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How Business Can Prepare for War

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Hit by both the threat of war in Iraq and a lingering economic slowdown, companies in many areas of the world are reining in investments and postponing the launch of new projects, according to a webcast/teleconference organized by Wharton on February 12.

Titled " Business and the Pending War," the discussion brought together Wharton faculty and members of the Wharton Fellows program, a network of global senior executives, who shared their views on how companies can prepare for a war that more and more people consider inevitable. This sense of inevitability has been heightened following the release of an audiotape this week attributed to Osama Bin Laden, which calls upon Muslims around the world to defend Iraq by attacking the U.S.

" A lot of businesses have put themselves on hold," said Colin Crook, an adviser to the Wharton Fellows program and former chief technology officer for Citibank. " And the feeling of general economic malaise is worsening it. This is a ? bleak situation, a double whammy. Nobody sees any positive signs of any sort."

In the computer and software industry, for example, companies are deferring purchases to see how long the war will last and how messy it will be, said Joseph Msays, chief operating officer for IBM Business Consulting Services in Europe, the Middle East and Africa.

According to Msays, if the war is short, spending should rebound quickly. The Middle East, in particular, might see a net increase in information-technology expenditures. But if the war is long, companies will keep postponing purchases, probably into 2004. " That will hurt us," Msays noted. At the operational level, IBM has made plans to rapidly move employees out of the Middle East in the event of war.

The tone of the Feb. 12 web conference reflected a heightened sense of vulnerability, particularly in the United States, following the release of the Osama bin Laden audiotape. Also this week, U.S. Federal Reserve Chairman Alan Greenspan said that uncertainty surrounding the war - when it will start, how long it will last - continues to be the biggest impediment to faster economic growth. His remarks came as he warned Congress about tax proposals that would further increase the U.S. deficit.

Concerns over possible war and renewed terrorist attacks have led companies such as American Express to put clauses into its contracts saying it has the right to postpone or cancel media buys in the event of war, said Wharton marketing professor Jerry Wind, academic director of the Wharton Fellows program.

In addition, a number of companies are trying to ramp up their activities in China " because they view it as the safest place in the world to do business right now," noted Wind, who moderated the discussion. " Domestic consumption in China and South Korea remains quite strong," added Marcus Thompson, who is based in Hong Kong as HSBC' s chief investment officer for Private Equity Asia, " but the exporting part of the economy is suffering."

At Bank of America, top management has redoubled the efforts of its emergency-response team, according to Karen Fukumura, a senior vice president based in San Francisco. The Charlotte, N.C., bank is taking steps to guarantee that it will have enough currency if there is a run on banks. " And on the employee side, anxieties are building up, so we are making sure everyone knows what they should do if a [terrorist] event happens at their facility."

But in general, what businesses do to prepare for war shouldn' t be that different " in a fragile time than it would be in a regular time," suggested Boaz Ganor, director of the International Policy Institute on Counterterrorism in Tel Aviv. " Mainly, it' s a focus on alertness, defensive capabilities and connections with official bodies, especially intelligence-gathering bodies." All companies should routinely analyze the risks that confront their officers, markets and factories and plan accordingly, he said.

Paul Kleindorfer, co-director of Wharton' s Risk Management and Decision Processes Center, emphasized that companies need to identify special vulnerabilities -- "when and where they will be triggered in the supply chain, in markets, in the customer nexus."

It' s not just companies in the United States that are grappling with worries of war. Every region of the world has been hurt in some way. Firms in oil-dependent countries in Latin America such as Chile, for example, are seeing exchange rates increase, said Claudio Engel, executive vice president of the F.H. Engel Group, a conglomerate in Santiago. " Our response has been to raise prices."

But that might not be enough to offset weak consumer confidence in the United States and Europe. " If consumption goes down in Europe and the U.S., that will hurt our exports, which is the main part of our business," Engel added.

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Last updated: Feb 13, 2003




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