Geopolitical tensions are causing significant problems for businesses around the world, and IMD research shows that companies may be underestimating their magnitude. In a new paper for the World Economic Forum, IMD argues that business leaders and policymakers must now take decisive action.
Geopolitical tensions take many forms, but as IMD points out, they all contribute to a deterioration in global trade conditions. Issues have escalated in recent years, from full-scale conflicts such as the war between Russia and Ukraine to complex conflicts, including the fractious relationship between the United States and China. The Gaza crisis and related threats to Red Sea shipping in recent months are just the latest outbreak. Approximately 75% of company filings with the U.S. Securities and Exchange Commission (SEC) in 2023 cited geopolitical factors as driving risk assessments and business decisions.
These factors affect business in multiple ways and undermine the benefits of global trade. Businesses around the world are experiencing reduced revenues and increased costs due to geopolitical tensions. As a result, many companies are finding themselves forced to reduce operations in certain regions and markets.
How companies can better respond to geopolitical tensions
There are limits to what business leaders can do in response to geopolitical situations. However, IMD argues that it would be a mistake for companies to simply accept the negative impact of geopolitical conflicts. There are many things that corporate executives and board members can do to manage the complex power relationships in which they find themselves.
First, it's important for executives to take the time to consider how geopolitical tensions may impact their business. Not only does the current market situation demand this, but the work done to investigate these effects is valuable in itself. This has left many companies wondering how cross-border trade can contribute to their business, not only in terms of revenue and profits, but also as a means of controlling costs, spreading risk, and accelerating innovation. You will be able to understand in detail what is going on.
