Businesses that have developed a new type of resilience will not only be ready for this new world reality, but will also be well- positioned to seize any outsized opportunities that will inevitably emerge in 2019.
From the global ramifications of US-China trade disputes, increasing data regulations globally and within Asia, and the impact to foreign policy post the US midterm elections, topoliticised environmental regulations and the continuing surge of nationalist politics, changes abound and a new world order is set to emerge for global businesses in 2019.
Businesses that have developed a new type of resilience will not only be ready for this new world reality, but will also be well- positioned to seize any outsized opportunities that will inevitably emerge in 2019.
Below the Control Risks team detail what risk managers need to be aware of in 2019.
1. US-China trade rift foretells a new global order
The antagonistic relationship between the US and China will have ramifications not only for businesses in these two countries. Companies far and wide will feel the political and economic impact, as what started as a trade war will ultimately harden into a more permanent stance in 2019.
What this means for Asia: While a “contain China” policy has already emerged in the US, this trade rift will have very mixed blessings for the rest of Asia. China is the growth engine of the region’s commodity-focussed economies such as Indonesia, Australia and Malaysia. Any further pressure on an already slowing Chinese economy from a trade war will not bode well for businesses. A protracted trade war could expedite the diversification of supply chains out of China, which is already underway among low-end manufacturers before the trade war took hold. Southeast Asian countries such as Vietnam are set to benefit in the medium term. However, businesses should not underestimate the sunk cost and inertia of moving global supply chains out of China, in addition to potential retaliatory policies or measures. Strategically, Asia will increasingly be forced to choose between China’s vision for the region (such as its Belt & Road Initiative) and that of the US. Scope to ‘play the field’ will diminish in the years ahead.
2. The global data regulations stand-off
The stand-off between the three domains of data regulation will present a new level of risk for international business in 2019: for China, data is something to be controlled; for the EU, data is something to be protected; and for the US, data is seen as something to be commercialised. Brace for the challenge of collecting, storing and transferring data within and between these three domains against a backdrop of inconsistent enforcement and escalating cyber security threats.
What this means for Asia: Ironically in Asia, at a time when Chinese soft power is struggling in the region, a growing number of Asian states are seeking to emulate elements of China’s vision for cyberspace in the year ahead. Vietnam’s new data localisation law, which comes into force in January 2019, will increase regulatory pressure and compliance risks for foreign businesses. India is also looking to establish its national-level data governance framework in the coming months.
3. US political gridlock
The vice of legislative gridlock will close on policymaking in Washington and throw the US into a period of pitched political uncertainty. Trade policy will remain unchanged, the pace of deregulation will slow, and foreign policy will remain unsettled in a global environment that requires clarity and resolve.
What this means for Asia: For Asia, progress on denuclearisation of the Korean peninsula will stall and possibly reverse, precisely because the Trump administration has invested huge capital in an issue that is fundamentally insoluble. Elsewhere, with both legacy and containment of China in mind, an improvement in bilateral ties with India and even a US revisit of multilateral economic initiatives in the region could be on the cards.
4. Climate change driving politicised environmental regulation
Some of 2019’s worst business disruptions will not come from terrorist attacks but from extreme weather and its consequences. From storms to floods to droughts and forest fires, the costs of interrupted production, distribution, sales and travel will skyrocket in 2019. Last year’s record for weather-related insurance claims will likely be surpassed.
What this means for Asia: Beyond the significant business risks and costs that extreme weather brings, recognition of that and more cynical political agenda will translate into much more aggressive use of environmental regulation across a swathe of Asian economies. Governments’ use of environmental regulations as a political tool could intensify in the region.
5. Nationalist politics confronting multinationals
As globalised companies enter 2019, they risk – ironically - becoming nationless as nationalist politics continue to advance across the world. Formal and informal barriers are rising. Frictionless trade is beginning to rub, supply chains are starting to drag.
What this means for Asia: While business leaders in other parts of the world must re-calibrate and adapt to this new reality, long-term Asian investors will be very familiar with the economic challenges thrown up by the nativist trends washing over the global economy. In Asia, commerce has never been frictionless, and nationalism in geopolitics is not new. ASEAN as an economic bloc is a prime example. As the economies of Asia begin to cool, the imperative will once again be to play the nationalist card – in foreign investors’ access to sectors, in how data is used, in the preferential policies availed to local companies. To that extent, businesses with an established Asia strategy will be well-placed to adapt to this new global reality, much more than their Western counterparts.
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