Prepare For New "Geopolitical Operations"
Pausing investments is not a long-term strategy
New reports shed light on the state of the business world amid rising geopolitical pressures.
At the recent Davos summit in January, “geoeconomic confrontation” ranked as the biggest short-term threat to organizations, a signal that many firms have shifted their outlook away from pure geopolitics to the interplay between global power and economics. This likely includes the return of hard power to achieve economic goals, such as America’s move in Venezuela at the beginning of the year.
A separate report, from EY, surveying 1,200 executives globally, found that 46% of corporate leaders have delayed investments because of geopolitical uncertainty. A further 40% had moved to new suppliers in different geographies, while a small 20% of executives were accelerating plans in the unpredictable geopolitical backdrop.
(*”Geopolitical Operations” is a concept/expression of Abishur Prakash)
Strategy Limits
While the risks and numbers may differ, the picture remains the same. A growing number of companies are viewing the global upheaval through a new lens (geoeconomics). And, a majority of companies are either halting plans or stuck in what I call a “diversification loop” (constantly changing suppliers to sidestep politics).
Except, these are not long-term strategies.
Changing the outlook from geopolitics to geoeconomics signals how reactive most businesses still are. The advisory committees and consultants that companies are retaining are failing to provide long-term clarity. Most are spinning old paradigms for the fractured world (i.e., a “new Cold War” is underway when the US-China fight is far, far bigger than a repeat of the US-Soviet showdown). This dogma is trickling down into business operations, where once again, the tried-and-tested is at work, like pausing operations - a clear sign that many companies do not know what to do.
Geopolitical Operations
None of this is sustainable beyond the immediate horizon. The daunting reality facing business leaders: diving directly into the geopolitical chaos, not steering away from it. Businesses must accept that a new era of “geopolitical operations” has begun, where the shocks and disruptions cannot be held at bay. They must be absorbed.
Take the ongoing US-China saga. Almost a year ago, the US and China were teetering on the edge of a full-blown economic war. Both sides walked back. By October, both sides were clashing again. Once again, economic needs trumped geopolitical desires. Short of exiting China completely, most firms are in one of two camps: maintaining their Chinese footprint, hoping that the fragile peace remains intact, or accelerating their Chinese journey, refusing to be squeezed by politics. In both cases, diversification, including the “China+1” strategy, remains in full force in the background. Except, the writing is on the wall that the US-China peace is finite. The fighting could resume at any moment. Instead of pausing operations or redesigning the supplier base, businesses have to prepare to operate as the US and China get bloody. Some organizations are doing this, such as AstraZeneca, which is building an entire supply chain just for the Chinese market, insulating itself from what the West does next. Or look at GM, which recently clawed back production of its Buick SUVs from China to the US. But these are only starting points. There are dozens of other methods companies must employ.
Put simply, executives must convert their operations into “geopolitical operations.”
Instead of holding off the storm, they must sail right into it. This goes counter to decades of enterprise risk management strategy. Yet, there is little choice. The space for companies to make decisions is disappearing. The pressure of the state is growing. Every decision today has huge risk built in. Moving from China to India does not keep America First in a cage. Building in Europe is not a sound strategy as the West shakes. Investing in America could threaten operations in other markets. Pausing operations does not solve any of this. The breathing space is an illusion.
Risk = Reward
The time when businesses could ride out the storm or observe it from the sidelines is gone. As I have said several times, the geopolitics playing out today is only dress rehearsal. The US-China fight, for instance, was never about soybeans, TikTok, or 5G. The move against Maduro, eroding the Sino-Russian axis, or the threat to annex Greenland, threatening China’s access to the Arctic, is but a glimpse of how radical this rivalry could grow. And the US-China fight is only one flashpoint, among dozens, that businesses must plan for and navigate.
Geopolitical operations are an acceptance that, for the next decade, disorder and divergence will reign supreme. And, that a key principle of business is being inverted. In the past, the most successful companies fled to safety and stability. Going forward, it may be those organizations that accept there is no safety and meet geopolitics head-on, treating it as a constant instead of a blip on the radar.
-Abishur Prakash aka “Mr. Geopolitics”
Mr. Geopolitics is the property of Abishur Prakash/The Geopolitical Business, Inc., and is protected under Canadian Copyright Law. This includes, but is not limited to: ideas, perspectives, expressions, concepts, etc. Any use of the insights, including sharing or interpretation, partly or wholly, requires explicit written permission.