Risk management for international construction joint ventures : case studies of Vietnamese contractors

Abstract

Vietnam is a Southeast Asian country with a great expansion of the construction industry in recent years. To enter the local market, several international construction companies have been cooperating with local partners in the form of international construction joint ventures (ICJVs). This business form has been adopted in the construction industries worldwide because foreign contractors can share their work experiences and resources with local contractors that understand cultural, political, and legal factors in their countries well. In spite of its numerous merits, it is highly risky for all contractors to implement this business scheme. Managing ICJVs in Vietnam is extremely risky due to several internal and external factors such as unstable economy, limited managerial skills of Vietnamese contractors, and cultural difference of the partners. To manage such risks, most local contractors rely solely on their professional experience, rather than implementing systematic risk management. This research presents an application of risk management to identify, assess, and respond to risk factors affecting three performance stages of ICJV projects in Vietnam. The results were then used to establish the risk profile of the implementation of ICJVs in Vietnam. The questionnaire surveys and in-depth interviews were used to gather information from 15 respondents, who are experienced in ICJV projects. Forty-seven risk factors affecting the performance of ICJVs were identified and categorized into three risk groups. The probability and impact of such risks were assessed by using the PI method. The critical risk factors in different stages of ICJV projects were then identified. For example, the startup stage of ICJV projects encompasses such critical risk factors as the partners’ parent companies, financial aspects of ICJV, economic problems, management issues, and social problems. The financial, management, and economic issues are the critical risk factors throughout the three stages of ICJV. The impacts of the risk factors on cost, schedule, scope, and quality were addressed. Financial problems, breach of contracts by ICJV partner, excessive demands by clients, subcontractors/suppliers, project management team, and force majeure issues contribute to significant impact on multiple objectives of ICJV projects. The risk-response measures implemented by Vietnamese contractors in ICJV projects were collected by in-depth interviews. The most common risk response measure was risk mitigation, whereas risk transfer and risk retention were not favorable alternatives. Risk avoidance was considered the last option to cope with these risk factors.These results were summarized to propose the risk response strategies of ICJVs in Vietnam. By integrating all the previous results, the risk profile for ICJV projects in Vietnam was developed. The findings in this research can be used to assist ICJVs, local contractors, and foreign contractors in planning and implementing ICJVs in Vietnam successfully.