As global cooperation wanes and strategic competition takes its place, individual regulatory frameworks that differ across regions have become the norm. Preparing the business for different sets of compliance mandates in different countries has made it increasingly difficult to operate a global business. Geopolitical uncertainty means organizations can expect more fragmented policy for data usage, with increased government control and intervention.
KPMG’s Top risks forecast takes a close look at some of the many geopolitical risks that threaten the world order. In this article, we delve into the three that are most likely to impact the Technology, Media and Telecommunications (TMT) sector today and in years to come and make recommendations for how businesses can manage these risks.
US election
This should be ‘elections’ more broadly. More than half the world will vote in 2024. Expect big campaign promises, rhetoric and visions. Tech companies, in particular, may find themselves in the crosshairs of political campaigns as politicians (and populations) struggle to adapt to the social shifts being catalyzed by technology.
Media companies may find this a banner year as parties and candidates empty their coffers on advertising. But, in some markets, it may also bring more restrictive regulation for media players.
Telco is often one of the world’s most regulated sectors. And while telecoms will likely not feature significantly in pre-election rhetoric, expect to see significant shifts in the regulatory environment over the coming years as politicians seek to make their mark on the sector.
Ungoverned AI
AI is a major area of geopolitical competition, with nations striving to lead in this critical technology. In the KPMG 2023 Global Technology CEO Outlook, 84 percent of TMT CEOs said investing in generative AI was a top priority. However, 71 percent also said a lack of regulation in the space would be a barrier to success.
The debate about who should be responsible for regulating AI continues to rage. Some suggest it is the responsibility of the industry to self-regulate. Others feel this is the mandate of government and reject the idea that TMT companies should have the power (or pay the costs) of self-regulation.
However, gaps in AI governance are quickly becoming evident amid faltering regulatory efforts, aggressively competitive tech companies and AI models spreading beyond government control. Regardless of who leads the effort, the lack of regulation around AI poses both an enormous opportunity and a serious risk for TMT companies globally.
Corporate culture wars
Consumers are becoming more active. Culture is influencing purchasing decisions. And companies are being judged on their non-financial activity. Either directly (by the actions they take) or indirectly (by the actions they enable), the TMT sector finds itself at the center of global culture wars.
An obvious example of this is in the US where the growing red-blue divide is fragmenting its internal market along party lines. Heavily conservative or liberal state policies means companies will either have to comply with laws and regulations that go against their values or exit certain state markets entirely.
Amid policy uncertainty and regulatory risk, companies will see reduced decision-making autonomy and an increased cost of doing business. They will also likely find themselves having to walk a fine balance between regulation, employee expectations and customer cultures. It will not be easy.
Financial Performance Indicators (FPI) analysis
The rush to take advantage of AI is influencing the financial performance of many TMT sub-sectors and companies. The KPMG Financial Performance Index is a tool that quantifies the financial performance and distress of sectors, sub-sectors, markets and companies. And our data shows that, globally, FPI scores are highest for the semiconductor (96.11) and electronic components manufacturing (95.76) subsectors, and lowest for consumer electronics (91.94) and telecommunication services (91.21).
The FPI data suggests the market will remain highly competitive for some time.
What TMT businesses can do
Conduct an extensive risk assessment:
Conduct a thorough assessment of your company’s exposure to geopolitical risks. Identify potential vulnerabilities and prioritize risks based on their potential impact. This can help you develop a targeted risk management strategy. If you need support, KPMG professionals can provide insights into emerging risks and help you prioritize actions to mitigate potential challenges.
Stay informed and monitor geopolitical developments:
Stay updated on geopolitical developments that may impact your organization. Monitor changes in trade policies, geopolitical tensions and emerging risks. This enables you to anticipate and respond to potential disruptions in a timely manner. You can also tap into the extensive KPMG network and research capabilities to get timely and relevant geopolitical intelligence.
Enhance operational resilience:
Build operational resilience by implementing robust risk management practices. Develop contingency plans and scenario-based strategies to address potential disruptions. Invest in cybersecurity measures to protect your organization from cyber threats that may arise from geopolitical tensions. And talk with KPMG cybersecurity professionals to see how you can strengthen your organization’s cybersecurity posture.
How KPMG can help
KPMG’s TMT professionals understand today’s complex geopolitical environment. By combining industry knowledge with technical experience, they can provide insights that help TMT leaders deal with their complex business models, helping clients explore potential obstacles collaborate on critical decisions that can deliver real value to their businesses.
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