Identification of political risk during the life cycle of IPOs

International projects are normally exposed to various risks be it political, environmental, technical or other due to complexities, uncertainties and dynamic natures at any stage of their life cycles (Zhao et al., 2010). Additionally, international project companies have to access and cooperate with various stakeholders (Kardes et al. 2013; Bruijn & Leijten 2008; Van Marrewijk et al. 2008) and thus this engagement with numerous stakeholders require them to assess various environmental, economical, societal, cultural, regulatory and political risk factors time to time (Walewski et al. 2006).

Extant literature especially those related to international construction and public private partnership (PPP) infrastructure projects suggest that it is important to assess, manage, control, transfer or allocate these aforementioned risks from a project life cycle perspective (Zou et al. 2008). Zou et al. (2008) further maintained that in an international project (regardless of types e.g., PPP project) risks ought to be identified and assessed in as early phase (i.e., project initiation) of the PLC as possible so that proper management and allocation of risks can be assured by appointing the right stakeholder who is capable of controlling those risks. For instance, a study on more than 1000 projects by World Bank (1996) demonstrated that projects with an early stage risk identification and assessment (e.g., a comprehensive initial project design at the project initiation phase) experienced 80% success rates than those of their counterparts who experienced 30% success rates because of not having an early stage risk identification and assessment initiative within the life cycle of a project. However, a continuous project risk monitoring strategy and a proactive tendency to response to certain risks should always be encouraged as a good practice during the entire course of an international project (Zou et al. 2008). Irrespective of the PLC phases, project risks are ought to be identified and control of such risks is an overreaching objective of any international project manager (Kardes et al. 2013).

As stated earlier, an IPO’s risks can be of any uncertain event(s) be it political, environmental, technical or other and if it occurs, it can negatively impact at least one of the project outcomes such as project’s quality, time, cost, etc. (PMI 2017), this study sets it delimitation to only discuss relevant political risks identification in different phases of an international project life cycle.

Political risks are complex and multidimensional phenomena to the context of IPOs (Click 2012; Stevens et al. 2015). The impact of political risks may vary across different industries, nature and size of projects and time of execution (Korbin 1982). For instance, although an international project is executing its deliverables according to the agreed project key success factors (e.g., time, cost, budget, etc.), it might experience undesirable vulnerability to increased political risks provided that the host government has changed its FDI focus to a different industry (Oetzel 2005) or the administration of the host-country suddenly changes its legislative requirements (Lessard 1996; Black 2002; Keillor et al. 2005; Stosberg 2005;

Ozorhon et al. 2007: 800; Al Khattab et al. 2007; Zhang & Wei 2012; Han et al. 2018) concerning the ongoing international project in question.

Thus political risk identification during the entire life cycle of an international project ought to be considered as an integral and ongoing part of the project management process rather than finding out different political risks as they might occur on each phase of the PLC (Raftery 1994; Chapman & Ward 2003: 31; Zou et al. 2008; Li & Zou 2012; Kerzner 2017: 612; PMI 2017).

However, extant literature has attempted to identify different political risks during a course of aPPP infrastructure projects’ life cycles. Li & Zou (2012) in their study extensively reviewed 6 academic papers of risk identification in PPP projects from the UK, China, India, and Portugal, and offered a risk identification and classification considering a project life cycle perspective. Kerzner (2017: 613) also offers a generic project life cycle risk analysis. Drawing on the empirical evidence from Akintoye et al. (1998), Wang et al. (2000), Grimsey & Lewis (2002), Lemos et al. (2004), Li et al. (2005), Sight & Kalidindi (2006), Al Khattab et al. (2007), Li & Zou (2012), PMI (2017) andKerzner (2017), this study argues that the following political risk elements in table 6 can be identified during the life cycle of IPOs.

Table 6. Identification of political risk during the life cycle of IPOs. (Adapted from Li & Zou 2012 and Kerzner 2017: 613).

Political risk elements 1 Risk of not-permit approval

(Legal & regulatory) Ref. [1], [2],

5 Regulatory legislation change (Taxation and/or import/export

6 Excessive contract variations (Contract repudiation/breach of

8 Political force majeure events

(Wars or Economic sanctions) [2], [5], [6]

However, it is arguable based on extant research that IPOs are prone to political risks more in the project planning and execution phases as compare to the other phases of the PLC (Lyons

& Skitmore 2004; Li & Zou 2012; Goh & Abdul-Rahman 2013; Kerzner 2017: 612). To conceptualize the rationale for such high tendency of political risk exposure in the project initiation and the execution phases, Kerzner (2017: 613) argues that owing to lack of information and actionable risk response strategy, international project companies cannot accurately assess and identify all the possible political risks at the beginning of the international PLC phase. Whereas, international projects face substantial political risks exposure at the project execution stage because of gaining critical public attention (Van Marrewijk et al. 2008; Kardes et al. 2013), conflicting stakeholder interests (Kardes et al. 2013;

Bruijn & Leijten 2008; Van Marrewijk et al. 2008), and already made substantial resource investment and commitments (Kerzner 2017: 612).

Furthermore, it is noticeable that international projects face no or less political risks at the project closure phase as risks related to this phase are mostly concerned to financial risks such as cash flow problems (Kerzner 2017: 612), technical risks such as transmission failure (Wang et al. 2000; Lemos et al. 2004) or project quality risk such as poor quality of work which is unacceptable to customers (Kerzner 2017: 612).