Terrorism and International Business: Looking Back and Striving Forward

TERRORISM AND INTERNATIONAL BUSINESS:
LOOKING BACK AND STRIVING FORWARD

Michael R. Czinkota, Gary Knight, Gabriele Suder

The airplanes of 9/11 forced countless multinational corporations (MNCs) to update their strategic planning.  Our work with executives at more than 150 MNCs shows that ten years later, companies are still grappling with how best to manage the terrorist threat.

In the two decades before 2001, the rate at which firms launched international ventures was growing rapidly. After 9/11, foreign direct investment fell dramatically as firms withdrew to their home markets. The popularity of international-sounding company and brand names decreased appreciably as managers now emphasize domestic and local affiliations.

The tendency to reverse course on globalization has been accompanied by declining international education in the United States, as revealed by falling enrollments in foreign language and international business courses. In the past decade, managers shifted much of their focus from proactive exploration of international opportunities to a defensive posture emphasizing threats and vulnerable foreign operations.

In Europe, the radicalization of individuals and groups, motivated by ideology, religion or economic concerns, threatens local cooperation and social harmony. European business schools have benefited from tighter restrictions on international student enrolments in the U.S., but the focus of teaching has shifted from global to regional trade.

Another outcome of the terrorism threat has been a rise of public-private partnerships, in which governments and firms collaborate to counter them. For example, global police agencies now partner regularly with private firms to combat cyber crime and attacks on critical computer infrastructure. Governments and activist groups now use social media to organize campaigns fighting against threats ranging from dictators to disease. But nations also have begun to curtail social media when they are contrary to government interests.

The cost of protecting against terrorism is many billions, while terrorist spend millions or less on their actions. There are abundant opportunities for small groups to employ nonweapon technologies, such as aircraft, to cause massive harm. Though our capacity to protect key facilities has improved over time, the security focus on high-value assets encourages terrorists to redirect their violence at “soft targets” such as transportation systems and business facilities. Greater security at home means attacks will increasingly take aim on firms’ foreign operations.

Companies have placed more emphasis on terrorism risk considerations when choosing how to enter foreign markets. In the last century, foreign direct investment (FDI) was the preferred approach. But terrorism has shifted the balance. Now many more firms favor entry through exporting, which permits broad and rapid coverage of world markets, reduces dependence on highly visible physical facilities, and offers much flexibility for making rapid adjustments. In terms of economies of scale and transaction costs, FDI is generally superior, but the risks of exporting are judged to be lower. Markets tend to punish failure more harshly than they reward success, which makes risk-minimizing strategies more effective.

Skillful management of global logistics and supply chains cuts the risk and cost of downtime. Firms seek closer relations with suppliers and clients in order to develop more trust and commitment. Some have increased ‘on-shoring’ by bringing suppliers back into the country when their remoteness constitutes risk.

Terrorism causes an organizational crisis whose ultimate effects may be unknown, and poses a significant threat to the performance of the firm. Corporate preparedness for the unexpected is a vital task. Innovative managers develop back-up resources, and plan for dislocations and sudden shocks with a flexible corporate response.

Terrorism is a public threat, and some managers believe government should bear the cost of protecting against it. Others argue that a public-private partnership is the most effective approach, with firms taking the lead.  There is also the issue whether corporate headquarters or the locally exposed subsidiary should fund prevention and preparation expenditures. Regardless of who pays, everyone can agree on the need to guard against terrorism.

Every world region is vulnerable, and most attacks are directed at businesses and business-related infrastructure. Terrorism requires decision-making and behaviors that support vigilance and development of appropriate strategies. Managers who fail to prepare run the risk of weaker performance or even loss of the firm. While we can no longer choose the lowest cost option, ten years after 9/11 companies are more aware, less exposed, and less vulnerable to the risk of terrorism. But in the next ten years comes the really big task: What can and should we do collectively and individually to reduce the causes of terrorism.

Michael Czinkota teaches international business in Georgetown University’s McDonough School of Business and at the University of Birmingham in the U.K. He is a former deputy assistant secretary in the U.S. Department of Commerce. Prof. Gary Knight works at Florida State University in Tallahassee on international marketing in Japan. Gabriele Suder holds the Jean Monnet Chair at SKEMA Business School in France.

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  6. The US Department of Defense defines terrorism as “the calculated use of unlawful violence or threat of unlawful violence to inculcate fear; intended to coerce or to intimidate governments or societies in the pursuit of goals that are generally political, religious, or ideological.”

    At first, it might seem logical that in order to reduce terrorism we need to reduce poverty, corruption, injustice, and unemployment and continue to educate individuals who are susceptible to recruitment by terrorist groups. Poor, anti-social and uneducated individuals in countries with corrupt governments are more likely to join extremist groups as they are frustrated with their lives and can be easily brainwashed.

    But it is important to note that these individuals represent the rank and file members in terrorist organizations. The masterminds who plot terrorist attacks tend not to be poor and illiterate. Indeed Osama Bin Laden had a university degree in public administration and came from a wealthy family.

    Jessica Stern, who serves on the Hoover Institution Task Force on National Security and Law and is lecturer at Harvard Law School, wrote in the Washington Post,” In my research and interviews with terrorists, I have found that operatives are often more interested in adopting a new identity than in supporting a terrorist group’s stated goals. Many speak, in particular, about being motivated by a feeling of humiliation. A Kashmiri militant founded his group because, he said, “Muslims have been overpowered by the West. Our ego hurts . . . we are not able to live up to our own standards for ourselves.”

    It is this feeling of hatred and resentment towards the West that truly motivates terrorist leaders to engage in such activities. They skew religion in order to justify their reasons for bringing destruction upon us, but are truly driven by revenge and power.
    For us to stop them, we must cut the financial lifelines of terrorist organizations, so that they no longer have the resources available to recruit, train and research and develop new ways to attack us.

    References:
    Scott Helfstein. (2011, May 25). VIEWPOINTS: Now, Stop Terrorist Funds. American Banker,p. 7. Retrieved September 14, 2011, from Accounting & Tax Periodicals. (Document ID: 2356408681).

    http://www.washingtonpost.com/wp-dyn/content/article/2010/01/08/AR2010010803585.html

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