RiskMap 2020

The CEO view: Agility will be essential in a challenging year | RiskMap 2020

The CEO view

Nick Allan: Chief Executive Officer

Agility will be essential in a challenging year

 
Welcome to RiskMap 2020. Every year Control Risks looks to forecast the principal risks that will affect business in the year ahead. What is striking in this report is that the risks remain eerily reminiscent of those we discussed in 2019 – only more acute and with greater impact on business.

For the past few years, business has found itself challenged as economic policies have often become the front line for political action between nations. At the same time, global political trends are now more set against the interests of international businesses than they have been for a number of years. Populism, protectionism, sanctions and political disruption are the canvas on which business tries to build global markets and supply chains. It has not been easy, and it is not going to get any easier.

The risks we identify for 2020 are interlinked in many ways. Despite some retrenchment, the US remains engaged as the major economic and political force at the global level. As we enter an election year, President Donald Trump will want to have some foreign affairs achievements that he can point to, particularly around his confrontation with China, but also in other areas where he has looked to have an impact. At the same time, US rivals such as Russia, Iran and North Korea will look to exploit the distraction of an election to push boundaries further and cement any advantages they might be able to gain. Although the tenor of the current US administration is significantly less internationalist than previous ones, at the presidential level it is characterised by using its power and leverage in a very direct way. Sanctions are a principal tool of coercive power, and we expect that to continue. As seen with Turkey in October 2019, these can appear and disappear with startling rapidity, but business can be in no doubt that compliance is not optional.

We now know there is no clarity when it comes to international order and structure. The strategic retrenchment of the US has turned from a drift to a direction; Pax Americana and the Washington Consensus are now for students of Modern History. States and populations wait to see what will fill the gap, and there is no shortage of powers looking to have their own local or regional impact on what comes next. For business this comes at a time when the effects of the global financial crisis of 2008 are still working their way through national political systems, with sometimes alarming effects. Over ten years on it may seem strange to continue looking back, but it is clear that growing inequality and a lack of social mobility fuel popular discontent and populism. This is not restricted to the political sphere, as companies also find themselves subject to direct action at AGMs, outside their facilities, or in the form of social media campaigns against some of the world’s major brands. Fuelled by demographics and technology, activism has acquired a new level of power and influence.

Protests – many violent – across continents and cities, were a key feature of 2019, or at least the latter part of it. From Chile to Hong Kong, businesses are affected by protests and political upheaval. The response of politicians is increasingly to push through short-term measures to try to quell discontent and buy time. Companies find themselves trying to anticipate, prepare, react and rebuild, often simultaneously, across different geographies. They can also find their responses caught between the wish to listen to and support their workforces and the risk of being caught up in national political disputes. Technology ensures that such issues do not remain local for more than a few hours, with companies having to tread a delicate path between differing stakeholders.

Technology is also shaping the way companies experience and respond to risk, and the way firms like Control Risks work with clients. Like all clichés, refrains such as data being the “new oil” or there being “too much data” rest on truths. Data and technology may be the bedrock of the new digital economy, but they are also a source of risk – a risk transmission mechanism, as well as keys to opportunity and success.

At the same time, nation states are well aware of the power of technology to shape the political discourse and as a means to project power. Companies are enveloped in a cloud of regulations and obligations and – as with the dilemmas around political protest – can find themselves caught between the demands of the state and the wish to respect privacy. This is a trend that shows no sign of stopping, and as companies wrestle with insider threats and how to monitor them, they find governments wish to co-opt or pressure them for their own ends.

Control Risks expects a tougher set of challenges in 2020 than we have seen to date. Experience and evidence tell us that geopolitics is played out in the shadows of the cyber sphere. Looking ahead to another year of geopolitical posturing and boundary testing, we expect to see large-scale cyber confrontation between powers, and business may well be caught in the crosshairs. This will be more severe and more impactful than anything we have seen to date.

The security, compliance and resilience skills that international business has learned and tested over the past year will be tested further in 2020. With such a cacophony of risks on the radar it is little surprise that companies may be tempted to think tactically rather than strategically. This is a mistake. As geopolitics and economic policy become ever more tactical, the need for strategic vision is greater than ever for businesses. As clouds gather over the global economy, the past teaches us that political risk never gets easier to manage in an economic downturn. James Carville’s famous maxim “it’s the economy, stupid” has been shown not to apply in all cases, but economic stress will amplify the current fractures in global stability.

Despite a somewhat gloomy outlook on a number of fronts, many of our clients remain set for growth in the months ahead. While regulations, trade barriers, sanctions regimes and cyber threats will all hinder international business, we believe that conflict will be kept largely to these domains. The frameworks and structures that have served as a reference point over the past few decades have fallen away in a surprisingly short time. However, business continues to innovate and drive prosperity in all corners of the globe. Indeed, in many areas companies are responding faster than governments to meet the challenges of the next few decades.

In 2020, in short, it is anticipation, agility and the ability to pick a way through tactical obstacles that will be important. As ever, Control Risks will be working alongside our clients to manage the risks and accelerate the opportunities.

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