Impact of international terrorism on business

Global terrorism has been having an effect on several levels of the business environment, and it is still growing at an alarming rate, increasing the risks for businesses that conduct worldwide commerce. Simply put, terrorism refers to illegal and violent activities that are committed for political, religious, or ideological reasons with the intention of instilling fear in others. Terrorist attacks are typically carried out by non-government organizations with deliberate disregard for the safety of non-combatants (Abadie and Gardeazabal 8). As a tactic to avoid deterring or reducing international trade and investment between nations with different cultures, many government policymakers have been at the forefront of introducing several security measures that concentrate on limiting terrorism. Global business involves the commercial transactions between two or more states, regions and nations conducted by either the private companies or the government for profit purposes or political reasons respectively. Globalization has enhanced the investment of firms in emerging markets and boosting the economy of developing countries. However, documented literature by a variety of scholars in the field of international selling of goods and services argue that nations that are more prone to terrorist attacks will trade less with other countries.

Therefore, this paper seeks to examine the global business impacts resulting from worldwide terrorism. The general implications may be including but not limited to an increased spending on the security technology, monitoring of the economic as well as financial transactions and henceforth the costs associated with international commerce increase accompanied by a decrease in the speed of operations being carried out. Power, globalization and religion are the core principles that explain terrorism and its devastating implications in altering international trade and accumulation of the incredible costs resulting from such violent acts and war.

Global terrorism and impact on global business

Countries suffering from the violent acts are unable to attract or maintain the business development together with foreign direct investment. Multinational companies suffer from effects of terrorism including company strategy and overall performance, organizational preparedness, distribution channels, global supply chain, and the human resource issues affecting the whole world (Kumar & Liu). The levels of uncertainties regarding complexities of the trade between countries are increasing significantly as the terrorists foster the modification of perceptions, scope and scale of all the stakeholders and henceforth questioning the universality application of the corporate tactics. It results in insecurity which eventually leads to a rise in the costs of conducting business. The security regulations make the trade to remain expensive for instance an increase in the delivery times. Empirical research documented by different studies indicate that there is a negative association between volume of global trade and the terrorist activities experienced in various nations across the world (Sandler & Enders 23).

Intimidation of people due to the unlawful and violent acts reduces investment in the nations that are affected and henceforth a significant decline in the capital formation accompanied by employment. It is because the terrorists aim at gaining an international attention regarding their activities by mainly targeting tourism, foreign direct investment and transportation and thus affecting the imports and exports of the targeted nation. Due to uncertainties on what will happen in the future, costs of traded goods and services rise relative to those produced by the terrorism-free countries. Nevertheless, costs of conducting the businesses increase as there is an increment in the insurance premiums together with the security costs which eventually lead to a reduction in the international competitiveness of a particular nation that is suffering from terrorism.

Additionally, the high inspection and safeguards on the borders slow down the flow of both material capital and human resources together with end products which influence the rate at which the global trade is being carried out. The purchasing power can also decrease due to disruption in production which results in loss of income. Lastly, the government is forced to divert its expenditures from the more productive and safe public investment to the security activities that tend to be less productive.

International terrorism decreases bilateral trade flows through a contribution in raising the costs of trading together with hardening of the borders. There is a creation of anxiety where people become more cautious regarding the potential harm of different transactions either in air travel or home delivery package. Costly inspection and monitoring of the flow of goods and people helps in detecting the cross-border transactions (Sandler & Enders 34). However, such actions being taken by the government and other agencies translates into a slowdown in the real income and the total factor productivity.

The direct effects resulting from the frequent terrorist attacks include but not limited to disruption or damage of power, interference with transport, communication and other infrastructure as a result of death, trauma, and injury of the human level, together with destruction on the physical scale. Henceforth, there is an uncertainty of the business continuity planning, resilience, crisis management, and the disaster discovery. It causes an organizational crisis that has unknown ultimate outcomes and henceforth posing a significant threat towards a firm’s performance (Sandler & Enders 39). Thus, there has been a continuous shift from the foreign direct investment to the exporting market entry approach. This step allows different stakeholders of a company operating a rapid and broad coverage of the world markets internationally to make effective decisions as well as reducing a higher dependence on the physical facilities that are prone to destruction in case there is any terrorist attack.

The indirect consequences involve uncertainties in examining the demand and supply effects, disrupted international transaction costs, ineffective supply chain resilience and flexibilities, reputations of the multinational companies. Nevertheless, there is increased government policies and regulations regarding procedural changes and foreign direct investment trends and flows globally which discourages investors from different nations mainly from the developed regions of the planet earth.

The United States, Iraq, Istanbul, Bangladesh and France are among the top countries that have experienced devastating terrorist attacks that yield human costs as well as a more significant economic on the affected nation (Kumar & Liu, 2013). Such situation makes it hard to trade with other peaceful countries that may impose trade restrictions to protect their citizens from terrorists who may pretend to be carrying out business but in the real sense are promoting illegal activities such as importing the weapons used to attack the innocent civilians. There may be direct economic destruction due to the measurable and immediate impact on the existing plants or factories, transportation systems, machines and workers.

Bombings in essential cities lead to the demolition of organization’s property that is worth billions of dollars and many productive workers get killed that affect specialization and division of labor. Therefore, it will be hard to efficiently allocate resources and facilitate bringing in of new technologies together with skills that can enable a nation to achieve higher productivity and increment in the gross domestic product. Hence, Adam Smith’s international theory of absolute advantage may be ineffective as the destruction of the economic resources will make it impossible to produce efficiently what a country is capable of doing. Furthermore, the comparative advantage by David Ricardo may not be applicable as the government will be forced to implement different policies aiming at regulating the free flow of goods and human labor as a way to protect the nation thus restricting efficient transportation, storage and distribution of imports and exports.

Governments are forced to divert resources meant for productive usage to bolster the defense and military which in the business environment do not add to the standards of living or creation of a significant amount of wealth (Sandler & Enders 41). Another critical issue is the expanded uncertainty in the international markets that lower investment together with cooperation in the world of terrorism. Wars deteriorate the health of a given state as there will be higher taxes increased deficits together with inflation. Furthermore, the government will often implement price controls and the nationalization of its local industries. Moreover, there is ineffectiveness in the management of resources for the productive economic activity as opposed to the private individuals particularly when it comes to shifting the expenditure towards achieving the strategic military objective.

Global terrorism results to closing down borders to the trade between countries together with restricting immigrant workers that can lead to a reduction in the size and the diversity of all economic transactions and limiting full exploitation of the productive resources. Managers of international-sounding companies with famous brand names are continuously shifting their focus from the proactive exploration of opportunities in the emerging markets across countries to the defensive posture. They justify such move by emphasizing threats and the vulnerability experienced in the foreign operations primarily for the multinational companies that exploit resources in the developing nations.

Thus the terrorist threat has led to a rise in the number of public-private partnerships to bolster effectiveness in the collaboration between the governments and firms of various ways to curb impacts resulting from the unlawful and violent acts and wars conducted by non-government agencies that have evil motives. A well-known example is the unending partnering between the global police agencies with the private firms as a strategy to deal with the cybercrime issues together with attacks on the critical computer infrastructure of multinational corporations. Worldwide terrorism is an external factor that impacts the performance of organizations as it has a significant impact on the political conditions, social environment, competitors, suppliers, the government regulations and policies regarding trade, economy’s resources and the people’s demographics.

International terrorism leads to insecurity which a higher business risk in the affected regions. Businesses are suffering significant losses that result from the continuous damage of properties by the terrorists, interruption of core activities, an increment in the relocation costs and lastly growth in the number of human casualties that could provide cheap and skilled labor. Multinational corporations, from the perspective of managerial economics, are incurring both the fixed and variable costs such as securing of the transportation of the goods and services and disruption of the international supply chain sources (Abadie and Gardeazabal 23).There is an economic spillover through the trading partners in the international stock markets due to the foreign terrorist attacks in different targeted regions.

There is an adverse effect on the consumer behavior as the consumers’ psychological response to the terrorist attacks yields a reduction in the market demand for both products and services. Therefore, there will be severe consequences on the B2B activities which will imply that there will be increased investment in the discounting and marketing as a way to stimulate the spending (Kumar & Liu, 2013). In response to the threat of terrorism governments are compelled to implement changes to regulations, policies and laws that in the long run deteriorate business operations efficiency. Such acts negatively influence the globally interconnected environment where industries and regions are interrelated and depend on each other. Additionally, the security measures are disrupting the global transportation as well as logistics systems. The delays and shortages lead to higher costs when it comes to supplying of the raw materials and components that eventually result in higher prices for both the businesses and consumers. Areas prone to terrorist attacks have higher risks which increase the costs of acquiring expertise and resources.

Conclusion

In summary, the impact of terrorism on international trade vary depending on the time and place and the violence and warfare lead to additional transactional costs. It results in the insecurity that eventually increases the costs of conducting business across countries. There also may be changes in the country’s production and consumption patterns which in turn affects the flow of international trade. The unpredictability of the terrorist bombings and shootings cause firms to face higher risks from insecurity which reduces the attractiveness of the emerging markets to the global producers. Economic researchers argue that terrorism disrupts the productive activities of a country which makes it hard to export the goods and services in which it has a comparative or absolute advantage. Investors are scared of the affected regions and thus depressing stock of productive capital together with the flow of advanced technology and skills that could improve economic development and growth. There are records of high targets on disrupting an industry’s supply chain globally as well as destructing the transport modes across countries which eventually deteriorates the effectiveness of global trade. Thus, it is essential to diversify suppliers and other international activities and development of contingency plans.

Works cited

Abadie, A. and Gardeazabal, J. “Terrorism and the World Economy.” European Economic Review, 52(1), 2008, pp. 1-27.

Kumar, S. & Liu, L. ”Impact of Terrorism on International Stock Markets.” Journal of Applied Business and Economics, vol. 14(4), 2013.

Sandler, T. & Enders, W. ”Economic consequences of terrorism in developed and developing: An overview.” In P. Keefer and N. Loayza (eds.), Terrorism, economic development, and political openness, Cambridge University Press, Cambridge, 2008, pp.17-47.