key: cord-023473-ofwdzu5t
authors: Tan, Wei‐Jiat; Enderwick, Peter
title: Managing threats in the global era: The impact and response to SARS
date: 2006-06-26
journal: nan
DOI: 10.1002/tie.20107
sha: 
doc_id: 23473
cord_uid: ofwdzu5t

In early 2003, the SARS virus brought disruption of public and business activities in many areas of the world, particularly Asia. As a result of its impact, SARS quickly established itself as a new kind of global uncertainty and posed challenges for traditional methods of risk management. This article examines the impact that SARS has had through means of a case study and builds on this to provide recommendations for how uncertainty may be managed in an increasingly globalized world. Reconsideration of strategic and risk‐management approaches have become necessary. Supply‐chain management and corporate strategy require a fundamental rethink to balance the pursuit of efficiency with increased responsiveness and flexibility. Unpredictability and turbulence in the international business environment suggest that traditional planning approaches that assume linear growth may give way to more scenario‐based planning. This will encourage firms to contemplate a variety of possible futures and better prepare them for unanticipated events. Similarly, contingent‐based continuity plans help businesses continue running even during a crisis. © 2006 Wiley Periodicals, Inc.

Managing Threats in the Global Era: The Impact and Response to SARS Wei-Jiat Tan ■ Peter Enderwick

In early 2003, the SARS virus brought disruption of public and business activities in many areas of the world, particularly Asia. As a result of its impact, SARS quickly established itself as a new kind of global uncertainty and posed challenges for traditional methods of risk management. This article examines the impact that SARS has had through means of a case study and builds on this to provide recommendations for how uncertainty may be managed in an increasingly globalized world. Reconsideration of strategic and risk-management approaches have become necessary. Supply-chain management and corporate strategy require a fundamental rethink to balance the pursuit of efficiency with increased responsiveness and flexibility. Unpredictability and turbulence in the international business environment suggest that traditional planning approaches that assume linear growth may give way to more scenario-based planning. This will encourage firms to contemplate a variety of possible futures and better prepare them for unanticipated events. Similarly, contingent-based continuity plans help businesses continue running even during a crisis. © 2006 Wiley Periodicals, Inc. province in November 2002 (Horstman, 2003) . Largely due to the failure of the Chinese authorities to recognize the seriousness of the problem or provide international notification, SARS quickly spread throughout China (Enderwick, 2003 ) and, in February 2003 Kong was to provide the global accelerant from which SARS quickly spread, particularly to neighboring Asian countries, including Vietnam, Singapore, and Taiwan. The high incidence of travel between Toronto and Asia also saw the outbreak of SARS in Canada (Enderwick, 2003) . Over the course of the outbreak, SARS infected more than 8,000 people and left more than 900 dead in 32 countries, with 349 of those fatalities recorded in Mainland China.

While infectious epidemics are by no means a new phenomenon, there is little doubt that SARS had a greater impact on the international business environment than its predecessors. This is largely due to the fact that countries and economies are now more interconnected than before, allowing for easy transmission of a virus like SARS. While literature does exist on the management of risk, SARS is indicative of a new kind of uncertainty, the impact and management of which must be analyzed in the context of a world that has become increasingly globalized. This article examines the impact of SARS on the international business environment and considers how managers can incorporate events such as SARS into an ongoing riskmanagement framework.

The discussion comprises four substantive sections. The first section provides a contextual background of the international business environment at the time of the SARS outbreak. The second section provides a case-study discussion of the impact of SARS on international business operations. Drawing on this case study, the third section examines some strategic implications for firms seeking to cope with the new types of uncertainty such as that created by SARS. Concluding thoughts are provided in the final section.

There is little doubt that businesses and firms operate in an increasingly globalized and integrated environment. Globalization manifests itself as an increase in cross-border movements of goods and services, capital and technology flows, tourist and business travel, and the migration of people (Craig & Douglas, 1999) . This integration has been made possible by declining trade and investment barriers, the growth of free trade agreements, and regional integration.

Another driver of globalization has been technological advancements in communications and transportation. The use of satellite links, company intranets, and the Internet has improved communication networks and linkages across borders, thereby lowering the costs of coordinating and controlling a global organization. Modern communication systems have also enabled the rapid dissemination of information, leading to some convergence of consumer tastes and preferences. In addition, developments in transportation have allowed the rapid supply of people, goods, and services from distant locations.

Globalization has provided significant opportunities for firms to reconfigure their supply chains and globalize their production processes, thereby reaping economies of scale and taking advantage of national differences in the cost and quality of factors of production. However, globalization also presents some very real challenges. The interconnectedness that is characteristic of globalization also means that local conditions are no longer the result of purely domestic influence (Thomas, 2002) . Indeed, crises in one country now have the ability to affect other countries around the world. This was evident from the 1997 Asian financial crisis, September 11, and SARS, where such crises had a "ripple effect" so that their direct and residual impacts were felt far from their epicenters (Enderwick, 2001) .

The international business environment has never been predictable or certain. However, the scale of investments in today's globalized world, coupled with rapid technological change, shortening product life cycles, and the increasing aggressiveness of competitors (Volberda, 1996) , has increased the uncertainty and complexity of operating in such an environment. Indeed, it has been stated that: Globalisation and technology are sweeping away the market and industry structures that have historically defined the nature of competition. The variables that can profoundly influence success and failure are too numerous to count. That makes it impossible to predict, with any confidence, which markets a company will be serving or how its industry will be structured, even a few years hence. (Bryan, 2002. p. 18) Accordingly, unlike past decades that exhibited long, stable periods in which firms could achieve sustainable competitive advantage, competition is increasingly characterized by short periods of advantage, The interconnectedness that is characteristic of globalization also means that local conditions are no longer the result of purely domestic influence.

marked by frequent disruptions (Volberda, 1996) . In such hypercompetitive environments, risk is not so much predicted as it is responded to. Accordingly, strategies that focus solely on efficiency and pay close attention to cost structures must now be reassessed in light of the inflexibilities they exude in a changing and uncertain environment. Further, exploitation of core competencies that were once seen as a precondition to success are now viewed as presenting the risk of core rigidities (Volberda, 1996) . Accordingly, a higher premium is now being placed on considerations such as flexibility, responsiveness, and adaptiveness.

One area in which this need for flexibility has been recently espoused is that of supply-chain management. Until recently, companies focused on developing tightly controlled supply chains, with the emphasis on efficiencies in operations and distribution. While tightly controlled supply chains work well in stable environments with minimal disruptions, we are now experiencing an environment of increasing unpredictability, where disruptions are more common. Accordingly, the ability to respond to the resulting fluctuations in demand is paramount, and considerations such as flexibility and responsiveness are now considered as important as efficiency (Morton, 2003) .

Globalization has also seen the emergence of a new type of risk, with a nature quite different to what was traditionally regarded as risk in international business. In the 1970s, 1980s, and even 1990s, risk was generally equated to financial, exchange rate, and inflationary risks and, in particular, "political risk," which was reflective of host-government hostility toward foreign investment during much of this time. Political risk was country-specific and could be summed up as the likelihood that a multinational enterprise's foreign operations could be constrained by host-government policies through measures such as forced divestment, unwelcome regulation, and interference with operations. Accordingly, risk management was also country-specific and involved assessing the riskiness of a particular country through a variety of predictive approaches. Where a country was deemed too risky, the firm would avoid investing or withdraw its current investment. Other risk-management devices also involved responding to risk that largely emanated from host governments. Indeed, defensive political risk-management strategies involved locating crucial aspects of the company's operations beyond the reach of the host, while integrative strategies aimed to make the firm an integral part of the host society, thereby minimizing the risk of government intervention. However, as the world economy has become increasingly global, political risk, while still present, is arguably not as pressing as before. This is largely because of a change in attitude toward trade and investment, with most countries now encouraging foreign direct investment (FDI). Indeed, between 1991 and 2003, more than 165 countries made 1,885 changes in legislation governing FDI, with 95 percent of these changes involving the liberalization of FDI regulations. This has also been supported by a dramatic increase in the number of bilateral investment treaties, as well as regional and global free-trade agreements (United Nations Conference on Trade and Development [UNCTAD], 2003) .

At the same time, we have witnessed the emergence of a new type of environmental business threat that has manifested itself in incidents such as global terrorism, SARS, financial crises, and computer viruses, all of which have the ability to disrupt a firm's operations. Enderwick (2003) describes such threats as being sudden, unexpected, and unpredictable, with the ability to spread quickly through global processes and forces, thus having a widespread impact but with a disproportionate impact on regions, sectors, and industries. Clearly, risk is no longer country-specific, nor is it limited to threats from host-government actions. Instead, it is global and systemic, and capable of being perpetrated by individuals or small groups. Further, such threats do not simply affect a firm's operating conditions, but also its overall viability, as they can cause severe disruptions, threatening the very survival of the firm. Accordingly, new strategies for managing this type of threat are required, and they cannot be avoided by simply deciding not to invest in a particular country, or by using strategies centered on host governments. However, while in the past risk was largely seen as negative, it should be noted that these environmental uncertainties provide both challenges as well as opportunities for those businesses that have the ability to respond quickly and effectively (Enderwick, 2003) .

It is useful to clarify the exact nature of a disruption such as SARS in terms of risk and uncertainty. While these terms are often used interchangeably, they have distinct meanings (Knight, 1921) . According to Knight's analysis, risk is considered as the variation in potential outcomes to which an associated probability can be assigned. In statistical terms, while the distribution of the variable is known, the particular value that will be realized is not. Uncertainty exists when there is no understanding of even the distribution of the variable. For decision making, uncertainty is a greater problem than risk. Because probabilities can be attached to risk, options to mitigate risks through Clearly, risk is no longer countryspecific, nor is it limited to threats from host-government actions.

insurance or hedging are possible. Because probability cannot be assigned to uncertainty, instruments to reduce uncertainty are not available.

We suggest that SARS (and similar recent environmental disruptions such as global terrorism, computer viruses, and avian bird flu) are uncertainties, not risks. These types of disruptions share a number of characteristics. First, they can be considered as "jolts" (Meyer, 1982 ) that occur randomly. No one anticipated the emergence of SARS, or any similar virus. Because such events are not continuous or even regular, it is not possible to assign probabilities to them. Second, the nature of these jolts is such that they evolve, changing their forms, and do not simply recur. For example, viruses such as SARS and avian bird flu are capable of mutating and assuming different forms with differing impacts. In the case of avian bird flu, there have been recent reports of the first full case of human-to-human transmission, and a recurring fear is that it could mutate into a human pandemic with devastating effects. Similarly, global terrorism assumes a variety of forms including car bombs, suicide bombers, aircraft as weapons of destruction, and chemical attacks. This makes it difficult to use historical experience as a predictor of future occurrences and impacts. Third, the impact of these uncertainties tends to be concentrated, either by sector or by geographical location. As the next section makes clear, the primary effects of SARS were experienced in Asia and disproportionately affected the transport, tourism, and medical industries. The impacts of natural disasters such as extreme weather events or financial and political problems appear to be more widely and randomly distributed. This is not to suggest that SARS did not become a global issue; however, its global spread was clearly traceable to well-established patterns of personal and business contact.

To understand the impact that SARS had, it is useful to employ a "concentric band" framework (Enderwick, 2001) , which sees a crisis like SARS as having a "ripple effect," as illustrated in Figure 1 . The band closest to the center represents the primary or immediate impacts of SARS. Moving outward, the next band represents secondary impacts that are likely to develop over the short to medium term, followed by those impacts that result from the various responses to SARS. Finally, the outermost band represents the longer-term issues that are likely to arise out of the SARS crisis. We suggest that SARS (and similar recent environmental disruptions such as global terrorism, computer viruses, and avian bird flu) are uncertainties, not risks.

The sectors that were immediately and significantly affected by SARS were those that involved regular human contact (Enderwick, 2003) . Accordingly, Asian tourism and transport were hit especially hard. Flights to Asia were cancelled, with SARS hot zones like Singapore and Hong Kong suffering the most (Lemonick & Park, 2003) . The hotel business in Asia also suffered and plummeted 25% between February and March (Lemonick & Park, 2003) , with Hong Kong five-star hotels at occupancy rates of 10% and Singapore occupancies falling from a norm of 70% to 20% to 30%. As fewer tourists arrived and locals chose to stay home to avoid public places, stores and restaurants in Singapore and Hong Kong were almost empty at peak hours (Engardio, Shari, Weintraub, Arnst, & Roberts, 2003) .

SARS also had a significant impact on medical facilities and staff. Rapid increases in the number of cases quickly exposed inadequate surge capacities in hospitals and public health systems and a lack of protective gear, with the problem exacerbated by health workers falling victim to the disease (World Health Organization [WHO], 2003) . In Beijing, a shortage of bed space in hospitals meant suspected SARS cases could not be hospitalized and quarantined quickly, contributing to the spread of the illness (Hutzler, 2003) . To reduce this heavy burden on existing hospitals, governments invested sub- (WHO, 2003) . Indeed, Hong Kong spent HK$400 million to create 1,280 hospital beds and a further HK$100 million to train medical staff (Fowler & Dolven, 2003) .

Food Industry. SARS also led to secondary impacts in the food industry. Food prices in Asia plummeted as restaurants cut down on purchase orders, thereby affecting the region's farmers and fishing fleets (Carmichael, McGinn, & Theil, 2003) . Supermarket sales in key markets such as Singapore, Taiwan, Japan, and China also fell due to a loss in consumer confidence (Tso, 2003) , although increased food preparation at home-and, in some cases, panic buying-had a positive impact on supermarkets.

Manufacturing. There was widespread belief that a major disruption like SARS could paralyze just-in-time supply chains by holding up production and the flow of goods and services between countries due to port closures, travel restrictions, and forced closures of manufacturing plants if employees got infected. Despite such media hysteria, the impact on the manufacturing sector was not that pronounced. This was largely because Asian companies took preemptive steps as soon as the epidemic became known and increased production in the anticipation that there could be a problem, building up their buffer levels in inventory and safety stock. The result was very few plant shutdowns in the Far East (Morton, 2003) .

Investment. Investment in Asia was also affected, as international firms postponed plans to begin or expand operations in Asia. Real estate sales fell drastically as buyers refused to travel to Hong Kong or China to look at building sites (Bodamer, 2003) . Similarly, the cancellation of trade fairs affected manufacturers, particularly in China, who rely on such fairs to sell their goods (Ben-Ami, 2003) . The capital markets did not emerge unscathed, and it is estimated that overall fundraising in Asia fell 10-20% in 2003 due to SARS (Hamlin, Smith, Meyer, Kirk, & Horn, 2003) . Stock prices of those companies with extensive operations in Asia also fell (Bolger, 2003) .

Unemployment. Given that the tourism and hospitality industries that were hit hardest by SARS were labor-intensive, there was also a corresponding rise in unemployment in SARS-affected countries, mainly concentrated in these industries. In the worst-hit countries like China, Hong Kong, Singapore, Taiwan, and Vietnam, the tourist industry faced losses of 30% of travel and tourism employment. The global impact of SARS was also expected to bring a 15% loss in the tourism workforce in Indonesia and Oceania, and 5% in the rest of the world (Bita, 2003) .

Economy and Growth. The impact of SARS on regional economies and projected economic growth was also substantial. Indeed, economists estimate that China and South Korea have each suffered $2 billion in losses in tourism, retail sales, and productivity due to SARS, with Japan, Hong Kong, Taiwan, and Singapore estimated to lose approximately $1 billion each. Toronto, severely affected by SARS, was losing $30 million a day at the height of the crisis. In terms of the global cost of SARS, this is estimated to have reached $30 billion.

Positive Effects. While negatively affecting a number of industries, others were able to capitalize on the opportunities that SARS provided. The outbreak of SARS saw a worldwide surge in demand for facemasks, given that SARS is largely transmitted by coughing and sneezing. This saw demand outstripping supply, forcing large manufacturers like 3M to switch to 24-hour production (Hopkins, 2003) . Video conferencing was another industry to benefit, as Asian employers sent their workers home and cancelled overseas conferences, meetings, and visits. While no industrywide traffic figures are available, many video-conferencing services reported spikes in usage in Asia since the SARS epidemic began. Indeed, InterCall, a Hong Kong teleconferencing company, doubled its business in March and April 2003 and saw a 200% increase in users signing up for the service in Hong Kong in April and a 30% rise in new customers worldwide (Flynn, 2003) .

Individual Firms. In response to the SARS crisis, businesses undertook a number of measures to minimize the impacts of SARS. Business travel bans to SARS-affected areas were a common risk-management device, as were temporary quarantine measures for those who had recently traveled to such areas (e.g., working from home, segregating them from other employees). Less common was the repatriation of employees, and according to one survey, less than 7% of firms had brought employees home from SARS-affected regions or placed them in another country (Minihan, 2003) . Many firms implemented business continuity plans, with some firms setting up operations at parallel sites or shifting operations altogether to other office com- plexes (Hamlin et al., 2003) . IT played a major role in all continuity plans, with firms issuing notebooks capable of accessing the firm's intranet so employees could work from home and employing technology such as video conferencing to ensure business continued as usual (Lim, 2003) .

Government Spending. In response to SARS, governments in Asia also took action and increased government spending to SARSaffected industries. In China, the Central Government launched the largest-ever tax relief package to help the aviation, tourism, and retail sectors recover from the SARS epidemic, estimated to cost several billion yuan (Pun, 2003) . The Hong Kong government similarly offered a $1.5 billion relief package for local businesses (Carmichael et al., 2003) and has invested $80 million to revitalize the tourism industry, with part of this money to be spent on a worldwide campaign to reassure visitors (Coulter, 2003) .

Domestic Measures. The outbreak of SARS prompted governments to take decisive and often drastic action to curb the spread of SARS. The Singapore government authorized measures such as closure of schools and universities, temperature checks twice daily (at home and in the workplace), home quarantine for those exposed to SARS, and triage centers at the entrances of hospitals to identify and separate SARS patients (Yew, 2003) . In Taiwan, remote video monitors were installed in quarantine households to ensure against any quarantine violations (Chinese Government Information Office, 2003). In China, far more draconian measures were taken, arguably to compensate for the government's previous lack of responsiveness and reluctance to report the seriousness of the SARS crisis in China. Public entertainment spots in Beijing were closed down, as were public schools and universities (Kaufman & Chen, 2003) .

Stricter Border Control. Governments also responded to the rapid spread of SARS by implementing stricter border control measures and the collection of detailed health and contact information. At one extreme, several countries, such as Taiwan, banned individuals who had traveled to SARS-affected regions (Kaufman & Chen, 2003) .

Other strict measures included requirements that travelers from SARS-affected areas wear facemasks for two weeks after arrival and special powers of quarantines.

Greater International Cooperation. In recognition of the fact that SARS is a global problem, governments have also been more willing The outbreak of SARS prompted governments to take decisive and often drastic action to curb the spread of SARS.

to cooperate to prevent its further spread. One such example was the "Special ASEAN-China Leaders Meeting on SARS" held on April 29, 2003, in Bangkok, where ten Association of Southeast Asian Nations leaders and the Chinese premier held crisis talks on how to fight the virus. This was consistent with the way the international community rallied together to understand and treat the SARS virus. Indeed, the global response was unprecedented and saw 11 laboratories around the world that were previously strong competitors sharing information freely.

Importance of the State. As illustrated by the response-generated impacts, it is clear that the role of the state in international business is still important, as the SARS crisis saw the state take on a major crisis management role. Governments were responsible for mobilizing resources such as hospitals and other medical facilities, as well as coordinating public health care. Quarantine measures also had to be introduced, monitored, and enforced, coupled with surveillance capacity to monitor and report quickly on disease outbreaks and their progress. Finally, governments were responsible for handling the economic slowdown caused by SARS and providing assistance to severely affected industry sectors through increased public spending. These tasks are not amenable to market forces and highlight the unlikelihood of globalization leading to the elimination of the nation-state (Enderwick, 2003) .

Open and Transparent Government. Connected to the idea of the growing importance of the state is the need for open and transparent government. The reasons for this are twofold. First, the need for transparency is paramount if a crisis is to be contained. China's initial understating of the number of confirmed cases, refusal to give daily reports, and blocking of WHO specialists from visiting Guangdong (the origin of SARS) allowed SARS to spread rapidly (Lavella, 2003) . It was only after China began reporting the true seriousness of the situation and allowed WHO officials to investigate that the SARS crisis slowly came under control. In contrast, Vietnam was able to contain the virus relatively quickly through prompt and open reporting, the early request for WHO assistance, and rapid case detection, isolation, infection control, and vigorous contact tracing (WHO, 2003) . Accordingly, any attempt to conceal a crisis such as SARS for fear of the social and economic consequences can only be regarded as a short-term measure that ultimately risks the situation spiraling out of control (WHO, 2003) . Second, it is in the interests of government to be open and transparent, as in today's turbulent and unpredictable environment, investors are now placing a premium on governments that can be trusted. Indeed, China's behavior during the SARS crisis has resulted in a loss of credibility in the international community (WHO, 2003) and created fears among foreign investors about doing business in China.

Fear. Another long-term issue is how to handle the fear and panic that accompanied SARS, given it was fear that spread faster and had a greater impact than the disease itself. Indeed, as far as infectious diseases go, SARS is relatively mild; it is harder to catch than the flu, with a fatality rate of only 6% to 8%. Despite this, SARS had a devastating effect on the tourism industry, as people became unwilling to fly to SARS-affected regions. Business was also affected, as foreigners cancelled conferences and meetings in countries in Asia, such as South Korea, that had not reported a single SARS case. This was largely because Asia is viewed as "one place" (Hamlin et al., 2003) , and therefore the crisis in one part of Asia was extrapolated to the whole.

Personal Behavior. SARS is also likely to have a longer-term impact with regard to personal behavior and cultures. In Singapore, through massive public-education efforts to promote public-health practices, there has been a noticeable change in personal habits. People wash their hands more, and public and restaurant toilets are much cleaner. Similarly, people are using serving spoons for shared dishes when eating, and sick people are more likely to see a doctor when they become ill rather than do nothing (Borsuk & Prystay, 2003) .

SARS could also see a change in the way that business is done in Asia. As mentioned earlier, many businesses turned to video conferencing at the height of the outbreak. Video conferencing was found to be an effective tool to maintain communication during the crisis-and without the associated travel/hotel costs and jet lag (Hamlin et al., 2003) . However, tensions remain in that Asian businesspeople place a high value on personal contact and prefer to meet clients and customers face-to-face (Minihan, 2003) .

The Reality of Globalization-The Need for Openness and Trust. The SARS crisis has illustrated the consequences of living in an interconnected world and has further clarified the nature of globalization. Technology, such as e-mail, instant telephone communication, and the Internet, has united people and increased enormously the number of contacts that people have. These contacts are eventually pur- The SARS crisis has illustrated the consequences of living in an interconnected world and has further clarified the nature of globalization.

sued through personal visits or through business meetings, conferences, and plant tours. Further, advancements in air travel mean any place in the world is accessible within 24 hours, and coupled with the movement of commerce, this has brought China and other developing nations out of relative isolation (Engardio et al., 2003) . The result has been a global network within which an infectious disease like SARS can spread, and while diseases in the past have taken weeks or months to spread, SARS was literally transmitted within days, setting a record for the speed of continent-to-continent transmission (Borenstein, 2003) . Accordingly, while globalization has provided the world with many benefits, it also brings risks, and increased connectedness also means that threats have a greater global impact.

This implies that countries must understand that they can no longer insulate themselves from threats such as SARS given the open borders of a globalized world, and there must be an increasing recognition that crises like SARS are not simply a regional problem, but a global one.

The case study illustrates that SARS represents a new kind of threat and has implications for the way uncertainty is managed in the future. Risk-management strategies that were largely country-focused are no longer adequate in themselves, given that this new type of threat is global and systemic.

Despite the high levels of uncertainty associated with events such as SARS, this should be incorporated into decision making. A lack of precise knowledge does not preclude decision makers from further information gathering or from making decisions about likely probabilities of events occurring. As has been recognized, traditional strategic management approaches encourage perceptions of uncertainty in a binary fashion (Courtney, Kirkland, & Viguerie, 1997) . The world is seen either as sufficiently certain that precise, and usually single, predictions of the future can be made, or that uncertainty renders such an approach totally ineffective. In the latter case, there may be a temptation to abandon analytical approaches and to rely wholly on gut instinct. Courtney et al. (1997) argue that in many cases uncertainty can be significantly reduced through careful search for additional information; in effect, much that is unknown can be made knowable. The uncertainty that remains after the most thorough analysis they term residual uncertainty. There are a number of approaches that offer insights into how to manage uncertainty. The simplest approach is to ignore it. This can be done by developing a "most likely prediction" often based on "expert input" or by assigning a margin of error to key variables. Each of these approaches yields a single unequivocal strategic option by either ignoring uncertainty or assigning it a probability. Neither approach is satisfactory. Ignoring an uncertain environmental event is clearly dangerous. Assigning probabilities to unique events is invalid. Even subjective probability derived from expert analysis is untestable and arbitrary. Miller (1992) highlights a useful distinction between financial riskmanagement and firm-strategy approaches to managing environmental uncertainties. Financial risk-management techniques such as insurance and futures contracts reduce the firm's exposure to specific risks without changing the underlying strategy. But, as noted earlier, such techniques only apply to risks, not uncertainties. In the case of an event such as SARS, strategic responses, which attempt to mitigate the firm's exposure to uncertainties, are likely to be more useful. Miller (1992) identifies five generic strategic responses to environmental uncertainties: avoidance, control, cooperation, imitation, and flexibility.

Avoiding an event such as SARS through divestment, delayed entry, or a focus on low uncertainty markets is difficult. The irregular occurrence and variable impact of such events is unlikely to justify divestment. Similarly, their unpredictable and evolving nature makes postponement or niching very difficult. Uncertainty control strategies based on political lobbying, vertical integration, or enhanced market power are not an effective counter to SARS. In the same way a cooperative strategy deals primarily with behavioral risk and is not likely to be effective, neither is an imitative strategy that addresses competitive rivalry. Of more value is the management of uncertainty through organizational flexibility. Flexibility focuses on the ability of the organization to respond and adapt to significant environmental changes. High levels of flexibility imply lower costs of organizational adaptation to uncertainty.

In contrast to approaches that try to increase the predictability of uncertain events, flexibility strategies emphasize internal responsiveness, irrespective of the predictability of contingencies. A widely used strategy for increasing flexibility is diversification, whether of products, markets, or sources of supply. With regard to SARS, the key strategic responses are likely to occur in the areas of supply-chain management, diversification, scenario planning, and ensuring business continuity. We consider these in more detail. In contrast to approaches that try to increase the predictability of uncertain events, flexibility strategies emphasize internal responsiveness, irrespective of the predictability of contingencies.

The need for flexibility and responsiveness is no more evident than in the area of supply-chain management. While the manufacturing sector did not suffer severe disruptions given the relatively quick manner in which SARS was contained, had the crisis persisted and impeded the flow of goods and services and/or caused plant shutdowns, major disruptions to manufacturing and distribution would have occurred. Indeed, potential disruptions quickly became apparent as firms contemplated the possible effects of travel bans. Firms recognized that problems could arise if a factory needed repair help to continue manufacturing but engineers could not be sent due to travel bans (Wonacott, Chang, & Dolven, 2003) . In combination, these issues highlight the need for flexible supply chains that can respond quickly to changes in demand and cope with major disruptions. To develop this responsiveness, firms can do a number of things.

First, in handling a crisis like SARS, every moment of delay is critical, and the earlier you can get the supply-chain network to respond, the easier it is to manage (McClenahen, 2003) . Accordingly, to ensure prompt action, firms must ensure quicker access to and action on information, preferably at the source, that may provide timely warnings. This certainly reiterates the importance of management basics such as environmental scanning and monitoring, and the need for it to be an ongoing activity. However, such environmental scanning will no longer simply involve monitoring the local political environment, as often happened in the past. Instead, it will need to encompass the larger regional and global environment. Further, while host-country managers previously played a vital role in conveying information about the political environment back to higher management, what will become increasingly important is the ability to channel this information to the firm's affiliates in other parts of the world and to share any lessons learned from the crisis so that these affiliates may benefit from them. This further reinforces the value of establishing an integrated global network and facilitating intracompany learning.

The need to be responsive also has implications when choosing manufacturing locations. China's initial unresponsive and surreptitious approach to the SARS crisis illustrates that while cost of production and a low-cost labor force have been, and will still remain, dominant considerations in the investment decision, stability, reliability, and predictability are likely to be given a higher premium. Given the unexpected and sudden nature of threats such as SARS, management is also likely to add to its investment criteria how well various parts of the world are equipped to deal with crises (McClenahen, 2003) . In handling a crisis like SARS, every moment of delay is critical, and the earlier you can get the supply-chain network to respond, the easier it is to manage.

Firms may also opt to switch from large production sites in a single location like China to smaller, but multiple facilities around the world, thereby creating a global network of manufacturing facilities. This allows increased flexibility so that if disruptions to manufacturing or the supply chain occur in one country, the firm has the ability to vary plant loadings and increase production elsewhere (MacCormack, Newman, & Rosenfield, 1994) . Such a manufacturing network will considerably increase the complexity of coordinating the global supply chain. However, this may simply be a necessary trade-off for firms wishing to balance cost-efficiency and responsiveness in managing their global supply network.

Alternatively, firms may find that establishing their own manufacturing operations is too risky an investment and may instead choose to outsource, thereby continuing a trend that has been taking place over the last ten to fifteen years. However, SARS has highlighted the value of diversifying the supply base and sourcing from multiple locations (McClenahen, 2003) , thereby reducing a firm's dependence on a single supply location (MacCormack et al., 1994) . Indeed, outsourcing offers the flexibility to switch sourcing to another country if a crisis like SARS should disrupt supply-chain operations in a particular country. Accordingly, many global firms are considering back-up suppliers outside of Asia, with Latin America and Eastern Europe likely locations.

The way in which outsourcing is conducted may also change as events such as SARS have increased the reluctance and inability to travel. Indeed, rather than establishing their own network of suppliers, firms may increasingly turn to third-party logistics providers such as BChinaB, who have offices on U.S. soil but manage a sprawling network of 1,500 factories, tool and die shops, materials suppliers, and plastic molders in China. By using such a provider to manage their logistics operations abroad, firms can reduce the requirement of traveling overseas to negotiate price quotations and samples and having to deal with Chinese manufacturers directly (Marshall, 2003) .

The move toward responsiveness may also necessitate less of a focus on cost-efficiency and a loosening of the tight control that is currently held over supply chains. After SARS, firms may have to reexamine their supply chains to identify potential problems and bottlenecks and allow for enough slack to accommodate delays and potential problems that can arise. Such readjustments may include keeping buffer inventory and safety stock to hedge against uncertainties. While such measures incur costs, the costs of disruptions to an unresponsive supply chain may prove more severe-these being extended lead times, lost service contracts, and higher emergency logistics costs.

Another lesson from the SARS crisis may be to illustrate the risks of having too focused a corporate strategy and the potential benefits of diversification. In the same way that financiers diversify their investment portfolios to decrease variability in their rate of return, a portfolio approach to corporate strategy ensures that even if some of the firm's corporate initiatives fail, the success of other initiatives achieves an overall favorable outcome for the firm (Bryan, 2002) . This is especially so where the impacts of events like SARS and terrorism are disproportionately borne by certain sectors or locations (Enderwick, 2003) . Accordingly, corporate strategies may now require this "portfolio approach" so that a firm is not overly focused on one sector or location. For example, the SARS crisis, coupled with a more global world market, is likely to see exporters increase diversification in both products and geographical markets. On a larger scale, economies may also look to become more diversified, as SARS revealed that many Asian countries were heavily dependent on the services sector (Shanmugaratnam, 2003) . For businesses, related diversification appears to be superior to unrelated diversification (Rumelt, 1974) .

As noted earlier, the nature of environmental threats is changing and is increasingly difficult to anticipate. Indeed, SARS illustrated the difficulty of trying to predict where the next threat will come from and has called into question traditional linear planning and forecasting. Such planning techniques work on the assumption that the environment in the future will be very much like today, and that extrapolation is meaningful. However, in today's turbulent and disruptive environment, this assumption is no longer valid and what are needed are plans that are flexible enough to adapt to the circumstances (Pritchard, 2003) . Accordingly, the SARS crisis is likely to accelerate the current trend toward the adoption of scenario planning. Rather than forecasting a specific future or "most likely outcome," scenario planning builds on existing knowledge to develop several plausible future scenarios and then necessitates constructing robust strategies that will provide competitive advantage no matter what specific events unfold. As such, it encourages firms to think about "worstcase" scenarios, which may include technological, economic, political, or environmental calamities. Schnaars (1986) discusses a number of different approaches that can be adopted when designing strategy for multiple scenarios. Accordingly, scenario planning forces firms to pay closer attention to internal, external, and the broader global environmental factors that may influence the firm's future. This process challenges firms to avoid complacency in their strategy formulation and encourages managers to think more broadly and unconventionally and view events with a new perspective (Lohr, 2003) , an essential requirement in trying to prepare for unknowable shocks and crises (Kennedy, Perrottet, & Thomas, 2003) . Arguably, SARS will "shake things up" and encourage strategists to further consider more diverse and unexpected scenarios, as prior to SARS, many strategic-planning scenarios had not been done with a disease in mind (Hamlin et al., 2003) .

The Federal Emergency Management Agency estimated that the costs of disasters are 15 times greater than the costs of preparing for them (Read, 2003) . Indeed, events such as September 11 and SARS illustrated the value of business continuity planning, which essentially involves strategies, services, and technologies that enable firms to prevent, cope with, and recover from disasters, while at the same time ensuring the continued running of the business (Read, 2003) . While the SARS crisis certainly reinforced the need for such planning, it also provided implications for the content of such continuity plans in the future.

While some continuity plans actioned during the SARS crisis saw the establishment of parallel operations or the shifting of work to safer regions/locations so as to create back-up locations (Minihan, 2003) , it is apparent that cost and time factors can mitigate against this being a feasible option for many firms (Read, 2003) . However, what SARS did demonstrate, and what has been suggested by business continuity writers, is that technology may be the key and that "telecommuting" or "teleworking" should be a part of any company's business continuity plan (Jimenez, 2003) . Accordingly, firms need to ensure they have the technological infrastructure to support the ability to work from home or from remote locations, in case an event like SARS forces offices to close. At a basic level, this requires employees to have access to the firm's information/data or intranet from home, and such access must be secure. To reduce reliance on a single data source, firms are also beginning to employ "network storage" or "data mirroring" technologies so that key transactional data is copied in almost real time to other locations, thus creating a back-up (Newing, 2003) .

The SARS crisis also highlighted the usefulness of video-conferencing and teleconferencing technology, particularly given that higher bandwidth speed now makes such conferencing a more viable option. While travel bans and the reluctance to travel persisted, conferencing technology allowed continued contact with clients and overseas partners, and allowed important meetings to take place. While such technologies may not immediately become the industry norm, given that personal contact in Asian countries is highly valued, their introduction as a riskmanagement device may secure their gradual acceptance as their longterm benefits become more obvious. Indeed, anecdotal evidence suggests that firms who invested in such technology during the SARS crisis will continue to use this technology in the future (Neuman, 2003) .

While technology is important, it alone may not be sufficient, and the human element in continuity plans is also important. Key workers must be identified and must have access to the right IT equipment and training to enable them to carry on working if the office has to be shut down. Key staff should also be spread among different sites, as one organization learned the hard way, when it lost its entire IT recovery team located in the World Trade Center during September 11 (Newing, 2003) . Finally, firms must also realize that telecommuting has a human element, as workers stuck at home often experience feelings of isolation, anxiety, and depression (Wayne, 2003) . Accordingly, planning must incorporate how such psychological problems can be addressed.

As mentioned in the case study, the impact from the fear of SARS was greater than SARS itself, and has implications for how a crisis such as SARS is managed in the future. What is glaringly obvious is the need for full disclosure of information, given that the panic about SARS was fueled when information was concealed or only partially disclosed, leading to rumors and exaggeration (WHO, 2003) . Employees need facts from, and questions answered by, reliable and credible sources. Responses that have proved effective include establishing 24hour hotlines to communicate with staff and directing staff to other information sites, such as the WHO Web site (Aldred, 2003) .

The SARS crisis occurred against the backdrop of a highly interconnected and integrated world economy and has established itself as a new kind of global threat, along with other unpredictable events such as the Asian financial crisis and global terrorism. Rather than having a localized impact, the impact of SARS has been far-reaching, even if this was largely from the fear of the virus rather than the virus itself. The impact from the fear of SARS was greater than SARS itself, and has implications for how a crisis such as SARS is managed in the future.

In Table 1 , we summarize some of the key differences between the traditional and new forms of risk.

For governments, the message is clear-even in a world without borders, the state will still have a role, given that unsupported market processes are insufficient by themselves to solve the problems created by SARS. However, with this responsibility comes the requirement that governments act in an open and transparent manner, something that is arguably a precondition for the effective handling of a crisis such as SARS. Global phenomena such as SARS also emphasize the need for a collective response and more openness and cooperation among nations.

For businesses, the ability of SARS to significantly disrupt international business and the speed in which the disease was transmitted suggests that the nature of this new kind of event is global and systemic, and accordingly warrants a broad and encompassing risk-management approach. The implication is that firms must put a higher premium on strategies that emphasize flexibility and responsiveness. Indeed, firms will find value in increasing diversification, whether this is in sourcing or in corporate strategy. Planning must also become less linear and more contingent-based, and in considering a range of possible future scenarios, firms will be in a better position to handle disruptions that increasingly cannot be predicted. Technology also appears to offer a possible solution as a risk-management device, and we are likely to see technolo- gies such as video conferencing become a commonplace feature in offices of the future. Further research on the role that strategies, structures, and resources play in anticipating, responding, and adjusting to environmental disruptions is necessary (Meyer, 1982) . In sum, while an event like SARS produces considerable challenges, it also offers insights into how firms can better equip themselves to manage within an increasingly turbulent and unpredictable environment.

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