Development Of A Performance Model For International Construction Joint Ventures: A System Dynamics Approach

Global business has moved towards more competitive environment over the past two decades. As local markets erode due to competition, firms need to change their business strategy and expand their traditional markets. According to Yoshino and Rangan (1995) joint ventures (JVs) have emerged as a popular strategy in an environment in which fast access to up-to-date technology and emerging markets is more critical than ever before. Geringer (1991) defined JVs as when two or more legally separate bodies from a jointly owned entity in which they invest and engage in various decision making activities.

In Thailand, the International Construction Joint Venture (ICJVs) has marked increase over the last two decades. A joint venture may be termed International where at least one of the parties (or parents) is based outside the country where the venture is taking place (Geringer and Herbert, 1989).The remarkable increment of foreign investment was continuing until the economic crisis of 1997. After that there has been a steady progress in the construction industry.

According to Lim and Liu (2001), the number International Construction Joint Ventures (ICJVs) are growing worldwide at an increasing pace, especially in developing countries. Developing countries see ICJVs as one of the best instruments for meeting the competing interests of national development and the prevention of the domination of the economy by foreign investors (Sornarajah, 1992). Despite the apparent importance, interest and frequency of international ventures many of these report only limited success (Adler et al., 1992). But why do these joint ventures fail? More importantly, is it possible to promote higher alliance performance through a better match between strategic outcomes? And what will be the effective strategy to make the joint venture successful?

The role of IJVs in international business operations has been significant and there are no signs that their role would, at least significantly decrease in future. The situation may be in fact the opposite. The great importance and high failure rates of IJVs raises the question of how to evaluate IJV performance and how to secure success in IJV operations? The goal of this study is to make a review of previous studies analyzing the IJV performance especially in an Asian context and to develop dynamic hypotheses about the relationships between various identified variables and IJV performance to be tested by system dynamic approach.

Mr. Muhammad Nateque Mahmood made a research which aimed to address the critical issues in developing International Construction Joint Venture performance model for a successful Thai-Foreign Joint Venture using System Dynamics Approach. The sub-objectives of his study were to: (1) identify factors that affecting performance of International Construction Joint Ventures; (2) develop the generic system dynamics model to explain how the factors affect the performance of International Construction Joint Ventures; (3) develop adopted system dynamics models for different cases of International Construction Joint Ventures; and (4) formulate implementable policies that may aid to achieve desired performance level for an International Construction Joint Venture.

Conclusion

ICJVs have become increasingly widespread in the business environment and the need to understand the dynamic nature of performance of these complex collaborative arrangements increase, as managers are struggle to find patterns and indications of how to effectively manage successful joint venture. Therefore, a generic system dynamics model has been developed by integrating a number of endogenous and exogenous factors to make dynamic interactions visible and facilitate managers to make decisions about the observed patterns and intervene, as appropriate, to increase the likelihood of partnership success.

In this study, the performance of an ICJV has been measured in terms of value, project output (cost, time and quality) and satisfaction factors. The critical factors associated with these three factors and their interrelationships can be highlighted as follows:

Value factor is significantly influenced by adaptability and complementary resources. Value factor is positively influenced by adaptability, mutual trust and commitment factor. Where, adaptability is positively induced by complementary resource sharing and also by commitment level of parent partners. Difference in working climate reduces the technology and knowledge transfer rate and in consequence value by hindering the improvement of adaptability. Mutual trust is accelerated by effective information sharing and reduced by dysfunctional conflict between partners, higher legalistic changes and partners’ misinterpretation factors. Commitment factor is highlighted through collaborative approach of the partners and also induced by higher level of mutual trust.

Project output is significantly influenced by productivity in construction. Project output factors such as cost overrun, schedule pressure and poor quality factors are negatively influenced by productivity in construction, work completion rate, coordination, and positively influenced by rework, conflict and uncertainty of work. Whereas, productivity in construction is accelerated by resource availability, motivation level of workers, business competency of partners and coordination and negatively influenced by government bureaucracy.

Satisfaction factor is significantly controlled by value gap (deviation of actual value to desired value), project output (cost, time and quality) and negotiation approach (either problem solving, compromising, forcing or legalistic strategy) factors which are organized in accordance to most significant factor to significant factor. Problem solving approach towards negotiation process tends to make a relationship more satisfying. Conversely, compromising and forcing attitude in negotiation process adversely affects on satisfaction level. A party’s higher reliance on legal mechanisms towards negotiation process decreases satisfaction level.

The generic performance model, when calibrated and tested with data from two ICJVs in Thailnad, the simulated behavior (base run) of the adopted model has been replicated with the historic behavior (reference mode) for both cases. This implies that the generic system dynamics performance model can be able to facilitate managers of an ICJV to identify the factors and causes of problems related to performance gap by adjusting inputs of exogenous variables with their real scenario.

While simulating the adopted models for different ICJVs, several problems related to performance of ICJVs have been observed from the base runs of both cases such as: (1) cost overrun, schedule pressure and poor quality due to low productivity in construction; (2) negative value gap; and (3) low level of effective information sharing between partners.

To minimize above mentioned problems related to performance of ICJV, the following component based recommendations are addressed to improve the performance of ICJV for both cases.

- In order to improve productivity in construction, three complementary HRM practices such as Performance Based Incentive (PBI) for the workers, problem solving team and multiskilled training are suggested. PBI can increase motivation of worker but the practice has flaws (free riders and inefficient evaluation technique) too. Firms can overcome free-rider problems by developing a “norm” or “culture” through peer pressure. Evaluation technique can be improved by incorporating other valued dimension such as workers’ dependability, corporation, or problem-solving initiative. The problem solving team should be developed in order to get feedback from the workers regarding productivity improvement and suggested best practices. Multiskilled training can lead to increased productivity as multiskilling leads to more efficient use of time on construction sites, affects the attitude of workers and increases the desire to perform. It will reduce layoff frequency of workers and subsequently reduce the probability of unavailability of skilled labors during the project progress.

- In order to diminish negative value gap through improving adaptability or absorptive capacity of the parent companies, training, workshops and high-performance team policies are suggested for both ICJVs. Three levels of training programs involved in managing collaboration and competition at the same time, open communication and trust for the smooth transfer of know-how and acquisition of a specific competence should be conducted. Workshops are useful for adjusting and regulating the partnering goals with the internal goals as well as the project goals to ensure that they are compatible. Most often, the partnering goals consist of some tangible project goals, such as quality, cost, schedule, safety, and time, and some intangible contextual goals, such as communication, trust, commitment, etc. The high performance team will focus on value gap to overcome. Besides, the team should look for continuous improvement in response to the turbulent environment. The team can then prescribe actions to induce changes, seize opportunities, and rectify the course.

- In order to enhance effective and efficient information sharing, Integrated Proactive Team (IPT) and “Project Web” are suggested for both ICJVs. IPT can aid in building of mutual trust and providing decision makers with the necessary information to make the right decisions at the right time. Whereas, “Project Web” can improve in communication and coordination of information between all project participants resulting an increased efficiencies, better-facilitated decision making and improved project control and in turn increase mutual trust.

Maximum benefit can be attained by integrating above three policies and applied at the same time.

His thesis abstract is copied and posted.

ABSTRACT

The uncertain and dynamic nature of ICJV performance is evolved with many critical factors which lead to make partner relationships more complex in respect of making decisions to maintain a cohesive environment that creates desired strategic outcomes. Addressing to the fact, a generic system dynamics performance model for ICJV is developed by integrating a number of exogenous and endogenous variables as to get an overall impact on performance of ICJV and to make effective decisions based on that. During performance model development process, several key feedback loops are developed with the endogenous variables incorporated with exogenous variables which lead the path to formulate stock and flow mapping under three sub models (value, project output and satisfaction). In order to formulate and validate the model both structurally and behaviorally and also to find out the causes of poor performance, both qualitative and quantitative data are gathered by conducting intensive interviews from two ICJVs in Thailand and also backup with literature review. The performance model, when tested with data from two ICJVs, replicates historic data well. This implies that the system dynamics performance model can be able to facilitate managers of an ICJV to identify the factors causing problems related to performance gap by adjusting inputs and or structure of variables. After conducting intensive simulations of model, three major problems are identified related to negative value gap, low productivity in construction and high rate of ineffective information sharing of both ICJVs. In terms of diminishing negative value by improving adaptability, the suggested effective policies are: (1) training, (2) workshops and (3) high performance team. In order to stimulate productivity in construction, the recommended effective policies are: (1) performance based incentive, (2) multiskilled training and (3) problem solving team. Regarding improvement of effectiveness of information sharing (1) integrated proactive team and (2)“Project Web” are suggested. Integrated application of these policies provides a maximum improvement to the performance of the ICJV.