Thriving Through Economic, Geopolitical, and Business Risks and Transformation
Strategic Diversification, Digital Transformation, and Scenario Planning are Key to Resilience Building and Risk Mitigation
28-Jun-2024
Global
Market Research
Companies need to increasingly plan for business scenarios tied to fast-changing macroeconomic dynamics and risk conditions. Staying ahead of the curve requires extensive scenario planning and nimble responses to evolving risk conditions, such as economic, geopolitical, technological, climate change, and labor and human capital risks.
This thought leadership analysis evaluates the top risks CEOs and their leadership teams should prepare for in 2024-25, with economic and geopolitical risks dominating the risk landscape. In terms of economic risks, further cross-border geopolitical flare-ups could fuel inflationary pressures, derailing central bank interest rate cut plans. On the trade front, the United States has raised tariffs against China. The looming risk of an intensifying US-China trade war could disrupt trade flows and drive up costs for end consumers. Global supply chains and semiconductor production could come under pressure in case of geopolitical conflicts involving Taiwan or South Korea, major semiconductor producers. On the technological front, generative AI has become a go-to technology for efficiency and output maximization. Companies also need to secure themselves against generative AI-linked breaches.
The analysis qualitatively and quantitatively evaluates 23 global risks based on the parameters of global economic impact, likelihood, and impact timelines, with risk scores generated for the global risk universe. The findings of this exercise have been encapsulated in a global risk heatmap, enabling companies to immediately identify high risks to product lines and markets. The analysis also outlines pre-risk mitigation and post-risk responsiveness measures for the top 5 global risks from 2024-25. Companies that effectively plan for these risks and transformations are poised to gain a competitive edge during disruptive times.
The Impact of the Top 3 Strategic Imperatives on the Global Business Environment
Geopolitical Chaos:
Why
- The past 2 years have been fraught with major geopolitical upheavals, such as the Russo-Ukrainian war and the Israel-Hamas war, which have disrupted trade and supply chains.
- There are looming geopolitical risks such as China-Taiwan tensions or a larger Middle East war.
Frost Perspective
- Businesses should revisit supplier and product sourcing strategies to mitigate potential shortages from new geopolitical shocks.
- Adequate stockpiling of critical parts and supplies should complement just-in-time manufacturing to avoid production and supply chain snarls.
Transformative Megatrends:
Why
- With the re-intensification of US-China trade wars under a potential Trump presidency and other risks to supply chains, production and supply chain diversification will be paramount.
- Potential 60%+ tariffs by the United States on Chinese imports will considerably raise China-US trade costs.
Frost Perspective
- Southeast Asia and India can be considered China+1 locations, especially given their strong macroeconomic prospects.
- Mexico can be considered for nearshoring destination for companies looking to access the US market.
- Businesses should be on the lookout for new government policy rollouts to attract investments.
Disruptive Technologies:
Why
- Technology has a deflationary impact over the long term—acting as a key tool to counter inflationary forces.
- Artificial intelligence (AI) and other technologies deployed across trade and supply chains will help improve real-time visibility and response times to shocks.
Frost Perspective
- While generative AI (GenAI) is now a go-to technology, businesses also need to parallelly secure against potential IP threats and other risks from GenAI usage.
- Machine learning (ML), predictive analytics, and other technologies will be important to improve foresight and navigate geopolitical risks.
Growth Drivers:
Risk Mapping and Pre-Risk Responsiveness to Sustain Growth Through Emerging Threats
- Businesses with enhanced foresight and proactive strategies will survive and thrive through growing global risks and outperform peers with reactive strategies.
- Supplier relationships, sourcing strategies, and export destinations should be mapped to different economic and geopolitical risk scenarios.
Strategic Diversification Strategies Form Core of Risk Responsiveness Measures
This includes strategic diversification of production sites and supply chains, geographic diversification of oil and gas trade partners, and product portfolio diversification.
Growth restraints:
Business and Operating Environment Fraught with Multiplicity of Risks
- While the risks of recession and tepid consumer demand were important post-pandemic, the risk environment has become particularly complex with the addition of cross-border clashes and looming geopolitical threats.
- Technological and climate change are also prevalent issues, but present a lower imminent threat in most cases.
Economic Risks Dominate 4 of the Top 5 Global Risks
The economic risks include recurring inflationary shocks, recurring trade and supply chain disruptions, US-China trade war intensification, and global recession.
Why is it Increasingly Difficult to Grow?
The Strategic Imperative 8™
The Impact of the Top 3 Strategic Imperatives on the Global Business Environment
Growth Opportunities Fuel the Growth Pipeline Engine™
Growth Drivers and Restraints
Universal Risk Mapping
Economic Risks—Driving Factors
Geopolitical Risks—Driving Factors
Technological and Labor and Human Capital Risks—Driving Factors
Environmental and Climate Change Risks—Driving Factors
Risk Impact, Probability, and Timeline Summary
Risk Scoring
Risk Scoring (continued)
Risk Scoring (continued)
Risk Scoring (continued)
Risk Scoring (continued)
Risk Scoring (continued)
Risk Ranking and Score Summary
Recurring Inflationary Shocks—Impact and Risk Responsiveness
Recurring Trade and Supply Chain Disruptions—Impact and Risk Responsiveness
Israel-Hamas War Escalation into a Middle East War—Impact and Risk Responsiveness
US-China Trade War Intensification—Impact and Risk Responsiveness
Global Recession—Impact and Risk Responsiveness
Growth Opportunity 1: Production and Supply Chain Diversification to Newer Go-to Markets
Growth Opportunity 1: Production and Supply Chain Diversification to Newer Go-to Markets (continued)
Growth Opportunity 2: Technological Transformation
Growth Opportunity 2: Technological Transformation (continued)
Growth Opportunity 3: Product Portfolio Diversification and Restrategizing
Growth Opportunity 3: Product Portfolio Diversification and Restrategizing (continued)
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Key Issues Addressed
- What is the risk universe for 2024-25 and what are the factors driving these risks?
- Which are the top 5 risks businesses need to prepare for to thrive?
- How does the economic impact of delayed rate cuts compare to a US-China trade war escalation?
- What is the risk score of a potential China invasion of Taiwan against that of a global recession?
- Does the risk score of technological risks outperform that of climate change risks?
- How should businesses navigate emerging global risks?
- What risk mitigation strategies should businesses deploy to counter economic risks?
- What growth opportunities should businesses capitalize on as the risk landscape evolves?
Author: Neha Anna Thomas
Deliverable Type | Market Research |
---|---|
Author | Neha Anna Thomas |
Industries | Cross Industries |
No Index | No |
Is Prebook | No |
Keyword 1 | Economic and geopolitical risks |
Keyword 2 | Geopolitical risk navigation |
Keyword 3 | Risk management insights |
Podcast | No |
WIP Number | PFLD-01-00-00-00 |