The growing relevance of geopolitics for European business 

Today's international business environment is less predictable, more volatile, and involves more politics than in previous decades. The declining economic weight of the United States and growing doubts about its leadership role in global governance have important implications for European companies. There is a growing likelihood of high-profile incidents in which large enterprises suffer major financial and reputational damage from geopolitical risks - whether through sanctions, state-sponsored cyberattacks or geopolitical shocks. But while managers increasingly regard geopolitics as relevant to their activities, for many companies this insight has not yet resulted in changes to their behaviour.

This policy brief presents an analysis on the change in the geopolitical landscape, among others caused by the erosion of the US-led liberal international order and the declining role of the US as its main sponsor. The report indicates a number of implications for European companies:

• Greater political uncertainty;
• Diminished functionality of global governance;
• Politicisation of international economic relations.

It identifies three major types of geopolitical risk for businesses:

• Boycotts, sanctions, embargoes and other politically motivated trade restrictions;
• Cyberattacks by state actors;
• Geopolitical shocks.

There seems to be an increasing interest in geopolitics among enterprises, which expect (geo)political and macroeconomic instability to affect their business. However, very few companies seem to have taken steps to address these issues. Yet, in order to be able to operate in a more uncertain, more volatile and more politicised international environment, European companies have to become more responsive and need to enlarge their geopolitical awareness. Geopolitics are increasingly regarded as a regular component of the business environment of many middle-sized and large European companies.

Clingendael Policy Brief. Click on the image below to go to the brief.