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International Construction Risk Management Joint Venture


Pool is an international engineering construction contractors to participate in an important business model, especially for large, large project contract, joint venture in the complementary advantages, resource allocation, risk sharing, etc., has outstanding competitiveness, is also a Our high-end engineering firms into the international market, effective way. However, the operation and management of joint venture has its own laws and characteristics of uncertainty and high risk, this column from the pool of internal coordination, financial management, risk control and other aspects to be explored. Experience shows that the composition of international engineering contractors with foreign joint venture to enter the international engineering contracting market is one of effective methods, but because of social, institutional, cultural and management style differences, as well as their international project contracting industry complexity and other reasons, the operation of the pool there are many uncertainties that inevitably face a variety of risks. This paper introduces the concepts relating to joint venture, analysis of joint venture operations, especially the problems of risk management, and then the main risks facing the pool used to classify and motivation from the joint venture composed of domestic and foreign contractors Comparison start joint venture of an international engineering major risk responses and suggestions. First, the concept and role of pool International Engineering Joint Venture ICJV (International Construction Joint Ventures) refers to two or more of the international contractors in various forms ( such as financial, human resources, etc.) of the joint, to jointly conduct an engineering project contracting. There are two main forms of their specific: 1. Closer type of pool, that is, a certain number of contractors of the funding and management staff to set up a project company, and according to the company's contribution to the project to determine total shares, the operation of the project as an independent contractor of a project until the end of the project. In this way applications in foreign countries more convenient to play pool the whole advantages of a clear economic relationship, but the management is more complex, the key is to properly handle the relationship between the parties associated in vivo, the scientific integration of pool factor of production. 2. Loose pool, that is, the parent company of the contractor joint contracting a project, each in accordance with the contract to complete the project and the distribution of profits, with a joint bid, the characteristics of decentralized management. Advantage is that the parties to conflicts associated less operation, management easy. The disadvantage is unable to give full play to the overall advantages of joint venture and strength, regulatory agencies overlap, factors of production can not be achieved in the construction project dynamic optimization. contractors currently participating in the joint venture of the second form of the majority, but with the accumulation of international engineering experience and business system improvement, etc., of contractors have begun to try to associate the first form. from the business location, the international joint venture projects there are two categories: 1. Contractors to participate in the host country in the local pool. From the funded ratio is subdivided into the following types: associate each having a 50% stake; foreign minority stake; foreign majority shareholding; both the same proportion of each stake, and the rest by independent three held (but not controlling). Contractors to participate in the current joint venture projects in China are mostly of the third, and if the project in China, the general contractor a minority stake in China; if the project overseas, the majority of our ordinary shares. 2. Joint venture co-operation in third countries. In a third country associated mainly to play the strengths of each associate, engaged in the difficult and single party or the other forces do not want to separate business activities undertaken. From the perspective of the host country, similar to the form of foreign enterprises in the local contracting alone. formed a separate joint venture can be difficult to enter into the market, made difficult to obtain a separate contract, the contractor to learn the advanced international technology and management experience, the use of international contractors in the financing ability, make full use of the advantages of local contractors (such as familiar with local market mechanisms, regulations, practices, language, culture and existing institutions, personnel, qualifications,[link widoczny dla zalogowanych], reputation and network) to gain market access conditions. Therefore, the establishment of international projects with foreign contractors to enter the international market, joint venture is one of effective methods, especially in the early to enter the market. II Risk Management in pool previous studies have shown that many of the joint venture failed to achieve the desired profit purposes, such as Beamish pointed out in his study, pool ( particularly in developing countries) investment losses is a very serious failure more than 50%, mainly due to the complexity of project contracting industry itself, so that pool participants bear the enormous risks. In recent years, many contractors in China in the international engineering contracting market has made some achievements and accumulated a lot of experience, unfortunately, these experiences are not well studied sum up and promote, in particular the lack of foreign investors to establish joint venture with the Risk and response system. Overall, our country set up a joint venture contractors to participate in the operation and management mainly in the following several aspects: 1. Ignore risk management. Many project managers believe that risk management is very important, but in the specific implementation process is holding on and hoping the psychological, the expected risk not happen. 2. Reactive rather than proactive response to risks. National project manager generally occurs after the treatment the consequences of risk, rather than take preventive measures before the risk occurs. 3. When the joint venture was established in the country too dependent on foreign companies. As the market access conditions, foreign companies should enter the Chinese market and domestic companies. But the cooperation holds shares of Chinese companies generally small, a few percent to ten percent, more Chinese companies to manage the task to foreign companies, which is the risk borne by domestic contractors is clearly not symmetrical. 4. Over-reliance on insurance and contracts. Domestic companies to undertake projects generally do not like engineering insurance, because it will increase the bid price, unless the owners have specific requirements. However, once projects have insurance, companies tend to over-reliance on insurance. The main contractor and subcontractors in contract, often over-reliance on the contract, the progress of sub-projects, quality and other issues without care. After all sub-projects are part of the main package works and the interests of both parties, the project could directly endanger the interests of the global and the main contractor. As the complexity of the contracting industry, both at the macro political, economic, and social dimensions, or micro personnel management, material supply, construction subcontracting, technology solutions and other aspects, the contractor are in risk. However, a joint venture now view the risk management process is still quite immature, many contractors are intuition or past experience to determine and manage project risks, this approach can not meet the International Engineering Management of large projects in particular need .

three pool risk identification and classification the risk of international engineering joint venture first classification is based on the impact of their project cost by : (a) resource risk; (b) risk management; (c) company risk. One resource risk, including material prices, equipment prices and labor costs, etc.; manage risk, including inaccurate cost estimates, inadequate cost control mechanism, the extent of the increase in costs due to construction delay, suppliers and contractors errors, design changes, the owners pay issues and coordination with other contractors; parent company, including the risk of excessive interference in the parent company, the parent company's financial problems, loss of project estimates and work of the different distribution of the differences and so on. second classification is the stage of the risk pool divided by: (a) the risk of start-up phase; (b) the risks associated stage; (c) the risk of dissolution stage. Start-up phase is started from the contact between the parent joint venture establishment, including the negotiation and signing of agreements; the operational phase is formally associated pool / implementation of the project until the project is completed; dissolution of the stage is all work and projects associated After consultation between the parties joint venture associates include the sharing of benefits and the end of the period of debt. This method of risk classification by stage in favor of the decision-makers a clear pool and influence the risk of each period is conducive to more effective management of international project risk pool. third classification method is to divide risk according to their sources: (a) the internal risk pool; (b) project-specific risk; (c) the risk pool outside. The international project is a joint venture company in particular forms of organization, so the risk pool is a pool within the specific risks which is joint venture due to internal contradictions. Project-specific risk characteristics of the project itself is the result of risks, such as complexity of the project caused delays or cost overruns or schedule of construction work does not meet the design requirements, higher financing costs and a longer duration of the construction costs are owed or cost overruns and so on. Risk pool outside where the pool of risk caused by the external environment, in general, foreign investment in more risky than domestic investment. Li Bing in Table 1 is based on such methods summarized in a variety of international engineering joint venture risks. the risk of the international joint venture projects in addition to these major risks, there are some risks associated with the joint venture. However, according to foreign research on the risk pool, the most serious risk of the top ten were: policy changes as a result of the parent company increased costs associated engineering feasibility study properly, schedule delays, market demand estimates are not allowed, associates to choose the wrong , associate the inappropriate choice of project types, increase the cost of dispute resolution, partner selection errors, bureaucracy and approval delays, design changes too much. four responses to the risk pool the top ten from the risk pool can be seen that the pool of foreign researchers the importance of the three major categories of risk in order for the project specific risk factors, internal risk pool and the pool of external risks. According to article III of the interview in 2004, national experts and more important that the extent of the risk pool in order to pool external risks, project-specific risks and internal risk pool. Our overseas associates have had experience of some companies also believe that the pool of the most important external risk is political risk and foreign exchange risk, which reflects China's macroeconomic and financial aspects of the contractor's experience with the contractor the difference between the developed countries. Another difference is that, as a joint venture of contractors involved are generally occupied by a party with the vast majority of the shares, the company's decision will largely be made by the party, so the internal risk is relatively small. Sino-foreign joint venture contractor selection is not the same motivation. For example, the contractor set up joint venture in Singapore because a lot of capital and operating their own lack of capacity, the contractor in the context of limited resources, going into more overseas markets, associated more convenient than the sole, especially in the engineering field some major projects not related engineering experience for contractors is very difficult in terms of winning, and some even pre-qualification is difficult to pass. In addition, some projects often require substantial investments of capital beyond the capacity of small and medium enterprises, or risk-bearing capacity, establishment of joint venture to a matter of course; and Chinese contractors in general less willing to cooperate with other companies to set up joint venture projects is often due to the host country's policy restrictions, such as market access requirements. Therefore, the project's joint venture in China, domestic contractors generally act as supporting roles, or just in the specific construction of a large proportion, and in project management in a position of being dominated; if the project is in a foreign country (mainly developing countries), the foreign contractors are often formed a joint venture led by our contractors, and project management and key technologies provided by our side, foreign (mainly developing countries, local contractors because of the contractor and the contractor developed a joint venture in a third country less) is more like an agent, subcontractor or supplier. It should be noted that overseas research shows that due to complexity of the business environment in developing countries, international contractors on the control of a larger pool, pool more often unsatisfactory performance. Therefore, the proposed joint venture joint venture decision-making should be made by all parties in order to play the advantages of local partners. Although the study abroad does not necessarily apply to our contractors, but our attention should be paid the contractor to avoid repeating the mistakes of the developed countries when the contractor associates. for any joint venture, partner selection from our contractors, bids, proposed standard, the whole process of signing to the project should be carefully study the risks associated with, and taking measures to manage risks to reduce losses, especially are: (a) of the partner guard. International financial institutions such as the World Bank or regional (Asia / Africa) Development Bank loan project, the project to local contractors and foreign contractors must be tender and implementation of cooperation (such as foreign contractors to provide technical and financial resources, local contractors services). In practice, the NRL anxious, too much dependence on the partner, in practice, unconsciously, take orders from the partner, the result being reap the benefits, and risk all went their own body, this contractor in the country for China joint venture projects with foreign investors to pay special attention. (B) seek and sign a reasonable contract terms. Terms of the contract signed by both parties to be legally binding, signed a reasonable contract terms on the principle that the basis of the powers and obligations of partners or owners clearly define the responsibilities, in particular, on external conditions (such as water, electricity, roads, communications), construction funds payment time, money and methods of the term of deferred payment and interest, the force majeure clause in the specific meaning of force majeure so may result in risk and should be clearly stipulated in the contract. (C) sub-contractors and suppliers to the transfer of risk. And supply in the sub-contract, should normally be required to accept sub-contractors or suppliers of the main contract in terms of the contract and ask them to also provide a performance bond, advance payment bonds, maintenance bonds, insurance policies and detention of certain works the retention, sub-contractors and suppliers to share part of the associated risks. Table 2 is based on Li Bing and other scholars of the Institute of International Construction Joint Venture Summary of the major risk response measures.