Supporting market entry decision for global expansion using real option + scenario planning analysis

The world has witnessed the dramatic expansion of international construction markets during the last decades, particularly around the developing economies and energy resource-rich countries. However, despite the booming markets, the risks of emerging regions have also increased under the rapidly changing environments confronting global contractors. Most of all, success in overseas business mainly depends on selecting a right market to enter. Accordingly, the right market selection requires global firms to carefully carry out the scientific market entry decision by evaluating country risks, market prospects, firm's capability, level of competition, and among others. This study aims at developing a market entry model by the use of real option analysis (ROA) and scenario planning, which places emphasize on firm's strategic flexibility against uncertainties encompassing the overseas construction markets. Based on the suggested approach, global contractors are expected to make a better decision rather than a widely used static NPV approach in pursuing, postponing, or abandoning a prospective market to their capacity with a consideration of uncertainties as well as its flexible option value. Copyright ASCE 2009.