When political disruption surrounds you, what’s your next strategic move?

Authors
Courtney Rickert McCaffrey

EY Global Geostrategic Business Group Insights Leader

Geopolitical analyst and strategist. Creative methodologist. Proud feminist. Passionate about generating insights to help executives make better-informed decisions.

Oliver Jones

EY Global SaT Sustainability Leader; Global Business Development, Markets and Insights Leader; EY-Parthenon Global Government & Public Sector Leader

Passionate about providing outstanding support to governments and businesses. Deeply committed to excellence in public policy. Team builder. Mentor. Flexible worker. Loving husband. Father of three.

6 minute read 11 Jan 2022

Companies will face geopolitical tensions and shifting policies in 2022. Targeted geostrategic actions can position them for growth.

In brief
  • Climate change impacts and policies will be central to the political environment that many companies face, providing both opportunities and challenges.
  • Government regulation and intervention will intensify, with a focus on the technology sector and achieving self-sufficiency in critical supply chains.
  • Implementing targeted geostrategic actions will help executives navigate these transformations and enable them to seize opportunities for growth.

Amidst the ongoing COVID-19 pandemic, supply chain disruptions and talent shortages, shifting political developments are reshaping the global operating environment for companies across sectors and geographies. This volatility will persist in 2022, posing both challenges and opportunities for global organizations. Companies that approach geopolitical and other political risks in a strategic and proactive manner are more likely to thrive.

Disparities in COVID-19 vaccine access will perpetuate a two-tiered world in 2022, which will both shape geopolitical dynamics and play out in domestic political and policy consequences. Continued shifts in geopolitical power are creating a multipolar system that will complicate cross-border flows and stakeholder management. Climate change and sustainability issues will permeate policy agendas and political developments, prompting shifts in business models and products. And the increasing role of governments in driving and directing economic activity through industrial policies will likely reorient strategic sectors toward growth opportunities at home rather than abroad.

This article highlights findings from the 2022 Geostrategic Outlook (pdf), which presents our view of the most likely and impactful developments in the geopolitical landscape in 2022. It also highlights the most relevant geostrategic actions to help companies capitalize on the opportunities these developments present.

Top 10 geopolitical developments in 2022

The EY Geostrategic Business Group identified the top 10 geopolitical developments that will shape the global operating environment in 2022. The geopolitical environment is volatile and complex, so to help monitor the situation, the developments have been grouped into three themes that executives can monitor and incorporate into their strategies throughout 2022.

Specific geostrategic actions will be needed to capitalize on the opportunities each of these political developments present while also mitigating the challenges they pose.

Five geostrategic actions to thrive in a two-tiered world

At a high level, there are five geostrategic priorities to help companies thrive amidst the geopolitical developments affecting the global operating environment in 2022.

1. Transform supply chains to match geopolitical realities

Geopolitical dynamics and the push by many governments to achieve self-sufficiency in strategic products will complicate traditional cross-border supply chains. Technology companies, manufacturers, automakers, and renewable energy companies are likely to be most affected by these policy dynamics. Complicating global supply chains further will be continued disruptions to operations and logistics driven by the pandemic, social unrest, cyberattacks and extreme weather events.

Executives should seize the opportunity to re-examine their companies’ supply chains for nearshoring, onshoring or “friendshoring” strategies to improve resilience. The introduction of supply chain due diligence regulations will likely also prompt a reassessment of suppliers and could provide both upside and downside reputational risks. Executives should therefore examine their companies’ supply chain partners and the potential risks they pose as part of a multidimensional risk assessment.

2. Make political risk central to acquisition and divestment strategies

Global M&A activity was booming for much of 2021 and the global economy is expected to grow robustly in 2022, providing strategic transactions opportunities to companies across sectors. But sectors deemed strategic will likely face limitations on or rejections of cross-border investment, while domestic M&A that creates a more competitive company on the global stage may be encouraged. Antitrust actions in a variety of markets may also weaken the likelihood of certain M&A approvals, particularly in the technology sector.

Executives should incorporate political risk assessments into their acquisition and divestment strategies to identify these dynamics at the outset. And they should use the opportunities provided by the current economic and deals environment to reassess their companies’ strategic footprint to improve resilience to current geopolitical developments.

3. Strengthen data management and digital security practices

The proliferation of regulations surrounding data security and privacy in key markets will continue to increase data sharing costs across borders. Executives need to scan the horizon for potential future shifts. And then they should align their strategies and business models according to country-specific regulations to avoid any compliance issues and gain competitive advantage.

Technology companies will likely also be at heightened risk of cyberattack, particularly software providers as they provide hackers a means of distributing malware to a large number of organizations. Executives across sectors should ensure their companies have strong cyber defences and data protection systems in place to win the trust of their customers, employees and other stakeholders.

4. Protect and grow talent pools

The so-called “Great Resignation” and continued restrictions on international labor mobility due to the pandemic means companies may need to innovate in how they attract and retain talent. For instance, sustainability and human rights diligence provides companies with the opportunity to engage and build trust among employees around these issues. At the same time, more supportive government policies in the health and education sectors could lead to improved human capital and reduced costs for companies in long run.

Executives should work with policymakers to reduce income inequality and promote inclusive growth, such as through job creation programs for the long-term unemployed, stronger diversity and inclusion programs and upskilling opportunities.

5. Create sustainable value for all stakeholders

Evolving great power relations and middle powers’ expanding role could complicate stakeholder management, given the potential for conflicting views from a wider group of country-level policymakers. However, more stakeholders at the table also provides companies with additional opportunities to engage. And the two-tiered world and increasing stakeholder expectations regarding sustainability and broader environmental, social and governance (ESG) issues provide the opportunity for a strategic shift in business models.

Executives should develop and leverage relationships with all stakeholders – including policymakers, investors, employees, customers and others – to support policies that reduce the divergences in a two-tiered world and promote sustainability and long-term value globally. Localized stakeholder relationship management will be important to gaining competitive advantage in all markets in which a company operates.

A strategic approach to political risk management is needed

Heightened geopolitical tensions, volatile domestic politics and dramatic shifts in regulatory environments will challenge executives in 2022. Global operations and supply chain disruptions will persist – and so too will human capital challenges. But focusing solely on mitigating downside risks could preclude companies from capitalizing on the upside opportunities that these political developments present. To thrive amidst the political disruptions expected in 2022, companies need to take targeted geostrategic actions.

Summary

Key political developments in 2022 will be driven by shifting geopolitics, policies associated with the energy transition and governments playing a larger role in their economies more broadly. While these developments pose downside risks, implementing targeted geostrategic actions can help companies recognize and seize associated upside opportunities.

About this article

Authors
Courtney Rickert McCaffrey

EY Global Geostrategic Business Group Insights Leader

Geopolitical analyst and strategist. Creative methodologist. Proud feminist. Passionate about generating insights to help executives make better-informed decisions.

Oliver Jones

EY Global SaT Sustainability Leader; Global Business Development, Markets and Insights Leader; EY-Parthenon Global Government & Public Sector Leader

Passionate about providing outstanding support to governments and businesses. Deeply committed to excellence in public policy. Team builder. Mentor. Flexible worker. Loving husband. Father of three.