A risk-based entry decision model for South African construction companies venturing into African markets

Abstract

This research examines the influence of international risks, and the level of resources of South African construction companies on entry decisions made to access cross‐border African construction markets. The study further investigates how the resources of South African construction companies and their decisions to enter into African construction markets, interact to mitigate the perceived impact of risks encountered in these markets. The study adopted a convergence of the mixed methods research approach where quantitative and qualitative data were collected concurrently from multiple sources. These data include a questionnaire survey distributed to construction companies registered on Grades 8 and 9 of the Construction Industry Development Board (cidb) Register of Contractors; interviews conducted with construction companies having international markets experience, as well as an assessment of annual and financial reports. Data obtained through the survey were analyzed using both descriptive and inferential statistics. The model developed was validated using a partial least squares structural equation modelling technique. Thematic content analysis was adopted in analysing the data obtained from the assessments of company documents and interviews. The study reveals that the level of revenue, the assets, and the number of employees of South African construction companies with cross-border experience, influence the perceived impact of political, social, procurement, design and construction related-risks in foreign markets. It also emerged that the decisions on entry modes were significantly influenced by the perceived impact of all classes of risk. The study established that significant positive interactions exist between assets and joint venture companies; joint venture projects and branch offices and companies; and that international experience are significantly related to strategic alliance as an entry mode. The positive interactions between resources and entry decisions made mitigate the perceived impact of risk in African construction markets. The study makes a significant contribution to the body of knowledge on international construction, by establishing an all-inclusive risk profile of the African construction market. Also, it establishes that the resources of multinational construction companies influences their perception of risks, and that the perceived impact of risks influences cross‐border entry decisions made to access foreign markets to mitigate the risks encountered. A risk-based entry decision model as a strategic tool, helps multinational construction companies to leverage their resources, as well as providing an adequate perception of risks when deciding on an appropriate strategic entry mode which will mitigate the risks encountered in crossborder markets.