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In the coming years, CEOs will need geopolitical skills to understand the world. Not having them will be a critical oversight." This quote(1) underscores an undeniable truth of the modern era: mastering geopolitical dynamics has become essential for effective corporate leadership. With the pace of change in international relations and national policies (often inspired by global events), business leaders must adopt a broad and informed perspective. From the ongoing trade tensions between the USA and China, to the volatile situation in the Middle East, and the conflict in Ukraine, geopolitical forces are influencing market access, operational stability, and strategic planning on a global scale.

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Understanding Global Market Dynamics.

 

More and more, geopolitical forces deeply impact the global marketplace. They are (re) shaping access, competition, and profitability across borders. Business leaders seeking international expansion must navigate a complex web of trade agreements, tariffs, and economic sanctions that can dramatically influence their operations. Key geopolitical tensions, such as the ongoing trade dispute between the US and China, provide a striking example of how quickly market conditions can shift and how essential it is for companies to remain adaptable.

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The US / China trade war (and to a lesser extent EU / China) exemplifies the potential challenges of geopolitical tension. For years, companies with supply chains stretching across both nations have faced shifting tariffs, export restrictions, and heightened regulatory scrutiny. In response, many multinational firms have reconsidered their reliance on China-based manufacturing, moving some operations to countries with more stable or predictable trade relations, such as Vietnam, Mexico, or India. These locations offer not only closer alignment with US trade policies but also more favorable conditions for long-term investment. This shift demonstrates how geopolitical dynamics can affect not only where companies source materials but also the cost structures that drive profitability.

G. Allison’s concept of the “Thucydides Trap”(2) adds an important dimension to understand the US / China rivalry(3).   While direct conflict is not inevitable, this rivalry imposes considerable risks for companies embedded in both or either economies. Understanding the implications of this strategic competition can help better anticipate disruptions and adapt operations accordingly. This geopolitical awareness enables companies to assess risks preemptively and consider alternative markets or suppliers, positioning themselves to remain resilient in an increasingly polarized world economy. What applies to US / China rivalry also applies to other places in the world.

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Managing Political and Regulatory Risks: Stakes get Higher

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Political instability and sudden regulatory shifts are not new. They are not necessarily related to geopolitical tensions either. But a good deal of recent ones are. They can have significant impacts on business, especially those operating across multiple jurisdictions. From abrupt policy changes to fluctuating investment restrictions, companies must navigate a landscape where political and regulatory risks can vary drastically. Developing a nuanced understanding of these risks is essential. It allows CEOs to better anticipate and manage potential disruptions.

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A prime example of political and regulatory risk can be found in the experiences of energy companies operating in Russia, after the war in Ukraine started. Foreign firms have faced abrupt changes in investment policies, currency fluctuations, and in some cases, asset seizures or expropriations.

 

The complex interplay of national interests and business regulations often reflects broader geopolitical struggles. As Allison outlines (2), great power tensions create a backdrop where regulatory frameworks and political decisions can shift suddenly, with sweeping effects on corporate operations. Leaders who are attuned to these geopolitical signals can more effectively manage the regulatory volatility that arises from such rivalries, ensuring that their companies remain compliant, resilient, and prepared to adjust as conditions change.

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From International Relations Understanding to Corporate Diplomacy

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In the modern global landscape, effective corporate diplomacy is a crucial skill for leader. Companies expanding abroad often need to secure permits, negotiate licenses, and build favorable relationships with local and national governments. The ability to understand and navigate these geopolitical nuances can make the difference between the success and failure of international projects.

In politically sensitive regions like the Middle East, for example, large multinational firms in the energy sector often negotiate directly with governmental authorities to secure operational stability. These companies must not only understand local political dynamics but also adapt to shifting alliances and regional tensions that can impact their operations overnight. Similarly, firms operating in areas with historical rivalries, such as between India and Pakistan, must exercise a high degree of diplomatic awareness to avoid entanglement in national or regional conflicts that could disrupt their business activities.

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Geopolitical acumen can allow corporate leaders to build strategic relationships with key stakeholders and anticipate changes in the political environment that could affect their access to resources and markets. By integrating geopolitical awareness into their decision-making, companies can position themselves as valuable partners in the eyes of governments and local communities alike, helping to secure their reputation and operational success in foreign markets.

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November 5th, 2024: A New US President. A New Era ?

 

We are on the eve of the U.S. election. Businesses around the world are bracing for the significant shifts that could arise based on the results.

 

Whether Kamala or Trump make it to the White House, the new US president will confront pressing geopolitical challenges with direct implications for European businesses. Tensions with China will likely remain high. Either administration will work to counter China’s influence on global trade, technology, and security. For European companies, this could mean greater pressure to align with US policies on technology export restrictions or sanctions, particularly in sensitive sectors like telecommunications and finance. Meanwhile, the US / Russia relationship could see new dynamics, with potential shifts in sanctions impacting European firms.

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Renewed US engagement (or lack thereof) with NATO and European allies will influence regional security and defense industries, creating either stability or heightened uncertainty for companies navigating EU / US strategic partnerships.

 

Each candidate’s approach could shift key areas of transatlantic relations. This could affect:

• Trade and Tariffs: If re-elected, Trump may extend his protectionist “America First” policies, potentially raising tariffs on European imports such as steel and automotive goods, impacting European exporters’ profitability and supply chains. A Harris administration could be more likely to ease trade tensions, seeking new cooperative agreements and possibly stabilize EU US market access.

• Climate and Environmental Policy, and Middle East Stability: Trump’s focus on deregulation is likely to continue. He may favor fossil fuels and maintain a strong presence in oil-rich regions of the Middle East. His administration’s policy may lean toward supporting traditional energy alliances which could keep oil supplies steady but maintain Europe’s exposure to price volatility. For European energy firms, this would mean predictable, albeit fluctuating, access to oil markets. Conversely, a Harris administration is expected to rejoin the Paris Agreement and prioritize green energy, potentially reducing direct U.S. involvement in the Middle East. This shift could contribute to regional instability, driving oil price volatility and creating challenges for EU firms reliant on fossil fuels while opening opportunities in the renewable sector, especially for green investments in the US

• Technology and Data Regulation: A Trump administration might maintain a hands-off approach, favoring American tech dominance but complicating EU-U.S. data agreements. Harris is likely to support stricter digital privacy standards, potentially easing compliance for European firms and aligning with EU data protection frameworks.

 

CEO Understanding geopolitical dynamics: No longer a luxury, it is a must!!

 

Boundaries between business and politics blur more each day. Understanding geopolitical dynamics is no longer a luxury for CEOs: it is a must. Business leaders must be as attuned to international tensions as they are to market trends. They need to recognizing that each shift in global politics can reshape strategies, disrupt operations, or unlock new avenues of growth. For corporate leaders in Europe and beyond, geopolitical awareness has become more than a tool. It is a compass guiding them through an unpredictable world.

 

We are on the eve of one of the most pivotal US elections in recent history. CEOs watching across the Atlantic should not only see this election as just political shift. It’s a signal of the new rules that will most certainly govern their path forward.

 

Guess the next days, weeks and months will be fascinating…

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1. – Jean François Fiorina

2. – Destined for War, Mariner Books, 2017

3. – The “Thucydides Trap” suggests that tensions between a rising power and an established power have historically led to conflicts and possibly war