Track: Construction Management

Would Joint Venture Affect Market Competition?

Purpose

The construction activities in Hong Kong are at un-precedent high level as the Hong Kong Government is rolling out major infrastructure projects. The tender values of these projects exceed budget substantially. With the rocketing tender value, major concerns have been raised over the market competitiveness. Contract packaging approach such as forming Joint Venture may have an effect on market concentration.

This study aims to investigate the effects the use of Joint venture on competitiveness with respect to the current Hong Kong Ten Mega projects market.

Methodology

At the time of the study, there were 82 contractors involved in the Ten Mega Infrastructure Projects. Among them, there are 33 of them in form of Joint Ventures. With the respective contract values, both K-firm concentration ratio (CRk) and Herfindahl-Hershamann Indice (HHI) are used to analyze the data from the aforementioned Ten Mega Infrastructure Projects. The effect of contract packaging arrangements is also analyzed in terms of the frequency of different contractors’ winning contracts.

The characteristics of “frequent contractors” and “infrequent contractors” are compared.

Findings

For the active contractors, forming joint ventures lowers the concentration level. For contractors that have only one contract, forming joint venture increases the concentration level. Contracts that are less technically demanding or small enough to allow small contractor to bid, segmenting huge project into smaller separate contracts would enhance competition and lower concentration level. Where the size of the segmented contracts is still too big for small contractors, forming joint venture has little impact on market competition.