Can Within-country Religious Diversity Influence Large Infrastructure Project Success?

For the past five years, Frank Jiang and his colleagues have amassed several research projects and published works where the team’s theoretical insights were inspired by one research question. Something that often happens in a dynamic research world, initial ideas flourish into much deeper questions and lead to more robust research. In Frank’s case, their research, supported in part by an Insight Development Grant (IDG) from the Social Sciences and Humanities Research Council, has led so far, to three successful published projects.

Drawing on internationalization business theories, Frank’s research explores the various factors and challenges underlying the success of multinational enterprises’ endeavors. In one of his most recent IDG supported publications, Frank explores how within-country religious diversity affects the performance of private participation in large infrastructure projects (such as roadways, energy frameworks, or public buildings) in foreign markets and how various project-level characteristics moderate this relationship.

Much of the current literature around international business focuses on understanding between-country differences and tends to underestimate the impact of within-country differences. Frank’s research brings a novel perspective to both the theoretical and practical understanding of the complexities of within-country variables. Relaxing the assumption that a country market represents homogeneous socioeconomic conditions for foreign investors, Frank’s research examines how within-country religious diversity can be a key factor that significantly influences private foreign investment in large infrastructure projects: “Religion is a fundamental determinant of how a society communicates and interacts; it is often associated with domestic conflict and unrest and can have a significant impact on how corporate culture evolves.”

Using a sample of over eight-thousand projects in thirty-three different developing countries, Frank’s research shows that within-country religious diversity is indeed a critical indicator to predict the success or failure of a large infrastructure project. In other words, there is a negative association between religious diversity and the success of a project: When religious diversity is high, more projects fail. But why?

In the context of large infrastructure projects that rely heavily on foreign investment, religious diversity can be an indicator of potential challenges due to the need for local government to cater to a large segment of a diverse and potentially conflicted population. “Competing interests can create tension that can be problematic to private investors in terms of extra costs associated with meeting compliance and adhering to local policies and expectations.”

Frank’s research further demonstrates that the negative association between within-country religious diversity and project success is intensified when the lead investor is foreign because of the inherent unfamiliarity of these foreign investors to local customs and practices and connections to government.

Interestingly, the research reveals that when local government is a participating investor in a project and private firms develop partnerships with them, it can mitigate risk and improve the likelihood of project success. This relationship is quite significant to project outcomes because it signals to foreign investors that with government capital therein lies a greater commitment to the project and increased support to ease the often complex legal and regulatory processes. Given the increasing pressures on developing countries to encourage foreign investment in infrastructure projects to meet socioeconomic needs, these findings suggest that a proactive approach by local government to engage and incentivize foreign investors, concurrent to actively participating financially, is critical to project outcomes.  

Frank’s concurrent work supported in part by the IDG include: 1) An examination of the role of host-country corruption in private participation projects in emerging markets. There may be short-term gains to “greasing the wheel,” but in the long-term, corruption (regardless of the type) does negatively affect project outcome because it creates uncertainties that can increase risk of failure. Bringing in local investors does weaken the negative association by reducing the liability of foreignness. And 2) How host country income inequality influences multinational expansion strategies for foreign production investments.

Frank’s findings show that there is a “Goldilocks” effect: Extremely high and extremely low-income inequitable environments are not attractive to foreign investors—a relationship that is further dependent on investment objectives such as labour-seeking versus market-seeking projects.

With further projects in the works, Frank’s research areas offer nuanced discussions in the international business arena and new insights into successful management of foreign investments that are highly valuable to inform policy changes and international business management strategies.

(Guoliang) Frank Jiang is supported in part by an Insight Development Grant from the Social Sciences and Humanities Research Council of Canada.