GEOPOLITICAL
INTELLIGENCE & STRATEGIES
RISK
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STRIMATIX elevates the practice of international risk management to the next evolution of GEOPOLITICAL RISK INTELLIGENCE. Building on the foundations of Enterprise Risk Intelligence & Market Affairs Intelligence, STRIMATIX synergizes robust interlocking capabilities across international affairs, applied political science & futurist thinking to produce unparalleled strategies & solutions for mastering global risk. The 21st-century globalized political & social economy is characterized by immensely powerful overarching trends:
*The deepening fusion of politics & markets, paralleled by the evolution of hybrid political- economic ideologies & models spanning the spectrum of libertarianism, democratic socialism, capitalistic authoritarianism, microfinance development, and socially conscious capitalism.
*Shifting economic-financial leadership away from the Western model and toward the East & South. Emerging markets, frontier markets, and regionally integrated economic trade zones & power blocs will be the centers of growth, innovation & investment in coming decades.
*The emergence of powerful non-state actors with transnational reach and the economic or political power to rival small nation states--from multinational enterprises to terrorist & criminal organizations to humanitarian NGOs with seats at the highest diplomatic forums.
*The distribution of political power away from the exclusive preserve of governments, toward societies at large and individual citizens--a broad-based sociopolitical empowerment through global norms on democratization, encouraged by the borderless knowledge economy, and enabled by social media communications.
*Interconnectedness, interdependencies, interactions & implications of political, societal, economic, environmental & technological trends rising to infinitely complex levels, at increasing global velocity--creating novel systemic risks with potentially unimagined impacts.
*Crisis management, risk management, international security & homeland security converging into a unified sphere of mega-security politics on the part of nation states, addressing every type of crisis: military, economic, environmental, societal, biomedical.
Surveyed below is the STRIMATIX Geopolitical Risk Spectrum--a primer on essential classifications of global & foreign risks, with notes on the STRIMATIX approach to navigating & mastering the full business & mission implications of these risks.
THE FOUNDATIONAL RELATIONSHIP BETWEEN GEOPOLITICAL RISK & ENTERPRISE RISK
*Geopolitical risk has the power to summarily & instantaneously alter the enterprise risk profiles of all organizations.
*Geopolitical risk can impact entire value chains, systemically affecting enterprises not directly exposed to the risk.
*Enterprises face a continuum of political risks at multiple levels, from municipal to federal to multinational to global.
*Enterprise risk controls are fairly straightforward to develop, while geopolitical risk controls may seem somewhat abstract.
*At its extreme, the distinction between enterprise risk & geopolitical risk is analogous to the leap from classical physics to quantum physics--a leap by orders of complexity.
MODERATE IMPACT
LOW PROBABILITY
THE STRIMATIX GEOPOLITICAL RISK SPECTRUM: SURVEY OVERVIEW
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The 2008 global financial crisis made the concepts of systemic risk and international crisis management into household words for the entire world community. Subsequent financial mega-crises in their own right included the US unemployment & foreclosure surge, the plunge of the US dollar, US states threatened with fiscal bankruptcy, and the interrelated series of European sovereign debt, Euro currency, pension deficit & mass labor strike crises--underscoring the long-range cascading effects of systemic geopolitical risk, as well as the long-term vigilance that nations must adopt in combating geopolitical crises. The short two years following the 2008 catastrophe witnessed an array of major crises outside the realm of economics: the Mumbai terror attacks; resumption of the Israeli-Palestinian conflict; pirate hijackings on international waters; American hostages in North Korea & Iran; the pandemic H1N1 outbreak; mass political violence in Thailand & Greece; regime revolt in Georgia & Kyrgyzstan; the historic earthquake in Haiti & flooding in Pakistan; the British Petroleum oil spill; confrontation between one company, Google, and one nation, China; escalation of the Mexican drug war; Latin nations protesting Arizona's immigration policies; airline-borne terror plots against the US. What these widely diversified crises all have in common is the geopolitical risk linkage of multinational government involvement; multidirectional politics & advocacy; globalized systemic impacts upon vast stakeholders; complex crisis management coordination & risk communications across the private, public & NGO sectors.
SYSTEMIC MEGA-RISKS & GLOBALIZED MEGA-CRISES: THE STRIMATIX PERSPECTIVE
Given the mind-numbing magnitude of the 2008 economic cataclysm and the numerous crises that have followed, it may be easy to overlook the geopolitical forces which were shaping current affairs in unprecedented ways in just the months before the full financial crisis. 2008 witnessed the trumpeted arrival of China as a global superpower, highlighted by Beijing's hosting of the Summer Olympic Games. The outbreak of war between the re-emergent Cold War superpower Russia against Georgia, the emerging democratic market beacon of the former Soviet Union. An American presidential campaign more closely watched, and more influential upon world politics & society at large than any other in history. A record oil shock pushing gasoline to backbreaking prices. Unheard of US and EU regulatory intervention in the banking & financial systems and housing markets, including a preliminary round of bailout actions, in the "warmup" to the full financial crisis--which of course would come to see government intervention by many nations on a truly unfathomable scale. Perhaps it is also easy to overlook the constant geopolitical backdrop of the entire period: two full-fledged military conflicts in Iraq & Afghanistan, which were themselves a strategic crisis management response to the cataclysm of September 11--the first of the 21st-century globalized mega-crises, spawned by complicated & systemic geopolitical mega-risks.
September 11 marked the beginning of the age of globalized mega-crisis, striking at a time when economic, technological & logistical globalization had firmly taken root--and a time when titanic shifts in the geopolitical balance of power were taking place, a decade after the end of the Cold War. The emergent risk of extremist religious-nationalist terror represented the first veritable global systemic risk, some years before the notion of systemic risk would become common terminology with the global financial contagion. The launch of two wars in Afghanistan & Iraq, in response to September 11, has had far-ranging geopolitical consequences and given rise to entirely novel complexes of geopolitical risks with systemic implications. The fact that Pakistan has taken center stage in the global battle against terror is evidence of these systemic interconnections--and now the fate of Pakistan, and by inevitable definition, India, carry systemic geopolitical risks for the region & the world that extend far beyond counterterrorism implications. The other enduring significance of September 11, and all the ensuing mega-crises that have since transpired, is the transformation of the art, science, psychology & politics of crisis management & risk management themselves. In the whirlwind decade since the mega-terror attacks, the fields of risk & crisis management have steadily converged and grown increasingly sophisticated--witnessing innovations ranging from political risk insurance, to supercomputer simulation of security threats, to event-based derivatives markets, to private consulting firms with paramilitary capabilities.
September 11 give birth to the homeland security paradigm, which fused national security & emergency management with corporate security & risk management--elevating geopolitical risk intelligence & all-hazards threat assessment to paramount private sector concern. This sweeping approach to total security has since been applied across the public & private sectors to counter pandemic disease, mass disasters & organized crime, as well as to counter terrorism. The corporate governance debacles & financial fraud perpetrated by Enron, WorldCom & other multinational giants helped give rise to the paradigm of enterprise risk management, which prioritizes ethical governance & compliance controls as the counterpart to financial risk management. The Bernard Madoff scandal, representing historical record securities fraud, might have become the financial story of the decade, had it not been overshadowed by the global market catastrophe of 2008, and had such egregious fraudulent precedent not already been set by Enron et al. The Indian Ocean tsunami, followed months later by Hurricane Katrina, transformed the practice of disaster response into multinational mega-operations steered at the highest level of politics, diplomacy & military strategy--the lessons of which were later transfused into the Haiti earthquake mission. Just as consequentially, the tsunami & Katrina ignited governmental & sociopolitical fervor in combating the twin societal perils of socioeconomic vulnerability & systemic climate risk--the echoes of which roared to the forefront during the 2008 record oil shock, and again with the British Petroleum environmental catastrophe. And though not involving military or security matters, the global Toyota recall crisis channeled the very same themes of corporate governance accountability, multinational public-private sector crisis management, and far-ranging systemic risks as did Enron & Katrina--with safety risk management & supply chain defects the focus instead of defective balance sheets & defective levee engineering.
This is the reality of 21st-century globalized business & mission advocacy. This is the complexified seastorm of risk & crisis that enterprises of all types, at every scale, in any locale, must confidently navigate. This is the geopolitical economy where quantitative market movements are qualitatively dominated by social movements. This is the media sphere where 24/7 current affairs become 100% mission-critical. This is the arena where inter- connected threats accompany evolutionary opportunities. This is the age for strategic wisdom & modern intelligence. This is the time for STRIMATIX.
The fundamental state of world affairs & global security is structurally determined by international relations. While the political-military & diplomatic affairs of nation states have always directly impacted society & commerce, what is new in the 21st century is the ever-deepening intricacies of these impacts upon the business world & the world of mission advocacy. A macro view of history makes it plain that the world has never been in an actual, sustained state of peace. Conflict of one form or another, between, within & across nations, has always afflicted various regions of the globe. While the international community has not witnessed full-scale organized conventional warfare on a global scale since World War II, full-scale war has indeed erupted between numerous countries in the decades since. The brutality & scale of these wars between nations have been matched by numerous civil wars within nations--often with sectarian strife, insurgency & terror, criminal militias and traditional warfare merging indistinguishably into each other. Before the collapse of the Soviet Union, September 11 & the Great Recession, the end of World War II marked the definitive geopolitical inflection point for international relations. The emergence of the United Nations & NATO, and the Bretton-Woods institutions of the World Bank & International Monetary Fund, ushered in the modern era where the guarantor of international peace & security is a system of international relations underpinned by norms of human rights, cooperative action, democratization, interconnected economic development & financial stability, and a philosophy of diplomacy-first, with military force only as a last resort. While the ideals of the UN, and the theory behind the Bretton-Woods system are laudable, catastrophic geopolitical crises have prompted calls for radical overhaul & transformation of these international institutions to be more commensurate with 21st-century realities. Prominent among these crises are the genocides in Rwanda, the Balkans & Darfur; the 9/11, 3/11, and 7/7 attacks & their linkages with state sponsors of terror; and the wave of national financial crises spawned by the global financial contagion of 2008.
INTERNATIONAL RELATIONS
Critics have charged that the UN approach is inadequate for unconventional threats such as civil ethnic conflicts & transnational terror attacks by mobile nonstate organizations. Critics have charged that the Bretton Woods approach is inadequate for the new complexities of globalized financial risk created by market innovation, transformative technology, mammoth firms & banks that are "too big to fail," and economic interdependence & integration across all nations. Perhaps even more importantly, beyond these crisis-induced criticisms, there is an entirely different strand of growing criticism against the post-World World II international system--the backlash against dominant Western influence upon international institutions. The rise of the so-called BRIC nations---Brazil, Russia, India, China--alongside other powerful emerging market countries, has dramatically shifted the momentum of economic growth away from the West, and toward the East & South. Their rise occurs against a wider backdrop of global postcolonial independence & liberation, as well as growing global economic inequality, natural resource scarcity & intensifying consciousness of ecological & climate threats. Criticisms against the long-entrenched Western approach have refocused global attention on the more equitable conduct of international relations, foreign policy, commercial, investment & trade policy--with emphases on universal "human security" & inter-civilizational relations. If sustained absolute peace cannot be a reality, if financial & technological complexity keep evolving at breakneck pace, if economic & resource inequality and ecological degradation will be chronic conditions, then--from the vantage point of geopolitical risk management--perhaps what can best be achieved is a relative compromise balance of managed complexity, contained threats, shared burdens, allocated resources, mitigated risks, & partially preventable crises. International relations will remain the absolute foundation of geopolitical affairs, because only national governments command the political power to shape geopolitical environments which are conducive to managing complexity, containing threats, sharing burdens, allocating resources, mitigating risks & preventing crises. STRIMATIX empowers commercial enterprises, nonprofits & NGOs to proactively navigate, monitor, assess, analyze, forecast & synthesize the often daunting complexities of international relations into actionable enterprise intelligence--in order to manage & master the geopolitical risks that consequentially impact their organizations, markets, missions & stakeholders.
Prevailing conceptions of political risk in the business world have a predominant fixture on the bottom-line questions of who is in power, who will win an election, which party has the legislative majority, which party has what policy position, who will lead or join which coalition, whether a particular bill or law will be passed by legislators, and how regulatory agencies will interpret, implement & enforce the rules. These questions, in one form or another, essentially distill down to one unified question: are the final implications of governmental policy, regimes & elections, and technocratic political processes ultimately good, or bad, for business & markets? These are the "rubber meets the road" questions for businesses, and certainly it is an end goal of geopolitical risk assessment to answer these questions. However, truly complete geopolitical risk analytics & strategic intelligence must look several levels beyond & in between these questions--to fully capture both the sweeping macro-dynamics & crucial micro subtleties of high government politics & technocratic policymaking. With the ever-deepening complexities, shocks, surprises & often paradoxical nuances of 21st-century geopolitics, it is absolutely not enough for enterprises & mission organizations to read the punditry headlines & follow the dominant narratives in popular thinking. To safely navigate and then ultimately conquer the international seas of risk & crisis, organizations must take a more structured & systematic approach which blends the depth of applied political science with the sophistication of enterprise risk strategy, and the practicality of common business & mission sense. STRIMATIX offers these core services, solutions & strategies: *Strategic comparative political analysis of governmental regimes & ideologies *Comprehensive quantitative & qualitative analytics of elections, campaign strategies & polling data *Modeling, gaming, simulation & forecasting of elections, congressional & parliamentary coalitions, legislative outcomes, regulatory agency & judiciary behavior, technocratic policy processes, and major political events such as treaty negotiations *Political psychological profiling of leaders, candidates, lawmakers & key figures *High-specificity tailored translation of geopolitics to YOUR organization's bottom line, mission strategy, future vision & contingency planning.
STRIMATIX equips YOUR enterprise with sophisticated polimetrics & econometrics to synthesize the geopolitical bottom line on business climates, access to markets, and investment opportunities. There are several major dimensions to macroeconomic, trade & investment risk: *A nation's total economic, commercial, industrial & financial strategy covering both its competitiveness & integration with international markets, as well as its internal socioeconomic development. *Fiscal Policy: businesses & financial markets are concerned with GDP growth prospects, regime competence in managing economic cycles, current/capital account & trade balances, and conservatism vs liberalism vis-a-vis taxation & public spending. In response to the global financial crisis, some nations enacted gargantuan fiscal stimulus packages, with the tradeoffs of surging budget deficits, weakening currencies & abated future growth. *Monetary Policy: businesses & markets are concerned with both actual policy, as well as implied policy bias, toward easing or tightening interest rates & currency valuations. Alongside fiscal policy, monetary policy is an ultimate crisis response tool--it has the power to summarily alter systemic credit risk. Analogous to protectionist "trade wars," monetary policy can spark "currency wars." *Sovereign Risk & Country Risk: the risk of nations defaulting on sovereign debt derives from fiscal & monetary policy. Country risk, broadly defined, incorporates the totality of business & investment risks--inclusive of sovereign risk, as well as security & sociopolitical risks with economic implications. *Trade Policy: while the World Trade Organization champions open trade relations over protectionism, the tricky geopolitics of free trade are bound up with national security, domestic labor markets, human rights & environmental policy. *Investment Policy: regime policies & country risk can be conducive or harmful to foreign direct investment. Particular concerns for FDI include ownership limits, capital controls, taxation & exchange provisions. *Private Property & Intellectual Property Rights: without consistent rule of law, there are major risks of nationalization, expropriation, corruption & organized piracy. *Industrial & Commercial Policy: prime concerns are regulatory permissiveness, state of the industrial base, market infrastructure & incentives for specific sectors.
REGIME, ELECTORAL & TECHNOCRATIC RISKS
MACROECONOMIC, TRADE & INVESTMENT RISKS
We are now in an age where the crisis management & risk management of one organization--Enron, Lehman Brothers, BP, Google, Toyota--or one nation--America, Greece, Iraq, China--carries systemic geopolitical implications for the world at large. Mega-risk & mega-crisis management are the preserve of multinational government coalitions and international institutions, with macroeconomic, national security & foreign policy deployed as the management tools of choice. These policy tools will exert ever-widening long-range effects across society & commerce, for better or for worse.
GEOPOLITICAL RISK : GOOD OR BAD FOR BUSINESS?
NONSTATE & UNCONVENTIONAL SECURITY THREATS
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SOCIOPOLITICAL RISKS
RESOURCE SECURITY & ENVIRONMENTAL RISKS
INSTITUTIONAL RISKS
Regular conventional (land, naval, air), cyber, and ultimately, nuclear & space warfare between nation states remains the maximal threat to international security. But 21st-century geopolitics have also unleashed unconventional security threats from nonstate actors who employ irregular tactics and are transnationally networked, mobile, well-resourced, and often interlinked with corrupt government elements. Terrorists, organized crime & maritime pirates are only part of a wider spectrum of what are called asymmetrical warfare threats. Within this dangerously fluid spectrum are hybrid networked threats: narcotics cartels with political goals; criminals & pirates using terror for commercial gain; cyber-insurgents & ecoterrorists; hackers hired by mafias & governments; ethnic human trafficking rings; militias acting as de facto regimes; arms dealers & WMD brokers; off-the-books corporate mercenaries & espionage agents; mutating methods of money laundering & terrorist financing. STRIMATIX fuses strategic geopolitical & enterprise security risk intelligence to holistically assess & adaptively anticipate these threats-- translating their bottom-line risk implications for YOUR organization.
*Conflict & Security Threats
*Regime Instability or Hostility
*Uncertain or Arbitrary Policy
*Redistributionist or Ultra- Nationalist Ideology
*Weak or Immature Institutions
BAD
GOOD
*Regime Stability
*Regulatory Predictability
*Pro-Growth Ideology
*Consistent Rule of Law & Property Rights Enforcement
*Technocratic Transparency
MIXED
*Legislative Gridlock & Stalemate Coalitions
*Centrist Ideology
*Longevity of Leadership
*Preferential Relations With Certain Nations
MIXED
*Dominant Party Rule
*Strong/Weak Consciousness of Social & Environmental Values
*Strong/Weak Organized Labor
*Industrial/Commercial Policy Favoring Particular Sectors
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While international relations remain the foundation of geopolitics, national governments hold a diminishing monopoly over political power--due to the real-time global proliferation of citizen ideas. The two spheres of sociopolitical risk are political actions by society, and societal policy made by governments. A stark tale of the systemic mega-risks of societal engineering is the urban development & affordable housing policies which contributed to the Great Recession. On the systemic implications of political actions by societies themselves, dramatic examples run the gamut: Mass protests & labor strikes. Consumer-imposed values & social responsibility standards for global supply chains vis-a-vis sweatshops & trafficked labor, conflict minerals, and carbon footprints. Animal rights activism escalating into guerrilla warfare. NGO advocacy & pop culture politics engendering corporate philanthropy. Identity politics, grassroots movements & social attitudes, from group-specific human rights to immigration & ethnoreligious assimilation to nationalism vs regionalism. STRIMATIX balances nuanced political & sociocultural insights to help YOUR organization harness the essential meaning of societal forces.
There is perhaps no more visible interplay of politics, markets, technology & societal forces than the domain of natural resources, energy security & environmental sustainability. 20th-century resource geopolitics centered on the strategic commodity of petroleum, and its precarious entanglement with international terrorism & hostile regimes. 21st-century geopolitics now center on renewable green resources; rather than terror threats & scarcity wrought by the economic weapon of embargoes, these politics are now entangled with climate threats & scarcity induced by exponential population growth. It is not only strategic energy & industrial commodities, but food & water, which are potentially at stake. It is not only the threat of armed conflict over resources which looms as a systemic mega-risk; it is the prospect of radically altered ways of living. Now, more than ever, policy & technology possess magnified power to affect all humanity. Virtually all enterprises, all missions, are impacted along the value chain by the geopolitics of environmental security. STRIMATIX futurist forecasting & poly-discipline research make financial, technological & mission sense of these complicatedly interwoven dynamics.
Institutions & agencies are the operational instruments of policy; their structure, development, maturity & capacity thus carry systemic implications. There are several major dimensions to institutional risk: *Institutional Behavior: the real-world bureaucratic inner workings of political & judicial agencies can yield unexpected policy & legal outcomes. *Institutional Capability: detrimental effects of weak critical institutions, e.g., imbalanced civil-military relations; underdeveloped banking systems & financial markets; poor public health infrastructure & disaster preparedness; shaky legal systems & corrupt police forces. *Regulatory Harmonization: lack of transnational coordination across jurisdictions can produce uneven interpretation, implementation & enforcement of accepted rules & principles --affecting business & mission conditions, contracts, deals, property rights, investments & compliance. *Cross-Cultural Miscommunication between different national institutions. STRIMATIX offers the balanced & incisive perspective to cut through bureaucratic, legalistic & cross-cultural distractions --to interpret the essential strategic issues for YOUR bottom line & mission.
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