How to Improve Business Success During War

Global instability is growing, not declining. The world is less capable, not more capable, of handling such instability. What can companies, large and small, do to improve their success and that of all their stakeholders, despite war and instability?

By Mark D, Harris

Business has been international since before the Hebrew King Solomon imported peacocks from India (1 Kings 10:22). The Chinese traded all over East and Central Asia, Arabs bought and sold from western India to southern Africa, and the Vikings plied their wares from the British Isles to the Black Sea. The development of the blue water navy in the 1500s, including reliable time pieces and deep draft sailing vessels, opened the Far East and the New World to European traders. With technological advances in communication, transportation, finance, and production, business has become global at a volume and speed unimaginable to our ancestors (Hout et al., 1982).

All eight billion people on earth are consumers, but they are also producers. Trade used to be primarily local, and the farmers and craftsmen in a village and region provided almost all the goods and services needed. Family, friends, and other neighbors conducted business with each other, and little or nothing that a person possessed came from more than fifty miles away. Pricing could be flexible, with buyers and sellers negotiating on timing and price. During the recent financial crises, businesses and banks that primarily serviced Amish customers were more stable and even profitable than those seeking the highest rates of return. Contrary to the opinion of Gordon Gekko in the movie Wall Street, greed is not good.

Today, the world is far more complex, and customers are far more demanding. If I want a custom computer, workers in China, Taiwan, the US, and dozens of other countries acquire the raw materials, assemble the component, and ship the computer to me in three weeks or less. Average Americans today do things that even kings could not do just two hundred years ago. In 1910, King Ferdinand of Bulgaria was the first monarch to fly in an airplane. Reliable indoor plumbing did not arise until the 1850s, when Victoria ruled the British Empire. The global economy is a major part of these advances.

For all its blessings, international business can also be a curse. Wage and price competition from across the world undercuts local jobs and harm local economies. War, terrorism, and other violent events threaten international supply and demand chains in myriad ways. Pandemics such as COVID-19 spread like wildfire through our “smaller” world. Finally, state governments, especially the autocratic ones, weaponize business to use against their political enemies (Hochberg & Hochberg, 2020). The neo-mercantilist Chinese support native firms to the tune of billions of dollars against their American and European counterparts, who have no such support (Atkinson, 2020).

How can businesses succeed during times and in places with war and instability?

With notable exceptions, including imperial merchants like the British East India Company, businessmen have long been conservative, largely hesitant to risk investors’ money on uncertain deals. From the 18th to the 19th centuries and in the second half of the 20th century, Europe and North America had political and economic stability and were a favorite target for excess cash. Colonies such as India and South Africa were also considered suitable targets for capital. Non-colonial Africa, Latin America, and Asia were considered less stable for international investment and required a higher risk premium. Europe in the first half of the twentieth century was tragically unstable.

Small Business

War is the ultimate instability, but people have had successful small businesses despite war. Cheung & Kwong (2017) studied entrepreneurship in Hong Kong during the Japanese occupation from 25 December 1941 to 30 August 1945. They examined the lives of three people who worked in fishing, transitioned to manual labor and other tasks, and ended up succeeding in small businesses from fishing to running a grocery store. None of the people studied became rich, but they supported themselves and their loved ones. The authors identified important advantages that allowed them to succeed, First, they identified and used local resources. As the market demand changed, the businesspeople transitioned from selling fish to selling coal to selling metal. Second, they had intimate market knowledge, having lived and worked in Hong Kong all their lives. Third, they knew the local customs, which allowed them to move into unclaimed market niches rather than competing. Fourth, they had a network of friends and family who provided capital and aided in operations (Cheung & Kwong, 2017). Despite the horrors of war and the oppressive Japanese occupation, these local entrepreneurs succeeded in ways that people farther from the scene could not. In modern terms, these Chinese entrepreneurs ran microbusinesses, which form the vast majority of businesses worldwide (Gullifer & Tirado, 2017). These businesses generally struggle with financing, but have the advantage of being able to stay under the radar and minimize complications from warring parties.

Small businesses succeeded in occupied Europe during World War II. While positive overall, there was a darker side to this business success. German construction companies of all sizes, in close collaboration with Hitler’s government, benefited from massive construction projects in military and industrial infrastructure throughout the continent (Gogl, 2021). Further, business leaders functioned as local and regional administrators, thus overseeing conquered peoples while obviating the need for government-paid administrators (Gogl, 2021). In any wartime situation, businesses of all sizes and varieties must carefully consider how to treat members of the opposing sides. Most opt for neutrality, but the balance is perilous. Some firms pay protection money to both sides, as IBM might give campaign cash to Democrats and Republicans before a campaign.

Even today, during the Russian invasion of Ukraine, small businesses are fighting back (Shalal, 2022). They typically suspend operations while fighting is going on in their area, but restart as soon as possible once the local combat stops. Many businesses have worked with the Ukrainian government to receive advice, resources, and relocation assistance (Shalal, 2022). Finding a market niche and staying out of the way of whoever is occupying one’s area are critical. The most successful businesses in Ukraine have the same advantages and use the same techniques as the Chinese did in Hong Kong eighty years ago.

Whether small business or big, and whether unstable or not, leaders should follow standard procedures for evaluating themselves, their companies, and their opportunities. A solid strategy, including mission and vision setting, internal and external environmental analyses, and good execution are equally important in Boise and Beirut. Tools such as the Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis, the Balanced Scorecard, and Lean Six Sigma can benefit firms in Kabul as much as they can firms in Kinshasa. Managers who evaluate personally and on the ground will enjoy greater success.

Big Business

Impact investing arose in the 21st century and featured ultra-high net worth individuals investing in companies that were supposed to do well financially and to do good ethically. The Abraaj Group, based in Dubai and headed by Pakistani CEO Arif Naqvi, received billions on the promise that it would provide health care in Africa, power in Pakistan, milk in Turkey and the Gold Coast, and do so at a profit to its investors. Naqvi told prospective investors that he could make money in any environment. With his reassurances and his background, venture capitalists invested in some of the most unstable places on earth. Instead of providing goods and services as promised, Naqvi stole hundreds of millions of dollars. Abraaj collapsed, a cautionary tale of well-intentioned investors being bilked by a charismatic crook.

Hochberg & Hochberg (2020) examined the world economic situation and identified two competing blocs. The first is the democratic Western World, which has dominated the globe since the 1700s and has imposed an international order characterized by (largely) free trade, international rule of law, and limited government interference. The second bloc explicitly includes China, Russia, and Iran, which are totalitarian states. While the West promotes a lasses-faire attitude towards economics in which companies live or die mostly on their own, the authoritarians use companies as arms of the State. China, the most powerful, engages in a plethora of unfair practices, which include the following (Hochberg & Hochberg 2020):

  1. Adjusts tariffs
  2. Engages in currency manipulation
  3. Promotes trade imbalances
  4. Incentivizes the repatriation of profits
  5. Engages in lawfare and asymmetric regulation of foreign companies
  6. Changes tax structures
  7. Inflates the value of money to cope with debt
  8. Expropriates intellectual property
  9. Engages in corporate espionage
  10. Confiscates assets
  11. Weaponizes regulations
  12. Bribes or imprisons executives of foreign competitors
  13. Uses military force against their economic adversaries

To cope, Hochberg & Hochberg suggest that companies have a Grand Strategy Officer to advise the CEO on international decisions. They also advocate divesting from China, Russia, and Iran unless they change their ways. Divesting is hard, as China alone boasts enormous markets as well as production facilities. Furthermore, other nations such as Turkey and perhaps even India are inching towards greater autocracy.

Lopez & Johnson (2017) look at determinants of war in international relations and argue that contrary to the hopes of optimists, intrastate and interstate war show no signs of abating. Businesses must include this fact into their planning for investments abroad. Even at home, foreign wars can mean loss of jobs, fewer costumers, declining investments, and problematic refugee populations. Spolaore & Wacziarg (2016) found that genetically close populations fought more often than those genetically distant, in part due to similar goods preferences. This is yet another reason for businesses to remain successful and provide an abundance of goods and services to all. Bonfatti & O’Rourke (2017) added that import dependence may lead a follower country (like Japan in 1941) to begin a war if the dependence is likely to grow and if the country is liable to blockade. China’s dependence on the rest of the world is growing in 2022, and it is liable to blockade. The risk of conflict is high.

What else we need to know

In our increasingly multipolar world, the bilaterality of the Cold War and the US hegemony of the past thirty years look to many like good times. Firms face greater risks at home and abroad than they have since 1914 and 1939. The primary quest in research on war is how to prevent it. If war occurs anyway, how can businesses survive, or even thrive, in it?

  1. Abraaj’s record notwithstanding, can large scale, high dollar impact investing actually work in the long haul, solving the world’s problems while making money for the investors?
  2. Would a Grand Strategy officer and department make a difference in corporate plans and actions in the real world?
  3. Can the West restore a “western plateau” in trade, dealing only with states that play by the rules of the West, and shunning those outside it? How much of the rest of the world would want it?
  4. How can the West restore belief in representative democracy, free markets, and a fair, rules based economic order?
  5. How can the West improve its adversarial relationship with China and collaborate on climate change and other global issues?
  6. Most importantly, how can the world keep China peaceful?

Conclusion

War and other sources of major instability have plagued business, and sometimes profited business, for millennia.  This article has discussed how businesses, large and small, have succeeded despite instability in their environments. As the world becomes less democratic and more treacherous, business leaders must learn and relearn these lessons. Furthermore, we must figure out how to heighten our success.

 

References

Atkinson, R. D. (2020, June 22). How China’s Mercantilist Policies Have Undermined Global Innovation in the Telecom Equipment Industry. Itif.org. https://itif.org/publications/2020/06/22/how-chinas-mercantilist-policies-have-undermined-global-innovation-telecom/

Bonfatti, R., & O’Rourke, K. H. (2017). Growth, Import Dependence, and War. The Economic Journal, 128(614), 2222–2257. https://doi.org/10.1111/ecoj.12511

Cheung, C. W. M., & Kwong, C. (2017). Path- and place-dependence of entrepreneurial ventures at times of war and conflict. International Small Business Journal, 35(8), 026624261769180. https://doi.org/10.1177/0266242617691802

Gullifer, L., & Tirado, I. (2017). A Global Tug of War: A Topography of Micro-Business Financing. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3055421

Gogl, S. (2021). The German construction industry and industrial self-responsibility in occupied Europe, 1939–45. Scandinavian Economic History Review, 1–19. https://doi.org/10.1080/03585522.2021.1984301

Hochberg, M., & Hochberg, L. (2020). International Business Needs Grand Strategy. Advances in Competitiveness Research, 28(2), 81–102.

Hout, T., Porter, M., & Rudden, E. (1982). How global companies win out. Harvard Business Review, 98–108.

Lopez, A. C., & Johnson, D. D. P. (2017). The determinants of war in international relations. Journal of Economic Behavior & Organization, 178. https://doi.org/10.1016/j.jebo.2017.09.010

Shalal, A. (2022, October 9). Ukraine seeks to rebuild economy with defiant small businesses. Reuters. https://www.reuters.com/markets/europe/ukraine-seeks-rebuild-economy-with-defiant-small-businesses-2022-10-08/

Spolaore, E., & Wacziarg, R. (2016). War and Relatedness. Review of Economics and Statistics, 98(5), 925–939. https://doi.org/10.1162/rest_a_00554

 

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