u.s.-china series integrating political risk analysis …...2020/05/06 · r&d / ip supply...
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Integrating political risk analysis into corporate strategy6 May 2020 | Virtual
U.S.-CHINA SERIES
6 May 2020 Integrating political risk analysis into corporate strategyPage 2
Introduction
U.S.-CHINA SERIES
Kyle Lawless
Associate Director
Geostrategic Business Group
EY
Mary K. Cline
Insights Leader
Geostrategic Business Group
EY
Carolyn Brehm
Founder and CEO
Brehm Global Ventures
Witold J. Henisz
Professor of Management
The Wharton School
Integrating political risk analysis into corporate strategy
Moderator Panelist Panelist Panelist
-3
-2
-1
0
1
2
3
4
5
1990 1993 1996 2000 2003 2006 2010 2013 2016 2020
Chinese Government U.S. Government
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Conflict-cooperation in media reported statements and actions
Source: Global Database of Events, Language, and Tone (GDELT)
U.S.-CHINA SERIES
Foreign actors
-1
0
1
2
3
Jan Feb Mar Apr May
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Conflict-cooperation in media reported statements and actions
Source: Global Database of Events, Language, and Tone (GDELT)
U.S.-CHINA SERIES
U.S. actors
-4
-2
0
2
4
6
8
1990 1993 1996 2000 2003 2006 2010 2013 2016 2020
Chinese Government U.S. Government
0.0
0.5
1.0
1.5
Jan Feb Mar Apr May
6 May 2020 Integrating political risk analysis into corporate strategyPage 5
Conflict-cooperation in media reported statements and actions
Source: Global Database of Events, Language, and Tone (GDELT)
U.S.-CHINA SERIES
Chinese actors
-3
-1
1
3
5
7
1990 1993 1996 2000 2003 2006 2010 2013 2016 2020
Chinese Government U.S. Government
-1
1
2
3
Jan Feb Mar Apr May
6 May 2020 Integrating political risk analysis into corporate strategyPage 6
Conflict-cooperation in media reported statements and actions
Source: Global Database of Events, Language, and Tone (GDELT)
U.S.-CHINA SERIES
Foreign actors
-5
-3
-1
1
3
5
7
2000 2003 2006 2010 2013 2016 2020
Chinese companies US Companies
0
1
2
3
4
Jan Feb Mar Apr May
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Conflict-cooperation in media reported statements and actions
Source: Global Database of Events, Language, and Tone (GDELT)
U.S.-CHINA SERIES
Chinese actors
-3
-2
-1
0
1
2
3
4
5
6
7
2000 2003 2006 2010 2013 2016 2020
Chinese companies U.S. Companies
0
1
2
3
Jan Feb Mar Apr
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Conflict-cooperation in media reported statements and actions
Source: Global Database of Events, Language, and Tone (GDELT)
U.S.-CHINA SERIES
U.S. actors
-9
-7
-5
-3
-1
1
3
5
7
2000 2003 2006 2010 2013 2016 2020
Chinese Companies U.S. Companies
-2
-1
0
1
2
3
Jan Feb Mar Apr
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The global macro risk environment
U.S.-CHINA SERIES
The impact of external risks on the overall performance of global companies
Source: EY Geostrategy Survey 2020n = 1,009
Social
demographics, social identity, migration
Technological
automation, cybersecurity, artificial intelligence
Political
populism, sanctions, trade and investment policy
Economic
global economic conditions, equity and commodity markets, investment flows
Environmental
natural or man-made disaster, climate change, public health
Low High
Impact
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United States 50%
Canada33%
Brazil47%
China78%
Japan20%
India35%
France48%
Germany44%
United Kingdom80%
Italy 47%
Americas49.1%
Middle East and Africa
53.0%
Asia-Pacific52.9%
Europe50.8%
Source: EY Geostrategy Survey 2020n = 357 (Asia-Pacific), 240 (Europe), 346 (Americas), 66 (Middle East); 245 (United States), 170 (China), 60 (Japan), 50 (Germany), 40 (United Kingdom), 40 (France), 37 (India), 30 (Italy).
Low High
Impact
How the global c-suite views political riskPercentage of CXOs who say the effect of political risk on their company is higher or much higher than two years ago
U.S.-CHINA SERIES
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The pandemic is generating political risks and accelerating existing trends
U.S.-CHINA SERIES
Globalization Technology Demographics Environment
COVID-19 will challenge cross-border economic
activity and push companies to re-evaluate supply chains, favoring
regionalism
The challenges of combatting COVID-19 make
technology critical to national competitiveness
The pandemic accentuates the societal, economic and policy implications of aging
COVID-19 has wiped climate change policy off the agenda for now, but it
will return – potentially stronger
Primary forces of disruption
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Great power politics dominate executives’ geopolitical risk perceptionsThe balance of power among the world’s largest economies is shifting
Source: EY Geostrategy Survey 2020n = 1,009
U.S.-CHINA SERIES
16%
26%
41%
42%
45%
Saudi Arabia-Iran relations
India-Pakistan relations
Korean peninsula stability
Transatlantic relations
Russia's role in the world
Brexit
China's role in the world
US-China relations
EU stability
US' role in the world
U.S.-China relations
EU stability (beyond Brexit)
U.S.’ role in the world
Top geopolitical risks
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Peripheral vision
U.S.-CHINA SERIES
Executives ranked the geopolitical risks closest to their headquarters as having the greatest impact
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Saudi Arabia-Iran relations
India-Pakistan relations
Korean peninsula stability
Transatlantic relations
Russia's role in world
Brexit
China's role in world
US-China relations
EU stability
US' role in world
Asia-Pacific Europe AmericasSource: EY Geostrategy Survey 2020n = 357 (Asia-Pacific), 240 (Europe), 346 (Americas)Note: Respondents were asked to select up to 3 risks from a pre-populated list.
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Cross-functional impact
Source: EY Geostrategy Survey 2020n = 1,009 (Overall), 245 (US), 170 (China)
U.S.-CHINA SERIES
Political risk can be felt across the entire spectrum of corporate activityStrategy
Governance
Reputation
Compliance
Sales
Manufacturing
Supply chainR&D / IP
HR
Security
Finance
Treasury
M&A
Overall
US
China
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The political risk management ‘toolbox’
Source: EY Geostrategy Survey 2020n = 1,009
U.S.-CHINA SERIES
54%
57%
59%
63%
64%
69%
70%
71%
71%
73%
76%
79%
85%
46%
43%
41%
37%
36%
31%
30%
29%
29%
27%
24%
21%
15%
Political risk insurance
Model impact
Stakeholder management
Insight from external sources
Cross-functional office
Conduct scenario analysis
Market entry analysis
Integrate into strategic planning
Geographic diversification
Collect data on sources of political risk
Recruit individuals with political experience into leadership
Assessments of political risk exposure
Integrate into enterprise risk management
Yes No
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Ownership of political risk management
U.S.-CHINA SERIES
5%
5%
7%
7%
25%
36%
Investor Relations
Corporate Social Responsibility
Strategy
Country Management
Government Relations
General Counsel
Security
Information Security
COO
CFO
CRO
Source: EY Geostrategy Survey 2020n = 684
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Varied approachesCXOs who say their company has an individual or function tasked with political risk management
Source: EY Geostrategy Survey 2020n = 60 (Japan), 170 (China), 40 (France), 30 (Italy), 40 (United Kingdom), 50 (Germany), 245 (United States), 30 (Canada), 37 (India), 30 (Brazil).
U.S.-CHINA SERIES
93%
88%
83%
80%
75%
66%
54%
50%
46%
43%
7%
12%
18%
20%
25%
34%
46%
50%
54%
57%
Japan
China
France
Italy
United Kingdom
Germany
United States
Canada
India
Brazil
Yes No
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A typology of political risk management approaches
Source: Wharton Political Risk Lab
U.S.-CHINA SERIES
Analysis from the Wharton Political Risk Lab
Relational Financial Operational Strategic
The first group relies on relationships under the
leadership of their country managers or government /
external / public affairs teams who build their own proprietary
data.
A second group of firms adopt a stronger financial perspective with authority vested in their finance or risk management
team, with a reliance on external data and a strategy of diversifying or transferring risk.
A third group takes an operational approach focused
on either manufacturing or supply chain implications or IP-
related issues under the leadership of manufacturing,
operations, or IT.
Finally, an important set take a strategic perspective relying on internal data, and conducting scenario analysis, sensitivity
analyses, and integrating political risk management into
broader strategy.
6 May 2020 Integrating political risk analysis into corporate strategyPage 19
Political risk management approaches of US and Chinese firms
Source: Wharton Political Risk Lab; EY Geostrategy Survey 2020n = 215 (United States), 147 (China)
U.S.-CHINA SERIES
Analysis from the Wharton Political Risk Lab
75%
14%
10%
Other
Strategic
Financial
Operational
Relational
U.S. China
29%
18%
14%
26%
14%
6 May 2020 Integrating political risk analysis into corporate strategyPage 20
Q&A
U.S.-CHINA SERIES
Integrating political risk analysis into corporate strategy