Introduction
The evolving intersection of geopolitics and geoeconomics is creating an increasingly dynamic and complex environment and posing significant challenges for PSFs, especially those offering international advisory services. With their specialised knowledge in law, risk management, finance, consulting, and technology, PSFs play a crucial role in managing the impact of external shocks. This role becomes even more vital during periods of global tension and unrest.
PSFs act as essential navigators in a world marked by uncertainty, helping clients to mitigate risk, seize opportunities, and maintain competitive advantage. This advisory role creates a unique relationship between a PSF and its clients – one of balanced partnership. This relationship requires PSFs to align their actions with the advice they give, ensuring their practices match the guidance they provide to clients.
In this context, the concept of corporate resilience gains renewed importance. It encompasses more than the mere capacity to withstand challenges; it involves the foresight and flexibility to adapt to both gradual and immediate shifts. For PSFs, this necessitates a comprehensive reassessment of operational strategies, ethical standards, and client relationship management. In the current climate, PSFs should examine how they operate, and the strategies that will allow them to continue to succeed in the years to come. PSFs will need to adopt a measure of pragmatic honesty when they begin their re-evaluation of principles previously considered axiomatic.
Strategic resilience, for PSFs, involves the adoption of adaptive governance, the integration of technology and cybersecurity measures, the maintenance of transparency, and adherence to regulatory requirements. Given the growing complexities within systems where political and economic landscapes are increasingly intertwined, it is imperative for firms to adhere to best practices. This includes integrating analysis and monitoring of geopolitical and economic risks within their risk management frameworks, utilising strategic planning techniques, and cultivating an innovative culture.
This approach and focus on developing and maintaining corporate resilience will enable firms to navigate adeptly through these continuously evolving landscapes.
The Rise of Multipolarity
The present global geopolitical environment is defined, in part, by a growing sense of multipolarity, where significant actors such as the European Union, the United States, Russia, and China play pivotal roles in shaping international dynamics.
Furthermore, the rising significance of so-called geopolitical swing states such as India, Saudi Arabia, Turkey, South Africa, and Brazil plays a crucial role in the international arena, further altering the balance of global power and influence. This evolving landscape requires that PSFs have a deep understanding and constantly re-evaluate global economic and political developments if they want to remain competitive and relevant.
Challenges in the Global Landscape
Recent events, including the COVID-19 pandemic, the conflict in Ukraine, rising tensions in the South China Sea, and conflict in the Red Sea region, through which approximately 15% of global trade flows, highlight the fragility of global supply chains.
Simultaneously, China’s economic deceleration signals a structural shift to a “slower-for-longer” growth paradigm that promises to recalibrate global economic dependencies. This slow down, coupled with Beijing’s pivot towards bolstering exports, is expected to ignite protectionist trade measures, further complicating the international trade landscape.
The Middle East continues to be a focal point of geopolitical tensions, with ongoing conflicts and a precarious balance of power that poses risks to both regional and international stability. An escalation in this region holds the potential to significantly impact global energy markets and key trade passages.
The global trade landscape is undergoing significant transformation in response to these geopolitical events, prompting businesses to reassess and diversify their supply chain strategies to mitigate emerging risks while capitalising on new opportunities. This strategic realignment is driven by the broader objective of minimising vulnerabilities and enhancing resilience against worldwide disruptions, although at the expense of increased operational costs. For instance, rerouting shipping to around the southern tip of Africa, to avoid security threats in the Red Sea, will lead to a marked increase in shipping costs, with estimates suggesting a rise of approximately 20%. This scenario underscores the intricate challenge that companies face in striking an optimal balance between bolstering supply chain robustness and managing escalating operational expenses, thereby emphasising the critical need for strategic planning and decision-making in the contemporary global trade environment.
Meanwhile, technological advancements, particularly in GenAI, LLMs, and other displacing technologies continue to drive economic growth and innovation. However, the rising threat of digital trade barriers and efforts by governments, including Russia, the EU, and China, to achieve “tech sovereignty” could split the global digital economy. This move, seen as a way for a country to control its digital infrastructure, data, and technology sectors by imposing stricter regulations on advanced technologies, aims to enhance security, economic competitiveness, and data privacy. Such measures present challenges for PSFs and their clients that operate across different regions.
These various drivers are increasingly merging economic, foreign, and national security policies, exerting an escalating influence on the ability of companies to conduct stable corporate activities and practices. PSFs are increasingly confronted with the complexities of navigating international disputes, sustainability, and rapidly evolving — even possibly regressing — cross-border regulations. This fluctuating global context demands a nuanced and informed approach, presenting both challenges and opportunities for PSFs. as they guide their clients.
Populism and Global Strategies
Populism, often characterised by its scepticism towards established institutions and its appeal to the ‘common folk’ against the elite, is significantly reshaping national policies and international relations. The rise of populist governments may cause considerable changes in legal and regulatory frameworks, accompanied by the disruption of traditional business practices within the relevant jurisdiction. These often sudden and volatile shifts manifest often in more protectionist policies, changes in trade agreements and redefined foreign policy. Furthermore, they inevitably include a heightened expectation of enhanced local content in the delivery of services.
The rise of populism emphasises the importance of balancing global strategies with local sensitivities. Understanding the implications of populism and the nuanced local strategies to manage these implications is essential for PSFs aiming to maintain relevance and effectiveness in a rapidly changing world. In practice, this needs not only a reactive adaptation to these changes but also a proactive anticipation of them. Given the complexity involved, firms should carefully and constantly assess their ‘go-to-market’ strategies and their engagement with clients and regulators in each jurisdiction in which they may do business or have an office.
As typified in many cases recently – Argentina, the Netherlands, Hungary, and the USA – rapid changes in both tangible policies and intangible societal ideologies underscore the notion that, while globalisation has often been a guiding principle in modern business and has provided a broad canvas for operations, local markets increasingly demand bespoke strategies that reflect their specific regulatory, cultural, and socio-economic contexts. Firms must therefore develop frameworks that enable them to use global insights and resources while remaining agile and responsive to local needs. This dual approach may not only boost operational efficiency but also position firms as valuable partners, attuned to the distinct needs and challenges of diverse markets. All strategies and operations should, of course, be designed to fulfil fiduciary duties by offering knowledgeable advice to clients, a principle that is particularly important for firms with a global reach or those serving international clients.
This year marks a period of potential transformation on the global stage, with an unprecedented 76 countries holding elections. This significant uptick in electoral activities may catalyse political shifts that reverberate well beyond individual nations, affecting international policies and economic connections. Within this context, the escalating influence of populism emerges as a significant concern, emphasising its potential to impact the international arena profoundly.
Following these elections, we may see an acceleration in the adoption of strategies such as friend-shoring and near-shoring, with significant implications for global supply chains. This evolving scenario necessitates a strategic re-evaluation by PSFs of their investments and operational models. PSFs are at a crossroads, facing the decision of either proactively influencing public policy or adopting a more passive, adaptive stance to these changes. The importance of this decision cannot be overstated, particularly in regions marked by instability, where the stakes for strategic positioning and policy engagement are exceptionally high. For PSFs with a global presence, there is now a heightened need for a careful balance between publicly espoused corporate values, and local norms, including sensitive issues like LGBTQ+ rights. Navigating this balance involves reconciling global principles with local cultural and legal expectations, crucial for avoiding claims of “ethics washing” or “greenwashing.” Effective adaptation to local regulations and market nuances is essential, highlighting the complexities of global expansion in diverse environments.
Technology driven disruption of the PSF model
Gen AI is accelerating at an unprecedented pace. This rapid evolution will profoundly change how PSFs operate, compelling them to adapt their service models and strategies. Gen AI enables the automation of complex tasks, enhances decision-making through predictive analytics, and drives innovation in client services. As a result, professional service firms are re-evaluating their commercial models by, investing in AI capabilities, and reimagining their roles to remain relevant in a dynamically changing landscape.
Technology, particularly in the areas of artificial intelligence, data analytics, and cloud computing, offers PSFs the tools to optimise operations, personalise customer experiences, and innovate services. By integrating these advanced technologies, PSFs not only enhance efficiency and foster innovation but also create a more agile and responsive business model. This model is better equipped to navigate the uncertainties of the modern business environment, enabling PSFs to monitor global developments in real-time and enhancing their ability to respond to emergent risks and opportunities.
The use of AI, machine learning, data analytics, and cloud computing facilitates operational agility, allowing for the seamless shift of work across jurisdictions in response to regulatory changes or geopolitical tensions. Automating entity formation or transformation processes and incorporating digital tools for compliance and risk management help manage the complexities of operating in diverse legal and cultural environments. Furthermore, sophisticated scenario planning tools powered by AI enable firms to anticipate and prepare for a range of future scenarios, ensuring resilience and strategic foresight.
While many argue that these emergent technologies – particularly Gen AI – raise issues for data security and client confidentiality, this falls far short of being a valid reason as to why PSFs should hesitate in adopting and implementing these technologies. In fact, they can and should move to rapidly integrate these advancements across their operations. The technology is here, and its impacts will begin to influence the everyday. As David Cunningham, chief innovation officer at Am Law 100 firm Reed Smith, said “It’s like banning a smartphone, instead of ignoring it and pretending it doesn’t exist, (…) have guidelines for how to use (it) carefully.” The accelerated adoption by firms does not have to come at the cost of compromising information security. The swift embrace of technology and the stringent safeguarding of client confidentiality and data security are not mutually exclusive objectives.
By strategically planning and executing this technological integration, PSFs can maintain their competitive edge in the ever-evolving landscape while still ensuring their commitment to the highest standards of information security remains. As is true in many shifts in operations, structure, software, or hardware, PSFs are held to a standard which they must continue to meet. To think that this is different when it comes to adopting Gen AI and other similar technologies is not only incorrect, but counterproductive. As stated by Stephen Almond, the executive director of regulatory risk with the UK Information and Commissioner’s Office, “Organisations developing or using generative AI should be considering their data protection obligations from the outset, taking a data protection by design and by default approach. This isn’t optional – if you’re processing personal data, it’s the law.”
Technology driven Legislative Changes
While laws and regulations are always evolving, the pace of change has notably accelerated. Recent acceleration has been driven by rapid advancements in Gen AI generally, and LLMs specifically. The swift evolution of new regulations is further accelerated by the rising prominence of global philosophies and ideals emphasising technology sovereignty. Consequently, legislative initiatives worldwide are intensifying their focus on issues related to data protection and privacy. This growing emphasis reflects a concerted effort to align regulatory frameworks with the evolving landscape of digital sovereignty, ensuring that data governance policies are robust, comprehensive, and responsive to the nuanced challenges of the digital age.
Notable legislative developments, such as the European Union’s Data Act with its comprehensive data-sharing regulations, and the United Kingdom’s Data Protection and Digital Information Bill, which seeks to refine the existing GDPR framework, mark a significant transformation in the approach to data privacy. Additionally, AI regulation has emerged as a critical frontier in geopolitical dynamics, drawing considerable attention from global powers including the US, EU, and China, highlighting the strategic importance of technological advancement in the global arena.
Governments are actively working to regulate AI to mitigate perceived socio-political risks while balancing the desire to foster domestic AI innovation, a move expected to accelerate the formation and solidification of distinct geopolitical blocs. Professional service firms now find themselves at the forefront of this transformation, tasked with navigating complex regulatory environments and advising their clients on compliance and strategic innovation while at the same time trying to adapt their own businesses to accommodate the transformative impact of AI.
Conclusion
As we move further into 2024, it is essential for leaders of PSFs to consider some of the most pressing issues facing the sector. The growing multipolarity and the dynamic interplay among major powers such as the EU, US, Russia, and China, demands our keen attention. From this, the question arises: are we, as leaders in our respective fields, truly attuned to these subtleties? The impact of global dynamics on the landscape of international advisory services and the strategies required to navigate these changes for both firms and their clients must continue to be a key topic of discussion among management teams and risk committees.
Building and maintaining resilience in PSFs during tumultuous times involves adopting robust solutions and strategies to face increasing risks from geopolitical tensions, economic disruption, disruptive technologies, cyber threats, and global pandemics. Firms must anticipate, prepare for, respond to, and adapt to both gradual and sudden changes. This requires continually reassessing strategies, ensuring operational, financial, and reputational resilience, and investing in employee wellbeing and development. Strategic resilience involves adaptive governance, integrating technology and cybersecurity, maintaining transparency, and complying with regulations. In an increasingly complex world where politics and economics are closely linked, firms need to follow best practices, include geopolitical and geoeconomic risks in their risk management plans, use strategic planning methods, and encourage a culture of innovation to successfully navigate these changing environments.
As we contemplate the myriad new challenges and opportunities facing the professional services sector, it is crucial that we progress beyond mere rhetorical discussion. 2024 should be the year in which the sector drives pragmatic change and discussion. We should, therefore, move swiftly to create a culture in which these discussions are recognised and understood to be the catalysts for our sustained relevance and resilience in these unpredictable times.