How Politics Have Influenced Production of GMOs?

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Table of Contents

Iceland Financial Crisis 2008-2010
How Politics Have Influenced Production of GMOs
Corporate Social Responsibility
International strategy of Tata Steel
References

Iceland Financial Crisis 2008-2010

The term financial crisis is used to describe scenarios in which financial institutions or given assets losing value. Across history, there have been many financial crises resulting from unwarranted panic in the banking sector. Away from unwarranted panic in the banking sector, the financial crisis in a country may happen due to the collapse of the stock market. Thirdly, challenges resulting from foreign exchange related upheavals destabilize countries financial status.

Finally, countries find themselves in a financial crisis due to international loans and related interest. Concisely, whenever there is a financial crisis, there is a resultant decline in wealth. However, it has to be noted that not all financial declines usually result in an economic or financial crunch. A financial crunch only happens when financial declines are accompanied by a recession. This essay will focus on the causes and the impact of the 2008-2010 financial crises on Iceland.

Iceland is one of the countries that were worst hit by the financial crunch of 2008/10. The financial crisis has resulted in the crushing of three key commercial banks in Iceland; after failing to reimburse their debts. Also, the country’s currency has continued to lose value when compared to other currencies leading to the suspension of the foreign exchange market for some time. The capital market is also on the decline after it recorded an incredible 90 percent drop.

On a macroeconomic level, the country’s Gross Domestic Product (GDP) dropped by 5.5 percent. The severity and magnitude of this financial crisis as experienced in Iceland are the worst to have been experienced in any country in the world’s economic history.

Many explanations have been offered to explain why Iceland was affected drastically. One of the main explanations is mispricing in the credit default swaps, in the global financial market (Johnson & Kwak, 2010, p.46).

Economists blame mortgage defaulting for the current economic situation. The value of credit evasion swaps that have been estimated at more than $55 trillion according to the report generated by the Securities and Exchange Commission (SEC) continues to increase and is projected to surpass the $60 trillion mark soon (Johnson & Kwak, 2010, p.43). Lack of proper regulation in the mortgage industry has led to bad debts in the industry (Johnson & Kwak, 2010, p.56). Lack of written record encourages defaulters leading to a credit challenge from which the crisis originated.

Credit is only healthy when loans are repaid in full, taking into consideration the time value of money. It is also important to consider the value of premium accruing from the mortgage while making compensations for risks involved (Murphy, 1988, p.6). The value of premium on loan/mortgage awarded should be valued at par with secure bonds such as treasury bonds offered by the US Federal Reserve (Murphy, 1988, p.7).

Any credit risk premium set above the Federal Reserve rate should be transferred to the investors for default losses and the risk associated with the investment (Murphy, 1988, p.8). If the loan payment defaults, the world starts experiences changes in the financial market leading to the emergency of abnormal financial trends, which eventually cause a financial crisis.

The other reason that has exacerbated the final crisis in Iceland is overvaluing the country’s currency. Iceland currency, Krona, was overvalued towards the end of 2007, making it the most overvalued currency globally that year (Iceland Statistics, 2009, p. 9). Generally, Iceland’s currency was by far higher than the value of major European currencies. This attracted many investors to invest in Iceland and to hold their deposits in Krona, the surge in demand for the currency caused inflation in the country.

During the year 2008, Iceland’s M3 grew by 56 percent although the GDP was growing at 5.5 percent (Iceland Statistics, 2009, p. 11). The high deviation in money growth against the GDP caused a state of panic in the financial sector and economists found it difficult to give a precise valuation of Krona. Uncertainty in the value of Krona continued to attract innocent investors to hold their wealth in terms of Krona.

Due to uncertainty, many commercial banks found themselves in a financial problem of raising liquid money. Most creditors demanded payment while no bank was willing to grant loans. Normally, when commercial banks find themselves hard up on cash, as a last resort, they borrow from the central bank. However, in Iceland, commercial banks were bigger than the national economy and for that reason, the central bank could not be able to provide the required amounts. The government reserve was estimated at 374.6 billion Krona while international debt held by commercial banks was valued at 350.3 billion Krona (Iceland Statistics, 2009, p.10). Such hefty debts were responsible for the financial meltdown in Iceland (Iceland Statistics, 2009, p.18).

The situation was aggravated by the fact that “Icesave a branch of Landsbanki, instead of a legally independent branch, handled most savings in the country” (Iceland Statistics, 2009, p.18). For this reason, Icesave entirely depended on the central bank for an emergency because it was ineligible to solicit loans from a foreign country such as England. The situation led to the depletion of the central bank reserves, which consequently led to the collapse of the financial institution (Iceland Statistics, 2009, p.21). Although the UK Financial Service Authority (FSA) anticipated Iceland financial meltdown, its efforts of imposing minimum reserve for Iceland Central Bank did not happen in time, thus the country had to face the devastating credit crunch.

The other cause of the financial crisis is the global increase in fuel prices. Heavy dependence on petroleum products is responsible for the escalating prices of commodities and rapid inflation rates across countries. In the past two years, the prices of oil have increased rapidly to move beyond $100 per barrel, last year the prizes reached the highest point at $145 per barrel from a previous stable of $80 per barrel in earlier years (House of Lords, 2009, p. 2). From this huge increase, the economic set up was unable to adjust promptly to the escalating production costs. Although most people are of the contrary opinion, the impact of oil prices on the financial market should not be neglected (House of Lords, 2009, p.7).

Effects of Financial crisis

The economic slump has affected many Iceland businesses and people’s lifestyle at large. Many people have lost their jobs and the trend is likely to continue until normalcy is restored. Since many organizations are in the process of reconstruction, revenues have decreased to an extent that they cannot be able to cater for high salaries. Job loss is expected to be experienced in Giltnir and Kaupthing companies where major reconstruction is expected before production levels are uplifted (Stringer, 2009, p. 11).

On the other hand, businesses have been left in a state of stagnation, profits are hardly realized and investors’ confidence has been lost. Furthermore, many businesses have been declared bankrupt such as Sterling Airlines while the national airline (Icelandair) has recorded a slump in internal demand for flight (Stringer, 2009, p. 17). The negative economic effects have trickled down to the media houses; Iceland newspaper laid off some staff and has merged some operations to ensure sustainability (Stringer, 2009, p. 20). Therefore, the entire country’s economic situation is in a bad shape; unless some external economic injections are done the country will continue struggling.

Although the financial crisis seems to be separated from politics, the recent financial crisis forced Prime Minister Geir Haarde to step down on 23 January 2009 (Stringer, 2009, p. 23). Mr. Haarde cited poor health to have influenced the decision to resign but not the economic mess. Additionally, the then minister of trade Mr. Ingibjörg Sólrún Gísladóttir was reported to be undergoing some medication to rectify a brain tumor while Commerce Minister opted for resignation (Stringer, 2009, p. 23). All these series of the event shows the spillover effects of the financial crisis and the way Iceland leaders sought refuge from the spotlight of the problem (Stringer, 2009, p. 23).

How Politics Have Influenced Production of GMOs

Production of Genetically modified crops in the US has faced tough resistance from community activists and political figures. The leading GMO seeds producer in the US (Monsanto) was forced to file a case seeking to be permitted to grow ‘Roundup Ready alfalfa’ a Genetically Modified tomato variety (Hoekman & Will, 2003, p.12). The court ruling was in favor of the Organic farmers and therefore production of alfalfa was prohibited (Hoekman & Will, 2003, p.12).

Monsanto was also forced to abandon production ‘Roundup Ready Wheat’ under similar conditions (Hoekman & Will, 2003, p.14). However, GM corn is still grown for animal feed in the US while the surplus is exported for human consumption especially in African countries.

Most developing countries have allowed the growth of genetically modified organisms, the rationale the need to have sustainable food production to feed their nations (Hoekman & Will, 2003, p.33). In 2002, Zambia banned the importation of genetically modified maize, which was supplied by the United Nation while Venezuela’s President Hugo Chavez followed suit, by banning all genetically modified seeds within the country (Hoekman & Will, 2003, p.38).

The following year the Hungarian government declared importation and growth of genetically modified crops as illegal. Later, the European countries rejected wheat exported from the US on the ground that it was contaminated with some genetically modified contents (Hoekman & Will, 2003, p. 47). This topic has raised eyes brows across the globe as a rejection of GMO products is on the rise each day.

In a move that shocked the world, the Zambian government lifted the GMO ban three years after its imposition (Hoekman & Will, 2003, p.51). The decision was aimed at reducing the number of death from the elongated famine due to rain shortages. Interestingly, the then agricultural minister opposed the move as he supported the generation of non-GMO foods. India is the other country, which has allowed the growth of GMO products on condition that they do not contravene biodiversity (Hoekman & Will, 2003, p.51).

Similarly, the majority of African countries have adopted the growth of these products due to the harsh climatic conditions, which are unfavorable for organic species. These sub-Saharan countries resort to growing GM crops not because they do not mind the effects associated with them but because they are forced by harsh climatic conditions.

The European countries have been hit twice by food scare. First, there was a scare about the mad cow disease and then dioxin-tainted food (Thomson, 2006, p. 118). The two instances stimulated anti GMOs campaigners to intensify their efforts to force the EU to ban both importation and growth of the GM breeds. Their campaigns also encompassed the imposition of foodstuff labeling. The campaigns were largely successful as the European Union issued orders to all food producers to label their product in terms of whether it has GMO content. The producers are required to state whether they are GMO or organic for consumers to exercise their right of choosing what to consume.

The future development of genetic foodstuffs entirely depends on the government’s stand on this issue. Although the topic is controversial to its core, many governments such as India have remained non-partisan while others such as Japan have directed for the testing of all foodstuff to determine the amount of GMO contents in them, while Brazil banned any importation or growth of GM crops (Thomson, 2006 P. 118).

Corporate Social Responsibility (CSR) refers to the values and behavior of the organization in meeting the requirements of other stakeholders (Sims, 2003, p. 19). Every firm assumes upon itself the responsibility of catering and promoting the satisfaction of its shareholders, employees, customers, suppliers, government, and most critically the community among which the company operates (Sims, 2003, p. 22). CSR is a strategy, which has gained popularity in the recent past. Many firms opt to use CSR in the promotion of brand name, by investing in charity projects, which in the end generate high dividends for the firm. This article will focus on Microsoft’s corporate social responsibility efforts.

Organizations cannot operate independently without involving the entire community, especially where they are located. For this reason, Microsoft has been involved heavily in CSR, initiating, and funding many charity projects in the US and other countries. Given the global presence of Microsoft, it has opted to reach out even to distant places such as African countries where it funds charity homes dealing with HIV/AIDS (Sims, 2003, p. 30).

Also, Microsoft Company in collaboration with the European Union is helping the reform goals in countries to promote the creation of employment opportunities and eradicate poverty (Sims, 2003, p. 32). Microsoft maintains that diversity promotes the performance of both the employees and the product and therefore the need to reach out to its various communities through CSR (Sims, 2003, p. 32).

Microsoft Corporation has initiated a program called “Education and Digital Inclusion” which endeavors to help people gain access to technological facilities and knowledge (Sims, 2003, p. 32). Besides, Microsoft aspires to stimulate communities to achieve their full potential thus has been rolling out programs that facilitate the conducive and rapid development of the communities.

Developing responsible business performance is the other area that Microsoft participates in for the interest of the community. Towards promoting business ethics, the organization emphasizes virtues such as transparency and accountability in all business undertakings. The responsible business performance also includes the provision of a safe and secure working environment for all employees. Through all these initiatives, Microsoft Corporation has met the needs of the community while establishing a strong bond with its consumers (Sims, 2003, p. 46).

Mallin (2009, p.2) highlights the need for every firm to diversify its scope to accommodate other parties apart from shareholders. The purpose of such a focus is founded on the desire and the ability to achieve sustainable production by embracing the needs of the community in its immediate environment and beyond (Mallin, 2009, p.2). As it applies in the case of Microsoft, every firm has the duty of identifying appropriate social responsibility programs to undertake.

International strategy of Tata Steel

Tata steel is an India metal producing company, which was established in 1907(Aswathapa, 2008, p.9). The company enjoyed local market dominance for seven decades before the situation reversed in the 1980s (Paul, 2008, p.11). Local competition increased resulting in a decline in Tata’s profits. The subsequent decline in local prospects forced Tata to switch its attention to the promising international market. After 70 years of operation, the firm was able to develop a successful international strategy based on the vast operation experience and the ability of the firm to produce on large scale (Aswathapa, 2008, p.39).

The first thing that Tata Steel had to do was to analyze the international market. Since the steel demand is homogeneous in the global market, Tata Steel had ample time to venture and take advantage of presented on the international market. It is worth noting that Tata Steel could up its production to enjoy economies of scale by going global. Also, the cost of raw material in the UK was higher and therefore it was cheaper to outsource the steel from India (Aswathapa, 2008, p.89). Although the international market is more competitive, the firm’s long history helped towards strategies that helped it to cope.

Secondly, Tata had to realign its management to bring all the international branches under one management umbrella (Aswathapa, 2008, p. 99). Although the company used a decentralization strategy, most of its core operations were centralized in India. The manufacturing, sales, and distribution were decentralized to China, UK, Bangladesh Malaysia, and the USA among others (Aswathapa, 2008, p.104). Core functions like finance, technology, and strategy are centralized in India. This management system ensures efficient and successful management that promotes harmony while offering proper directions and foresight to the company.

The other core aspect of Tata Steel’s international strategy is product standardization. Steel products are standardized in the international market and therefore Tata was obliged to follow suit to compete on level ground with its competitors such as Mittal Arcelor- the leading steel producer (Aswathapa, 2008, p.114). Tata has maintained a flexible production system, which adjusts its standards to meet the specification of certain major clients. Tata’s product mix comprises of assortments, which are uniform, moreover, the firm has assumed an integrated competitive strategy to battle out with other global steel producers (Aswathapa, 2008, p.118).

The success of Tata Steel is based on its endeavor to appreciate and integrate international culture in its operations. This has been achieved by employing foreign workers in international branches; such interaction has provided a reliable pool of employees who understand the market (Justin, 2008, p.86). What’s more, the company has also managed to develop a personal link to its clients by going online, whereby customers can place their orders from the convenience of their rooms (Aswathapa, 2008, p.122).

Despite having a strong Indian identity, the popularity of Tata in the international market has been attributed to its efficiency in delivery and customer service provision. Tata’s brand name has been developed over time through fierce advertisement campaigns in the international market.

Despite its strong brand, Aliber and Click (1993, pp. 123-126) note that it needs to develop its corporate culture towards being more open and receptive to the international market. Secondly, Tata’s international strategy needs to be restructured in an attempt to reduce production costs so that it can take advantage of low-cost leadership (Aswathapa, 2008, p.306). Tata should enhance employee mobility across different countries.

Furthermore, wage variation exists between countries; for instance, the wage rate in England is six times and ten times higher than that of India and Brazil respectively (Justin, 2008, p.123). By wage rates, Tata stands a chance to reduce the total production cost, which will trickle down to influence the selling cost of steel.

References

Aliber, R. Z., & Click, W. R., 1993. Reading in International Business: A Decision Approach. MIT Press: Massachusetts.

Aswathapa, P., 2008. International Business; Tata. McGraw-Hill: New Delhi.

Hoekman, B. M., & Will, M., 2003. Developing Countries and the WTO: A Pro-Active Agenda. Blackwell Publisher: Malden.

House of Lords. 2009. The Future of EU Financial Regulation and Supervision: 14th Report of Session 2008-200. The Stationery Office: London.

Jonson, S., & Kwak, J., 2010. 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown. Pantheon Books: New York.

Justin, P., 2008. International Business. Pvt Publishers: New Delhi.

Mallin, C. A., 2009. Corporate Social Responsibility: Case Study Approach. Edward Elgar Publishing Limited: Massachusetts.

Murphy, A., 2010. An Analysis of the Financial Crisis of 2008: Causes and Solutions. Oakland University Press. Oakland.

Sims, R.R., 2003. Ethics and Corporate Social Responsibility, Greenwood Publishing Group: West Port.

Statistics Iceland. 2009.”Quarterly national accounts, 2nd quarter 2009″. Statistical Series Vol.94 No.50. Statistics Iceland. Web.

Stringer, D., 2009. Iceland’s Commerce Minister Quits, Citing Meltdown. AP News. Glasgow. Web.

Thomson, J. A., 2006. GMO Crops: The Impact and the Potential. Csiro Publisher: Ontario.

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