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 / Fall 2003 / Issue 32(originally published by Booz & Company)


Risky Business: Geopolitics and the Global Corporation

Global Hazards
The Cold War’s conclusion was met by a tremendous expansion of global business, as corporations found themselves newly able to expand into transition economies and emerging markets. The dogma of the 1990s held that free market enterprise and a liberal economic agenda would lead to more stable geopolitical relations. The decline of interstate warfare during this period also provided a geopolitical environment that enabled heavy consolidation across industries, resulting in the emergence of massive conglomerates with worldwide reach. The economy was paramount; corporations were almost unconstrained by political and social considerations.

Yet business’s greater international presence and increasing geopolitical complexity have also heightened business’s exposure to conflict and violence, leaving MNCs suddenly and nakedly exposed. They have become larger, more obvious targets for attack, but they also are vulnerable because their strategies were based on the assumption of fundamentally stable geopolitical relations.

In this context, the expression “global player” acquires new meaning: Previously a reference solely to an economic actor, the term now describes a company that has, however unwillingly, become a political actor as well. Today, corporate global players function in the complex nexus of what the innovative German sociologist Ulrich Beck has called the risk society. To remain a global player today, a firm must be able to survive not only economic downturns, but also geopolitical shocks.

An understanding of the risk arising from increased geopolitical uncertainty begins with a view of globalization as a process that has made risk an endemic reality — that is, no longer simply the result of conflict in one country or another (though no doubt that remains the case in many parts of the world), but something inherent in the globalized system itself. As Foreign Policy editor Moisés Naím has written, “Thanks to the changes spurred by globalization over the last decade … nation-states have benefited from the information revolution, stronger political and economic linkages, and the shrinking importance of geographic distance. Unfortunately, criminal networks have benefited even more.”

Globalization involves risk for several concrete reasons:

  • The definition and quality of governance differ vastly. Governments in the developing world have been slow to adapt to the demands of efficiency required by a greater business presence; thus, such traditional political risks as corruption and expropriation still apply.
  • Nongovernmental actors are empowered. The increasing spectrum of political and economic activity occurring outside government control or oversight means that vulnerabilities have increased throughout the networks of globalization.
  • Technology advances risk as well as control. The technologies that facilitate global corporate activity also enable illicit interactions and the sudden appearance of threats; greater security measures taken by governments and corporations can provide “point solutions” to harden systems and structures against specific threats, such as cyberattacks, but because the platforms and infrastructure of business and crime overlap, the window remains open for threats to enter.

Geopolitical risk is not limited to globally networked industries. On the surface, it may seem that urban terrorism and supply chain disruptions affect mostly large MNCs, but rising insurance costs and heightened security measures apply to businesses of all sizes, creating even more incentive to understand conflicts unfolding around the world. These emerging threats interact with changes in international transport and trade. Al Qaeda, for example, has been implicated in recent attacks on economic targets such as oil tankers. Global dependence on key transportation systems such as jet aircraft, container vessels, and tankers is growing steadily, building up an increasing array of complex, economically important, and time-sensitive economic subsystems.

These subsystems are vulnerable not only to conventional “blowback” — the unintended consequences of foreign policy decisions — but also to new, nontraditional forms of warfare. The U.S. Department of Defense’s 2001 Quadrennial Defense Review Report claims that new asymmetric threats such as cyberattacks are likely to increase. Because the so-called revolution in military affairs has widened America’s clear lead in all conventional weapons areas, a fact that has deterred most nation-states from traditional military confrontation, the report predicts more attacks that take advantage of the openness of Western societies and economies. Among the most significant risks are those to our capacity to produce, communicate, and use information, which is central to national security in multiple ways, from conducting e-government, to waging information warfare, to combating transnational criminal organizations. A recent FBI survey showed that nine out of 10 business and government agencies had detected computer-security breaches within the previous 12 months, with hundreds of millions of dollars in losses. Corporations therefore can be adversely affected by the spread of technological know-how.

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  1. Randy Starr, Jim Newfrock, and Michael Delurey, “Enterprise Resilience: Managing Risk in the Networked Economy,” s+b, Spring 2003; Click here.
  2. Moisés Naím, “The Five Wars of Globalization,” Foreign Policy, January/February 2003
  3. David Rothkopf, “Business Versus Terror,” Foreign Policy, May/June 2002
  4. Jeffrey E. Garten, The Mind of the CEO (Perseus Books/Basic Books, 2001)
  5. Global Trends 2015: Click here.
  6. National Strategy for Homeland Security: Click here.
  7. 2001 Quadrennial Defense Review Report: Click here.
  8. Lehman Brothers Eurasia Group Stability Index: Click here.
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