Impacts of Environmental Changes on International Business - Essay Example

Impacts of Environmental Changes on International Business Introduction It is now a widespread consensus that green house gas emissions from our foray of combustive activities have wrenched havoc to the stratosphere. It is now common news that we are experiencing increasingly higher temperatures around the globe besides the ever increasing precipitation. These are just but some of the adverse consequences of environmental pollution. Consequently, we will witness, as we have already begun to, many ripple effects from the climatic adversities predicted. Changes in climate alter the way we live, the way we work, the way we produce and the way we interact with the environment. Without a question, the climatic changes will impact significantly on the economic wellbeing of the globe. Take this example for instance. Both precipitation and temperature are primal inputs in general agricultural production. That means that some of the most significant effects will be noted in this essential sector. We are talking about food security threats, employment levels alteration, sources of income for billions of people in the world and such economic factors dependent and directly related to the agricultural sector. That is just in agricultural production. What will happen to the industries that rely on agricultural raw materials? What will happen to manufacturing plants that are solely maintained by agricultural produce? What will happen to the millions of stores worldwide retailing agricultural produce? These questions help illustrate the magnitude of the impact adverse climate change may have on global economics. These paper attempts to identify the contemporary climatic changes that are of interest in economic environments. Secondly, the paper briefly discusses the relevance (significance) of these contemporary climate changes to business settings and in particular, to international business operations. The specific effects are then highlighted with detailed examples of how such effects take root. Towards these ends, this paper construes the following concentric thesis statement. Thesis Statement The success and stability of international business relies heavily on elimination of risks such as inflation, insecurity etc. Contemporary climate changes such as increasing temperatures and precipitation presents a new risk that will significantly affect the way business is conducted in international markets. Adverse environmental changes will present challenges for many businesses such as increasing operation costs, affecting insurance coverage and risking infrastructural set ups at certain places (i.e. Those areas prone to floods, high temperatures etc). Contemporary Environmental Changes It is important to note that the contemporary climatic changes have been solely attributed to accumulated environmental pollution practices in which humans have engaged in since the beginning of civilization. In sub-Saharan Africa and some parts of the Americas, the most notable climatic changes have been droughts and desertification. Scientists believe that hotter weather conditions are being experienced all over the globe; with most regions registering their highest temperature rises ever. The effect of temperature rises are actually being felt in traditionally ice-cold regions (Mendelssohn and Neumann 1999). In cooler places (distant from the Equator), the most notable changes have been melting of ice holds. The Polar Regions are melting in a phenomenal rate as are most ice capped mountains like the Alps. Consequently, a lot of water is flowing into the rivers and other water bodies before converging in the oceans. That means we have increased flooding incidences as well as increasing sea levels threatening low lands and coastal regions respectfully. With high seas, hurricane activities have become not only frequent but also very pronounced. The problem with global temperatures rises is that it will cause sea levels to rise, thus exposing coastal areas to frequent storm surges and floods. Moreover, scientists predict that there will be increased heavy rainfall accompanied by powerful hurricanes. This rainfall will dump large amounts of mobile water at one place and at one time such that, the areas will be inhabitable. One would then expect that water would be in excess. However, scientists have predicted a water shortage the kind that has never been experienced before since most fresh water sources are drying up and the ground water getting depleted. With reduced water supplies, high temperatures will further agitate frequent and brutal wildfires. So if it is not the floods, the businesses will have to deal with bushfires; water shortages, high temperatures, frequent powerful hurricanes, earthquakes fiercer than the one that hit Haiti recently and other crippling disasters. All these effects of changing climates are interconnected and tied together into a loop that is threatening to cripple international business, even as globalization catches on (OECD and Burniaux 1999). The Relevance of Environmental Changes on International Business Contemporary scientific concerns have been directed at rising global temperatures and the residue of implications as detailed in the above section. While environmentalists are thus engaged in discussing environmental pollution and how to reduce it, economists and business managers within the mainstream international business circles have to grapple with the wide and overly challenging impact of adverse climatic changes on business operations. With all the above changes in the environment, businesses, and in particular international businesses, must intuitively respond and position themselves in a strategic mode of operation. This will be the only way of safeguarding from losses and maintaining profitability. For instance, droughts, floods, rising ocean levels and such climatic changes will adversely affect very many areas across the world. Most of the people living in the danger prone areas will be forced to undertake mass migrations to less severely affected regions. The economic situation of the deserted areas and those that offer refuge to migrants will change significantly. As already noted, agricultural trade will show the most dramatic changes with some areas having increases in crop yields (high altitudes areas) and others lower crop yields (low altitude areas). Businesses that are dependent on agricultural produce will thus have to transfer to areas with adequate crop yields or to get transportation fleets in place. Not only will the changes have distributional implications to international businesses, but some industries like skiing and fishing could become a thing of the past even in the regions that these activities are the economic mainstay. The problem of the cited climate changes and their adverse effects will be limiting business opportunities in some areas. Multinationals will avoid flood-prone areas, frequent hurricane attack areas, areas with many wildfires, areas without adequate water supplies, areas with marginal settlements etc. In essence therefore, there will be a limited number of viable areas where international businesses can set up shop (Mendelssohn and Neumann 1999). That is how relevant climatic changes in the contemporary world are to business operations especially on the international scale. Take this instance for example. Risks are a ultra-pervasive factor in most business decision-making processes. Conventional risk management includes leverage on commercial, political, macroeconomic and many external risks. In international markets, low or poor internal security, legal institution’s inability to enforce valid contracts, frequent and unreliably high inflation rates, high external debt levels and such risks are what plague most managers. These risk indicators fade in comparison with the detriment that adverse environmental changes can wreck into a business environment (OECD and Burniaux 1999). Indeed, managers have already identified this new risk indicator that has merged from unreliable climates and denoted it as the environmental risk. The long-term and permanently prone risks that could be posed, and in some cases are already posed, to many international business establishments by adverse climate change are beyond anything traditional businesses had to contend with. These risks are worse off than natural catastrophes like earthquakes since, the new environmental risks are not coverable by insurance and reinsurance entities. Effects of Environmental Changes on International Business When all is said and done, adverse climatic changes will present international business with a list of overbearing challenges in the near future. The relevance of adverse climatic changes to business in general and to international business in particular cannot be gainsaid. In most scenarios, business and the environment it thrives in are inter-related and much intertwined. Unilever plc for instance, is a global conglomerate whose 80% of products are derived from agricultural products. A change in crop yields is likely to elevate their operating costs, limit their manufacturing ability and marginalize their profits. Without a doubt, the company will have to shift and close down some of its manufacturing plants, downsize its product list and run away from some markets. Over 69% of all international businesses are agricultural products-based. That means that the large number of them will have to result to similar measures as would Unilever plc. Early this year, the University of Oregon hosted a distinguished team of private practice and university star economists from Washington, Oregon and nine other US states. The experts concurred that we were past the age of ‘business as usual’ with complete disregard of environmental changes. According to the experts, the US was set to incur billions of dollars in annual economic costs consequent to continued environmental pollution by the greenhouse gases. More importantly, the report written by these cream economists boldly identified seven impacts of adverse climate changes to business interests both within and without the US borders. These impacts include, increased energy costs, reduced raw material supplies, coastal flooding and storm damage, reduced food production, increased wildfire costs, increased public health costs and serious water shortages. Conclusion As the paper has exemplified and elaborated, climatic changes have a core relevance to business operations in the international arena. There is no denying the fact that most of these changes will spell challenges for businesses, thus determining their capital allocation to regions based on their risk levels, raising their transport and energy costs and affecting their raw material supplies. The labor resource pool and the market for products will change due to mass movements of people from areas with adverse climates. Operation costs will also rise as profit margins decrease. These are just some of the impacts that adverse climatic changes will have on international business operations. References Mendelssohn, R and Neumann, J 1999, The Impact of Climate Change on the United States Economy, Cambridge university press, Cambridge. OECD and Burniaux, J 1999, Action Against Climate Change: The Kyoto Protocol and Beyond, Organisation for Economic Co-operation and Development, New York. Read More