Staying global: three steps to navigating disruption
Globalization: Effective geopolitical risk management does not just benefit a business, but the society in which it operates as well. Image: EY
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- Globally-connected approaches to trade, healthcare, and other social initiatives benefit everyone and are worth fighting for.
- Businesses need specific strategies to navigate today’s geostrategic landscape.
- Effective geopolitical risk management does not just benefit a business, but the society in which it operates as well.
In recent years, our global economy has suffered a series of successive shockwaves. The United States’ trade dispute with China caused severe semiconductor chip shortages, decreasing US GDP by 1%.
The COVID-19 pandemic created persistent supply chain delays in almost every industry, doubling the time it takes for goods to travel from Asia to the US. Now, with the Russia-Ukraine conflict underway and oil prices rising, experts are predicting negative impacts to the global economy for years to come.
Is globalization under threat of geopolitical risk?
These crises have understandably rattled business leaders and politicians around the world. Some are publicly questioning whether the perils of globalization have outstripped the benefits, and others are warning that an era of deglobalization is imminent.
However, the solution isn’t for business leaders to panic or retreat from the global economy. After all, globalization has been the dominant economic operating mode for almost 80 years — and the benefits have been clear.
In the aftermath of the Second World War, the free flow of goods, people, and capital created a new web of interdependencies, contributing to one of the longest uninterrupted periods of economic growth and prosperity in history. Although the benefits haven’t always been felt by everyone equally, there’s no denying we fare better collectively, as a business community and a society, when we focus on growing and solving global challenges together.
In addition, it’s important to remember that the most pressing challenges we face today are global — and that’s not going to change. Pandemics, environmental disasters, and geopolitical conflicts can’t be contained by borders. These crises impact everyone, and the business community has been able to help address them because of — not in spite of — globalization. Look at what happened during the pandemic: the UPS global healthcare network delivered over 1 billion COVID-19 vaccines to over 110 countries. More than 100 nations sought financial assistance from international institutions and creditors.
Meanwhile, smart devices and social platforms kept people around the world connected even when we had to remain physically distant.
Businesses need a strong strategy to navigate the ever-changing global environments they operate in
Ultimately, deglobalization wouldn’t just be a hopeless endeavour, it would be a harmful one for businesses and communities far and wide. So rather than predicting its demise, business leaders need to think about how they can improve it. At EY, we’ve advised many businesses on how to alter their geostrategy to reflect today’s volatile landscape and, through this work, we’ve identified three steps every business should take.
1) Map your dependencies
Before companies can build out contingency plans to mitigate risk, they need to know where their exposure is. That’s why it’s critical for businesses to gain a comprehensive, crystalline picture of their dependencies with respect to everything from their supply chains and talent pool to manufacturing centres and cybersecurity. Not only is it important for businesses to examine their operational footprint, but they should also break it down by revenue. That way, they can consider risk from every angle — geopolitical, societal, country, regulatory — and understand their material risk in each market.
Once businesses have a clear idea of where their vulnerabilities are, they can begin to adjust their strategy accordingly. For example, companies that find that their supply chains are especially exposed to emerging geopolitical turmoil or environmental catastrophe can build out contingency plans to minimize disruptions if conditions shift on the ground. Ultimately, having complete insight into your risk profile is just a starting point, but a necessary one to prepare for this new global era.
2) Make geostrategy a leadership priority
Geopolitical risks are inherent in a globalized economy and, after a turbulent few years, many businesses have felt the effects first-hand. In 2021, more than 90% of executives said that their companies had been impacted by unexpected political risks over the past 12 months. Unfortunately, this newfound awareness hasn’t translated to strategy. In a survey taken before Russia’s invasion of Ukraine, just 14% of executives in EY’s Global Capital Confidence Barometer said managing geopolitical risk was a main strategic concern at their organizations.
The good news is this represents a significant opportunity for companies to better integrate geopolitical strategy, or “geostrategy”, into their broader business planning. That starts with planning regular conversations with their boards of directors and entire leadership teams about their global risk management approach. By making risk management a priority among leadership, businesses can integrate geopolitical risk management into their larger enterprise strategy.
3) Incorporate geopolitical risk insight into a dynamic risk management process
In a world as complex and globally enmeshed as ours, there is no way to ward off risk completely, because the world is always changing – and it’s important to remember that there are upside risks as well. That’s why businesses must constantly monitor their geopolitical risk management profiles and revisit their globalization strategies.
This might sound daunting, but the best risk management tools and technologies make it possible to assess risk profiles in real time and provide actionable insights into an ever-shifting landscape. Many businesses do this already, but few are systemically including geopolitical risk assessment.
And of course doing this well means understanding the needs of your stakeholders—and how they change. We can’t forget that so many of the global challenges we’re facing began as long-simmering, systemic issues.
Poverty, climate change, injustice — these factors feed directly into much of the disharmony and conflict we’re seeing now. But businesses aren’t powerless. They can do their part to address these issues by continuously creating value for the people they serve and the broader communities where they operate. By doing so, they can accomplish more than mitigating operational and geopolitical risk to globalization; they can create a more peaceful and prosperous future for the entire globe. Remember: at the end of the day, like it or not, we’re all in this together.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
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