Project Based Joint Ventures

By Arun Kottolli

Construction of Bangalore International Airport presents a rare opportunity to learn about project based International Joint Ventures. Bangalore Airport will be jointly built by L&T of Indian and Seimens A.G. of Germany with equity participation from the state of Karnataka.  Globally there has been several Project based International Joint Ventures. Both L&T and Seimens have executed several International projects and have built tremendous knowledge base from their experience. However such ventures have been rare in India and Bangalore International Airport presents an excellent learning opportunity for other Indian companies who now have an opportunity to see and learn from other’s experience. 

Nature of Project Based Joint Ventures 

Project-based joint ventures represent a particularly interesting group of JVs, given their specific characteristics. The differences are wide-ranging, from the limited life span of the venture, the planning horizons, through the decision making and management style, the space of required information flow to the potential benefits of the two different types of venture. Table below  provides a summary about the specificity of project-based Joint Ventures.

First, project-based JVs have a predetermined, limited life span. Their activities are oriented towards well-defined objectives. These JVs are terminated upon the completion of the given project. Such a limitation in time usually leads to specific managerial problems. For instance, there is obviously a pressure for rapid decision making. Also, given the project-specific nature of such ventures, the selection of an inappropriate, or poor, partner may be more likely than the case of ongoing JVs.

Parent firms have less time to understand the local environment and to qualify thoroughly all their potential partners. In addition, there is a greater potential for culture related conflicts, if adequate planning and deliberation do not proceed key partnership and venture-formation decisions. Project-based JVs generally offer advantages that are similar to those of traditional JVs. For instance there is a possible hybridization of partner firms’ technologies, an opportunity to learn, or an access to low-cost production factors. In addition, project-based JVs are viable alternatives to finance large-scale projects such as the English Channel Tunnel, the Three Gorges Dam, or Chek Lap Kok Airport in Hong Kong. Project-based JVs require a strictly task-oriented management style, and this fact may balance for managerial inexperience in the international arena.

Another key issue relates to the potential benefits accruing to joint venture partners. Joint venturing tends to be more flexible, less costly, and a faster way of completing a project than internal startups or acquisitions. In spite of these characteristics that make project-based JVs potentially informative objects of both practical and academic research, there are only a few JV-related studies that focus explicitly on such ventures.

Failure to distinguish between project-based and ongoing JVs results in an obvious gap in the analysis of international JVs. Project-based JVs may exhibit more similar tendencies or law like rules than their ongoing versions. 

Foundation of project Based Joint Ventures

 The reasons driving the formation of International project-based Joint Ventures can be summarized as:

Ÿ         Strategic Objectives of the participating firms.

Ÿ         Partner’s view of the local environmental factors.

Ÿ         Production and Technology strengths of the partners.

Ÿ         Political environment and profitability of the venture

Ÿ         Financial Resources available to the partners that will be invested in the venture.

Ÿ         Organizational growth and learning opportunities as perceived by the partners.

Ÿ         Market entry and gaining technical/managerial knowledge.

Difficulties that might hinder the performance of the joint venture is summarized below: 

Ÿ         The lack of mutual trust in the collaborative joint venture

Ÿ         Time constrains of the IJV may significantly impact the quality of product/service

Ÿ         Compatibility of company values and culture among the partners

Ÿ         Lack of Organizational flexibility in any one of the partners will hinder the flexibility of the JV

In view of the above mentioned difficulties, companies involved in the joint venture can take some preventive steps to avoid any failure. Management literature has lots of golden thumb rules to make JV successful. So here are some of my favorites:

Ÿ         The higher the initial level of trust among partner firms and the host government, the higher is the likelihood that the JV will be successful.

Ÿ         The higher the organizational flexibility of a project-based IJV, the higher is the likelihood that it will be successful.

Ÿ         The higher the existing project-related capabilities of the partner firms, the higher is the likelihood of success in Project based IJV

Guidelines for Project Based IJV