Top Ten Risks Fourth ten risks Ist. Cost increase due to changes of policie 31st. Increase in site overheads 2nd. Improper project feasibility study 32nd. Bankruptcy of project partn 33rd. Errors in design drawings 4th. Inadequate forecast about market demand 34th. Loss incurred due to political changes 5th. Improper selection of project location 35th. Loss due to fluctuation of RMB exchange rate 6th. Poor quality of procured materials Increase of resettlement cost ply of water, gas electricity 10th. Design changes 40th. Poor quality of procured accessory facilities Second Ten risk Other Risks 2th. Incomplete contract terms with pa 41st. Breach of contracts by other participants 42nd, Poor relation and disputes with partner 13th. Local firm's incompetence low credibility 43rd. Problems associated with culture difference 14th. Competition from other similar projects 44th. Increase of materials price 15th. Loss incurred due to corruption and bribery 45th. Unfairness in tendering 16th. Improper project planning and budgeting hange of organization within local partner 48th. Shortage in skillful workers 9th. Incompetence of project management team 49th, Increase of accessory facilities price 20th. Poor relation with governmen 50th. Shortage in accessory facilities 51st. Obsoleteness of building equipment Third Ten Risks 2nd. Accidents on site 21st. Subcontractor's low credibility 2nd. Loss due to fluctuation of interest rate 53rd. Unusual weather& force majeure 23rd. Loss due to insufficient law for joint ventur ustrial disputes 24th. Lack of enforcement of legal judgement 6th, Materials shortage 57th. Increase of labor costs 26th. Loss due to fluctuation of inflation rate 58th, Incompetence of transportation facilities 27th. Problems due to partners'different practice 28th. Inadequate project organization structure :9th. Difticult convertibility of RMB 30th. Fall short of expected income from project us FIG. 1. Risk Ranking for Sino-Foreign Construction Joint Ventures in China tures be aware of these major risks and plan proper ways of joint venture for damages. The contractor denied the liability controlling them and refused to attend any meeting for negotiation and settle ment. Finally, the case was settled through mediation, and the RISK ANALYSIS joint venture had to reimburse the factory for all of the dam ages her adversities involved in this case include the dif- While it is not practical to discuss the full implications of ficulty to control the contractor's performance particularly on all the risks identified in the survey, this section intends to the cost aspect during construction. The negotiation on rates demonstrate the pattern of the risk environment by presenting for new items was almost always in favor of the contractor some practical examples discussed in the five in-depth inter- and the joint venture had to pay higher rates for many items views following the survey. Not all the risks addressed in this In the end, the project was delayed, and substantial extra costs section respond to the most important risks"ranked in the occurred. The experience learned from this case demonstrates risk significance index as interviewees have different experi- one of many possibilities of making loss due to inadequate ences, and their perception or judgment may not be fully in choice of partner. Usually, overseas businesses tend to find armony with the calculated average index scores their partners from large state-owned companies. However, many large state-owned companies may have huge registered Management Risk often have a complicated and bureaucratic system, and the The survey shows that there are five management-type risks top managers are usually appointed by the government. There- among the 10 top risks. When the in-depth interview was ce fore, such a joint venture's cooperation needs to be incorpo- ducted, it seemed that"inadequate choice of project partner rated with the interests of the local partner's superio is a typical risk to joint ventures. a wrongly selected partner can lead to substantial losses. In a commercial building project Policy Risk developed by a Sino-foreign joint venture in Shanghai, the foreign partner suggested selecting the main contractor In the process of reforming the economy system, govern- through selective tendering, but the local partner insisted on mental policies are subject to reviews or change es or updated employing one of its subsidiary construction firms Following as reform progresses. Therefore, many provisional policies and a number of discussions within the joint venture, the local regulations are issued by both the central and local govern- partner's construction firm was eventually employed. How- ments. However, the variations in policies and regulations can ever, due to the contractors inadequate building methods, dif- have significant impact on joint venture businesses. In the sur ferential settlement occurred at the foundation of the adjacent vey of this study, "cost increase due to policy changes"was factory building, and its production line was damaged during ranked as the top important risk. A joint venture project located the basement excavation of the project. The factory sued the old city in Guangdong province was to redevelop a res- 78/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT/ JANUARY/FEBRUARY 200178 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JANUARY/FEBRUARY 2001 FIG. 1. Risk Ranking for Sino-Foreign Construction Joint Ventures in China tures be aware of these major risks and plan proper ways of controlling them. RISK ANALYSIS While it is not practical to discuss the full implications of all the risks identified in the survey, this section intends to demonstrate the pattern of the risk environment by presenting some practical examples discussed in the five in-depth inter￾views following the survey. Not all the risks addressed in this section respond to the ‘‘most important risks’’ ranked in the risk significance index as interviewees have different experi￾ences, and their perception or judgment may not be fully in harmony with the calculated average index scores. Management Risk The survey shows that there are five management-type risks among the 10 top risks. When the in-depth interview was con￾ducted, it seemed that ‘‘inadequate choice of project partner’’ is a typical risk to joint ventures. A wrongly selected partner can lead to substantial losses. In a commercial building project developed by a Sino-foreign joint venture in Shanghai, the foreign partner suggested selecting the main contractor through selective tendering, but the local partner insisted on employing one of its subsidiary construction firms. Following a number of discussions within the joint venture, the local partner’s construction firm was eventually employed. How￾ever, due to the contractor’s inadequate building methods, dif￾ferential settlement occurred at the foundation of the adjacent factory building, and its production line was damaged during the basement excavation of the project. The factory sued the joint venture for damages. The contractor denied the liability and refused to attend any meeting for negotiation and settle￾ment. Finally, the case was settled through mediation, and the joint venture had to reimburse the factory for all of the dam￾ages. Other adversities involved in this case include the dif- ficulty to control the contractor’s performance particularly on the cost aspect during construction. The negotiation on rates for new items was almost always in favor of the contractor, and the joint venture had to pay higher rates for many items. In the end, the project was delayed, and substantial extra costs occurred. The experience learned from this case demonstrates one of many possibilities of making loss due to inadequate choice of partner. Usually, overseas businesses tend to find their partners from large state-owned companies. However, many large state-owned companies may have huge registered capital and assets, but little real cash flow. Furthermore, they often have a complicated and bureaucratic system, and their top managers are usually appointed by the government. There￾fore, such a joint venture’s cooperation needs to be incorpo￾rated with the interests of the local partner’s superior. Policy Risk In the process of reforming the economy system, govern￾mental policies are subject to reviews or changes or updated as reform progresses. Therefore, many provisional policies and regulations are issued by both the central and local govern￾ments. However, the variations in policies and regulations can have significant impact on joint venture businesses. In the sur￾vey of this study, ‘‘cost increase due to policy changes’’ was ranked as the top important risk. A joint venture project located in an old city in Guangdong province was to redevelop a res-