Specific geostrategic actions will be needed to capitalize on the opportunities each of these political developments present while also mitigating the challenges they pose.
Five geostrategic actions to thrive in a two-tiered world
At a high level, there are five geostrategic priorities to help companies thrive amidst the geopolitical developments affecting the global operating environment in 2022.
1. Transform supply chains to match geopolitical realities
Geopolitical dynamics and the push by many governments to achieve self-sufficiency in strategic products will complicate traditional cross-border supply chains. Technology companies, manufacturers, automakers, and renewable energy companies are likely to be most affected by these policy dynamics. Complicating global supply chains further will be continued disruptions to operations and logistics driven by the pandemic, social unrest, cyberattacks and extreme weather events.
Executives should seize the opportunity to re-examine their companies’ supply chains for nearshoring, onshoring or “friendshoring” strategies to improve resilience. The introduction of supply chain due diligence regulations will likely also prompt a reassessment of suppliers and could provide both upside and downside reputational risks. Executives should therefore examine their companies’ supply chain partners and the potential risks they pose as part of a multidimensional risk assessment.
2. Make political risk central to acquisition and divestment strategies
Global M&A activity was booming for much of 2021 and the global economy is expected to grow robustly in 2022, providing strategic transactions opportunities to companies across sectors. But sectors deemed strategic will likely face limitations on or rejections of cross-border investment, while domestic M&A that creates a more competitive company on the global stage may be encouraged. Antitrust actions in a variety of markets may also weaken the likelihood of certain M&A approvals, particularly in the technology sector.
Executives should incorporate political risk assessments into their acquisition and divestment strategies to identify these dynamics at the outset. And they should use the opportunities provided by the current economic and deals environment to reassess their companies’ strategic footprint to improve resilience to current geopolitical developments.