New Book: Market under fire (Markt onder vuur)
Last week I presented my latest book 'Market under Fire: How Political Conflicts Impacts Our Economy and What We Can Do About It.' At this moment it's, unfortunately, only available in Dutch. But I'll give you the gist of the book here.
Political risk has long been the exclusive domain of mining, oil companies, and the occasional plantation owner. The symbol was an African dictator in khaki expropriating Western multinationals. But those days are over.
IMPACT
McKinsey research from 2015 already showed that 84% of CEOs and executives surveyed expect geopolitical instability to impact global companies. Almost 60% believed it would hurt their company's profits. An EY survey conducted in 2019 (just before the coronavirus epidemic and three years before the Russian invasion of Ukraine) found that almost half of companies have seen political risks increase in the last two years.
And today, nine in ten CEOs (of large companies) surveyed by EY say they have the necessary capabilities to factor geopolitical risks into their strategic and investment decisions. Nine years ago, the figure was less than one in five.
POLITICAL DISRUPTION
But political disruption does not only affect large companies today. When I speak for SME business leaders, more and more stories emerge about how geopolitical events have disrupted their operations. Anyone can get into trouble by ignoring political disruption. This was experienced by the Belgian and Dutch fruit growers who were suddenly banned from exporting their apples and pears to Russia in 2014. They had never seen themselves as potential playthings in a geopolitical conflict.
A NEW WORLD
So what has changed? In the 1990s, we saw an acceleration of globalization. Companies included the former Soviet states, China, and an increasing number of countries in Asia and Africa in their supply chains. These same countries also became increasingly important as sales markets. Globalization was so successful because in the first 20 years after the fall of the Berlin Wall political borders seemed uninmportant. Geopolitical conflict did not impact the flow of goods and money between countries.
That is different today. Over the past 15 years, China, Russia, and many other countries have increasingly claimed their place in the international system. They redefined their spheres of influence and, in the process, increasingly came into conflict with other countries. In my book Market under Fire, I explain how the changing balance of power, the success of authoritarian leaders, and resource scarcity mean that there will be more geopolitical conflict in the coming years.
MAINLY ECONOMIC WARFARE
Countries sometimes, as in Ukraine, settle geopolitical disputes by force. But these are exceptions. Much more often, they use economic weapons. Countries use each other's dependencies to exert pressure. The US uses financial sanctions because everyone uses the US financial system and the dollar in international trade. China uses its large market, which is too important for many companies to ignore. Exports are also increasingly manipulated. The Americans are trying to inhibit China's economic and military development with export controls on technology. In turn, China is increasingly using its resources to influence companies and countries.
WHAT CAN YOU DO ABOUT IT?
'Political disruption is tricky, but as a business leader there is little I can do about it anyway,' I regularly hear. But that's not true. Throughout my book Market under Fire, I explain the signals you can use to assess the likelihood of political disruption. At the end of the book, I devote an entire chapter to how to map your geo-economic network as a company and what you can do to reduce the potential impact of geopolitical disruption. Political disruption is something that happens to you, but how you deal with it as a company can certainly be improved.
Do you have any stories of geopolitical events disrupting your business or a way of dealing with them? Please share them with us!