From Global Power Shift to Power Dispersion
21 April 2017
By Dennis Chesley, Global, Asia Pacific and Americas (APA) Risk Consulting Leader and Alexis Crow, Lead, Geopolitical Investing Practice
In a 2016 strategy + business article, we outlined how a new world economic order had taken hold—one defined by complex and continuously shifting economic relationships. Today, we’re seeing that play out as key countries look to concentrate on domestic growth and consumption. A global leadership vacuum has emerged and power isn’t shifting from one economy to another--it is instead dispersing across emerging economies and sectors. Although it’s possible for these different economic systems to coexist harmoniously, the new multipolar global economic order will add friction to multinational business operations.
Corporate leaders are acutely aware of this reality. In PwC’s 20th CEO Survey, uncertain economic growth topped the list of CEO concerns at 83%, with geopolitical uncertainty ranking fourth at 74%. CEOs overwhelmingly see a world marked by regional, rather than global, priorities. This complex environment is hard to read; a single geopolitical event could trigger a need for a complete or partial overhaul in corporate strategy.
How can businesses—particularly those operating across borders—thrive in this uncertainty? To position their organisations to seize opportunities for long-term growth, CEOs should take these three steps: First, focus on market fundamentals and long-term economic objectives; second, build trust and market connectivity at the local level; finally, have a strategy that adapts to future threats and opportunities.
Stick to the basics: As Melanie Butler, Partner PwC UK and PwC’s Global Crisis Centre Leader, noted on March 20, economic scenarios are challenging long-held assumptions, confounding multiple stakeholders. CEOs must not be moved by short-term headlines. A long-range mindset positions organisations to be nimble and agile, rather than reactive, which opens windows for growth and investment.
Whereas 20 years ago, CEOs saw emerging markets as the best opportunities for expansion, today they see the greatest growth coming from the US (43%), China (33%), Germany (17%), and the UK (15%). It is important, however, for business leaders to identify the key fundamentals that make a geographical market attractive—what have others missed in pricing an opportunity? Is there a resulting window for investment? PwC Global Economy Watch recommends businesses to look at emerging economies as they seek to grow their international footprint—specifically Vietnam, Poland, Colombia and India.
Plan globally, act locally. Multinational corporate leaders should also critically examine how to keep their business edge as local competition increases. Identify the messages, mediums and allies that can help win over local populations and their unique preferences. More than ever, companies must communicate how they contribute to the region’s economic empowerment – both of individuals and communities. The majority of CEOs in the PwC survey identified collaboration with government as the best way for business to help spread the benefits of globalisation. Indeed, staying close to the changing roles of governments in this new environment will also better position companies to identify and evaluate new windows of opportunity.
Resilience is key. The most effective way to thrive in an uncertain world is to have a forward-looking, risk-aware strategy. CEOs must embed their strategy into performance goals and day-to-day operations. And, perhaps most importantly, they must foster a resilient organisational culture that can anticipate and adapt to the threats this politically and economically fragmented world may throw at them.
One thing is clear, in this shifting environment, international growth strategies need to be well-designed to anticipate disruption and adapt to changes. CEOs who operate businesses across borders must think proactively about the risks associated with power dispersion and their impact on strategy and performance. There is a strong sense that crises are inevitable in cross-border business, but adhering to these steps will help multinational organizations find ways to thrive in the new global economic order.
This blog was originally published in the PwC CEO Insights blog on April 19, 2017