by Daniel Escobar Bercini
The Evolution of Joint Ventures
Joint ventures (JVs) are far from a new concept, with their origins in the U.S. tracing back to the 1600s with the Mayflower Compact. Over time, JVs have evolved, increasing in both complexity and popularity, with significant success stories—China being a prime example of a country using JVs to develop capabilities of its native companies. At its core, a joint venture is a business arrangement where two or more entities collaborate to create a new entity or partnership. This arrangement can either be temporary, for a specific project, or more permanent, especially when entering new markets by partnering with local companies. The longevity and continued use of JVs demonstrate their value. While there are various types, the fundamental principle remains the same: collaboration, shared risks, and mutual rewards.
Joint ventures aren’t exclusive to the business world. Consider sports, for instance. National teams in events like the Olympics operate similarly, with athletes from various local teams coming together under a unified banner. The academic sector also sees a form of JV, where universities and research institutions collaborate on large-scale projects.
Strategic Joint Ventures in Construction
In the construction industry, JVs have long been a popular method, particularly when tackling large-scale capital projects that are simply too vast for a single firm to manage. Another common reason is to spread out the risk or meet insurance capacity requirements. The construction industry has proven time and again that JVs are effective.
But I believe JVs have untapped potential in achieving supplier diversity goals, particularly in government and community-minded projects. For years, major buyers have aimed to diversify their supply chains, and construction is no exception. However, increasing diversity has been difficult, partly because expectations from these project sponsors have grown (as they should), while lenders and insurance carriers have become more risk-averse.
The Consumer’s Perspective and Industry Innovation
Think about it from a consumer’s perspective. We constantly demand better services and products. One of the key advantages of capitalism is that it keeps businesses on their toes—complacency invites competition. This forces companies to continually improve and innovate, keeping themselves relevant and securing their market share. This cycle also creates opportunities for new companies with fresh ideas. While this dynamic has worked wonders in industries like tech, it hasn’t translated as smoothly into construction.
Construction isn’t as attractive to investors as, say, tech, where capital flows freely to fund new startups. Most innovation in the construction sector comes from advancements in materials, machinery, and, more recently, software—rarely from the service side of things. Let’s put on our consumer hats again. If you’re building a house and have the design ready and materials selected, how do you choose a contractor? Chances are, like me, your decision will be based on reputation, experience, and pricing. Given the size of the investment, you will not just select the cheaper option. The same goes for businesses; construction projects involve huge sums of money, and project owners want to be sure they’re putting that money into capable hands. The issue is that reputation and experience, unlike innovation, can’t be bought—they’re earned over time. This gives long-established companies a natural advantage over newer, smaller firms.
Empowering Smaller Firms through Strategic Partnerships
So how do we give these small firms a real shot? I believe JVs can be a powerful solution. If a project sponsor truly wants to diversify their supply chain without taking on additional risk, the most effective strategy is to encourage partnerships between well-established firms and smaller, diverse companies. But it has to be done thoughtfully. For the smaller firm to benefit, the JV must help them develop new skills or capabilities—not just serve as a source of cheaper labor. Merely hiring second- or third- tier contractors isn’t a JV—that’s outsourcing. What I’m proposing is the formation of a legal JV entity, where both parties share in the responsibilities, whether that’s in administration, legal work, or field operations.
Many small contractors already have the technical skills—they started as tradespeople who branched out to start their own businesses. Their challenge often lies in managing the office side of things—handling the paperwork, the legal issues, the contracts. This is where JVs shine, allowing smaller firms to gain experience in these areas through collaboration with more experienced partners.
Interested in leveraging joint ventures to grow your business and contribute to a more diverse industry? Browse the Construction Allies in Action contractor directory to find potential partners committed to growth and diversity!