Lee, K W; Han, S H; Park, H and David Jeong, H (2016) Empirical analysis of host-country effects in the international construction market: An industry-level approach. Journal of Construction Engineering and Management, 142(3): 04015092, ISSN 0733-9364
Abstract
The international construction market has significantly grown in the past decades, and it has created new opportunities for engineering and construction firms to expand their businesses into foreign countries. However, this market is primarily riskier than the domestic market because of differences of political, economic, social, cultural, and business environments. Because firms are profit-seeking entities, it is vital for them to explicitly understand those risks in both macrodimensions and microdimensions such as country level and project level, and they must be well prepared to assess and mitigate those risks to successfully gain the anticipated profits. The goal of this paper is to empirically analyze the host-country effects (i.e., macrolevel risks) on the profitability of international engineering and construction projects. A total of 2,821 projects completed by Korean engineering and construction firms from 1993 to 2012 were analyzed using the variance-component model. The results show that (1) host-country effects contribute to the profitability of projects indirectly (interaction with firm capabilities) rather than directly (independently); (2) host-country effects are more evident in booming periods than in recession or transition periods; (3) host-country effects are greater in less-developed countries than in developed countries; and (4) host-country effects are more significant for large firms than for small-medium firms. The findings of this paper are also significant in that they provide a data-driven strategic guidance for top managements of international firms, particularly for their country diversification planning and country portfolio management. The process and methodology used in this paper is repeatable, and it can be directly adopted by international firms in the construction industry for a macrolevel-risk analysis of their future international projects.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | empirical analysis; host-country effect; international construction; organizational issues; project profitability; variance-component model |
| Index terms: | risk analysis, international project, firm capability, construction project, methodology, top management, developed country, international firm, profit, construction firm, construction industry, interaction, organizational issue, diversification, international construction, profitability, portfolio management, variance, recession |
| Subjects: | production management, development economics, management, research methods, industry analysis, environmental hazards, behavioral psychology, market analysis, measurement and scaling, strategic management, business, organization, economic analysis |
| Topics: | International Construction, Organizational Design, Research Practice, Project Management, Business Strategy, Sustainability |
| Descriptive scope: | 4 PCTA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here