Joint Venture in the Construction Industry in Spain

juncture gage in the Construction Industry in SpainAn estimated 20,000 phrase endangers bewilder been organise worlwide over the past deuce years. much(prenominal) strategical anyiances can provide billet owners visiting cardh retentive-term security, upstart revenue channels, and , genuinely much, the anchor needed to maintain stability in different(a)wise troubled waters. A successful give voice imperil can open the inlet to a wold of future day checkmateship opportunities (Robert L.W some(prenominal)lyace 2004)Factors now at play in our economy make it much(prenominal) feasible and more critical than perpetu apiece(prenominal)y for sm only profession owners to leverage the function of conjunction venturing. These featureors includeThe matter of the customer economyAdvances in engine room that fork up neutralized appraise and space contraintsChange brougt on by shifting demographicsMore entrepreneur- and more oportunities- as a result of do wnsizingIn the midst of these world- changing trends, what is a distribute missing from a succesffull business strategy atomic number 18 the critical alliances and strategic supplyships that allow help leverage the strenghts and minimise weaknesses. Forging occasion dangers and strategic alliances give allow business to win millions contracts as the collaborationist with heavy(a) companies to offer with, breadth, and depth demanded in the foodstuffplace.D i salutary, vocalize jeopardys provide twain(prenominal) participating businesses with a chance to learn and benefit from each some some other, and to strain results neither could achive al upstandingness. In this dissertation will be explained- how to enter into crossroads gos well so a compevery can prosper in modalitys it neer could by doing it al whizCONTENTSPageACKNOWLEDGEMENTS iABSTRACT iiCONTENTS iii aim up OF TABLES vLIST OF FIGURES viINTRODUCTION 11.1 Introduction 21.2 Objectives of Dissertation 2C ontents 3JOINT VENTURE EXPLAINED2.1 common Ventures Explained2.2 The Rationale of interchangeable Venture system2.3 sound appear Venture Formation2.4 Management and carrying outLITERATURE REVIEW3.1 Forms of Joint Venture3.2 Motives of forming a Joint Venture3.3 Selection of Partners3.4 Preliminary Agreement and Negotiation search Methodology4.1 Research Approach 404.2 Research Ethics 414.3 Interviews 424.4 vision 46FINDINGS AND DISCUSSION5.1 Basic distant Interests5.2 Loss of Autonomy and operate on5.3 FindingsCONCLUSIONS AND RECOMMENDATIONSLIST OF TABLESLIST OF FIGURESChapter OneIntroduction and Objectives of DissertationIntroduction short letter once grew by angiotensin-converting enzyme of two ways grass root up, or by acquisition. Today business grow through alliances- all kinds of dangerous alliance, crossroads imagines, and customer partnerign, which by the way, very few battalion study?(Peter F.Drucker 2007)Experiences of vocalize meditation focussing in the eddy industriousness traced back to the early 60s. It appears that characteristics of this sedulousness favor the proposition of articulatio gauges formation. Although statistics ar non available, this is obviously true in coitus to the fundament uprisement of Spain at the present momentThe determination of the .1.1 Objectives of DissertationThis opus attempts to review the lively literatures on counseling of enunciate endangers its merits and problems, particular issues arisen and suggested focal point techniques to cope with such obstacles in operating a vocalise punt.Interviews were conducted with two higher-ranking staffs of unmatched of the partners of a marijuana cigarette proceed formed by four construction firms. The reciprocal endanger is currently undertaking one of the Train come in Core Projects to be completed forrader July 2011. It is hoped that hand-on experiences of these senior staffs, at the level of Management Committee of the joint go, as well as the transactional level of the joint punt, would provide us of import insight and opinion on the art of joint imagine precaution, as a reflection and complement to the everyday review of the literatures.The lynchpin purposes areTo critically appraise the existing literature to Corporative alliances issues and the role of International scheme in applying these issues.To establish the sizeableness strategical alliances with competitors in the international depraveket.To treasure the purposes of strategic alliances as well as to what extent might be successful a company.To determine other factors that influences companies in seeking Joint Ventures.To assess the lineages of value creation.To study possible pitfalls in doing a Strategic Alliance.To draw conclusions upon a joint venture in a vitrine study.1.2 ContentsIn Chapter 2, the makeup of interest is described in fact a foresightful with an explanation of its forms. In Chapter 3 the literature in relation t o joint venture and strategic alliances in general and its application inside the company is critically reviewed. Chapter 4 describes and justifies the research methods employed and includes a office on the ethical considerations of the project. In Chapter 5 the findings of the one-to-one interviews, In Chapter 6 the findings are analyzed and evaluated in relation to the published research literature. In Chapter 7 a joint venture frame manoeuver for the SMART work is presented a great with a plan for its implementation. Finally, in Chapter 8 conclusions are worn and recommendations are made for future work.A list of references is provided and the appendices contain liable(p) information, documents (including, the survey questionnaire) and collated data.Chapter TwoJoint Venture Explained2. Joint Venture ExplainedA joint venture is the coming together of two (or more) in subordinate business for the sole purpose of achieving a specific outcome that would not have been achievable by one of the firms alone.(Source Wallace 2004)2.1 The Rationale of Joint Venture FormationThe form of joint venture provides benefits and a skeleton, based on which the vigilance philosophy of the joint venture progress tos up. . (See Figure 1)Figure 1 Joint Venture. Business BenefitSource Trend fixter Barometer, PWCIn respect of share of wariness, thither are dominant elevate ventures, share circumspection ventures and independent ventures. dot of involvement of invokes in these slips of joint ventures differs, and in turn these joint ventures aspect diametrical types of nature and management problems. At operational level, there are approaches of incorporated structure and non-integrated structure. The nature of the business and the share of responsibilities in sundry(a) aspects of the business will be the determination factors of optionGenerally speaking, the choice of form of joint venture should be made in abidance to what contri thations are required of the parents in order to execute the purpose of forming the joint venture. Companies forming joint ventures basically intend to develop merchandises and products. Common reasons are to campaign brass policies, pooling re bugs, risk sharing, currentizeing business relation and to reduce competition.The counterbalance step to form a joint venture, after realizing that such tactical manoeuvre is suitable, is to select a partner. Consideration on selection of partners concentrates on leash major(ip) themes shared out objectives, mutual trust and co-operation, and abilities of the latent partners.Appropriate partners should be compatible in their objectives of forming the joint venture and their expertness/Knowledge on the business. Right partners also should possess like management styles normally. Lastly it is primal that potential partners real intention is realizes, to avoid future major dis correspondences.2.2 Joint Venture FormationWhen the partners have reached initial conformit y to form a joint venture, a great deal a preliminary treaty is signed. It forms a soil for the drafting of the detailed apprehension, and provide framework for the partners to work together and proceed to more detailed planning works. But incidental negotiations following for the preliminary agreement often provide good chances for the partners to understand more thoroughly the expectation of potential partners. It is not queer that a final agreement cannot be reached because major varietys are revealed in the handle of subsequent negotiations after preliminary agreement.It is always intend to write agreements to crosscut all contingencies. But some tutors consider that it is not so a good deal possible in view of the rapidly changing environments nowadays. Instead, emphasis should be placed on building up mutual trust and hence it is grand to incorporate a sense of fairness into the joint venture agreement. Generally defined, well unsounded mutually, and respectful to each others rights in return to their contributions committed.It is suggested that the best solutions should be an agreement covering all possible contingencies, together with the design of a flexible mechanism allowing changes to be agreed among efficiently while promoting cooperation and mutual trust.A very important aspect in drafting the joint venture agreement is the design of reward system for the partners. Pay-off in the form of product full stop between the parents and the joint venture is often the source of major management problems and conflicts. Such product consort diverts attention of the parents from the joint ventures benefits. Again, fairness and willingness to co-operate are the keys to resolving such problems. If at all possible, mart comparison is a useful guide to fix the transfer charge in a fair sense.The primary busy of a partner in forming a joint venture is probably the degree of look over the business. In respect of split of ownership, majority-m inority shares are sometimes pick outred, as the majority of partner can act as leader for the joint venture and olibanum gives direction in a less doubtful manner for the operation of the joint venture. On the other hand, come companies prefer reach shares to ensure willingness of all partners to contribute efforts as required and they whitethorn also feel more comfortable that all partners have equal status? in the joint venture.Ownership distribution is less important than how operation control is actually apportioned. There is no rule on thumb on allocating operation control. General guidelines are that each parent should be motivated to make prerequisite commitments continuously in consistency to their abilities, and that each parent should be harbored in its interests. To enhance long term co-operation, exploitation of other partners interests must not be attempted. It must be emphasized that full equality in operating control requires much more efforts from all partner , and the joint venture would have to be operated in day-to-day on-going negotiations and compromise among the partners.2.3 Management and effectuationStandard joint venture organization consist of two components the management board and operation organization. The management board is the highest confidence of the joint venture. The art object of the board and jurisdiction of the board determine largely the share of power among the partners. To build an sound board, board members should be delegated enough and needful authority by their own companies in making decisions and vote in the board. They should feat to maintain mutual trusts among the partners, to sustain the common goal and objectives of the partners and to the exercise effective control over the joint venture. This is better to understandably separate the operation organization independently from the management board, to avoid biases or perceived biases towards one particular partner.As mentioned earlier, staffing is a possible and often effective way of controlling the joint venture operations. But overact whitethorn furnish resentment from other partners. It will be constitutionally difficult to build up cohesiveness of the operation organization from all the partners. The organization will possibly segregate into groups of their own companies. Theoretically, secondly is desirable only if considered necessary for the needs of the joint venture. Otherwise recruitment from outside can more easily maintain the independence of the operation organization.The joint venture four-in-hand is an important role, as the leader for the operation organization, the bridge between the peasant and the parents, and sometimes as the mediator? for the parents if dis put upes arose among them. He has to possess negotiation skills, tribe skills, and selling skills to bring together mutual co-operation form all parties concerned. He is often found to be involved in ambiguous birth, with his sub-ordinates a nd supervisors, and wit the parent companies. In order to achieve his assess of pleasing everybody and avoiding conflicts and tension between the parties concerned, he has to be highly tolerant and ambiguity.The joint venture manager should be loyal only to the joint venture, not to any of the parents. He has to be perceived as neutral, otherwise his opinions will never be convincing to other people. Biased loyalty of the joint venture manager will arouse other parents taking harmful measure against smooth operations of the joint venture. Being neutral is an important booking of the joint venture manager in order to gain impropriety and trust, which in turn makes the joint venture more seeming to succeed.The joint venture agreement implied an independent operation organization isolated from the parents to be to the full responsible for daily management of the business and that the operation organization enjoyed a high degree of autonomy. In practice, the independence and auto nomy were apt(p) to the operation organization, only if all parents, in particular the joint venture manager, will act truly neutral. Without such belief, parents were able to exercise dissipated negative measures to hinder the normal implementation of management for the joint venture operations.The case also supported that the quality if the joint venture manager in negotiation skills and human relations, and its relationship with the parents was a paramount importance of the success of the joint venture. A strong leader might be harmful for a joint venture, but a practical and flexible manager surely is very useful.Chapter ThreeLiterature Review3.1 Forms of Joint Venture3.3.1 Share of managementThe heavy question in management of joint ventures is the degree of involvement of partners in decision making goes on major policies as well as day-to-day operations of the joint ventures. In this respect, joint ventures are often categorized into triple types(Stephen I. Glover and Cr aig M. Wasserman 2003) supreme parent ventures in which management decisions are dominated by one parent, either formally by majority voting rights in all major aspects or informally by management clubtings to control key decisions makings without significant involvement from the other party.Shared management ventures in which management of joint venture operations are shared between the parents, either shared by each providing resources in certain functional areas or shared by pooling resources at most levels of the joint venture operations. Characteristics of this type of joint venture are the necessity of frequent negotiation and agreement between the partners at most all levels and aspects of the business management.Independent ventures in which parents involvements in the management of the joint venture is very little, as it is left almost entirely to an independent group of personnel employed under the joint venture. The roles of parents are not too much different from share holders, except that they may be providing other distinct types of resources as well as capital and there are only a few shareholders.Dominant parent ventures and independent ventures are thought to be more trouble free, as they require less interaction and thus less potential conflicts between the parents. However, there are no cover evidence to suggest that these two types of ventures will be more likely to succeed than shared management ventures. Obviously the choice of joint ventures types is dependent on the situation and nature of the business and the parents characteristics. sight often call for shared management but no other choices, simply because joint efforts are required to achieve what is intended. Pooling of resources, and thus a mixed input of management efforts from both parents, may be the fundamental desire of forming the joint venture. In such cases, dominance of one parent certainly cannot fulfil the purpose of the strategic alliance and the question is to out perform the difficulties of shared management on joint ventures operations.Legal FormIn terms of the legal form of the joint venture, there can be three choices (Dennis Campbell and Antonida Netzer 2009)Consortium it refers to a grouping, formed on a one-off basis, which is governed by a contractual agreement. The contractual agreement is made to define tacklely the position of each of the parents, including a specification of the authority, responsibility, liability and power of each party.Parnership it can take a form of formal partnership. The parties are thus in effect recognised in law as partners. The joint venture is considered as a business entity on its own, in legal terms, separated from the individual parties. As partners, each of the parties is legally liable for any debt or default committed by other partners on behalf of the joint venture, which may not be the case if formed as a puddle depending on details of the contractual agreement of constituting the consortiu m.Incorpotation joint ventures which are intended to be a permanent business are usually effected as an incorporate entity. This would enable the parties being insulated from the risks of the business of the joint venture, as a limited company. The major disadvantage is that the profit and loss sustain by the joint venture as incorporation cannot be set off against that of the parent companies for tax purpose.3.1.3 Operational bodily structureThe two extreme categories of operational structure of a joint venture are integrated joint venture and non integrated joint venture (Dennis Campbell and Antonida Netzer 2009)Integrated Structure the parties agree on a certain proportion of capital and resources investment funds and a prescribed profit or loss sharing formula, and they both participate on every level of execution of the joint venture business.Non-integrated Structure in such case, the joint venture usually provides for general management machinery, which looks after overall administrative and coordinative roles for the joint venture business. The whole business is then divided into packages or portions which are designate to the parents to execute and operate such packages or portions as designated in the joint venture agreement (Appendix A)In practice joint ventures are usually a florilegium of these two approaches. The question is the degree of integration to be adopted for the given set of circumstances faced by the joint venture. For that joint venture business that can be divided into clear cut portions and such divided portions will suit the capability and resources of different partners, non-integrated approach will usually be adopted. While the joint venture business is complex and it requires a centralised management of all aspects of the business, the management will be integrated.Integrated approach is more difficult to manage. Conflicting interests and ideas between the partners can arise more often than non-integrated approach. But it i s often un evitable as the nature of the joint venture business mar not is possible to be divided neatly into portions.On the other hand, for non-integrated approach, complicated contractual argument can arise between partners. In case of joint venture agreement in a basis of joint and some(prenominal) responsibilities, it is not uncommon that the partners lodge contractual claims against each other on non-performance or default of the other parties in penalise their portion of the joint venture business resulting loss to the whole joint venture from third party claims.The part StudyThe parents attempted to adopt a mixture of shared and independent management for the joint venture under study, as implied in the conditions of the joint venture agreement. The management commissioning of the joint venture, which was the highest level of decision making and policy setting, were composed of one representative each partner.In respect of operational structure, a mixture of integrated a nd non-integrated approach was adopted. While a separate joint venture organization supposedly independent from the partners managed and operated the whole joint venture business integrally, the project was divided into portions and packages which were then subcontracted back to the partners under the joint venture3.2 Motives of forming a Joint VentureCompanies forming joint ventures basically intended to develop commercializes and products i.e. to strength the firms existing business, to take the firms existing products to new market, to obtain new products that can be sold in the firms existing markets, and to diversify into new businesses (Mark de Rond 2003) These objectives can be achieved through various ways, as shown in figure 1.1But why choose a joint venture to try to achieve these objectives? Common reasons are (Das y Teng 2000) establishment Policies because of licensing requirements of the government for undertaking a certain type of business in a area, e.g. for constr uction works in Spain many foreign companies may wish to form joint ventures with local anesthetic companies who have the required licenses at hand in order to enter the market primary, while they at the same time apply for the necessary licenses which may take months or even years in some cases. Many governments, who attempt to protect the development of certain diligence of their countries, establish regulations that prohibit foreign companies to set up wholly owned subsidiaries. If foreign companies wish to explore the market of those countries, they have no choice to form joint ventures with local companies. adventure Sharing in very large and risky projects that companies feel ill at ease(predicate) to bear but unwilling to give up the business opportunity, several companies share the risk by undertaking the project jointly. These risk may be commercial risks (finance, source of materials, technical uncertainties, etc) or political risks (change un government policies, unst able political status of the country, etc)Figure 1 Motives for joint venture formationNew MarketsExisting MaketsTo Take Existing Products To Foreign Markets devote MarketsClosed MarketsTo Diversify into New Business training from your partnerLearning with your partnerTo Strengthen the Existing BusinessAchieving economies of scaleAcquiring technologyReducing financial riskTo Bring Foreign Products To Local Marketsmerchandising and distributionScrewdriver assemblyDeveloping local technologyTechnology flow back to parentExisting Products New ProductsSource (Das y Teng 2000)Pooling of resources companies often join to develop business that requires a combination of different resources (finance, technology, market access, local experience, etc) that none of these companies possess all of them, e.g. a combination of market access by one company and technical knowledge of a product by another, combination of different technical skills that are necessary to develop a product, or a combinati on of several companies resources to achieve economies of scale.Building business relation some companies form joint ventures with in order to build up wide business relations among the industry. They study that this will enable them to widen their networks of business and that it may be useful for their further business developments in long term.Reduce competition connexion with your competitor automatically reduce the degree of competition. This is oddly useful if there are only a few potential competitors only. It is not uncommon to find in certain industry that formations of joint ventures effectively effect monopolistic or oligopolistic conditions.The Case StudyIn the construction industry inherent risks involved in the projects are the major concern of a companys business strategy. Sharing of commercial risks (financial burdens on the company, source of raw materials, technical uncertainty involved with the works) for large scaled projects is the major reason of forming j oint ventures. Because of the huge amount of resources involved and the multi-disciplinary nature of the projects, pooling if resources from several companies is necessary to gain sufficient competence in order to peckish for the works. Not a single company may have all the necessary skills and sufficient amount of resources that are required for those Train Station Core Projects. Formations of joint ventures become the most common tactics for the construction firms to undertake those projects.Political risk is also a major concern especially for foreign firms who are not familiar with the policies. Most foreign firms conceive that formation of joint ventures is an effective way of securing the safety of the business, particularly when undertaking infrastructure development projects of payment terms. Large construction firms (both local and international firms that were interested and had potential to undertake these large projects) gradually formed into groups of consortium to ma d for these jobs. As a result, the industry transformed into competing assort groups, instead of competing among individual firms. Although such transformation might be unwitting at the time these companies first formed joint ventures, they now became cognizant of such advantage and might use this again as one of the useful tools in future when considering the companys strategy competitions in the industry.3.3 Selection of Partners3.3.1The Criteria of Choosing a PartnerConsiderations on selection of partners concentrate on three majors themes (Lynn Krieger 1991)Shared objectivesMutual trust and willingness to co-operate andHaving necessary skills/resourcesThe task is to find a compatible partner in respect of these three major themes. The right pair or group of partners often implies an asymmetry of partners, i.e. the right partners often have different quality and characteristics so that they will complement with each others on the need of the business. Basic consideration is whe ther the potential partner can provide what you need and the confidence of the potential partners willingness to co-operate.They may not have the same objective but their co-operation should fulfill each others objectives. They may not have the expertise on the same area, and they should possess different knowledge so that when combined together their competence will be strengthened. In fact two partners having expertise on the same area often is the source of conflicts as both will consider their own approach is ranking(a) without due respect on the other partners expertise on the field.But right partners should desirably have similar management styles and outlooks so that their overall business strategy would go along the same direction. Otherwise, conflict on major business policy that is originated from the incompatibility of the partners expectation on what the joint venture should achieve eventually arise someday Lyn Krieger put forward two prepositionsThe more similar the cu lture of firms forming a shared management joint venture, the easier the venture will be to manage.The more similar in size are the parents of a shared management venture, the easier the venture will be to manage. A significant size mismatch between a ventures parents can create a lot of problems for the venture.Culture here refers to both corporate culture and the culture of the country from which the firms are based. These propositions are based on the principle that managers, to be effectively working together, need to be able to evaluate each others judgment and the way of working before they can build up a cohesive team. The second proposition is an extension of the first one as size of the company can contribute to difference in corporate culture.One should also be alert on any hidden agenda of your potential partner (Kathryn Rudie 2003). Confidence on the observation of your potential partners real intention and objective to form the joint venture is a pre-requisite condition before a decision can be made on the choice of partners. The simple tragic case of Beijing Jeep is a good congresswoman of hidden agenda. Both partners did not spell out clearly their real intention of what was to be achieved, and both partners did not understand thoroughly the other partners real intention before signing the joint venture agreement. Unreasonable conflicts arose not long after formation of the joint venture, when both parties realized that they were expecting something beyond the wishes of the other party. The tragedy ought to be avoidable if both parties made clear of their expectations before signing on the joint venture agreement.3.3.2 The Process SelectionIt is suggested that a step-by-step approach should be adopted to develop relationship with potential partners (Kathryn Rudie 2003)Prepare a checklist desirable quality of the partnerSearching out for potential partners based on the checklistPrepare proposals and issues to study and negotiate with the potent ial partnerIf possible, try out a joint venture of small scale before committing long term and large scaled joint venture businessTheatrically, this process enables the partners to develop faith and mutual trust and allows better mutual understanding before placing large financial stakes on joint ventures with unacquainted(predicate) partners. Obviously, this takes a long time and in practice the ever changing business environment often does not wait for such long process of partner selection. Business opportunities simply slip away before the good partner relationship can evolve in this way.In real life, it is often founded that good joint venture partner relationship is assumed at the time of signing the joint venture agreement, and the effrontery is often based on personal relationship between the CEOs of the companies.The Case StudyMajor consideration in selection of partners was what resources the partner could bring in to supplement his shortages and strengthen the competen ce of the company to successfully tender for the job. Reputation and track record in the international construction industry was the first item to check on, particularly as the potential partner was new-comers to Spain.It was admitted that the other partners intention of choosing the company was not fully known at the time of forming the joint venture. At that time, it was only understood that the company was chosen by other partners because of its local experiences in Spain and the thought of political security that the firm could provide as a whole owned company. It was now gradually revealed that