CHAPTER 1: GENERAL INTRODUCTION TO THE THESIS
2.8 PRIVATE-PUBLIC PARTNERSHIPS (PPPs) IN COMMERCIALIZATION
2.8.3 Developing a Framework for Creation of PPPs
2.8.2.8 Faster and Increased Project Delivery
PPPs have proven to be reliable agents of speedy project delivery including the so-called “complex capital projects”. Such is achieved especially when using finance from the private sector, when it is appropriate to do so (Hellowell et al., 2008). This might be due to the fact that private sector finances do not have many protocols compared to state funding. Thus speedy R & D and commercialization can be enhanced through PPPs.
Hellowell et al. (2008) however offer a precautionary note which this study finds quite useful. While increased private sector partaking, especially in public service delivery, can be quite advantageous the authors caution that PPP’s are not necessarily a universal solution or the sole means to providing quality public services on a value-for-money base. Thus PPPs are generally viewed as one of a myriad means of public service delivery and should never be taken or perceived as replacement for required levels of accountability and proper governance.
Table 2.4: Critical Success Factors of PPPs (Extracted from various sources)
Author (s) Critical Success Factor (s)
Aarikka-Stenroos, Sandberg & Lehtimäki (2014);
Aarikka-Stenroos and Sandberg (2012)
Consistent and justified changes in network relations
Witters et al. (2012) Argue that ICT is necessary to facilitate the formation and operation of virtually every PPP
Martinelli et al. (2008); Landry et al. (2002) Informal networks often facilitate more formal
relationships that facilitate spinoff and licensing arrangements with established firms
Pollock et al. (2007); Rothaermel et al. (2007);
O’Shea et al. (2005); Shane and Stuart (2002)
Composition of the founding team, their collective industry experience, management capability, and knowledge are critical
Zhang (2005) Need for a workable and efficient procurement
protocol Jefferies et al. (2002); Qiao et al. (2001);
Akintoye et al. (2001a)
Available financial market
Qiao et al. (2001); Kanter (1999); Zhang et al. (1998);
Stonehouse et al. (1996)
Government involvement by providing guarantees
Qiao et al. (2001); Badshah (1998); Frilet (1997) Good governance Qiao et al. (2001); Zhang et al. (1998) Political support
Qiao et al. (2001); Dailami and Klein (1997) Established and secure economic environment
Qiao et al. (2001) Technology transfer
Qiao et al. (2001); Grant (1996) Equitable risk sharing
EIB (2000) Sound economic policy
Kanter (1999); Stonehouse et al. (1996) Shared authority between public and private sectors Kanter (1999); Stonehouse et al. (1996) Commitment/responsibility of public/private sectors Bennett (1998); Jones et al. (1996); Stein (1995) Favorable legal framework
Frilet (1997) Social support
Finnerty (1996); Jones et al. (1996); Stein (1995) Well-organized public agency
In support of O’Shea et al. (2005) and Shane and Stuart (2002), Rothaermel et al. (2007) emphasize that composition of the founding team, their collective industrial experience, comprehension and administration capabilities are all essential. Unfortunately, most of the PPP’s in developing economies teams lack these characteristics. Lack of most CSFs in developing economies has been attributed to the continued failure of PPPs.
As can be noted from the summary table, quite a considerable number of studies focus on PPPs success factors. From the summary table, similarities and differences can be established regarding the
various proposed CSFs. Li et al. (2005) attempt to rank these CFSs according to their perceived relative importance – the top five CSFs being:
(1) Strong private consortium,
(2) Appropriate risk allocation and risk sharing (3) Available financial market
(4) Commitment / responsibility of public / private sectors and (5) Thorough and realistic cost / benefit assessment.
However, despite these CSFs, which have been mostly proven in PPPs of Private Finance Initiatives (PFIs) in developed economies, some problems have been reported with the partnerships, especially in the area of procurement. Pertinent issues include innovation cost restraints, high tendering costs, multifaceted negotiations as well as conflicting objectives likely to emerge from different players in project accomplishment (Akintoye et al., 2001).. Government “championing behavior” have also been recorded as dominant in such partnerships (Caerteling, Halman, Johannes, Song, Dorée, André, &
Van Der Bij, 2013) and quite often without a ready solution. Some of these challenges can, however, be resolved by ensuring that an appropriate structure is set up for the PPP.
2.7.4 Typical Structure of a PPP Project for Developing Economies
Figure 2.2: Typical Structure of a PPP Project (UN ESCAP, 2011 in Witters et al., 2012)
As can be noted from Figure 2.2, there is a need to share risk amongst various participants in the partnership, including the government, financiers and agents. Support from shareholders and various experts is also vital. It is the Special Purpose Vehicle (SPV) that enters into and concludes the contractual agreements with the state, subcontractors (where necessary) and any other relevant stakeholders.
However, it might be quite interesting to note that, while most authors concentrate much on PPPs as a partnership between a private institute and the government (public institute), Greer and Lei (2012) emphasize that research institutes should engage in Collaborative Innovation with Customers (CIC), a concept which the authors argue has not been fully explored and put into practice. From the review of some recent literature on the subject (e.g. Lichtenthaler, 2011, 2009; Ojanen & Hallikas, 2009;
Elofson & Robinson, 2007; Lichtenthaler & Ernst, 2007), it would seem that a blending of the CIC concept with PPPs could bring some unique but complete results. Although the present study does not necessarily blend these concepts, efforts are made to ensure that the model developed encompasses concepts from both PPP and CIC schools of thought.