CEOs leave Davos to game out 2024 geopolitical scenarios

Business leaders in Davos say they are increasingly turning to scenario planning to safeguard supply chains and lessen the potential hit from unexpected geopolitical crises.

Many CEOs and executives told Reuters they foresee an upbeat U.S. economy in 2024, but are concerned about China and Europe, and the impact of unexpected global shocks on inflation.

The World Economic Forum (WEF) this year took place against the backdrop of conflicts in the Middle East and Ukraine, as well as impending elections in dozens of countries.

“Just when governments and companies get their arms around how to deal with one flare-up, another emerges,” said David Garfield, Global Head of Industries at strategic consulting and turnaround specialist AlixPartners, adding a big issue at board level and executive leadership level is scenario planning.

“Sophisticated companies are saying: ‘What happens if raw materials for critical production cuts off?” Garfield added.

With supply chain disruptions caused by the pandemic barely in their rear-view mirrors, CEOs are now grappling with the impact of Houthi militant attacks in the Red Sea.
Many described the global situation as unusually worrisome.
“In terms of scenario planning, the last few years has upped the ante,” said Ishaan Seth, Senior Partner at global consulting group McKinsey. “It is not about forecasting the future but it is about having a perspective on how the world may play out. The key is: How do you pivot an organization quickly?”
An Alix Partners survey showed, opens new tab 68% of CEOs report U.S.-China tensions are causing them to adjust their strategy, while 66% worry about the U.S. presidential election.
“The (board level) concerns are geopolitics and elections around the world,” said BCG Global Chair Rich Lesser. “When there is so much uncertainty, CEOs and boards ask ‘What can I do to be better prepared,'” he added.
Some have been looking to diversify supply chains.
“Every Japanese company is seriously considering (changing) the origins of over reliance – it is so risky,” Takeshi Niinami, CEO of Suntory (2587.T), opens new tab, Japan’s second-biggest domestic drinks group, told the Reuters Global Markets Forum.
“So we like to move to, for example, India or some other countries like Vietnam, but it can’t be done overnight.”
ABB Chairman Peter Voser said geopolitical risks, including China and Taiwan, were part of boardroom scenario planning.
“One takes steps to deal with it on a day-to-day basis, but also as a Plan B or C depending on what is going to happen,” said Voser, adding: “There should be no board in the world who takes this very lightly at this stage.”

via Reuters