The business of geopolitics.
Why geopolitics matters to every company, and what to do about it.
Welcome to the third edition of Not in Dispatches.
For our hundreds of new readers, Not in Dispatches is a weekly supplement to our Daily Assessment, where we cover, well, matters not covered in the daily dispatches.
Sometimes, we will provide an update on how Geopolitical Dispatch is developing. Other times, we will dive deeper into a particularly important theme or trend. And on days like today, we will zoom out and talk about one of our fundamental hypotheses: that people in business need to understand geopolitics just as well as diplomats. (And, spoiler alert, next week we will do the same for investors.)
Let’s take as a starting point the fact that surveys of business leaders increasingly show that geopolitics is front and centre of boardroom discussions. For example:
Looking at the remainder of 2023, 61% of businesses surveyed by McKinsey reported geopolitical instability as their top risk. The next two were inflation (35%) and energy prices (26%), both of which are driven in no small part by geopolitics.
Of the top risks identified by attendees at the 2023 Goldman Sachs Global Macro Conference, 44% listed US-China tensions, versus 26% for inflation and 15% for “other geopolitical risks / military conflict”.
Ernst & Young’s 2023 CEO Outlook found that 97% of respondent chief executives had altered their planned investment strategies in response to a changing geopolitical environment.
This is hardly surprising, of course.
Russia’s invasion of Ukraine left thousands of businesses scrambling and then dealing with sanctions and higher inflation and energy costs. US-China tensions, trade wars and evolving discussions on ‘decoupling’, ‘friendshoring’, ‘nearshoring’ and, now, ‘derisking’ have dominated front pages for years – often generating more heat than light. And the lack of global coordination arising out of great power mistrust during the Covid-19 pandemic massively disrupted supply chains and ushered in a new era of industrial policy, protectionism and low growth.
The business surveys make clear that geopolitics matters for CEOs and boardrooms.
But what they do not reveal is that geopolitics affects not just those at the top, but permeates through the entire corporate structure, influencing various functions – from strategy to legal compliance, investment to communications, tax to marketing – once thought immune from the vagaries of international relations.
Supply chain managers’ lives have been especially complicated by geopolitics of late. The shifting economic centre of gravity to Asia, the proliferation of tariffs and economic sanctions, and the closure of Black Sea shipping routes by Russia are just some examples of how geopolitics has had a profound impact on supply chain management.
Same for legal counsel, who are contending with an ever-evolving thicket of rules arising out of complex new sanctions regimes, environmental and human rights due diligence requirements, and trade barriers – again, largely driven by geopolitics.
Meanwhile, chief financial officers are grappling with the impacts of higher energy costs, more uncertain investment climates in many parts of the world driven by political instability, and new tax regimes emanating from discussions at the OECD.
Communications and marketing departments have a stake in geopolitics too. Just think about the brand and reputational considerations that went into questions like “Should we leave the Russian market?” after the war began. Consumers and shareholders today demand not just corporate social responsibility, but corporate geopolitical responsibility.
And even the role of chief technology officers has expanded well beyond technology itself, now involving building defences against state-run cyber attacks, adapting to an increasingly fragmented digital economy and data regulations, and dealing with a world of governments increasingly competing for supremacy in the advanced technologies underlying existing and new infrastructure. Good old geopolitics is now being fought on a new digital terrain.
So CEOs should rightly be concerned with geopolitics – the consequences from any of the above examples could potentially be enormous for any firm. But, more than that, CEOs should also be concerned that their whole organisation has a basic grasp of geopolitics lest it be caught unawares.
The challenge, though, is keeping on top of a wide range of events in far-flung parts of the world without drowning in information – all while working out what actually matters and what it actually means.
That is what we are trying to help our readers with at Geopolitical Dispatch.
In our Daily Assessment, we keep you abreast of the six most important developments in international relations over the past 24 hours. Unlike a newspaper, however, we only choose stories that will be of consequence for business and will have an impact beyond the news cycle. And we keep it brief: about 150 words per story.
Our hope is that this will help you monitor geopolitical risks, understand the context and direction of events, and – no matter what your role – make timely and well-informed decisions.
Our other hope, of course, is simply that you enjoy reading Geopolitical Dispatch. If you do, or you think someone you know might, please do forward it on and consider following us on Twitter and LinkedIn.
Finally, we know geopolitics and business is a complex topic and that you, our readers, will have really interesting thoughts on what we are doing. So please do get in touch, provide feedback or even tell us about how your business has been affected by geopolitics, here at geopoliticaldispatch@gmail.com.
Best,
Michael Feller, Cameron Grant and Damien Bruckard, co-authors