Geopolitics and its effect on business decision making. The war in the Ukraine and the war in Israel, how they affect companies’ strategic business decision making
In today’s connected world, the impact geopolitics and geoeconomics have on businesses cannot be underestimated. Both multi-national and international companies must navigate the intricate weave of political, economic, and social factors in order to make an informed strategic decision. Understanding the implications of ongoing conflicts, economical interest groups and emerging trade routes, is essential to businesses that want to grow and succeed in the global market. This article will investigate the role of geopolitics and geo-economic in shaping corporate strategies and will provide insight and guidance to companies operating in the international arena.
Geopolitics and Geoeconomics are two separate concepts that are tied to each other, and shape the global business environment. Geopolitics refers to the study of geographical factors’ impact on political decisions and the relationships between countries, while Geoeconomics focuses on employing economic tools to promote and defend national interests and produce efficient geopolitical results. The distinction between the two approaches is not always clear, since often in reality they often overlap. For example, geopolitical factors such as territorial conflicts or military alliances can impact the trade policy and investment decisions, while geoeconomic factors such as trade agreements or economic sanctions can impact the geopolitical dynamics between countries. That said, it is crucial that businesses operating in the international arena are aware of both the geopolitical and geoeconomic factors, as they shape the rules and risks of the international trade and investments.
The fighting in the Ukraine and the current fighting in Israel against Hamas and Hezbollah are two examples of geopolitical conflicts that could directly impact strategic decision making for companies that operate or have business interests in the affected regions.
The ongoing conflict between the Ukraine and Russia has significant implications on businesses operating in the region. Companies are forced to handle various challenges such as supply chain disruption, damage to infrastructures and a heightened political risk. In addition, sanctions imposed on Russia by various countries may create additional complications for businesses that conduct business with Russian entities. These challenges are forcing companies to make strategic decisions regarding their business activities, investments and partnerships in the region while taking into consideration the possible risks and uncertainties.
The war between Israel and militant groups like Hamas and Hezbollah also poses significant challenges for international companies operating in the region. These challenges include threats to the safety and security of employees, damage to infrastructures and disruption to business activity. Moreover, companies may face a risk to their reputation if they are perceived as supporters of one of the parties to the conflict or if their products or services are used during the conflict. In order to navigate these challenges, the companies must develop contingency plans and closely monitor the ever-changing situation. Along side this, there are also obvious business opportunities as soon as the war is over, thus companies must prepare the ground for the day after. For example, many infrastructures were damaged in Israel on a mass scale and this will be prioritized by the government by issuing infrastructure bids. Therefore, companies who offer that service or are interested in entering a new market have an opportunity to prepare themselves in advance. Another example, investors looking to invest in Startup companies and new ventures currently have an opportunity to receive better conditions because of the heightened risk. Israel is known as the Startup nation and one that generates many Exit opportunities (a major part in Israel’s revenue) thus here is an excellent opportunity for investors to consider, particularly in light of the situation.
Major economic powers such as the United States, China, the European Union, and Japan, have a significant role in shaping world trade and transportation by creating interest groups and alliances. These powerful players often take advantage of their economic influence to promote their geopolitical agenda, while utilizing trade policy, investment agreements and infrastructure projects to solidify their place in the global economy and to underline their control of strategic trade routes and markets.
For example, the United States has for some time now applied the strategy of creating strong trade and investment relations with its allies in Europe and Asia, while erecting powerful economic coalitions that advance mutual interests and encourage stability in the world trade. Similarly, China’s “Belt and Road Initiative”, which intent is to establish a network of infrastructure projects connecting Asia, Europe, and Africa, reflects its ambition to expand its economic influence and secure access to essential resources and markets. International businesses must be aware of the major economic powers’ strategies and the interest groups they create, since these factors may significantly impact the market’s access, trade policy and investment opportunities. The companies should also consider how their strategic decisions match the geopolitical and geoeconomic targets of the countries in which they operate, for those can have significant implications on their long-term success and their reputation.
The new silk road, often referred to as the “Belt and Road Initiative” (BRI), is China’s ambitious plan to build a network of infrastructure projects connecting East Asia, the Middle East, Europe and Africa. The initiative, which was launched in 2013, was meant to promote economic development, improve the connectivity, and promote cultural exchange between the participating countries. The BRI presents both opportunities and challenges for international businesses looking to take advantage of the emerging trade and market routes.
On the one hand, the new silk road offers significant opportunities to businesses of various industries, including construction, logistics, energy, and telecommunications. The infrastructure projects that are the backbone of the BRI, such as ports, railroads, highways, and power stations, create a demand for merchandise and services and are opening new markets for companies in the participating countries. Furthermore, the increased connectivity that the BRI permits can make trade easier, decrease transportation costs and improve the access to resources and markets. On the other hand, the new silk road also presents challenges for international businesses since it has geopolitical and geoeconomic implications that may impact the world dynamics of trade and investments. For example, the BRI awakened concerns in regard to China’s increasing impact on the participating countries, which led a few critics to claim that this is in fact a form of economic imperialism. Additionally, the BRI has created tension between major economic powers, such as the United States and China, which may lead to a trade conflict, investment restrictions and even to conflicts that may disrupt world trade and supply chains.
As a response to the increased impact of the new silk road, the United States and its allies, including Europe, Israel, Saudi Arabia, India and Japan, are working together to balance the economic and geopolitical powers of China, Russia and Iran. These rivaling alliances are competing for control over resources, trade routes and global market impact. As a result, the international business landscape has become more and more complex, forcing companies to navigate the weave of colliding interests, shifting alliances, and developing geopolitical challenges.
When building a strategic plan, international companies must take into consideration the following factors:
Navigating the complex world of geopolitics and geoeconomics can be challenging for businesses, especially when it comes to making strategic decisions regarding international activity and expansion. Professional business consultants can provide valuable guidance and insights to assist companies in making informed decisions and to develop efficient strategies to succeed in the global market.
A professional business consultant can offer customized consultation and recommendations based on the company’s specific needs, targets, and circumstances. This may include instructions regarding market entry strategies, managing risks, supply chain optimization or partnership opportunities. By working with a consultant who understands the complexities of geopolitics and geoeconomics, companies can gain a competitive advantage in the global market and maximize their success rates.
Understanding the complex interactions between geopolitics and geoeconomics is essential for international and multi-national companies seeking to prosper in the ever-changing global landscape. By combining geopolitical and geoeconomic factors in their strategic planning, businesses can navigate the challenges and opportunities presented by the changing power balance between the major economic powers, the emergence of trade routes and new markets and the ongoing conflicts that shape the global trade and investment rules. By seeking the guidance of professional business consultants, companies can navigate these challenges and position themselves for success in the global market.
Ofir Angel
Chairman of AUREN Israel
“Business generator” and expert in geo-strategic consulting for international companies
ofir.angel@auren.co.il