In a world driven by geopolitics, keeping the doors of trade open will be a challenge
- The business world can no longer ignore geopolitical trends as supply chains are diverted, markets are marred by red tape and companies are forced to take sides over contentious issues
- Businesses will need to be prepared to navigate this fraught new geopolitical landscape
Geopolitics took a back seat as democratic and authoritarian regimes alike resorted to deepening commercial, even sociocultural ties, in a radical departure from the world separated by the Iron Curtain in the latter half of the 20th century. It was intuited that business and money would speak louder than ideologically loaded rhetoric.
Businesses cannot afford to ignore geopolitical trends and risks, in at least three ways. The first is how geopolitical pressures affect supply chains and manufacturing decisions.
The combination of cascading sanctions and trade blockades in the aftermath of the war in Ukraine, and disruptions caused by the ongoing pandemic, has induced companies to begin to redirect their supply chains to favour long-standing allies (“friend-shoring”) and countries closer to home (“near-shoring”), even if doing so comes at the expense of short-term cost-cutting.
In theory, geopolitics and economics are separate domains; in practice, the two are intertwined. A more fraught political context raises the cost of production for multinational corporations, whether it be in cutting through red-tape, lobbying for continued presence and favourable laws, or addressing the price of policy uncertainty and volatility.
Sanctions by governments – for alleged violation of human rights and labour laws – have ensnared many companies and individuals who have long straddled economies that have not always seen eye to eye on ideological and political matters, yet had previously been able to settle for a tenable modus vivendi.
An increased emphasis upon national security – across China, Europe and the United States – also means that for foreign firms which are deemed to conduct sensitive research and commercial activity, certain economies are now no-go zones.
Increasingly, business leaders find themselves forced to express opinions on contentious issues that – frankly – do not fall within their technical remit. Those who articulate a stance in favour of any particular party will find themselves under heavy attack from the other side; those who refuse to speak out at all will be criticised by all. Businesses are thus caught between a rock and a hard place.
Finally, businesses must brace themselves for the potential weaponisation of finance. As countries turn to shoring up their systemic resilience in the face of sanctions and counter-sanctions, it is likely that raising funds and initial public offerings will become extremely difficult in markets whose regulatory authorities do not deem said companies to be “acceptable” on grounds of security or political risks.
Businesses must come to navigate the quagmire of geopolitical tensions with shrewdness and acumen. There is thus both a need and space for a new set of fast-thinking, responsive people who can accurately process macro risks and shifts in international relations, and provide wise counsel to businesses that are in dire need of clarity on such matters.
Brian Wong is a DPhil in Politics candidate at Balliol College, Oxford, a Rhodes Scholar (Hong Kong 2020), and the founding editor-in-chief of the Oxford Political Review