JOINT VENTURES AS PART OF THE INTERNATIONALISATION STRATEGY OF CONSTRUCTION COMPANIES

Even though a great part of the market volume in the construction industry has so far been distributed regionally or even locally, the international engagement of construction enterprises is basically nothing new. For construction companies from some European countries, among them especially Great Britain and France, international business is of a long-standing tradition. Companies from other countries such as Germany have been active abroad to a varying degree since the early seventies when, due to the first oil crisis, the national markets noticeably shrank. The form of internationalisation, however, has changed fundamentally during the past few years, especially in the construction industry. Up until then, the engagement beyond national borders for a European construction enterprise in very many cases meant the implementation of infrastructure facilities in the widest sense in countries where there was still a relatively big backlog of demand in this field. Often the market conditions were rather exotic and, as far as the toughness of competition was concerned, not comparable to the domestic markets. Furthermore the technological and organisational capacity of the domestic construction industry of the purchaser country for carrying out such projects was often not far enough developed. Thus the client, usually a government or an international funding agency was not only interested in the completion of the order itself, but also in the technological and organisational competence of the construction company that was to carry out the order. Therefore in many aspects such a company held a special position. With the completion of the European Single Market, this situation has completely changed. Most of the big European construction enterprises have shifted the main part of their activity into this Single Market. Here they now compete with other European companies under conditions which are partly similar to those of the national market. Above all the same technological and organisational know-how is in principle available to clients, competitors and co-operating enterprises and experts alike. There are no exotic conditions and no special position any more, but only competition, in which the competitors may differ as far as the individual scope of their capacities and certain strengths or weaknesses are concerned, but where in principle they are all on a par. On the other hand this growing international orientation of construction companies has also been stimulated by such huge infrastructure projects such as the Channel Tunnel, the Storabælt link, or the Second Severn Crossing, as well as by the construction boom in the wake of the German unification. Working Paper 2 provides an analysis of the strategic response of the European construction corporations to this challenge. Despite the growing Single Market integration, however, for a construction company participation in such a flow of work still implies the attempt to gain ground on a foreign market. Regardless of all similarities within Europe there are still noticeable differences in the construction activities in the individual countries. These differences, for instance, concern the standards and laws, labour regulations and procurement policies, or the traditions shaping the solution of technological problems and the execution of construction projects. For a company, bidding for such a contract therefore implies a higher risk than in the domestic market. Among others it is this fact that has moved many construction companies to prefer the form of international joint ventures for carrying out such projects, sometimes even at the stage of bidding. A joint venture is generally understood as an organisationally identifiable new enterprise, in which at least two partners share the management responsibility and the financial risk (cf. Zielke 1992 pp 31-8; Eisele 1995 p 9). When the partners come from different countries, we speak of an international joint venture. Further defining criteria, as stated in the literature, are of less concern for our context. Zielke (1992 p 33) would also like to introduce duration as one defining criterion for a joint venture. From this derives from a distinction between joint ventures and what he calls syndicates which may be fruitful for certain analytical purposes, but would however do no justice to the specific conditions of the construction industry. The application of joint ventures to the context of the construction industry is discussed further in Working Paper 1. Even in purely legal terms, a joint venture for the execution of a construction project is not just a loose affiliation of companies. Rather it is a real company with rights and obligations, for instance in the area of economics and personnel (cf. also Working Paper 1). But above all the importance of such joint ventures for the internationally oriented strategies of construction companies parallels the significance that such long-term oriented joint engagements have in other sectors. In the construction industry, it has meanwhile become common practice that companies establish themselves permanently across the borders of their country of origin. The importance of such investment for the entry into foreign markets is considerable, but can only be of a latent nature. Thus this kind of joint venture between construction companies has so far played almost no role for this step in the construction industry (cf Goldberg 1991 p 196-222). It is true that a different situation arises when building companies enter into a joint venture with other companies, e.g. from the real estate sector (cf. Goldenberg 1988, pp 273-4); this form, however, seems not to be very wide-spread yet. In general it is important for the development of an entrepreneurial strategy in construction industry that the companies in this sector do not normally on their own initiative produce for an anonymous market which has then to be conquered. This has also consequences for decisions on their site. The mere settlement on a foreign market through founding a subsidiary or by participating in a domestic company, is only a first step to gain entry into this market. In contrast to most sectors of manufacturing industry, a construction company needs an additional step to be able to start production, a step the success of which does not depend on its own decision either: the company can only produce when it has received an order from its client. Depending on the size of the order and the risks involved, as well as on the circumstances of its placement, it will be sensible to enter into a joint venture with other construction companies for this. Indeed, quite often the willingness to participate in the formation of a joint venture is a prerequisite for ensuring a participation in the project. Thus a construction company's entry into a foreign market will only become manifest with the joint venture, and this as a rule is only formed for the execution of a particular project. Due to this the joint venture, even though aimed only at the duration of the project, has an importance in its own right for the market-entering strategy of the company. This importance can (perhaps) be supplemented by a permanent investment, yet not be replaced by it (at least not under the given circumstances). As far as the analysis of international joint ventures contributes to an understanding of the long-term market-accessing strategies of companies, the joint ventures formed for carrying out construction projects should not be disregarded. Otherwise the investigation of such developments would lack an important analytical aspect. Apart from that, it is a fact that most of the targets pursued by international partners when joining for the purpose of executing construction projects are much the same as are given as general arguments for forming joint ventures in other sectors. Above all they include access to resources and markets, reduction of risks, lowering of competitive pressure, as well as the opportunity to learn from the partner with view to technological know-how, managerial competence and familiarity with the market (Goldenberg 1988 p 12; Zielke 1992 p 32; Taggart, McDermott 1993 pp 5-11; Eisele 1995 pp 21-31). Zielke furthermore points out that joint ventures are the more promising, the less developed the standardisation of the product is for the production of which the joint venture is to be created (Zielke 1992 p 95), and this is exactly what holds true for construction projects in a very special way.