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 environmentfactors affecting a foreign market, which avoids/decreases uncertainty. Hence, understandingthe 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 thatcompanies 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 astheir main client because most of the projects are public. In order to understand the politicalfactors affecting the choice of a new geographical market we did participant observation andconduct four interviews to the managers of a Portuguese scaffolder services provider company.Our findings suggest that the relationships between companies and governments areparticularly important in countries characterized by political instability. In countries with highpolicy discretion, in which the ruling body can change the law suddenly according to theirpreferences, it is essential to establish close ties with the government. If the company is able toestablish stronger ties, it has competitive advantage, if not, managers are risk averse and tendto 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, thestability 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)