How do the political constraints of the host country affect the choice of a new geographical market in the construction sector?

Abstract

MNEs, before taking a decision to internationalize, should analyze the macro environment
factors affecting a foreign market, which avoids/decreases uncertainty. Hence, understanding
the political constraints when choosing the geographical market is imperative. This is true,
especially for the construction industry because it is a regulated industry, which means that
companies need to have a permit from the government in order to operate in this industry.
Furthermore, companies working in the heavy construction industry have the government as
their main client because most of the projects are public. In order to understand the political
factors affecting the choice of a new geographical market we did participant observation and
conduct four interviews to the managers of a Portuguese scaffolder services provider company.
Our findings suggest that the relationships between companies and governments are
particularly important in countries characterized by political instability. In countries with high
policy discretion, in which the ruling body can change the law suddenly according to their
preferences, it is essential to establish close ties with the government. If the company is able to
establish stronger ties, it has competitive advantage, if not, managers are risk averse and tend
to not invest in that country. Companies that invest in a foreign country, without that capability,
may fail due to the institutional distance and the lack of managerial training. Furthermore, the
stability of the country influences the commitment and confidence of a firm in that market.

Date of Award	28 Jul 2017
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Laure Leglise (Supervisor)