Developing Competitive Advantages in Political Risk Management for International Construction Enterprises

Abstract

International construction projects invariably involve political risks. This has been a persistent and pernicious problem encountered by international contractors. Various sets of variables have been suggested in the literature focusing on different aspects of political risk management (PRM) for international construction enterprises (ICEs). It is crucial to identify the relative importance and groupings of these variables. This paper aims to identify critical variables associated with PRM in international construction projects, and to analyze their rankings and underlying relationships. A total of 17 variables were identified through a literature review and consolidated by pilot studies with professionals in the international construction industry. Questionnaire instruments containing the 17 variables were sent out to the practitioners and academics, and 138 completed questionnaires were received. The top five ranked variables for PRM were (1) relationship with governments, (2) misconduct of contractors, (3) experiential knowledge of political risks, (4) relations with power groups, and (5) localization. Factor analysis was used as the data reduction tool and these 17 variables were further grouped into four resource dimensions, as follows: (1) relations, experience, acceptance, and localization; (2) recourse, organization, operation, and technology; (3) growth, ownership, leverage, and diversification; and (4) sustainability, opportunity, integration, and long-term. A management framework with both theoretical and practical meanings was finally developed for successful PRM in international construction projects. The findings would help the ICEs to clarify the highly prioritized variables and underlying factors which could be used as an assessment tool to evaluate the performance of PRM. Successful PRM would provide competitive advantages for the ICEs to survive and prosper in the host construction market, especially in those locations characterized by highly political risks.