How to Integrate Geopolitics into Your Business Strategy
War, climate crisis, multipolarity, rivalry over raw materials, polarization…The world is changing, and this change critically impacts business. In an uncertain context, leaders cannot afford to ignore geopolitics.
To navigate risks and leverage opportunities, companies and boards of directors need to place national security at the top of their global agendas. A series of principles and strategies can help them do that more efficiently.
Geopolitics matters
In recent years, the world has witnessed growing levels of geopolitical confrontation, profound shifts of power, and a redistribution of influence. The consequences reach far beyond the political field. Take the impact of this scenario on global supply chains. China is taking a larger slice of the global value chains and creating increasing dependence in strategic areas such as green tech or rare minerals. How could business leaders ignore this trend or fail to design a strategic response to it?
The contraction of global supply chains is only one example of the close links between geopolitics and management. Think of the race for productivity and deflation, high expectations about artificial intelligence and automation, renewable energies, and energy prices, not to mention regulatory pressures and reputational risks in terms of human rights and sustainability.
The World Economic Forum’s Global Risks Report enumerates a series of “older” and new risks, ranging from inflation and trade wars to low global investment and de-globalization. The report concludes by anticipating “a unique, uncertain, and turbulent decade to come”.
Business leaders must be able to anticipate the impact of these risks on the company’s strategy and operations. The report "Shifting geopolitics and the role of the board" from KPMG offers some ideas to successfully meet this challenge. Among many others, they include proposals for incorporating geopolitics into decision-making processes, providing geopolitical training to directors, board members, and external experts, classifying markets according to their relevance for the company’s priorities, its geopolitical risks, and how they impact clients, suppliers, and partners, and elaborating risks and opportunities scenarios, as well as potential trends and unexpected changes.
Similarly, in its Geostrategic Outlook 2022, EY proposes a three-phase plan to address geopolitical challenges. First, identify and dynamically monitor political risks for opportunities and challenges. Second, assess the impact of political risks on company functions and the global footprint. Third, manage political risk in a holistic and cross-functional manner at both the operational and strategic levels.
Three strategies to integrate geopolitics into the board’s agenda
These frameworks share common principles such as anticipation, collaboration with external experts, and early action. These are all vital components to maintain business competitiveness and protect security in an increasingly interconnected global environment. Drawing from these guidelines, companies should adopt three essential strategies to integrate geopolitics into the board agenda.
Geopolitical analysis.
Regular training activities for board members and executives to instill an ongoing awareness of geopolitical insights are essential. Senior leaders must be able to recognize and respond to trends and scenarios in which they are expected to play a role, including local and global regulations and key legal advances. Boards without this level of formal training will be at a major disadvantage when it comes to identifying risks and opportunities and will flounder when it comes to instilling organization-wide confidence.
Strengthening public-private connections.
Public and private sectors can no longer operate individually. In today’s conflicted world, the entire value chain is linked to national security. Research centers, universities, and think tanks are invaluable sources of vital research and insight. Organizations must nurture these relationships to implement the latest intelligence and ensure knowledge transfers. Indeed, national security relies on a high level of cooperation between civil, private, and social networks.
Managing risks and identifying opportunities.
Technology and innovation races between companies, sectors, countries, and continents are becoming increasingly competitive. Against this backdrop, national and international bodies are developing and implementing governance and regulations that attempt to keep up with the rapid pace of change, all of which have a massive economic impact on organizations and nations alike. Proactivity is essential: boards must develop early action strategies in key sectors that incorporate national and global factors while allowing for flexibility.
Discussing geopolitical issues in the board only in a reactive way is no longer an option. Understanding, anticipating, and managing risks and opportunities is crucial not only for a competitive business but also for a secure society.
By embracing these principles and strategic goals, boards of directors can better navigate uncertain times and strengthen the relationship between the public and private sectors to nurture an increasingly interconnected global environment.
This article was written by Esade Business and Law School from Forbes and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
