COVID-19 will “enhance protectionism” - Control Risks

Back in December, specialist global risk consultancy Control Risks published its outlook for 2020. Coming in fifth on its list of top 5 risks for business in 2020, was the challenge posed by ‘leaders without strategies’.

As the world battles the COVID-crisis, a lack of strategy and coordination has never been more apparent, thinks Charles Hecker, partner at Control Risks.

“What we were saying back in December 2019 is that we felt that the world - particularly in its most senior political actors - was really pretty rudderless in terms of global coordination and a strategic vision,” he says.

“This has really manifested itself in a coronavirus pandemic, because we’ve not seen any meaningful global coordination from the key players.”

Hecker thinks it is likely that ongoing trends towards greater nationalism and protectionism will be exacerbated by the pandemic.

“We’ll see a broader global manifestation of what’s happening in the US, which is an ‘America First’ policy,” he explains. “We’ve seen nationalist and populist governments, even inside the European Union, and it has fuelled concern about trade going forward. It’s an acceleration of trends that we’ve already seen.”

How it will play out is still uncertain, but in the near term global geopolitics is likely to remain largely bipolar, says Hecker.

“Before the coronavirus pandemic, we were telling companies that the US China trade War was really a lot more than just a trade war. That this was the emergence of strategic competition for technological supremacy.”

“The competition for technological Supremacy going forward is not going to go away and you know, if anything there may be more of a zero-sum attitude approach towards who is going to come out on top.”

There will be a new emphasis on medical equipment, medical research and healthcare,” he adds. “Everyone in United States is aware of the amount of pharmaceutical goods that come to them from China. That is something that is likely to come under scrutiny.”

Supply chain optimisation

There are several ways in which these macro trends within geopolitics are likely to impact global businesses. But pressure on supply chains is the leading challenge.

“One of the most important things is going to be the impact on supply chains,” says Hecker. “I can’t imagine a company that’s not going to be having a very serious conversation about supply chain optimisation going forward.”

“The longer the pandemic lasts the more damage is done to supply chains that are long and complicated. Going forward, companies are going to have to think about that length and that complexity.”

Political pressure to onshore, by sourcing goods and materials from local suppliers may add further pressure to the process, he explains.

“In many cases that won’t be possible because there are countries that don’t always make things or that don’t always have the natural resources to supply complicated or high-tech manufacturing processes.

“And of course cost is still a major driver of supply chain structure. Companies may want to simplify or onshore their supply chains - governments may pressure companies to do the ‘shop at home’ thing - but that may have cost implications. So we won’t wake up overnight with all automotive manufacturing returning to Detroit.”