Understanding the critical variables affecting the level of political risks in international construction projects

Abstract

Contractors in the international marketplace are experiencing more severe political risks than ever before. They have also in response endeavored to mitigate the high degree of political risk exposure in order to survive. It is important however to identify and manage the critical variables affecting political risks associated with international construction projects. Relatively few studies of political risks, particularly in the context of international projects, have been carried out. The objective of this paper is to examine how international contractors attempt to identify and manage the critical variables which affect the level of political risks when they venture out of their home countries. 85 variables contributing to the level of political risks encountered by international contractors were identified in this paper. Based on the findings from an international survey on political risks, this study reveals that the variables, such as degree of stability of the government, project desirability to the host country, policy uncertainty, racism and xenophobia, and unfavorable attitude towards foreign businesses are the most significant variables. Several recommendations are also provided for international contractors in this paper. This research will assist international contractors to manage the political risk factors when expanding overseas.