Discuss in detail the environmental factors, which may affect an international project.

Please be thorough and comprehensive in your response to this topical question.

You do NOT have to make a response to another student, so focus on your own discussion board post to ensure that it is thorough, complete and accurate. Ensure that you have met the minimum word count. Use parenthetical citations to the textbook at the points at which you use materials – paraphrased or directly quoted from the textbook.

Your discussion post should be at least 500 words. Please be thorough and comprehensive in your response to this topical question.

Use a MINIMUM OF 3 AUTHORITATIVE RESOURCES ON YOUR REFERENCES LIST (one of which will be the textbook). USE PARENTHETICAL CITATIONS THROUGHOUT YOUR POST at the point at which you use materials (quoted or paraphrased) from your sources. Label your list of resources as the “References” list.

The proper Reference for the textbook for your References list:

Larson, E. W., & Gray, C. F. (2021). Project management: the managerial process. McGraw-Hill Education.

The correct parenthetical citation is: (Larson & Gray, 2021) for paraphrased materials or (Larson & Gray, 2021, p. 123) for a direct quote from a specific page.

MAIN RESOURCE:

The major challenge international project managers face is the reality that what works at home may not work in a foreign environment. Too often project managers impose practices, assumed to be superior, from their home country on host-country nationals without questioning their applicability to the new environment. Although there are similarities between domestic and international projects, good management practices vary across nations and cultures. It is these differences that can turn an international project into a nightmare. If potential international project managers have a good awareness of differences in the host country’s environment from their own domestic environment, the dangers and obstacles of the global project can be reduced or avoided. There are several basic factors in the host country’s environment that may alter how projects will be implemented: legal/political factors, security, geography, economic factors, infrastructure, and culture. 

Legal/Political Factors

Expatriate project managers should operate within the laws and regulations of the host country. Political stability and local laws strongly influence how projects will be implemented. Typically these laws favor the protection of the local workers, suppliers, and environment. For example, how much control will be imposed from government agencies? What is the attitude of federal and state bureaucracies toward regulations and approval policies that can cause project delays? How much government interference or support can one expect? For example, some governments interpret regulations arbitrarily, depending upon personal interests.

The constraints imposed by national and local laws need to be identified and adhered to. Are local ecological laws restrictive? Will manufacturing a new product in a computer chip plant require exporting toxic waste materials? What are the pollution standards? How will labor laws affect the use of indigenous workers to complete the project? Given that laws that affect business vary widely across countries, qualified legal assistance is essential.Government corruption is a part of international business. In China, various forms of obligatory “profit sharing” with city officials in the Hainan province have been reported. Employment of relatives, donations, and other “favors” are an expected cost of doing business in that region. Likewise, Bloomberg BusinessWeek reported that in Russia the threat of being targeted for abuse by government officials—sometimes operating in league with Russian businesses—is the primary reason that country has attracted less than one-fifth of the foreign investment in Brazil (Cahill, 2010).

Political stability is another key factor in deciding to implement a project in a foreign country. What are the chances that there will be a change in the party in power during the project? Are the tax provisions and government regulations stable or subject to change with the winds of political change? How are laws made, and what is the past record of fairness? How are labor unions treated in the political realm? Does labor unrest exist? Is there a chance for a coup d’état? Contingency plans need to be established to respond to emergencies.

Security

International terrorism is a fact of life in today’s world. Tim Daniel, chief operating officer of International SOS Assistance, Inc., reported that the number of his firm’s clients doubled after September 11th. SOS is a security firm that specializes in evacuating expatriates from dangerous situations around the world. The company cites PricewaterhouseCoopers, Nortel Networks Corp., and Citigroup among its clients (Scown, 1993).

Crime is another factor. The growing presence of the Russian Mafia has discouraged many foreign firms from setting up operations in Russia. And piracy is a threat off the coast of Somalia and other parts of the Indian Ocean. Kidnapping of American professionals is also a threat in many parts of the world.

Security nationally involves the capacity of a country’s military and police forces to prevent and respond to attacks. In many foreign countries, American firms have to augment the countries’ security system. For example, it is common practice to hire tribal bodyguards in such places as Angola and Uzbekistan.

Another cost associated with terrorism is the ease of commerce across borders. Heightened security measures have created border congestions that have expanded the time and cost of moving personnel, materials, and equipment across countries. These constraints need to be factored into the budget and schedule of projects.Risk management is always a vital part of project management. It plays an even bigger role in managing projects overseas. For example, Strohl Systems Group, a global leader in recovery-planning software and services, includes the following among the questions they use to evaluate vulnerability to terrorism: Have you included possible terrorist targets (facilities and personnel) in your hazard and vulnerability analysis? Have you conducted a counterterrorism exercise complete with law enforcement, fire, medical, and emergency management participation? What should your organization’s policy be on negotiating with a person threatening a terrorist act?1

Managing projects in a dangerous world is a tough assignment. Security precautions are major cost considerations not only in dollars and cents but also in the psychological well-being of personnel sent abroad. Effective risk management is critical.

Geography

One factor that is often underestimated until project personnel actually arrive at a foreign destination is the geography of the country. Imagine what it is like to deplane from a modern aircraft and encounter the 105-degree heat and 90 percent humidity of Jakarta, Indonesia, or 3 feet of fresh snow and −22-degree temperatures in Kokkla, Finland. Whether it is the wind, the rain, the heat, the jungle, or the desert, more than one project manager has asserted that the greatest challenge was overcoming the “elements.” Mother Nature cannot be ignored.

The planning and implementation of a project must take into account the impact the country’s geography will have on the project. For example, a salvage operation off the coast of Greenland can only be scheduled one month out of the year because the waterway is frozen over during the remainder of the year. Construction projects in Southeast Asia have to accommodate the monsoon season, when rainfall can be as high as 50 inches per month.

Geography does not just affect outdoor projects. It can have an indirect effect on “indoor” projects as well. For example, one information systems specialist reported that his performance on a project in northern Sweden declined due to sleep deprivation. He attributed his problems to the 20 hours of daylight this part of the world experiences during summer months.

Finally, extreme weather conditions can make extraordinary demands on equipment. Projects can grind to a halt because of equipment breakdown under the brunt of the wind and sand. Working under extreme conditions typically requires special equipment, which increases the costs and complexity of the project.

Before beginning a project in a foreign land, project planners and managers need to study carefully the unique characteristics of the geography of that country. They need to factor into project plans and schedules such items as climate, seasons, altitude, and natural geographical obstacles. See Snapshot from Practice 16.1: The Filming of Apocalypse Now for an example of a poorly planned endeavor in the Philippines.

Economic Factors

Basic economic factors in foreign countries and regions influence choices of site selection and project success. The gross domestic product (GDP) of a country suggests that country’s level of development. A faltering economy may indicate fewer sources of capital funding. Changes in protectionist strategies of a host country, such as import quotas and tariffs, can quickly alter the viability of projects. Other factors page 595such as balance of payments, taxation, labor laws, safety regulations, and market size can influence project choices and operations.The skills, educational level, and labor supply prevalent in a host country can determine the choice of a project site. Is project selection driven by low wage levels or the availability of technically skilled talent? For example, one can hire three computer programmers in Ukraine for the price of one programmer in the United States. Conversely many high-tech companies are willing to endure the additional expense of setting up joint projects in Switzerland and Germany to take advantage of their engineering prowess.

Financial exposure is a significant risk for many international projects. Let’s look first at the potential impact of currency fluctuations on project success. For example, a U.S. contractor agrees to build a customized product for a German client. The product will be built in the United States. The contractor estimates that the project will cost $925,000 and, in order to earn a nice profit, prices the project at $1 million. To page 596accommodate the German buyer the price is converted to euros. Suppose at the time of the contract the exchange rate is $1.15 per euro, and the price specified in the contract is €869,566.

Ten months later the project is completed as expected, with work costing the estimated $925,000, and the customer pays the agreed-upon price of €869,566. However, the exchange rate has changed; it is now $1.05 per euro. That being the case, the payment equates to €869,566 × 1.05 = $913,044. Instead of reaping a nice profit, the contractor suffers a $(913,044 − 925,000) = $−11,956 loss!

Companies can protect themselves against adverse currency fluctuations in a number of related ways. First, they can hedge against this risk by having all parties agree to finalize the deal and make payments at a specified future date. Finance people call this a forward exchange or contract. Second, they can stipulate in the contract certain conditions based on exchange rates to ensure their profit margin. Finally, many multinational companies who do business in the client country avoid currency exchange and simply use local currency to manage operations in that country. Financiers refer to this as a natural hedge (Moffet, Stonehill, & Eiteman, 2012).

Inflation is another significant risk. One of the greatest strengths of the U.S. economy is its relatively low inflation rate (below 3 percent from 1990 to 2012). Other countries, especially underdeveloped countries, do not enjoy such stability. Rapid inflation can strike at any time and have a profound impact on project costs and profits. Suppose that a European contractor successfully wins the bid to build a bridge for the Tanzanian government in East Africa. Work starts in 2010 and will be completed by the end of 2011. In 2010 the Tanzanian inflation ratio is less than 6 percent with an average inflation rate of 6.7 over the past decade. The contractor uses what she considers a conservative inflation rate of 9 percent when estimating the costs of the project at 1,800,000 schillings (Tanzanian currency). In order to win the bid and enjoy a solid profit the agreed-upon price is 2 million schillings.

Early in 2011 Tanzania experiences a sporadic rainfall, which, coupled with increased oil prices, causes the inflation rate to jump to over 20 percent! Suddenly costs of certain elements of the project increase dramatically and instead of garnering a nice profit the contractor barely breaks even. Companies can protect against inflation by tying costs to a strong currency such as the U.S. dollar, British pound, or euro and/or negotiating cost-plus contracts (see Chapter 12 Appendix) with the client.

Bartering is a form of compensation that is still used by some countries and organizations. For example, one project in Africa was paid in goat skins. The goat skins were eventually sold to an Italian manufacturer of gloves. A project along the Caspian Sea was paid for in oil. A small group of firms specialize in bartering for project contractors. These intermediaries charge a commission to sell the bartered goods (e.g., oil, diamonds, wheat) for the contractor. However, dealing with commodities can be a risky enterprise.

Infrastructure

Infrastructure refers to a country’s or community’s ability to provide the services required for a project. Infrastructure needs for a project include communication, transportation, power, technology, and education systems. Power outages are common in many parts of the world. For example, India’s burgeoning economy came to a halt during the 2012 summer, when over 670 million people were without power for more than two days. If reliable power is not sufficient, other alternatives need to be considered. For example, construction firms often rely on heavy diesel generators as backups on their projects. Software projects across borders are common today; however, they depend on reliable telecommunication networks. If a project depends on a high ratio of page 597vendor suppliers, good roads, and other transportation modes such as air and seaports, a good infrastructure is imperative.

An example of a project that failed to take into account the needs and infrastructure of the host nation involved a U.S. company that was awarded the contract for building a hospital in an African nation. The local African officials wanted a “low-tech” healthcare facility that would take local traditions into consideration. Because their relatives generally accompanied patients, space had to be provided for them, too. Electricity was not reliably supplied, and it was doubtful whether well-educated doctors would want to spend careers away from the city. Therefore, the locals wanted a hospital for basic care with minimum technology. The construction company doing the building, on the other hand, had a preconceived notion of what a hospital should be and was not going to be accused of building a second-rate facility. It built a modern hospital that could have stood in any U.S. city. The building was completed; however, even after several years it was not used because the electricity was not sufficient, the air conditioning could not be used, and doctors refused to live in the rural area (Adler & Gunderson, 2007).

Organizations must consider the needs of the families of the personnel they send overseas. Will the facilities and living conditions for the expatriate families place an undue hardship on them? Will schooling for children be available? The welfare and comfort of expatriate families play an important role in retaining good project managers and promoting their peak performance.

Culture

Visiting project managers must respect the customs, values, philosophies, and social standards of their host country. Global managers recognize that if the customs and sociocultural dimensions of the host country are not accommodated, projects will rarely succeed. Too many project audits and final reports of international projects reflect challenges and problems linked to cultural differences.