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Geopolitics must be central to business strategies, says KPMG

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The firm has warned businesses that geopolitical volatility isn’t going away.

Geopolitical volatility is here to stay and businesses will need to put geopolitics front and centre in their strategic planning and operational design in order to survive and thrive.

This message, from KPMG head of geopolitics Dr Merriden Varrall, follows ASIC recently listing geopolitical risks as a key focus area for directors and management when assessing current and future performance, the value of assets and provisions, and business strategies.

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“They are absolutely right to do so – we are in a time of great geopolitical volatility which is not just going to settle back down into a status quo ante,” said Dr Varrall.

KPMG’s Australia Geopolitics Hub has identified four major geopolitical drivers of change in the global business operating environment including the climate crisis, structural shifts in the international system, growing mistrust and a technology-driven industrial revolution 4.0.

“The critical takeaway message for business is that the challenges we’re all feeling at the moment aren’t a temporary glitch which will settle down some time sooner or later,” said Dr Varrall.

“The global trade and investment environment is fundamentally changing, and ‘business-as-usual’ is becoming a thing of the past.”

On the climate crisis, Dr Varrall said that an increase in the number and severity of storms, floods, cyclones, bushfires, droughts and other extreme weather events will create physical disruptions in the delivery of products and services across markets.

She noted that flow-on effects from the climate crisis were already occurring, including the displacement of communities who no longer have access to necessary resources.

In terms of structural changes, Dr Varrall suggested that the locus of power is shifting away from the North Atlantic, after seven decades, with the rise of new economic powers.

“The desire of these emerging powers for more voice and agency is driving growing mistrust and strategic competition, and in some cases, posing challenges to the existing norms and structures,” she said.

“It is not yet clear how the system will be shaped in the future. How status quo powers respond to this shift also affects what happens next.”

Mistrust, she said, is growing from parts of the population who believe globalisation has not worked for them or has mostly benefitted the elites. This, Dr Varrall, added risks social and political unrest as well as a move away from the political centre towards populist leaders.

“Populist leaders often pose a real threat to domestic democratic institutions designed to check their power, and they tend to be very sceptical of global trade and economic institutions, instinctively preferring nationalism and protectionism,” she said.

Finally, Dr Varrall described the technological developments under the new industrial revolution, such as big data, the internet of things, robotics, blockchain technology and artificial intelligence, as “highly geopolitical”.

“In the highly competitive international environment, the command of technology is central to the pursuit and protection of national interests and state security,” she suggested.

“The geopolitics of technology is at the heart of supply chain security, and our ability to capture the markets of the future.”

As a result of the issues being faced, Dr Varrall said that the world was currently in a state of flux and that it remains unclear when and how things would settle.

“We do know that uncertainty and volatility are here to stay. There is no coherent global approach on political models, trade standards, and international architecture,” she concluded.

“As ASIC’s guidance shows, now is a very good time for directors and management to ensure they are putting geopolitics at the centre of their business strategies, and assessing the potential geopolitical risks when evaluating company performance and value.”

Geopolitics must be central to business strategies, says KPMG

The firm has warned businesses that geopolitical volatility isn’t going away.

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Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.

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