Eurasia Group’s Chairman, Cliff Kupchan, and company President, Ian Bremmer, recently released their list of top risks to watch out for this year. From their opening remarks, one might conclude things are going swimmingly. They write, “We’re (mostly) through the pandemic. Russia has no way to win in Ukraine. The European Union is stronger than ever. NATO rediscovered its reason for being. The G7 is strengthening. Renewables are becoming dirt cheap. American hard power remains unrivaled. Midterms in the United States were decidedly normal … and many of the candidates posing the biggest threat to democracy (especially those who would have had authority over elections) lost their races.”[1] They add, “There’s got to be a catch.” They believe that “catch” is authoritarianism. They explain:

“A small group of individuals has amassed an extraordinary amount of power, making decisions of profound geopolitical consequence with limited information in opaque environments. On a spectrum of geopolitics with integrated globalization at one extreme, these developments are at the other extreme, and they’re driving a disproportionate amount of the uncertainty in the world today. Our top risks this year are skewed toward these actors and their impact: Rogue Russia, Maximum Xi, weapons of mass disruption, and Iran in a corner all come from international actors facing severe structural challenges and strong opposition (internal and/or external) in achieving their desired goals, with neither oversight, adequate expert inputs, nor checks and balances constraining their actions.”

In the initial installment of this article, I want to focus on these geopolitical risks. In the concluding part of the article, I want to examine how geopolitical risks might affect supply chain operations.

Geopolitical Risks

• Rogue Russia. Kupchan and Bremmer predict, “A humiliated Russia will turn from global player into the world’s most dangerous rogue state, posing a serious security threat to Europe, the United States, and beyond.”

• Consolidating China. China’s President and Communist Party leader Xi Jinping has continued to consolidate his power. Kupchan and Bremmer explain, “Xi emerged from China’s 20th Party Congress in October 2022 with a grip on power unrivaled since Mao Zedong. Having stacked the Communist Party’s Politburo Standing Committee with his closest allies, Xi is virtually unfettered in his ability to pursue his statist and nationalist policy agenda. But with few checks and balances left to constrain him and no dissenting voices to challenge his views, Xi’s ability to make big mistakes is also unrivaled.”

• Isolated Iran. According to Kupchan and Bremmer, “Before Russia’s fall from grace, Iran had been the world’s most powerful rogue state, itself effectively ‘decoupled’ from the international community. Accordingly, Tehran has long pursued a revisionist foreign policy in the Middle East via asymmetric means, including espionage, drone and missile strikes, support for terrorism, proxy wars, and the like.” And the situation hasn’t improved. Kupchan and Bremmer explain, “Tehran has escalated its nuclear program in dramatic ways, all but ending any chance of reviving the nuclear deal. And now Iran has wedded itself to Putin’s imperial ambitions in Ukraine. Facing convulsions at home while lashing out abroad, this year will feature new confrontations between the Islamic Republic and the West.”

• Notorious North Korea. Interestingly, Kupchan and Bremmer didn’t include North Korea as one of their trouble-spots for this coming year. Nevertheless, journalist Choe Sang-Hun reports, “North Korea’s leader, Kim Jong-un, vowed to expand his country’s nuclear capabilities against rival South Korea ‘exponentially,’ indicating that he would escalate his military brinkmanship in the new year despite sanctions from abroad and economic woes at home.”[2] This threat comes on the heels of a very active 2022. Journalist Jean Mackenzie reports, “[North Korea] fired more missiles than ever before in a single year. In fact, a quarter of all missiles North Korea has ever launched hit the skies in 2022. It was also the year that Kim Jong-un declared that North Korea had become a nuclear weapons state and that its weapons were here to stay.”[3] In addition to strengthening its nuclear weapons program, Mackenzie reports, “Other items on Mr. Kim’s new year list are a spy satellite, which he claims will be launched into orbit this spring, and a sturdier solid-fueled ICBM, which could be fired at the US with less warning than his current model. We can therefore assume 2023 will have a distinctly 2022 feel, with Pyongyang continuing to aggressively test, refine and expand its nuclear arsenal, in defiance of UN sanctions.”

Those countries aren’t the only ones posing geopolitical risks during the coming year. In many ways, they are a lineup of the usual suspects that can create the greatest international chaos. According the U.S. National Intelligence Council (NIC), there will be widespread state tension, turbulence, and transformation over the coming years.[4] Specifically, the NIC notes, “Governments in all regions will face mounting pressures from economic constraints and a mix of demographic, environmental, and other challenges. Meanwhile, populations will demand more, and they are empowered to push for their conflicting goals and priorities. The relationships between societies and their governments are likely to face persistent tensions because of a growing mismatch between what publics expect and what governments deliver. This widening gap portends more political volatility, risks for democracy, and expanding roles for alternative sources of governance. Growing public discontent, if accompanied by a catalyzing crisis and inspired leadership, could spur significant shifts or transformations in how people govern.”

According to McKinsey & Company analysts, a recent survey found, “Geopolitical risk is at the top of the CEO agenda. … In the face of fragmentation and uncertainty, many business leaders are responding by intensifying their focus on resilience.”[5] They add, “Globalization is under strain. The latest salvo: multiple disruptions triggered by Russia’s invasion of Ukraine. The world seems to be tethered to crisis, or the threat of it. CEOs need to know whether they can still remain global players and, if so, how.”

Concluding Thoughts

Citing the U.S. National Intelligence Council’s Global Trends 2040 report, McKinsey analysts write, “In the next two decades, competition for global influence is likely to reach its highest level since the Cold War: ‘No single state is likely to dominate all regions or domains, and a broader range of actors will compete to advance their ideologies, goals, and interests.’ Amid these challenges, the value of resilience is on the rise.” David S. Lee, a principal lecturer at the University of Hong Kong Business School, and Brad Glosserman, deputy director of and visiting professor at the Tama University Center for Rule Making Strategies, assert business leaders will never make their businesses more resilient without a clear understanding of the new business environment.

They explain, “The rules of international business have changed. To navigate this new paradigm, companies need to understand four important trends: 1) Interdependence between countries has grown and has created new risks, 2) geopolitical competition between the West and China is growing, 3) this geopolitical competition is playing out in advanced technologies, such as AI and semiconductors, and 4) the private sector can’t escape this tension. To mitigate risk, companies need to 1) increase their geopolitical expertise, 2) ask the right questions, 3) accept that politics are inescapable, and 4) consider reputational risk holistically.”[6] As I noted at the beginning of this article, in the concluding installment of this article, I will further discuss how business leaders can mitigate the consequences of geopolitical risk.

Footnotes
[1] Cliff Kupchan and Ian Bremmer, “Top Risks 2023,” Eurasia Group, 3 January 2023.
[2] Choe Sang-Hun, “North Korea Vows to Escalate Nuclear Threat Against the South,” The New York Times, 1 January 2023.
[3] Jean Mackenzie, “North Korea: What we can expect from Kim Jong-un in 2023,” BBC News, 3 January 2023.
[4] Staff, “Global Trends 2040: A More Contested World,” U.S. National Intelligence Council, March 2021.
[5] Andrew Grant, Ziad Haider, and Jean-Christophe Mieszala, “How to build geopolitical resilience amid a fragmenting global order,” McKinsey & Company, 8 September 2022.
[6] David S. Lee and Brad Glosserman, “How Companies Can Navigate Today’s Geopolitical Risks,” Harvard Business Review, 28 November 2022.