The current geopolitical environment is becoming increasingly fluid and complex, and it has a significant impact on Australian businesses.
In recent years, geopolitical megatrends have presented Australian businesses with new and rapidly evolving challenges. Structural changes to the international system, rising global mistrust, Industrial Revolution 4.0, and the dramatic impacts of the climate crisis have all been exacerbated by the COVID-19 pandemic.
Geopolitical risks tend to be highly interconnected and contagious. As such, they should not be considered in isolation. For Australian businesses, global megatrends take shape in specific individual risks. These can then be grouped into scenarios or ‘risk clusters’ based on their interconnectivity and the degree of contagion among them.
How do these geopolitical risks affect Australian businesses?
Our analysis sets out the rapidly changing risk environment and identifies 16 individual risks and three potential scenarios or risk clusters.
According to KPMG's Dynamic Risk Assessment (DRA), the scenarios that look to have more severe potential implications for Australian businesses than any individual risk are:
1. Increased public scepticism and scrutiny of business
This cluster shows a relationship among government and media misdirection, loss of confidence in governments, and the slow pace of change in decarbonisation and sustainability efforts. This cluster is unique in that these risks are not shared in another cluster.
2. Economics and politics collide in the region
As the main economic and trade engine in the region, economic and political developments in China have potential spill-over effects/impacts on neighbouring countries or other countries that are economically interdependent with China. This cluster, with four risks, has the potential to generate the greatest impact within the shortest timeframe.
3. Inability to adapt to an evolving region
This cluster indicates that the Asia-Pacific region is changing rapidly, and Australian relations with the region are evolving. This is in large part driven by Australia’s increasingly complex relationship with China. The question is, is Australia keeping up with the changes?
What this means for Australian business
Outside of these three risk cluster scenarios, each identified individual risk also has important implications for business. Some individual risks can be ‘Black Swans’, that is, they may not seem imminent, but shouldn’t be dismissed as they could play out in unexpected ways.
The report provides targeted and practical recommendations to support businesses in navigating the complex and volatile geopolitical context.
The insights in this report should prompt Australian business leaders to consider whether they are sufficiently aware of and prepared for this rapidly evolving risk environment.
This report is a locally-focused version of Top Risks 2022: The Bottom Line for Business by KPMG International, based on our global alliance partner Eurasia Group's annual Top Risks report.
About the Australian research
To create a risk analysis specific to the Australian business context, KPMG Australia surveyed experts from across the firm to develop the top Australia-specific business risks. These risks were run through a Dynamic Risk Assessment (DRA). DRA is a risk assessment tool that helps organisations make better-informed decisions by understanding what can happen when individual risks combine and interact.
Our global alliance partnership with Eurasia Group brings their predictive geopolitical analysis of global interconnected risks together with KPMG’s understanding of business across industry to address company business impacts with actionable plans – using robust analytics and on-the-ground insights from senior policy insiders.
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