Global Joint Construction Ventures – more than just bricks and mortar?
In the ever-expanding construction industry, where opportunities for firms to tap into foreign expertise is on the rise, it is increasingly important to get joint ventures right. Familiarity between partners certainly helps, as does local knowledge, but crucial to operations is the less tangible reality of knowledge transfer. Doing global business is one thing. Getting partners with different business cultures and from different parts of the globe working smoothly together is another.
As firms continue to turn to foreign experts to help improve the infrastructure of their own country in new and innovative ways, a potential business culture clash is on the cards, making the challenge of pulling off a successful joint venture even stiffer still. The construction industry is a revealing case in point. The sector is running on an increasingly worldwide basis, creating extra avenues for inter-organisational collaboration and enabling the sharing and multiplication of advanced design and building technologies. However, such projects are by definition complicated, designs are unique, business environments complex, and working schemes unpredictable. Radical innovation is welcome, but not at all costs. How the various partners in the venture transmit knowledge in house and between one another is key.
Innovate, Assimilate, Duplicate
Firms looking for new solutions to existing challenges are faced with two main options – a radical overhaul or a modular change. The former requires divergence from a conventional technological direction, resulting in high novelty value for industry, firms and clients alike. The latter involves the addition of input into an ongoing situation, by introducing new technologies and/or capabilities. Joint ventures provide a means of injecting fresh blood and ideas, but at an added risk – the failure of the venture and the innovation being devised. Added to the mix are the high R&D costs that the more radical alternative can generate.
How a given partner within such an alliance assimilates the perspective, know-how and modus operandi of its counterpart and then duplicates them in order to deliver an improved end result (the “absorptive capacity” of the firm benefitting from the expertise of its partner) is key to the equation. A recent study of a Franco-Iranian venture sheds light on where such a joining of forces can be fraught with risks. Whilst an initiative such as the collaboration between the French-based Freyssinet firm and Iran’s Arazan in adding a roof to the latter country’s multi-sports stadium may seem to hinge on concrete issues, the study reveals the impact of the transfer of tacit and explicit knowledge within and between the main participating firms.
The tacit-explicit knowledge conundrum
Conducted over a 19-month period beginning in November 2013, the study comprised data collection and face-to-face interviews with 41 participants in the joint venture representing both partner companies, various levels of managerial responsibility and different educational backgrounds in order to solicit as wide-ranging a series of impressions on the workings of the alliance as possible. The answers emerging from the interview process were cross-checked with a diverse body of stakeholders and duly categorised into feedback pertaining to technology development, innovation, individual absorptive capacity, organisational absorptive capacity, multi-organisational absorptive capacity, and knowledge.
The knowledge dimension to the study and actual construction project hinged on the respective ability of the partner firms to generate, transmit and transform tacit and explicit forms of knowledge in order to achieve the desired commercial aims. Tacit knowledge is by nature more personal and less tangible, comprising learning, experience, solutions and interaction that cannot necessarily be translated into easily transmitted words and explanations. Explicit knowledge is more rapidly codified and documentable, for example by means of patents, reports, memos or manuals in a business context. The difficulties encountered by the Iranian firm in handling a knowledge base consisting of both the tacit and the explicit (as opposed to the smoother handling of such information flows by the French firm) led to a series of concrete challenges that hindered the success of the venture.
A learning curve
Due to the relative inability of the Iranian firm Arazan to successfully juggle tacit and explicit information both within their own organisation and with their French partners Freyssinet, the sports stadium project encountered a number of design, safety, quality and planning issues that eventually led to delays in delivery, marked differences between the intended and final design, and additional costs. Chief among the reasons for this were the technological inability of the Iranian firm to integrate tacit knowledge, the lack of attention to the written documentation of explicit knowledge, and an overall imbalance between the tacit and the explicit. As a result, it was very much down to the French firm to compensate for and adjust to its Iranian counterpart’s way of working.
Whist the final result was by no means disastrous, this particular case study unearths a significant finding – that trust between partner firms and familiarity with local conditions offer no guarantee of the desired results within a joint venture when information is handled in vastly differing and unequal ways by the respective members of the alliance in question. In short, however concrete the project, it is the more abstract phenomenon of knowledge management that can have the final say in how steep a learning curve some participating firms may need to mount to ensure the success of the project.
This article draws inspiration from the paper The challenges of radical innovation in Iran: Knowledge transfer and absorptive capacity highlights — Evidence from a joint venture in the construction sector, written by Laurent Scaringella and François Burtschell and published in Technological Forecasting & Social Change, 122 (2017).
Laurent Scaringella is an Associate Professor of Strategy and Innovation at Rennes School of Business, France. His research interests include Knowledge Management, Management of Innovation, Entrepreneurship, Geographical Economics, and Organisational Design.