Mitigating Risks in African Construction Markets through the Interactive Behavior of Resources and Capabilities in Multinational Construction Companies and Entry Decisions

Abstract

The presence of African-based construction companies in African markets is low compared with their foreign counterparts. Unlike local markets, overseas markets exhibit more types of risk. Perceptions of risk in overseas markets differ, and levels of resources and capabilities influence them. Adequate perception of risk also influences entry decisions. This paper examines whether interaction exists between the level of resources and capabilities in South African construction companies (SACCs) and their choice of entry mode in entry decisions, with a view toward mitigating the perceived impact of risks and enhancing ease of entry into African construction markets (ACMs). Research data were collected through a convergent mixed-methods research approach from SACCs graded 8 and 9 in the Construction Industry Development Board (CIDB) register of contractors in South Africa. It emerged that the significant risks in ACMs are payment risk, volatility in exchange rate and currency, threat of terrorism, legal instability, red tape/legislative bottleneck, and unstable government. Revenues, number of employees, and years of international experience significantly influence SACCs’ perception of administrative delays, red tape/legislative bottleneck, and difficulty in doing business in ACMs. Moreover, the perceived impacts of the difficulty of doing business, the threat of terrorism, and political uncertainty influence the choice of joint venture (JV) and contractual arrangement (CA) as ACM entry modes. The study established that an interactive relationship exists between the choice of JV and assets and JV and number of employees and between the choice of CA and number of employees that can mitigate the perceived impact of risks. The paper concludes that as SACCs accumulate financial, human, and experiential capital, their perception of risks in ACMs becomes more favorable. However, adequate perception of risks in markets enhances the strategic choice of entry mode, and the interactions between SACCs’ resources and capabilities and decisions on entry into ACMs mitigate the perceived impact of risks. This enables SACCs to compete favorably for business opportunities in ACMs and international space.