Since February 2022, more than 1,000 companies to cease operations in Russia, the 11th largest economy in the world. This highlighted the need for global businesses to improve their ability to predict international risks and improve organisational resilience.
As CEOs and boards work to develop capabilities to manage international risks, and to develop organisational resilience, the need to improve awareness has become a key component of successful strategy and performance. Planning for scenarios is firmly back in the executive playbook in order to gain the necessary strategic foresight.
The disruptions caused by the conflict in Ukraine continue to disrupt the global operating environment These include those in energy, food security, supply chain, and many other areas. CEOs are concerned about how they will deal with geopolitical disruptions that occur.
“Ukraine today could be East Asia tomorrow.”Fumio Kirishida, Japan’s Prime Minister, at the 2022 Shangri-La Dialogue Global Safety Forum
Leaders need to evolve from scanning to planning. They should also develop key risk indicators that provide an early-warning system as well as full-scale contingency plans for international risks. As the liberal international order remains challenged, many truths are up for debate.
An appropriate international risk lens
Organisations must carefully scan for possible futures and then add an appropriate mix of external and internal perspectives to their thinking.
An internal perspective may include expertise from the country team leader and that of legal, risk, security, or public affairs professionals. External perspectives can include retaining a political-risk advisory group with an impartial view, scanning public source material such as World Economic Forum’s Global Risk Report, or governmental sources such the US National Intelligence Council’s Global Trends, or similar strategic assessments commissioned from EU institutions, to leveraging insights from academic and policy arenas. Three lenses can be used to view the resulting scenarios:
Organisations must take a step back from the chaos of the international risk environment and assess opportunities and risks that will allow them to gain a competitive advantage. Business leaders who demonstrate strategic courage in the midst of volatility can find silver linings amongst a persistently challenging international operating environment that is full of economic risks and geopolitical turmoil.
One example since Russia’s invasion of Ukraine is the pivot to alternative countries in the Indo-Pacific region like India and Vietnam as additional investment opportunities in “friendshoring”.
Black Swans are often referred to as high-impact, unpredictable events. Black Swans are unpredictable and one must be able to think about a wide range of possible scenarios in order to plan well. Potential black swans can include the implosion or forcible demise of a leader, a political conflict, a major regional conflict, a catastrophic climate event, mass casualties, migration waves, or another pandemic. Black swans are rare for good risk analysts, so be careful to call too many things a black swan, when really they were grey rhinos.
Grey rhinos are likely events with high impact, contrary to the unpredictable nature that black swans exhibit. These risks are visible in the distance but we often do not understand their full extent. While we know they will attack us and cause material damage, we do not understand know when or how much pain the realised risk will cause. It is important that organisations have a plan in place to remove grey rhinos from their path when they are charging. Sometimes multiple grey rhinos can stampede at once, which is why it’s called a “crash” of rhinos.
The risk of Asia’s regional conflicts escalating in the face of greater strategic competition is one of the grey rhinos that are on the global radar. Others that could be charging rhinos include an escalation of conflicts in the Middle East. There may also be cooling relations and international pressure against certain regimes that cause an increase in proxy or direct conflict. Think about the looming risks from potential conflict between the USA and China.
Do you want to shape or be shaped by international risks?
It is crucial that board-level discussions on the international risk environment become common-place in this era of persistent volatility. These conversations should bring out the best in everyone involved and allow them to share their imaginations about possible futures and analyze the potential impacts.
This requires more than a strong framework. This requires professionals with the ability to advise the leadership and a team that understands the international risk environment. This knowledge, which is refreshed through workshops, policy papers, briefings, and expert advice allows decision makers to think broadly, creatively, and with focus on what matters most.