Geopolitics and Business Risk
“Indeed, the heightening of geopolitical tensions has only added to the marked uncertainties that have piled up over the past three years, creating formidable barriers to new investment and thus to a resumption of vigorous expansion of overall economic activity. The intensification of geopolitical risks makes discerning the economic path ahead especially difficult.”
Such a statement could easily have been made this year, coming on the back of the Russia-Ukraine War, the COVID-19 pandemic, Brexit, the withdrawal of US forces from Afghanistan and the lingering impacts of the U.S.-China trade war. But these comments are nearly two decades old, part of testimony by Alan Greenspan, then Chairman of the Board of Governors of the US Federal Reserve System, before the Senate Committee on Banking, Housing, and Urban Affairs on February 11, 2003.
Greenspan’s warning was shaped by expectations of a potential U.S. invasion of Iraq, even as the United States was already engaged in fighting the Taliban in Afghanistan. Greenspan would return in 2010 to underlying geopolitical forces in his review of the multi-vector causes of the global financial crisis. Clearly for Greenspan, and many others, a robust geopolitical understanding is vital for businesses navigating a complex and rapidly changing global environment.
The global order is in flux, and expectations of movement toward a unified system of global regulations, norms and standards are being replaced by concerns over fragile supply chains, economic nationalism and protectionism, heightened ideological divisions, and a restructuring of the centers of global economic power. There is open war on the European frontier, strategic competition in the Indo-Pacific is driving a renewed arms race, rising food insecurity is intensifying migration pressures in Africa and Latin America. Corporate and national competition is intensifying over acres to and control of key mineral resources for the new energy economy, the rapid diffusion of technology is expanding tools of influence and power for states and non-state actors, and great power competition is spreading once again across the vast Pacific and polar regions, all while rapidly expanding in cyberspace and outer space.
These changes have direct and indirect impacts on national and International regulatory environments, supply chain resilience, reinsurance rates, sanctions, and currency flows. Changing social and political pressures can create competing reputational pressures as corporations and organizations seek to navigate the shifting global landscape. Businesses used to focusing on markets and trade are forced to react to military conflict, social instability, political upheaval, and contradictory regulations.
For internationally engaged businesses and organizations, it is imperative to integrate geopolitical intelligence and analysis into their business processes, from implications to corporate security to supply chains, strategic planning to international operations. Geopolitics as a methodology provides a non-partisan lens to observe and assess local, regional, and global developments, to understand the current dynamics and build plausible futures scenarios to give business leaders the ability to stress test their own expectations and plans, to create risk mitigation strategies, and to establish a system to identify and monitor indicators of future trends.
An effective geopolitical analysis capability gives companies not only the ability to rapidly respond to crises and changes, but to predict and prepare for the unknowns of the future. Geopolitical analysis, then, serves as a framework for business planning, resilience, risk mitigation and opportunity identification.
Rodger Baker is the Executive Director of the Stratfor Center for Applied Geopolitics at RANE, a global center of excellence for geopolitical intelligence and analysis. Mr. Baker is one of the world’s leading geopolitical analysts and for more than 20 years has guided the company's analytical process.
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