Effect of institutional risks on the performance of international construction projects

As the opportunities for international construction projects continue to grow, there is also a need for better understanding of uncertainties and risks that international contractors face in different business environments. Those opportunities are a double-edged sword, because the international contractors may end up with catastrophic failures unless the multitude of risks are not analyzed carefully and mitigated appropriately. This study uses the institutional theory as an analytic lens to investigate the risks of international construction projects. This study identified and classified institutional risks and noninstitutional risks with which international contractors are confronted when they venture into international construction markets. Level of risk occurrences, their effects on the project cost and schedule, and characteristics of the firms' strategic responses to those risks are investigated using the survey data of 139 international projects. The data analysis results using the analysis of variance (ANOVA) show that there are significant differences in the average magnitude of risks and their effects on the cost increase and schedule delay by risk categories (macro, micro, and noninstitutional risks) and the host country's institutional efficiency. In addition, preresponse methods used by the contractors to mitigate risks are also different by the risk and country type. The findings of this study are expected to contribute to establishing effective strategic risk response plans for international projects.