Improving Quantitative Assessment of Political Risk in International Construction Projects: The Case of Chinese Construction Companies

Political risk is one of the most prominent dangers for International Construction Companies (ICCs) to deal with in overseas countries. Despite considerable studies on political risk management in international business, few have been focused on quantitative political risk assessment methods in international construction projects. Thus, this study aims to establish a quantitative model for assessing political risk in such projects. Through the comprehensive literature review and the pilot interviews with 10 industry experts, 36 political risk source variables were first identified. Then, a questionnaire survey was conducted with 155 respondents, and a confirmatory factor analysis (CFA) was performed to group these variables into six exogenous driver components and six endogenous vulnerability components. Subsequently, a quantitative assessment model was developed, based on the vulnerability theory and the Cannikin Law, and validated by 294 cases obtained from 45 Chinese Construction Companies (CCCs). This study incorporated the vulnerability variables and the Cannikin Law in political risk assessment and provides ICCs with a more effective approach to assess political risk using the available data from international research institutes and project systems. The application of the model can also facilitate in political risk warning and management in the international construction business. As the model proposed in this study can be applied to ICCs in different countries, the findings and outcomes of this study can contribute to the global body of knowledge of political risk management.