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).



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)


World’s 22 Best Emerging Markets 2014

By SiliconIndia

India; Ease of doing business rank: 134

India has a projected annual GDP growth of 5.2 percent. Economic reforms have been a helping hand in the rise of the GDP and fall of the poverty rates. The Indian economy is expected to expand via agriculture and exports. After the general elections in India, the investments are likely to improve and hopefully will be on a rise. Raghuram Rajan, governor RBI insists that Indians have to work harder on the Human capital reforms.

Egypt; Ease of doing business rank: 128

With the projected annual GDP growth of 3.3 percent, Egypt is rising slowly from all the debris of political instability and other factors. Egypt’s economy depends mainly on agriculture, media, petroleum imports, natural gas, tourism, and textile. Its textile industry is growing annually at the rate of 6.5 percent. As it employs more than half a million people of Egypt, it plays a pivotal role in foreign exchanges. The textile industry also accounts of 25 percent of total Egyptian exports.

Indonesia; Ease of doing business rank: 120

Projected annual GDP growth of Indonesia is 5.7 percent. It is named as Southeast Asia’s largest economy. The flexibility of the growth of economy, low government debt, and fiscal management has contributed towards the upgrade of the economy and is commencing the inward flow of the finances of Indonesia. It is also the major client and shareholder of the World Bank. The easy accesses to credit cards have helped the growth of economy through domestic consumption.

Brazil; Ease of doing business rank: 116

Its projected annual GDP growth is 2.6 percent.  The social economical policies of Brazil are a success among the investors.  The policies have been among the top of macro economical indexes.  There are laid four policies of Brazil, on which the economy of Brazil rose. These are: 1) building infrastructure thriving to build a strong support for a diverse and developed economy. 2) Decreasing the rate of poverty and inequality prevailing in the Country, so that each people can contribute towards the growth. 3) It opened its door to the world. And,  4) reformation of its domestic institutions.

Philippines; Ease of doing business rank: 108

Philippines remains the fastest-growing economy among all the emerging ones.  The service sector of the Philippines includes 43 percent of GDP, and agriculture, which is the largest employer in the rural areas, contributes too. In Philippines, manufacturing is the most important sector in foreign exchange earned through exports. In a bid for high international reserves, the money from overseas workers contributes heavily. With its growing GDP above the target, (6.1 percent) it is high on its performance.

China; Ease of doing business rank: 96

With a projected annual GDP growth of 7.4 percent, China has undergone drastic change in its economy and financial system. The growth of the economy has been observed due to rapid continuation of industrialization, urbanization, and reformation into the world economy and The People’s Bank of China ending its monopoly and letting in positive successful reforms. In the economic transformation, China is on its way to pass the United States in 2042.

Russia; Ease of doing business rank: 92

At a projected annual GDP growth of 2.5 percent, Russia has emerged as a powerful economy. It is world’s largest Country in terms of land. Russia is now welcoming foreign investments with the help of its rebuilding exercise of infrastructures. Russia has grown more than its position of the oil and gas producing economy. Retail sales are growing at 13 percent annually in real terms. Construction is growing by 16 percent and domestic investment by 20 percent. These are the main catalysts behind leading multi-nationals setting up its base in Russia.

Morocco; Ease of doing business rank: 87

With a projected annual GDP growth of 4.4 percent, Morocco pledges to make its economy rise. The economic growth of Morocco is expected to rise further as some industries have been given a great back up by the implementation of the National Pact for Industrial Emergence. It was organized to help grow the new centre, job opportunities and new competitive market environment. Morocco keenly encourages niche industries for export, as a result, automotive sector, transport and logistics are blooming. It is also keen to expand its renewable energy capacity in future.

Czech Republic; Ease of doing business rank: 75

Czech Republic has a projected annual GDP growth rate of 2.1 percent. The stronger increase of the exports is sure to make a rise in the economy. With the Czech National Bank’s new policy to influence exchange rate and money supply will help in exports and gain market shares in key foreign markets. The reduced real interest rates will let firms and households increase their investments.

Turkey; Ease of doing business rank: 69

Its projected annual GDP growth is 4.1 percent. The economy of Turkey saw a quick rise unexpectedly. This can be possible by the increasing public demand and public spending. Property investment and construction firms did gave the required rise in the economy. The banks in Turkey are well-capitalized, public finances have become rich, public debt has fallen. Some of the reforms have been put in place to put the economy in right place.

Panama; Ease of doing business rank: 55

With a projected annual GDP growth of 6.7 percent, Panama boasts of economic stability. With the expansion of Panama Canal and on-going large public infrastructure projects, Panama is witnessing healthy growth in terms of both economy and infrastructure. Beside tourism, Panama has become one of the most preferred places for retirees, increasing the demand for real estate and giving a boost to the economy.  Panama has kept the history of low inflation in the market.  This emerging market has a Colon Free Trade Zone and is the second biggest free trade zone across the globe. Panama boasts of more than 80 foreign banks in its territory.

Hungary; Ease of doing business rank: 54

Despite its economy is in messed up condition, Hungary witnessed the projected annual GDP growth of 1.9 percent, making through the list of world’s best emerging markets. The retail sales are going to rise at an annual average rate of 3.2 percent between the year 2009 and 2014. The economy of Hungary transformed itself into a market-based one where market forces were topping the influencing factor on resource allocation. With private sector playing the main role, Hungary is emerging fast  with a global economy.

Mexico; Ease of doing business rank: 53

Mexico is one of the emerging economies with 3.7 percent projected annual GDP growth. On the way of its economic revival, Mexico became a member of the Pacific Alliance. Mexico designed a National Development Plan to enhance the growth and productivity. The government’s better tax reforms, better funding for economic and social developments are key for the growth of the economy.

Colombia; Ease of doing business rank: 43

Colombia has a projected annual GDP growth rate of 4.6 percent. The liberal business environment of Colombia is suitable for investors, and added profit, the economy currently is in full bloom. The profitable rise of the economy is mainly because of economic policies and the full promotion of the free trade agreements. In the following years the Colombia government’s debts have been converted into investment grade.

Poland; Ease of doing business rank: 45

Poland’s projected annual GDP growth rate is 3.2 percent. The exports in Poland have a larger share which eventually will give rise to the GDP. The private business sectors in Poland have seen a rapid growth with the privatization of state-owned small and medium companies. The private sectors in Poland have been the main force behind the rise of the economic growth in the recent years.

Peru; Ease of doing business rank: 42

Peru has a projected annual GDP growth of 5.5 percent. The growth of Peru’s economy has been governed by the sound economic policies. Since colonial times, Peru’s economy thrived on mineral production. The U.S. Geological Survey rates Peru in the list of top five Countries for lead, silver, tin, and zinc reserves. In recent times, the economy has been seeking different fields too, though the minerals remain important. This step will secure Peru from the unexpectable cycle of markets of the mineral industries.

South Africa; Ease of doing business rank: 41

South Africa has a projected annual GDP growth of 3.1 percent. With the inclusion of South Africa in the economic coalition of Brazil, Russia, India, China; and its new economic stand, it’s a fast new emerging market. Being a fourth largest source of diamond and the consisting three quarters of global platinum reserves, it is bound to bounce back from the global financial crisis. The sophisticated banking sector helps South African economy in emergence. Private investors name South Africa as a gateway to other African Countries, while other investors seek its growth and expansion potential.

Chile; Ease of doing business rank: 34

The projected annual GDP growth of Chile is 4.3 percent. Chile is considered as the most stable and prosperous nation of South America. With the growth of Chile’s financial sector, the banking reform law approved in 1997 helped broadened the scope of permissible foreign activity for the banks in Chile.

Latvia; Ease of doing business rank: 24

The projected annual GDP growth rate of Latvia is 4.1 percent. Latvia is an open economy where exports contributes nearly a third of GDP. Being the member of World Trade Organization since 1990s, and European Union since 2004, Latvia belongs to the group of very high Human development Countries.  The economy is seen stable with the treaties signed on investment, trade, intellectual property protection and avoidance of double taxation. The treaty has been signed between Latvia and United States.

Thailand; Ease of doing business rank: 18

With a projected annual GDP growth of 4.5 percent, Thailand plays a significant role in the global economy as well as in all the supply chains, especially food and hardware. Thailand is the largest exporter of rice, tuna and rubber, and the second largest exporter of sugar. Thailand continues to attract foreign investments and it is expected that the emerging market will attract more foreign investments in future.

South Korea; Ease of doing business rank: 7

With a projected annual GDP growth of 3.5 percent, South Korea has emerged as a winner amongst many economies in the world. This has been possible because of the good economic policies of the South Korean government. The inclusion of South Korea in many business lists indicates the stability and progressiveness of its economy. Currently, it’s producing goods of global praise and quality.

Malaysia; Ease of doing business rank: 6

With a projected annual GDP growth of 5 percent, Malaysia is among the Asia’s most vibrant economies. Malaysia was once dependant on products such as rubber and tin; currently it is a middle-income country with a multi-sector economy. It is based on services and manufacturing. Highest export of semiconductor components, electrical goods, solar panels, and information and communication related products, are done by Malaysia.

EU To Back G20 Growth Target If Accompanied By Reforms

Europe is in favour of setting an economic growth target for the world’s 20 biggest developing and advanced economies (G20), but only if they agree on bold reforms, the European Union’s Economic and Monetary Affairs Commissioner Olli Rehn said.

G20 finance ministers and central bank governors are meeting in Australia on Saturday (22 February) and Sunday (23 February) to find ways to boost global economic growth by focusing on investment, competitiveness, trade and employment.

Australian Treasurer Joe Hockey said support was building for setting a numerical goal for growth, but Rehn said it only made sense if reforms got equal support.

“I see that economic growth is a consequence of right policies and global coordination. So yes, we need a bold growth target, but only on the condition that we can also agree on bold economic reforms and sound economic policies,” Rehn said.

“That is what this G20 is about,” he told Reuters in an interview on the sidelines of the meeting.

He said the growth target discussions were based on an IMF study which envisaged boosting growth by 0.5 percent of GDP annually over the current projections.

But to get such faster global growth, Rehn said, G20 countries that have a current account surplus need to boost domestic demand and investment, while those that run a deficit have to make their public finances sustainable, create jobs and become more competitive.

“Once you agree on that, it is meaningful to have a bold growth target in the world economy,” Rehn said.

He said reforms were also the best defence against the financial market turmoil which shook many emerging market economies at the start of the year.

Some of the affected countries blamed the market volatility, which forced interest rate rises in Turkey, South Africa, India and Brazil, on the policy of the Federal Reserve to start reducing its monetary stimulus to the US economy.

But Rehn said that past policy choices in the emerging markets themselves were mainly behind their troubles now.

“Some economies that have been better prepared are doing better, also in the context of the recent financial market turbulence, while those that have been worse prepared are facing deeper turbulence and more serious challenges,” he said.

“For instance, the European emerging markets — the central and eastern European economies, have by and large been shielded from the recent turbulence … mainly because they have done the right policy choice in the past, learning the lessons of the 1990s,” Rehn said.

To make sure that G20 countries implement what they pledge, reform progress could be monitored by the International Monetary Fund and the Organisation for Economic Cooperation and Development (OECD), Rehn said.

“I believe that we will see further evolution of international policy coordination,” he said, noting that Europe’s economic governance model, which coordinates policies of 28 different countries, could serve as a benchmark.

“The G20 can benchmark its coordination and country surveillance on Europe, where countries have agreed to pool their sovereignties to strengthen economic policy coordination. We are ready to share our experiences,” Rehn said.

He said the G20 financial leaders should send a message to calm markets that they were ready to work together on global financial stability.

“It is of paramount importance that we reiterate our commitment to cooperate to ensure sustained and stronger growth in the global economy, which also requires some policy coordination in monetary policy,” Rehn said.

“The preparatory discussions we have had so far were constructive and bode well for a cooperative spirit as regards economic policy coordination,” he said.

source: Reuters/ image source: Griffith University

Cars going to the East

General Motors has opened China’s largest factory in Anhui, with an investment of RMB 1.6 billion ($253 million). An article in the  Financial Times suggested that the move is “the latest sign of the growing readiness of multinational companies to invest in research and development in emerging markets”.

Indeed, China has become the largest market for GM for seven consecutive years and has also been tops for other major companies.  Many car manufacturers are considering moving their sites out of Europe, where production has exceeded demand.

The future of our driving maps may be very different from what we see now.