Economic Effects of Terrorism in the UK
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Terrorism has deep history science the cold war but this issue become most salient after terrorist attacks in September 11 2001. This incident affected the UK and international business community in various ways. On one hand the world business community was affected financially, the other hand it suffers due to legal and security issues. The international business between countries was most seriously affected due to security and safety concerns and legal issue. Especially UK, US and other developed countries were compulsion to protect their territory and people on the cost of business with the rest of the world. Many businesses found themselves floundering financially in the months after the terrorist attack on world Trade Centre, while businesses located in world trade centre lost their personal and business locations. According to U.S department of state (2002) more than 3000 people of different nationalities were killed in the terrorist attacks only in the United States in September 11, 2001. The attacks were the conspicuous example of terrorism on global level. According to the overview of European commission (2001) this was the one of the major event in the past decades which diversifies the viewpoint and outlook of people around the world. Terrorism affects both the long term and short term perspectives of the businesses around the world. Czinkota (2002) cited that terrorism influenced long term karma of entire industries, for example tourism, retailing and manufacturing industries.
In this competitive age, the business environment is changing dramatically. The international business has culminated in a global economy, with diverging cultures. But, there are strong protests against globalization echoing its destabilizing effects from many corners of the world. Terrorism can be seen, in substantial part, as a result of this backlash to the businesses. There are number of definitions of terrorism, in the world of Alexander et al (1979) â€œterrorism is a threat or use of enforcement and inclemency to achieve a political goal by means of intimidation fear, and coercionâ€?. In the present world context, the European Union (2001) define the terrorism relevant to international business in the following words. â€œTerrorist offences are certain criminal offences set out in a list comprised largely of serious offences against persons and property which, given their nature or context, may seriously damage a country or an international organisation where committed with the aim of: seriously intimidating a population; or unduly compelling a Government or international organisation to perform or abstain from performing any act; or seriously destabilizing or destroying the fundamental political, constitutional, economic or social structures of a country or an international organisationâ€?.
In UK terrorism is not new phenomenon but businesses were highly affected due to September 11, 2001 and July 7, 2005 incident. Although the economic impact on UK businesses has not been detrimental as initially feared but it is very important not to diminish the impact of even small unforeseen costs can have on businesses in particular. However many UK businesses were relived that tangible impact of terrorist attacks had been very small but business confidence is the key and has inevitably been affected in short term. The biggest economic impacts of past twenty years terrorist attacks is the damage to confidence in the UK businesses and people. This study is another attempt to research and investigates the impacts of terrorism on the UK businesses activities and we will also discuss different approaches for reducing and handling the terrorism threats.
1.1 Research Aim:
The aim of this research is to analyse and explore the economic effects of terrorism on businesses in the United Kingdom. The second part of this research is to critically analyse and recommend the most appropriate strategies for management to deal with the terrorist threats or scrutinize the different business strategic views to avoid and minimise the impact of terrorism on UK businesses.
1.2 Research Objectives:
This research has the following individual objectives:
Critically analyse the economic impact of terrorism on UK organizations and the entire economy in UK.
Evaluate the managerial performance in organizations, before, during and after the happening of the terrorist attacks and in uncertain environment.
1.3 Research Questions:
What are the economic effects of terrorism on business?
How to development strategy for managers or adopt a better approaches to deal with above mentioned issues?
2. Literature Review:
In this era terrorism is arguably one of the biggest threats to the business around the world. It can take many shapes and forms. The last twenty years have seen a dramatic rise in terrorism. Terrorism did not begin in 21st century after World Trade Centre terrorist attacks on 11 September 2001. The terrorism history is as old as humansâ€™ willingness to use violence to affect politics. Europe, United States and other continents have a very long and sad history of terrorist attacks. In past century IRA in UK, ETA in Spain, Brigate Rosse in Itely, Rote Armee Fraktion in Germany, 7 November in Greece are the few worse examples of terrorist groups in Europe. In United States we remember the bombing in Oklahoma City in 1994, World Trade Center bombing in 1993 and 11 September 2001 terrorist attacks. But September 11 2001 attacks have changed the world, as UN Secretary General Kofi Annan has said, â€œnone of the issue that faced us on 11 September 2001 has become less urgentâ€?. Now the terrorism has grown to an unprecedented limit and in multiplicity. As we know that, even terrorist without the use of weapons of mass destruction can kill thousands of people and destroy businesses (Gabriele G.S. Suder 2004). According to Blomberg et al 2004 â€œterrorism is associated with a diversion of spending from investment to governmentsâ€™ expenditureâ€?. To fund these government expenditures, they borrow from foreign financial institutions and governments. The develop countries with less volatile currencies normally issue long term debts to cover the deficit and less developing countries confronting terrorism by government spending through sale of foreign reserves, printing more currency and increasing inflation. Gupta & Clements (2004) reached the same conclusion, that the terrorist activities severe impacts on less develop countries than developed from monetary policy perspective.
Terrorism has its massive effects on economy and business activities. It effects deleteriously on marketing strategies, buyer demand and market supply effect immensely. Most firms operating in the affected area gets impact from the thrust of government policies to quell terrorism. This kind of wide-spread results predict an escalate attractiveness of terrorism, as part for that group which assume to develop the core of businesses. It is impossible to secure all of the targets of terrorism at the same time. In the number of attacks done by small terrorist groups with least resources the loss was massive. If costs of an attack be measured by the loss which businesses faced, the businesses always paid far great amount than the cost to terrorist group. Hoffman (1998) cited that the cost of the bomb was not more than $400, which was the reason of the loss of $550 millions in the blast of World Trade Centre 1993. The amount which is sending to protect the world from terrorism is many billion dollars, while the terrorist cost nothing in front of it. This threat of terrorism attacks poses a continuous threat and create atmosphere of risk for the businesses. This risk itself creates extension for treatment of risk in management theories. The majority of management literature theories adopt term â€˜uncertaintyâ€™ as a factor of unpredictable environment which may influence the performance of firms in certain ways. The environment effected by terrorism also has a factor of unpredictability in it.
Businesses internationally and locally particularly affected by terrorism because when some thing happen it disrupt the supply chain and business activities in addition to interrupt information flows, and effects on the demand for industrial side as well as consumer side. Every year more than trillion dollars are spent on combating terrorism. This along with billons dollars lost in property damage, loss of human resources and decrease in key industries potential profit. It is a plague on global economy and affects on everyone from entire countries to all the way down to individual. Terrorism in recent years has sparked, increase in fear and demand higher level of security. The cost of terrorism can be broken down into number of areas and come down to direct effects, response costs and negative effects on key industries. For example, Manchester bombing was carried out by IRA in 1996 targeted the city centre infrastructure and economy caused widespread damage. According to the BBC News (2004), over 400 businesses within the half a mile of the blast were affected and 40% of which did not recover. Another example of terrorist attack on businesses is Baltic Exchange bombing 1992, which damaged the Exchange and surrounding buildings and caused Â£800 millions worth of damage. The latest terrorist attacks in UK was July 7 London bombing, which had massive effects on UK businesses. According to the LCCI (2005) report, business confidence in London had slumped to the lowest levels not seen since the start of Iraq war. Because, terrorist attacks disrupt supply chain and other business activities. Alexander (2004) says in his book Business Confronts Terrorism, â€œterrorismâ€™s implication on business merits closer scrutiny given its relation to economic security. Terror metamorphoses business causing business to deal with current threats and craft plans to reduce future challenges. Terrorists weaken society and business through their manipulation of economic systems componentsâ€?. Terrorism interrupts information flows and effects on the demand form both business and consumer side. This falling demand may have different outcomes which may comprises of losses of customers contracts, customer trust, reduces market share, decline in turnover and profitability and also result business failure. For example according to the LCCA report, UK tourism industry badly effected by July 7 terrorist attacks. The Guardianâ€™s research shows that after July 7 Bombing, Londoners themselves who are leaving the centre in the evening rather than the tourists. Within a month after these attacks, it has been estimated that terrorism cost UK tourism industry in excess of Â£300 million.
According to U.S Department of state (2002) â€œterrorist select businesses for attack compare to other targetsâ€?. The most kind of attack is bomb blast, although armed attacks and kidnapping are also some kinds of terrorist attacks. According to Council of Foreign Relations (2002) report, â€œthe majority of victims in terrorist attack are civilians and the relatively large number of business may not prepare to face these kinds of risksâ€?. Managers and decision makers remain confident about handling unexpected risk. However the scenario has changed as it was at the time of terrorist attack in 9/11. Kunreuther et al (2003) cited that during the days of terrorist attacks in 9/11 a common feeling came into mind of people that it could be me. But with the passage of time this may give way to may be it will not â€˜meâ€™ next time. This kind of behaviour is more common now a day in south Asia. But it is a common thinking that it is extremely easy for terrorist that to attack any where in the world. Even in low cost and low tech attacks terrorists achieve to disrupt the world economy.
After the September 11 terrorist attacks many UK international organisations have badly affected legally because new laws introduced and they struggle to keep up with new rules and regulations imposed by international community in the effort to prevent further terrorist attacks. Anne Slaughter (2005) cited that new international laws restricted the companies for shipping goods across international borders and requires them to keep proper track of their activities. The anti terrorist laws have made very complicated for organizations to conduct their business activities across the international borders as a result many organisations have restructured theirs companies to allow them to meet demands of international anti terror laws. Another major issue that effect the international organizations is security and they have to invest huge amount of money to improve both internal and external security. External security is most important because terrorist target organizations to achieve their targets. Internal security also need to improve to ensure that organisation have financial records, employees records and ensure that employees do not have any criminal backgrounds or involved in terrorist activities in the past. It is vital for all organizations that they protect themselves and their stakeholders from terrorist activities. The international organizations should not underestimate the impact of terrorism because they make billions dollars each year and provide employment millions of people around the world. In this modern era, it is very easy for terrorist to attack international organizations in such a way that they would stop them from operating in an effective manner. It is very difficult to explain, why terrorism has become the major problem for big and international organizations.
Modern terrorism is particularly onerous, because of characteristic of its impact. The impact of terrorism on macroeconomic is crucial, customers feel themselves in stress and some kind of continuous fear which definitely effects the spending patterns. Managerial behaviour in macro economy also feels consequences of terrorism. Media have its vital role in ending fear among the society but very often it fails. Many of times, because of the irresponsible reporting it generates scenes of ever present possibility of terrorist act. According to Crenshaw (1990) the new and fastest ways of communication allow people to know about happens in the other part of the world within minutes about any terrorist attack. On the other hand terrorist groups are adopting the latest techniques to communicate with each other and even sometime just for spreading fear with in the specific community to achieve their targets. Czinkota et al (2004) cited that terrorist also using old traditional ways to communicate which are unable to penetrate. The latest ways of transportation system gives terrorist groups better way to move around.
The impact of terrorism can be calculated from a number of ways. According to Czinkota et al (2004) the micro level research is a moderate degree of research. It help to analyze effects of terrorism on specific regions, value chain or cross industry level, but can be determine and examine more specifically than those of macro level. When terrorist events happens if effects businesses direct and indirect way and disrupt the economic process. To make the effects of the terrorist activities stronger terrorist groups try to make businesses their direct targets. Business are more attractive target for those groups as their presence is everywhere and their aftermaths are more deep on society and on the economics.
Terrorism effects business activates deeply. This threat compel almost every department of business which cause decline in the profit of firm and on the other side the whole economy has to bear the cost of every single act of terrorism. According to LCCI (2005) report, after 9/11 terrorist attacks, majority of organizations fear high risk of terrorist attacks and they have contingency plan in place to deal with uncertainty.
As globalization integrates multinational organizations and financial markets, events like terrorism which spurn economic uncertainty have increasingly international consequences. Terrorism causes unpredictable political and economic consequences, infuses the public with fear and prevents the free flow of capital, labour, and free market principles. Because of their disastrous impacts, occurrences of terrorism have serious implications on the performance of international and UK organizational. Immediate responses are felt in financial markets and the effected industry sectors. These sustained reactions can be observed through macroeconomic impacts, economic policy responses and investor confidence. As world move towards more liberal economies and democratic political structures, organizations must have the ability to adapt and respond to terrorist events. In order to do so, decision makers and policy makers need a more complete picture and understanding of the deleterious effects of terrorism on organization.
3. Research Methodology:
The main proposed research methodology is secondary research which is based on the critical and comprehensive analysis of the existing published literature related to the specific area of research. Books, published journal articles, published research reports, surveys, organizational records, qualitative research and internet (websites and search engines) will be used to collect secondary sources data. I think these sources will help me to complete my research work.
I will use all the above mentioned secondary research methods for my research work and I am highly interested to use the deductive method because it is more logical and authentic way to prove my research. Moreover I will use both quantitative and qualitative techniques to critically analyze my collected data and to reach the conclusion. But in this research work, I will prefer to use more qualitative method of data collection. According to Lincoln and Guba (1985) a qualitative method captures a more complete picture of individual lived experience instead of a narrow perspective of generalizations. The qualitative data provide me an opportunity to study the material of the recent or more distant past to gain the more insights information for methodological and theoretical purposes.
3.1 Advantages of secondary research methodology:
This kind of research helps in examining large scale trend.
It is easy to accessible so researcher can consume most of its time in critically analysing data rather than collecting it.
Sometime primary data collection is not necessary for the research, because of the available secondary data is completely suitable to draw a conclusions and answers of the questions and sufficient for solving problem.
The collection of secondary data is far cheaper than the collection of primary data. For the same level of research budget secondary research definitely gives relatively more information than the primary research can give.
The time consumption is much less in the collection of data and conducting results in comparison with the primary research.
The results obtain from secondary source of information may more precise than the result obtain from the primary data collection. It may not happen all the time but if research is about at large scale.
3.2 Problems of Secondary Research:
In secondary research the researches have to be careful about authenticity of secondary resources. Because at the same type of data or idea two different types of department or persons have different type of opinion.
Some time material available for research is too old and out dated, so it may difficult for researcher to interpret results.
The source of the data and material may not reliable each time, so it may impact the reliability and authenticity of results of the research.
Sometimes secondary research has lack of firmness of perspective.
If data and material collected from non authentic sources it is difficult to check its biasness and inaccuracies.
The published material and statistics often raise more questions than answers.
There are some limitations the data may have and the problems that could arise if these limitations are ignored. The verification of existing data is difficult. Secondary data can be general and vague and sometimes it may cause difficulties in decision making. It is possible that data could be out dated and the sample used to generate the secondary data maybe small. The data publisher company may not be reputable. While keeping in mind those limitations of secondary data, I will use data for my research from reputable academic websites and published literature.
A use and search of secondary data should be preceding any primary research activity. Secondary data definitely helps to solve and understand the problem and gives valid answers. The process of collecting secondary data for research is far cheaper and quicker in compare with primary data at in some cases it could be more accurate. There is always a need of evaluation about data and its source before using it for research. Where possible it is better to take same data from different sources so the biasness and errors can be double check for the more accurate results.
4. Research Structure and Design:
This research consists of six chapters. It begins with chapter 1, which reveals the need, aim and objectives for this research to be attained. Chapter 2 of my research will discuss the methodology, which enables me to fulfil the requirements of this research. Chapter 3 is an extensive and deep interpretation of literature review about terrorism. Chapter 4 of this research will explore the impacts of terrorism on businesses. Chapter 5 of this research evaluates performance and adaptation of suitable strategy by management on different kind of business activities and also scrutinize the different business strategic views which a business can adopt for minimizing the effects of terrorism. Finally chapter 6 of this research is the conclusion and recommendation chapter which will answer all the key questions, aim and objectives of this research seek.
5. Research Implementation Plan:
Week beginning Date. 23-10-2010
No. Of Weeks
Background reading and literature review
Research design and plan
Choice of methodology
Data analysis and refine
Writing up draft
Editing final document
Produce final document
Document passed to supervisor to read
6. Research Ethics:
While carrying out the research, the most important thing to keep in mind and practice is the ethical considerations. And in my research work this is very critical and of prime consideration. I will follow all the ethical considerations and guidelines. As my research work is based on secondary research, so what ever the secondary data I will use to achieve my research objectives, I will follow the all terms and conditions of ethical considerations. Throughout my research I will practice honesty in processing and reporting all the data, this will be my own work and I will not copy the other researcher data or work, I will not be bias in my research while collecting or processing the data. I will try my utmost to avoid the omissions and errors while analysing the data and will keep all the record of the data and their valid sources. I am fully aware that the plagiarism is a serious academic crime, so I will not plagiarise my research. I will quote all the citations and that will be fully referenced.
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