixteen items related to CV effectiveness, efficiency, stability, client
satisfaction and success were also gouped together to constnrct an overall measure of CV
performance. The data are presented again in Table 6.6 which represent the data presented
in Tables 6.1 through 6.5.

As it can be seen in Table 6.6, all of the items had high mean values with the
smallest one being at 3.70. Howeve, the items with the five largest mean values indicate

that the manages strongly agreed that (a) the owner was proud of the completed project

184

and satisfied with its outcome, (b) they did not reget getting irnto the venture, (c) the
ownes' objectives wee met at the end of the project, and (d) the partrnership lasted as
longasitwasirntended. It is also interestingto notetlnatbothoftheitensrelatedto CV
eficiency wee among the ones with the least mean value among all sixteen items.

The oveall performance measure had a very high reliability as indicated by its

alpha value at 0.913.

6.1.7. Structural Fit

For this construct, all four items had avenge values of more than 3 .0 as presented
in Table 6.7. The compatibility of the technical capabilities of the partne firms had the
highest mean value followed by similar skills of both firms' employees. The othe two
items had smalle mean values that indicated moderate ageement among the manages for
the conguency of the organizational values and social norms prevalent in the partner firms
and compatibility of the organizational procedures. Hence, compatibilities of the
capabilities of the partners tended to be more than their organizational compatibilities. The

alpha value for the measure of the structural fit construct was 0.755.

6.1.8. Strategic Fit

The construct for strategic fit was measured with four itens as presented in Table
6.8. The complementarity of the resources brought into the venture by both partnes had
the highest mean value (4.15) followed by that of the compatibility of the partne finns'
goals and objectives. The compatibility of the philosophies of the executives fiom both

firms involved in the project had the least mean value (3.67). Although these four items

185

resulted in a relatively low alpha value of 0.627, this measure of reliability was deened to

be acceptable for the purpose of this research.

6.1.9. Partner Fit

Three items wee used to measure the partne fit construct that refers to the "fit”
between the CV partners. As presented in Table 6.9, among these three items, the one
indicatingthattheewasnotapoornnatchbetweenthe partneshadamuchhighemean
value (4.37) than the othe two. Results also suggest that managers ageed upon the
suitability of the CV partnes for each othe. The item with the least mean value (3.81)
referred to the existence of the right chemistry between the partners. The oveall reliability

measure of Cronbach’s alpha for the partne fit construct was 0.744.

6.1.10. Commitment

The commitment construct was measured by five items whose data are presented
in Table 6.10. The reverse coded item for the willingness and/or intent of both firms to
seek for a substitute to replace the othe one had the highest mean (4.65) indicating that
neithe party wanted or tried to replace the other one in the CV. The second highest mean
value (4.54) was for the commitment of both partners to make the project a success. The
least mean value was obtained for adaptations made by both firms to better satisfy each
other's needs. The othe two items that dealt with the human and othe resources provided
to the venture by both firms had relatively high mean values (about 4.0). The reliability

measure of Cronbach’s alpha was found to be 0.716.

186

6.1.11. Value of Resource

Three itens wee used to measure this construct whose data are presented in Table
6.11. These itens dealt with the partnes' need for each other's resources, the importance
of these resources in winning the project bid and their value for each othe. All of these
had lnigh mean values (about 4.0). Hence, the results suggest that managers ageed on the
value of resources contributed to the venture by each partrne. The Cronbach’s alpha for

this construct was computed to be 0.778.

6.1.12. Interdependence

Intedependence was measured by four items as presented in Table 6.12. Among
these, the revese coded item measuring the ease of leaving the partneship at any time for
either partrne had the highest mean value (4. 12). The othe three items wee on the
criticality of the relationship for both firms, substitutability of each partne and the need of
each partrne for the othe. These had moderately high mean values (about 3 .3). Overall,
the results suggest that intedependence of the CV partnes was not very high. The

computed alpha value for this construct was 0.671.

6.1.13. Trust

For this construct, data for the five items used are presented in Table 6.13. Among
these, partnes' reputation for trustworthiness, fair and just treatment of each othe, and
the revese coded item for riskiness of reliance on the othe partne had aveage values of
4.0 or more. How honest and truthful the partners had been with each othe and the

revese coded item of necessity to be cautious in dealing with the partner had relatively

187

enaflemeanvalueebuttheydsoindicatedmmeageenentanwngthemumgesThe

calculated alpha value for the trust construct was 0.799.

6.1.14. Communication

Six itens wee used to measure this construct and their data are presented in Table
6.14. Frequency of commurnication and the revese coded item of ease of contacting
people fiom the partne firm wee the two items with the highest means. Thee also
appeared to be agreement among the managers about the fi'equency of exchange of
information and the revese coded item related to the evolution of problems between the
partners. The othe two items also had reasonably high mean values indicating furthe
ageement among the managers regarding extent and ease of communication between the

partners. The Cronbach’s alpha value computed for this construct was 0.721.

6.1.15. Balanced Power

The balanced powe construct was measured by four items and their statistics are
presented in Table 6.15. As it is evident from the table, unanimous decision making in the
project in joint meetings with manages fiom both partners had the highest mean value
(4.03). The results suggest that the managers moderately age on the othe three items
which have smalle mean values. These relate to the partnes' potential to influence each
othe, distribution of powe in the relationship, and one-sided domination in decision
making. The Cronbach’s alpha for this construct was pretty high which was computed to

be 0.860.

188

Table 6.16 presents a summary of the reliability measures of the fifteen constructs.
The Cronbach’s alpha values for these constructs range fi'om 0.627 to 0.913. Oveall, the
alpha values are consideed to be satisfactory for the purpose of this research (Nunnally
1967). One inteesting obse'vation is that the alpha value for the oveall CV performance
measure is much highe than those of the five measures referring to difl‘erent dimensions

of CV peformance.

6.2 PEARSON CORRELATION COEFFICIENTS

Thee are six dependent constructs in the proposed model which are oveall
peformance (PALL), effectiveness (PEFFE), efiiciency (PEFFI), stability (PSTAB), client
satisfaction (PSATI), and success (PSUCC). The Pearson correlation coeficients between
each of these and each of the six relationship constructs, namely partne fit (PARTFIT),
commitment (COMMIT), intedependence (INTER), trust (TRUST), communication
(COMMON), and balanced powe (BALPOW) are presented in Table 6.17.

All of the predictor constructs except intedependence wee significantly correlated
with all six dependent constructs. Intedependence was significantly correlated with only
overall performance, efl‘ectiveness and stability. The correlations will be reviewed for each
performance construct next.

1, meal] Pgrfprmangg; All of the relationslnip constructs except
intedependence wee associated with oveall performance at 0.01 level of significance.
Intedependence was sigrificantly correlated with overall performance at 0.05 level.
Commitment appeared to be the most correlated with overall performance followed by

partne fit and trust. Interdependence, on the othe hand, had the smallest correlation.

189

Table 6.16

Construct Measures and Their Reliabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

# OF CRONBACH'S
CONSTRUCI‘S SCALE ITEMS ALPHA
Oveall Peformance PALL 16 0.913
Efl‘ectiveness PEFFE 5 0.672
Eficiency PEFFI 2 0.750
Stability PSTAB 2 0.663
Client Satisfaction PSATI 4 0.780
Success PSUCC 4 0.837
Structural Fit STRUFIT 4 0.755
Strategic Fit STRAFIT 4 0.627
Partner Fit PARTFIT 3 0.744
Commitment COMMIT 5 0.716
Value of Resource VALRES 3 0.778
Irntedependence INTER 4 0.671
Trust TRUST 5 0.799
Communication COMMUN 6 0.721
Balanced Powe BALPOW 4 0.860

 

 

 

 

 

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MA]! of the relationship constructs except intedependence wee
significantly associated with efl‘ectiveness at the 0.01 level. Intedependence was
significantly correlated with efl‘ectiveness at the 0.05 level. Commitment had the highest
correlation followed by balanced powe and partne fit. Irntedependence was the least
correlated with efi‘ectiveness.

3, Effigiengy; With the exception of intedependence, all of the relationship
constructs wee significantly correlated with eficiency at the 0.01 level. Irntedependence,
on the other hand, had a pretty low level of correlation (r=0.177) and was not significantly
correlated with eficiency. Among the othe five constructs, comnnitrnernt had the highest
correlation followed by partne fit and trust.

4, Sta piling Intedependence was correlated with stability at 0.05 level of
significance and the othe five constructs wee correlated at the 0.01 level of significance.
Trust had the highest correlation followed by balanced powe and partne fit.
Intedependence was the least correlated evidenced by its relatively low significance level.

5, Client Satisfaggion -, All of the relationship constructs except intedependence
wee significantly correlated with client satisfaction at the 0.01 level. Correlation between
intedependence and client satisfaction, on the other hand, was not significant. Among the
constructs, commitment had the highest correlation followed by partne fit and trust.

QM; All of the constructs except interdependence were significantly
correlated with CV success at the 0.01 level. Intedependence, on the othe hand, was not

significantly correlated with success. Partne fit had the highest correlation followed by

192

connnnitrnent and trust. Despite significant correlations, the correlation coeficients
between the relationship constructs and success wee relatively low compared to those for
the other five peformance constructs.

In addition to the relationships proposed between the six relationship constructs in
the model and the six perfornnance constructs, thee wee some othe proposed
relationships in the whole model. These wee between (a) strategic and structural fit with
partne fit, (b) value of resource, trust, communications and intedependence with
commitment, (c) communication with trust, and (d) interdependence with balanced powe.
The results of the Pearson correlation analyses for these relationships are described next.

g, Pgrtng; Fit; Both structural fit and strategic fit wee found to be significantly
correlated with partrne fit at the 0.01 level. The Pearson correlation coeflicients are
presented in Table 6.18 below. Both structural and strategic fit had moderately high

correlation coeficients which wee also very close to each othe.

Table 6.18
Pearson Correlation Coefficients - Partner Fit

Structural Fit Strategic Fit

it! tit

Partner Fit 0.544 0. 554

*” Significant at p < 0.01

h, ngmitment -, Value of resource, trust and communication wee significantly
correlated with commitment at the 0.01 level. Intedependence, howeve, was significantly

correlated with commitment at the 0.05 level. Among the four constructs, trust had the

193

highest correlation coeficient with comnnitrnent followed by communication.
Irntedependence was the least correlated as evidenced by its lowe significance. The
Pearson correlation coeficients between commitment and the mentioned constructs are
presented in Table 6.19 below.
Table 6.19
Pearson Correlation Coefficients - Commitment

Value of Resource Trust Communications Intedependence

Commitment 0.376’" 0.516’“ 0483”" 0.261"

*" Significant at p < 0.01
" Significant at p < 0.05

my, Commurnication was found to be significantly correlated with trust at the
0.01 level. The correlation coeficient between these two constructs was modeately high.

The Pearson correlation coefiicient is presented in Table 6.20 below.

Table 6.20
Pearson Correlation Coefficients - Trust

Communication
Trust 0554""

"" Significant at p < 0.01

g, Bglgnggg Pgwgr', Intedependence was found to be significantly correlated with
balanced powe at the 0.05 level. The correlation coefficient between these two constructs
was not high despite its significance. The Pearson correlation coefficient between balanced

powe and intedependence is presented in Table 6.21 below.

194

Table 6.21
Pearson Correlation Coefficients - Balanced Power

Intedependence

Balanced Power 0.286"

" Significant at p < 0.05

6.3 MULTIPLE LHVEAR REGRES'SION

In orde to finrthe investigate the relationship between the relationship constructs
and the CV performance constructs, multiple linear regession analysis was used
(Goldbege 1964, Kennedy 1985). First, the six peformance constructs wee individually
regessed on the six relationslnip constructs that wee the model predictors. The dependent
variables wee overall peformance (PALL), efl‘ectiveness (PEFFE), emciency (PEFFI),
stability (PSTAB), client satisfaction (PSATI), and success (PSUCC). The linear
regession equations tested were of the following form:

Dependent varb. = Constant + BIPARTFIT + 132COMMIT + B31NTER+ B4
COMMUN + B, TRUST + B,BALPOW

The results including the regession coemcients and the F-tests are presented in Table 6.22
and described below.
Equation 1 - Overall Performance

The overall performance construct was regessed on the six relationship
constructs. The oveall linear model was significant at p<0.01 and explained 64% of the

variance. All of the beta weights had a positive sign, howeve, not all were significant.

195

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Overall performance was positively related to commitment (beta weight significant at
p<0.01), and partner fit (beta weight significant at p<0.05).
Equation 2 - Effectiveness

CV efl'ectiveness was regressed on the six relationship constructs. The overall
linear model was significant at p<0.01 and explained 53% ofthe variance. All ofthe beta
weights except that for communication had positive signs, however, only three were
significant. Efi‘ectiveness was positively related to partner fit (beta weight significant at
p<0.05), commitment (beta weight significant at p<0.05), and balanced power (beta
weight significant at p<0.01).
Equation 3 - Efficiency

CV eficiency was regressed on the six relationship constructs. The overall linear
model was significant at p<0.01 and explained 48% of the variance. All of the beta
weights except that for balanced power had positive signs, however, only two were
significant. Eficiency was found to be positively related to commitment (beta weight
significant at p<0.01), and trust (beta weight significant at p<0.10).
Equation 4 - Stability

CV stability was regressed on the six relationship constructs. The overall linear
model was significant at p<0.01 and explained 53% of the variance. All of the beta
weights except that for commitment had positive signs. Three of these weights were
significant. CV stability was found to be positively related to partner fit (beta weight
significant at p<0.05), trust (beta weight significant at p<0.05), and balanced power (beta

weight significant at p<0.01).

197

Equation 5 - Client Satisfaction

Client satisfaction was regessed on the six relationship constructs. The overall
linearmodelwassignificantatp<0.01arndexplained46%ofthevariance.Allofthebeta
weights except that for balanced power had positive signs. However, only the beta weight
for commitment was found to be significant. In other words, client satisfaction was
positively related to commitment (beta weight significant at p<0.01).

Equation 6 - Success

The final CV performance construct, success was regressed on the six relationship
constructs. The overall linear model was significant at p<0.01 and explained 32% of the
variance. All of the beta weights except that for interdependence had positive signs. Of
these, however, only two were significant. CV success was found to be positively related
to partner fit (beta weight significant at p<0.05) and balanced power (beta weight
significant at p<0. 10).

Another way to look at Table 6.22 is to examine it by rows. This type of analysis
of the regression results would indicate the significance of each relationship construct for
each performance construct. Partner fit is found to be significantly related to overall
performance, efi‘ectiveness, stability and success. Commitment is significantly related to
overall performance, efi'ectiveness, efiiciency, and client satisfaction. Trust is significantly
related to eficiency and stability. Balanced power is found to be significantly related to
efi‘ectiveness, stability, and success. Interdependence and communication, however, are
not found to be significantly related to any of the six performance constructs in the six

equations derived involving all six predictors.

 

198

In other words, partner fit, commitment, trust and balanced power stand out as the
predictor constructs that are significantly related to the performance constructs.
Moreover, of the six linear performance models, that for overall performance was found to
have the most explanatory power, followed by those for effectiveness and stability. 0n the
other hand, the model for success had the lowest explanatory power despite its
significance.

Two other multiple regession analyses were also carried out to finrther investigate
the other relationships pr0posed in the overall model. The first was where partner fit was
regessed on structural fit and strategic fit, and the second was where commitment was
regessed on value of resource, trust, communication and interdependence. The results are
presented below.

Partner Fit

Partner fit was regessed on structural fit and strategic fit. The linear model was
significant at the 0.01 level and explained 38% of the variance. Partner fit was found to be
positively related to structural fit (beta weight significant at p<0.01) and strategic fit (beta

weight significant at p<0.01). The results are presented in Table 6.23 below.

Table 6.23
Multiple Regression Analysis - Partner Fit

PARTFIT = Constant + B; STRAFIT + B; STRUFIT

Structural Fit Strategic Fit R2 Adj. R2 F Signif. F
PartnerFit 0351*" 0373*“ 0.40 0.38 21.77 0.0000

"* Significant at p < 0.01

 

199

Commitment

Commitrnernt was regessed on value of resource, trust, communication and
irnterdeperndence. The linear model was significant at the 0.01 level and explained 38% of
the variance. Commitment was found to be positively related to value of resource (beta
weight significant at p<0.05), trust (beta weight significant at p<0.05), and communication
(beta weight significant at p<0.05). Interdependence, however, was not significantly
related to commitment. The results are presernted in Table 6.24 below.

In summary, significant correlations have been found between a geat majority of
the relationship constructs and performance dimensions. The results of the regession
arnalyses, on the other hand, suggest that partner fit and comnnitrnent are the major factors
afl‘ecting collaborative venture performance. Results of additional analysis further suggest
that there are some relationships among the constructs themselves as well. For instance,
trust, values of resource and communication appear to effect commitment. Similarly,
interdependence appears to efl‘ect balanced power, and strategic and structural fit effect

partner fit.

Table 6.24
Multiple Regression Analysis - Commitment

COMMIT = Constant + B; VALRES + Bz'I'RUST + 33 COMMUN + BzINTER

Valueof Sig.
Resources Trust Communication Interdependence R2 Adj. R2 F F
Commitment 0.215‘” 0.313‘” 0.265‘” 0.141 0.41 0.37 10.78 0.0000

*“ Significant at p < 0.01

 

 

CHAPTER SEVEN

CONCLUSIONS and IMPLICATIONS

In this chapter, first an overview of the findings related to the proposed theoretical
model and collaborative ventures in the global construction industry will be presented.
This will be followed by contributions made to the literature and, nnanagerial and policy
implications of the findings. Limitations of the study will be highlighted and finally

directions for future research will be suggested.

7.1 EVALUATION OF THE MODEL

As noted in Chapter 1, this study has been designed to address issues related to
relationship development and performance in international collaborative ventures. The
specific focus of the study has been on the relationship among partners in a horizontal
collaborative venture and its effects on venture performance. In this regard, an integated
theoretical model of international collaborative venture performance has been developed
using an interdisciplinary approach and tested with firms in the global constnrction
industry. In addition, an exploratory study of the global construction industry has been
conducted to get a better understanding of the industry and supplement the findings.

The basic proposition behind the study is that collaborative ventures represent a
form of interorganizational interaction involving an exchange relationship. Based on this
general proposition, the following research questions have been investigated:

1. What is the impact of the six relationship constructs which are partner fit,

mutual commitment, mutual trust, interdependence, two-way communications and

200

201

balanced power on overall collaborative venture performance and on difl‘erent

dimernsions of performance which are efi‘ectiveness, efficiency, stability/durability,

client satisfaction and managerial success assessment?

2. What are the impacts of structural and strategic fit on overall partner fit?

3. What is the impact of value of resource on commitment?

4. What are some of the relationships among the relationship constructs noted

above?

Forty-four hypotheses reflecting the relationships proposed in the theoretical
model were generated and tested. Forty-one of the hypothesized associations among the
constructs were found to be significant. Moreover, all six linear regession models tested
were found to be significant overall and eighteen of the hypothesized relationships were
found to be significant as a result of the regession analyses.

The first tlnree hypotheses were on the relation of structural and strategic fit with
partner fit and value of resource with commitment. All of these relationships were found
to be positive as hypothesized. In other words, as structural and strategic fit among the
partners increased, so did the overall partner fit. Similarly, as value of the resource
received through the CV increased, so did the firms’ commitment to the venture.

Selection of partner is one of the most critical decisions facing managers in
entering a joint venture (Geringer 1991). In this regard, such a decision entails an
assessment of structural and strategic fit between the partners which are the determining
factors of partner fit. Structural fit refers to areas of organizational compatibility and

strategic fit refers to the match between goals and objectives and strategic resources.

202

There needs to be a conguency in the organizational values and norms prevalent
in the partner firms, and compatibility in technical capabilities, orgarnizational procedures
and human resources ofthe partners for structural fit to exist (Badarocco 1991; Lasserre
1984). From a strategic point of view, goal compatibility and resource complementarity
stand out as the driving factors for the partners to be fit for each other. The partrners in a
collaborative venture need to have complementary strengths which will strengthen the
opporturnity to obtain mutual bernefits (Sengupta 1993; Turner 1986). Equally important is
the compatibility of the partners’ individual goals in erntering the collaborative venture.
Rodclifi‘e and Clowes (1993) stress that healthy relationships can develop when the
partners have compatible goals.

Each partner will develop their strategies based on their goals. If the goals clash,
so will the strategies and the partners will not be able to work together. If for instance,
one partner’s goal is to establish a long-term ongoing relationship and the other partner
has a short-term goal of having access to the other partner’s resources for one specific
venture, the outcome of the relationship is very likely to be unsatisfactory for at least one
of them.

The value of resource obtained in an exchange relationship and the mutual
commitment of the parties involved are positively related. This relationship is derived
mainly fiom social exchange theory. As the value of resource to be obtained through an
exchange relationship increases, the more important that relationship will be for the party

receiving that resource. This will result in increased commitment to the relationship. In

203

other words, if the resource obtained fiom a partner firm is valuable, the receiving firm
will be more committed to the collaborative venture.

Such a resource may be valuable if the firm needs, but lacks it and/or if it is not
widely available (Emerson 1981). A particular technology or know-how developed by a
firm may be one such valuable resource to have access to. In such a case, the partner who
obtains the benefits of using the technology through collaborating with the owner of the
technology will be highly committed to a collaborative venture with that firm.

The first goup of hypotheses (H4a-t) on collaborative venture performance
focused on the efi‘ect of partner fit on overall performance and its various dimensions. A
significant positive relation was found between partner fit and overall performance of the
collaborative venture. The relations between partner fit and collaborative venture
effectiveness, stability and success were also positive and significant. Partner fit was also
positively and significantly correlated with collaborative venture efiiciency and client
satisfaction, but was not found to be significant in the regession analysis of the linear
equations for these dimensions of collaborative venture performance.

Hence, as expected, partner fit appears to be an important construct in explaining
collaborative venture performance. This is in line with previous empirical findings or
conceptualization suggested in the literature (Bucklin and Sengupta 1993; Geringer 1991;
Harrigan 1985; Seabright, Levinthal and Fichman 1992).

The following remarks made by the executives interviewed for this study

demonstrate the importance of partner fit and issues in its assessment:

- “Conguence of organizational and social vales [among partners] is needed.”

 

 

204

0 “Our partner should be complementing our capabilities.”

0 “There needs to be people chemistry among partners.”

0 “Partner fit will efi‘ect irnternal synergy and communicatiorn, not the output.”
0 “Partners must have compatible cultures.”

0 “Both parties have to bring something the other party does not have.”

0 “Assessment of the type of firm you are and the type your partner is very
important.”

When the collaborative venture partners are not fit for each other, the performance
of the collaborative venture is significantly affected. Many problems are very likely to arise
among the partners due to areas of misfit which may lead to ”dissolution of the
partnerships. Bleeke and Ernst (1991) provide many such examples. To be able to work
together towards a common objective, the chemistry between the partners must be right.
There must be a match between the partners, both structurally and strategically.
Otherwise, orgarnizational, cultural or technological clashes will be inevitable which will
have disruptive efi‘ects on the collaborative venture. This does not mean that the partners
in a collaborative venture absolutely need to be of comparable size or capability. What it
means is that the partners need to have compatible and complementary structures and
strategies.

The second goup of hypotheses (HS a-t) concerned the efi‘ect of mutual
commitment of the partners to the performance of the collaborative venture. Mutual
commitment had a significant positive relation with overall performance of the
collaborative venture, its efi‘ectiveness, efficiency and client satisfactiorn, as hypothesized.

It also had significant and positive correlation with collaborative venture stability and

205

mccessbugwasnotfoundtobesignificantintheregessionanalysisofthelinear
equators for these two dimensions of performance.

Clearly, comnnitrnernt of the collaborating firms to the vernture is very critical for its
performance outcomes. The efl‘ect of comrrnitrnent on collaborative venture performance
has been pointed out in other studies as well (Beannish arnd Banks 1987; Iain 1987; Sheth
arnd Parvatiyar 1992; Subieta 1991). A committed partner will try to solve problems that
may arise arnd keep its relationship with the other partner(s) healthy. It will also look for
ways to develop a positive arnd productive relationship among the partrners. If all partners
are highly and equally committed to the collaborative venture, the probability of success in
the collaborative venture will be highly enhanced. That will indicate that all partners will
do their best to keep the collaborative relationship going and ensure the success of the
venture.

The efl’ect of the interdependence of the collaborative venture partners to the
performance of the collaborative venture was the focus of the third goup of hypotheses
(H6a-t). Interdependence was significant and positively correlated with overall
collaborative venture performance, collaborative venture efi‘ectiveness and stability only.
Moreover, it was not significant in any of the six equations tested with regession analyses.
In other words, interdependence did not appear to be an important construct afi‘ecting
neither overall collaborative venture performance nor specific performance dimensions
directly.

On the other hand, these results do not mean that interdependence does not have a

role in a collaborative venture relationship. As noted before, the proposition underlying

206

this study is that collaborative verntures are based on exchange relationships. Mutual
dependernce arises in the process of the developmernt of an exchange relationship (Emerson
1981). Moreover, Schermerhorn (1975) asserts that the lowest common denominator in
interorganizational cooperation is orgarnizational interdependence. Van de Ven and Perry
(1980) note that in interorganizational relationships division of responsibilities among the
parties leads to irnterdependencies which lead to specializations arnd developnnernt of
expectations fiom each other. Hence, interdependence is a critical ingredient in
interorganizational relationships and hence, in collaborative ventures. In other words,
interdependernce is an inherent characteristic of collaborative ventures arising directly fiom
the nature of the collaboration itself.

In fact, a number of construction industry executives interviewed for this study
irndicated that interdependence in a collaborative venture is a given, firndamental
characteristic. One executive has stated that,

“In a collaborative venture, each party has to contribute what the other does
not have and that’s why the collaborative venture exists in the first place”.

Another executive has noted that

“Interdependence is not an issue of output, but an issue of dynamics that needs to
be healthy”.

The executives also noted that recognition of this interdependence by all partners is
required.

Hence, interdependence can be treated as an intervening variable effecting
collaborative venture performance indirectly through its effects on other variables such as

commitment and balanced power. In fact, interdependence was found to be positively and

207

significantly correlated with commitment and balance of power as hypothesized. Iftwo
partners are equally dependernt on each other, balance of power will be achieved (Emerson
1962). Moreover, the irnterdependence of partrners would imply that each needs the other.
Due to this mutual need, each partner would be more committed to the collaborative
vernture (Hallen, Johanson and Mohamed 1991). This increased commitment would in turn
afi‘ect collaborative vernture performance.

On the other hand, Parvatiyar (1993) argues that interdependence should be the
main construct of interest in studies on alliances. Hence, clearly more research is needed to
probe into the efi‘ect of interdependence on collaborative venture relationships and
performance.

The fourth goup of hypotheses (H9a-t) focused on the efi‘ect of mutual trust
among partners on collaborative venture performance. Trust was found to significantly
correlate with overall collaborative venture performance and all performance dimensions
as hypothesized. In the regession analyses, however, it was significant only in
collaborative venture eficiency and stability.

The importance of trust in a collaborative venture relationship has been stressed in
many studies reported in the literature (Bearrnish and Banks 1987; Buckley and Casson
1988; Lorange 1989; Morgan and Hunt 1994; Ring and Van de Ven 1992; Spekrnan and
Sawhney 1990). Subieta (1991) and Anderson and Narus (1990) have found that trust has
a positive efl‘ect on partner satisfaction in a collaborative venture. Moreover, Wallace
(1993) has found empirical support for the efi‘ect of mutual trust and confidence on joint

venture success. Thorelli (1990) has pointed out that trust is required for stability in

208

interorganizational networks. Sheth and Parvatiyar (1992) have noted that trust among

partrnersiscriticalinalliances.

The following remarks made by construction industry executives who participated

in this study also reflect how critical trust is in a collaborative venture:

“The most significant item lacking was a dependable, reliable irnternational
justice system that can enforce contractual agreements between parties from
difl‘erent countries. Our partrner did not report the final payments fiom the
owner. They kept them for themselves.”

“The key to a successful joirnt venture is mutual trust and respect. The terms
and conditions of the joint venture ageement are secondary, although it is
irnportarnt that each firm understands its role and responsibilities. Because of
the success of the project described here, we have another project underway
with [the same company], and we will continue to bid together when
appropriate opportunities arise.”

“An integated joint venture is as successfirl as the relationship between the
partners. This relationship can only be enhanced in an atmosphere of mutual
trust between the companies at the tap and operational levels. This atmosphere
can be generated by clearly establishing objectives and modus operandi through
a detailed action plan before beginning work on the project.”

“Lack of trust brings partnerships down.”

“Mistrust breeds mistrust, trust breeds trust. You can’t put everything in the
contract”.

On the other hand, one of the executives interviewed for this study has stated that

trust is not a factor in a collaborative venture and that there is no reason for the partners

to trust each other. He added that if you have enough safeguards, there is no need for

trusting your partner.

Despite this final opposing view, there seems to be a relative consensus that trust

among partners is important for a collaborative venture to work and perform. Trust,

however, was also found to be significantly related to commitment as hypothesized.

 

209

Hernce,theinsignificant efi‘ectoftrustonoverall performanceintheregressionequation
may be explained by its indirect efl'ect tlnrough increased commitment. In fact, Moorman,
Zaltrnan arnd Deshpande (1992) have found empirical support for the positive efl‘ect of
trust on commitment. The findings of another study has also provided further empirical
support for the efi’ect of trust on comrrnitrnernt (Morgan and Hunt 1994). Dwyer, Schurr
and Oh (1987) arnd D02 (1988) have also argued for such an effect in their
conceptualizations.

The efl‘ect of two-way communications among partners on collaborative vernture
performance was investigated through the fifth goup of hypotheses (HI la-l).
Communication was found to be significantly correlated with all six performance
constructs. On the other hand, it was not significant in any of the six regession equations
tested for collaborative venture performance.

When the relation of communications with trust and commitment were
investigated, significant and positive correlations were found as hypothesized. Moreover,
communication was also significant when regessed with commitment being the
dependent variable. In other words, increased communication has positive effects on trust
among partners and their commitment to the collaborative venture. Hence, similar to
interdependence, communication also seems to be an intervening construct efi‘ecting
collaborative venture performance through its effects on trust and commitment. In fact,
the importance of communication among partners has also been stressed by the executives
interviewed for this study as exemplified by the following remarks:

0 “Lack of communication is a reason for the downfall of a collaborative
venture. Partners have to talk to each other”.

210
0 “Communication is very important. Bad communication can definitely be
harmful”.

0 “Unless there is open communication, there will be gaps leading to
unproductive performance”.

0 “Nothing happens unless there is communication”.

0 “Ability of people to commurnicate with each other openly arnd honestly afi‘ects
performance in a collaborative venture”.

The final goup of hypotheses (Hl4a-f) focused on the effect of balanced power
among partrners on collaborative venture performance. Balanced power was significant
correlated with overall collaborative venture performance and all five dimensions of
performance. In the regession analyses, however, balanced power was significant only in
collaborative venture efl‘ectiveness, stability and success.

As noted before, the notion of power has been central in studying exchange
relationships (Emerson 1962; Gaski and Nevin 1985). According to power and resource
dependence theories, power difi‘erentials among partners reflect unbalanced relationships
which are prone to be unstable (Cook 1977; Emerson 1962). Jain (1987) has found shared
power to be one of the characteristics of successful strategic alliances. Similarly, the
positive efl‘ect of balanced power on the perceived effectiveness of co-marketing alliances
has been empirically supported (Bucklin and Sengupta 1993).

On the other hand, some opposing remarks to the effect of balanced power have
been made by some executives interviewed for this study such as

0 “Balance of power is not a factor", it is defined by the contract.”

0 “Balance of power should not effect outputs; it should have least irnfluence on
any output. Whether 10% or 90%, you are still a partner.”

211

o “Balanceofpowerhasnoefl‘ectbecauseitwillnotbeanissueifthe otherfive
factors [partner fit, commitment, interdependence, trust, communication] are in
place.”

0 “Even in 60/40 collaborative ventures, some decisions are made on a 50/50
basis.”

0 “Balance of power has no efl'ect on performance. There has to be a leader.”

Hence, despite some empirical support in the literature for the efi‘ect of balanced
power on collaborative venture performance, the remarks cited above by the managers and
the findings of this study clearly indicate that more research is needed before a more
definite conclusion can be made.

In summary, partner fit and commitment of the partners to the collaborative
venture appear to be the main factors afl‘ecting overall collaborative venture performance.
Mutual trust, interdependence and two-way communications appear to efl‘ect collaborative
venture performance through their effect on commitment. When the five dimensions of
performance are analyzed one by one, the linear model for collaborative venture success
has the least explanatory power where partner fit and balanced power appear to be
significant factors. These two plus mutual commitment are found to have significant efl‘ect
on collaborative venture effectiveness. Mutual commitment and trust significantly efl‘ect
collaborative venture emciency. Collaborative venture stability is significantly affected by
partner fit, mutual trust and balanced power. Mutual commitment appears to be the only

factor afl‘ecting client satisfaction at the outcome of the collaborative venture.

212

7.2 CONTRIBUTIONS T 0 THE LITERATURE

Based on its approach, conceptualizations and findings, this study has made a
nunnber of contributions to the existing literature. First of all, an interdisciplinary
approach was taken in the conceptual development of the theoretical model tested in the
study. The same approach was also used in developing the measurement scales for the
constructs in the model. The issues surrounding collaborative verntures and the dynamics
of such orgarnizational arrangements bring together a number of disciplines such as
sociology, orgarnizational psychology, psychology, economics, management and
orgarnizational behavior and of course marketing. The need to use an interdisciplinary
approach in studies on international business has been stressed in the literature (Dunning
1989).

The study of collaborative ventures definitely needs such an approach since such
inter-firm arrangements are shaped around concepts that have originated in behavioral
sciences such as psychology and sociology. Concepts such as trust, commitment,
dependence, and power that are characteristics of interpersonal and inter-goup
relationships have been widely studied in those disciplines. This study has attempted to
integrate various concepts and relationships suggested in studies in different disciplines.
The proposed theoretical model on collaborative venture performance contributes to the
literature as an integated model synthesizing the suggestions and findings of previous
studies. This study makes an attempt to standardize the constructs and definitions used in

research on international collaborative ventures. Such a standardization is necessary to

 

 

213

make any significant progess in international marketing (Albaum and Peterson 1984).
Hence, it is an attempt towards convergent thinking in this area of research (Kuhn 1970).

Another contribution of this study is the development and empirical test of
measurement scales for various relationship constructs. Similar to the approach used in
model development, various scales suggested in the literature have been integated. The
reliability measures found for these scales appear to be encouraging (Nunnally 1967; Peter
1979). However, further verification in other studies is needed.

Unidirnensional treatment of collaborative venture performance has been noted as
a limitation of many studies reported in the literature (Chakravarthy 1986). This study
makes a contribution by employing a multidimensional perspective on performance (Salk
1993). Collaborative venture performance was analyzed in five separate dimensions which
were efl‘ectiveness, eficiency, stability, client satisfaction and managerial assessment of
success.

Moreover, a combination of qualitative, secondary and primary data was used in
the study. Qualitative data were obtained through in depth personal interviews, secondary
data through published information in ENR, and primary data through a mail survey. The
qualitative and secondary data enabled an overall industry analysis and better
interpretation of the empirical findings, while the primary data were used for empirical
testing of the proposed model.

This study also helps to fill the gap in the literature regarding empirical studies on

international collaborative ventures. There have been many conceptual studies reported in

214

the literature, however, empirical studies appear to be rather scarce. Henae, this study
contributes to research on irnternational collaborative ventures as an empirical piece.

The study makes a further contribution by focusing on an understudied irndustry.
Its focus on the global construction industry provides a better understanding of this very
importarnt and large irndustry about which little is known In addition to shedding light in
this closed irndustry, the study’s single industry focus presents a contribution on its own
right. Such an approach allows for a more in-depth understanding of the industry.
Differences that may exist between industries do not bias such single irndustry studies.

In addition to the contributions made to the literature as noted above, this study
also contributes to managerial thinking and public policy development. The managerial

and policy implications of the study will be reviewed next.

7.3 DIANA GERIAL MPLICA TIONS

The findings of the study also has a number of managerial implications that would
be very helpfirl for company managers. Since both the qualitative and quantitative data
used in this study were collected fiom construction industry executives, the references
given below are on collaborative ventures in the construction industry. Nevertheless, the
findings and the remarks made provide helpful insights to the formation and managemernt
of collaborative ventures in other industries as well.

First of all, the importance of collaborative ventures in the world economy needs
to be clearly recognized and understood (Morita 1992). The global construction industry
presents an excellent example to illustrate how important partnerships are in order to

remain competitive. On the other hand, difi‘erent philosophies or approaches that firms

 

 

215

fiom difl‘erent countries may have towards partnerships also needs to be arnalyzed and
understood. The differences betweern European, Asian and American approaches to
alliances in the construction industry were discussed in Chapter 4 above. As that
discussion clearly showed, forming partnerships is the preferred way of conducting
business for European and Asian contractors, but not for American contractors. The latter
goup gets involved in collaborative ventures mairnly due to circumstances that demand it
Unless tlnere appears to be an absolute necessity to enter a collaborative venture,
American contractors prefer to go alone. Hence, the desire of the American firms to be
independent must be tempered with the need for cooperation in the industry through
partnerships (Nevaer and Deck 1990).

The following self-explanatory remarks made by the executives participating in this
study provide additional insights as to why collaborative ventures are needed and formed:

0 “The question of collaboration in international projects is at best rhetorical. In
certain areas and regions, US construction firms can not even access projects
except through a consortium or joint venture with a local partner. Japan in The
Pacific Rim and Mexico in North America are examples of countries that are
effectively impenetrable except through the aegis of a partnership arrangement
of some kind with a local construction entity. In the case of Europe, on the
other hand, the issue is reduction of risk and exposure, which makes
collaboration with a local construction partner imperative in many cases,
especially for inexperienced companies. On the other hand, [our company]
would not contemplate undertaking a project in Japan, China or the seven
Dragons except in some form of partnership, whether with a local
architectural firm or a local general contractor.”

e “Partnerships are essential for minimizing risk, bringing finance, OpI' . .
resources, and competitiveness.”

0 “Because of bonding requirements and risk sharing, most large projects must
be done on a collaborative basis.”

0 “More and more, it will be necessary to offer all kind of services in order to
provide competitiveness in the Global Construction Industry. Under this point

216

of view, partnerships represent an irnportarnt mechanism to complete
performance and to ofl‘er required competencies.”

o “The Global Construction Market is highly competitive. Partnerships may
broaden krnowledge in approaching projects and spread the risks.”

0 “Collaborative ventures are positive events in that they allow the partners to
widen their international know-how and to learn fiom each other’s experience.
They are essential in areas with high potential of political risks. They represent
an excellent formation gound for young managers, who will learn the skill of
jointly discussing and deciding while confronting themselves with difl’erent
cultures.”

0 “Unfortunately, Japanese contractors are suffering fi'om severe shortage of
domestic construction demands due to an unprecedented economic depression.
We, therefore, need to extend our business activities to overseas market. We
must collaborate with foreign contractors in setting up irnternational
orgarnizations such as joint ventures and the like fi'om the globalization and
competitiveness point of view.”

0 “Most important is to choose appropriate local partners in foreign countries
due to differences in culture, labor laws, political ties, etc.”

0 “Our firm is located in a small country in Central Europe. Not having enough
domestic possibilities we have to look for foreign partners for almost all of our
contracts. We normally look for partners for license, production process, and
training facilities. Equipment is usually bought on subcontractual basis.”

0 “Increasing competition in the international construction sector, is emphasizing
importance of partnerships, high technology, financing, cheap labor and
governing factor of speed. Completion is forcing the companies to seek a
difl‘erent type of partnership in each new project. Comparnies who are able to
establish international partnerships will be more successful in the international
market.”

0 “According to our experience, joint venture between the local partnership
where the construction is being carried out has proven to be very successfirl. In
such partnership, the local resources are used to its maximum.”

All the remarks cited above clearly indicate how important collaborative ventures

are. Although companies may have different motives for collaborating, all converge to the

point that collaboration is the way to go in order to remain competitive. Hence, there

217

appears to be a clear trernd towards formation of partnerships. Only the few largest
companies are capable of competing on their own in today’s gowing global markets
(NevaerandDeck 1990).Partneringappearstobenecessaryforcompetitivenessandthe
practices of the Japanese companies provide good examples for this (Morita 1992). Such
arrangements provide a competitive edge to the comparnies either through sharing risk,
sharing cost, increasing financial or technological leverage or providing access to new
markets to give a few examples. In other instances, collaboration with a local contractor is
part of a government regulation. Nevertheless, due to the nature of international
construction, it is often necessary to have a local partner, regardless of governmernt
requirement (US Congess, Ofice of Technology Assessment 1987). Many scholars have
also stressed the importance of collaborative ventures in today’s highly competitive global
markets. (Dunning 1988; Hamel, Doz and Prahalad 1989; Ohmae 1989) and this has been
exemplified by an ever increasing number of collaborations among companies in a variety
of industries.

The next important issue is how to make collaborative ventures work. In this
regard, the question is how to assess the different aspects of the internal dynamics of such
inter-firm relationships. A good understanding of the factors that are likely to affect the
performance of a collaborative venture is absolutely necessary so that such arrangements
do not turn into disappointments or nightmares for any of the collaborating parties. The
findings of tlnis study provide some insights in this regard.

First of all, partner fit and mutual comnnitrnent of the partners appear to be the

most critical factors that have a direct efl‘ect on the performance of the collaborative

218

vanmnflnothawordgthaeneedsmbegoodmatchmdmdmwwemthe

partrners and each should be comnnitted to the venture. The following remarks provided by

some executives in this study are important to note as examples of real life experiences:

“[our company] was the ‘foreign partrner’ that was placed in the position of
doirng it their way or no way. Cultural difi‘erences both between the countries
and the business cultures are overwhelming.”

“[Collaborative venture] requires that each partrner appreciate, understand, and
support as much as possible the culture, morals, and customs of the other.
Each should look upon the work together as an adventure, creating something
new for the benefit of mankind.”

“Difiiculties that occurred in the relationship were normal. They happened due
to difl‘erernce between the languages and because of the difi‘erent way of
managerial approach between a capitalist firm and a socialist firm”

“Each item of work, who would do what was spelled out before hand - our
person was Construction/Project Manager- their person Construction
superintendent. Some problems occurred with proper managing of crew areas
and equipment to complete certain items within schedule- but we krnew how
each other operated so we pretty much krnew what to expect (very important) -
with the extra quantities and time constraints (with bad weather), the project
was successful.”

“You should do your homework and krnow your partner before meeting him.”
“A partnership is very much like a personal relationship (e. g. marriage).

Nobody tells about bad aspects of himself; but, it is not hard to find out the
reputation of a partner.”

There are also other factors at work that shape a partnership. Among these are the

trust of the partners for each other, the amount and extent of communications between

them, recognition of the interdependence that exists among the partners and the

distribution of power in the relationship. Firms collaborate with each other expecting

benefits that the other would provide. Hence, there is a certain level of interdependence

that exists between the partners right at the outset of the collaboration. Similarly, there is a

219

particular level of trust established among the partners evidernced by the formation of the
pMerslfip.ThefindingofflussmdydsowggestthatmuNaIUustincreaseswith
increased communications among the partrners. The findings of this study also suggest that
trust, interdependence and comrrnunications efl‘ect collaborative venture performance
through their efi‘ects on commitment. In other words, the relationship between partners in
a collaborative venture has a very dynamic nature developing as the interaction arnd
exchange between the partners increase.

The findings and the executives’ remarks clearly indicate that the partrnering firms
should act and perform as a unified team. Referring to a collaborative venture they have
had, one executive said that the owner of the project looked at the partnership as a whole,
not as a collection of individual components. Another executive noted that sophisticated
owners look for a team approach. Still, another executive even went on to say:

“For a joint venture, the degee to which the owner, trade contractors arnd

designers perceive the joint venture as one project organization and can not tell

that they’re working with two companies is an indication of success. If you don’t
have that, the concept of the joint venture is negative to all outside parties.”
The team’s success should be the main line of thought in the partnership. The success of
the team would mean realizing the expected benefits for the partners. Hence, it is a win-
win situation.

The need for joint management of the collaborative venture was also stressed by
other executives who noted that the venture needs to be managed by a project staff put
together fiom qualified staff fiom each partner firm.

Assignment of qualified personnel to the venture is also very important in ensuring

quality output. Commenting on this issue, one of the executives interviewed for this study

220

notedthatthespecificpeopleassignedtothevenmre determirneitssuccess. Oneexecutive
alsonotedflnthavingafairandeqnfitableageunaumakesitmoreconduciveto havea
successfirl relationship.

Some practical suggestions can be made to managers of companies entering a
collaborative vernture based on the remarks provided by the executives interviewed for this
study. Assessment ofwhether a potential partrner can be trusted or not is a very toughjob.
Relying on irntuition alone does not sufice in this regard. The reputation of the partrner in
the irndustry and its previous experiences with other firms need to be checked. One should
check to see whether the firm has taken advantage of its partners in previous partnerships
or not. It appears to be almost impossible to be 100% comfortable and totally trust your
partrner. Moreover, a committed partrner would come to meetings prepared. He would
have a plan and be knowledgeable about the project. Furthermore, if the people for the
potential partner firm coming to the meetings are those to be assigned to the venture, this
would also be a sign of commitment to the venture. Furthermore, each partner must
clearly need each other. In other words, a level of interdependence must exist between the
partners.

The partners also need to keep each other up-to-date on what stage they are at in
terms of their responsibilities. Hence, a healthy dialogue needs to be established back arnd
forth among the partners. Furthermore, written or spoken communication should be
fi'equent and informative. As one executive noted, coordination absolutely requires
communication. The partnering firms need to get the understanding that the team needs

to satisfy the owner rather than team members battling among each other. Problems have

221

to be discussed when they come up and alternative solutions explored. It is also advisable
to start slow and gow together with your partrner. Partnering firms also need to recognize
that a collaborative venture will have its ups and downs. Mutual commitment ofthe
partners arnd urnderstanding of each other are particularly critical to keep the partrnership
going when things go sour. Establishment of a long-term relationship is important to
overconne non-profitable times.

Another point shared by all executives was that responsibilities of each partner had
to be clearly defined. These responsibilities, as understood by the partners, will shape their
expectancies fi'om each other. Any ambiguity or misunderstanding regarding what each
partner is supposed to do, how and when, is very likely to lead to serious problems either
in the relationship or in the performance outcome of the venture. One executive has
suggested the following recipe for a successful joint venture:

“A 50—50, joint and several contract, parernt company guaranties, consensus

requirement by joint venture committee ( no voting), best people from both

companies to fill positions, no redundancy, team building at start and throughout,

client involvement and satisfaction throughout are the key ingedients for a

successfinl joint venture.”

Managers need to have a good understanding of the trends in the industry as well.
For instance, as Seaden (1992) notes for the construction industry “the general trend in
industrial research and development is towards ...., strategic alliances and joint ventures to
reduce the high risks and share the ever increasing costs” (p.53). Moreover, the gowing
nnarkets for construction exports appear to be in Europe and Asia. China alone is expected

to provide mega transportation projects totaling $300 billion in the next 15 years (ENR,

May 16 1994). In order to benefit fi'om this gowth and not to lose market share in world

222

construction exports, US contractors need to be more active in these markets. However,
to be able to compete with European and Japanese contractors who appear to be well-
establislnedintheserrnarkets, US contractorsneedtoform parflnershipswithlocal firms.
Collaborative ventures appear to be the way to break irnto these markets.

Moreover, market conditions have changed in international construction
Competition has gottern even more severe. European and Japanese contractors appear to
be increasing their market shares in international construction exports. There also appears
to be important technological krnow-how and expertise developed by these contractors.
Hernce, US contractors should seek for ways to transfer this brow-how and utilize it not to
be left behind in technology. More important, however, is that they should invest
themselves to develop proprietary know-how. US contractors definitely need to catch up
with new technology both to be more competitive in international markets and to be able
to protect their home market from foreign contractors who have already moved in.
Sidwell, Metzinger and Tucker (1988) suggest that the US contractors should capitalize
on their strengths in software and construction management systems.

There are other possible strategies to follow in order to remain competitive. One
strategy is to develop new product offerings for the international market which will
provide a difl‘erential advantage and more latitude. Besides that, contractors may allocate
more resources to management technologies and construction methods which will reduce
costs and improve productivity. A report by the US Congess, Office of Technology

Assessment (1987) has also concluded that in order to be competitive in the finture, US

223

erngineering and construction firms “will have to rely heavily on advanced construction
techniques” (p.150).

In summary, managers should recognize the gowing trend towards formation of
partrnerslnips and the need for such arrangements to remain competitive in the world. In
entering a collaboration with one or more firms, however, managers should also be aware
of the internal dyrnannics of such inter-firm relationships and the various factors at work
Moreover, a valid assessment of these factors is equally important and absolutely
necessary. Overall, a partnership should be viewed as a win-win situation where

partnering firms come together to obtain mutual benefits.

7.4 PUBLIC POLICYWPLICATIONS

The findings reported in this study have implications for public policy developers
as well. The importance of collaborative ventures for competitiveness is well noted and
public policy makers may play a vital role to help the firms from their countries.

First of all, policy makers need to be aware of the global trend towards formation
of partnerships. The fact that collaboration and competition may coexist needs to be
clearly noted. As Nevaer and Deck (1990) state, “For US firms to compete in today’s
global marketplace, a policy of gowth through strategic alliances must be implemented”
(p.199). The global construction industry presents a very good example of this
phenomenon. The American contractors surrounded by strict antitrust laws have a relative
disadvantage against their foreign competitors in this regard. As noted by one of the
executives, “Round 1 is over” and big foreign contractors have already moved into the US

taking market share away fiom American contractors. In other words, in addition to

224

stronger competition in overseas markets, tlnere is also new competition at home (US
Congess, Ofice of Technology Assessment 1987).

Construction is a very critical industry for all countries due to its efl‘ect on national
economy. However, American contractors have a harder time to collaborate with each
other in order to increase their competitive leverage due to strict legislature. Hence, the
US government needs to review its legislature governing inter-firm collaborations arnd
adapt it to the changing conditions in the domestic and international construction markets.

The United States has lost its dominant position in the global construction industry
which it had enjoyed for a long time after the World War II. This has been due to the
erosion of American contractors’ competitiveness, particularly in foreign markets (Yates,
Mukherjee and Njos 1991). Other countries’ governments provide significant assistance
and support to their contractors in difi‘erent ways. Encouragement of within industry
cooperation is clearly seen in countries outside the US. Moreover, foreign governments
provide financial incentives in difi‘erent forms such as tax incentives, low-cost funds or
subsidies. The non-US contractors have a better financial leverage with this kind of
support behind them. Hence, on one hand, the US government should closely follow any
practices of unfair trade in other countries. On the other hand, the financial pressures put
on the construction industry may be relaxed a little bit to give the US contractors a break
to be able to price competitive as well.

Additionally, many governments explicitly support R&D activities in their
construction industries which does not appear to be the case in the US. In some countries,

such as Japan, the government invests in R&D itself and/or makes it a legal requirement

 

 

225

for firms to make a particular amount of investment in R&D. This kind of support
obviously helps the level of technology to increase, and the firms gain a technological
advantage as well. The US government may play a key role to promote technological
development in its construction industry. It can create infiastructural mechanisms, similar
to those in Japan and Europe, for R&D on construction methods and dissemination of the
results to the industry. In fact, there are some good news in this regard. A federal
subcommittee was formed on March 18, 1994 to focus on construction R&D. The
construction industry oflicials have nnade suggestions to the subcommittee on how the
federal government can cooperate with the industry to stimulate R&D (ENR, April 18
1994).

Additionally, the philosophy towards partnerships appears to be positive in Europe
and Japan, but not so positive in the US. American firms appear to be limited by some
industry paradigns which favor doing it alone and not sharing. The case for European and
Japanese firms is exactly the opposite. Again, US policy makers may help to change these
paradigns and encourage collaborations.

Policy makers should also carefully observe the practices of other governments.
Government subsidies in countries outside the US appear to be reality and they hurt
American firms’ competitiveness. Hence, such practices should be followed and grounds

for practice of fair trade should be sought.

 

 

226

7. 5 LMTA HONS OF RESEARCH

In addition to the findings, marnagerial and policy implications and theoretical
contributions of this research, its limitations also need to be recognized. The major
linnitatiorns of the research will be reviewed next.

The major linnitation of the study is its small sample size (N=69). This was the
result of the low response rate (12.3%). As noted in Chapter 4 above, the total number of
questionnaires returned correspornded to a response rate of 21.4 %. However, because 40
of these contractors indicated that they did not participate in collaborative ventures, and
another 11 did not participate, these did not provide any data for the study and were
excluded reducing the number of valid cases to 69 in a total sample of 561. The low
response rate was also partially due to the mail survey methodology used. Limitations of
using this methodology in research equally apply to this study as well.

A further limitation of the study is that none of the top ten contractors in the top
400 US contractors list and only one of the top ten contractors in the top 225 international
contractors list provided data for the study. In other words, the biggest players in the
industry were not included in the empirical testing of the model. Some of these returned
the questionnaires back stating that they are overwhelmed with such surveys and do not
want to participate.

Another limitation of the study may be seen as the subjectivity introduced by
asking managers to evaluate a collaborative venture they had. The evaluation of each of
the items related to the relationship in the collaborative venture in response to the

questions obviously reflect how the respondent felt about them. On the other hand, it can

 

 

227

be argued that this kind of subjectivity should be deliberately sought since in evaluating a
relationship, the perception of the marnager is more important than a more objective view.
Perceptual measures can better capture whether objectives have been reached or not
which the objective measures may not.

Even though the proposed theoretical model in the study implied causal links
between constructs, such causalities were not testable due to sample size limitations.
Correlation does not imply causation on its own right. Hence, the correlates that are
established may or may not be real determinants.

Moreover, many of the individual constructs had insignificant Beta weights in the
six regession equations tested. Plausible explanations were suggested for these
insignificant results; however, this limitation needs to be recognized.

Another limitation is due to the crossosectional nature of the study. In a cross-
sectional study, it is impossible to thoroughly reveal the temporal sequences of the
constructs of interest if there are any. The main assumptions were that there were linear
relationships among the constructs, additive effects of the independent variables and one
way causation.

Furthermore, the model was tested in one industry which limits its potential
generalizability. This is also one of the strengths of the study since between industry
difi’erences do not bias the results. On the other hand, the applicability of the results to

other industries is not explored, but only suggested.

 

 

 

228

7. 6 SUGGESHONS FOR FUTURE RESEARCH

VVrth the gowing importance of collaborative ventures in international business
arnd nnarketing activities, a better understanding of the formation, operation and
maintenance of collaborative ventures is definitely needed. In this regard, various
suggestions for firture research both to complement and supplement the findings and
conclusions of this study are made below. The bottom line of all the suggestions is that
more empirical rather than conceptual studies are desperately needed.

First of all, the scales developed for the constructs in the proposed theoretical
model should be tested in other studies on domestic and international collaborative
ventures. Particularly, these scales should be tested in other industries. So far, there has
not been a consensus on what scale to use in studies on collaborative ventures. The scales
used in this study were developed through a synthesis of those suggested or used in other
conceptual or empirical studies. An ageement on scales to use for the same constructs is
definitely needed to be able to establish a stream of research in this area that provides
comparable findings.

Secondly, the proposed model should be tested with a larger sample size. In that
case, more rigorous statistical methods can be used to test causalities. For instance, the
proposed model needs to be tested using structural equations methodology (e. g. LISREL,
EQS). Similarly, the temporal sequences among the constructs need to be investigated.

Testing the proposed model in other industries presents another area of research.
The results of such studies would provide an assessment for the generalizability of the

results across industries.

 

 

229

In addition to the contractor-contractor horizontal relationship studied in this
research, there are other relationships in the construction industry. For instance, the
contractor-subcontractor relationship is an inherent characteristic of the industry and
represents a vertical relationship. Similarly, the contractor-owner relationship is also very
critical in the industry, particularly with the recent emphasis on the concept of partnering.
Hence, development and maintenance of these other types of relationships and
performance outcomes also need to be studied.

There are also a number of areas of research on collaborative ventures that were
not covered in this study. The effect of conflict on inter-firm relationships and on
collaborative vernture performance present areas of research that are equally important to
investigate. The relation between inter-firm c00peration and adaptation also needs to be
studied. Moreover, other possible relationships between the constructs suggested in the
proposed model of tlnis study may be sought and studied.

A different, but related area of research is on why firms enter collaborative
ventures. Results of specific studies focusing on motives for entering such relationslnips
would enable a better understanding of formation of collaborative ventures and
supplement the findings of research on collaborative venture performance.

Finally, expert system models may be developed to evaluate collaborative ventures.
Such systems would provide a very efficient and effective medium to disseminate research
findings and expert knowledge across the industry (Cavusgil 1990).

Research on application of expert systems in the domain of international business

and marketing has already been on its way, producing very interesting and useful

230

applications (Evirgern and Cavusgil 1994). There has beern extensive research done in this
area by a goup of researchers at Michigan State University Center for International
Business Education and Research (MSU-CIBER). In fact, one of the expert system
modules developed has been on international collaborative venture partrner selection
(Evirgen 1993). The theoretical conceptualizations and conclusions suggested in this study
can be used as a basis to develop a similar module on international collaborative venture
performance evaluation.

In short, still there is a lot of room for research on domestic or international
collaborative ventures. Moreover, there is still a need for more empirical studies. Hence,
study of collaborative ventures remains a very interesting and fi'uitful area of research with

a lot of potential arnd gaps to be filled.

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