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Country Lead, Finland
The intensifying geopolitical struggle between China and the US is making it increasingly difficult for others to balance the two giant markets and riskier for companies to do business with China. That’s why organisations need to assess their relationship with China. There are at least four possible directions to take.
The weight and influence of China, India and Southeast Asian states on the world stage is growing at such a pace that we can no longer afford not to react. This is the unequivocal message from leading economic, political, trade, security and international relations experts from the Southeast Asian region, whom I had the opportunity to meet on the eve of Chinese New Year in Singapore.
The expert meetings were part of the Global Scenarios 2030 project led by Nordic West Office, a Miltton Group think tank. With participating organizations, the project outlines relevant global future scenarios for companies operating from the Nordic countries for the next 5-7 years.
The experts we consulted are optimistic about the potential of the countries in the region in the coming years. China’s U-turn on its covid policy should return the country to almost its previous growth trajectory in the coming months. India has an exceptionally beneficial demographic pyramid in terms of growth, and it is attracting investment at an accelerating pace (including Apple).
Vietnam, Thailand, Malaysia and Indonesia are also among the favourite destinations for companies looking to reduce their exposure to China and lower their costs by offshoring. As the focus shifts to Asia, Singapore’s position as one of the world’s key financial centres will strengthen.
As a result of economic growth, the middle class in Southeast Asian countries is expanding, boosting local demand and increasing trade between the countries in the region. Nevertheless, companies in the region will increasingly look to other markets, such as Europe, for growth.
Another key development is the global power struggle between the two giants, China and the US. At present, it is difficult to see a scenario in which it will not continue and intensify.
Despite the stumbling during the pandemic, China, under Xi Jinping, remains committed to its goal of becoming the world’s leading nation by 2049. Some of the experts we met still believe it is entirely possible that China will succeed.
That is why the country is making every effort to increase its economic, but also its political and cultural power throughout the world. This means, among other things, continuing to invest internationally on a large scale and pushing competitive Chinese companies and brands to the rest of the world.
If, on the other hand, China’s growth rate was to slow down and it was unable to catch up with its main competitor while continuing to raise the living standards of its citizens, it could mean a more frustrated and unpredictable China.
Such a China would likely seek ways to destabilize the US by other means, such as seeking support and new allies in Europe. In either scenario, China will become more active outside its own borders in the coming years, both politically and economically. The recent controversy over shooting down the alleged Chinese spy balloon in the US can be seen as part of this trend, in which China is seeking to establish itself as a steppingstone and a foothold in relation to the rest of the world.
For Nordic companies, the rise of Asia and China and the intensifying geopolitical struggle means new risks and opportunities. Preparations should be made, whether or not your organisation has operations or parts of its value chain in the region. We need only look to Russia’s invasion of Ukraine for an extreme example of how geopolitics are forcing companies to quickly reassess their operations.
At least four possible approaches can be outlined, depending on how an organisation weighs up the risks and opportunities of its position in China, and whether or not it is in its interest to operate in the local market.
1. GROW. The potential in East and South Asian markets is so huge, both in terms of growing demand, capital and building supply chains, that starting or growing your own operations in the region is at least worth exploring. What to consider?
geopolitics | reputational risk | brand | responsibility
Will we have to choose sides in the future or, for example, build a firewall between the Chinese and US markets to prevent data being cross-used? Will investors, employees, customers or decision-makers accept operating in China if the country’s foreign policy becomes more aggressive? What are the strengths that will make you successful in new markets?
2. SHUN. If the conclusion is that operating in the region is too risky, costly or difficult, the decision to leave or stay out of the key market of the future must be well planned and justified to stakeholders. What to consider?
new strategy | fomo | investor relations
China is already so important that it is much more difficult to exit than Russia. How to do and communicate it in a controlled way? On the other hand, how to explain to investors that growth is being sought elsewhere – and from where?
3. PARTNER. Even if presence in Asia is not relevant, Asian capital and talent increasingly seeking to enter Europe can provide a decisive competitive advantage. What to consider?
investor relations | employer image | geopolitics | reputational risk
How to attract Asian investors or talent? Can a Chinese owner become a risk if the geopolitical situation tightens?
4. COMPETE. Apart from investors and talent, the European market will see more and more competitive Asian companies and brands following the path Alibaba, Tencent and Tiktok have taken. What to consider?
brand | responsibility | marketing | investor relations
How to position your brand and marketing communications in relation to new competitors from different cultures who may have exceptional resources and capabilities? How to protect against hostile takeovers?
Probably the optimal strategy is some combination of the approaches described above. The best combination will depend on the direction in which Asia develops over the coming decade. Nordic West Office’s Global Scenarios 2030 project draws scenarios for Asia, Europe, the United States and the global economy as a whole, which can be used as a basis for planning and testing.
A carefully considered – and communicated – approach will help you to act quickly and not deliver unpleasant surprises to your stakeholders.