In the face of economic and political divergences worldwide, borders are gaining importance and protectionist policies are reappearing. As a result, businesses must navigate international markets that are becoming ever more regulated.
While many company leaders see business as being disconnected from political and social affairs, this is a serious mistake. "No matter the size of a company, they will have to deal with foreign clients, suppliers or competitors. This fact highlights the importance of a country or region's geopolitical situation. Being aware of this fact is a good step towards understanding foreign markets, sales habits and risks." highlights Jean-Marc Huissoud, a professor at Grenoble Ecole de Management.
Geopolitics allows companies to prepare their strategy in advance. The goal is to have a global vision of a country's situation in terms of economics, regulation, politics and social, ethnic and cultural issues. "This helps a company reduce risks and improve predictability, which is fundamental for any business strategy." adds Huissoud.
Long term integration
Companies that do not take into account key geopolitical factors increase their risks and endanger the long term integration of the company in a region. Japan for example was seen in the 90s as an emerging economy where it would be profitable to develop exports. The country offered growth and a sufficient market demand. "The problem is that nobody looked at the country's demographics. As a result, 10 years later the active population is decreasing and therefore so is market demand. This Eldorado quickly turned into an illusion for some companies." explains Huissoud.
The return of nationalism
While increased communication and travel may make the world feel like an interconnected village, the fact remains that borders are also being reinforced, in particular for economic reasons. China for example has begun to regulate its industrial sector, in particular the food industry, to meet the demands of its internal market. "In addition, China is dealing with important internal disturbances that include strong nationalist voices." says Huissoud. Except for specific luxury goods, high-tech and raw material sectors, Chinese companies can no longer export as easily as before. Russia, Brazil and the United States are also all implementing protectionist policies to defend their national markets. "In the face of globalization, countries are reaffirming borders to protect their economies. We can see this change as a step backwards."
Certain regions have fragile borders due in particular to climate changes that are causing large population groups to migrate. The Sahara for example has become the center of a battle for the control of energy sources (e.g. solar energy) between China, Europe and the region's countries. All this goes to show the importance of geopolitics for businesses. Companies have to examine these factors if they wish to elaborate the best long term strategy for their international development and commerce.
To learn more about these subjects, join us for the seventh edition of the Geopolitics Festival. The festival will run from March 12th to 15th and this year's theme is "What's the use of having borders?"