JOINT VENTURE CONTRACTING RELATIONSHIPS BETWEEN FOREIGN AND LOCAL CONTRACTORS IN THE CONSTRUCTION AND ENGINEERING INDUSTRY OF HONG KONG:IMPLICATIONS FOR UNDERSTANDING COLLABORATIVE PRACTICE By Derick S. Johannes Diploma of Quantity Surveying, RMIT University, Melbourne Master of Business Administration (MBA), RMIT University, Melbourne Post-Graduate Diploma in Arbitration, CEM, Reading,UK Fellow of The Australian Institute of Quantity Surveyors (FAIQS) Member of The Chartered Institute of Arbitrators (United Kingdom; MCIArb) This thesis is submitted in fulfilment of the requirements for the Degree of Doctor of Philosophy undertaken at the RMIT University, Melbourne. November, 2004.
DedicationThis doctoral thesis is dedicated to several people who have greatly assisted in thesuccessful completion of this research. Throughout the course of my postgraduateeducation, I am indebted to the ceaseless support and encouragement of my belovedwife, Mary Elizabeth, and my four children, Ewan, Sophia, Simon, and Emma. Further,I would like to express my sincere and deep appreciation for the invaluable assistanceoffered by Professor Derek H.T. Walker in promoting the knowledge-based importanceof this research in terms of subsequent joint venture success, together with making mypostgraduate education very rewarding. iii
AbstractThe purpose of this research was to develop a cultural understanding of the varyingknowledge-based managerial and inter-organisational practices between local andforeign-based contractors in engendering competitive advantage within large scaleinfrastructure projects being conducted in Hong Kong. To achieve this objective, twoseparate, yet interrelated studies, were conducted.In Study One, based on exploratory interviews which were conducted with nine seniorlevel executives involved in major infrastructure projects in Hong Kong exceeding$US300 million, the organisational learning and knowledge-based managementpractices of project-based joint ventures across differing organisations were examined.The findings of Study One identified that inter-organisational compatibility, capacitybuilding (i.e., access to expanded profits, competitive advantage issues, opportunities,management expertise, knowledge regarding clients, projects, or new and diversetechnologies), and capability maturity (i.e., trust and commitment) were key aspects ofsuccessful joint venture partnership relationships in influencing knowledge-basedmanagement practices.In Study Two, the purpose was twofold. First, the findings of Study One were usedtogether with the relevant research literature to construct and develop an 89-item‘Strategic Alliance Contracting Inventory’ (SACI). This inventory was composed ofhighly reliable and construct valid measures (i.e., Satisfaction with Joint VenturePerformance; Cultural Divergence; Competitive Advantage; Inter-Organisational Trust;Strategic Fit; Decision Control; Inter-Parent Cooperation; Commitment to the JointVenture; Organisational Commitment). Second, the SACI was then administered to a iv
representative sample of 40 administrative, managerial and executive personnelinvolved in the implementation of four project-based construction joint ventures.Based on the findings of Study Two, Bivariate Pearson product-moment correlationsrevealed that self-reports were significantly interrelated, though not according to Age ofthe Alliance (Years) nor the Number of Inter-Firm Partnerships. Analyses of Variancerevealed there were no significant differences in self-reports according to Type of JointVenture nor Respondent’s Relational Status (i.e., Head Office, Onsite). However, therewere significant mean item-related differences concerning collaborative managerialpractices in project-based joint ventures. In addition, Regression Analyses found thatCultural Divergence and Commitment to the Joint Venture uniquely accounted for asignificant proportion of variance in predicting Satisfaction with Joint VenturePerformance. The findings of this research significantly enhance and build uponexisting levels of knowledge and understanding in knowledge-based managementpractices and organisational culture which influence project-based joint ventureperformance within the construction and engineering industry. Finally, methodologicalimplications and recommendations for future investigative research are given. v
AcknowledgementsFirst, I would like to express my deepest gratitude to my Principal Supervisor ProfessorDerek H.T. Walker at RMIT University, and also Professor Stephen M. Rowlinson atThe University of Hong Kong who extended to me their ready assistance, guidance andencouragement over the past 6 years. I would also like to acknowledge the statisticalassistance of Dr. Rick Kellner. His experience, patience and knowledgeable advice inthe analytic and statistical procedures developed for the procedural methodology of thisresearch was invaluable. I would also like to thank them for their friendship.This doctoral research, however, would not have succeeded without the participation ofmany notable construction and engineering industry leaders in Hong Kong, with whomI have worked closely over the past years. Namely, their organisational knowledge,expertise and understanding of cross-cultural aspects of joint venture functioning andperformance provided important insights in understanding the relationship betweenorganisational culture and knowledge-based management practices in engenderingcompetitive advantage amongst multinational corporations involved in complexinfrastructure projects in the Hong Kong construction and engineering industry.Moreover, I am indebted to the help of many faculty staff members within the School ofBuilding and Construction Economics and in the School of Business at RMITUniversity who provided me with an opportunity, scholarship and facilities for thetimely completion of this research. In addition, I would also like to acknowledge thecontributions offered by Dr. Florence T.T. Phua at Hong Kong University, Peter Slack,Daniel Klein, Hu Jian Hua, Marco Yu, as well as John Porter for his long support and vi
friendship of almost 30 years. Finally, I would like to express my grateful thanks to MsAnnie Ho whose research and administrative assistance were invaluable. vii
DeclarationIn accordance with the regulations for presenting theses and other work for higherdegrees, I hereby declare that this doctoral thesis is entirely my own work and that ithas not been submitted for a degree at any other University.______________________________________Derick S. JohannesRMIT University, MelbourneNovember, 2004Note: This doctoral thesis has been formatted in accord with the Harvard style ofreferencing (Snooks & Co, 2002). viii
Table Of Contents PageDedication iiiAbstract ivAcknowledgements viDeclaration viiiList of Tables xxList of Figures xxiiiList of Appendices xxvCHAPTER ONE 1 INTRODUCTION 1 1.1. The General Context of the Research. 1 1.1.1. The Context of Joint Learning 2 1.1.2 Hong Kong Joint Ventures 5 1.2. Aims of Research and the Research Questions. 7 ix
Table Of Contents (Continued …) Page 1.3. Significance of the Research. 8 1.4 Theoretical Foundation and Research Justification 9 1.5. Overview of the Methodological Research Justification 11 1.6. Chapter Summary. 14CHAPTER TWO 15 LITERATURE REVIEW 15 2.1 Understanding the Significance of Cooperative Strategic Alliances in 16 the Attainment of Sustainable Competitive Advantage within the Hong Kong Construction and Engineering Industry 2.2. Project-Based Joint Ventures in the Hong Kong Construction and 19 Engineering Industry: Organisational and National Cultural Knowledge and Competence 2.3. Organisational and Operational Management of Project-Based Joint 23 Ventures: Implications of the ‘Knowledge Management Economy’ in the Creation of Sustainable Competitive Advantage 2.4. Impact and Influence of Organisational and National Culture Upon 29 the Operational Functioning of Project-Based Joint Ventures. 2.5 Topographical, Political, Economic, and Cultural Influences Upon 37 the Historical Development of the Hong Kong Construction and Engineering Industry 2.6. Relationship-Based Procurement of Contracts and the Strategic 45 Positioning of Joint Ventures within the Hong Kong Construction and Engineering Industry: Implications for Understanding the Congruence between Organisational Development and Managerial Practice x
2.7. Understanding Project-Based Joint Venture Performance: 49Organisational/National Culture vs. Organisational Commitment2.8. Understanding Project-Based Joint Venture Performance: 53Organisational/National Culture vs. Inter-Organisational Trust2.9. Understanding Project-Based Joint Venture Performance: Strategic 58Fit, Inter-Parent Cooperation, Decision Control, and Commitment toJoint Venture2.10. Methodological Limitations of the Relevant Research Literature: 66Rationale of the Present Research in Understanding Satisfaction withProject-Based Joint Venture Performance2.11. Chapter Summary 71 xi
Table Of Contents (Continued …)CHAPTER THREE 74 METHODOLOGY AND RESEARCH DESIGN 74 3.1 Understanding the Purpose and Significance of Methodological 74 Research Design 3.2. Research Purpose and Approach: Implications for Research 75 Method Reliability and Validity. 3.3. Chapter Summary. 80CHAPTER FOUR 81 Study One: Inter-Organisational Culture, Competitive 81 Advantage and Project-based Joint Venture Behaviour 4.1. Purpose of Study 81 4.2. Method. 82 4.2.1. Qualitative Methodology in Understanding the Inter- 82 Organisational Culture and Competitive Advantage of Project-Based Joint Ventures 4.2.2. Procedure. 83 4.2.3. Instrumentation. 84 4.2.4 Sample Size and Characteristics 85 xii
Table Of Contents (Continued …) Page 4.2.5 Overview of the Data Analysis 85 4.3. Results. 86 4.3.1. JV Design: Culture of Inter-Organisational Learning 86 4.3.2. JV Design: Inter-Organisational and Operational Culture 93 184.108.40.206. What Joint Ventures Want and Offer.-Synergy 94 220.127.116.11. Joint Venture Design: Inter-Organisational Trust, 96 Commitment, Vulnerability and Risk Sharing. 18.104.22.168. Joint Venture Design: Organisational and Operational 100 Foci. 4.4. Discussion of the Findings of Study One: Implications for 103 Study Two. 4.5. Chapter Summary. 107CHAPTER FIVE 108 Study Two: Development, Evaluation And Validation Of The 108 Strategic Alliance Contracting Inventory 5.1. Method. 111 xiii
Table Of Contents (Continued …) Page5.1.1. Instrument Development Procedures. 111 22.214.171.124. Satisfaction with Joint Venture Performance (9 111 items). 126.96.36.199. Cultural Divergence (10 items). 112 188.8.131.52. Competitive Advantage (6 items). 113 184.108.40.206. Inter-Organisational Trust (9 items). 113 220.127.116.11. Strategic Fit (18 items). 114 18.104.22.168. Decision Control (3 items). 114 22.214.171.124. Inter-Parent Cooperation (12 items). 115 126.96.36.199. Commitment to the Joint Venture (6 items). 115 188.8.131.52. Organisational Commitment (16 items). 1165.1.2. Sample Size and Characteristics. 1165.1.3. Procedure. 1205.1.4. Research Questions Leading to Hypotheses. 121 184.108.40.206. Hypothesis One. 121 xiv
Table Of Contents (Continued …) Page 220.127.116.11. Hypothesis Two. 121 18.104.22.168. Hypothesis Three. 122 22.214.171.124. Hypothesis Four. 1225.1.5. Overview and Detailed Justification of Statistical and 122Item Analysis Conducted. 126.96.36.199. Understanding the Statistical Significance of 123 Analyses Conducted Implications for Type I and Type II Errors. 188.8.131.52. Computation of Estimates of Internal Consistency 123 (i.e., Cronbach’s Alpha). 184.108.40.206. Computation of Item Discrimination Indices (i.e., 124 Phi). 220.127.116.11. Bivariate Pearson Product-Moment Correlation 126 Coefficients. 18.104.22.168. Appropriateness of Factor Analytic Procedures. 126 22.214.171.124. Multivariate/Univariate Analyses of Variance and 127 Post-hoc Tukey HSD Pair wise Comparisons. xv
Table Of Contents (Continued …) Page 126.96.36.199. Utilisation and Computation of Effect Sizes. 128 188.8.131.52. Stepwise and Hierarchical Multiple Regression 129 Analytic Procedures.5.2. Results. 131 5.2.1. Internal Consistency (Cronbach’s Alpha) and Item 131 Discrimination of the Strategic Alliance Contracting Inventory (SACI). 5.2.2. Descriptive and Inferential Statistics Relating to 143 Relationships and Differences Among the Sample (n = 40). 184.108.40.206. Intercorrelations between Age of the Alliance, 143 Number of Inter-Firm Partnerships and Dependent Measures 220.127.116.11. Satisfaction with Joint Venture Performance, 145 Cultural Divergence, Competitive Advantage, Inter- Organisational Trust, Strategic Fit, Decision Control, Inter- Parent Cooperation, Commitment to the Joint Venture, Organisational Commitment: MANOVA, Univariate, and Pair wise Post-hoc Tukey HSD Comparisons. xvi
Table Of Contents (Continued …) Page 18.104.22.168. Stepwise Multiple Regression of Satisfaction with 153 Joint Venture Performance on Independent Variables (i.e., Cultural Divergence, Competitive Advantage, Inter- Organisational Trust, Strategic Fit, Decision Control, Inter- Parent Cooperation, Commitment to the Joint Venture, and Organisational Commitment). 22.214.171.124. Hierarchical Multiple Regression of Satisfaction 153 with Joint Performance on Cultural Divergence and Commitment to the Joint Venture. 5.3. Discussion. 158 5.4. Chapter Summary. 163CHAPTER SIX 163 CONCLUSIONS AND RECOMMENDATIONS 163 6.1. A Restatement of Objectives 163 6.2. Achievement of Objectives 1 and 2 164 6.3 Achievement of Objective 3: To develop a set of measures 169 concerned with organisation culture of project-based joint ventures in Hong Kong xvii
Table Of Contents (Continued …) Page 6.4 Achievement of Objective 4: To assess the Validity and 171 Reliability of Measures used in this research 6.5 Achievement of Objective 5: To develop empirical testing 172 of theoretically based hypotheses for Studies One and Two, impact of their outcomes and implications including acknowledgement of methodological implications of this research 6.6 Achievement of Objective 6: To show original contribution 178 of the findings with relevant research literature and contribution to industry practice 6.7 Recommendations for Further Research 183 6.8 Closure 185REFERENCES 187APPENDICES 225 xviii
List of Tables PageTable 2.1. The Four Management Blueprints 24Table 2.2. Link between Literature Review and Studies One and 72 TwoTable 4.1. Attitude Towards Culture of Inter-Organisational 86 Learning Within JVs.Table 4.2. Reasons Why Learning May Be Important To JVs. 90Table 4.3. How Learning May Be Achieved Within JVs. 91Table 4.4. What JVs Want Business Want/Offer – 94 Expansion/Maintenance.Table 4.5. What JVs Want Business Want/Offer – Synergy. 95Table 4.6. JV’s Vulnerability and Risk Factors. 97Table 4.7. JV’s Trust/Commitment Issues. 99Table 4.8. JV Design – Organisational Focus. 101 xix
List Of Tables (Continued …) PageTable 4.9. JV Design – Operational Focus. 102Table 5.1. Sample Characteristics of Project-Based Construction 119 Joint Ventures.Table 5.2. 2 x 2 Contingency Table for Computing the Phi 125 Coefficient.Table 5.3. Internal Consistency (Cronbach’s Alpha) and Item 133 Discrimination of ‘Satisfaction with Joint Venture Performance’.Table 5.4. Internal Consistency (Cronbach’s Alpha) and Item 134 Discrimination of ‘Cultural Divergence’.Table 5.5. Internal Consistency (Cronbach’s Alpha) and Item 135 Discrimination of ‘Competitive Advantage’.Table 5.6. Internal Consistency (Cronbach’s Alpha) and Item 136 Discrimination of ‘Inter-Organisational Trust’.Table 5.7. Internal Consistency (Cronbach’s Alpha) and Item 137 Discrimination of ‘Strategic Fit’.Table 5.8. Internal Consistency (Cronbach’s Alpha) and Item 139 Discrimination of ‘Decision Control’. xx
List Of Tables (Continued …) PageTable 5.9. Internal Consistency (Cronbach’s Alpha) and Item 140 Discrimination of ‘Inter-Parent Cooperation’.Table 5.10. Internal Consistency (Cronbach’s Alpha) and Item 141 Discrimination of ‘Commitment to the Joint Venture’.Table 5.11. Internal Consistency (Cronbach’s Alpha) and Item 142 Discrimination of ‘Organisational Commitment’.Table 5.12. Inter-Relationships Between Age of the Alliance, 144 Number of Inter-Firm Partnerships and Dependent Measures.Table 5.13. Item-Related Differences According to Type of Project- 147 Based Joint Venture: Means (and Standard Deviations).Table 5.14. Post-hoc Item-Related Comparison According to Type 150 of Joint Venture.Table 5.15. Item-Related Comparison According to Project-Based 152 Relational Status: Means (and Standard Deviations).Table 5.16. Hierarchical Multiple Regression Analysis of 155 Satisfaction with Joint Venture Performance on Cultural Divergence and Commitment to Joint Venture. xxi
List of Figures PageFigure 1.1 Research Project Mental Map 1Figure 1.2 Overview and Methodological Descriptive Road Map of 12 Doctoral Thesis.Figure 2.1. Strategic Alliances between firms according to level 21 Perceived Financial Risks, Human Resources and CostsFigure 2.2. Organisational Management of the Knowledge 28 EconomyFigure 3.1. Representative-Based Schematic Model of Research 76 Design (Source: Sekaran, 1992, p. 93).Figure 4.1. Organisational Learning Motivation for Achieving 105 Successful JV Projects.Figure 5.1. Process of Validation of the Research Design of the 109 Doctoral Thesis.Figure 5.2. Relationship of Satisfaction with Joint Performance on 157 Cultural Divergence and Commitment to Joint Venture.Figure 6.1. Model of Thesis Conclusions 170 xxii
List of AppendicesAppendix A Glossary of Terms and Abbreviations Used (Listed Alphabetically)Appendix B Structured Interview Questions Used in Study One.Appendix C Raw Structured Interview Responses of Study One.Appendix D Strategic Alliance Contracting Inventory (SACI) Used in Study Two.Appendix E Descriptive Summary of the Four Differing Types of Joint Ventures.Appendix F Descriptive Raw Data of Study Two Participants (n = 40) Based on the Strategic Alliance Contracting Inventory (SACI).Appendix G Raw Item Response Data from the Strategic Alliance Contracting Inventory (SACI).Appendix H List of Internationally Peer-Reviewed Publications. xxiii
CHAPTER ONE INTRODUCTIONThe purpose of this research is to develop a cultural understanding of how joint venturesprovide construction and engineering companies in Hong Kong with a competitive advantagein undertaking construction infrastructure projects. Where appropriate, the significance andidentification of organisational cultural factors that facilitated or inhibited a competitiveadvantage were investigated. More specifically, the research concentrates upon knowledgetransfer, quality of operational performance and how this is facilitated through developingcooperative relationships. This chapter describes the general context, research questions,theoretical foundation, purpose, and significance of the research. In addition, it provides astructural overview of the research and justification of its qualitative and quantitativemethodology.1.1. The General Context of the Research. Cultural Mobilising niche Joint risk awareness joint assets management Drives Facilitates Facilitates Mutual Joint problem understanding solving/R&D Drives Drives Primary High Level link cooperation Drives Joint between learning JV parties Drives Competitive advantage through: (1) differentiation Primary (2) cost adv link Drives Superior JV Success performance Influence: Drives Drives = strong Facilitates = moderate+veFigure 1.1 Research Project Mental Map 1
Chapter One: Introduction 2Figure 1.1 illustrates links and the nature of the hypothesis to be addressed by the research. Itfirst links joint learning with a focus on cultural awareness to JV joint learning and then linksthis to success via competitive advantage.Infrastructure development necessitates and requires cooperation between skilled people ofvarying cultural backgrounds, beliefs, attitudes, and values to work together in order to realisetheir goals. While subcontracting and outsourcing constitute the most common response to jointeffort in building and infrastructure projects, another response has been development ofproject-based joint venture arrangements in which companies seek to share risk, skills, andreward (Das & Teng, 2001; Yoshino & Rangan, 1995). According to Doz and Hamel (1998),establishment and development of inter-company joint ventures represent a strategic responseto cooperate for mutual benefit and survival. Such collective action tends to constitute thereason for the success of the accomplishment and completion of construction and engineeringprojects of varying magnitude and complexity (Gupta & Misra, 2000).1.1.1 The Context of Joint LearningThe value of joint learning is of prime importance in facilitating competitive advantage withinthe construction and engineering industry (Barney, 1997; Argote & Ingram, 2000). Knowledgetransfer needs to be developed at all levels within an organization, effectively facilitated byexecutive management and diffused across the organisation. For example, a number of benefitshave been proposed for developing and establishing inter-company alliances. Notably, Bresnenand Marshall (2000b) have suggested inter-company alliances offer such benefits to bothclients and contractors within the construction and engineering industry in terms of cost, time,quality of inter-company relations, and buildability. Other reasons for establishing anddeveloping inter-company alliances relate to enhancing technological-based capabilitiesthrough research and development initiatives, together with improving competitiveness,efficiency, and the management of financial and organisational risks and costs (Barringer &Harrison, 2000; Das & Teng, 2000; Ireland, Hitt, & Vaidyanath, 2002)).Doz and Hammel (1998) suggest three broad purposes of an inter-company alliance. Theseinclude: (i) co-option, (ii) co-specialisation, and (iii) learning and internalisation. Co-optionrefers to the process of transforming potential rivals or competitors into equitable and mutualallies by the proving complimentary goods and services that enables new inter-organisationalcoalitions to develop. Co-specialisation refers to the combination of previously independenttechnological, skill and knowledge resource bases within the alliance as companies seek to
Chapter One: Introduction 3work towards a mutually elected goal. Learning and internalisation allows inter-companyalliances to develop new knowledge-based skills and core competencies. Hence, learninggained from an alliance partners can often be leveraged broadly into other activities andbusiness beyond the alliance.Fundamental challenges exist, however, in strategically managing complex inter-companyrelationships in order to gain or maintain competitive advantage for industry success (Mohr &Spekman, 1994). For example, in the mid-1970s, Eastman Kodak’s senior managementconcluded that the company lacked the capabilities and market position to gain sufficientcustomer acceptance of a new film format to take advantage of improvised technology(Frangos, 1993; Kanter, Richardson, North, & Morgan, 1991). As a result, Kodak entered into asignificant alliance in the early 1990s with its fiercest competitor, Fuji Photo Film, togetherwith three other camera manufacturers (i.e., Canon, Minolta, and Nikon). As a collective, theyinvested billions of dollars to create the Advanced Photo System, a technology which allows anindividual using one camera with a fixed lens to switch back and forth between standard, close-up, and wide-angle pictures. Most companies cannot individually afford the time nor have theresources to develop breakthrough technology. IBM, Motorola, and Apple Computer jointlycollaborated developing the PowerPC microprocessor to create this next-generation alternativeto the Microsoft Windows-Intel monopoly on personal computer operating systems andmicroprocessors (Hagedoorn, Carayannis, & Alexander, 2001). Examples abound in otherindustries. Kumar (1996) demonstrated how ‘Wal-Mart’ and ‘Proctor & Gamble’ in the UnitedStates agreed to collaboratively work together on a number of commercialised sales, marketing,and merchandising projects in the highly competitive retail sector. Similarly, Petronas (aMalaysian natural gas company) undertook a 30% equity stake in the Engen franchise (apetroleum retailer in South Africa) to gain entry and facilitate competitive advantage throughthe investment of learning about technologically based resources in furthering oil explorationand refining ventures throughout Africa and the Indian-Pacific Ocean (Harbison & Pekar,1997).Inter-company alliancing and collaboration within the construction and engineering industryrepresents a purposeful initiative designed to promote efficiency, increase productivity, andreduce reported budgeted project costs by as much as 30% (Bennett & Jayes, 1995). Moreimportantly, it is acknowledged that inter-company collaboration entails the requirement ofmutual inter-organisational commitment and trust and willingness to cooperate in achievingtargeted objectives (Pheng & Leong, 2000; Harris & Moran, 2000)—for example indeployment of organisational systems of managerial knowledge and practice that support the
Chapter One: Introduction 4long-term objectives of the contractual relationship. This needs to be compatible with theexisting organisational culture to deliver competitive advantage and thus ensure both survivaland success of the joint venture (Black, Akintoye, & Fitzgerald, 2000; Hoecklin, 1995).National and organisational culture operates and functions at many different levels in inter-company alliances in terms of maintained cultural attitudes, values, and beliefs held andenacted by managerial and/or project-related staff (Isabella, 2002). National culture tends toreflect embedded societal norms and values derived from an individual’s host country orcountry of origin. Organisational culture relates to the system of shared values, decision-making practices and leadership styles of all people within a company (Hofstede, 1980, 1991).Taken together, national and organisational cultural attitudes, values and beliefs are likely tointeract together upon the functioning, expressed satisfaction of people, and performance of theinter-company alliance. This happens in two ways that relate to inter-organisational trust,cooperation, commitment, and decision-making (Clugston, Howell & Dorfman, 2000; Jones,1998; Lasserre, 1999). First, through relationships between staff of varying national culturalheritage and second through discretionary and decisive ways of working are achieved andenacted. Hence, the cultural dynamics and organisational governance structure play importantroles in the success of an inter-company alliance (Grandori, 1997; López-Navarro & Camisón-Zornoza, 2003). As a consequence, investigating the relationship between national andorganisational culture, communication and trust may provide important information infacilitating the competitive advantage of inter-company alliances. Competitive advantage isdefined as the acquirement of knowledge-based management and organisational learningpractices which allow companies to develop technological-based resources, capabilities, andcore competencies through inter-organisational co-operation, trust and commitment whilejointly solving problems (Harrison, 2003).Particularly recent, however, is the development of project-based joint ventures betweencompanies within the Hong Kong construction and engineering industry. According to Saloner,Shepard, and Podolny (2001), project-based joint ventures refer to inter-company relationshipswhere short-term and long-term goals of two or more ‘partner’ companies are jointly defined toachieve sustainable competitive advantage, and hence inter-organisational success andperformance, in a profitable and highly productive manner.Kumaraswamy and Morris (2002) identify a range of inter-company project-based jointventures exists within the Hong Kong construction and engineering industry. These include‘Build-Own-Operate’ (BOO), ‘Build-Operate-Transfer’ (BOT), and ‘Build-Own-Operate-
Chapter One: Introduction 5Transfer’ (BOOT) projects. BOO, BOT, and BOOT projects engage one or more privatecontracting sponsors in the joint operational development, financing and governance of projectsfor a short or extended period of time. They do this to return a profitable outcome on the initialcapital investment before deciding to maintain or transfer ownership of the project to analternative granting authority (Kumaraswamy & Morris, 2002; Schaufelberger & Wipadapisut,2003).Despite the varying types of inter-company project-based alliances within Hong Kong, theinherent and recognized barriers to entry in becoming a contractor within the Hong Kongconstruction and engineering industry do not tend to be substantive nor overburdening (Walker,1995). Rather, the Hong Kong Government mandates and grades the list of contractors who areallowed to tender for different levels of work within this industry. For example, ‘foreign’contractors fall within a separate list and are defined as ‘foreign’ if they maintain overseashead-office business addresses. Presently, the majority of these ‘foreign’ contractors have nowalso satisfied the ‘local’ rule through maintaining a permanent residential Hong Kong headoffice business address.According to Ganesan, Hall, and Chiang (1996), one of the most direct methods for ‘local’contractors to participate in major projects within the construction industry (in order to gainadvanced knowledge-based expertise) involves becoming pro-active in developing andestablishing project-based joint ventures with ‘foreign’ contractors. As a result, thedevelopment of inter-company alliances within the construction industry tends to have beenregarded as a recent and rare phenomenon (Chinowsky & Meredith, 2000).1.1.2 Hong Kong Joint VenturesIt has been well documented that ‘foreign’ or contractors with headquarters outside HongKong, undertook and performed approximately 25% of the total value gained from allocatedbuilding and civil engineering work in the 1990 financial year (Walker, 1995). Hence, largenumbers of ‘foreign’ contractors tend to make the ‘local’ market highly competitive by gainingtenure and stability of long-term contractual security. This is because many ‘foreign’contracting companies’ secured contracts due to their technological expertise which ‘local’companies had otherwise failed to acquire. The presence of ‘foreign’ contractors may notalways prove to be beneficial or productive to the long-term development of a ‘local’ industry.Therefore, ‘foreign’ companies need to actively collaborate and/or merge with ‘local’ or HongKong-based companies, or alternatively, register for long-term business contractual
Chapter One: Introduction 6relationships in Hong Kong, dependent upon the strategic-related necessities of resourcebuilding and competitive-based leveraging (Li & Wong, 2003).According to Walker (1995), ‘foreign’ companies have acquired or created alliances with morethan 20 local companies within Hong Kong (Walker, 1995). Furthermore, eight of the 20construction companies drawn from the top echelon of Hong Kong contractors include fourpreviously defined as ‘foreign’—French Dragages at Travaux Public (Hong Kong) Limited, acompany owned by the French contracting giant, Bouygues with its headquarters in Paris.Japanese, Nishimatsu Construction Co Ltd, with its headquarters in Tokyo, People’s Republicof China company, China Harbour Engineering Group with its headquarters in Beijing.Gammon Construction Ltd, previously owned by the Jardine Group and Trafalgar House in theUK, then changed ownership to Gammon Skanska Limited and with the recent ownershipchanges, with Balfour Beatty, also a UK based owner, taking over Skanska’s shareholding,returned to its original name, Gammon Construction Ltd. Such dominance appears due tomedium-sized companies in Hong Kong being ill equipped to carry out increasinglytechnologically demanding projects, which tend to have characterised the business environmentof Hong Kong since the late 1980s. These larger global twenty companies that have developedand established inter-company alliances either amongst themselves, or with ‘lower tier’construction companies in the form of project-based joint ventures. Consequently, technicalcompetence, financial strength, as well as a proven and demonstrated record of expertise inplanning and management, representative of Hong Kong’s architectural infrastructure, isintroduced to inter-company alliances.From the perspective of these ‘foreign’ contractors, the potential for realising knowledge-basedcompetitive advantage benefits is through forming project-based joint ventures that facilitateopportunities to reach business markets in mainland China (Wan, 1998). The Hong Konginfrastructure construction and engineering industry has delivered impressive results with manyprojects being delivered through project-based joint ventures between ‘local’ and ‘foreign’construction contractors (Yeung, 1994). Developing cultural awareness and knowledge of howlarge-scale infrastructure project-based Hong Kong joint ventures are organised and operatecan lead to enhanced understanding of success factors to provide useful business partnershipsguidelines.1.2. Aims of the ResearchThe purpose of this research was to develop a cultural understanding of the varying knowledge-based managerial and inter-organisational practices between local and foreign-basedcontractors, in engendering competitive advantage within large scale infrastructure projects
Chapter One: Introduction 7being conducted in Hong Kong. To achieve this objective, two separate, yet interrelatedstudies, were conducted.In Study One, exploratory interviews were conducted with nine senior level executivesinvolved in major infrastructure projects in Hong Kong exceeding $US300 million. In thisstudy, the organisational learning and knowledge-based management practices of project-basedjoint ventures across differing organisations were examined. Principal research questionsincluded in Study One (see Appendix B) explored and investigated some of the followingpropositions; a) Large-scale construction infrastructure projects requires a portfolio ofknowledge-based skills offered by a project-based joint venture, composed of severalcompanies, each with its own set of organisational skills and competencies. No single companycan successfully undertake such projects alone, therefore, b) Companies seek out and establishproject-based joint ventures in order to facilitate knowledge-based transfer through: i) adoptingskills gained and hence expand potential services that can be offered; ii) understanding theirown limitations and what to look for in future project-based joint ventures; and iii) acquiringcross-cultural skills and tacit understanding of how to effectively work and function.Following the findings of Study One and a critical review of the relevant research literature asrelated to understanding the nature and dynamics of cross-cultural practices, further researchquestions were formulated and developed into Study Two, 89-item “Strategic AllianceContracting Inventory” (SACI) (see Appendix D). The SACI included some of the followingquestions; i) What type of cultural knowledge transfer is taking place within large-scaleproject-based joint venture arrangements in the Hong Kong construction and engineeringindustry? ii) What cultural-related benefits, if any, can companies gain, in terms of knowledgetransfer, through the establishment and formation of a project-based joint venture between‘local’ and ‘foreign’ contractors? iii) What cultural-related difficulties, if any, exist in theestablishment and formation of a project-based joint venture with a ‘local’ and ‘foreign’contractor? iv) How do ‘local’ and ‘foreign’ contractors react and adapt to cultural differenceswhen involved in a project-based joint venture? v) What cultural-related organisational andoperational factors contribute to successful knowledge transfer in engendering competitiveadvantage on large-scale joint venture construction infrastructure projects being undertaken inHong Kong? vi) Can reliable and valid measures be developed to measure the performance andfunctioning of project-based joint ventures between ‘local’ and ‘foreign’ contractors within theHong Kong construction and engineering industry? vii) What factors influence the performanceand functioning of project-based joint ventures between ‘local’ and ‘foreign’ contractors withinthe Hong Kong construction and engineering industry?
Chapter One: Introduction 8Differences in respondents’ self-reports according to culture and type of joint venture are alsoinvestigated.1.3. Significance of the Research.Over the last decade, there have been numerous calls for the construction industry to embracemore collaborative approaches in working together which enable the best implementationsolution possible for project teams with a strong customer focus (Kumaraswamy & Morris,2002; Van Der Merwe, 2002). As a result, the fundamental realisation that project-based jointventures may better address customer needs has now been unconditionally recognised,particularly in the Hong Kong construction and engineering industry (Zhang, &Kumaraswamy, 2001; Zhang, Kumaraswamy, Zheng & Palaneeswaran, 2002). Despite suchrecommendations, however, project-based joint ventures may otherwise prove to beproblematic when they do not function as a ‘true’ partnership designed to achieve shared andcommon project objectives.The proposed research is thus significant in several ways. First, there is an important need forresearch on project-based joint ventures to enhance our limited understanding of (a) howknowledge transfer is effectively undertaken, and (b) in what way it facilitates “competitiveadvantage” through Hong Kong construction infrastructure projects. Competitive advantagebeing defined in this research context covering all or some of the following areas; performancequality, price, technologies used or available, engineering skills, financial strength, site safety,speed of delivery, personable manner of employees, geographical location and politicalinfluence.. The proposed research identifies and builds upon existing understanding in relationto the significance of how project-based joint ventures engender knowledge-based competitivebenefits for large-scale infrastructure projects in Hong Kong. It achieves this throughinvestigating the relevant literature followed by undertaking inter-related qualitative andquantitative studies to systematically address this issue.Second, the history of Hong Kong as an economic ‘experimental’ model has providedvaluable and much needed insights into economic and cultural issues. For example thetransfer of British sovereignty of Hong Kong, resulting in the establishment of theSpecial Administrative Region (SAR) of China, has tended to legitimise Hong Kong asa ‘naturalistic’ laboratory for examining and testing ideas which link commercial andpolitical dimensions. Consequently, this PhD research provides valuable insights into
Chapter One: Introduction 9the functioning of cultural knowledge transfer within project-based joint ventures invery large infrastructure projects. Potentially, results from this research may offerdeeper understanding of knowledge transfer in the facilitation of competitive advantagewithin the Hong Kong construction and engineering context.Much of the research literature has tended to focus on project-based joint ventures whereparticipating companies are of ‘local’ origin. Hence, only limited research appears to have beenundertaken into examining project-based joint ventures where ‘foreign’ contractors are alliedwith ‘local’ contractors’. The emergence and growing popularity of BOT, BOO, and BOOTproject procurement systems has necessitated large-scale adoption of inter-company alliancesto effectively undertake such projects. These multi-billion dollar projects are being undertakenwith insufficient evaluation of the impact of national and organisational culture upon the levelof performance success of inter-company alliances and partnership arrangements deliveringsuch projects.As a consequence, understanding the role of project-based joint ventures in facilitatingknowledge-based competitive advantage within the Hong Kong construction and engineeringindustry through knowledge transfer represents an issue of vital importance from a commercialand political perspective. Hong Kong is in a unique position as an experimental geographiczone within China. China requires infrastructure development in order to service a populationwell in excess of one billion people. Issues of knowledge transfer are, therefore, of particularvalue. Thus, the present research with its focus on cultural knowledge transfer between project-based joint venture partners is of particular value for both ‘local’ and ‘foreign’ contractorsengaged in delivery of large-scale infrastructure projects in the Hong Kong construction andengineering industry.1.4. Theoretical Foundation and Research Justification.Developing countries face severe problems in building the large-scale infrastructure requiredallowing them to become industrially developed and/or technologically advanced (Pangarkar,1998; Sim & Ali, 2000). It is doubtful that any single construction company has the industryknowledge, experience or professional expertise to successfully deliver and complete very largeprojects in Hong Kong. For example, the Hong Kong Government funded 71%, US$110Billion dollars of the Chep Lap Kok Airport and its attendant access infrastructure works fromHong Kong Central to the Airport. The remaining 29% of funding was drawn from the privatesector, largely financed by the creation of 59 joint ventures comprising 155 partner companies
Chapter One: Introduction 10from 19 countries (e.g., Hong Kong – 23%, United Kingdom – 16%, People’s Republic ofChina – 8%, Netherlands – 6%, France – 5%) (Hung, Naidu, Cavusgil, & Yam, 2002).Hence large-scale infrastructure construction projects, if delivered by a single company, wouldprovide an unsustainable risk not only to the financial survival of the construction contractorbut also to the client who originally commissioned the project. These risks include thepossibility that the project would not be delivered at all, or if so, at great additional cost and/orbeing completed well over schedule. It is for this reason that government clients welcomeinvestment through establishing project-based joint ventures involving one or moreconstruction companies.Generally, governments and relevant funding institutions encourage investment growth incompleting large-scale construction infrastructure projects. From a ‘foreign’ constructioncompany’s perspective, ‘local’ knowledge and connection to networks of influence isconsidered a valuable knowledge asset through the development of infrastructure project-basedjoint ventures where ‘local’ contractors undertake much of the construction work. ‘Foreign’company provide access to managerial knowledge unavailable at the ‘local’ level and the‘local’ company provides ‘local’ intelligence, access to markets, and ‘local’ networks ofinfluence at a range of potential commercial and political levels.An understanding of the significance of project-based joint ventures in internationallydiversified business practices between ‘local’ and ‘foreign’ contractors has been the subject ofimportant and significant debate and research since the early 1980s (Büchel, Prange, Probst, &Rüling, 1998; Pearce, 2001). If the project-based relationship succeeds, then there is anenhanced chance of a successful project outcome. Alternatively, if the relationship fails, thisplaces a heavy burden upon all concerned in order to overcome difficulties of poorcommunication and coordination that subsequently follow in the wake of poor relationships.Hence, Büchel (2000) stresses the importance of cooperative working relationships within aninter-company alliance. In addition, knowledge transfer and trust between project-based jointventure partners is equally important in ensuring and achieving overall success within thecontext of the inter-company alliance (Snell & Hui, 2000).The concept of project-based joint venture partnerships between ‘local’ and ‘foreign’companies holds much promise that has, in the case of Hong Kong, been successfully realised(Walker, 1995). In particular, the infrastructure market in Hong Kong is considered unique inthat it has an ‘open door’ policy to international competition (Ganesan, Hall & Chiang, 1996;
Chapter One: Introduction 11Walker, 1995). Therefore, Hong Kong provides a valuable global target for understanding theinfluence of national and organisational culture in facilitating or inhibiting the performance,success, and knowledge-based competitive advantage of project-based joint ventures between‘local’ and ‘foreign’ contractors within the highly competitive construction and engineeringindustry context.The relevant literature applicable to this work revolves around culture, competitive advantageand factors that impact upon the formation and operation of joint venture organisations todeliver complex and large projects. This literature will be more fully explored justifying theresearch in Chapter 2. While this literature explains why project-based joint venturepartnerships generally occur there is a paucity of literature explaining this in the specificcontext of how ‘foreign’ and ‘local’ culturally construction companies interact to build capacityfor competitive advantage to address market potential in Mainland China. This limitation in theliterature provides a gap for further study of this area can make a valuable and viableknowledge contribution.1.5. Overview of the Methodological Research Justification.According to Phillips and Pugh (1994), the degree of Doctor of Philosophy (PhD) entails theconceptualisation and operationalisation of a specific research problem to address identifiedgaps or limitations in existing levels of a specific field’s theoretical knowledge. This mightentail undertaking and employing varied methodological approaches to build upon, synthesise,adapt, re-interpret, evaluate and/or critically review specific or existing levels of knowledge.The purpose and significance of this research therefore is to provide a significant and originalcontribution to the field through providing insights into the nature of the relationship betweenorganisational culture and knowledge-based management practices in enabling competitiveadvantage among ‘local’ and ‘foreign’ contractors engaged in construction project-based jointventures in Hong Kong.Figure 1.2 provides an overview of the research structure that was developed to test thehypothesised research mental map illustrated in Figure 1.1. The research comprises twoseparate yet interrelated studies. Study One in Chapter 4 is focussed upon the investigation ofnine executives that were involved in joint ventures to undertake infrastructure projects inHong Kong. In Study Two of the research, Study One research instrument was refined andfurther developed to undertake a survey of 40 management-level staff engaged on joint ventureinfrastructure projects.
Chapter One: Introduction 12 Researcher’s objective experiential knowledge & career- Critical review of relevant research related experience of project- literature on joint venture & portfolio based construction infrastructure of hypothesized factors affecting joint ventures in the Hong Kong performance of joint ventures construction industry Justification of the methodological research design of the doctoral thesis & research questions Methodology & results of Study One qualitative-based case study design Discussion of the findings of Study One: implications for Study Two Methodology & results of Study Two quantitative-based research design Discussion of the findings of Study Two: Implications for understanding project-based construction joint ventures Summary, recommendations & conclusionsFigure 1.2: Overview of the Research Design of the Thesis (‘The Road Map’).Both Studies One and Two were based upon a critical review of the relevant research literaturein Chapter Two, in combination with the primary researcher’s experience and knowledge in theexecution of significant project-based joint ventures within the Hong Kong construction andengineering industry over many years.In Study One, Chapter Four, an exploratory qualitative-based methodological approach wasemployed in order to canvas the expert opinion of executive managerial personnel active withincurrent large-scale infrastructure projects in relation to seven issues deemed relevant toorganisational culture in facilitating competitive advantage. These include: (i) the formation ofan alliance (including economic and operational scope); (ii) partner contributions; (iii) the JVdemands; (iv) standards of operations and skills; (v) the learning attitudes of JV partners; (vi)whether these organisations were open to cross-learning; and (vii) in what ways cross-learningmight be achieved.According to Fine and Elsbach (2000), qualitative field data provide a context through whichnaturalistic real-life phenomena can be more accurately described and investigated thanthrough quantitative field data. Thus, such data aided in facilitating the validation of hypothesis
Chapter One: Introduction 13testing and theory-building through the identification of subjective meanings and processes.Therefore, the purpose of Study One involved the in-depth interviewing of nine individuals,mainly Company Chief Executive Officers (CEO’s) and Senior Executives, all of whom whowere intimately involved in a number of large-scale construction infrastructure projects ofseveral hundred million US dollars.It is important, however, that such qualitative-based analyses be supplemented withquantitative data in order to substantiate the context-dependent discussions of results (White,2002). In Study Two, Chapter Five, therefore, the findings of Study One were used incombination with the relevant literature to refine relevant and appropriately worded items toprovide a research instrument to examine the relationship between the organisational andoperational functioning of project-based joint ventures in the Hong Kong construction andengineering industry. The approach to undertaking Study Two involved sampling 40individuals (i.e., company chief executive officers (CEO’s), project directors, project managers,construction managers, site managers, commercial managers, and solicitors). These individualswere drawn from a small sample of representative project-based joint ventures in order to trialand examine the reliability and validity of the developed instrumentation, as well as discernsignificant differences and relationships among the salient variables being investigated.The final chapter of this thesis (i.e., Chapter Six) integrates the findings of the research fromStudies One and Two, together with a summary of the overall conclusions and theirimplications. Further, in developing a cultural understanding of collaborative practice withinthe Hong Kong construction and engineering industry, the strategic implications andsignificance of the present research findings are critically discussed. In particular, this isachieved by examining the relationships between cultural drivers and inhibitors, knowledgetransfer, competitive advantage and project success. Finally, beneficial and efficientrecommendations for future research are given.1.6. Chapter Summary.This chapter introduces the purpose of the research as developing a better understanding ofhow national and organisational culture facilitates joint venture partners to achieve jointlearning that, together with these joint venture partners bringing an array of skills and assets tobe deployed in jointly solving problems, leads to competitive advantage and joint venturesuccess. Figure 1.1 illustrated the research idea as a mental map. All this was developed with afocus upon very large infrastructure projects in Hong Kong and so the chapter provides abackground context of the research being located in Hong Kong—as a highly competitive and
Chapter One: Introduction 14open economy, Hong Kong provides a rare opportunity to conduct this type of investigation.While it was noted that local joint venture partners gain technical and management learning,foreign partners can gain deep cultural learning and insights that could provide valuablecompetitive advantage in mainland China and elsewhere. The nature of the relationshipbetween local and foreign joint venture partners acting within the highly open and competitiveHong Kong infrastructure development market was identified as being poorly understood andthe dynamics of this process seems poorly represented in the literature—so bridging thisknowledge gap was identified as justifying this PhD research.The research aims and questions were then outlined to provide a refinement of a roadmap toachieve the general purpose of the research. This provided the framework to identify thesignificance of the research topic to justify its general worthiness as a PhD topic and it specificvalue to the construction and engineering industry. The worthiness of the research was furtherjustified through a brief synopsis of the methodological research design and Figure 1.2 wasprovided as a road map to explain the research approach.The next chapter will provide a substantial review of the literature supporting the thesis andforming the basis for questions asked in the empirical research instruments used to gather datafor analysis.
CHAPTER TWO LITERATURE REVIEWThe introductory chapter of this thesis described the purpose and context of the research. Keyareas of theory, included joint venture formation and maintenance, knowledge transfer, theimpact of organisational culture on project performance, and organisational learningoutcomes. Each of these issues will be reviewed in order to establish the limitations of currentknowledge about joint ventures involving construction and engineering infrastructure projectsin Hong Kong.In this chapter, a critical review of the literature relevant to the development, establishmentand formation of project-based joint ventures within the Hong Kong construction andengineering industry is presented. The research literature review presented in this chapterformed the basis for developing empirical instruments, to test hypotheses and to explore theresearch questions developed in both Chapter Four, Study One and Chapter Five, Study Two,together with providing the basis for framing questions used in both Study One and StudyTwo, and the rationale linking the literature review to both Study One and Study Two.This chapter is divided into Eleven Sections. Sections One and Two present critical reviewsof current available literature, in developing an understanding of strategic planning andmanagement in the creation of sustainable competitive advantage within the Hong Kongconstruction and engineering industry. Section Three extends the discussion through anexamination of the role of ‘knowledge management’ in facilitating organisational learningand knowledge transfer between partner companies, involved in project-based joint ventures.Section Four looks at the impact and influence of organisational and national culture upon theoperations and daily functioning of project-based joint ventures highlighting the evidence forboth positive and negative influences on the performance levels of project-based jointventures.Section Five notes the socio-political, topographic and economic history of the constructionand engineering industry, highlighting the unique aspects of the industry in Hong Kong. This
Chapter Two: Literature Review 16adds a necessary context, without which any understanding of the present infrastructure ofthis industry in Hong Kong is severely limited.Section Six focuses on management practices and looks at how differing types of corporateculture in managerial and organisational practices can be crucial to facilitating and optimisingthe nature of the inter-parent relationship in achieving joint venture success.Sections Seven, Eight, and Nine then provides a critical understanding of factors thatinfluence and/or hinder the development of project-based joint venture partnerships within theHong Kong construction and engineering industry. In particular, the significance ofOrganisational and National Culture in Section Seven, Inter-Organisational Trust,Organisational Commitment, and Commitment to Joint Venture in Section Eight, andStrategic Fit, Decision Control, and Inter-Parent Cooperation in Section Nine are criticallyreviewed. Also and importantly, Section Ten examines the rationale of the present researchand is discussed in light of the methodological limitations of the relevant research literature.Finally, Section Eleven provides a chapter summary.2.1. Understanding the Significance of Cooperative Strategic Alliances in theAttainment of Sustainable Competitive Advantage within the Hong Kong Constructionand Engineering IndustryUntil recently, many companies were content to go it alone, confident that they had sufficientcapabilities and organisational knowledge, resources and skills to succeed in the marketplace(Caves, 1998; Lorange & Roos, 1992). Within the Hong Kong construction and engineeringindustry, however, this is no longer the case. Given the growth opportunities in globalmarkets and new technologies, there is an inherent need and demand for a wider range andlevel of expertise, competency, knowledge and organisational skill in effectively managingcomplex infrastructure projects. Due to the re-engineering and downsizing of manycompanies over the last 20 years within the construction and engineering industry, there hasbeen an increasing need for companies to consider the significance of cooperative strategicalliances often with their rivals. In an effort to optimise organisational resources in order toproductively pursue, undertake, and complete new business ventures (Chan, Kensinger,Keown, & Martin, 1997; Duysters, Kok, & Vaandrager, 2000).Within the Hong Kong construction and engineering industry, therefore, the significance ofestablishing and developing cooperative strategic alliances with other companies, in order toensure sustainable competitive advantage, cannot be underestimated. (Kayworth & Leidner,
Chapter Two: Literature Review 172000) Strategic alliances represent a logical and timely response to intense and rapid changesin economic activity, technology, and globalisation, as companies once entered closedmarkets and actively pursued untapped, new market opportunities, together with newsolutions for customers, and answers to poorly met needs (Oxley, 1999; Safarian & Dobson,1997).As a consequence, senior management (e.g., chief operational/executive officers, presidents)are hence more willing to invest time, energy, commitment as well as organisationalresources, toward establishing and maintaining joint ventures with other partner companieswith the aim of facilitating and enhancing the market competitiveness of their own company(García-Canal, Duarte, Criado, & Llaneza, 2002; Mathews, 2002).According to Thompson and Strickland (1999), business competitiveness is defined whereinorganisations seek to develop ‘an edge’ over rival companies through initiatives, which seekto attract customers in delivering superior ‘market value’. Such a process may be referred toas strategic planning and management in encouraging the promotion and facilitation ofbusiness efficiency and effectiveness (Viljoen & Dann, 2003). Business efficiency refers tohow well an activity or operation is performed in terms of organisational methods,procedures, systems and rules. Alternatively, business effectiveness relates to ensuring that anorganisation undertakes and performs the correct operational activities.In order to appropriately respond to the demands of the external environment in terms ofcustomer needs, strategic planning and management requires organisational flexibility (Quinn& Voyer, 1996). Such flexibility is created through the organisational design andmanagement of limited resources, which seek to promote the sharing of internal skills, as wellas finite resources and information in response to changing external conditions, and hence,high levels of organisational risk. Based on such identified risk, strategic planning andmanagement thus presumes that organisational (e.g., internal analysis of the organisation),environmental (e.g., market research, industry reports, customers), and competitorinformation (e.g., annual reports, media articles, mutual clients) needs to be gathered (Ho,1998). Such data are necessary in order to guide the management of organisational resources,coordinate organisational efforts, anticipate the future and plan investments, as well asprovide a cohesive framework in the implementation of strategies in the assessment,management, planning, and appraisal of the status of organisational change and operations.
Chapter Two: Literature Review 18Hence, strategic planning and management within the construction and engineering industryis about identifying, developing, and implementing a sustainable business strategy whichenhances the long-term performance of an organisation through compatibility between theinternal skills and resources of the organisation, and the external environment in which itoperates (Viljoen & Dann, 2003). Such level of sustainable competitive advantage may beachieved in a number of ways through management action plans, which seek to provide bothadvantageous benefits and value to relevant stakeholders within the industry.This may be through organisational knowledge, technological competence, superior customerservice, low costs, perceived quality, and efficiency in the way in which services aredelivered in a cooperative and coordinated manner, relative to competitors.Without question, an unprecedented number of strategic alliances which bridge nationalborders and continents are increasingly being established each year between partnercompanies in order to improve the business competitiveness of companies within themarketplace (Contractor & Lorange, 2002). For example, according to Harbison and Pekar(1997), there was a 25% per year increase in the reported number of strategic alliancesbetween partner companies between 1987 to 1997. Such alliances, however, tend not to belimited to a few industries. Rather, they are inclined to occur broadly across various sectors.For example, such industries comprise the transportation, manufacturing,telecommunications, electronics, pharmaceuticals, finance, construction, engineering, as wellas other professional service organisations (Dollinger & Golden, 1992; Powell, 1998). Thus,it is well documented that strategic alliances have become a cornerstone of globalcompetitiveness, one in which company executives need to understand and manage with bothcultural competence and adaptive skill (Anand & Khanna, 2000; Gulati, Nohria, & Zaheer,2000).In regard to cultural sensitivity, competency and skill in the management of strategicalliances, there remain few company directors or managers who may be accustomed toworking with undefined boundaries in encouraging and facilitating collaborative taskallocation, and role responsibility between partner companies (Johnson & Scholes, 1997).The need to flexibly combine and integrate unfamiliar competencies and organisational levelsof knowledge, resources and skill, with networks of interdependent alliances, in theattainment of sustainable competitive advantage, may tend to prove problematic (Matthews,
Chapter Two: Literature Review 191999). For example, such reasons may include previous or lack of experience in networkingwith other companies, the perceived and projected cost of skill and knowledge transfer.Alternatively, discernible differences in decision-making and managerial work practices inindividual and joint business goals between companies may also potentially limit and hinderthe cooperative development and functioning of strategic alliances between partnercompanies in the attainment of sustainable competitive advantage (Von Hippel, 1994;Williams, Han, & Qualls, 1998).2.2. Project-Based Joint Ventures in the Hong Kong Construction and EngineeringIndustry: Organisational and National Cultural Knowledge and Competence.The concept of sustainable competitive advantage in creating ‘market value’ was widelydiscussed in the late 1980’s (Porter, 1990). According to the ‘value chain’ model, which wasdeveloped by Porter and his colleagues, organisations were composed of a collection ofprimary and secondary activities which were used to transact business through the design,production, marketing, delivery and support of various ‘products’ (i.e., good and/or services)(Wood, 2000). Primary activities in the ‘value chain’ of an organisation included design,procurement, productions and operations, distribution, service, and support.Secondary activities comprised personnel, finance, and administration. According to Porter(1980, 1983), it was argued that the continuity and integrity of primary activities could beenhanced through the sharing and distribution of information technology within anorganisation, in order to automate and re-engineer secondary business processes in optimisingthe ‘best’ positioning approach towards sustainable competitive strategy within the marketenvironment.At the time, the facilitation of sustainable competitive advantage through the establishment ofpartnership arrangements with other companies in creating ‘market value’ was regarded as asomewhat novel approach. This is because ‘conventional wisdom’ dictated and maintainedthat the primary purpose of business was to add ‘market value’ to the company’s ownshareholdings through increased profits. Such management action could be undertaken in anumber of ways. This could entail expanding business opportunities through the penetrationof new markets, or alternatively, through the competitive take-over activity of othercompanies in order to increase an organisational company’s market share. In establishing anddeveloping partnership arrangements with other companies, however, it is generally
Chapter Two: Literature Review 20acknowledged that the ability of organisations to appropriately respond and manage thediverse needs of customers is difficult.Given this concern, it may be more efficient and cost-effective for companies to acquire anorganisation that matches a particular customer’s needs and characteristics based upon marketdemand and the supply of the company’s required resources. As a result, some companiesmay elect to procure the existing infrastructure of organisations in order to gain access tocustomers, or in an attempt to match or surpass their competitive status or orientation.In the latter case, this may be either through the low-cost provision of a product or service,appealing to a broad spectrum of customers, being the ‘best-cost’ (i.e., more value for money)provider of products and services of comparable quality and features, or alternatively,focusing organisational market strategies upon lower cost or customised product or services,relative to other organisational competitors within the business marketplace (Thompson &Strickland 1999).In the attainment of sustainable competitive advantage within the Hong Kong constructionand engineering industry, therefore, strategic alliances between companies may berepresented or determined by a multiplicity of forms, which vary in terms of the level ofperceived financial risk, human resources, and cost.According to Segil (1996), strategic alliances between companies may be represented by a‘continuum’ which comprises ‘take-over/mergers’, ‘joint ventures/equity investment’,‘research and development, knowledge transfer’, ‘original equipment manufacturer licensing(in the patenting of private labels)’, or ‘joint marketing/distribution’ (refer to Figure 2.1).
Chapter Two: Literature Review 21 HIGH RISK, MAXIMUM USE OF HUMAN RESOURCES, HIGH COST Complete acquisition of one company by another. Companies are merged into a single corporate entity Take-Over/ Merger Two companies cooperate on the creation of a new, separate company. Joint Venture/Equity Two companies join in a research + development Research+Development/ project to promote a new technology or product or service Technology Transfer One company develops a product or service to be marketed + sold by Original Equipment Manufacturer (OEM) another Licensing/Private Label Joint Marketing/Distribution One company joins with an other to market, sell, and distribute a product LOW RISK, MINIMUM USE OF HUMAN RESOURCES, LOW COSTFigure 2.1: Strategic Alliances between Companies According to Level of PerceivedFinancial Risk, Human Resources, and CostAlthough such an ‘alliance continuum’ is originally derived from the field of marketing andmanufacturing (as shown in Figure 2.1), this ‘paradigm’ may be compared to the constructionand engineering industry. In particular, ‘take-over/mergers’ refers to the vertical integrationof the ‘supply chain’, where one company may voluntarily merge with another in order tomaintain an indefinite and continued business entity in which the two ‘independent’companies result in inter-organisational consortia.Within the construction and engineering industry, ‘take-over/mergers’ with other companiesmay result in efficiency and effectiveness in the ability to undertake, finance, and completecomplex infrastructure projects of sizeable financial risk and cost, in which stakeholder inputvaries. For instance this may range from an entrepreneurial stake that identifies customerneed, developing the project concept, locating the appropriate financial resources, developingthe legal rules and regulations governing the inter-organisational consortia, together withnegotiating the fiscal operating concession in the management of such a complexinfrastructure project. Conversely, ‘take-over/mergers’ with other companies may require anddemand excess management energy, which may lead to downsizing and structural
Chapter Two: Literature Review 22rationalisation of the existing infrastructure within a particular organisation in order to gainmarket share in attempting to create a more efficient operation (Bower, 2001).Another alliance approach between companies may entail ‘joint venture/equity investment’(Segil, 1996). With joint venture investment, two companies cooperate in the creation of a‘new and separate’ business entity in order to reach mutually compatible project-based goals.It may be more preferable to find an appropriate organisation with which to form apartnership relationship, which already has complementary customer characteristics, or caneasily acquire them. This entails developing ‘virtual’ organisations from ‘separate’organisations in order to maximise the ‘market value’ offered to customers through theprovision of a ‘consortium’ or a ‘joint venture’ organisation. The resultant benefits of such anapproach are a range of diverse and unique organisational and knowledge-based resources,which may effectively service the ‘supply chain’ needs of targeted customers within theconstruction and engineering industry.Conversely, equity investment involves the purchase of a part of one company’s equity byanother in exchange for cash, marketable stock, or other compensatory consideration. Hence,equity investment may carry associated risks in that there may be a take-over of the remainingequity, market share, or intellectual capital by another organisational company.Whereas equity investment involves a proportionate degree of ownership of an existingentity, establishing a joint venture presumes that two or more existing companies develop anew existent entity through the contribution of joint organisational resources.Alternatively, joint ventures between companies may provide other partnership opportunitiesin terms of research and development, knowledge transfer, original equipment manufacturerlicensing, or through joint marketing/distribution. In particular, the Fuji-Xerox andCaterpillar-Mitsubishi joint ventures have been cited as successful, which have beendeveloped into large corporate enterprises in their own right. Such partnership opportunitiesbetween companies have not only contributed to their parent organisation’s fiscal revenue,but also provided further organisational learning opportunities through the acquisition anddevelopment of resource-based expertise, competence and skill (Bleeke & Ernst, 1993;Lendrum, 1998). Further, although the Original Equipment Manufacturer (OEM) jointmarketing equivalent appears difficult to find within the construction and engineeringindustry, unless a franchised consultancy matches and accords with this category, the
Chapter Two: Literature Review 23traditional partner arrangement between companies within the construction and engineeringindustry appears to represent the closest equivalent.Consequently, project-based joint ventures between companies provide a tool for creatingagility in response to the diversity in skills, work culture, and business practices, whichcharacterise customers. A project-based joint venture represents a market-driven response tochange, globalisation, and business process alignment, in purposively aiming to achievecustomer focus (Walker, Hampson, & Peters, 2000).More specifically, project-based joint ventures refer to the integrated and coordinatedmanagement of the internal (e.g., organisational knowledge, resource and asset deploymentand acquisition) and external context (e.g., social, cultural and political environmentalpressures) in which organisations exist and operate in order to effect subsequent performance(Jenkins, Ambrosini, & Collier, 2002; Saloner, Shepard, & Podolny, 2001). Moreover, suchpractices of engaging in project-based joint ventures tend to date to the commercial exploitsof merchants of Ancient Egypt and Mesopotamia (Smith, Carroll, & Ashford, 1995).2.3. Organisational and Operational Management of Project-Based Joint Ventures:Implications of the ‘Knowledge Management Economy’ in the Creation of SustainableCompetitive AdvantageAccording to organisational theorists, a number of theories have been forwarded regardingthe principles, which may underlie effective strategic management work practices inpromoting sustainable competitive advantage within the marketplace. Such theories includeadministrative, human relationship, as well as structural and resource-based views of theorganisational company (Viljoen & Dann, 2003).In particular, there exists limited information of how early major construction andengineering projects (e.g., Egyptian Pyramids, Asian cities, temples and monuments of theIncas, Aztecs and Mayan people) were realised in terms of the division and management oflabour between workers (Moore & Lewis, 1999).Limerick, Cunninton, and Crowther (1998, p. 30) proposed a model of managerial taxonomyin terms of collaboration and cooperation in organisational work practices within thecompetitive marketplace. According to this model, organisational development may be
Chapter Two: Literature Review 24characterised as a progressive and evolutionary managerial shift from the ‘First’ to the‘Fourth’ Blueprint (refer to Table 2.1).As shown in Table 2.1, the four Management Blueprints reflect varying degrees oforganisational autonomy, flexibility of action, and physical proximity of teams among andbetween workers. At the most isolated and fragmented extreme of this continuum (i.e., ‘First’Blueprint’), companies may elect to compete and undertake projects under a specified varietyof contractual forms.Table 2.1: The Four Management Blueprints (Source: Limerick, 1998, p30) ‘First’ ‘Second’ ‘Third’ ‘Fourth’ Blueprint Blueprint Blueprint Blueprint (‘Classical’) (‘Human’) (‘Systems’) (‘Collaborative Organisations’)Organisational • Functional • Interlocking • Contingency • LooselyForms • Mechanistic Matrix • Divisional coupled • Organic networks and alliancesManagement • Hierarchy • Supportive • Differentiation • EmpowermentPrinciples relationships and collaborative individualismManagerial • Management • Democratic • Open systems • Management ofProcesses/ functions leadership analysis meaningFormsManagerial • Person-to- • Goal setting • Rational • EmpatheticSkills person control • Facilitation • Diagnostic • ProactiveManagerial • Efficiency • Self- • Self-regulation • Socialvalues • Productivity actualisation sustainability • Social support • Ecological balanceAt the other extreme (i.e., ‘Fourth’ Blueprint), companies coalesce their technological andknowledge-based resources through project-based joint ventures in an effort to create a‘single cohesive’ organisation. For example, within the partner arrangement betweencompanies, a new legal entity is created with allocated resources being seconded fromindividual ‘host’ companies who are cooperatively involved within the alliance (Barney,
Chapter Two: Literature Review 251997). Also the customer often tends to represent a pivotal and centralised element withinsuch arrangements between companies, in relation to the short-term purpose of a specificproject, or in order to maintain a continuing, committed, and purposeful relationship (Cleland& Ireland, 2002).According to Limerick, Cunninton, and Crowther (1998), many organisations appear to resideat the ‘Third’ Blueprint stage. Such a management style is characterised by a fear of higherlevels of management losing control over their authority, together with subsequent loss ofsustainable competitive advantage, through networking and outsourcing. Due to the emphasisupon managerial command and control, therefore, such a leadership style tends to inhibit andrestrain organisational initiative, whereby those with access to information, knowledge, andan understanding of the consequences of their actions accept sole responsibility for decision-making practices (Greene & Elfrers, 1999; Hersey, Blanchard, & Johnson, 1996).In contrast, the ‘Fourth’ Blueprint relies heavily upon the mutual trust and respect in themanagement, coordination, and task allocation of role responsibilities among workers fromsuch ‘loosely coupled’ companies. Hence, the ‘Fourth’ Blueprint is considered as therecommended direction for the immediate future in seeking to achieve corporate success inthe global and competitive marketplace (Birkinshaw, 2000; Dixon, 2000).As a result, there has been a progressive but gradual shift towards the adoption of the ‘Fourth’Blueprint in business partnerships between companies within the Asia-Pacific region (Karpin,1995).In order to facilitate the advantageous benefits of task collaboration and cooperation betweenorganisational partner companies, Limerick, Cunninton, and Crowther (1998) provide anumber of recommended guidelines. These include: (i) liberating line managers throughencouraging discretionary decision-making practices; (ii) defining the boundary roles ofindividual workers; (iii) developing effective communication systems which promotereciprocal information sharing; (iv) negotiating the contractual terms of the partnerarrangement in defining the purpose of the alliance in selecting partner companies withcompatible organisational resources and structures; as well as (v) managing issues oforganisational trust, commitment, and expectations in ensuring sufficient networked resourcesare provided for effective knowledge transfer and human resource contact among andbetween the organisational personnel of differing partner companies.
Chapter Two: Literature Review 26Importantly, another key element of the Fourth Blueprint is organisational learning (Argyris& Schön, 1996). In terms of project-based joint ventures between companies, knowledgetransfer represents one way in which sustainable competitive advantage may be achievedthrough organisational learning. In order to facilitate knowledge transfer to ensure projectsuccess, however, there needs to be a creative and engaged process of building and harnessingnew levels of knowledge-based skills and resources based on existing knowledge (Cavallo,2000; Ramaprasad & Prakash, 2003). Namely, companies need to become ‘action-learning’oriented, in being able to be self-reflective through information acquisition, sharing anddistribution. This is achieved through the sharing of diverse perspectives between individualsand groups in order to reflect and transfer new forms of organisational knowledge, and insight(Lähteenmäki, Toivonen & Mattila, 2001; Nonaka, 1996).This is important in being able to critique the identity, inherent values, assumptions andmission statement of the organisation. Furthermore, organisational objectives need to beaccomplished not only through supporting critical appraisal, but more significantly, throughthe provision of effective feedback (Holt, Love & Li, 2000).As such, this engenders informed and decisive action, hence sustainable competitiveadvantage; in recognition of the status of organisational knowledge regarding currentmanagement systems and practices, as well as differences in organisational values and beliefsbetween the workers of differing partner companies (Argote & Ingram, 2000; Tsang, 2002).In terms of the defined ‘knowledge economy’ of an organisation, knowledge-based assets, orrather the ‘explicit’ (formal) and ‘tacit’ (informal) codified information, regarding the workculture of an organisation.Whereas ‘explicit’ knowledge may be operationally defined as knowledge, which may beeasily expressed or codified by and between differing individuals, ‘tacit’ knowledge tends tobe more personal, experiential or context-specific. Further, such ‘explicit’ or ‘tacit’information may be considered individualistic, or alternatively, as a shared body ofinformation which is common to the prescribed mandates/rules, regulations and policies ofthe organisation (Fernie, Green, Weller, & Newcombe, 2003).In the latter case, however, organisational ‘tacit’ knowledge is only likely to be acquiredthrough interpersonal contacts and social networks, where such information is expressedexplicitly by other individuals in relation to organisational skills, resources and knowledgewhich are likely to enhance project success (Abell & Oxbrow, 2001; Koskinen, Pihlanto, &Vanharanta, 2003). As a consequence, the transfer, exchange and diffusion of organisational