Du Yon Kim

A Financial Market Entry Decision Model for International Construction Business Using Real Option Analysis and Monte Carlo Simulation

Recent trends in the international construction markets indicate a growing number of projects that require a long-term investment strategy on the part of a construction firm. Therefore, this changing market environment calls for businesses to shift their paradigm from individual projects with limited decision-making tasks to projects with long-term investments and complex decision-making issues. The majority of the latest studies on international market entry address decision-making models based on risk analysis. When a contractor ventures into foreign markets, the consideration of various financial circumstances that he faces poses certain inevitable limitations. Therefore, this study developed a model that is based on real option analysis and Monte Carlo simulation, and is capable of incorporating uncertainties in the market during the evaluation of the market development proposal and the financial evaluation. The model allows for integrative consideration of both market risk and private risk. Applying the proposed model is believed to offer reasonable support to construction firms with maximum accommodation of each markets circumstances.

Supporting Market Entry Decisions for Global Expansion Using Real Option + Scenario Planning Analysis

The world has witnessed the dramatic expansion of international construction markets during the last decades, particularly around the developing economies and energy resource-rich countries. However, despite the booming markets, the risks of emerging regions have also increased under the rapidly changing environments confronting global contractors. Most of all, success in overseas business mainly depends on selecting a right market to enter. Accordingly, the right market selection requires global firms to carefully carry out the scientific market entry decision by evaluating country risks, market prospects, firms capability, level of competition, and among others. This study aims at developing a market entry model by the use of real option analysis (ROA) and scenario planning, which places emphasize on firms strategic flexibility against uncertainties encompassing the overseas construction markets. Based on the suggested approach, global contractors are expected to make a better decision rather than a widely used static NPV approach in pursuing, postponing, or abandoning a prospective market to their capacity with a consideration of uncertainties as well as its flexible option value.

FULLY INTEGRATED WEB-BASED RISK MANAGEMENT SYSTEMS FOR HIGHLY UNCERTAIN GLOBAL PROJECTS

Overseas construction projects are exposed to diverse and complex risks, including political, economical, social, and cultural issues. They tend to have a high possibility of loss/failure compared to domestic projects. For this reason, risk management is getting more important, emphasized, and systemized so as to improve the project performance. Since each phase of a construction project causes different types of risk associated with decision-making process, risk management system for global projects should be tailored to satisfy the specific needs of the particular phase. In this way, various risk management issues that arise through the entire life cycle of the project can be constantly checked and monitored. This study reviews basic decision-making processes in the global construction projects, and presents a framework for risk management of each process of a sequential decision. A fully integrated risk management system is also developed as a decision supporting tool, using key risk factors of each stage of a project.