Exploring Critical Variables That Affect Political Risk Level in International Construction Projects: Case Study from Chinese Contractors

Abstract

Political risk has been a pervasive problem in international construction projects. International contractors have, in response, endeavored to mitigate the high degree of political risk exposure to survive. Few prior works have focused on political risk in the context of international construction projects. To improve political risk management in international projects, a thorough literature review is first undertaken to identify the potential variables affecting the political risk level (PRL). An international questionnaire survey that included 85 variables is then conducted to obtain opinions from the relevant professionals. By using factor analysis to analyze the multivariate interrelationships among those variables, 10 underlying factors are extracted and interpreted including six macrofactors and four microfactors. These underlying factors are used to evaluate the PRL of six ongoing international projects and provide alternative strategies for four political risk scenarios. The findings of this research can not only assist international contractors to gain a better understanding of the deeper determinants of political risk, but also serve as a useful reference for international contractors when adopting appropriate strategies to manage the political risk of international projects. The specific political risk shape of a project is generated to allow the project manager to identify strengths and weaknesses and to compare the PRLs of international projects.