President of Political & Economic Link Consulting and Adjunct Scholar in Preventive Diplomacy at the Center for Strategic and International Studies. The author wishes to acknowledege the Global Access Corporation and the International Executive Service Corps, under whose auspices a portion of the research for this article was conducted.
War is "in" these days. In the last decade, the dampening blanket of the Cold War has been pulled away, bringing oxygen to hotbeds of conflict around the globe. Multilateral organizations such as the World Bank, often criticized for excluding political issues from their mandates, have established departments to promote effective prevention, management, and resolution of armed conflict. Development-assistance organi- zations like the US Agency for International Development (USAID) are focusing policy reform on the particular challenges of war-torn societies. International non-governmental organizations (NGOs), which previously focused on environmental or labor issues, have discovered peace-building as a new arena for advocacy and assistance.
Multinational corporations (MNCs) are "in" too. MNCs also loom large in the consciousness of opinion-makers around the globe; critics and supporters alike ascribe a great deal of power to MNCs to transform society, particularly in developing economies.
Policymakers and advocates in the United States and Europe have begun to conflate questions about MNCs and about the increase in armed conflict worldwide. MNCs are at once being called to task for exacerbating armed conflicts and being called upon to participate in their prevention and resolution. Yet policymakers and advocates generally understand little about the way corporate managers approach the issue of armed conflict in their operational decisions.
Between October and December 1999, Political & Economic Link Consulting (PELC) conducted an analysis of armed conflict and the decision-making processes of multinational corporations. As part of the analysis, the firm interviewed 25 managers overseeing MNC operations in regions of armed conflict around the globe, including Algeria, Angola, Azerbaijan, Colombia, Congo, Georgia, Kazakhstan, Indonesia, Northern Ireland, and Sri Lanka. The surveyed firms operate in a wide range of industries, including natural resources (oil, gas, minerals), infrastructure (water, power, telecommunications), manufacturing (garments, flour, information technology, fluid controls, medical devices), services (banking, insurance, financial services), and retailing (consumer foods). The results of the interviews were enhanced by the views of a dozen experts in related topics such as political-risk insurance, sovereign-debt rating, and international investment promotion.
What determines whether a MNC will operate in a country affected by conflict? Though generalizing about the corporate sector as an undifferentiated whole is perilous, certain variables in armed conflict are routinely viewed by corporate mangers in the manner described below.
Geographic Impact of Conflict
The perceived geographic reach of a conflict is by far the most important factor in determining whether a MNC will operate in a conflict-affected country. In Algeria, armed conflict has mostly been limited to the coastal area north of the Atlas mountains. The majority of MNC operations are in the southern and southwestern parts of the country, separated from the area of conflict by a large and sparsely inhabited area. As one executive put it, "our confidence comes from the desert."
In other countries, executives say they are willing to maintain operations in urban centers when armed conflict is limited to the countryside. At the height of conflict in Colombia, a US investment firm purchased controlling interest in a Colombian supermarket chain whose outlets are primarily within the capital, Bogotá. Similarly, MNCs operating in Colombo, Sri Lanka indicate that their urban location affords them a sense of security they would not feel in the more war-ridden rural areas. Moreover, MNCs may do business in countries where the geographic impact of fighting is large (nearly 40 percent of Colombia is in rebel hands) so long as conflict is contained and relatively stable.
A government's ability to contain a conflict within a fixed area is crucial to MNCs' operational decisions. Corporations not only look at the current geographic impact of a conflict, but also attempt to forecast whether that impact will spread. Should the military's cordon appear likely to fail, companies also look for indications that the government is capable of defending investment-intensive areas. When the Shining Path guerrilla movement threatened foreign-owned mines in Peru, for example, both current and potential investors were strongly encouraged by the Peruvian army's swift and robust defense of the mines.
A government's plan for ending conflict is also crucial when it seems unable to contain the violence in one area. Geographical containment has allowed Algeria to maintain high investment levels despite ongoing conflicts. By contrast, the ever-changing geographic impact of conflicts in Angola and Indonesia (and more recently in Colombia) have shifted investor attention toward government peace plans.
Severity of Conflict
In explaining MNC responses to conflict, it is valuable to categorize conflict in one of three ways: territorial conflict, in which effective control over the region is in the hands of the opposition; incursional conflict, in which control remains with the government, but the opposition engages in frequent armed incursions and withdrawals; and terroristic conflict, in which the government's control is firm, but the opposition can engage in isolated incidents of violence.
The group's analysis of foreign investments in various regions indicates that nearly all MNCs are unwilling to sustain or initiate operations in areas of territorial conflict. An exception to this rule are MNCs that maintain their own military capabilities, such as mining firms operating in contested areas of Sierra Leone. Incursional conflict is typically tolerated only by firms committed to the region because of natural resources or perhaps investments in infrastructure. Pipeline operators in Colombia, for example, seem to accept as a cost of doing business the incursions by opposition forces that obstruct the pipeline.
Though few MNC managers would admit as much, terrorist conflict is a widely tolerated risk. This can be seen in Belfast and Tel Aviv, as well as in Colombo and Bogotá. Frequently, however, the presence of terrorist conflict is downplayed or denied by both MNCs and the government agencies seeking to attract them.
Government and Opposition
Firms operating in areas of armed conflict frequently report that they are prepared to look past the risks associated with the conflict, provided the business environment established by the government is otherwise positive. MNCs operating in Northern Ireland credit a business-friendly environment for attracting them despite the "troubles" between Protestant and Catholic partisans. Even the conflict in Angola has been mitigated to some degree by the government's regulatory and tax reforms, reported by investors to be among the most aggressive in Africa.
