Geopolitical Retrenchment: Fragmentation and the Great Unifier
Earlier this year, we introduced our 2021 Business Trends report based on in-depth conversations with top CSOs in our Outthinker Strategy Network. We have been expanding on one of these trends every week with the intention of supporting your organization’s strategy for the next year and beyond. This is our final installment.
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This year marks a major political shift in the United States and a continuation in the worldwide trend toward the protection of national interests. The global pandemic has heightened suspicions and scarcity, and once again Covid-19 has highlighted and accelerated preexisting conditions.
Many countries have taken action to possess greater control over their resources and to protect their supply chains. Government and businesses have become more closely intertwined due to increased regulations and pandemic loans to support business recovery.
The geopolitical playing field is an ever-evolving and messy arena. We at Outthinker do not claim to be the experts on global politics, but many of our chief strategy officer members are asking pertinent questions on how to do business in the world today, where national borders are becoming more difficult to cross, regulations more stringent, and Chinese competitors more unpredictable.
With geopolitical retrenchment and regulation as key concerns, we brought in Tom Crawford, senior managing director of Ankura and founding partner of a global affairs firm, to speak with our CSO network. Tom has operated in 185 countries and advised boards on cross-border issues, crisis regulation, corporate reputation, M&A, ESG (Environmental, Social, and Corporate Governance), and public affairs. An expert in foreign relations and an advisor to multinational organizations, Tom offers some practical recommendations for navigating a new, increasingly fragmented world.
Global fragmentation: causes and recommendations
Tom began his discussion by explaining that what many of us have thought of as “globalization” was in actuality the US and other Western nations claiming access to resources in developing and emerging economies. The developing world was intruded upon and impacted by foreign players who often did not act in the best interest of those economies or invest in improving their infrastructure and societies. Now those sovereignties want to disconnect from usurpers and gain more control over their economies, especially their resources, taxes on infrastructure, and their data.
Tom explained that the key to working with and within any foreign partner is by ensuring that your business goals align with their own national interests. Consistent with the “Be Good” strategic mentality, if you plan to begin or continue operating in a certain location, you must commit to improving the situation in that country.
Tom calls this “glocalism”. As you reactivate and do business around the world, think about that country’s problems through a local lens. Understand local organizations, such as NGOs, who have influence and make sure that they understand your brand and what you can contribute in those places. This requires heightened listening skills, strong branding and communications, and a willingness to change and compromise.
The post-Covid nearshoring and reshoring
While the ongoing political shift this year in the US begins to settle, Tom predicts a continued worldwide trend toward reshoring and nearshoring of operations and manufacturing. The Biden administration may be moving the US back into multilateral trade agreements, but around the world countries are leaning toward nearshoring and reshoring in order to avoid the possibility of supply-chain disruption in the future.
On Scott Galloway’s The Prof G Show podcast, Dambisa Moyo, Zambian economist and expert on the macroeconomy and global affairs, explained that she expects the trend toward deglobalization to continue. This will equivalate to a reduction in trade along with more aggressive anti-immigration policies. Due to pandemic-driven recovery efforts, governments will be increasingly involved in business regulation and, at the same time, will be required to act more effectively and efficiently.
The US and China will remain split in terms of policies and intellectual property, and China may continue to pose data security and supply-chain risks. Many companies have made efforts to shift operations closer to home. Harvard Business Review agrees that disengaging with China will prove difficult due to the country’s unique possession of critical raw materials and the repercussions of boycotting a nation with which US and Western companies have been heavily intertwined.
As with all strategic discussions, questions around working with China and other foreign nations should be part of an ongoing conversation. HBR recommends that, “Responding to these issues will require sustained, structured discussions between entire boards and top management.”
The discussion will require cross-organization collaboration between finance, research & development, HR, compensation committees, and management teams with the goal of identifying and minimizing risk.
Climate change as the great unifier
Tom spies a unifying light at the end of this divided global tunnel. Climate change is an immediate factor that demands global cooperation and participation.
Stakeholders both inside and outside your organization are focusing on how your business impacts the environment. Surface-level changes and grandiose goals for ten years down the line are not enough. Tom suggests making real changes, even if they are small, to offset any negative impacts that your business may have on the environment. As activism becomes more of a driving force behind policy and decision making, organizations need a tangible plan that satisfies urgency.
If your business has made statements such as, “By 2030 we will be carbon neutral,” be sure that you can show real steps and results to back up that statement in the near-term. Map out actions you will take and how you will measure results.
A global business must be communicating with NGOs and local activist groups. Tom also recommends engaging with your internal employee audience and your customers. It would be impossible to know and predict every shift happening worldwide. Establish a culture of listening, then trust yourself and trust your employees to assess and make the right decisions.
Conclusion
Global experts warn of a continuously divided global landscape. The Covid-19 pandemic forced supply chain disruptions, caused international mistrust, and resulted in an increasingly fragmented world. Conversations about how to proceed in foreign economies require communication not only across your business but also with local organizations and communities to ensure alignment of interests and mutual support.
Climate change presents an opportunity for global collaboration and its urgency will cross borders and counter some of the effects of global fragmentation. The geopolitical landscape is always changing and, like any solid strategy, your organization’s global outlook should be an ongoing discussion rather than a one-time event.