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).

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).

World Bank: poverty could reach 44% in Argentina

World Bank claims that more than one-third of Argentina’s population could be hit by economic shocks

Approximately 33 percent of the country’s population — or those living on between US$4 and US$10 per day — is vulnerable to falling into poverty if faced with adverse economic conditions, the World Bank said in its 2015-2018 Country Partnership Strategy (CPS) report for Argentina.

The multilateral organization estimates there is a poverty rate of about 11 percent in the country, but has highlighted that Argentina should “focus on the need to sustain social gains achieved in recent years and expand social inclusion in an efficient and sustainable manner.”

The World Bank report, published for internal use in August of this year thus echoes warnings made by the United Nations Development Program (UNDP) about stalling social progress in the region.

Vulnerable populations, for the purposes of social policy, are those who have made it out of poverty but do not enjoy economic security like the middle class does. They live on an average US$4 to US$10 a day and risk being clawed back under the poverty line by economic turmoil, recession or volatility.

The UNDP recently warned that that up to one-third of Latin America is at risk of being clawed back in to poverty as the region’s economies face slowing growth rates.

The report praises the country’s recent economic policies, noting that “economic growth during 2003-2013 made Argentina one of the top two Latin America and Caribbean performers in terms of poverty reduction and improvements in shared prosperity.” But it also adds that the country’s most vulnerable populations have historically stemmed from the “economy’s exposure to adverse economic shocks, which reduces employment and earnings and limits the ability to finance social programmes supporting the poor.”

The very same report adds that economic activity rallied in 2010-11 but has since slowed, fiscal accounts are under pressure as a result of expenditures outpacing revenues and that a worsening trade balance has lead to a deterioration of external accounts.

Despite action by the government to tighten monetary policy and restrict some spending, a low debt-to-GDP ratio, the World Bank is anticipating that in that the short-term a “prolonged slowdown is more likely than a deep economic rift” as a result of sluggish economic performance, continued inflation, dropping international reserves and continued uncertainty over the holdout debt saga and reduced economic growth in China and Brazil.

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Image from Reuters

The Rising Cost of Freedom

We are finding that the cost of freedom seems to be increasing lately. Terms like free trade or free choice have been misleading since they all come with a price, which international marketers pay in terms of preparing their shipments, scrutinizing their customers, and conforming to government regulations of tariffs or taxes. They pay ofr it when subsidies are reduced and markets are opened further, resulting in more intense competition.

Now prices are going up when international marketers have to file special paperwork or comply with security guidelines, which slow down the flow of merchandise. Every time a shipment is delayed, international transactions are less profitable and the subsequent business dealings become less competitive. Customers talk about unmet expectations and domestic firms point to the vagaries of itnernational markets.

We are all paying a higher price due to global terrorism, which has permeated the global marketplace. In most instances, terrorism is not an outgrowth of choice but rather the lack of it. Terrorists may succeed in reducing the freedom of others but not in increasing their own. The prinicpal choices played out between those exercising terrorism and those exposed to it are those consistent with economic theory of return on investment. When terrorists select targets in response to governmental implementation of anti-terrorism policies, the harder targets are likely to motivate them to go for easier ones. Increased protection of past targets may result in attacks on new and unexpected targets that are more likely to succeed. Similarly, if terrorists can no longer enter a country, they may attack that country’s symbols and representatives abroad. If embassies are then more secured and fortified, terrorists may attack that nation’s individuals and companies.

Who is typically most affected by terrorist acts? Attacks aimed at business, such as the infamous bombings of U.S. franchises abroad do not bring MNCs to their knees. The local participants, the local employees, the local investors and the local customers are affected most. Who can protect tehmselves against such attacks and who can afford to protect targets? Only the more wealthy countries and companies can. They have the choice of where to place etheir funds, with whom to trade, and whether to hold the enemy at bay through a security bubble created via exports, a franchise, or a wholly owned subsidiary. The poor players do not have any choices and ther alternatives are not improved by any gruesome act. The local firms, the nations with economies in development, and the poor customers continue to be out there, exposed to further acts of terrorism without the ability to influence events.

But international marketing can enable the disenfranchised to develop alternatives. As suggested by Prahalad and Hammond (2002), multinational firms can invest in the world’s poorest markets and increase their own revenue while reducing poverty. With support from shareholders and the benefit of good governance, marketers can, and should continue in their role as social change agents. It should be kept in mind that international marketing has value maximization at its heart. If it is worthwhile to fulfill the needs of large segments of people even at low margins, then it will be done.