Foreign firms' financial and economic risk in China

Abstract

PurposeThe aim of this research is to investigate how foreign firms manage financial and economic risks when operating in China's construction industry. The specific purposes of the paper are to: identify the types of financial and economic risks foreign firms face and the frequency and severity of these risks; examine how foreign firms manage these risks; and recommend a risk management framework that can be adopted by foreign firms to mitigate financial and economic risks in China.Design/methodology/approachThe data collection instrument was a questionnaire which had open‐ended questions. The data collection method was face‐to‐face in‐depth interviews with 22 experts from Singapore who have experience in China's construction industry.FindingsNine economic and financial risks affecting foreign firms that operate in China's construction industry are found. Of these, the risks that occur frequently and are severe are: labour and material price fluctuation; and contractors/subcontractors' default. Eighteen contractual and general measures were found to be useful in mitigating these risks.Research limitations/implicationsThe findings may not be readily generalized because interviews were conducted with 22 China experts, all of whom are from Singapore.Practical implicationsForeign firms could use the findings to help them decide on the most appropriate measures to adopt, to overcome financial and economic risks that they face when operating in China's construction industry.Originality/valueThe research proposed a framework for foreign firms to use in managing financial and economic risks in China. It recommends different measures to mitigate different types of risks.