Geopolitical risks across Asia are increasing. Risks that companies face include those to reputation, ability to operate, access to resources, and even the license to be in business in a market. At a recent IMA Asia Management Forum meeting, IMA Asia forum members discussed the geopolitical risks they now are facing and how they are handling them. One member framed those discussions.
‘Geopolitics is back. Every January, we publish a risk map, and we say geopolitics is back. But this year we never thought we would see a land war in Europe that’s going to impact Europe and Asia.’
The IMA Asia Management Forum combines informed country assessments with a wide-ranging review of Asian strategy in a peer group forum for regional functional heads. Twice a year, we hold a ‘Strategy Evening’ where members discuss the urgent strategic issues of the day. This article is based on insights voiced by members during that meeting. Contact us to learn more about IMA Asia’s CEO and Management Forum membership.
The Ukraine War is top of mind when considering current geopolitical risks. The war will impact business across Asia through disruptions in supply chains and price inflation across a range of energy, commodities, and food items.
‘In the long-term, Putin’s War will impact everyone, including here in Asia, because of the increased prices. We’re not as impacted by food insecurity and energy issues as we would be if we were sitting in Europe. Nonetheless, in the long term, we can expect price increases and commodity issues for us here in Asia.’
Aggravating US-China tensions
The War in Ukraine has served to exacerbate US-China tensions and highlighted potential triggers that could disrupt relations between the two countries.
‘Ukraine is a catalyst that’s accelerating other trends that are already there. For example, an escalation in trade tensions due to Russian sanctions or an accidental mishap over Taiwan between militaries in the sea or the air.’
Deteriorating US-China relations create demands that US firms limit their relationships with Chinese state-owned companies. American firms engaged in large-scale development projects now face a dilemma.
‘We’re not going to get involved in building islands in the South China Sea, but we are going to continue working with Chinese firms. It is not so easy and simple to exit China as you might think. The problem is that many of our customers expect a whole-of-Asia level of service. We can’t say, “We’ll help you here, but not there or there.”
Compounding the risk of nationalism
Geopolitics has also heightened the risks of increased nationalism. In China, the sourcing of cotton from Xinjiang province has caused a furore. Several MNCs have been caught in the middle between appeasing Western human rights activists and avoiding a backlash from Chinese officials and netizens.
Nationalism also is leading to a tightening of restrictions on the use of foreign workers and expatriate professionals. Even in an open economy like Singapore, policy changes are impacting investment and staffing decisions.
‘Our client in the Singapore government is saying, “We want you to use local labour from Singapore as much as you can.” The problem is that 70% of the work that we do for them is delivered from talent centres that are not in Singapore.’
Demands for local sourcing for government procurement also are becoming more onerous across the region. Malaysia is just one example.
‘We must have a joint venture partner to go after a specific opportunity in Malaysia. But joint ventures are never easy to manage due to cultural differences and disparate ways of doing business. We realise that we must create jobs for Malaysians, but there are easier and more beneficial ways to do it.’
Influencing the Covid response
Geopolitics also is affecting how companies and government manage health care issues. China’s zero Covid policies is a case in point.
“Would China’s policies be the same if geopolitics weren’t involved? Would the policy be the same if foreign vaccines were allowed and the efficacy of the Chinese vaccines was better?”
Governments are removing restrictions on international travel, social distancing, and lockdowns. Nevertheless, Covid remains a significant business risk that could prove disruptive in the future.
‘Covid will be around for a while, and it’s not just a health issue. With high rates of inflation and government coffers running dry, will governments be able to offer subsidies if we have another bad wave? Also, what happens with nationalism? Will complaints about foreign workers increase over time?’
IMA Asia members can download and read the full paper on ‘Geopolitical Risks Rise in Asia’ by clicking on ‘Deep Read’ and downloading the paper. To learn more about IMA Asia’s memberships, contact us at service@imaasia.com.