Risk Management Model for International Construction Joint Ventures

The current Asian financial crisis has put the role of risk management in the construction business into focus. For firms engaging in the international construction business, one of the most effective means of mitigating financial risks is through a joint venture (JV) with a local partner. There are, however, risks associated with an international construction JV. Based on a study by the writers on the risk factors and their mitigating measures, the most effective risk mitigating measures were categorized into eight groups. These are partner selection, agreement, employment, control, subcontracting, engineering contract, good relationship, and renegotiation. In this paper, a risk management model incorporating these measures was proposed. Three cases of international construction JVs were analyzed from the perspectives of the execution of these measures. It is hoped that this model would help construction firms in improving their decision-making process for their overseas ventures.     

Fuzzy Analytical Hierarchy Process Risk Assessment Approach for Joint Venture Construction Projects in China

Research and practice show that construction joint venture (JV) activities in China are opportunities that can bring potential benefits but at the same time may generate many risks. While research has studied these risks and presented useful advice for managing individual risks, the methodologies used to analyze the risks were mainly qualitatively based, and there is a gap in using the quantitative method that can integrate a risk expert’s knowledge to assess the risks associated with JV projects. This paper sets up a hierarchy structure of the risks and then develops a fuzzy analytical hierarchy process (AHP) model for the appraisal of the risk environment pertaining to the JVs to support the rational decision making of project stakeholders. An empirical case study is used to demonstrate the application of the proposed fuzzy AHP model. It is concluded that the fuzzy AHP model is effective in tackling the risks involved in JV projects. The information presented in this paper should be shown to all parties considering JV business opportunities in China, and the proposed approach should be applicable to the research and analysis of risks associated with any type of construction projects.     

Model for Organizational Governance Structure Choices in Construction Joint Ventures

Due to the recent trend of utilizing joint ventures (JVs) in construction, construction firms are faced with the challenges in managing construction JVs. Among those challenges, the choice of organizational governance structure has a profound impact on JV performance, but receives little attention. The objective of this study is to investigate the choice of organizational design in construction of JVs and the underlying rationales of the choice. Through the theoretical lens that integrates both cost and resource perspectives, we develop a model that focuses on four major factors for determining governance structure choices, namely, corporate cultural difference, trust, needs for procurement autonomy, and motivation for learning. A case study of eight JVs in the Taiwan High Speed Rail project was conducted to empirically evaluate the proposed model. It is shown that the eight cases studied jointly replicate the linkage between the hypothesized determinants and the governance structure choices and reasonably support the proposed model.     

Using Analytic Network Process to Predict the Performance of International Construction Joint Ventures

Strategic collaborations such as joint ventures (JVs) have become an important way of exploiting business opportunities for construction companies. However, such entities are difficult to manage due to their composite structures, which entail diverse organizational cultures, styles, and objectives. Therefore, measurement of JV performance has been an interesting research topic although there is no consensus on the definition, measures, and variables of performance yet. Considering the inherent complexities of the construction projects, only an adequate combination of criteria allows assessing the international construction joint venture (ICJV) performance. Within this study, an analytic network process model is developed to examine the links between the determinants of performance and to observe the influences of these factors on the ICJV performance. As a result, interpartner relations, structural factors and interpartner fit are found to be the most important determinants of ICJV success. Effectiveness of conflict resolution and control mechanisms contribute significantly to ICJV performance. Cultural fit is the most important fit that should be attained between the partners. The performance of the model is tested on eight real construction projects and satisfactory results are obtained.     

Exchange Rate Risk Management in International Construction Ventures

This paper identifies the financial risk factors associated with international construction ventures from an integrated perspective. It examines the most effective mitigation measures adopted by construction professionals in managing these risks for their construction projects and suggests other means of risk aversion. A case study of forward exchange contracts versus borrowing strategies is presented. The paper is an attempt to present strategies to minimize foreign exchange risk and to better manage foreign exchange dealings.     

ICRAM-1: Model for International Construction Risk Assessment

This paper presents a risk assessment model for international construction projects. The International Construction Risk Assessment Model (ICRAM-1) assists the user in evaluating the potential risk involved in expanding operations in an international market by analyzing risk at the macro (or country environment), market, and project levels. The paper discusses some of the existing models for country risk assessment, presents potential risk indicators at the macro, market, and project levels, and explains the ICRAM-1 methodology through an applied example. The ICRAM-1 provides a structured approach for evaluating the risk indicators involved in an international construction operation and is designed to examine a specific project in a foreign country. It can be used as a tool to quantify the risk involved in an international construction investment as one of the preliminary steps in project evaluation. Four main results are obtained from the ICRAM-1 analysis: (1) High-risk indicators; (2) impact of country environment on a specific project; (3) impact of market environment on a specific project; and (4) overall project risk.     

Ontology for Relating Risk and Vulnerability to Cost Overrun in International Projects

Risk management is about identifying risks, assessing their impacts, and developing mitigation strategies to ensure project success. The difference between the expected and actual project outcomes is usually attributed to risk events and how they are managed throughout the project. Although there are several reference frameworks that explain how risks can be managed in construction projects, a major bottleneck is the lack of a common vocabulary for risk-related concepts. Poor definition of risk and patterns of risk propagation in a project decrease the reliability of risk models that are constructed to simulate project outcomes under different risk occurrence scenarios. This study aims to extend previous studies in risk management by presenting an ontology for relating risk-related concepts to cost overrun. The major idea is that cost overrun depends on causal relations between various risk sources (namely, risk paths) and sources of vulnerability that interfere with these paths. Ontology is used to develop a database system that represents risk event histories of international construction projects and to construct a model for estimation of cost overrun. It will form the basis of a multiagent system that can be used to simulate the negotiation process among project participants about sharing of costs considering the risk allocation clauses in the contract, sources of vulnerability, and causal relations between risk events and their impacts. The ontology is constructed by interaction with Turkish contractors working in international markets and extensive literature review on risk-related concepts. The validation test results provide evidence that the ontology is fairly effective to help Turkish contractors to assess cost overrun by considering sources of vulnerability and risk in international construction projects.     

Risk Assessment Model of Tendering for Chinese Building Projects

This paper presents a risk assessment model for tendering of Chinese building projects on the basis of identification and evaluation of the major risk events in the Chinese construction market, investigations and interviews from which the factors inducing the risk events were determined, questionnaires on building projects within China’s borders, and the logistic regression method. The findings show that, to a certain extent, the risk of tendering for projects and the risk of a contracted project can be assessed through analysis of factors such as owner type, source of project financing, existence or lack of past cooperation between contractors and owners, the intensity of competition for tendering, the reasonableness of the bid price, and the degree of support from the contracting company to its projects. The model can serve as a supplementary tool for Chinese contractors in making decisions for project tendering within Chinese borders. At the same time, it is of reference significance for international contractors, enabling them to further understand the risks in the contract market for Chinese building projects.     

Factors Affecting International Construction

A construction company’s decision to expand into international markets must be based on a good understanding of the opportunities and threats associated with international business, as well as the development of company strengths relative to international activities. These factors were evaluated in this study by surveying the executives in charge of international construction of large United States based contractors. The information was collected by means of two rounds of a Delphi survey, the results of which were used as input in an analytic hierarchy process (AHP). The findings indicate that track record, specialist expertise, project management capability are the most important company strengths; loss of key personnel, shortage of financial resources, and inflation and currency fluctuations are the most important threats relative to international markets; and increased long term profitability, the ability to maintain shareholders’ returns, and the globalization and openness of the markets are the most important opportunities available in international works. This study is of relevance to practitioners as it systematically highlights the factors that affect international construction for the benefit of executives of medium-to-large size construction companies who are considering expanding into overseas markets. It is of relevance to researchers too as it demonstrates the successful use of the combined Delphi and AHP.     

Analytical Framework for the Choice of Dispute Resolution Methods in International Construction Projects Based on Risk Factors

International construction projects provide opportunities for developing countries to advance in the global economy and for international construction and design firms to increase their profit and market share. Despite the attractive opportunities that international construction offers, international contractors are faced with many challenges and difficulties when moving into international markets. Many risks are associated with international construction, whether external or project-specific risks. Those risks affect how contract clauses are written, including the dispute resolution clause. This paper discusses the different dispute resolution methods employed in international construction contracts and develops an analytical framework (DRM-Risk matrix) suggesting the use of specific dispute resolution methods depending on the risks expected in the project. The matrix may eventually help international contractors in the selection of the appropriate dispute resolution method during contract formation depending on the risks involved in a project.     

Who Needs to Know What? Institutional Knowledge and Global Projects

Projections for future demand in infrastructure and buildings indicate that there will be increasing opportunities for firms to engage in construction projects around the world. However, international construction projects also face numerous uncertainties. Foreign firms engaged on these projects must work in unfamiliar environments, with differing regulations, norms, and cultural beliefs. This can increase misunderstandings and risks for the entrant firm. To reduce these risks, successful international firms strategically increase their understanding of the local area by collecting knowledge that is important for a given foreign project. This study compiles and analyzes data from 15 case studies of three types of international firms (developers, contractors, and engineers) engaged in international infrastructure development to identify the types of institutional knowledge that informants indicate are important for their international projects. Using institutional theory, we categorize the kinds of knowledge about foreign country operations that managers deem to be important, expanding prior studies by attending to normative knowledge in addition to regulative and cultural knowledge. Finally, we analyze the importance of different categories of knowledge according to firm type. This analysis provides entrant firms a tool to help identify important types of institutional knowledge to collect as they undertake international projects.     

Empirical Study of Risk Assessment and Allocation of Public-Private Partnership Projects in China

Earlier research studies on public-private partnership (PPP) indicated that an objective, reliable, and practical risk assessment model for PPP projects and an equitable risk allocation mechanism among different parties are crucial to the successful implementation of these PPP projects. However, actual empirical research works in this research area are limited. This paper reports the first stage of a research study, which aims to identify and assess the principal risks for the delivery of PPP projects in China and to address their proper risk allocation between the private and public sectors. An empirical questionnaire survey was designed to examine the relative importance of different risk factors and to analyze the allocation of risk factors to different parties in PPP projects. A total of 580 questionnaires were sent out, and a total of 105 valid responses were obtained for data analysis. The Mann-Whitney U test is employed to investigate whether significant difference in perception existed first between the private and public sectors and second between industrial practitioners and academics in China. The empirical findings show that the three most important risk factors for PPP projects in China are (1)?government intervention; (2)?government corruption; and (3)?poor public decision-making processes. These findings reveal that the Chinese government intervention and corruption may be the major obstacles to the success of PPP projects in China. A major cause for these risks may be attributed to inefficient legislative and supervisory systems for PPP projects in China. After conducting the Mann-Whitney U test on the 105 survey respondents, the empirical findings indicate that the perceptions of all 34 risk factors in China between the private and public sectors were not significantly different. Similarly, there were no significant differences between academics and industrial practitioners except that the former perceived the problem of government corruption to be more severe than did the latter. For risk allocation, the empirical results indicate that the public and private sectors were in general consensus with most of the risks identified. The major risks that the public sector preferred to accept are within the systematic risk category, especially political, legal, and social risks. The private sector preferred to retain the principal risks within the specific project risk category, especially construction, operation, and relationship risks, in addition to economic risks within systematic risk category. The remaining risk, environment risk, is preferred to be shared between the two sectors. This research study enables international construction companies to better understand how risks should be assessed and allocated for PPP projects in China. It also assists in risk response planning and control for future PPP projects in China.     

Determinants of International Architectural, Engineering, and Construction Firms’ Project Success in China

As China becomes a member of the World Trade Organization, many international architectural, engineering, and construction (AEC) firms are undertaking or expected to undertake projects there. This study identifies the significant factors that contribute to the successful performance of projects undertaken by international AEC firms in China. Data were collected using structured questionnaires from foreign (non-Chinese) AEC firms that have completed projects in China. Personal interviews with 27 experts were also conducted to supplement and test the survey findings. The findings reveal that the variable that affects the most number of success measures is the AEC firm’s ability to understand the client’s requirement. Achieving this brings about good project quality performance and owner satisfaction. Furthermore, firms that have superior product or service quality would also achieve better project performance. The interviewees also exhorted the importance of having core competencies as a critical success factor for projects in China. Practitioners may use the findings to help them manage their projects in China, so as to achieve higher levels of success.     

International Expansion Decision for Construction Companies

There exist several reasons for construction firms to expand their business into international markets. But the complex international environment is affected by diverse factors and creates risks that are not well understood by companies that are active mostly in domestic markets. It is therefore essential for construction companies to follow a disciplined and well-informed strategy when deciding whether to enter international markets. Company strengths relative to conducting business in international markets, the threats and opportunities associated with overseas work, and the costs and benefits of undertaking construction projects in specific countries need to be considered in this decision. The interactions between the complex factors can be structured in a model that can help one to make a rational judgment. The International Expansion Decision Model developed in this study is based on the Analytic Hierarchy Process (AHP) improved by the addition of a Delphi survey. The main objective of this research study is to facilitate the entry decision into foreign markets and to highlight the importance of the factors involved in this decision. This study is of relevance to practitioners as it allows executives of construction companies to test if their company is ready for expansion into international markets in general and into a specific country in particular. It is also of relevance to researchers as it demonstrates the successful use of the combined Delphi and AHP methods.     

Discriminant Analysis for Predicting Ranges of Cost Variance in International Construction Projects

Unanticipated market conditions as well as project-related risks can easily lead to cost overruns in international construction projects. For a contractor to be financially successful in international projects, a careful examination of the project is a prerequisite to understanding the cost variance characteristics. Based on the reasonably accurate characterization of the cost performance, the markup or contingency amount is determined to ensure both a decent level of profit and a good chance of winning the contract. This paper presents a classification model to categorize international construction projects, particularly faced by Korean contractors, into five cost-variation classes: extreme cost overrun, moderate cost overrun, neutral, moderate cost saving, and extreme cost saving. The model is able to characterize an international project for its cost performance prediction in comparison to the contractor’s initial cost estimate. A linear discriminant analysis is utilized to develop the predictive classification model with the support of the bootstrap method. Tests show that the proposed model is able to help cost estimators determine a proper level of cost contingency before bidding on an international project.     

Factors Affecting Construction Project Outcomes: Case Study of Vietnam

Due to the demand for built products from foreign investors and the growing economy, Vietnam’s construction industry experiences strong growth. While some of the construction projects are successfully executed, others faced difficulties. The aim of this study is to examine the factors that lead to successful outcomes in construction projects in Vietnam. Using the case study research design, three successful projects and another three unsuccessful projects were investigated. Data were collected from face-to-face interviews with several project participants in each project and archival data. The results show that major enablers that lead to project success are foreign experts’ involvement in the project, government officials inspecting the project, and very close supervision when new construction techniques are employed. A factor which leads to poor performance is the lack of accurate data on soil, weather, and traffic conditions. The findings may be useful to construction professionals operating in Vietnam to put in place factors that can lead to good project performance. For foreign practitioners entering Vietnam’s market, the study may assist them in focusing on the more important factors to achieve good project outcomes.     

Risk Assessment for Construction Joint Ventures in China

The construction industry in China is developing toward the international procurement practice, and such development has attracted many foreign firms into the Chinese construction market through the formation of Sino-foreign joint ventures. Joint venture has become an important sector in the Chinese construction industry. However, the difference in management systems, technological practice, and cultural background among the partners within joint ventures brings difficulties to the function of joint venture. A significant degree of risk is involved in joint venture investments. Thus, foreign firms increasingly intend to spend more effort in studying proper strategies of managing risks in their joint venture businesses. Based on a survey, this paper establishes a risk significance index to show the relative significance among the risks associated with the joint ventures in the Chinese construction procurement practice. Real cases are examined to show the risk environment faced by joint ventures. The paper also investigates practical applications of risk management in the business of joint ventures.     

Strategies Adopted by International Architectural, Engineering, and Construction Firms in Southeast Asia

There are many business opportunities for international architectural, engineering, and construction firms to work in Southeast Asia (SEA) due to its high volume of construction demand and its growing economy. Before entering the region, these industry practitioners need to decide on the appropriate market entry modes and business strategies. The objectives of this research are to investigate the effective market entry modes and business management strategies that industry practitioners can adopt for SEA projects. The research method is based on a structured questionnaire. The study found that the most effective market entry modes are: setting up wholly owned foreign subsidiaries and forming project joint ventures with local firms. The most effective business strategies are: providing a superior product or service and paying great attention to client satisfaction. It is recommended that industry practitioners place emphasis on customer satisfaction by considering all aspects of the client’s requirements and the proposed project’s usage throughout its intended life cycle, to differentiate itself from its competitors.     

Owner’s Risks versus Control in Transit Projects

This paper studies the characteristics of different project delivery methods in public transit projects with respect to the owner’s project control and its share in project risks. The most appropriate project delivery method is selected early in the project life cycle based on a number of objectives and criteria set forth by the owner. The ability to manage risk effectively and owner’s control over the project are among the most important factors for selecting the delivery method. These two factors are highly interrelated. This paper discusses the interaction of risk and control in the context of the project delivery method. Results of several interviews with transit authorities are used to ensure the validity of findings. This paper shows that higher control over the project is achieved only if the owner is willing to accept more risks. In other words, there is no delivery method that allows the owner to enjoy high levels of control and minimum risk simultaneously.     

Neural Network Model to Support International Market Entry Decisions

Bidding for international construction projects is a critical decision for companies that aim to position themselves in the global construction market. Determination of attractive projects and markets where the competitive advantage of a company is high requires extensive environmental scanning, forecasting, and learning from the experience of competitors in international markets. In this paper, a neuronet model has been developed as a decision support tool that can classify international projects with respect to attractiveness and competitiveness based on the experiences of Turkish contractors in overseas markets. The model can be used to guide decision makers on which type of data should be collected during international business development and further help them to prepare priority lists during strategic planning. Information derived from the model demonstrates that the most important factors that increase attractiveness of an international project are availability of funds, market volume, economic prosperity, contract type, and country risk rating. Similarly, level of competition, attitude of host government, existence of strict quality requirements, country risk rating, and cultural/religious similarities are the most important factors that affect competitiveness of Turkish contractors in international markets.