Geopolitical shifts are reshaping global trade, with escalating tensions between the US, China, and Europe leading to trade turmoil, sanctions, and protectionism. This climate of political volatility creates uncertainty for businesses. Amid these changes, India is becoming increasingly central to the global economy, presenting both challenges and opportunities for those targeting emerging markets. In an interview with Business Today, David Bach, President and Nestlé Professor at IMD Business School, Switzerland discusses the shift from global neoliberalism to nationalistic policies, rising geopolitical tensions, and the growing significance of India. Edited excerpts:
How has the global neoliberal order shifted, and what implications does this have for international trade?
The global neoliberal order, once characterised by multilateral institutions and free trade, is now widely considered over. This transition marks a shift to a world where nationalistic policies such as “America First,” “India First,” “China First,” and “Europe First” gain momentum. The era of American leadership in shaping the global economy seems to be fading, especially as the incoming Trump administration signals a more inward-focused approach. This evolving landscape is leading to increased tariffs, a more transactional world, and an uncertain geopolitical climate that challenges both businesses and governments. For decades, business leaders operated in an environment where economics overshadowed politics. Companies prioritised cost efficiency by sourcing from the cheapest markets and expanding into emerging consumer bases, often bypassing political concerns. However, the prominence of politics in economic decisions today requires strategic reassessment. Political relationships now heavily influence market attractiveness, with tariffs playing a significant role. Consequently, companies are relocating manufacturing to the US and Europe or investing in Mexico to circumvent trade barriers, though this strategy has come under scrutiny with punitive US tariffs.
What challenges are posed by increasing political volatility, and how can businesses adapt?
The increasing political volatility makes risk management more complicated. Businesses, now, need to diversify and adjust, recognising that traditional strategies may no longer apply in this new world order. The role of technology and science in global economies is gaining recognition, driven in part by the pandemic, which revealed vulnerabilities in supply chains. Dependence on specific countries, like China for critical supplies, is now a strategic concern for policymakers, especially amid rising geopolitical tensions.
How is AI transforming the services sector, and what role do businesses play in this transformation?
AI is revolutionising the service sector by elevating lower-performing employees to achieve average-level productivity without replacing them. This transformation is largely contingent on companies having well-defined strategies. Simply providing AI tools is inadequate; a structured approach is essential to realise AI’s full potential. By automating routine manual tasks, employees in service sectors can now redirect their efforts towards more strategic and innovative roles, improving overall productivity. As businesses adopt AI, focusing on high-level tasks becomes paramount. AI should be seen as a partner in creativity, requiring employees to develop AI literacy—an increasingly crucial skill. With repetitive jobs automated, employees must cultivate advanced skills to add value, working alongside AI.
How does India’s technical education system contribute to its potential for integrating AI into the workforce?
India’s robust technical education system, with premier institutions like the IITs and IIMs, provides a solid foundation in science and engineering. This educational strength significantly contributes to the country’s potential to integrate AI effectively into the workforce. As AI continues to evolve, India’s trained professionals will be essential in ensuring the successful incorporation of AI technologies into various sectors, enhancing productivity and driving innovation.
Sustainability has emerged as a critical focus for companies, complementing digital transformation and AI. How can they tackle these concerns?
Companies are now tasked with developing sustainable products and supply chains, demonstrating to investors that sustainability aligns with long-term profitability. In an era of geopolitical and economic challenges, having strategies to face uncertainties is vital. Businesses are encouraged to identify vulnerabilities related to war, trade sanctions, or supply disruptions, and create plans to mitigate these risks.
What can global enterprises learn from India’s diverse society, and how should they approach the Indian market?
India’s diverse society offers immense potential for global enterprises. Succeeding in India requires addressing its complexities, overcoming infrastructure gaps, and elevating communities. Indian companies can learn from successful global businesses that prioritise strong brand presence, customer relationships, and innovative ecosystems. In today’s business world, political and corporate diplomacy are essential. CEOs must embrace their roles as chief corporate diplomacy officers, engaging with governments, communities, and NGOs, beyond just focusing on customers and shareholders. Successful companies will be those, whose CEOs understand and fulfill their social and political responsibilities.
What are the key challenges businesses face when entering diverse markets like India, and how can they overcome them?
India offers valuable insights into handling complex, diverse markets. The country’s vast diversity demands strategic consideration of challenges such as underdeveloped infrastructure, while focusing on community advancement. Success in India highlights the importance of resilience and adaptability, a crucial lesson for global enterprises. Indian businesses must also learn from global counterparts: a strong product must be supported by effective marketing and innovation ecosystems. Successful models, such as those from Chinese companies, demonstrate the value of brand strength, customer engagement, and sector-specific innovation. In managing geopolitical uncertainties, political and corporate diplomacy is indispensable. Business leaders must embrace their expanded role beyond economic entities, recognising responsibilities toward governments, communities, and NGOs. Companies whose leaders understand and embrace this societal role are positioned for long-term success.
What is the potential of the Indian market and how can businesses tap into it?
Ultimately, incorporating sustainability and inclusion into core business practices creates lasting value. This requires collaboration among stakeholders such as governments, investors, employees, customers, and NGOs. Regulatory frameworks regarding environmental and social impacts, investor priorities, and consumer demands all drive businesses toward sustainable and inclusive practices, highlighting the communal responsibility of creating ethical, resilient enterprises.
How can businesses align short-term and long-term goals to prioritise broader social responsibilities?
In the complex landscape of global business, the challenge for leaders often lies in aligning intentions with actions that prioritise long-term community impact over short-term gains. Despite the best intentions, misaligned incentives can prompt decision-makers to focus on immediate benefits, inadvertently neglecting their broader social responsibilities. However, a growing synergy of policy pressure, investor demands, and consumer preferences is prompting companies to reassess their priorities. The emphasis is on creating sustainable operations that focus on long-term value creation rather than just allocating profits for philanthropy.
What role does India play in the evolving global economic landscape and what should businesses consider when engaging with the Indian market?
India exemplifies both a challenge and an opportunity within this context. As the world’s fifth-largest economy, India is a growing market with a massive population and significant growth potential. Although its GDP per capita remains low, projections indicate considerable growth by 2030, making India an increasingly influential global player. Yet, businesses eyeing India must also address impending sustainability concerns, particularly regarding energy usage and growth management. In the current geopolitical environment marked by European divisions and U.S.-China tensions, India’s economic influence is on the rise. Ignoring India’s market dynamics could prove detrimental to businesses aiming for sustained global success. Businesses that overlook India do so at their own peril.