THE INTERNATIONAL SUPPLIER CONUNDRUM

TERRORISM, COMPETITIVENESS AND INTERNATIONAL MARKETING (5/6)

THE INTERNATIONAL SUPPLIER CONUNDRUM

(Fifth in a series)

Valbona Zeneli, Marshall Center, Germany

Michael R. Czinkota , Georgetown University USA and University of Kent, UK

Gary Knight, Willamette University, USA

Terrorism exposes firms to high levels of uncertainty and risk. Growing threats produce higher costs and more disruptions for the international marketing organization. Terrorism highlights the vulnerabilities produced by global sourcing, international distribution, and reliance on independent agents abroad. Unfamiliar settings also complicate intelligence gathering and corporate governance. Yet, firms need a globalizing marketplace.

Our survey of 151 multinational manufacturing firms reveals the threat of disruptions in international supply chains. Increased costs require management to include terrorist contingencies in decision-making. Advanced planning and strategic action can provide the firm with greater resources and capabilities for managing external shocks and adverse events.

Terrorism has become an ongoing challenge and now is part of the “new normal” of international marketing. Enemy groups can access and employ asymmetrically destructive power. In addition to loss of life and property, the growing ferocity of attacks sows panic and triggers new frictions for global commerce. Thus, operational, process, and strategic innovations that shield the firm are an increasingly prudent investment.

Natural disasters and man-made ones can be mitigated by investments which guard against terrorism. Such spillovers need to be considered environmental scanning is a key step in the planning process.

Globalization exposes MNEs to the risk of interdependence and imposes unanticipated perils. However, superior intelligence gathering alerts the firm to vulnerable areas and assists in forecasting as to where and how terrorists will likely strike next.

In international marketing, due to their longevity and fixed locations, channels and supply chains are particularly vulnerable. Sourcing, just-in-time systems, lean production, decentralized planning and supplier configurations, all need to be re-evaluated. For firms that rely heavily on independent suppliers, management needs to emphasize increased coordination, more reliable and transparent partners, and steps to improve trust and commitement.

Enterprise resilience refers to a firm’s ability to operate in risky environments and overcome discontinuities. Resilience requires flexibility, familiarity, and redundancy. To the extent that disruptions result in long-term shortages of needed materials and supplies, firms may opt to produce essential inputs themselves. Alternatively, in spite of cost, theoriticial preference for single source supplies, inputs should be sourced from a wider range of suppliers to provide for contingencies and limit exposure to risk. Even the best systems can fail under circumstances of suddenc stockouts without replacement planning.

Crisis management is effective when disasters are averted or when operations are rapidly sustained or resumed. As already suggested by strategist Sun Tzu, the most effective crisis management minimizes potential risk before an event. Planning for terrorism is akin to financial investors rebalancing portfolios periodically to optimize returns and reduce risks. Management might divest risky assests and increase holdings in other, geographically more safe locations or industries. Re-investments can to optimize the firm’s risk level and absorption capacity.

Innovations give rise to new safeguards in global operations. Management needs to develop metrics that trade off the costs and benefits of risk mitigation measures. For example, while the use of multiple suppliers is useful, it must be balanced against increased costs and the benefit of distribution circumvention. The task can be particularly complex when marketing internationally, because the foreign context introduces diverse contingencies that complicate analyses. But in a world which sometimes resembles a boiling caulderen of disruption and insecurity, such preparatory analysis is required for survival and prosperity. So it needs to be done!

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. He is a trade policy analyst and frequent public speaker. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

DOES TERRORISM CAUSE POVERTY? OR THE REVERSE?

TERRORISM, COMPETITIVENESS AND INTERNATIONAL MARKETING (4/6)

DOES TERRORISM CAUSE POVERTY? OR THE REVERSE?

(Fourth in a series)

Valbona Zeneli, Marshall Center, Germany

Michael R. Czinkota , Georgetown University USA and University of Kent, UK

Gary Knight, Willamette University, USA

In light of the limited empirical research of terrorism effects on the internartional activities by firms, we undertook a two-phased exploratory investigation. First, we conducted qualitative interviews with internationally-active firms on terrorism to develop a broad understanding of what companies and managers see as the key salient issues. We also conducted discussions, generally 45 to 60 minutes in length, via telephone and at company sites, with senior managers of  nine firms with extensive international operations. These interviews provided a clearer picture of managers’ concerns about and response to terrorism, and facilitated the creation of a survey used in the second phase of our research.

Respondents worried about interruptions of supply chains, distribution channels, and logistics due to terrorism. Concerns also focused on the trustworthiness and reliability of foreign suppliers and intermediaries exposed to terrorism. Attention also rested on corporate capabilities which allow firms to prepare for potential disruptions and delays due to terrorism, and keep resources available to protect from and counteract terrorism.

The second phase of our research was an online survey of a sample of international firms headquartered in the United States but active in many countries around the world. The survey aimed to validate earlier findings, to better understand perceptions about terrorism, and to assist with the planning and responses that managers are undertaking when confronted with terrorism.

The unit of analysis was the firm. For standardization purposes, company resources were assessed as ‘annual revenues per employee’, where total annual revenues were divided by number of employees for each firm. We used 5-point Likert scales.

In conducting the survey, we collaborated with a large trade association and its members. About one-third of the group’s 8,000 members are engaged in international marketing. We sent all members an e-mail and requested members active in international marketing to complete the questionnaire at a separate website. This approach ensured responses from a relatively random sample of U.S. firms engaged in international marketing. Results were received from 551 member firms, a response rate of about 21% considered acceptable for unsolicited research participation.  We then selected firms active in manufacturing (as opposed to services) in order to focus on companies working in the international marketing of physical goods.  This step resulted in a final sample size of 151 manufacturing firms engaged in international marketing.

To achieve research robustness, we assessed respondent representativeness in two ways: A wave analysis compared the scores from a sample of early respondents to those in a sample of late respondents.  Second, we compared randomly chosen samples of responding and nonresponding firms.  In both cases, the tested variables did not reveal any significant differences between samples thus, nonresponse bias was not expected to affect study results. Moderated regression analysis was used to assess the research hypotheses.  We found normal probability distribution and no outlier observations, suggesting no violation of the normality assumption.

In internationalizing firms, it appears that the threat or occurrence of terrorism is associated with immediate increases in international marketing costs and with disruptions in international supply chains.  Management becomes likely to include terrorism as a detrimental factor in international marketing planning, and in the design of global distribution channels.

Finally, the more resources held by the firm, the more willingly terrorism and its repercussions will be recognized. The trend appears to be that particularly among informed and wealthy firms a terrorism presence creates early and significant corporate responses. Terrorism seems to be a key causal factor in fomenting poverty much more so than poverty creating terrorism.

A significant insight!

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

TERRORISM, COMPETITIVENESS, AND INTERNATIONAL MARKETING – (3/6)

TERRORISM, COMPETITIVENESS AND INTERNATIONAL MARKETING

SEARCHING FOR CORPORATE EFFECTS

(Third in a series)

Valbona Zeneli, Marshall Center, Germany

Michael R. Czinkota , Georgetown University USA and University of Kent, UK

Gary Knight, Willamette University, USA

The scientific approach is largely driven by hypotheses  which are analyzed as to their likelihood of being acceptable, true and robust. We present thoughts on the odds and consequences of relationships between international marketing and terrorism. We suggest arms length and reliable insights which improve our contextual understanding and decision making. Here are several hypotheses which we postulate are associated with terrorism and corporate action.

First are increases in Marketing Costs, accompanied by disruptions of supply chains. Interruptions in global supply chains tend to cause shortages or delays of critical inputs, which affect corporate strategies and performance, shrink shareholder value, and reduce the  consumption of goods and services. Perhaps the entire “just in time” production processes of a firm and its supply chain may need to be reconfigured.  Increased security measures heighten the complexity of motion which increases costs. Contextual volatility raises the cost of coordination, as suppliers and distributors devote more resources to environmental scanning, information processing, and negotiating with their suppliers for synchronized responses to rapid changes within all affected organizations.

For marketing planning, design, and organization we believe that an increase in the threat or occurrence of terrorism, makes management select its risk as a salient factor in the firm’s international marketing planning, supply chain management and organization of global distribution channels. To develop business strategies which minimize the firm’s exposure, managers tend to avoid direct investment and to require higher returns on investment.  Exports can rise but with higher cost assessments for the development of new infrastructure in terrorism-prone areas.  Terrorism also appears to depress buyer psychology and consumption.

International Experience plays a major role in the firm’s marketing planning, and the design and organization of the firm’s global distribution channels. The acquisition, interpretation and distribution of knowledge are critical for optimizing performance of global supply chains, and achieving superior resilience  and market share. Reducing the firm’s risk due to unfamiliarity with a market, also called the “liability of foreignness”, pays off by decreasing market operational uncertainties, and shrinking  surprises. It pays off to be on site,  a motto which argues for  multi-dexterity in international strategy.  Substantial experience in numerous foreign markets is greater than the sum of its parts, and becomes a strategic asset when a firm must confront terrorism in its global operations.

Organizational Resources of the firm affect its competitive advantage. They can strengthen assets such as in-house knowledge, skilled personnel, superior strategies, and financial reserves. The ability of firms to succeed in light of international business adversity is largely a function of the resources available to explore alternatives.

Resource-restricted firms face greater challenges to create a solid business foundation by researching foreign markets and potential partners.  Conversely, well-resourced firms have a greater capacity to undertake international ventures that will perform well. Therefore, we expect that firms with comparatively abundant resources will be better positioned to undertake sophisticated international marketing preparations. They can incorporate the environmentatl contingencies of terrorism into their planning, their development of supply chains, and their distribution channels, all key components of international success.

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

 

TERRORISM, COMPETITIVENESS, AND INTERNATIONAL MARKETING – (2/6)

Time to Limit the Payoff for Terrorists

Valbona Zeneli, Marshall Center, Germany

Michael R. Czinkota , Georgetown University USA and University of Kent, UK

Gary Knight, Willamette University, USA

Terrorists want more “bang for their buck” by undertaking high-impact events, choosing high visibility targets and directing their violence at less well-guarded “soft targets” such as transportation systems, business and private facilities.

Terrorism in the firm’s external environment is designed to create organizational confusion and contextual volatility, which refers to discontinous changes and requires firms to make frequent, abrupt, unexpected, and untested adjustments to their business strategies and operations. There also tends to be a perhaps misleading belief that terrorism responsive decisions must always be made swiftly.

Terrorists deliberately target non-combatants and insufficiently protected physical facilities. The globalization of commerce, travel, and information flows have enhanced the ease with which terrorism can be carried out, and increased the visibility and availability of potential terrorist targets. Port facilities, industrial clusters, shopping centers and financial districts are among numerous assets susceptible to terrorism via low-tech approaches. The threat is especially salient to firms with business facilities and infrastructure in multiple and diverse locations abroad, each one of which may need tailor-made protective measures. When evil doers make multiple-tap asynchronous attacks, losses can exceed worst-case scenario planning. Institutions and firms of industrialized nations are most vulnerable when they operate in emerging countries. MNE supply chains are vulnerable to potential long-term harm, particularly with firms whose first and second tier suppliers stretch around the world, in and out of risky environments. Any physical movement of goods introduces risk, disruptions and delays, but in developing nations more so.

Perceptions of threats from terrorism reduce the likelihood that firms will expend assets abroad, particularly in emerging economies that might become terrorism-prone areas in future. Companies spend billions annually to manage terrorism-induced risk and comply with terrorism-related government procedures and regulations.

Uncertainty is an attribute of marketing environments, particularly in international markets. Marketing activity is vulnerable to terrorism through disrupted international logistics, supply chain and distribution activities, insufficient information flows, and growing global demand for industrial and consumer goods. The complexity formed by linkages among terrorists, producers, buyers, and public actors reflects how with only 3-4 alternatives for each option, terrorism quickly represents hard to control and large number of scenarios. Furthermore, terrorism can trigger imposition of new regulations and procedures, which can hamper corporate activities. Security can reduce but not eliminate terrorism or fully insulate the firm from attacks. Government regulations aimed at preventing terrorism generate delays and increase the cost of business transactions, affecting company competitiveness.

The marketing organization comprises a bundle of strategic resources. Abundant material and effective alternative capabilities are traditionally associated with superior performance in international marketing ventures. The payoff from strategic resource stock piles is only realized when management activates situation specific organizational responses and behaviors, aligning them with clear and present changes in the corporate environment, not before.

The resource-based view (RBV) helps explain how firms develop and leverage organizational capabilities. Management structures, bundles, and leveraged resources determine the efficiency and effectiveness of company operations and organizational performance and robustness. The allocation of available marketing resources and the creation of new types of marketing tools are fundamental to the creation and maintenance of sustainable competitive advantages. Our research has found that many firms remain ill prepared to cope with terrorism, especially those operating in emerging markets. Firms often still respond passively or only reactively to the outslaught of terrorism. By contrast, we encourage firms to create proactive and innovative solutions for the management of terrorism threat.  This is what corporate innovation should be all about.

Such innovation must permeate organizational culture and be supported by new knowledge and technology enabling responsiveness to new, outwardly unexpected capabilities. Indeed, strongly innovative firms have highly developed and elaborated knowledge-creation routines and learning regimes.  A strong innovative culture supports the firm in developing responses tailor made for rapid deployment with new organizational capabilities. Rather than pursue just unidimensional thinking, ready for one action, firms need to deploy ambidextrous strategies and reinvent the situation specificity of their operations. Thus, management, which possesses a strong innovative culture and substantive awareness of even marginal threats of terrorism, might emerge less scathed from attack from that firms which are focused but limited in their outlook.

 

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).