What Is The Impact Of Geopolitical Events On Investments? – The impact of geopolitical events on global trade and logistics cannot be underestimated. As the world moves through unpredictable times, supply chains are exposed to the vulnerabilities of systems that prioritize efficiency over resilience. The COVID-19 pandemic has increased the current trend and greatly affected businesses around the world. Therefore, it is more important than ever for companies to incorporate geopolitics into their supply chain analysis and planning.
Before COVID-19, there were four main themes of geopolitical uncertainty: changes in the structure and institutions of the international system, popular discontent leading to the rise of populist politics, dramatic technological transformations and climate change disrupting supply chains. But the pandemic has added new complexities and uncertainties to the mix. As a result, businesses must conduct comprehensive risk analysis and be aware of geopolitical developments to protect their supply chains.
What Is The Impact Of Geopolitical Events On Investments?
The geopolitical landscape is undergoing significant change as the international system, and its key institutions, face pressure from the rise of populism and the trend towards self-sufficiency. Structures created to maintain stability and promote free trade are now under serious scrutiny. Businesses must consider the political nature of international relations and the politicization of trade when assessing supply chain risk. As a result, companies must integrate geopolitics into their supply chain planning and analysis to effectively navigate the chaotic and unpredictable geopolitical landscape.
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The strategic rivalry between China and the United States has significant implications in the international system, from norms and rules for international trade to local market dynamics. As the geopolitical landscape continues to deteriorate, bilateral and multilateral relations are increasingly politicized and unpredictable. This shift has pushed domestic market dynamics towards greater independence, a trend unrelated to increased political tensions.
As a result, trade tensions have increased with tariffs and non-tariff barriers imposed or threatened. Governments are increasingly focused on ensuring the stability and sustainability of stressed domestic industries, leading to increased interest in strategic self-sufficiency, storage and offshore storage. The shift from liberalism to protectionist tendencies is exacerbated by the changes brought about by COVID-19 and concerns about the vulnerability associated with dependence on key trading partners.
Concerns about vulnerabilities include concerns about slowing down or shutting down key suppliers and critical operations, delays in getting raw materials in and out of manufacturing facilities and finished goods to market, and bankruptcy challenges for manufacturing partners and key customers. To reduce risk, companies must focus on the adequacy of their contingency plans and the long-term sustainability of current strategies, following geopolitical trends that may disrupt their supply chains. As a result, changes in international relations and the rise of protectionism are forcing businesses around the world to adapt their supply chain strategies to navigate a volatile and uncertain geopolitical landscape.
With discontent fueled by populism, political and economic policy is driven by an inward-looking approach rather than international engagement and cooperation. Leaders who take advantage of these political trends actively promote anti-pluralism, making international cooperation less likely. This change in approach has adverse effects on global trade and logistics.
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These political trends cause great uncertainty in social and economic policies and cause rapid changes in business conditions. There is a tendency to prioritize the domestic market based on domestic political logic over global economic logic. Even democratic institutions such as a free media and an independent judiciary suffer when countries turn to far-left or far-right policies to appeal to their internal power base.
The COVID-19 pandemic has exacerbated the trend by exacerbating inequality and poverty and fostering feelings of insecurity, frustration and alienation from the system. In the future, this trend is expected to increase worldwide, with decisions on global trade and logistics driven by political rather than economic concerns. As business leaders continue to navigate these uncertain times, they must be aware of the potential impact and prepare accordingly.
Rapid advances in digitization technology have revolutionized global trade and logistics. E-commerce, process automation, data collection and artificial intelligence are giving businesses new ways to engage with customers by increasing efficiency and value creation opportunities. Meanwhile, technology also improves customs control, reduces compliance risks, and ensures the safety and security of global trade.
However, while technological transformation brings many benefits, it also brings uncertainty. With the rise of the technology divide between China and the US, there are concerns about job security, national security and trade governance. This division threatens the interoperability of technological systems and the flow of information across borders and may lead to the division of efforts between the two technological divisions.
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As businesses continue to navigate these unique technological changes, optimizing all modules of their supply chain through digitization becomes indisputable. Existing digital infrastructure must withstand severe business disruption and businesses must improve their ability to meet demand while providing flexibility in digital investment. This adaptation is very important if the business needs to bridge the technology gap.
Climate change poses an existential threat to global trade and logistics, with extreme weather events such as the 2020 bushfires posing physical risks to operations. In addition, lack of access to safe water, lack of resources and increased socio-political risks such as mass migration, displacement, health crises and unrest are key issues that will affect global trade and logistics systems.
Supply chains are particularly vulnerable to disruptions caused by climate change. Extreme weather events can shut down critical supply routes, causing shipping and insurance costs to rise. Rapidly changing consumer preferences are increasing the demand for sustainable goods, and companies that fail to meet these expectations may suffer. The impact of carbon pricing schemes may increase operating costs, but may encourage such businesses to invest in green technologies.
It remains important for businesses to consider the risks posed by climate change and implement strategies to manage the impact of those risks on global trade and logistics systems. These strategies include adopting more sustainable goods and services, outsourcing critical supply chain management, and developing business continuity plans flexible enough to adapt to new scenarios. Business leaders must be vigilant to ensure continued access to critical resources and proactive in protecting their supply chains to ensure they remain resilient to disruptions caused by climate change.
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Navigating the risks and opportunities in global trade and logistics requires strategic thinking and the ability to be proactive in mitigating risk while embracing new opportunities. Businesses must bring a geopolitical perspective to the world to ensure they are not affected by the risks posed by current and future geopolitical trends.
COVID-19 has shown a significant impact due to supply chain disruptions, and this emphasizes the importance of future-proofing supply chains. Businesses must strive to develop a more sustainable and resilient supply chain by addressing key supplier closures, counterparty risk and solvency issues with upstream suppliers and ensuring the adequacy of contingency plans.
In the post-COVID-19 era, businesses must focus on local and regional value chains and stronger coexistence between local and international market opportunities. When embracing future opportunities, businesses must be aware of geopolitical risks and consider them when planning the recovery process. How is the supply chain affected by the relationship between government, people and the land they live on?
To better understand a concept, it is easiest to break it down into its essential parts. Geo is short for geo, which means “based on or derived from the physical characteristics of the area”. Geography is a geographical adjective derived from the Greek words “ge” and “graphia” (meaning Earth and writing, respectively).
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Politics is defined as “relating to the government or public affairs of a country”. The word comes from the Greek words “polite” and “polis” meaning “citizen” and “city”.
Put together the geographical and political definitions and you get: “the government or public works of a country based on or derived from the physical features of that area.”
We can begin to see all that is involved in geopolitical events – there is a seamless relationship between the government, the people and the land they live on. Consider the three intersecting circles defined as Government, People and Land:
Geopolitical risk arises when something happens and affects each of these three environments. Kroll, a business intelligence company, provides a good definition:
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“In general, geopolitical events occur at the intersection of geographic factors (access to natural resources, proximity to countries in chaos, etc.), policy decisions (limits on foreign direct investment, tolerance of corrupt elites, etc.), and local culture .climate (perception of local foreign operators, uncertainty before elections or regime change, etc.).
Geopolitical supply chain risks are disruptive global political events, which typically occur in areas that affect a company’s suppliers. Examples of geopolitical events are national conflicts, such as US and Chinese tariffs.
The US government has made a commitment to limit trade with China in its efforts to establish its own manufacturing presence. Tariffs have led to higher prices for some components in the electronics industry, and many companies are now looking for alternative supplier sites outside of China to reduce costs.
Other types of geopolitical events are categorized