Many commentators believe the world is becoming more chaotic and volatile. Or perhaps the world is just returning to normality after two decades of relative calm dominated by failed US interventions in Eurasia. Either way the Post-Cold war consensus is breaking down.
The US is less certain of its role or perhaps just losing interest in the rest of the world. This leaves room for other powers. China has supplanted the US in many economic spheres, its trading and manufacturing might make it the partner of choice for many emerging economies.
Rising powers like Türkiye, Indonesia and India see a world of “a la carte” alliances – based on national need and convenience not history or ideology. Many see the US – China rivalry as a new cold war, if so, this version will be a much messier affair than the binary capitalist- communist divide of the past.
Overlapping and fast changing ad-hoc alliances dependent on the time and need will displace old certainties. Look at Saudi Arabia which has achieved a détente with arch nemesis Iran, drawn closer to godless China and drifted from its traditional alliances, ignoring recent calls from the US to cap oil prices.
Warfare by other means
Economic competition is nothing new, but a highly connected world, where countries want to avoid direct warfare, using economic and financial levers is an increasingly tempting tactic. Sanctions, export controls and subsidies are all used by countries to give themselves an advantage over rivals. Western nations sanctioned Russia after it invaded Ukraine, the US has slapped controls over the export of the powerful chips that enable the most advanced AI, China has subsidised key industries like electric car manufacturing to undercut rivals.
Economic warfare is not generally good for business. Entire markets, supply chains or access to technology can be cut off very quickly thanks to fast shifting geopolitics. Costs and write-downs can run into billions, while relationships built over decades are destroyed overnight.
Resilient organisations can take action to defend themselves in a volatile world:
Prepare, plan and practice. By considering worst case scenarios: for example, how would a manufacturing company heavily dependent on Chinese trade react to a blockade or war in the Straits of Taiwan. This scenario can be brought to life through a planned exercise where executives respond to events brought to life by a facilitator and consider how they would react to an ongoing crisis.
The result of these exercises is that participants will be better informed about the dynamics of the scenario because they have been forced to interact with it. Interaction and participation are a far more powerful learning tool than skimming through a report. The exercise will also result in a list of actions to help mitigate the risk.
For a war in the Straits of Taiwan one action might be to explore alternative supply routes or manufacturing bases in different countries (many companies have looked to partnering in Mexico or Vietnam as China- US tensions have increased). Other actions might be to ensure the organisation’s crisis management function is set up to react to a crisis (are leaders clear on their roles etc). Another might be to create a plan which will detail the steps to required to handle this crisis.
Ultimately companies need to understand the business continuity risks that will result if shipping to and from China is halted – and consider if they can accept that risk.
Anti-fragility
Some organisations can thrive in adversity and risky environments. This might mean investing in a fast-growing overlooked frontier market before others spot the opportunity. Or they may anticipate rising political risk in a country of operations that will impact their business and leave, or reduce exposure before things go wrong.
This requires not only geopolitical risk monitoring tools and techniques which go beyond the common information many corporations have access to (like political risk reports), these risks must also be effectively communicated to decision makers.
Organisations might also consider whether they can make quick, decisive decisions in a crisis which may turn events to their advantage. This requires a certain mindset. One that allows independent decision making, comfortable with taking risks and the ability to make mistakes and learn from them. Not many organisations can achieve this, most executives are afraid of losing control. Anti-fragility takes resilience to the next level. Organisations that have these attributes can truly thrive in adversity.
Climate Risks
As I have written before climate change is a major geopolitical risk threatening conflict over dwindling water and natural resources, mass migration – which will put huge strain on social and economic resources. Climate change is above all a threat multiplier – intensifying existing risks and sparking new difficult to predict events and trends.
Climate change is also a huge threat to organisations with the potential to disrupt their supply chains, markets, and investments. But there are also many opportunities the world is shifting towards net-zero carbon economy which entails a complete revolution of how we do business.
Unilever
Spotting trends in net-zero products or services can give organisations an advantage. The consumer goods group Unilever set out early to achieve both net-zero and sustainability goals. The company has set targets to first cut their direct emissions and over time the emissions in their complex supply chains (so called scope 2 and 3 emissions). This allows Unilever to present its products as sustainable and climate friendly. This foresight has given it a reputation as company that takes sustainability seriously giving it a competitive advantage over its rivals.
Geopolitical risk is by its very nature often unpredictable. Few foresaw the recent Hamas attack and subsequent war with Israel. But conflict between the two was always on the cards thanks to the underlying tension between them. Even the best tools or forecasters cannot anticipate every political crisis. But organisations can prepare themselves to thrive no matter what happens.