Country Portfolio Solutions for Global Market Uncertainties

Abstract

Global market uncertainties such as unpredicted recession and recovery arise simultaneously at the country level or wider. These uncertainties weaken traditional project-based risk management to control contractors’ revenue and return. To overcome this limitation, this study suggests a country portfolio model for managing these market uncertainties. This model presents the quantitative diversification strategy that optimizes country portfolio solutions through considering four critical objectives at the country level: (1) market growth rate, (2) market growth volatility, (3) market profit rate, and (4) market profit uncertainty. This study applies Markowitz portfolio theory to this country portfolio solution and uses multiobjective genetic analysis (MOGA) through examining 1,014 international projects executed by Korean contractors across 21 countries. This study suggests three useful applications: (1) analysis of the ideal country portfolio, (2) evaluation of the firm’s current portfolio associated with global market conditions like boom and recession, and (3) suggestion of a more informed portfolio decision for entering new country markets. This model enables multinational contractors to better manage country portfolios during a fluctuating global construction market.