Governments are having to act swiftly to safeguard food security and avoid the worst consequences of critical energy and commodity shortages and price hikes. The challenge is to safeguard their own supplies of energy and vital goods without resorting to protectionism, which could further stifle global trade.
If, as during the pandemic, they introduce export controls, it will put poorer nations at even greater risk. The United Nations is calling for increased international cooperation to even out supply issues, encouraging those who can to produce more. Meanwhile, the agriculture ministers of the G7 group of wealthiest nations have urged countries to keep markets open.
Setting the necessary framework to mitigate vulnerabilities
Longer term, the supply chain vulnerabilities exposed by the pandemic and the war in Ukraine require CEOs to rethink the legacy model of singular, linear, globalized supply chains based on cost efficiency. To improve resilience and reduce external dependence, many governments have been implementing protective policies, such as providing loans and incentives for re-shoring or near-shoring production of essential supplies, as with the Chips Acts for semiconductors in the US and EU that seek to strengthen ecosystems in those regions.
However, CEOs and governments also will want to take the advantages of globalization and regionalization into account. Greater diversification and regional distribution of supply networks can mitigate key dependencies without sacrificing competitiveness. Governments can promote this by preventing anti-competitive consolidation and reducing barriers to market entry. In addition, consumers, employees and investors want better sustainability and transparency within supply chains. Governments can contribute by setting regulatory frameworks and monitoring compliance.
Building resilience to help safeguard the future
The war in Ukraine, following on the back of the pandemic, has intensified the dilemmas facing policymakers. Governments need to act swiftly to address short-term challenges, using a range of policy levers that take account of local conditions and that can be adapted as required. But they must also work to safeguard their longer-term goals.
Businesses in turn will need to be agile in adapting to a fast-changing policy environment. As well as tighter monetary policy, CEOs should expect to see new or strengthened tax policies, aimed at corporations and wealthy individuals. There may be greater controls on public spending, but with temporary relief available for those most impacted by the cost-of-living rises. Governments will prioritize measures that contribute most to sustainable economic growth, including support for companies investing in R&D, future skills development or the green transition.
Companies engaged in global trade should prepare for further disruptions and instability as the full impacts of the war play out. Close collaboration with policymakers will be needed to secure essential supplies in the near term, while safeguarding competitive global markets longer term. Together, governments and business leaders can navigate the current disruptions, while seizing the opportunity to revitalize economies and achieve sustainable and inclusive growth.
Key actions for CEOs
- Given the shifting geopolitical landscape and policy environment, CEOs should consider establishing a cross-functional geostrategy team and prepare to rethink how they manage their global supply chain.
- As part of the effort to help bring rising inflation under control, where possible CEOs should proactively manage their own cost bases and avoid simply pushing higher costs on to the consumer.
- As governments take action to repair their balance sheets, CEOs should work constructively with policymakers to support sensible tax reforms that underpin long-term, inclusive growth and drive competitiveness and productivity.
- CEOs should support governments’ regulatory reforms to competition law and labor market reform in order to help promote long-term competitiveness.
- CEOs should acknowledge their role in keeping the net zero target alive, working with governments to develop sector-specific roadmaps, investing in clean energy and elevating the importance of broader ESG goals.