In an increasingly interconnected world, companies are navigating an intricate geopolitical landscape. With heightened political tensions both within and between nations, global businesses face unique challenges. Their operations, performance, and even their workforce can be affected by these tumultuous undercurrents.
The Rising Tide of Geopolitical Risks
According to the US National Intelligence Council’s report, Global Trends 2040: A more contested world, the competition for global dominance will intensify in the next two decades. This report suggests that the rivalry for global influence might become as fierce as it was during the Cold War era. Multiple players, not just dominant countries, will enter the fray with their ideologies and interests.
Two giants, China and the United States, exemplify the brewing tensions. Hosting 76 of the world’s top 100 companies, these superpowers are at the epicenter of global debates. Echoing the European Union’s policy discussions, many enterprises are striving for “strategic autonomy” to safely traverse the rocky China-US relations. With technology becoming the “main battleground of global power rivalry,” as stated by Chinese president Xi Jinping, businesses are in a tight spot. They need to harness advancements like 5G and AI without becoming targets of geopolitical regulations or suffering reputational damages.
Such external pressures inevitably strain the internal dynamics of corporations. Leaders often grapple with balancing market priorities, mitigating political scrutiny, and managing a diverse global workforce with varying views on pivotal issues like data privacy and human rights.
Five-Pronged Approach to Managing Geopolitical Risks
After engaging with experts from Fortune 500 companies across various sectors, we’ve identified a five-pronged approach to help leaders manage geopolitical challenges:
1. Start with the Board
Often, board discussions about geopolitical risks are narrowly focused on specific investments or market entries/exits. To truly grasp the wider strategic landscape and potential risks, boards should:
- Dedicate regular sessions to understanding and responding to these risks.
- Prioritize discussions based on material relevance to the business.
- Engage external opinions from political leaders, embassies, NGOs, and others for broader insights.
Regular board interactions help in consensus-building and improve decision-making.
2. Use a Trifocal Lens to Assess Potential Risks
Companies should strategize for the short, mid, and long term:
- Short-term actions: Create crisis-response units and build robust government-relations teams.
- Midterm actions: Hold regular briefings on relevant geopolitical risks with senior leadership.
- Long-term actions: Plan for potential game-changing scenarios, like ring-fencing IT infrastructure.
3. Think Critically About the Corporate Narrative
In the age of real-time information, companies must carefully craft their narratives. What works in one market might backfire in another. Leaders must weigh the pros and cons of their corporate story and anticipate potential conflicts it may generate.
4. Deploy Refreshed Risk Frameworks and Guidelines
For businesses operating in politically unstable regions:
- Develop market-specific risk assessments that align corporate strategy and risk management.
- Establish warning systems, such as a traffic-light-style system, to gauge and manage risks.
- Cultivate a local risk-management network for better situational awareness.
- Create guidelines on geopolitically sensitive topics.
5. Secure Stakeholders’ Hearts and Minds
With nationalism surging and global standards fragmenting, it’s vital for leaders to foster unity within their organizations. Ensuring representation from all geographic regions and inviting diverse perspectives can prevent internal rifts.
As Intel’s former CEO Andy Grove aptly said, “Only the paranoid survive.” With challenges ranging from geopolitical shifts to technological revolutions, businesses must be vigilant. It’s imperative for them to stay adaptive, informed, and prepared for the external and internal tremors that the future may hold.