TERRORISM, COMPETITIVENESS AND INTERNATIONAL MARKETING (6/6)

Future Research and Preparation

 (Final in a series of six)

Valbona Zeneli, Marshall Center, Germany

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

Gary Knight, Willamette University, USA

 

Concluding this series of our research findings, here are future directions for investigating terrorism and international marketing. Like the legs of a sturdy stool, three priority areas; the firm’s value chains, its rapidity of recognizing threats, and its preparedness with responses to terrorist events.

Marketing in emerging economies searches for the most effective operations to reduce the impact of terrorism, to decrease the response time to terrorism and to avoid market failures.

It is important to create business models that minimize interference and disruption. For example, hamburgers do not have to be distributed through burger palaces but can reach customers through outside vacuum tubes. Suppliers don’t all have to come from only a few nations but can be sourced from a wide diversity of countries.

Financial efficiency must now be traded off with robustness and a cushion against disruption.  The balance of benefits and costs needs to be understood: just how much does it cost to increase protection by one percent. What risks are worth taking? What are heuristic spinoff effects of traditional models, and do they need to be revisited? The new aim must be the monetization of alternative terror responsive strategies which improve performance under risky conditions. Real options theory can focus on risk uncertainty and emphasize creating and then exercising the now appropriately understood options.

Research must conceptualize and communicate the exposures of proposed investment projects. Apart from the investment benefits one should also rate an investment for its tie-down effects expressed by the viability and cost to withdraw an investment once it has been made and the restrictive effect on strategic directions. For example, when a certain climatic investment locale has been chosen, it may affect future choices of locale or innovations of car paint. Also worth examining is exogenous uncertainty in international markets that lies beyond managerial control. International marketers need flexibility for unexpected market developments. Financial options theory can help measure and quantify the effect of such management versatility.

Systems theory lets managers examine the threat and vulnerability exposures of the firm. The interdependence of networks of firms, affiliates, and agents within larger systems require examination together with how individuals relate to and interface with other actors in the socio-political sphere of interest. A systems perspective reduces the risk for management to under-specify marketing parameters. It becomes easier to understand and respond to the geopolitical environment, terrorism networks, and newly recognized sources of risk in business systems themselves, with a focus on the vulnerability of specific network nodes.

Future research should differentiate the effects of terrorism on services industries. Some aspects of services, particularly for international markets, may vary substantially from those of traditional goods. We investigated the effects of terrorism on the international operations of manufacturing firms.  By comparison, firms in the services sector are often more vulnerable to terrorism.  Substantially affected industries include airlines, transportation, and hospitality, as well as banks, insurance firms, and other financial actors. Most service-providing firms enter foreign markets via Foreign Direct Investment (FDI).  Services are growing in importance. They represent the fastest growing sector in international business and usually constitute the largest proportion of economic activity in advanced economies and emerging markets.

Assuring service resilience by both an industry as well as an individual person is therefore crucial and imperative for the viability of business under the threat of terrorism.

 

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).

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).

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).

 

TERRORISM, COMPETITIVENESS, AND INTERNATIONAL MARKETING – (1/6)


MARKETING ACROSS BORDERS UNDER CONDITIONS OF TERRORISM

An introductory note: Over the coming weeks, we will post a series of Prof. Czinkota’s work with Prof. Valbona Zeneli, from the Marshall Center in Germany and Prof. Gary Knight, of Willamette University, USA. The work presented here is based on the research titled “Terrorism, Competitiveness and International Marketing: An Empirical Investigation” which was published in the International Journal of Emerging Markets, 2018.  We thank Ms. Niparat Pitchayanonnetr our departmental assistant for her editorial contributions. The series presents insights into what has been labelled a key challenge to the global business world today.
Here is our first post in the series which, together with future postings, you can freely distribute with proper credit to the authors and source.

Valbona Zeneli, Marshall Center, Germany

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

Gary Knight, Willamette University, USA

Terrorism refers to the risk or actual encounter of violent acts designed to cause fear and intimidation.  Despite posing an important threat to internationally-active firms, there is a paucity of empirical research that addresses the distinctive challenges that terrorism poses to the international marketing activities of firms.  Here we first provide a theoretical background on terrorism and its effects on international marketing in emerging markets.  We then relate terrorism to operational costs, marketing planning, supply chain management and distribution activities in the multinational enterprise (MNE).  We recognize significant costs in the international marketing budget of MNEs. Firms with substantial resources and international experience appear to have more alternatives, which allow them to cope better with the effects of terrorism than their less endowed peers.

Terrorism is a salient threat to organizational competitiveness in international marketing. It is the premeditated use or threat to use violence by individuals or subnational groups to obtain a political or social objective through the intimidation of a large audience beyond that of the immediate non-combatant victims.

For terrorists, perception matters! Terrorist attacks around the world have increased greatly in the past decades, spanning 92 countries and over 28,000 fatalities in 2015 alone. Most attacks are directed at civilians, businesses, and business-related infrastructure. The five countries most exposed to terrorist attacks in recent years are Iraq, Afghanistan, Pakistan, India and Nigeria.

Emerging markets are particularly affected by terrorism since their businesses and citizens have less of an opportunity to protect themselves. Among the possible environmental contingencies that can affect marketing organizations – such as weak economic conditions, rising energy prices, financial crises – terrorism is identified as potentially the most serious threat. Since terrorists select their targets with high flexibility, intensity and precision, international firms seek competitive advantage through the expansion of production, distribution, and the marketing of products and services across multiple national boundaries. Terrorism sharply reduces corporate enthusiasm to expand. Measures to counter terrorism in turn are based of restricted freedom of movement and increased government regulation, both of which impair global commerce. The border-crossing effect of terrorism creates slowdowns for international transactions reaching 2.5% of merchandise value, which is comparable to the average level of global tariffs.

International trade depends on the efficiency and cost-effectiveness of global transportation systems. Terrorism increases the transaction costs of international commerce and delays global supply chains and distribution channels. Terrorism’s main impact reaches far beyond its immediate and direct effects. Key are the long term results from the indirect effects that occur in national and global economies. These include widespread anxiety and uncertainty that affect buyer demand, shifts or interruptions in the supply of needed inputs, new government regulations and procedures enacted to deal with terrorism, and longer-term perceptions that alter patterns of global trade and investment. Terrorism can also affect managerial attitudes towards risk, shift the risk absorption capacity of firms, and reduce the likelihood of embarking on international ventures or new investments abroad.

Our Google search of the NGram viewer system analyzed the extent of terrorism-related writings, and checked for correlations with the key terms ‘trade,’ ‘investment’ and ‘risk’. The results indicate a rapid increase of concern about terrorism since 1998. This development serves as an indicator of the growing preoccupation (in the English-speaking literature at least) with terrorism. Concurrently, and as expected in terms of theory-based postulations, actual risk increased while trade and investment interests declined.

We believe that terrorism will continue to be a significant factor in international marketing for decades to come. The rise of terrorism signals a new type of threat relevant to both developed and emerging economies. As governments increase security of public facilities, the likelihood of attacks against the softer targets of firms’ international operations is likely to increase.  Emerging economies need to find ways to increase their security in order to retain their attractiveness for foreign sourcing and investments. Corporate preparedness for the unexpected is a vital task. Innovative managers develop appropriate resources, and undertake planning and strategies to accommodate dislocations and sudden shocks. Terrorism represents an organizational crisis whose ultimate effects may be unexpected and unknown, posing a significant threat to the survival or performance of the firm.  Terrorism presents the firm with a dilemma that requires new decision-making and behaviors that will result in organizational change.  Firms that neglect to devote resources and capabilities to respond flexibly to terrorist triggered disruptions, risk sudden, sometimes even, total loss of competitive advantage. We follow the thinking of former U.S. Secretary of Defense Donald Rumsfeld who stated: “There are known knowns, which are things we know that we know. There are known unknowns; that is to say, there are things that we now know we don’t know. But there are also unknown unknowns, these are things we don’t know we don’t know”. The goal should be to analyze the role of terrorism under all three conditions.

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)

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