This article has been contributed by Mr. Ankit Chadha, Managing Director, TRC Consulting.
A global talent pool, access to broader markets and supply chains, and an endless array of opportunities for innovation characterise globalisation. However, every order comes with a disorder. While participation in global markets and the internationalisation of trade practices have become a critical engine for business and national growth and development, encountering geopolitical risks and uncertainties has been a constant challenge for three centuries.
Today, businesses are accumulating shockwaves and headwinds grounded in geopolitical risks like the rise of new global powers, galloping resource competition, populism, civil wars or military unrest, US-China trade wars, cyber-attacks and climate change. European energy security has been affected negatively by Russia’s invasion of Ukraine and trade protectionism has led to trade policy uncertainty in many economies. Additionally, climate change is disrupting the world order further, with mass migration and food uncertainty leading to intensification of the existing resource competition between countries.
For businesses, these pose unique challenges to market entry and financial sustainability that become a test of their resilience and leadership management and, at the same time, bring a host of opportunities. There are many ways in which businesses can continue to grow in upended global supply chains, labour instability, refugee crises and state-sponsored cyberattacks.
Geopolitical Uncertainties and Building Market Strategies
Global economic integration is irreversible. Business and profit-making do not recognise international borders but only mutually beneficial cooperation to establish a connection. Compliance alignment, such as diversification of supply chain, building robust governance, making contingency plans and geopolitical risk mitigation strategies, can be adopted by businesses interested in cross-border economics to overcome the challenges posed by geopolitical risks.
Tariff Smart Supply Chain: Rerouting and Exploring New Markets
With the US-China trade war in full swing and the imposition of 50% tariffs on Indian exports by the US, there have been several operational delays and economic losses for businesses. Geopolitical military conflicts also disrupt trade practices in many regions. However, this creates an opportunity for Indian businesses to reflect on their dependence on one source of income. This could mean rerouting traditional supply chains, broadening customer bases and expanding sources of investment capital, as well as diversifying supplier bases to intercept single-point-of-failure risks.
Creating a smart supply chain also involves onshoring, nearshoring and friend-shoring.
Onshoring: Relocation of manufacturing in India or diversifying avenues of sourcing raw materials reduces the risks posed by global logistics dependence and enhances quality and compliance.
Nearshoring: Exploring supply chains in neighbouring countries or the Asia Pacific, like Bangladesh, Vietnam, Myanmar, Malaysia, and Taiwan, can ensure timely production and prevent operational delays caused by volatility.
Friendshoring: Businesses should take into account India’s political and diplomatic ties with nations before aligning operations in foreign markets. For instance, India’s diplomatic ties with numerous African countries are favourable for Indian businesses to expand and thrive.
Overall, to bring more agility and resilience, companies should also prepare themselves for sudden export bans or unexpected climatic conditions that can disrupt global channels. “What if drills” or scenario planning workshops with managers and key decision makers, as well as stocking up inventories, can be effective strategies to streamline marketing.
Using Technology to build Resilience
Today, business leaders who are able to leverage technologies like global trade management (GTM) systems, transportation management systems (TMS) and control tower platforms to eliminate losses due to unnoticed inefficiencies, automate FTA validation and coordinate compliance alongside sourcing and logistics will not only survive but also thrive. Companies are also using digital tools to track US tariffs, validate free trade zones and redesign routeing and fulfilment processes. Additionally, technology can be leveraged to create a fail-proof risk mitigation strategy and for advanced predictive analysis for identifying potential geopolitical disruptions, including cyber threats and climatic calamities.
Taping the Potential of Protectionism
Governments have realised the importance of having a resilient economy which is characterised by having domestic manufacturing. Therefore, they are offering businesses a great opportunity to set up domestic operations and manufacturing with the support of tax benefits and subsidies. Many foreign brands took advantage of this to maximise their profits despite traffic impositions in India. Indian businesses can learn from them to explore opportunities and collaborate with local businesses in target countries to gain the trust of buyers by building social capital locally.
Comprehensive Auditing for Mergers and Acquisitions
The M&A market is significantly affected by volatility in government trade policies. Thus, recent times have seen a shifting trend in M&A, wherein businesses are focusing on in-market consolidation since cross-border corporations face several threats. This is to say, businesses realise that geopolitical tensions are always going to persist but it doesn’t mean a halt on growth. Another way to manoeuvre through this is robust due diligence and using AI to find opportunities for lucrative deals.
Sustainable Practices to Overcome Climatic Challenges
Several conflicts in Europe and the Middle East are driving the cost of energy. This affects business operations, market demand and product costs, which disrupts marketing significantly. However, the solution to this is simple and beneficial for the environment. India is the 3rd largest producer of solar energy and ranks 4th in the world in renewable energy production. Businesses can leverage the huge potential of India’s renewable energy market and reduce their reliance on imported fossil fuels. Moreover, offering sustainable and green solutions in their products and services can significantly boost their sales. They can keep track of countries that offer tax benefits on green products to maximise their profits.
Key Takeaway
Not long ago, we lived in a world ruled by two superpowers, America and Russia. However, China is emerging as a new world leader with a huge influence over key manufacturing sources and raw materials. At the same time, Japan is emerging as a leader in technology and India is growing its influence in the Global South. Free trade agreements, which were an essential part of the neoliberal economy, are now evolving and rapidly changing with the changing leadership of countries, and misinformation is spreading like wildfire, further upsetting businesses globally. With trade protectionism to grow domestic markets and multilateralism gaining popularity, many might think deglobalisation is underway.
However, while geopolitical challenges of the 21st century are plenty and overwhelming for businesses, they have a history as old as the society, and great business empires have established themselves amid them through integrating geopolitical risk frameworks in their business proactively (not just as a reaction). All it takes is an able leadership that understands the importance of building resilient market strategies like secure supply chains, multiple channels of sourcing and a tariff-aware marketing design.
Saksham Mishra
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