Globalisation and Terrorism: Impact on Global Business Environment _____________________________________________ Table of Contents EXECUTIVE SUMMARY4 1. 0 INTRODUCTION6 2. 0 CAUSE-AND-EFFECT BETWEEN GLOBALISATION & TERRORISM7 2. 1 Economic Inequality7 2. 2 Cultural Homogeneity8 2. 3 Digitization of Money8 2. 4 Volume of International Trade9 2. 5 Larger Victim Base9 3. 0 IMPACT OF TERORISM ON GLOBAL BUSINESS ENVIRONMENT10 3. 1 Movement of goods10 3. 2 Movement of people10 3. 3 Movement of money10 3. 4 Movement of information11 4. 0 OPERATIONAL RESILENCE BY INTERNATIONAL BUSINESSES12 4. Management’s Role: Decentralisation of company’s operations12 4. 2 Operation’s Role: Building an Agile Supply Chain12 4. 2. 1 Greater transparency12 4. 2. 2 Alternative vendors and distribution centres13 4. 2. 3 Enhanced collaboration13 4. 3 Human Resource’s Role: Education and Evacuation13 4. 4 Marketing’s Role: Market Selection and Contingency Marketing Plan13 5. 0 CONCLUSION14 EXECUTIVE SUMMARY Globalisation started with the rise of civilisation. Centuries down the road, we are the results of this global phenomenon. However, the 21st century globalisation undergoes a paradigm shift with a new reality created by the September-11 attacks.
While terrorism is not new, the internationalisation of terror group and their activities has now ruled the world by fear. An unfair global equilibrium, cultural homogeneity created by globalisation (or ‘western capitalism’) gives rise to the animosity of radical groups against the western power. Boosted by the ease which terror attacks can be carried out using technology has made the world and global business environment very susceptible. With new economy sanctions and security measures introduced to counter terrorism, businesses are required to dedicate more time and resources in meeting these new regulations.
On top of that, businesses have to deal with a potential disruption in their flow of goods, people (staff), money and information in the event of a terror attack. While terrorist attacks form part of a larger geopolitical agenda out of control by businesses, practical measures can be put in place to protect the business from being a likely target and have responsive measures that will reduce the impact of terror attack in the event of one. Such measures require the effort of the different functionalities of a business including that of the management, operations, human resources and marketing.
In an overview, the following diagram reflects the flow of the essay and highlights the recommendations to this research. Practical counter- terrorism measures for businesses Terror attacks and new security measures impact business operations Globalisation induces Terrorism Flow of essay – ‘Terrorism and Globalisation: Impact on Global Business Environment’ 1. 0 INTRODUCTION In the context of Globalisation, terrorism arises Globalisation is broadly defined as the ‘shifting towards a more integrated and interdependent world economy’ (Hill, 2009).
From the time humans have established civilisations, there has been the need and desire to trade (knowledge, ideas and goods) which in turn has inspired exploration and discovery of new lands. Some people trace the origins of globalisation to the discovery and conquest of these new lands. In the history of Europe and Asia going back 2000 years or more there are countless examples of civilisations rising and falling, and at some point when these civilisations reached their zenith or glory years, they may well have brought nearby regions closer together through trade and conquest.
This could therefore be considered as a starting point to the more integrated world we know today. Together with the rise of civilisation, terrorism takes shape as far back as history is first recorded. Terrorism is not new. 1894, French President is assassinated by an Italian anarchist. 1897, Empress Elizabeth of Austria was killed by anarchist. 1900 sees the mushrooming of terrorist militant groups such as the Palestinian group and Irish Republican Army, (Jain & Grosse, 2009). What has changed however is the scale and internationalisation of terrorist attacks.
According to Office of the Law Revision Counsel of the U. S. House of Representatives, international terrorism is defined as ‘violent acts or acts dangerous to human life that are a violation of the criminal laws of the United States or of any State, or that would be a criminal violation if committed within the jurisdiction of the United States or of any State’ Then American Secretary of State Colin L. Powell in 2001 commented that international terrorist attacks have increased, alongside with a rising living standard. Cooper, 2005). While Globalisation brought about many benefits to the current world order, it also gives rise to controversies and critics which in turn translate to animosity towards globalisation. Terror attacks are launched in the name of religious and cultural preservation. This essay relates the cause and effect between globalisation and terrorism, followed by the impact of terrorism in the global business environment and lastly, operational resilience measures undertaken by international businesses. 2. CAUSE-AND-EFFECT BETWEEN GLOBALISATION & TERRORISM ‘Terrorism shows the dark side of Globalisation’ – American Secretary of State Colin L. Powell on April 30, 2001 (Cooper, 2009) Terrorism forms part of a larger geopolitical and cultural disparity (Jain and Grosse, 2009; Suder, 2004), but the expanding network of terror group and intensifying scale of terror attacks is building on a compost of today’s economic globalisation (Li and Schaub, 2004). Figure 2. 1 below shows the overview of the contributing factors of globalisation towards terrorism.
Caused by Globalisation of age| Impact on Terror activities| Accelerated by Globalisation of today| * Economic inequality between developed and developing states| * Increased animosity towards the Western power and its affiliates| * Digitization of money allows smoother flow of terrorist funds| * Cultural homogeneity, convergence towards a Western way of life| * Increased access to resources and decreased risk of exposure pre-attack| * Volume of international trade increased| | * Facilitate the internationalization of terror groups| * Larger victim base| Increased in terror attacks| . 1 Economic Inequality With half of the world’s population living on less than two dollars per day and a billion people struggling for life’s basic survival necessities, ‘globalisation today is not working for many of the world’s poor. ’ (Stiglitz, 2003, p. 214). Despite repeated promises in eliminating poverty, the progress has pretty much been contained within Asia, especially China. In Saharan Africa, Latin America and the former Soviet Union, the plight of poverty has in fact worsened over the last two decades. Stiglitz, 2003). Supranational organisations have encouraged third world countries to eliminate trade barriers but on the other end of the yard stick, developed states imposed tariff and quotas on foreign-imported goods to protect their domestic economy. Cutting short of the export-led growth these third world countries desperately need and taking advantage of their cheap labour irresponsibly (eg. Nike), poverty takes on a new definition in the eyes of the already-impoverished world.
A manure of animosity therefore develops against the notion of globalisation, which in the eyes of the developing nations seen as western capitalism. 2. 2 Cultural Homogeneity In the paradigm shift towards an interdependent economy comes the evolvement of cultural homogeneity. Culture, tradition, religion and language diversity had gradually disappeared to make way for a ‘one size fits all’ consumer uniformity. (Carr, 2005). Symbols of international brands – McDonald’s, Starbucks, Coca-cola become indicators of a nation’s development.
Trade liberalisation has led to cultural pre-eminence of the western influence. In the name of religion and culture conservation, terror groups alike to non-government organisations protest against western capitalism, in a different manner but with a like-minded purpose. While nongovernmental organisations staged protest at the doorstep of every major meeting of WTO and IMF, terror groups took an extreme step further by bringing down international landmarks such as World Trade Centre, Pentagon and Madrid Train Station. 2. Digitization of Money Just as a liquid and simplified banking system invigorates foreign direct investment, it supports the backbone of terror funding through legal and illicit means. Global capital flow, worth over US$1 trillion dollars daily makes checking terrorist fund an almost impossible task by monetary authorities (Czinkota, Knight, Liesch and Steen, 2010; Li and Schaub, 2004; Suder, 2004). There is an inadequate number of enforcement officers to perform proper regulatory checks of daily financial transactions.
Such is the case of Al-Qaeda, where Osama Bin Laden takes advantage of the slip-throughs in the banking system by setting up a ‘large and complex set of intertwined business… and a global network of bank accounts and nongovernmental institutions’, according to the 9-11 Commission Report (2004). 2. 4 Volume of International Trade Similar to the large number of financial transactions, trade liberalisation brought about huge export and import cargo figures. Li and Schaub (2004, pg. 7) notes that ‘trade between the United States, Canada, and Mexico…doubled over the past decade.. but) the number of customs agents responsible for discovering contraband or illegally traded goods has remained the same. ’ This translates to easier movement of illegal arms and weapons as terror groups run into minimal risk of pre-event exposure of terror attacks. 2. 5 Larger Victim Base In the same way which terrorist groups have globalised, their victim-base has expanded with increasing foreign travel amongst civilians and business travellers. Modern terrorism has turned non-discriminative in their target base. Victims form part of their communication strategy rather than their targets (Sauder, 2004).
Innocent lives are sacrificed for a larger geopolitical agenda of conveying the message of fear and insecurity globally. As in the case of September-11 attack, 3000 innocents from over 60 countries were killed, a casualty rate higher than the Pearl Harbour attack. Illustrated by the United States National Counterterrorism Centre’s 2008 report on terrorism, civilians form over half of the casualties’ deaths. Deaths by victim category (United States National Counter Terrorism Centre, 2008 report on terrorism, p. 26) 3. 0 IMPACT OF TERORISM ON GLOBAL BUSINESS ENVIRONMENT
According to a PricewaterhouseCoopers survey of global CEOs (2004), 36% of respondents mentioned terrorism as one of their biggest threats. (Jain and Grosse, 2009). Czinkota, Knight, Liesch and Steen (2010, p. 827) also noted that a ‘review of the annual reports of Fortune 500 firms from 2003 to 2006 found 1,141 mentions of terrorism. ’ Undoubtedly, terrorism remains a huge obstacle in conducting business internationally. According to Jain and Grosse (2009), international businesses are generally concerned with four types of movements and an impact on any of these four areas will result in a disruption to businesses. . 1 Movement of goods Fifteen hours after the 9/11 attack, Toyota’s SUV plant in Indiana come to a stop in production as they could not airlift inventory out of Germany (Jain and Grosse, 2009). Supply chain relates to the realisation of goods-to-money and the transformation of raw components to finished goods. In an analogy to human biology system, supply chain is the blood flow in our body. A well managed supply chain drives stock prices up just as how a disrupted supply chain causes a dive in shares value (Filbeck, Gorman, Greenlee and Speh, 2005). . 2 Movement of people A key factor of success to international businesses is engagement of global talents. However tighter security checks and visa applications approval due to terror attacks have resulted in visa delays. In United States alone, US$30. 7 billion was lost in 2003 and 2004 as a result of visa delays. Global enterprises and medium sized companies were equally hit by the tightening security regulations, especially the latter which could not afford immigration lawyers (Alden, 2004). 3. 3 Movement of money
In the aftermath of September-11 attacks, United States have implemented extraterritorial banking regulations to impede the flow of terrorist funding. The revised Bank Secrecy Act requires US financial institutions to maintain standardised transaction records and report large amount of currency flows or suspicious financial transactions. In addition, individuals or companies are required to report any capital flow of over US$10,000 in and out of the country (Alexander, 2002; Vlcek, 2008). The extension of scrutiny resulted in an impaired and delayed global capital flow critical to business turnover and cash flow. . 4 Movement of information The movement of information relates to the movement of goods, people and money. Delay in information flow is as damaging to business operations as an extension of information gathering. New security measures calls for greater transparency and higher level of details. Extra resources are required to fulfil these new regulations that stretch the time for data-input and verification checks. On the other end, customs authorities with an influx of information means longer time to process and delays resulted. 4. OPERATIONAL RESILENCE BY INTERNATIONAL BUSINESSES While much discussion in scholarly literature has been focused on the macro-economic impact of terrorism, there has been sparse research and journals dedicated to practical operational resilience measures and especially, in a totality business perspective. A 360-degree operational resilience depends on every aspect of the business. Operational resilience is defined as the ‘ability of the firm to respond effectively to interruptions and bounce back’ (Czinkota, Knight, Liesch & Steen, 2010).
To recognise the importance of such resilience measures against terror attacks, businesses must first accept that terrorism is an ever-present threat (Frey, 2009). The fog of risk makes businesses less willing to dedicate resources to defend themselves but with a balance, practical strategies can be executed to minimise the possibility of a terror attack or reduce the impact of one. 4. 1 Management’s Role: Decentralisation of company’s operations News of September-11 attacks spreads worldwide within minutes because it is THE World Trade Centre.
The fall of a global economy icon guarantees wide media coverage for the terrorists to propagate their success and strength. In other words, a decentralised operation makes the business less attractive to terror targets as damage is contained. Should a terror attack occurs, other locations of the business can stand-in to continue operations (Frey, 2009). The same is true of when a decentralised network of company’s executives assures leadership continuity in the event of a terror attack. 4. 2 Operation’s Role: Building an Agile Supply Chain
Trade liberalisation means a greater presence of global outsourcing and a more exposed supply chain in turn translates to running into higher risk of terror attacks (Reese, 2007). An agile supply chain strategy however impedes the damage a terror attack can cause. An agile supply chain is achieved through greater transparency, alternative distribution centres and tighter collaboration with supply chain partners. 4. 2. 1 Greater transparency Supply chain technology with a track and trace capability allows companies to quickly assess the gravity of a situation in the event of a terror attack (eg. port blow-up or hijack of vehicles or vessels). With real-time visibility of the quantity and details of affected cargo, supply chain managers are equipped to make well-informed decision on strategies to re-route the flow of goods, alternative sources or the next shipment estimated arrival. In non-disaster situation, real time visibility of shipment translate to cost-savings measures as companies benefit from lean supply chain operation and just-in-time shipment arrivals without requiring warehousing (Reese, 2007). 4. 2. 2 Alternative vendors and distribution centres
The case of Toyota’s production plant in Indiana is a lesson to supply chain managers worldwide. An over-dependence on one business partner is hazardous in the event of terror attack at the vendor’s location. As noted by Sheffi (2005), Czinkota and Knight (2005), alternative vendors allow room for interchangeability in the business’s production line which will ensure a continuous flow of goods. During non-disaster situations, alternative vendors and distribution centres also lead to healthy competition which will drive prices down or improve product quality. 4. 2. 3 Enhanced collaboration
Establishing good relationship with manufacturers, logistics service providers and carriers is essential in building an agile supply chain. Enhanced collaboration with the supply chain partners can be realised through regular communication or with the help of technology, a secure web portal that gives updated shipment information. Investing efforts on relationship building with these partners prepares the business for emergency preparedness should a terror attack occur (Reese, 2007). 4. 3 Human Resource’s Role: Education and Evacuation The loss of a life in the course of work is detrimental to the company.
In planning for the unexpected crisis, a functional HR plan must include components for emergency readiness, evacuation plans, flexible workplace arrangements and document preservation (Liou and Lin, 2008). As illustrated in the case of Merrill Lynch, the organisation disaster recovery plan yields returns during the September-11 attacks when business operations was resumed six days after the attack. 4. 4 Marketing’s Role: Market Selection and Contingency Marketing Plan When choosing manufacturer and assembly vendors, supply chain managers are poised to choose a market more risk-adverse.
Similarly, when considering market expansion strategies, the marketing department needs to assess the risk associated with that market. Czinkota and Knight (2005) pointed out that marketing plans should include market risk analysis and post-attack marketing strategies. In the aftermath of an attack, a dip in consumer confidence will result in a dive in company’s revenue. Through contingency planning, the marketing department can plan for extraordinary customer service during this casualty and demonstrate empathy through donations and voluntary aid by staff.
Communication messages must be devised to convey a resilient supply chain to prevent shares prices from diving aggressively. 5. 0 CONCLUSION While the direct impact of terror attacks have resulted in devastating ruins and astronomical costs in the reconstruction of the infrastructure, it is the long term impact of counter-terrorism measures that produced greater magnitude damage. Besides spending resources in adhering to new economy sanctions and security measures, global businesses continue to face an ever-present threat of terrorism.
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