Rising geopolitical tension between China and other countries has the potential to suddenly and severely impact corporate growth and profitability. China’s economic ascendency will generate ever-increasing conflict with its immediate neighbors and with the leading powers of the last century, particularly the US. Understanding forces at work, anticipating inevitable threats and discerning the real business challenges – as distinct from the emotional headlines – will not be easy. Effective corporate decisions in the face of such uncertainty will demand a much deeper understanding of the geopolitical/economic topography than has generally been required from business in the past. Moreover, a much more proactive role from US, European and Chinese business will be needed to help bridge national differences.
Political risk became a compelling topic of corporate attention in the wake of unsettling “surprises” in the 1970s and 80s. Key milestones such as the fall of Iran or the collapse of Communism and German reunification stand out as dramatic political turning points. Yet 10 to 15 years from now, these may well appear relatively modest compared to the disruptive potential from the next phase of China’s rise.
In the absence of a sea chart to the geopolitical future, a simple compass would come in handy. Unfortunately, many of the key navigational points we have learned to rely on will be of little help those at the tiller.
“True North” no longer exists
Most of the world’s post-1945 political and economic institutions were conceived, designed and managed by a handful of Western countries, with the US playing a dominant role. The rise of the US changed the “rules of the game” by instigating fundamental change in pre-war colonial modes of international interaction. China will have a similarly disruptive impact. Perhaps the most succinct summary of the challenge was made in a US economic and security policy review of China’s role in international institutions:
“The West is trying to accommodate China by rearranging the deck chairs; the Chinese are building a new ship.”
We face a long period of transition during which many of the most fundamental assumptions that underpin business decision making will be challenged, changed and – in some cases – completely up-ended.
• Is the World Bank still the leading global development institutions when China’s financial and development support to Africa and Latin America is more than the Bank’s lending?
• Will an Asian Monetary Fund displace the IMF now that the foreign exchange reserves of four Asian countries far exceed the Fund’s resources and the West is mired in excessive public sector debt? Or will Asian governments remain content to let the US and EU hold veto rights over international financial governance?
From a corporate perspective, this represents merely the tip of the iceberg; the challenge from China’s rise will drive much deeper than a mere re-ordering of international institutions. China’s displacement effect is also likely to impact a wide range of business practice that have determined our accepted “rules of the competition” globally.
• Will the US Food and Drug Administration remain the sole “gold standard” for drug and device approval when China is the largest drug market in the world and must design a system that delivers better therapies faster and at lower cost?
• Will US or UK rules governing business ethics become anachronisms hobbling the handful of global companies that continue to remain domiciled there come 2025?
Faced with this radical level of transformation in the global business environment, two pillars seem likely to prove critical to the bulkwark of a solid corporate strategy in the future.
1. Deep understanding of national motives and the political/economic complexities of policy making will become even more important in the future. Lobbying a particular policy or point of view will need to be supplemented by a much more fundamental educational process that targets both global policy makers and influencers externally and senior executives internally.
2. Global industry-level collaboration will be essential. Business will need to play a key role in defining innovative options as well as the costs and benefits of various policy alternatives. In order to make a credible contribution to policy making, industry positions and supporting analysis will need to encompass the views of all industry leaders, not simply Western firms. Using US national industry associations to “bash China” is likely to be no more productive than Chinese industry associations attacking US policy makers. The converse is also likely to be true: Cross-border industry dialogue and consensus may have a much greater impact on shaping progressive