Woman sitting on rock look at aurora borealis

How to shift strategy for a new geostrategic era in 2023

Policy volatility will elevate the importance of geopolitics to corporate strategies to its highest level in a generation.


In brief

  • The importance of geopolitics to corporate strategies is at its highest level in a generation; executives need to manage political opportunities and risks.
  • Governments’ pursuit of self-sufficiency will be driven by geopolitical tensions, economic uncertainties and environmental sustainability.
  • Geopolitical developments are likely to continue to influence supply chain strategies, shift investment destinations and push up costs for companies.

Geopolitics has been increasingly volatile in recent years, with US-China tensions and the growing assertiveness of a variety of middle powers driving a shift from a unipolar to a multipolar world. Rising populism and nationalism have also contributed to a weakening of multilateral institutions as national governments have exerted more control over their economies. These trends were accelerated by the COVID-19 pandemic — and then they have been supercharged by the war in Ukraine.

As a result, the era of relatively liberalized global trade amid ever-increasing globalization has ended (at least for now). In its place is a transformed global operating environment in which geopolitical considerations often outweigh purely economic considerations in business decisions. This has led to a medium-term outlook for globalization that is highly uncertain, as explored in our world-in-five-years scenario analysis.

In the short term, however, the outlook for the course of 2023 is clearer. In the year ahead, the geostrategic environment will be characterized by two overarching themes.

  • Stabilized volatility. First, the oxymoron of stabilized volatility. Many of the recent trends in geopolitical tensions and government intervention in economies are likely to persist, perpetuating volatility but likely at a more consistent level than in 2022.
  • Policy trade-offs. Second is the prevalence of significant and urgent policy trade-offs. The current geostrategic environment is posing a variety of acute challenges for governments, such as energy security and elevated inflation — with no easy solutions. Governments in different countries will diverge in their trade-off choices, further complicating the operating environment for international companies.

This article highlights findings from the 2023 Geostrategic Outlook (pdf), which presents our view of the most likely and impactful developments in the geopolitical landscape in 2023. It also explores the implications of these developments on different sectors and highlights five no-regrets geostrategic moves executives can implement to help their companies thrive.

Download the full 2023 Geostrategic Outlook

The top 10 geopolitical developments in 2023

The EY Geostrategic Business Group identified the top 10 geopolitical developments that are likely to have the most significant impacts on organizations across sectors and geographies in 2023. Many of these developments will evolve from the geopolitical trends that leaders have had to manage in recent years.


How geopolitical developments will impact different sectors

The top 10 geopolitical developments in the 2023 Geostrategic Outlook will have broad-based impacts on companies across sectors and geographies. But some developments are likely to have more direct impacts on certain sectors, particularly in the near to medium term.

Select the sector below to explore the key geostrategic themes and business impacts for that sector.

How to build a robust strategy for a volatile world

All of these geopolitical developments pose both challenges and opportunities for global organizations. To thrive in an era of geopolitical volatility and uncertainty, companies will need to develop more strategic approaches to managing these and other political risks – and incorporating political risk into their long-term strategies. There are five broad no-regrets geostrategic moves executives can implement to help their companies thrive amid stabilized volatility and policy trade-offs in 2023.

 

1. Manage higher costs.


Nearly every development is likely to push up costs for companies. Restructuring supply chains, enhancing cross-border operating model effectiveness and improving energy efficiency could help to manage these cost increases.

 

2. Evaluate supplier ecosystems.


Each development will likely impact supply chains — the second year in a row for which this is the case. Boost resilience by conducting a multidimensional risk assessment; identifying opportunities to onshore, nearshore or friendshore suppliers; and positioning supply chains to support sustainability and ESG goals.

 

3. Explore opportunities in “friendly” markets.

 

The shift toward greater use of industrial policies and self-sufficiency will challenge traditional global business models. Exploring home country markets and those with which a company’s home country is allied may provide the most robust growth and investment opportunities.

 

4. Align strategies with stakeholder priorities.


Geopolitical developments are likely to shift stakeholder priorities and their expectations of companies. Developing a growth strategy designed to satisfy the demands of customers, employees, investors and policymakers could help to proactively mitigate these political risks.

 

5. Conduct scenario planning.


Geopolitical developments in 2023 highlight the high level of uncertainty for the medium-term geostrategic outlook. Conducting geopolitical scenario analysis can help to strategically position companies to flourish during the turbulent times ahead.


Summary

Companies need to integrate geopolitical analysis into their strategies, business models and corporate governance. By embedding geopolitical analysis into a company’s DNA, executives will enable their companies to better account for political risks when making strategic decisions, giving them a crucial advantage over competitors in a turbulent geopolitical environment.

Related articles

Prepare now for the new era of selective globalization

Exploring scenarios for the world in five years reveals divergent paths for geopolitics, economic policies and company strategies. Learn more.

How CEOs juggle transformation priorities – the art of taking back control

EY CEO survey highlights how CEOs consider AI transformation, ESG and M&A to navigate between immediate profits and future sustainability aspirations. Read more.

When political disruption surrounds you, what’s your next strategic move?

Companies will face geopolitical tensions and shifting policies in 2022. Executives should proactively manage political risk to position for growth.


    About this article

    Authors

    Contributors