U.S.-CHINA SERIES Integrating political risk analysis …...2020/05/06 · R&D / IP Supply chain HR...

Integrating political risk analysis into corporate strategy6 May 2020 | Virtual

U.S.-CHINA SERIES

6 May 2020 Integrating political risk analysis into corporate strategy

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


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




U.S.-CHINA SERIES

U.S. actors

-4

-2

0

2

4

6

8

1990 1993 1996 2000 2003 2006 2010 2013 2016 2020


0.0

0.5

1.0

1.5

Jan Feb Mar Apr May




U.S.-CHINA SERIES

Chinese actors

-3

-1

1

3

5

7

1990 1993 1996 2000 2003 2006 2010 2013 2016 2020


-1

1

2

3

Jan Feb Mar Apr May




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




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




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


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


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


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


Great power politics dominate executives’ geopolitical risk perceptionsThe balance of power among the world’s largest economies is shifting


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


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.


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


The political risk management ‘toolbox’


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


Ownership of political risk management

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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


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


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.


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%


Q&A

U.S.-CHINA SERIES

Integrating political risk analysis into corporate strategy

U.S.-CHINA SERIES Integrating political risk analysis …...2020/05/06 · R&D / IP Supply chain HR...

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