The effects of this are both direct and indirect. Short-term direct threats include death and destruction. Longer-term effects include falling demand, a changing business environment and depressed markets. The result is increased uncertainty for business.
Managers must consider the threats of terrorism when looking at countries to invest in, which could be bad news for certain regions. They must seek to minimise risk, which might mean doing more business closer to home and building up larger stocks of essential inputs. Over time, it will involve strategies to minimise supply chain shocks and ensure business continuity. For example, having geographically diverse manufacturing bases and secondary suppliers.
Terrorism can also exert an upward pressure on the price of some goods which could act as an incentive to save not spend. Certain commodities will also rise in price. For instance, terrorism has affected the price of coffee in Colombia and events in the Middle East have pushed up oil prices. This is unlikely to be positive, though some sectors such as construction may actually benefit as demand for their services increases.
Overall though, terrorism demands a change in management practice. All strategies have their pros and cons. Foreign direct investment (FDI) may be seen as very risky whereas exporting allows a quick withdrawal, but with FDI you have much better local information. Perhaps then, local alliances are the way forward.
Terrorism can strike anywhere so the right business models are more important than the right countries. The key is research, cost-benefit analysis and collaboration with local partners. With currency movements you may even be able to enter into risk-sharing arrangements. You also need to look at transport and crisis management strategies. Above all, be flexible.
The risk of terror can never be eliminated but it can be anticipated and planned for. Being prepared is expensive, but less expensive than being hit. Companies need to acknowledge this and spread preparedness locally, not just at headquarters, as it is a global problem.
Finally, some say terrorism is caused by poverty. In fact, from a business point of view, it is the other way round. Nonetheless, we cannot expect the poor to deal with it. Global business has the tools and resources – it should use them.
Source: Managing the terrorist threat
Michael Czinkota and Gary Knight
European Business Forum, Issue 20, Winter 2005
Review by Rhymer Rigby