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Climate change is one of the worrying environmental issues that have attracted business attention in the early 1990s to today. Different governments have been urged to ratify different protocols in order to help curb the adverse effects of climate change. This is because most industrial growth has been globalized and thus affecting businesses operations in one corner of the globe can affect the operations of its subsidiary in the other part of the globe. This essay will examine and try to explain why and in what ways these environmental changes can impact on the international business.
Climate change is defined as a long-term observation of the statistical distribution of weather patterns over a period of time usually from 10 years and above. Thus it can be said as change of modern climate. Evidence of climate change can be collected from different sources. Many scientists have said that the global temperatures have risen sharply in the last few years and is expected to continue rising in the next 50 years. These climatic changes have and will continue affecting important aspects that affect how global business. The changes include; precipitation, changes in sea level water, soil erosion increase in global temperatures and reduction in glaciers.
Global business is defined as the international trade and a global business is a business company that takes place across the world. Thus it involves the exchange of goods and services over great distances. Globalization describes the process in which regional economies and societies have integrated through a network of communication and transportation. Scientific evidence thus has linked the global climate change to increased emissions of greenhouse gases from human activities. The international community has responded through the ratification of the Kyoto protocol which commits developed countries to reduce their greenhouse gas emissions. Various economic policies have been designed to reflect the cost of environmental damage and climatic change to pricing of goods.
Position of international business
Following this global threat of climate change, a global management crisis for multinationals has emerged and is defining itself clearly in this first decade of the twenty first century. Pressures from concerned stakeholders like the governments are giving incentives to adopt a more responsible behavior while conforming to minimal ethical norms. As the multinationals to meet the expectations of their stakeholders, global operations have added a complexity to the adoption of corporate responsibility from the diversity of cultures, values, norms, employees and all the stakeholders involved (Suder G. 2008).
The evolving technology and that of climate change issue forms an important backdrop of business engagement with international negotiations. Some trade associations opposed to emission limits like the Global climate coalition have argued that climate change mitigation could inflict a big economic change. This shows that for the business community, climate change represents an impending market shift. They argue that this shift will alter both the existing markets and create new ones.
The climate change and the need to change policies as well as reduce the GHG emissions will create a systematic risk across the entire economy of international businesses. This will affect the energy prices, national income, agriculture and health. Climate change has also created regulatory, reputational and physical risks at the business sector. As the environment becomes competitive and ever changing, some global companies will be riskier than others and this will jeopardy their business. Hence the governments, non-governments associations and the businesses need to getting engaged in the international climate change debate.
We will look at some specific companies to access how the climate change has affected international trade on these specific companies. Let us begin by analyzing the effects of climate change at the Ford Company. Ford is global company that manufactures automobiles in the world. They manufacture and distribute automobiles in more than 200 markets across the globe in six continents. The company employs about 325,000 people. The energy the company uses to produce the vehicles results to about 8.4 million metric tonnes of CO2 emissions a year (Ford report on the business impact of climate change).
Concerns about climate change and growing constraints on the use of carbon-based fuels affect the company operations, the customers, the communities as well as the investors. The company faces challenges as this issue of climatic change is growing more complex. Stabilization will require strategies that will make financial sound and must involve consumers, and technological innovations and market based mechanisms across the entire economy. Some convergent issues arise as the issue of climate change is closely related to the issue of energy security. The company anticipates that the future developments of technologies, markets and political expectations are all uncertain. There it reckons that its business strategies that they are implementing and the public policies they encourage will definitely be based on flexibility of maybe meeting a wide range potential scenarios. This means the company should develop and maintain the flexibility and capability to respond to changes in consumer demand, competitive actions and regulations. It also means that the Ford Company and all other global companies have to work to reduce uncertainty and try to increase predictability of policy frameworks and market conditions. The company will also be forced to increase their investments portfolio in technologies to improve fuel economy and lower GHG emissions including clean diesels and the technology to allowing them run on biodiesels (Ford report on the business impact of climate change).
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Climate change and farming
For all the effects of climate change, the standard approach to accessing the economic impact of climate change will always involve giving a monetary value to the costs that are likely to occur by those sectors affected and the benefits that may accrue to them. The stern report of 1997 predicts that the global temperature will rise by about 2-3'C in the next 50 years. This will result in flooding from melting glaciers and the disruption of water supplies affecting about a sixth of the world population. In countries such as Northern Europe, they may benefit from increased agricultural yields by increase in temperature. Businesses in countries like America will be forced adapt to changes in climate or change altogether. Due to this increased temperatures, US wheat farmers will have to plant new crop varieties as the wheat belt will move to Canada. The melting ice will increase the water supply to California and Mississippi basin will be more erratic (Dawson G. 2010).
Tourism and global warming
The international community has taken concerted action against climate change. The UN has tried to establish a long term post-Kyoto roadmap to curb the ever increasing effects of global warming. The tourism sector as part of the international business has an important place in the framework given its global economic value, its role in sustainable development and its strong relationship with the climate.
Climate has been identified as a key resource for tourism and the sector is highly sensitive to the impacts of climate change and global warming. Tourism business will continue to be a vital component of the global economy. Thus clearly tourism is an important player in the global challenges of climatic change and possibly poverty reduction. Several impacts in the tourism sector can be reported as the industry is sensitive to climatic variability and changes. Climatic change affects a wide range of environmental resources that are crucial to the tourism sector such as the snow conditions, biodiversity, changing water levels and wildlife productivity. The destination types that will be vulnerable will be; islands, coastal places and mountains.
The climate change will have both negative and positive impacts on the tourism sector. Thus we will have winners and losers due to this climatic change. We will also have direct and indirect impacts that will affect the tourism sector. The direct impacts will include the pull and push factors like adjusting the changes in operating costs as a result to change in patterns of extreme weather conditions. This will mean redistribution of climatic assets among the tourism regions. Example is in the US where a in the later decades of the 21st century, some substantive redistribution of climate resources for tourism will have to take place (World tourism organization, United Nations Environment programme. 2008).
Indirect impacts will result as any climatic change will have an inescapable effect on the industry. Changes in the availability of water, snow cover and biodiversity will result in increase of natural hazards, damage to infrastructure and also an increase to vector-borne diseases which will impact negatively on tourism. Some businesses will lose out their clients as the projected decrease in rainfall in some of the world's major attraction sites thus affecting future developments. This will also lead to competition for water by different sectors like that of agriculture and tourism due to water shortages or between different forms of use in the same sector e.g. in pools, kitchen, golf courses and garden maintenance. This will obviously drive potential clients away resulting in decreased returns for the sector (Parry M. 2007).
Insurance is a service sector with a potential to be affected directly by the climate change. This is because the international businesses will be required to increase their insurance charges as the costs of insurance will go high due to the projected extreme weather conditions. The principal businesses that will be affected include those that deal on the property line. Actuarial analysis shows that the recent loss to catastrophic risks is just but a guide of what will happen in the future. Catastrophe model software is now being used to by insurers to manage and price property catastrophe risk. This means that companies will be required to pay more for insurance services (Parry M. 2007).
The climate change will affect international businesses in many different ways. The impact can be either positive or negative depending on the type of business being carried out and the location of that particular business. But overall, the costs of transacting international business will be high. Insurance will have increased due to the extreme weather conditions and this will be carried out to the businesses hence increasing the cost of transacting such business in the international arena. Other sectors like that of tourism will have mixed impacts with some gaining new businesses while in some places losing their businesses altogether due to the climatic changes. Some companies will also be forced to put mechanisms to reduce the emission of GHG and this means an additional expense to them and it will have an impact on its businesses on the other side of the globe. All, the Stern review on the effects of global warming on the world economy shows the evidence on the economic impacts of climate change and the complex challenges that faces global businesses.