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Email: duartepdesousa@gmail.com

Partnerships in the Internationalization Strategy of Portuguese Construction Companies

Duarte Alves Ribeiro Pereira de Sousa1

Department of Civil Engineering, Instituto Superior Técnico,

Technical University of Lisbon, Portugal

July 2012

Abstract: Nowadays the international operations of Portuguese construction companies are essential

to their survival, due to the crisis affecting the whole country, and more specifically the construction

market. Local partnerships are an important aspect of the internationalization strategy of the

Portuguese construction companies, and may be essential to the success of its international

operations. As such, this study seeks to identify the factors that characterize the management of the

formation and operation stages of local partnerships made by Portuguese construction companies in

international markets. As a result, it was possible to realize the importance of local partnerships in the

internationalization strategy of the Portuguese construction companies, and it was also possible to

identify the entry modes in international markets used by these companies, the characteristics that

define the local partnerships of these companies, and also the motives, selection criteria, risks and

success factors that influence the management of these same partnerships.

Keywords: Local partnerships; Entry modes; Selection criteria; Motivations; Risks; Success factors.

Introduction

In recent years, construction companies are having more and more difficulties in gaining work

in their home markets due to globalization, which causes an increase in competition caused by the

entry of foreign companies in their markets (Sillars and Kangari, 2004). However this situation also

has its positive side, since the opening of international markets due to globalization offers new

opportunities for construction companies to internationalize. For example, in developing countries new

infrastructures are required and foreign companies with the capacity to build them are welcome

(Gunhan and Arditi, 2005). The international expansion allows construction companies to have more markets in which to

operate, reduce risk through geographical diversification, seize opportunities in new growing markets

— potentially more lucrative — in order to prevent negative cycles in their internal market, manage

available resources in a more competitive and efficient way, and use their specific knowledge and

technology for competitive advantage in less evolved markets (Gunhan and Arditi, 2005). According to the study "O Poder da Construção em Portugal", conducted by Deloitte and

ANEOP (2009), the viability of the largest Portuguese construction companies depends on the

success of its international operations. Indeed, most of the major Portuguese companies already is or

is about to be in international markets in the short or medium term. This trend is due to the crisis that

has affected not only the Portuguese construction market, but also the entire national economy, and

has culminated in the IMF intervention in Portugal. Thus the internationalization is an unavoidable

issue for the Portuguese construction sector.

Furthermore, partnerships with local companies can provide knowledge about the local market

and access to the partner’s network, reduce the risk of the internationalization process through the

help given by that same partner, and give more credibility to the foreign company (Sillars and Kangari,

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2004). As such, local partnerships appear to be an interesting management tool in this increasingly

global world. In fact about 50% of Portuguese construction companies believe that the entry into new

international markets should be done using local partnerships (Deloitte and ANEOP, 2009).

Therefore, the main goal of this study is to identify the factors that characterize the

management of the formation and operation stages of local partnerships made by Portuguese

construction companies in international markets, i.e., the entry modes into these markets, the defining

characteristics of these local partnerships, the motivations that lead to the adoption of these local

partnerships, the selection criteria that determine the choice of local partners, the risks that threaten

the operation of such partnerships, and the factors that lead them to success.

Figure 1 shows the relationship between the life cycle of local partnerships and the issues

under study.

Figure 1 - Life cycle diagram of local partnerships

Literature Review

The development of the international operations of Portuguese companies was due to a

combination of problems of the internal market (e.g. prolonged economic crisis, small size of the

market due to Portugal’s territorial size, excessive installed capacity, and decrease of margins in the

construction sector due to high competition) and the opportunities offered by international markets

(e.g. significant investments in infrastructure and real estate, and the favorable economic evolution of

target markets). In fact, Portuguese construction companies took advantage of a favorable

international situation — while their internal market was in crisis — in order to gain construction works

in foreign markets with less competition and therefore with higher margins, thus being able to face the

internal situation and the financing of the construction activity. The importance of international

operations for companies in the Portuguese construction sector has grown significantly since the

beginning of the last decade, especially in recent years as some of the Portuguese construction

companies already have more than half of its turnover from international activities. These

internationalization processes have been directed primarily to Africa, especially to the PALOP and

more specifically to Angola, because of the cultural proximity and technical supremacy that

Portuguese companies have in these markets (Deloitte and ANEOP, 2009).

Entry Modes

Foreign market entry mode is an institutional arrangement for organizing and conducting

international business transactions, thus allowing the entry of the company’s resources in the foreign

market, including their services, knowledge, skills and technologies (Chen and Messner, 2009).

In this study four different entry modes were considered: branch office, acquisition, joint

venture company and joint venture project. Branch office includes the establishment of a subsidiary or

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a branch office in a foreign country, through which the company pursues its business objectives.

Subsidiaries or branch offices can be made through a new establishment, or an acquisition, which led

to the inclusion of this second entry mode. The joint venture company, on the other hand, is a

company owned jointly by the partners, who have to contribute with money, facilities, equipment,

materials, intellectual property, land and manpower to the new company. Finally, the joint venture

project is the implementation of a project by two or more partner companies linked by a joint venture

contract, which defines the division of responsibilities and profits between the partners (Chen and

Messner, 2009).

Chen (2008) also made the distinction between permanent and mobile entry modes. The

permanent entry modes imply that the company holds at least a part of the capital of an organization

with long-term strategic direction for the development of the construction business in the foreign

country, conducting activities to support that business (Chen, 2008). In a mobile entry mode,

companies seek construction works in international markets, having their base established in their

home country. Then, if they get the job, they move their resources to the foreign country, they execute

the project, and in the end they return to their home country, unless there is another project in the

same country (Chen and Messner, 2011).

Local Partnerships

Glaister and Buckley (1996) define partnership as a form of collaboration between companies

in a given economic space and time in order to achieve mutually defined goals. Joint ventures are a

form of partnership because they comply with these criteria. There are two types of joint ventures,

equity joint ventures and non-equity joint ventures. The former occur when two or more legally

separate bodies form a jointly owned entity in which they invest and engage in various decision-

making activities, hoping to get dividends from the company’s activity (Mohamed, 2003). On the other

hand, non-equity joint ventures are contractual agreements between partner companies to cooperate

in an economic activity, but they do not involve the creation of a new firm (Glaister and Buckley, 1996).

Joint ventures can also be classified in two categories: integrated and non-integrated. In the

case of non-integrated joint ventures, each partner has to plan and execute a part of the work, and is responsible for the profit or loss made on that part of the project. This type of joint venture allow each

partner to work on what he is more specialized, but may result in conflicts due to unequal divisions of

labor. In integrated joint ventures, work and responsibilities are assumed jointly by both partners, thus

maximizing the resources of each partner (Norwood and Mansfield, 1999).

Motivations, Selection criteria, Risks and Success factors

International construction companies are faced with many challenges when seeking to enter a

new market, including difficulties in the transfer of management methods and company values to the

local staff, or in relations with hand labor, suppliers and governmental entities. These difficulties,

associated with its risks and costs, can lead to joint ventures with local partners in order to facilitate

the integration of international contractors in the destination market, even when the local government

does not require the formation of these partnerships (Fisher and Ranasinghe, 2001).

Moreover, choosing the right partner is a very important aspect for the success of

partnerships. When partners have missions, goals, resources and complementary capabilities,

partnerships are more likely to succeed (Glaister and Buckley, 1997). According to Glaister and

Buckley (1997), task-related criteria and partner-related criteria should be distinguished. Task-related

criteria are associated with the operational skills and resources necessary for the partnership’s

competitive success. In contrast, partner-related criteria refer to the variables that only become

relevant because there is another company involved in the process.

Besides, international construction markets involve greater risks than domestic markets,

namely political risks and economic risks (Ling et al. in 2005). In addition to those risks, partnerships

themselves also entail technical and financial risks. Bing et al. (1999) categorized these risks

according to three distinct groups: internal, external and project-specific. Internal risks are specific to

partnerships since they involve different entities that may enter in conflict as the operations take place.

Apart from that, project-specific risks are due to unexpected events that occur during the construction

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period, and lead to the increase of time and cost of projects, or even to quality defects. Lastly, the

external risk group includes the risks that arise from specific problems of the construction market

where the partnership operates, e.g. the political and legal system, economic and industrial conditions,

society and the physical environment.

Finally, in view of partnership’s success certain requirements must be met along the whole life

cycle of that partnership. In their study about joint ventures in international markets, Bing and Tiong

(1999) divided the success factors according the stage of joint venture’s life cycle to which they apply:

formation phase or operation phase.

Research Methodology

In order to accomplish the proposed objectives, a set of entry modes, characteristics,

motivations, selection criteria, risks and success factors, that apply to the management of local

partnerships of Portuguese construction companies in international markets, were selected based on

the literature review.

Then a survey was developed based on the selected factors, and with the help of this survey a

series of face to face interviews were made with top managers of some of the largest Portuguese

construction companies operating in international markets, in order to collect the view of these

stakeholders about the management of local partnerships. This path was chosen because the subject

under study is recent and hasn’t been much explored in Portugal, which requires a more detailed and

qualitative information that can only be obtained through the described methodology.

Construction companies with headquarters in Lisbon, in order to facilitate the realization of the

face to face interviews, and solid international activity were selected. Based on this selection and the

available contacts, thirteen 45 minutes interviews were conducted. During these interviews a 5 point

likert scale was used to evaluate the selected factors.

Then a statistical analysis of the results was made using IBM SPSS Statistics. This software

was also used to calculate Spearman’s ρ correlation coefficients, Cramer's V association coefficients

and Kruskal-Wallis and Mann-Whitney U hypothesis tests. For the statistical analysis performed in this

study, a type I error (p) equal to 0.05 was defined. Therefore for values of sig. < p = 0.05 the

alternative hypothesis are considered statistically significant.

Finally the obtained data were discussed, and conclusions were drawn out based on this

discussion.

Data Analysis

For 54% of the companies represented in this study, the international turnover represents 20-

39% of total the turnover in 2010. Moreover the average international experience of these companies

is 26 years, the minimum drops to 4 years, the maximum rises to 64, reflecting a high dispersion of

values.

With regard to the country where the Portuguese companies started their internationalization it

was concluded that 69% of these companies chose Angola, 85% chose a PALOP, and 92% chose a

former Portuguese colony.

Regarding the geographical areas where Portuguese construction companies are currently

developing their internationalization processes, it was noted that all the companies of the study are in

a PALOP, and that 46% of the companies are in North Africa.

Entry modes

It was found that 69% of the Portuguese companies represented in this study seek to enter

permanently into international markets, while the other 31% utilize both entry mode types, permanent

and mobile. It should be noted that none of the companies contemplates solely mobile entry modes

into foreign markets.

Concerning these companies’ entry modes, it was observed that the establishment of a branch

office is used by 85% of companies, and the creation of a joint venture company is often adopted,

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since 77% of the respondents said their companies are using it. Meanwhile, the other two entry modes

are used by fewer companies.

Local Partnerships

Firstly, it was found that all the companies represented in this study already had local partners

in some of their operations in foreign markets, and that they consider local partnerships a valid

strategy that will continue to be used in the future in some of their international operations.

About the functions normally carried out by the local partners of Portuguese construction

companies, it was noticed that the partners of all the companies had the mission of establishing

contacts with local authorities. It was also noted that 85% of the companies asked their partners to

also conduct contacts with customers, and 77% also trust their partners with the responsibility of

establishing contacts with local suppliers and subcontractors. Meanwhile, with regard to support in the

construction activities themselves, just over half of the interviewees believed that their partners should

have this function.

Regarding the types of partnership preferentially adopted by the Portuguese construction

companies, it was found that 62% of the companies represented in this study usually choose to adopt

equity joint ventures, while the other 48% prefer non-equity joint ventures.

Concerning the operation mode preferred in their local partnerships, it was found that 85% of

the companies represented in this study ideally adopt integrated joint venture, in which both partners

share risks and liabilities, while the remaining 15% prefer to adopt non-integrated joint ventures.

Continuing the analysis of the characteristics of the local partnerships of Portuguese

construction companies, it was also observed that almost all of the investigated companies seek a

majority position in their local partnerships in foreign markets.

Finally regarding the preferred duration for their local partnerships, it should be noted that 69%

of the investigated companies seek to establish long term partnerships.

Motivations

Table 1 - Rank order of motivations

Factor Mean Standard deviation

Frequency

1 2 3 4 5

1 Utilize partner’s experience and knowledge about the local market

4.15 0.90 0 0 4 3 6

2 Meet existing government requirements

3.77 1.09 1 0 3 6 3

3 Risk sharing 3.54 1.13 0 3 3 4 3

4 Increase of size and financial and productive capacity to participate in bigger projects

3.46 0.97 0 3 2 7 1

5 Decrease of entry costs 3.08 1.04 1 3 3 6 0

6 Gain access to partner’s resources and expertise

3.00 1.16 0 7 0 5 1

7 Increase of market share 2.69 1.11 1 6 3 2 1

8 Decrease of market competition 2.62 1.04 1 6 4 1 1

9 Technology transfer 2.23 1.01 3 6 2 2 0

10 Share research and development costs

2.23 1.01 2 8 2 0 1

The reason deemed most important by respondents, with an average of 4.15, is "utilize

partner’s experience and knowledge about the local market". Nonetheless, there are three other

reasons which are quite relevant: "meet existing government requirements" with an average of 3.77,

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"risk sharing" with 3.54, and "increase of size and financial and productive capacity to participate in

bigger projects" with 3.46.

Selection Criteria

Table 2 - Rank order of partner-related selection criteria

Factor Mean Standard deviation

Frequency

1 2 3 4 5

1 Reputation 4.46 0.52 0 0 0 7 6

2 Credibility with clients 4.23 0.73 0 0 2 6 5

3 Objectives compatibility 4.00 1.08 1 0 1 7 4

4 Credibility in banking 3.85 0.80 0 1 2 8 2

5 Financial capacity 3.77 1.24 1 1 2 5 4

6 Referral by business associates 3.69 0.75 0 1 3 8 1

7 Previous successful experiences with the partner

3.23 1.30 2 2 1 7 1

8 Culture similarities 3.00 0.91 1 2 6 4 0

9 Domestic and international workload 2.69 1.11 2 4 3 4 0

10 Similarity in size 2.00 0.82 4 5 4 0 0

11 International experience 1.85 1.07 7 2 3 1 0

It was found that the partner-related selection criteria "reputation" is the most important with an

average of 4.46. Besides, the criteria "credibility with clients" and “objectives compatibility" also

received very high scores.

Table 3 - Rank order of task-related selection criteria

Factor Mean Standard deviation

Frequency

1 2 3 4 5

1 Knowledge about local market and culture

4.62 0.51 0 0 0 5 8

2 Influence over local authorities 4.46 0.66 0 0 1 5 7

3 Good relations with costumers 4.38 0.51 0 0 0 8 5

4 Relationship with the local community 4.23 0.60 0 0 1 8 4

5 Possession of licenses 3.31 1.03 0 3 5 3 2

6 Resources and skills necessary to achieve the project

3.08 0.86 0 3 7 2 1

7 Necessary size to complete the project

3.08 1.04 1 3 3 6 0

8 Experience from similar projects 2.77 1.01 2 2 6 3 0

With regard to task-related selection criteria, it was observed that there are four criteria

standing out clearly from the other: "knowledge about local market and culture" with an average of

4.62, "influence over local authorities” with 4.46, "good relations with customers" with 4.38, and

"relationship with the local community" with 4.23.

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Risks

Table 4 - Rank order of internal risks

Factor Mean Standard deviation

Frequency

1 2 3 4 5

1 Partner’s financial problems 4.08 0.64 0 0 2 8 3

2 Cultural differences between partners 3.69 0.48 0 0 4 9 0

3 Disagreement or gaps in contract terms

3.69 1.03 0 2 3 5 3

4 Mistrust between partners 3.62 1.26 1 2 1 6 3

5 Loss of control or excessive interdependence

3.54 0.88 0 2 3 7 1

6 Disagreement over work distribution 3.08 0.76 0 3 6 4 0

7 Disagreement on allocation of staff positions

3.08 1.04 0 5 3 4 1

8 Interference of the parent companies of both partners

3.00 1.00 1 3 4 5 0

9 Unwanted leaks of information, knowledge, or technology

2.69 1.03 1 6 2 4 0

10 Interference between partner’s working methods

2.62 0.87 1 5 5 2 0

Beginning with the internal risks in partnerships with local partners, it was observed that the

risk "partner’s financial problems" appears isolated at the top of the standings with an average of 4.08.

Then three risk factors appear very close to each other, "cultural differences between partners" with an

average of 3.69, "disagreement or gaps in contract terms" with 3.69 too, and "mistrust between

partners" with 3.62.

Table 5 - Rank order of project-specific risks

Factor Mean Standard deviation

Frequency

1 2 3 4 5

1 Client’s cash flow problems 4.62 0.65 0 0 1 3 9

2 Restrictions on hiring foreign staff 3.77 1.36 2 0 1 6 4

3 Shortage of human resources with the

necessary qualifications 3.69 1.25 1 1 3 4 4

4 Excessive project alterations by the

client 3.38 0.96 0 2 6 3 2

5 Errors in the project 3.31 0.95 0 3 4 5 1

6 Work accidents 3.08 1.32 2 3 1 6 1

7 Shortage of competent and financially

stable subcontractors and suppliers 3.00 1.16 1 4 3 4 1

8 Shortage of equipment and materials

with the required quality 2.92 1.12 1 4 4 3 1

9 Partner’s technical incompetence 2.85 0.99 0 6 4 2 1

Continuing with project-specific risks, it appears that the "client’s cash flow problems" is the

most important risk since it has an average score of 4.62. Besides, the risks "restrictions on hiring

foreign staff" and "shortage of human resources with the necessary qualifications" are also relevant,

as they have averaged 3.77 and 3.69 respectively.

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Table 6 - Rank order of external risks

Factor Mean Standard deviation

Frequency

1 2 3 4 5

1 Force majeure and social disorder 4.23 0.93 0 1 1 5 6

2 Security issues 4.23 0.73 0 0 2 6 5

3 Fluctuations in exchange, inflation

and interest rates 4.15 0.80 0 0 3 5 5

4 Inconsistency of policies, laws, rules

and regulations 4.08 0.86 0 1 1 7 4

5 Restrictions on profit repatriation 3.85 1.14 0 3 0 6 4

6 Import restrictions and local

protectionism 3.69 0.75 0 1 3 8 1

7 Bureaucratic difficulties and delays in

projects and licenses approvals 3.62 0.65 0 1 3 9 0

8 Corruption and bribery 3.38 0.87 0 2 5 5 1

9 Social, cultural and religious

differences 3.23 0.73 0 2 6 5 0

10 Shortages of water, gas and electricity 2.77 0.93 0 6 5 1 1

Finally, looking at the classification of external risks it’s possible to note that four of them stand

out as the most important: "force majeure and social disorder" with an average rating of 4.23, "security

issues" also with 4.23, "fluctuations in exchange, inflation and interest rates" with 4.15, and

"inconsistency of policies, laws, rules and regulations" with 4.08.

Success Factors

Table 7 - Rank order of formation phase success factors

Factor Mean Standard deviation

Frequency

1 2 3 4 5

1 Selection of a suitable partner 4.85 0.38 0 0 0 2 11

2 Development of a comprehensive,

simple and unambiguous agreement 4.62 0.65 0 0 1 3 9

3 Clear definition of responsibilities and

task planning 4.54 0.66 0 0 1 4 8

4

Establishment of a well-defined

organizational structure of

management and control

4.54 0.66 0 0 1 4 8

5 Hiring qualified and experienced staff 4.31 0.63 0 0 1 7 5

6 Fair distribution of risks and rewards 4.15 0.69 0 0 2 7 4

7 Setting goals and strategies for the

market 4.00 0.82 0 1 1 8 3

8 Development of a conflict resolution

system 3.85 1.07 0 2 2 5 4

9 Establishing long-term strategic

relationships 3.62 0.96 0 2 3 6 2

Looking at the classification of formation phase success factors, it’s noticeable that the

success factor "selection of a suitable partner" stood out from the rest with an average of 4.85.

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However there are three other highly rated factors: "development of a comprehensive, simple and

unambiguous agreement" with an average of 4.62, "clear definition of responsibilities and task

planning" with an average rating of 4.54, and "establishment of a well-defined organizational structure

of management and control" also with an average of 4.54.

Table 8 - Rank order of operation phase success factors

Factor Mean Standard deviation

Frequency

1 2 3 4 5

1 Commitment of top management and

all employees 4.77 0.44 0 0 0 3 10

2 Mutual trust between partners 4.77 0.44 0 0 0 3 10

3

Developing a climate of cooperation,

flexibility and openness between

partners

4.62 0.51 0 0 0 5 8

4 Adopting an attitude of seeking

mutual benefit 4.46 0.52 0 0 0 7 6

5 Regular evaluation of partnership

performance 4.23 0.73 0 0 2 6 5

6 Effective communication and

information sharing 4.23 0.44 0 0 0 10 3

7 Effective coordination between

partner’s tasks 4.08 0.86 0 1 1 7 4

8 Ability to deal with cultural, linguistic

and ethical differences 4.08 0.64 0 0 2 8 3

9 Share the necessary resources to

operate 3.62 0.77 0 1 4 7 1

10 Knowledge and expertise transfer

between partner 3.46 0.78 0 1 6 5 1

Finally, regarding the operation phase success factors of local partnerships, it was observed

that the top four factors were evaluated only as "very important" or "extremely important":

"commitment of top management and all employees" and "mutual trust between the partners" with the

same average of 4.77, "developing a climate of cooperation, flexibility and openness between

partners" which is the third most important success factor with 4.62, and "adopting an attitude of

seeking mutual benefit" ranked fourth with an average of 4.46.

Discussion

Firstly, it was concluded that local partnerships are part of the strategic choices of

internationalization of all the companies represented in this study. On another note, it was observed

that the main international destinations of these companies are currently the PALOP, namely Angola,

due to the cultural proximity and technical supremacy that Portuguese construction companies have in

these markets.

Entry modes

On the subject of entry modes, it was concluded that the opening of a branch office and the

formation of a joint venture company are the preferred entry modes, the first being adopted when the

company wishes to act alone in the market, and the second when the enterprise wishes to have, or is

required to have a partner. Besides, it was discovered that companies opt for permanent entries into

markets they consider strategic, supplemented by mobile entries in other markets where good

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business opportunities arise. For these mobile entries, the joint venture project emerges as a viable

alternative.

Local Partnerships

Regarding the characteristics that define the local partnerships of Portuguese construction

companies, it was found that most of these companies prefer equity joint ventures instead of non-

equity joint ventures, although there are exceptions to these preferences due to the specificities of

each market and the characteristics of available partners, which may require the use of different

strategies than the one normally used by the company.

It was also concluded that most companies seek to establish long-term partnerships, although

this intention is often abandoned because of the partner’s poor performance. Furthermore, it was

found that equity joint ventures are more suited to these long-term local partnerships, as they involve

the creation of a new company that allow a deeper connection between the companies. Meanwhile,

non-equity joint ventures adapt better to partnerships with the duration of the project, because in this

case the connection between the companies is only made through a single contract.

Regarding each partner’s functions, it was concluded that Portuguese construction

companies, particularly in African markets, have to provide the technical know-how and resources

needed to implement the partnership’s projects, while local partners essentially contribute with their

extensive knowledge of the local market, thus assuming the role of contact with the authorities,

customers, suppliers and local subcontractors. Sometimes companies also ask their partners to give

some support in construction activities, if they have the necessary technical skills to constitute a valid

help in this field, which does not always happens in less developed markets. Moreover, it was found

that companies that still prefer equity joint ventures tend not to expect support from the local partner in

construction activities, as in this type of partnership — more suited to the long-term — bureaucratic

functions are more important, while those who prefer non-equity joint ventures typically expect this

support.

It was found as well that most companies prefer integrated joint ventures, allowing them to

closely monitor the partner’s work and share risks and responsibilities.

Finally, it was also concluded that the overwhelming majority of companies try to always have

a majority position in their partnerships, in order to always hold a high control over the partner and the

partnership in which both participate.

Motivations

Moving on to the motivations, in other words, the factors that lead companies to adopt local

partnerships, it was concluded that companies opt for local partnerships to gain access to the

knowledge and experience of the local partner about its market, especially in unknown markets, thus

avoiding having to obtain this knowledge by more expensive means like, for example, hiring a local

company that provides a thorough market investigation. The partner's knowledge about the local

market range from knowledge about the culture and the political and economic conditions, to

knowledge about the legal system and the contact networks with subcontractors, suppliers, customers

and government entities, which are essential to a faster integration into the local construction

environment, and help increase the chances of getting good projects in a shorter period of time.

Another important motivation leading to the adoption of local partnerships is the ability to share

the risk of entering into an unknown market, or simply the risk of a major project.

On the other hand, the possibility of exploiting the partner’s productive and financial capacities

to form a partnership with larger capacity, thus allowing the implementation of larger projects, is also

an important motivation, particularly in developed markets where there are companies that have

enough skills and know-how to become important assets.

It is also important to notice that not always the choice of having a local partner is a voluntary

decision of firms, as with the three reasons mentioned above. Sometimes the reasons for the adoption

of local partnerships are due to laws imposed by local governments that require foreign companies to

meet certain requirements, including the obligation to operate in the market with a local partner, in

order to protect it from foreign companies.

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Selection Criteria

In the subject of selection criteria, in other words, the factors determining the choice of local

partners, it was found that companies seek a partner suited for the operational needs of the

partnership and their future projects. This means that selection criteria are associated with the

functions that companies want their partners to assume, i.e., functions of contact with the local

government, customers, subcontractors and suppliers. As such, companies try to select partners who

have influence over the authorities and who already have some of the licenses required to the

partnership’s operations. Partners should also have a good client portfolio with whom they maintain

good relationships in order to obtain good job opportunities more easily. Besides, partners should also

have a good relationship with the local community in order to keep the population satisfied with the

work performed in its territory, and have a thorough knowledge of the local market and culture so they

can transmit it to the company.

Apart from that, companies seek a partner that also meets the basic criteria, i.e. who has good

reputation within the local community and who is not only credible in the eyes of customers but also

banks, in order to facilitate the integration of the company in the market and the partnership’s

operation. Moreover partners should have compatible objectives so that they both succeed beyond

any internal conflict. The selected partner should also be financially healthy so as not to become a

burden to the company or even, in case of developed countries, contribute to the partnership from a

financial point of view. Finally, potential partners should have good references from a previous

successful experience with the company, or through information provided by a business associate.

Risks

About risks, or the factors that threaten the operation of local partnerships, it was concluded

that external risks are more threatening than project-specific risks and internal risks. Thus, the external

factors that companies are more concerned about are the unforeseen events that lead to social

disturbs or natural disasters, especially in less developed countries; the security issues in the foreign

country, that may not only affect the construction site but the workers as well; the economic risks due

to fluctuations in exchange, inflation and interest rates, which can determine the financial return from

the international operations; the legal risks due to the inconsistency of policies, laws, rules and

regulations; the local protectionism that leads to restrictions on repatriation of profits and imports,

affecting foreign companies’ operations; the bureaucratic difficulties in legal procedures and the delays

in projects and licenses approval coupled with the corruption and bribery; and finally the social,

cultural and religious differences among expatriates and locals, which can lead to interaction

difficulties and misunderstandings that may undermine the image of the company and hamper its

operation in the foreign country.

The project-specific risks that constitute the biggest threat to the operation of companies are

clients’ cash flow problems, as this lack of funding may influence the progress of the project. Also, the

restrictions on hiring expatriates associated with the shortage of human resources with the necessary

qualifications is another important aspect and can create a shortfall of quality and productivity. Lastly,

errors in the projects can also constitute a threat. This may occur because of the many changes to the

project by the client and may cause delays in work execution.

Finally, the internal factors that constitute the greatest risk are the partner’s financial problems.

This can become a burden for the company and influence the financial health of the partnership.

Moreover, cultural differences between partners can cause difficulties in understanding and

communication, and can create conflicts that eventually lead to loss of trust between them, thus

impairing the functioning of the partnership. Furthermore, disagreements or gaps in contract terms

may lead to the emergence of problems if the partnership goes the wrong way. Finally, the loss of

control over the partnership or the creation of excessive interdependence between the partners can be

problematic for the international growth strategy of the company.

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Success Factors

Lastly, the success factors are the factors that lead to successful local partnerships. On the

formation stage of local partnerships it is critical to start by selecting a suitable partner. From that point

on, it is necessary to establish a thorough, simple and clear agreement between the parties, to define

the responsibilities of each partner, to plan and coordinate each partner’s tasks, to define the

organizational structure of management and control of the partnership, to hire experienced staff with

the appropriate qualifications to the needs of the partnership, to define an appropriate and fair

distribution of risks and rewards between both parties, to outline the goals and action strategies in the

foreign market, to develop a conflict resolution system, and to establish long-term strategic

relationships.

Then, in the operation phase of the partnership, it is imperative that top management of both

partners and all of its employees become committed to the success of the partnership, so that both

sides develop a climate of trust among all. On this basis it is necessary to develop a climate of

cooperation, flexibility and openness between the partners, to always seek solutions that benefit both

partners, to regularly evaluate the performance of the partnership, to communicate through effective

channels and to share all relevant information, to coordinate harmoniously individual tasks, to learn to

deal with cultural, ethical and linguistic differences, and to share all the resources, knowledge and

skills required for the partnership’s operations.

Conclusions

As a conclusion, it was possible to understand that local partnerships are part of the current

and future strategic options of the analyzed Portuguese construction companies. Moreover,

concerning entry modes, it was concluded that the opening of a branch office and the formation of a

joint venture company are the preferred entry modes, the first being adopted when the company

wishes to operate alone in the market, and the second when the company intends to have or is

required to have a partner. As for the characteristics that define local partnerships, it was found that

most companies prefer long-term equity joint ventures in which they have a majority position and an

integrated operation mode, so as to always hold a high control over the partner whose main functions

are to contact with the authorities, customers, suppliers and local subcontractors. Finally, it was

possible to identify the main motivations that lead Portuguese construction companies to adopt local

partnerships in international markets, the selection criteria that determine the choice of those local

partners, the risks that threaten the operation of these local partnerships, as well as the factors that

lead to the success of these same partnerships.

It should be noted that given the sample’s small size, it is not possible to extrapolate the

obtained results to the entire universe of Portuguese construction companies with operations in

international markets. In addition to this factor, it is also noted that the experiences reported in the

interviews end up focusing a lot in what is happening in African markets, as these are the main

international destinations of Portuguese construction companies, and despite the existence of other

international destinations, these end up not being taken into account sometimes due to their lesser

importance compared to African markets.

However, the conclusions drawn out in this study allow Portuguese construction companies to

realize the way to articulate local partnerships within their internationalization strategies, and better

understand the factors that can influence the management of their local partnerships in international

markets.

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