Brexit and the U.S. election will make 2017 one of the toughest years for directors to make the best decisions for their companies, according to a specialist risk consultancy.
The annual report from Control Risks has identified 6 main risks that company bosses will have to navigate past as next year unfolds.
"The unexpected U.S. election and Brexit referendum results that caught the world by surprise have tipped the balance to make 2017 one of the most difficult years for business' strategic decision making since the end of the Cold War.
"The catalysts to international business – geopolitical stability, trade and investment liberalization and democratization – are facing erosion. The commercial landscape among government, private sector and non-state actors is getting more complex," said Richard Fenning, CEO of Control in a statement accompanying the report.
Control Risks has identified its six key business risks for 2017:
1. Political populism exemplified by President-elect Trump and Brexit. The era of greater national control of economic and security policy ushered in by the US election and Brexit provides increased uncertainty for business leaders. Caution prevails because of the lack of clarity when it comes to political policy from the U.S. and U.K. as well as the global trading and economic environments. Geopolitical sparks are set to fly in relations between the U.S. and China, which are vital for the stability of the global economy, and from the U.S. withdrawal from the Trans-Pacific Partnership. The calls across Europe for further referendums on European Union (EU) membership is causing nervousness while populism in other parts of the world, such as sub-Saharan Africa, is also adding fuel to investor risk.
2. Increasing complexity of cybersecurity. The coming year will see the rise of conflicting data legislation: U.S. and EU data protection regulations remain at odds; the EU's Single Digital Market is isolationist; and China and Russia are introducing new cybersecurity laws. This, Control Risks predict, will lead to data nationalism, forcing companies to store data locally at increased cost, as they become unable to meet regulatory requirements in international data transfer. E-commerce will be stifled. Meanwhile, fears of terrorism and state sponsored cyber-attacks will exacerbate national legislation, adding burden to businesses.
3. Persistent terrorist threats. The threat of terrorism will remain high in 2017 but become more fragmented. The eventual collapse of the so-called Islamic State's control in Syria and Iraq will lead to an exodus of skilled militants across the world. Responding to terrorism is becoming ever more difficult for businesses; risk adjustment is critical, including big data solutions and reviews of potential insider radicalization, physical security and scenario planning.
4. A potential brake on U.S. regulation. Donald Trump's arrival in the White House could lead to a transformation of the global regulatory environment. The U.S.'s previous adherence to the Paris climate accords is under question. Meanwhile, the Dodd-Frank Act could be modified substantially and the Foreign Corrupt Practices Act is not off limits, either. This could have a domino effect on regulation around the world.
5. Intensifying geopolitical pressures. Syria, Libya, Yemen and Ukraine are likely to remain intractable conflicts and the Middle East will continue to be shaped by friction between Saudi Arabia and Iran. Meanwhile, Control Risks say, China's increased focus on diplomacy and military influence will extend from Central Asia and the Indian Ocean to sub-Saharan Africa. On top of this, North Korea's systematic nuclear capability development is upending a relatively static regional and global nuclear status quo.
6.The accidental escalation of strategic confrontations. While major conflicts remain unlikely in the South or East China Seas, for example, further militarization of disputes among China, its neighbors and the US, are likely, Control Risks say. Meanwhile Saudi Arabia and Iran continue to jockey for position in the Hormuz and Bab el-Mandeb straits; Iran's nuclear deal has emboldened the country to challenge the US-Saudi security infrastructure; and Russia is likely to maintain substantial air patrols in or near European airspace and will continue bolstering its Black Sea and Mediterranean naval fleets to secure its positions in Crimea and Syria.
The risk consultancy suggested businesses will adopt one of three strategies in 2017, becoming either an Ark, Shark or Whale.
"Arks" will be defensive and focus on core business and markets, while "Sharks" take a more aggressive approach, hunting in new activities and locations for opportunity.
"Whales" provide a better strategy for big cash rich or credit worthy firms who will try to push through mega-mergers to secure dominant market share. Control Risks said in the release that this tactic may be stymied by nationalist governments and completion regulators.