“We are in a very paradoxical moment in the world where we remain deeply connected, and yet the world itself is increasingly contested,” says Ziad Haider, partner and global director of geopolitical risk at McKinsey and Company.
Speaking at the Singapore Economic Policy Forum jointly hosted by the Singapore Management University (SMU) and the Economic Society of Singapore (ESS) on Oct 14, the flow of goods and intellectual properties, he says, has reached unprecedented levels, with inter-region trade having increasingly grown in fashion.
This is evident from Asia becoming the second-most integrated region in the world, only behind the European Union (EU).
He says: “About 65% of the EU is trading within the EU, and with Asia, it's about 57%, followed by North America.”
Attached to this connectivity however, are grey rhinos; a term describing risks with a high chance of occurring and a massive impact if they materialise.
Like many business leaders, Haider notes that the grey rhino of today largely revolves around the evolution of US-China relations, and the potential impact once the pendulum swings in either direction.
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“The political centre of countries are not quite holding, and what that means is that we're seeing the rise of forces of protectionism, isolationism, in some cases, nationalism. All of this makes for a much more difficult world to be global and do business,” says Haider.
While geopolitical risks have increasingly been prioritised as the number one threat posed to companies, business leaders contrastingly place less importance on finding a viable solution for the problem. Managing risks in this space, he says, is often a highly-agnostic and fluid concept.
Haider explains: “And part of the reason for the disconnect between something being a top priority to being a top issue, is because most companies have yet to find the toolkit to manage political risk.”
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Course of actions in business, he says, cannot come from simply reading a report or consulting a subject expert. Rather, a systematic approach has to be established.
He explains: “Some are setting up a dedicated geopolitical risk unit; a team that looks at big trends. Teams that look beyond a war, at more practical things such as tariffs being put in place. Some are setting up advisory councils, others are putting certain political risk firms on a retainer.”
“But let's face it, these are resource items, and these are items that are not cost-free. And if you're a small and medium-sized enterprise (SME), what does it mean to have a geopolitical risk unit? That might not be where you want to spend your money. So instead, what many SMEs are doing is they look to their industry associations for perspectives,” says Haider.
If businesses are able to identify and work around these problems however, the McKinsey partner sees a silver lining.
He cites global companies decoupling from China as a de-risking dividend for Southeast Asia as an example. “Look at the manufacturing dividend that's come to Indonesia and Vietnam. Look at the electronics industry’s dividends that have come to Malaysia or Singapore. But we have to call a spade a spade; we shouldn’t think of this as a Southeast Asia moment. We should think of it as a competitive moment within the region, and not a given opportunity.”
“Thinking about these ideas of insight, oversight and foresight, and thinking about risk and opportunity are the North Stars that I think would serve us all,” Haider concludes.
