Two cross-cutting megatrends will shape global business in 2024: geopolitical competition and localisation.
Geopolitical competition is forcing capital to take sides. Localisation is forcing companies to change how they do business. Both pose strategic risks and opportunities. Companies that get ahead of the geopolitical realignment will be more resilient to shocks, wars and unrest; companies able to localise their operations will be more successful and, critically, more compliant. In a fragmenting geopolitical landscape, global companies that want to stay global will need to survive at the local level.
US-China competition, the Covid pandemic, and the Ukraine war all triggered cascading efforts to “de-risk” supply chains and business operations. The eruption of conflict between Israel and Hamas posed further operational and security risks to business. No government wants to depend on its rivals, current or future, for essential goods when a crisis hits, and no company can afford to depend on a single point in their supply chain. All camps are optimising for geopolitical resilience.
Policies that promote or require localisation are on the rise. These include local content requirements, “buy local” procurement, data privacy laws, product standards, indigenisation mandates, tariffs and quotas, and subsidies. They also include informal pressure to tailor business operations to local sensitivities or risk social and political backlash.
Localisation is a combination of sticks and carrots, often under the rubric of resurgent industrial policies or national security strategies. In many cases it is about strengthening or reclaiming economic sovereignty – getting a “fair share” from natural resources or providing good quality manufacturing jobs. Such noble motives may not make life easier for business but shed light on the shifting balance of power in the global economy.
This trend toward localisation has an unexpected driver: emerging technology. From the shipping container to the global internet – technology used to drive globalisation. Now, geopolitical competition to control advanced or sensitive technologies – from AIs to EVs – is picking apart the threads of transnational trade and investment. Pressure to adapt products and operations to local markets is increasing as governments attempt to bolster resilience and enlarge their slice of global value chains.
Companies are operating in a more fragmented, multipolar geopolitical landscape. Middle Powers – from the BRICS countries to the Gulf states – that are able to transact across geopolitical divides are becoming increasingly influential and increasingly exposed to geopolitical competition. Note how swiftly the conflict between Israel and Hamas – like that between Ukraine and Russia – became a venue for strategic rivalries.
The war between Hamas and Israel - and the regional response - is an example of how this realignment can both spur shocks and mitigate risks. The Hamas attack on Israel was in part a reaction to a potential diplomatic normalisation between Israel and Saudi Arabia. The regional response has been characterised by a desire to ensure the conflict does not reverse the hard-won political and diplomatic gains of improved Saudi-Iran and UAE-Iran relations.
The Middle Powers are also among the fastest growing economies and most attractive markets heading into 2024. Middle Powers want reforms to global institutions, recognition of development objectives, and a new distribution of global power. These countries are using their financial and market power to change the global trade, development, and manufacturing ecosystem. They also need foreign investment, technology transfer, and world class expertise, which will bring them to the negotiating table as well as the podium.
The world will remain highly integrated in 2024, but globalisation is not going to look the same as before. Trade and investment will increasingly flow along geopolitical lines. Bloc-based standards will create new network effects for business. Localisation policies will force companies to redesign operations and supply chains.
Rather than leaning on traditional strategies and familiar ways of doing business, in 2024 companies will need to adapt to a multipolar world where geo- and national politics will sometimes align but often conflict. Opportunity is there for companies that understand this dynamic.
