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)