Global Companies Reshaping Strategies Amid Consecutive War Risks

Geopolitical Variables Maximize Uncertainty
Business Plan Readjustment Including Cost Control

Following the Russia-Ukraine war, the armed conflict between Israel and the Palestinian militant group Hamas has escalated geopolitical threats, which have emerged as the greatest management risk factor among global companies.

According to Bloomberg News on the 2nd (local time), major global companies such as U.S. semiconductor firm Intel, European global hotel chain Accor, German automaker Porsche, and Japanese Japan Tobacco cited geopolitical variables as the greatest uncertainty in corporate management during their Q3 earnings announcements this year.

Global accounting and consulting firm KPMG, based on a survey of 1,325 business leaders worldwide on management risks, identified ‘geopolitical and political uncertainty’ as the biggest threat to economic growth over the next three years. This category ranked 7th last year.

A Palestinian boy is seen mourning the damage caused by an Israeli airstrike near the UN Relief and Works Agency for Palestine Refugees (UNRWA) school close to the Jabalia refugee camp in Gaza. The Gaza Health Ministry claimed that at least 27 people were killed and many others injured near the school due to the airstrike.
[Image source=Reuters Yonhap News]

With the end of the U.S.-led unipolar era and the rapid rise of middle powers such as China, India, Russia, Brazil, and Saudi Arabia leading to a dispersion of power, geopolitical risks are expected to structurally increase. Following the nearly two-year-long Russia-Ukraine war, the armed conflict triggered last month by Hamas’s attack on Israel has created a hair-trigger crisis that could escalate into the fifth Middle East war. In recent years, civil wars and armed rebellions have continuously occurred in African, Asian, and South American countries.

Bloomberg noted, "The stability of the U.S.-led global peace ‘Pax Americana,’ which dominated the world economically, militarily, and culturally since World War II, has disappeared," adding, "In its place is a multipolar and fragile competition over power and influence in trade, technology, and territory." It further stated, "Global business leaders are beginning to face an entirely new reality due to geopolitical risks." Unlike other variables assumed in corporate management such as interest rate hikes or labor strikes, geopolitical risks are perceived as more dangerous due to their unpredictability and largely force majeure nature.

Jamie Dimon, CEO of JP Morgan.
Photo by AP Yonhap News

Economic leaders worldwide and Wall Street magnates have voiced their concerns in unison. Jamie Dimon, CEO of JP Morgan, warned, "This may be the most dangerous period the world has experienced in decades," while Larry Fink, CEO of BlackRock, diagnosed, "Hope for the future has diminished and fear has increased due to geopolitical variables." Mark Wiseman, Chairman of Alberta Investment, a Canadian pension fund manager, said, "The world is facing a paradigm shift that will lead to incalculable consequences," adding, "We are now in the most difficult and complex investment environment in 30 years." He also assessed that we are facing a multi-layered crisis far more complex than the global financial crisis.

Some companies are revising their business plans in response to the rising geopolitical crisis. Benjamin Smith, CEO of Air France-KLM Group, Europe’s largest airline, recently stated at an investor conference call, "Considering the worsening geopolitical tensions, we will enhance operational efficiency and tighten cost control." This move comes amid growing concerns over profit and loss due to increased volatility in oil prices, with Brent crude fluctuating around $80 per barrel since the outbreak of the Israel-Palestine conflict. The airline industry is sensitive to fluctuations in international oil prices as fuel costs constitute a large portion of transportation expenses.

This content was produced with the assistance of AI translation services.