Unit 6 Global Risks and Resilience

Question 1

Discuss the effects of cybercrime as a threat to individuals and businesses.

Answer 1

Cybercrime, which includes activities like intellectual property theft, online account hijacking, and virus distribution, is a rising global threat, costing countries millions annually. A 2015 study found that large companies with extensive network connections experience higher cybercrime costs, averaging $7.7 million annually. Financial, utility, and energy sectors are most affected, with many attacks coming from insiders. The U.S. has the highest cybercrime costs at $15 million, while Russia has the lowest at $2.37 million. Cybercrime costs vary by GDP impact, and as more aspects of life go digital, cybercrime risks grow, making prevention critical globally.

Question 2

What are the threats of hacking and identity theft?

Answer 2

Can be used to expose sensitive data, disrupt operations, and cause financial losses. High-profile breaches, such as the 2017 Equifax hack compromising 147 million personal records, highlight the risks of inadequate cybersecurity, affecting trust and leading to costly recovery efforts.
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Identity theft: The fraudulent practice of using another person’s name and personal information in order to obtain credit, loans, etc.
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For instance, in 2021, 42 million Americans were victims of identity theft, resulting in $52 billion in losses. Both individuals and companies face increased vulnerability with rising digital data usage.

Question 3

What implications does surveillance have on personal freedom?

Answer 3

New technologies have been adopted and surveillance techniques have proliferated.
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Methods by, and frequency which people are able to communicate has expanded and evolved.
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Modern surveillance enables states to intrude into individuals’ private lives.
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E.g. taps on fibre optic cables allowing states to achieve almost complete control of tele, and online, communications.
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Private sector collects more data that contains information about people’s daily lives.
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Individuals and businesses choose to store contents of communications such as emails and documents with third-party service providers. Increasingly risky surveillance technique.
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Legislation has not kept up with technology and vague notions of “national security” abuse individuals privacy.

Question 4

What risks exist to global supply-chain flows?

Answer 4

Demand risk: the changes in demand, possibly as a result of currency fluctuations or political relations.
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Physical environment factors
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Natural disasters, extreme weather events, epidemics.
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Severe flooding in Bangladesh affected over 5.4 million people and disrupted key industries, including textiles, which accounts for 84% of its exports.
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2011 Tsunami in Japan had a major impact on the motor industry. 150,000 less cars were produced in the USA as a result of disruption of the supply chain.
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Political factors
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Protectionism, trade restrictions, and conflict.
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Supply of Middle E. and N. African goods were severely disrupted at times following the Arab Spring protests.
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Conflict in Ukraine led to sanctions against Russia reducing flows of goods.
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Governments may take decisions such as resource nationalism that cause uncertainty in investors.
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Economic factors
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Currency fluctuation and trade restrictions imposed by governments.
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Rising interest rates can cause havoc for firms that require goods at cheap prices.
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Debt crisis in Europe among PIIGS countries provided economic uncertainty to risk managers.
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States with strong unions and a history of strikes may threaten global supply chains.
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Technological factors
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Disruption to transport networks and ICT networks.
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Transport infrastructure failures are unusual, but ICT.

Question 5

What is sovereignty?

Answer 5

Political sovereignty is the freedom of a state to govern itself fully,
independent of interference by
any foreign power. In theory,
no United Nations member has
complete political sovereignty.
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Economic sovereignty The
freedom of a state from any
outside intervention in its markets
and trading relationships. In
reality, no state has complete
economic sovereignty owing to the
complexities of world trade and
trading agreements.

Question 6

What are some threats to sovereignity?

Answer 6

Singapore owns almost half of New Zealand’s viaduct quarter - residential and commercial development.

Question 7

Define the following.
- Profit repatriation
- Corporate migration
- Transfer pricing

Answer 7

Corporate migration When
a TNC changes its corporate
identity, relocating its headquarters
to a different country.
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Transfer pricing A financial flow occurring when one division of a TNC based in one country charges
a division of the same firm based in
another country for the supply of a
product or a service. It can lead to
less corporation tax being paid.

Question 8

Why might TNCs or wealthy individuals use profit repatriation or Tax avoidance?

Answer 8

Corporate relocation and profit repatriation

A TNC may consider leaving its traditional home if the tax regime in another state is more attractive; this is corporate migration. In recent years, some European-based TNCs have relocated their HQ to Ireland, Switzerland, Luxembourg or the Netherlands where corporate taxes are low. In 2010, petrochemical firm INEOS moved its HQ from the UK to Switzerland. This corporate migration saved almost half a billion pounds over five years. Worldwide profits are now repatriated to Switzerland instead of the UK.
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Shrinking world technology means that the world’s governments are exposed to a greater risk of this form of ‘capital flight’ than in the past.
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However, there are practical reasons , these relate to brand authenticity, corporate responsibility, public perception and security.
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Tax avoidance and tax havens
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TNCs use the strategy of transfer pricing to reduce their tax burden. This involves routing havens profits through subsidiary companies owned by the parent company.
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The parent company is the original business that a global TNC has developed around and whose
directors make decisions that affect the organization as a whole. Both Starbucks and Google are parent companies to global networks of subsidiary’s, including Ritea Ltd (Starbucks Coffee Company, Ireland) and Google Ireland Ltd.
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Subsidiaries will be based in a low-tax state like Ireland or possibly an offshore tax haven. ~40 so-called tax havens offer nil or nominal taxes. Some are sovereign states, such as Monaco. The Cayman Islands, is a UK overseas territory with its own tax setting powers.
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The states where these TNCs remain HQ’d and where they do most
business are at risk of receiving no tax.