Managing risks in the international growth business of Finnish construction contractors and building product suppliers
Doctoral thesis (monograph)
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TKK structural engineering and building technology dissertations, 3
AbstractMajor changes inside Finland catalyzed the internationalization of its construction industry to initial growth in the late 1960s/early 1970s. In the year 2008, the value of its international business was app. 16 Bn€ i.e. at the same level as that of new building production in Finland. It is forecast to grow. Practitioners understand that by effective risk management (RM), the occurrence and significance of failures (or successes) can be reduced (or, alternatively, increased). Two research questions, to explain causal links in real-life interventions and look for a positive effect on RM practices, are posed: "How can the main internationalization process risks of leading Finnish construction contractors and building product suppliers be managed?" and "What are those main risks, and how can they be managed?" The purpose of this study is to find better ways to manage major risks within the context. The impact of proven project RM methods at the business level is analyzed and the major risks embedded within key managers and their competencies in managing, in particular, cross-cultural issues and contractual arrangements, are identified. Hypothesis 1 is that proven project RM methods can be applied reliably at the business level and the effectiveness of managing major international business risks can be improved. Hypothesis 2 is that major risks related to the business objectives are inherent within key managers' competencies, in particular in (2a) managing cross-cultural issues and (2b) contractual arrangements. Overall, the scope encompasses Finnish firms managing international businesses and projects and the related risks, in growth situations. The main parts are a literature review and qualitative insider action research with case studies. In the reviewed literature, international aspects are covered thinly or in a country-specific manner. RM is increasingly being transformed into uncertainty or opportunity management, and becoming more proactive. "Early warnings" are relied upon more frequently. Besides, RM is ever more important in international projects and acquisitions, while new tools and models are being created. Hypothesis 1 is a novelty i.e. it is not addressed in the reviewed literature. The hypothetical management competencies, as sources of success and failure, surface frequently but in unstructured ways. Thus, Hypothesis 2 cannot be considered as a novelty, although, within the context, the cross-cultural risks are a novel research object when connected to key managers' competencies to manage cross-cultural issues. The challenge for RM research is to replace "management by rear-window view" with the management of more multi-cross-cultural, complex, and global networks which look actively into the future. The action research is based on authentic documentation, as systematically collected by the researcher since the completion of his licentiate thesis (Palojärvi 1986), except for Case 1, which sums up the findings of five construction projects in the years 1974-1984. Cases 2-9 are growth strategies, mergers, and acquisition and delivery projects in the years 1984-2006, and they are causally coupled to deepen the longitudinal analysis. In the cases, the formal risk identification mostly meant "what can go wrong?" However, the product suppliers recognized the opportunities as well. Early risk identification at the business level often led further to proactive RM. The case evidence conforms well to Hypothesis 1. To manage the hypothetical major risks, it was more beneficial to take measures proactively, i.e. early on and at the business level, rather than to wait until firm commitments had been made. It was useful to have ample calendar time available when analyzing contractual role alternatives, key appointments, or the entry mode, which are difficult to change at the project level. The case evidence also conforms well to Hypothesis 2. In all the cases, the major risks that occurred were inherent in at least one or often even both of the two hypothetical managerial competencies. Other major risks appeared only sporadically. Thus, at least the two hypothetical major risks should always be identified and further managed in each project. The key managers' competencies regarding cross-cultural issues were a more common major risk (or source of one) than the selected contractual role and other arrangements, although major risks were also inherent in the contractual arrangements. Other interesting observations include the following. (i) Uncertainty management may be well suited to projects with unclear objectives. Traditional RM, focused on goal attainment as a "positive outcome", needed clear objectives for the most appropriate response. (ii) The development of practical RM over time was also reflected in the cases. In the focal business, the formal identification of risks and their responses became standard relatively late. (iii) Complexity reduction should be the goal when fighting risks with potentially negative consequences, which may rapidly develop into crises. The main result of the internally valid study, i.e. proven project RM methods could be applied at the business level, thus enabling the major risks inherent in the key managers' competencies regarding cross-cultural and contractual issues to be managed early and proactively, is a novelty. It is considered reliable and applicable to any investment project businesses with cross-cultural, e.g. international contexts. The main contribution to practice is to convert the hypotheses to practical action. The novel, early (i.e. business-level) response-oriented risk and opportunity management method (EROM) should be further developed for growth and other change business transactions, with the capacity to identify and respond to - but definitely not to ignore - opportunities. Besides, the key managers' competencies, related to the areas of the major contextual risks, must be managed. The potential gain from better contextual RM is quite significant.
building product suppliers, contractors, complexity, contractual, crisis, cross-cultural, international construction, risk management, uncertainty