International Crisis on Businesses In This Paper  Essay
- Length: 8 pages
- Sources: 15
- Subject: Economics
- Type: Essay
- Paper: #92409541
Excerpt from Essay :
International Crisis on Businesses.
In this paper, I will assume the task of a consultant at McKinsey and Co. It is my duty to analyze the effects on international and local businesses of the problems which are erupted in Middle Eastern/Northern African countries particularly Egypt, Tunisia and others. This paper will be produced for the clients of McKinsey and Co in order to assist them in their respective strategies for the region. The main four topics which would be addressed in this paper are as follows, the local impact on business, the global impact on businesses and industries, the impact on shareholder value and wealth of the most affected companies and finally the short, medium and long-term political influences which might affect businesses.
Local Impact on Businesses
During the times of severe political or social unrest which is now seen in countries like Egypt, Tunisia, Syria and others, the overall environment of business sees serious challenges. Many of the business owners suffer severe loss on monetary as well as human resource terms, losses which may take many years to recover. "It is therefore very necessary to adapt to any sort of upcoming changes in the environment in advance in order to minimize damage." (Stiles, 2002).
"Many business owners take different steps in saving their companies, many different steps are also taken by the government in order to help reduce the local impact on business." (Hironaka, 2005). "It is a common observation that any business suffers losses in these circumstances mainly due to the "Low Sales" reason" (Madison, 1998), ordinary individuals in severe circumstances commonly choose to conserve their resources and spend less on buying. This is a common phenomena observed anywhere in the world. "Other reasons which can affect the local business include the threat of theft or robbery from any mob, the personal loss of life of key individuals which help in supporting the firm and so on." (Cardenas, 2004). Recently, the government of Syria has made huge progress towards taking appropriate steps which help in supporting the Syrian currency as well as to attract capital which usually flows away in troubled times.
It has allowed the central bank to cut its reserve requirements up to half (some five percent), cuts of up to zero percent are allowed in those cases when the assets of the host banks are used towards the investment projects and projects related to tourism. "This move is made to decrease the overall pressure on banks, by this step the banks would become more free in using its assets." (Vajpeyi, 2004). In this scenario, it has also been observed that the government has made some eight to ten percent of its local currency into U.S. dollars; this measure will help in giving more liquidity to the overall banking sector which will in turn appreciate savings as well as increase the trust of Syrian nationals in their own Syrian Pound. This step offers great chances of capital to flow in the market.
The Syrian regime in previous years have opened up more and more of its economy to the outside world after many decades of different socialist experiments. It has ended the monopoly at banking sector some nine to ten years ago at the time when private banks started functioning.
The central bank in this time of crisis has increased the saving ceiling on the individual deposits to up to two million Syrian pounds which was previously one million Syrian pounds, this move is said to encourage savings of the Syrian pound. This is also considered to stimulate the overall economy and increase the consumer confidence as well.
Global Impact on Businesses and Industries
Lets asses the global impact on businesses and other related industries due to the unrest in the above mentioned regions, the unrest in Egypt has affected many social as well as political and military circles across the world. The political chaos in countries like Egypt is reflected directly on the financial hubs of the world, which is seen as how the prices of crude oil as well as food commodities have risen. "This type of situation creates more unwanted risks in an already dubious economic climate." (Ralph, 1993).
The prices of oil during the peak of the civil unrest in Middle Eastern nations like Egypt went to its highest point since the year 2008, as a reaction the investors went to sell the stocks as well as bonds of these Middle Eastern nations which are currently under the economic process of development. All of these developments happened besides the obvious gestures that this whole crisis will have a lesser than predicted impact on the overall global economic structure. The overall output of the Egyptian economy is comparable to that of Alabama, while Egypt has the firm grip on many of the important shipping channels which pass through the Suez Canal, the main connecting point which lies between the continents of Asia and Europe remained open.
The main cause of panic was witnessed through the financial markets which reacted strongly due to the civil unrest, this effect on financial markets all across the world was the real thing which affected the global economy and businesses, it even had the potential to undermine the ongoing economic and business recovery taking place right now after the 2008 financial crisis. Here, the investors were having a mutual concern that many different Muslim countries especially those which have autocracy and huge oil reserves will also see their ruling elites being overthrown.
One analyst pointed out that whatever is happening in Middle Eastern nations has reminded him that the global business has not recovered from the severe crisis it is passing through. The main cause of concern here for the business investors is that the unrest might affect the overall exports of the key commodity of crude oil from oil rich nations like Saudi Arabia, Libya, Iraq and others.
It was observed that the prices of crude oil rose to their highest level of more than ninety two dollars during the peak of Egyptian crisis which is the highest level recorded of the oil price since October 2008, the main cause of surge in prices was the reaction of global business investors that the oil supplies from the middle east to the rest of the world would be interrupted.
It has been calculated that for every ten dollars and seventy cent increase of the overall price of oil would result in the increment of twenty five cents in the value of a single gallon of fuel in U.S., this will in turn result in some two hundred and seventy thousand fewer jobs being made over a year.
One of the main causes of concern for the business investors all across the world is that these ongoing uprisings in the Middle East might spread to other parts of the world which would greatly undermine the confidence by the investors in many other developing nations.
"Recently, the investors have come to the conclusion that the developing economies are the main source of greater returns as well as providing low risk" (Friedland, 1998), this conclusion has lead to a massive influx of overseas investment into countries like China and other different economies like that of sub-Saharan Africa.
This major influx of business investors in nations like China has done great deal of progress and development in the destination nation; today we see that Chinese are the biggest exporters in the world. Some associate this with the cheap labor and the opportunities offered by Chinese government to the business investors, while others associate it with a devaluated Yuan, the main point of interest here is that the business environment in China is extremely friendly for the overseas investors as well as the local ones.
This has allowed the enormous growth potential which the Chinese government is seeing throughout the last three decades. Any unrest or uprising here is quickly dispersed and often put "under control" by the government.
Comparing this to countries like Tunisia and Egypt, and any common business investor will feel jittery in doing any further investment, they will think twice, stability is the key here. The upcoming developments in the Middle Eastern region might prove encouraging for the investors and the business community if a smooth transaction is made possible from the current regimes to the possible upcoming leadership which would make the overall economic climate more positive for everyone, in case of Egypt they had successfully adopted this policy of transition which was crucial for their economic structure.
But still the outcomes are very closely assessed by the business leaders, as the last Egyptian revolution which occurred some over half a century before resulted in great nationalization of different private sectors under the leadership of then president Abdel Naseer. "It is therefore very essential for the direction of any nation to be clear for business investors from all across the world." (Armstrong, 2002).
Impact on shareholder value
"The main factors which affect the shareholder value of…