Graduates of the William Paterson University (WP) Master of Business Administration (MBA) General online program can assess the impact of the external environment – economic, political, social, cultural, legal, regulatory, and technological – on the practice of business management in different parts of the world.
One of the most significant factors affecting the external business environment is the conflict between nations. However, businesses do not exist in a vacuum; they operate in pre-existing contexts and are affected by external circumstances, particularly in high-risk contexts like international conflict.
Many types of conflict can exert disruptive impacts on businesses in various ways. In the current geopolitical climate, we see an increase in the number and severity of high-risk regions. Here, we highlight some of the most significant conflict impacts, their consequences and what businesses can do in response to threats arising from international conflicts.
Supply Chain
The global supply chain exists in a state of delicate balance. With raw materials, energy, labor, manufactured parts, transportation infrastructures, IT infrastructures and logistics routes all vulnerable to conflict, business leaders must have layers of contingency plans to address many possibilities.
Conflicts may result in key material shortages and cost increases, as well as constraints in production capacity in manufacturing operations. Demand could become as volatile as supply, depending on the markets affected. Irrational buying in anticipation of escalating conflicts can drive inflation, and one country’s economic protectionism can hurt businesses in another. Conflicts can then impact logistics routes and modes of transportation, resulting in delays and disruption.
These impacts have spillover effects throughout the supply chain ecosystem, but accounting for them is a crucial for a resilience strategy. Logistics leaders must evaluate vulnerabilities before conflicts arise to create alternative and redundant plans, including diversified sources of raw materials and varied routes and carriers. Technologies must be geared to the challenge of cyberattacks that could potentially shut down a fragile supply chain.
Sanctions
Government investment in high-risk contexts helps create sustainable peace and economic development. Conversely, when conflicts arise that result in economic sanctions against targeted countries, such as NATO sanctions against Russia in response to the Ukraine invasion, these investments wither away. For example, the West is reconsidering its reliance on Russia’s natural resources (gas/oil). Actions such as these can produce cascading effects throughout the global economy, affecting natural resource availability, the value of currencies, and business profitability in the context of rapidly rising fossil fuel costs.
Sanctions are typically used by governments not as deterrents to conflict but as a way to get a nation’s businesses to drive change in a government. NATO sanctions on Russia and its oligarchs are meant to force change within the Russian administration rather than leave it up to the citizens or other nations’ militaries. Business leaders need to be aware of escalating conditions that could lead to sanctions and have a response plan.
Cyberattacks
The threat of cyberattacks — just like nuclear weapons — enables despotic regimes to operate with more impunity than they otherwise would. Potential adversaries must work with the fear that these capabilities might be used, especially against targets in the business sector, supply chains, logistics networks and public utilities. Attacks on organizations in critical infrastructure sectors have increased dramatically, from less than 10 in 2013 to almost 400 in 2020 — a 3,900% change. The recent war in Ukraine has increased the threat-perception of cyberweaponry in the European Union and the United States.
IT and business executives must prepare for cyberattacks as part of their business security and risk mitigation strategies. They must cooperate with other organizations and industries to form a network of intelligence against would-be criminals and rogue states. They must perform ongoing risk assessments of volatile situations worldwide that could lead to such attacks. In short, response plans must account for detection, protection, temporary alternative strategies and recovery.
Import/Export Operations
Civil and international conflicts are often sources of prolonged economic disruptions affecting import and export operations. There are several effects at work: The “opportunity cost effect” often drives people in poorer nations to participate in violence when incentives are greater to do so than participating in regulated economic activities. The “rapacity effect” refers to valuable financial resources driving nations to compete — often violently — over their control. Finally, the “resource effect” refers to how both governments and rebel groups often fund activities by taxing commodities, making inflation drive up costs and further incentivize sustained conflict.
Business leaders must understand how to work with governments to create trading policies that mitigate risks and incentives for conflict. Sustained fair trade, especially between neighboring countries, allocates resources to efficient economic activities that benefit all parties.
Disputes About Resources
Conflicts often arise when citizens of nations with economic resources do not receive their fair share of benefits. Inequitable distribution of benefits often disrupts social structures, leading countries and ethnic groups to fight over control of resources. Resource control becomes more complex when you factor in local histories of mistrust and social relations. Control of resources can fund military activities and contribute capital to war.
For example, estimated revenues from the trade of conflict timber in Liberia, Cambodia and Burma exceed US$100 million per year. The U.S. and Russia have had ongoing conflicts in the Arctic over fisheries. Some 90 warships and military aircraft support the Russian effort to secure economic development in the North Pacific.
If you would like to learn how international conflict impacts global businesses and how complex international systems work, an MBA program is an excellent step.
Learn more about WP’s online MBA General program.
