Missed Connections: Geopolitical Risk and the Tech Sector
The tech sector is facing geopolitical risks that it cannot ignore. The political risk industry can help, if it can innovate.
Our story begins as most in DC tend to- with a conversation at a swanky bar 2 blocks from the White House. It starts, quite predictably, when a gentleman sits down next to me and poses THE question: “so, what do you do?” After I give him my standard response, that I’m a geopolitical risk consultant and interactive simulation designer, helping companies navigate complex business and security environments, I ask him what he does. His reply piques my interest. He’s an executive at a firm that makes devices to help hikers use their cell phones in areas with spotty coverage. Perhaps anticipating my next question, he immediately adds, “So clearly we don’t need to worry about geopolitical risk.” Knowing full well that such civilian tech is routinely repurposed by paramilitary types all around the world, I ask him if he worries that criminals, terrorists, or insurgents might be interested in this type of technology, especially in areas where the government can turn off mobile networks or disable Internet access. “No,” he replies, “we only market to hikers. It’s not like we’re a mining company or something. Those guys need political risk help. We’re just making life better for hikers.”
The executive’s misconception is not uncommon, borne largely of the political risk industry’s own failure to adequately define and articulate its value to a much larger client pool than it is used to targeting. (Geo)political risk is defined as any change in a company’s security or business operating environment, whether within a country (political risk), or across borders (geopolitical risk). The primary imperative of political risk firms, then, is to identify clients’ vulnerabilities to negative changes, and to monitor, analyze, and manage them, while also identifying how positive changes can offer opportunities. Therefore, it affects everyone from mining firms to tech firms.
Not long after the Brexit vote, but before the election of Donald Trump, John Chipman, executive director at the International Institute for Strategic Studies, published an article in the Harvard Business Review. In a year that would prove to be chock full of geopolitical risk, he wrote that every company needs a foreign policy to succeed in a complex global environment. To retain competitive advantage, he asserted, every company should invest in geopolitical due diligence to anticipate vulnerabilities and exposure, and corporate diplomacy to smooth entry into, and operations within, opportunities in foreign markets. Chipman’s article made brief waves within the foreign policy and international relations spheres, and then faded away — just another contribution to the meta-thesis on the erosion of state dominance by non-state actors.
For a while after it was published, I brought the article up in conversations with executives across the spectrum, and especially in tech. I always got the same reply. Although his argument was intriguing, they said, the article made him and his industry seem out of touch from the concerns of tech firms. The proof? All of his evidence relied on the usual suspects- the United Fruit Company’s misfortunes in Guatemala, oil and gas companies’ troubles on the African continent, a mining firm’s travails in Argentina- but nothing from the tech world. Tech companies struggled with political risk all over the world throughout 2016, from YouTube’s struggles with censorship and bans in Turkey, before and after the attempted coup, to Whatsapp’s repeated suspensions in Brazil, to Uber’s decision to abandon its plans for China. None of that was included.
There are now even more examples to choose from. There is Uber’s failure to win a renewal of its license in London; Facebook, Google, and Twitter’s struggles to address allegations that foreign actors used their platforms to influence the U.S presidential election. And it’s not just US companies struggling abroad. China is levying fines on Chinese firms like Baidu and Sina Weibo for failure to censor what is considered banned content. British fintech firms, which attract a substantial amount of investment, are struggling to make sense of the implications for EU passporting in the wake of Brexit. Regulatory hurdles and complex power balances in Central Asia are stymieing Chinese investors involved in the One Belt, One Road initiative. E-commerce and financial firms in the Middle East are working to navigate the complexities of the ongoing Qatar crisis. The list goes on and on. And there will be more, as tech firms seek to help rebuild areas ravaged by natural disasters, and venture capital firms (VCs) start to more seriously consider a startup’s exposure to (geo)political risk before considering investment.
But as the tech sector is continuing to struggle with an increasingly complex operating environment rife with (geo)political risk, the political risk industry appears no closer to understanding the tech sector’s culture, their language, or the technical underpinnings of their innovations. Consequently, the political risk industry has been unable to make its services attractive to more potential clients in tech. This failure, on the political risk industry’s part, is especially troubling now. A confluence of (geo)political risks means that tech firms, long known for an avoidance of anything political, are taking, or are being forced to take, political stances. We saw this in the unprecedented unity among tech firms in a letter responding to the Trump administration’s “travel ban” and pushback to proposed changes to HB-1 visas. Tech firms like Facebook, Twitter, and YouTube are fighting “fake news” both in the US and abroad. Dating app firms like OkCupid and website hosting firms like GoDaddy are dealing with banning white supremacists for life. Tesla is exploring further entry into the disaster relief and rebuilding business in Puerto Rico.
Simultaneously, governments are coming to realize that they have power to wield against tech firms. There is increased pressure on tech firms to fight back against terrorism, criminal syndicates, and malware ransom rings, as well as misinformation, propaganda, and foreign entity ad buys. After years of generally good relations with their home governments, the tech sector is now learning they must be wary of these governments, and not just those with whom they have long had rocky relations. Governments are starting to demonstrate just how much power they have to stop the progress (and money) that these firms are trying to make, if they are not satisfied with how these platforms police themselves, or if they just need to score a political point.
It is hard enough to convince tech firm executives- many of whom have never taken an international relations course in their lives- that (geo)political risk exists, and that they can do something proactive about it. But even among those who acknowledge its existence, articles like Mr. Chipman’s seem to prove to already skeptical tech executives that these allegedly storied political risk firms are unlikely to have anything to offer them. I’ve worked with clients in nearly every major industry- mining, oil & gas, shipping & logistics, manufacturing, banking, media, higher education, and, of course, tech. Nearly all — from small startups to major corporations — have understood the need to be aware and proactive. But among tech clients, the attitude towards (geo)political risk is initially overwhelming skepticism.
Nearly all the tech firms I’ve spoken to have told me that they see political risk professionals as “no” (wo)men — a damning charge for an industry that sees itself as crucial to helping firms operate more successfully and confidently in complex environments. In some ways, they’re right. While many in the tech community are eager to test boundaries, disrupt business as usual, bypass the laws and regulations that they feel are obstacles to progress, and “make the world a better place,” the political risk industry is sensitive to following the rules, avoiding conflicts, and finding reasons why something is too risky. Many political risk firms have not bothered to understand what makes tech firms’ needs unique, preferring to simply scrub and resell the reports they write for other industries. The focus remains on macro issues that are researched more easily and cheaply than micro or local level issues, which are quite fluid and often what cause the biggest problems for tech firms. You can see the political risk industry’s ongoing struggles in the constant churn of hires and resignations, as many at even the storied political risk firms end up leaving, frustrated with the outdated methods, the lack of intellectual honesty, and the generally mediocre quality of work.
Now that we know the problems, we can move on to finding solutions. By seeking, retaining, and incorporating good insight, tech firms can avoid making a faux pas like Elon Musk’s recent assertion that he received verbal approval for a NY-Phil-Balt-DC Hyperloop, something that doesn’t exist. The tweet, which was widely shared, and ridiculed for demonstrating a seeming lack of understanding of how such interstate infrastructure projects are conceptualized and approved. It’s clear that Elon Musk and other visionaries are keen to change our infrastructure, via blazing fast transport, autonomous vehicles, and other advancements, and that they believe existing processes are preventing progress, but it’s one thing to want to cut through red tape, and another to actually do it successfully, and without causing problems that might force you to cease operations after getting on a government’s bad side. It is a tough proposition for a sector that is used to asking for forgiveness, instead of bothering to ask for permission.
We’ve seen this in action with Uber. The ride sharing firm has long been known for its brash, unsanctioned launches in cities that have not had time to update regulations. That approach has led to pushback and made enemies of people who otherwise would’ve been Uber’s fans. Had they acquired good insight into the micro-level political risks in each city to which they expanded, and created a tailored strategy for each, they would likely have had a much smoother experience, instead of the unsavory reputation it gained instead.
But it’s not just tech firms that need to adjust their perspective. Political risk firms also have work to do. To innovate and convince tech clients that bringing in political risk insight is worth their time and money, the industry must do three things: embrace the importance of micro level issues, make better use of new tools to collect, analyze, and monitor fluid situations, and bring under-utilized fields of study into the fold. It might be harsh criticism, but it is necessary, if the industry is to move forward.
Though some may say it is easy for me to critique, I also practice what I advocate. When I work with my clients, I design interactive simulations to bring together people from all levels of the firm, and help them develop an ability to view their roles, and the work they do, through a political risk lens. I work to balance issues across various spectrums — macro/micro, technical/organizational, internal/external, etc. — tailoring my insights to my clients’ specific vulnerabilities, concerns, and situations. Subject matter experts from a variety of fields are retained to design custom injects for my simulations, ensuring that they are as realistic and robust as possible. And the results are undeniable. After diagnostic simulations, people leave with a better appreciation for what (geo)political risk is, and how they can apply their new understanding to their daily work, as well as an understanding of the problems that are keeping them from doing their best work. Once the identified problems are corrected, training simulations help team learn best practices. In analytic simulations, they work on making better decisions, avoiding crises, or managing unexpected situations more effectively. This is, of course, just one part of a larger risk management effort, but it is one that gives clients the most return for their investment. A report might be read by 2 people and soon forgotten, but an experience stays with people. The simulations also help clients better understand the kind of monitoring and consulting services they need, to help them develop a more cohesive risk management strategy.
Success in business requires balancing risk and opportunity, and in this respect the tech sector and geopolitical risk industry are a mutually beneficial match in the making. The separation between them is born of each side’s respective biases and unwillingness to consider new approaches. The tech sector must admit that it is not above the geopolitical fray and may need help navigating the currents of world affairs. The risk industry must discover its own sense of innovation in order to connect and keep up with this modern, forward-leaning client base. And both sides, of course, can call me for assistance in either effort.
Milena Rodban is an independent geopolitical risk consultant and simulation designer. She can be reached via Twitter (@MilenaRodban) or email (milena@milenarodban.com).
