Globally, we are at a watershed moment. For years, we lived in a world with an undisputed superpower and a climate that allowed for globalization and cooperation — but that system is shifting.
The theme of this year’s World Economic Forum (WEF) Annual Meeting — ‘Cooperation in a Fragmented World’ — highlights the uncertainty of the times and a shift in globalization that challenges the harmonization and economic integration we’ve been used to for the last 30 years.
When institutions no longer align with the balance of power, values and priorities in the global order, new players start to emerge and increase the likelihood that systems become delegitimized or break — creating a geopolitical recession.
Amidst the landscape of a multi-polar world, rising conflict, and a resurgence in populism and nationalism, it is crucial for countries and territories to come to a consensus on where the world should be heading and how to reform and strengthen the multilateral institutions that allow us to face big global challenges, including climate change, social justice, geopolitical uncertainty and the reemergence of global conflict. The events of the last three years, particularly the pandemic and the war in Ukraine, have caused a dramatic reshaping of global security alliances and exposed the vulnerabilities of supply chains reliant on countries perceived as a national security threat. For example, Europe’s overdependence on Russian gas forced it to change how it sources energy — and at great cost.
From a corporate perspective, the world seemed flat for a long time. The last 30 years have been unique in history. The fall of the Soviet Union allowed for the integration of the Russian industrial machine into the global system of trade, providing cheap energy and commodities. A few years later, China entered the World Trade Organization, giving the world cheap labor and the biggest manufacturing engine ever seen. But for years, there was a lot simmering in the background, including the rise of countries as dominant players in the global economy, that challenge the status quo. Tensions came to a head in the last couple of years. COVID-19 reduced China’s manufacturing capability and the war in Ukraine disrupted Russian energy, food and commodity supplies.
For the first time in centuries, the world’s population is set to decline over the next few decades.1 This creates another challenge to the globalization model — and its prosperity — as it relies on a growing population that keeps consuming and investing. And as we navigate this ever-changing world, the way business operates will likely have to change. Those who once took advantage of the globalized environment through global economic efficiencies — including offshore manufacturing and expanding supply chains — will be forced to rethink their approach.
While it’s difficult to predict exactly what will happen if the world transitions away from globalization towards a new national security economy, there are a few considerations that can help businesses prepare:
1. Understand geopolitical risk
Understanding ongoing geopolitical risks is essential to maintaining a strong corporate strategy and safeguarding your business. Recent global events have caused ripple effects across key industries and markets at the heart of globalization, changing the overall scope and direction that is reshaping country alliances and how global sectors operate.
2. Monitor geopolitical trends
The geopolitical situation can change drastically at any time, making it critical for business leaders to monitor these changes and how they may affect their organizations. Between a massive restructuring of supply chains, the reduction of cheap labor and manufacturing, and a decrease in cheap commodities such as energy, we are seeing a trend toward supply chain reshoring, friend-shoring and onshoring that will likely continue to gain prominence.
3. Build stronger relationships with government
Many governments are starting to take a more interventionist role in industrial and trade policies and are starting to shift their economies based on national security concerns. As an example, countries are attempting to onshore or friend-shore critical semiconductor supply chains, and human rights concerns could see some countries move manufacturing jobs away from nations that don’t align with their values. More than ever, corporations will have to cooperate with governments to navigate these uncharted waters.
Great things can be achieved when the world works together to meet common goals. As WEF brings government, business and civil society leaders together from around the globe, it’s an opportunity for much needed dialogue that can build cooperation between the public and private sectors and chart a path to tackling the global challenges of tomorrow.
Footnotes:
1 Global population in 2100: https://www.thelancet.com/infographics-do/population-forecast