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).

Counterfeiting, Software Piracy, and Terrorism

Counterfeiting is a common form of corruption and cost businesses well over US $1 trillion in 2008. One of the most highly scrutinized areas of counterfeiting in today’s business world is the theft of intellectual property. Intellectual property is the ownership of ideas, as well as the control over the tangible or virtual representation of those ideas. The piracy of this intellectual property has become a major form of illegal business.

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9/11 In remembrance: Terrorism and International Business

TERRORISM AND INTERNATIONAL BUSINESS:

Michael R. Czinkota, Gary Knight, Gabriele Suder.

The airplanes of 9/11 forced countless multinational corporations (MNCs) to update their strategic planning.  Our work with executives at more than 150 MNCs shows that more than ten years later, companies are still grappling with how best to manage the terrorist threat.

In the two decades before 2001, the rate at which firms launched international ventures was growing rapidly. After 9/11, foreign direct investment fell dramatically as firms withdrew to their home markets. The popularity of international-sounding company and brand names decreased appreciably as managers now emphasize domestic and local affiliations.

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Even Old Lambs Come Home to Roost

History may not repeat itself very often, but when parallels are witnessed, the effects can be major and gruesome. These are tough times for many. There is the ubiquitous occurrence of major terrorism, bringing insecurity to airplanes and airports, train stations, entertainment clubs and schools. There is growing wealth concentration for few, and low income for many others. We now witness the breakups of coalitions thought to be stable, for which the British exit (BREXIT) from EU is only one major signal.

 

A little more than a century ago the world climate was benign and secure for many, globalization was high. National conflict seemed unlikely to emerge between the cousins who ruled England, Russia and Germany. Yet, within only a few years, World War I had led to millions of casualties and major devastations of factories and cities. What are we to do now to demonstrate our strong dedication and willingness to sacrifice in order to avoid a dramatic overall deterioration in global civility, security, and economy?

 

There are many tinderboxes that cause ongoing flames. In order to guarantee spheres of influence the British/French Sykes-Picot agreement signed on May 16, 1916 drew hasty and culturally poorly conceived borders for the Middle East. The accord achieved the termination of the Ottoman Empire but has provided the world with a century of acerbic and painful conflict in the Middle East. Even today, the ongoing conflicts and assassinations in Turkey are just one reflection of disharmony, augmented by religious disagreements, blood feuds, political shortfalls and economic blight.

 

Groups who suffer from deprivations attack others to share their pain. As governments learn to protect possible targets better, terrorists seek and find softer, less protected and less expected targets. In consequence, poor governments, poor companies and poor citizens are the ones least able to protect themselves against attacks. An uncertain environment then leads to less local investment and even more poverty. There must be new steps to mitigate the causes of terrorism.

 

It is ironic and sad to now see a self-inflicted British exit from the EU, which does not better the world, but rather carries the virus for conflict. Large flows of immigrants still need destinies and require support. Britain’s move triggers and encourages other nations to also demand a special lightening of their obligations. But who will be the beast of burden and at what price? Already forward-looking countries find their own solution, often ahead of the more slowly reacting larger powers. Hungary’s early efforts to measure and control immigration was such a step. But in light of disagreements with major players, the nation found itself derided and penalized.

 

Progress in terms of global tranquillity and cohesion needs to be renewed.  Confrontations between friends and adversaries need do not require winners and losers. All need to be willing to learn from each other, acknowledge and respect special needs and make allowances for the human dimension in conflict. With all the resources now available, there must be an ongoing search for and support of the soul of relationships and individuals. Forgiveness can well become a new objective. We all must contribute conscientiously to finding ways to help others by sharing their burden as well as encouraging them to share ours. Those who now sit at the table must let others approach. Dropping crumbs may be biblical, but is perhaps an insufficient reward for a better world.

 

 

On Freedom and International Marketing, Part 3: The Cost of Freedom

This is one of the published series on the linkages between freedom and international marketing.

One keeps healing about the large segment of the world population that is poor and therefore supposedly excluded from any international marketing efforts; the World Bank’s former president called them the $3 billion $2–a-day poor. By contrast, international marketers see them as an attractive $6 billion-a-day opportunity for valuable exchanges!

What’s more is that international marketing provides the opportunity to acquire resources without the deployment of force. Why fight if you can trade? Countries that have been historic enemies such as France, England and Germany are now all united in their close collaboration through international marketing. The field is, therefore, at the very least contributing to freedom from war while providing additional choices for consumption.

But the cost of freedom is rising. Terms like free trade or free choice are 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.

We all are paying a higher price due to global terrorism. As freedom suffers, so does international marketing. 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. Who is typically most affected by terrorist acts? Attacks aimed at businesses, such as the infamous bombings of U.S. franchises abroad, do not bring big corporations to their knees. The local participants, the local employees, the local investors, and the local customers are affected most. Who can protect themselves 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 their funds, with whom to trade, and whether to hold the enemy at bay through a security bubble created by changing business forn1ats via exporting or franchising. The poor players do not have choices. The local firms, the nations with economies in development, and the poor customers continue to be exposed to further acts of terrorism with very limited indigenous ability to influence events.