Unforeseen conditions and costs on global projects: Learning to cope with unfamiliar institutions, embeddedness and emergent uncertainty

The multi-disciplinary, multi-method research described in this dissertation explores the link between host country institutions, unforeseen costs and alien market entry strategies. Contribution one is a generic narrative model, based on an inductive analysis of 23 vignettes. It describes how “institutional exceptions” - misjudgments, misunderstandings and conflicts - arise when entrants fail to understand unfamiliar institutions; how institutional exceptions lead to “unforeseen transaction costs” including time, money, relational and reputational costs; and how entrants adaptively curb these costs as they acquire relevant local knowledge, re-script mental models and adapt plans and tactics. Next is a quantitative analysis of data collected from dyadic entrant-to-host entity relations on nine large Asian infrastructure projects. The analysis verifies the significance of relational friction, conflict, and unforeseen costs, which increase with institutional differences and interdependencies, and decrease as entrant managers gain local experience, and as entrant firms develop recurring relations with local entities. The third contribution concerns strategies to minimize unforeseen costs on projects in alien markets. The analysis draws on interview data from four types of entrants - general contractors, developers, systems contractors and project consultants. The findings indicate that with increasing embeddedness in an alien market context, firms face greater levels of emergent uncertainty, which effects strategic decisions such as entry mode, staffing and centralization of control. This reconfirms Chandler's classic theorem that a firm's strategy and structure need to be aligned with its environment. The findings also articulate the concept of “general internationalization knowledge”, revealing three theoretically distinct strategies of entrant firms: increasing the supply of local knowledge, decreasing the demand for local knowledge, and reducing the impact of a local knowledge deficit. These strategies refute the myth that entrant performance is tied to climbing a “country learning curve”, but, instead imply that dodging the need to learn and avoiding the costs of not learning are equally vital to success. Overall, the dissertation offers new data and a fresh conceptual map enabling scholars and managers to foresee the differences and similarities across alien markets; to identify embeddedness, emergent uncertainty, unforeseen transaction costs and the performance ramifications thereof; and to intelligently craft internationalization strategies.