Business Strategies of the USA and UK concerning Iraq and Afghanistan - Essay Example

Strategy   Introduction Strategy can be seen as the direction and possibility for any organization to take the advantage in a challenging market atmosphere over a long period of time by proper allocation of resources. The strategies are usually developed for smooth running of business with the objective of meeting the market needs and the expectations of the stakeholders from the business. There are mainly three types of business strategies, the corporate strategy, the business unit strategy and the operational strategy. Corporate strategy mainly involves the overall expectations from the business, from stakeholders’ point of view to the market needs and provides guidance for the decision making aspects throughout the life time of a business. Business unit strategy involves only the market-oriented strategies about the aspects of production and marketing. Operational strategy involves the operational aspects and hence focuses on the resource allocation and production processes. (Johnson and Scholes, n.d) Specific Events and Aspects of the Banking Crisis  The banking crisis unfolded in the US, led the world economy into recession. The banking sector virtually collapsed with the bankruptcy of Lehmann Brothers in September 2008. After that Goldman Sachs, Morgan Stanley, Northern Rock (UK) and a few others suffered the same fate. The banks who suffered were all big names in the industry and this was due to the housing price bubble in US. It was called the sub prime crisis, where housing loans were offered to NINJAS (No Income No Job and Assets), at a high rate. Naturally, they could never repay them. Moreover, the bank got rid of the debts in their balance sheet, packaging them with interest bearing bonds and selling them off to other financial institutions of the world. They wrongly interpreted that they are free of the loans. The situation further worsened with higher mortgage prices and lower house prices. NINJAS could not repay the loan and the banks had a plethora of properties with diminishing low prices. This resulted in the collapse of some of the big names in the industry and most of them went into the refuge of the Government. (Macwhirter, 2008) The banks faced the consequences of believing that the credit boom will go on forever which resulted in banks giving more and more “suicide loans” ranging to 120% of the house value (Macwhirter, 2008). The regulators like Financial Services Authority (UK) and the Federal Deposit Insurance Corporation (US) were unable to track the situation. They were in the awe of the banking sector and interpreted they knew what they were doing but their interpretation received a jolt as soon as the financial world was engulfed by the web of recession. The Banking crisis affected almost all the countries in the world but there were some exceptions like, if we look at the Indian Banking Sector, we will see it crunched a bit at the time of the crisis, but it stood firm after that. Indian financial sector’s huge dependency on US was evident that it would be largely affected by the crisis. Many were of view that the effect would be huge. It was told that the banking sector would suffer, as the companies and the household sector in India definitely felt the pinch of the crisis in the US. (Rammohan, 2010). But unlike the US and UK the Indian banks were stronger in dealing with the situation and succeeded in it. Firstly, it was due to the ability to maintain spreads- return on advance minus cost of funds. The Indian banks have been able to do so because of the high proportion of current and savings account (Casa) deposits. The current accounts have zero interest payment and savings account has a low interest payment on them. This way the banks have been able to minimize the cost. Secondly, the banks have been able to generate income from fee-based services such as sale of mutual funds and insurance products. The large untapped customer base helps to increase the income of the banks. Thirdly, the slowdown has not resulted in the increase of provisions in the rising NPAs. The deceleration of growth rate of 9% to 7% is not a disaster. The Indian companies entered the slowdown with solid financials, which was not a bubble like that of the US. It was more of a genuine case of higher growth and demand. Fourthly, the Indian banks invested in Government securities in good proportions, which helped in maintaining profit levels at the times of crisis (Reserve Bank of India, n.d.) A new branch in banking – the Islamic Banking has seemingly survived the recession and is visible in the Muslim countries like Saudi Arabia, Syria, Pakistan, etc. Islamic banks follow the rules and regulations of Islam and they do not pander to “usury” and lending on interests. The instruments in the money markets are not accessible to them. The Islamic banks face danger in terms of liquidity, as they cannot lend to other traditional banks, which would mean earning interest. They lend to and borrow from other Islamic banks only. The low amount of leveraging has saved the Islamic banks from crumbling in recession (The European Courier, 2009). The banks in the Pacific region also survived the recession largely. The Pacific region banks cover the countries of Australia, New Zealand, Fiji, Nauru etc. Barring Australia and New Zealand, almost all countries in the region are underdeveloped. The banks survived by focusing on the core activities of the region and developing the infrastructure of the region. Australia and New Zealand were affected badly by recession but increased spending from the Government in employment and education sector in the region has maintained a balance (Australian Government, pp 21-25, 2009). From the above discussion, we came to know that the profit seeking banking models failed at the times of recession. In contrast to that, the more traditional model in India and the Islamic model survived the times of recession. The main reason for the good performance of these banks is that they followed a different model. While the Islamic model focuses on low leveraging, the Indian banks thrived on Government support. These policies are in stark contrast to the policies followed by banks in USA and UK. The banks in USA and UK offer customized products to their customers and are dedicated support system for their customers. The US and UK banks offer a vast amount of services to maximize their financial gains. The credit crunch came into being for the greed of the banks, which expected the boom to continue. Unfortunately, it ended prematurely when NINJAs defaulted in paying and the house prices came down. The banks had many assets at their disposal whose market rate had fallen drastically. The intent of the US and UK banks cannot be faulted because for many years their model have proved to be successful. They were the pillars on which the most developed economies in the world stood. Now, with one debacle it is not expected that they will change their policy and will continue to be the driving force in their economy but with certain changes. The structure, which has been successful in India, Islamic countries and in the Pacific, is inherent to their culture. The Islamic banking follows a policy of lending and borrowing without interest. This is not possible for UK and US banks as the basic reason for existence would crumble. Government owned banks dominate the Indian banking system. The economic structure has opened up recently and it is evident that still government would control parts of the economic system. But for countries like USA and UK it has been a free economy for decades and it will be stupid for the government to control banks completely. The banking system in Pacific survived the recession because they gave importance to the primary sector of livelihood and the region is largely underdeveloped. USA and UK are the most developed economies in the world and the focus of their growth is in secondary and tertiary sectors. Therefore, it is clear that in the wake of recession the policies followed by some banks would not be successful for other banks of the world. Strategic Reliance of Business on the state  Britain and the US had been the powerhouses of the world for the last two decades after the break up of the former Soviet Union. At present the position of US has been achieved by a mixed policy of political and military aggression. All through these years, the Islamic world has been left vindicated by the US policies. Naturally, they were the first to retaliate against them and on a fine day a catastrophe took place, which famously came to be known as 9/11. USA, supported by the UK first led its “war on terror” in Afghanistan and later Iraq. Afghanistan The US army, within three weeks of 9/11, was all over Afghanistan and it was campaigned as “war on terrorism”. Soon, the rough terrains of Afghanistan were invaded by the most developed warplanes of this era and the Taliban was driven out. But still the coalition forces stand their ground in Afghanistan investing millions of dollars in war costs. The US government opined that after the exit of Taliban a stable government needs to be created and a government was formed under Hamid Karzai. According to the US, Afghanistan attained freedom from the hands of Taliban. The obvious step would have been to recall the soldiers or some part of it but after the government set up, more and more soldiers were send to Afghanistan. After 1990, the Soviet Union broke up and it gave rise to some independent nations like Turkmenistan, Kazakhstan, Uzbekistan, Kyrgyzstan etc. These are mostly Central Asian countries bordering the landlocked Caspian Sea. The Sea is home to one of the largest reserves of oil and natural gas. Kazakhstan and Turkmenistan soon came to know about the oil reserves. The US naturally wanted to access the huge oil reserves. The communication of the oil would have to be made through a pipeline. The shortest route was perceived to pass through Iran- an enemy of the USA. The next shortest perceived route for the pipeline was from Turkmenistan to Pakistan, passing through Afghanistan on its way. No oil company was willing to invest in Afghanistan given its political instability. After the Taliban retreated from Afghanistan, there was a widespread notion that political stability has dawned in the country. On May 30, 2002, the Pakistani, Afghan, and Turkmenistan Presidents signed a contract of constructing a $2 billion pipeline from Turkmenistan to Pakistan. (Rall, 2002). The pipeline, if constructed, would give access to cheap sources of oil and gas to the developed nations. This would lead to less dependence on OPEC and high corporate profits. The political stability has not been achieved still in Afghanistan, which halted the work of the pipeline. This may have led to US and Britain keeping their forces still in Afghanistan. (Rall, 2002). Iraq The presence of the coalition forces in Afghanistan eventually led to another “war on terrorism” campaign in Iraq. The attack on Iraq was sudden and surprising as no event like 9/11 took place before this. The war of the coalition forces was mainly to expel the dictatorship regime of Saddam Hussein. Saddam was caught and later executed in 2006 but still the forces did not move out of Iraq. This strengthened the idea that there were other motives behind the attack. The invasion of Iraq was driven by imperialistic and economic motives. Otherwise, it is not possible to find out a logical reason for its invasion. Iraq, under the regime of Saddam Hussein, was gradually becoming a force to reckon with in the region. The Israeli advisors to the US government to establish an Israeli supremacy in the region strengthened the motive behind the attack. The destruction of Iraq would help Israel to retain their supremacy in the region. Saddam questioned the ethnic cleansing of the Palestinian Arabs carried on by Israel furiously. With the fall of Saddam Israel can continue their supremacy in the region without being challenged. The coalition forces strategically took out the Christians in Iraq. This group has led the fight earlier against imperialistic activities of other countries. The US led government encouraged the militants in the region, which served the purpose of Israel. US raised a “puppet force” of Iraqi shias who were directed to kill the academicians and professors. About 1.3 million Iraqis were killed in the last 7 years, which collapsed the education system. Iraq sits on huge oil reserves, which is an issue of temptation for the developed world. (Petras, 2009) There are many reasons for the invasion of Iraq by the US forces. Firstly, Iraq would serve as an outpost in the area and can be a launching pad for another of its arch rivals-Iran. The position of Iraq will help the US to keep a track on Russia and China. Secondly, the motive of Israel was a major factor behind the invasion. Israel wanted to end the regime of Saddam because of the reasons mentioned above. Thirdly, the destruction of Iraq’s financial and academic system will help to become her completely dependent on USA. Fourthly, US can get access to vast oil reserves of Iraq. Already many of the oilfields have been put on sale (Petras, 2009).  From the above discussions, we can safely derive that the invasion by the USA and UK had a lot to do with the strategic reliance of business on those countries. The control over these countries would give access to vast oil reserves in the region. Iraq has a few of the biggest oilfields in the region. The control over Afghanistan would provide a safe haven for the proposed pipeline from Turkmenistan to Pakistan. This would mean cheaper source of oil and gas and less dependence on OPEC. Vast energy resources are required for the industrial activities of the US and UK. To sustain the level of development and maintain supremacy over the whole world, energy resource is very important. UK and US have invaded those countries to maintain their stronghold in the world economy. The amount of business that can be derived out of these countries is the most important factor in the invasion.         References: 1. Rammohan T.T.( 7th January, 2010) A crisis proof banking sector, The Economic Times. Available at: http://economictimes.indiatimes.com/T-T-Ram-Mohan/A-crisis-proof-banking-sector-/articleshow/5418626.cms (Accessed on 11th January, 2010) 2. Macwhirter I,(1 May, 2008) Everything you want to know about bank crisis, New Statesman. Available at: http://www.newstatesman.com/politics/2008/05/financial-crisis-banks-england (Accessed on 11th January, 2010) 3. Reserve Bank of India, (n.d.), Report of trend and progress of banking in India. Available at: http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RTP0809PRD_Full.pdf (Accessed on 11th January, 2010) 4. Petras.J, (27th August, 2009), US war against Iraq, Al Jazeera.com. Available at: http://aljazeera.com/news/articles/42/US-war-against-Iraq-Destruction-of-a-civilizati.html (Accessed on 11th January, 2010) 5. The European Courier,(22nd August, 2009) “Islamic Banking” Performance:Relative Success or Failure During this Recession, M04 Freedom. Available at: http://europeancourier.org/mo/2009/08/22/islamic-banking-performance-relative-success-or-failure-during-this-recession/ (Accessed on 11th January, 2010) 6. Australian Government,(August, 2009) Surviving the global recession: strengthening economic growth and resilience in the Pacific. Available at: http://www.forumsec.org/userfiles/file/FEMC_03%20-%20Surviving%20the%20global%20recession%20-%20Report.pdf (Accessed on 11th January, 2010) 7. Rall,T.(2002) The complete truth about the US attack on Afghanistan, Philadelphia Citypaper. Available at: http://citypaper.net/pipeline/ (Accessed on 11th January, 2010) 8. Johnson and Scholes, (n.d), Strategy- What is Strategy?, Tutor2u. Available at: http://tutor2u.net/business/strategy/what_is_strategy.htm (Accessed on 14th January, 2010). Read More