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MONASH
BUSINESS
SCHOOL
MGF5911
Geopolitics and
Business Globalization
Seminar Topic:
Introduction, Key Concepts, Analytical Tools
and Hegemonic Theory
Assoc. Prof. Paul Kalfadellis
February 28, 2023
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Acknowledgement of Country
I would like to acknowledge the Bunurong and Wurundjeri peoples on
whose unceded land my parents migrated to and where I was born and
continue to live and work. I would also like to acknowledge all First
Nations people around the world on whose lands I have travelled and
roamed. I pay my respect to their elders, past, present and emerging,
acknowledging their deep connection to and on-going struggle in
defending their lands.
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Paul Kalfadellis
Qualifications:
PhD (Monash), MBA (Monash),
Grad. Dip. Applied Science (Swinburne),
Bachelor of Commerce (Melbourne)
Current role:
Associate Professor (Int. Business)
Monash Business School
Course Director - Master of Global Business
Research focus:
Foreign Direct Investment (FDI), Repeat Investment,
Reshoring, Inter-Cultural Communication
Teaching areas:
Global Business, Geo-politics and Business Globalization
Inter-cultural Communication, European Business and Society
Publications :
Book Chapters 5, Refereed Journal Articles 12, Refereed
Conference Proceedings 17
Research Supervision: PhDs (4) , Honour’s Students (15)
Contact email:
[email protected]
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Seminar Learning Objectives
At the end of this seminar students should have an understanding
of the following:
What is geopolitics and geopolitical risk?
The types of geopolitical risk facing companies
How do companies look to manage risk?
Core concepts in geopolitics you need to understand
Analytical Tools used to understand geopolitical issues
Hegemonic Theory and the World Order
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Geopolitics
The study of how geography (human and physical), politics, strategy
and history combine to generate the rise and fall of great powers
and wars among states (Bremmer 2009).
It is an approach to studying global business and politics that
emphasizes the importance of geographical variables including
climate, location, topography, natural resources, and the character
of the peoples who populate specific geographical spaces.
In essence there a large array of micro and macro issues of concern
to geopolitical economy – the big question is - how do vested
interests maintain, challenge or contain hegemonic power?
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Geopolitical Risk
Geopolitical Risk - the risk and impact faced by actors (corporations
and government) as a result of global political upheaval (Bremmer 2009).
Risk – when an event can lead to measurable loss - probability and
impact
How corporates deal with risk (Bremmer 2009);
– Ignore – too hard and too complex
– Just follow what the big guys are doing
– We have our own ‘expert’ who knows what is happening there
Reality - business spends little on evaluating and understanding
geopolitical risk
– Too difficult and complex and not foreseeable
– Not easily quantifiable – lack of data in numbers
– Can manage credit or market risks – compelled by law no such compulsion for
political risk
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Political Risk
Any political event that can (directly or indirectly) alter the value of an
economic asset can be considered a political risk.
Even though political risk is separate from the economic, nancial,
they are inextricably linked.
– e.g. Denmark and the publishing of the cartoons of the Prophet Muhammed saw a major political row which had an economic impact on Danish firms’
products being boycotted by the Muslin world.
Despite negative consequences, political decisions (which are easier
to sell to a nationalist public) override the economic considerations
Often the consequences are more long term and slower ‘to burn’ –
cannot be readily seen therefore also a sense that it not likely to affect
us, resulting in more reactivity (too late) than proactivity.
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Types of Political Risk facing Corporates
Geopolitics
Internal conflict
Laws, regulations,
policies
Breaches of contract
Corruption
Extraterritorial reach
Natural resource
manipulation
Social activism
Terrorism
Cyberthreats
Interstate wars, great power shifts, multilateral economic sanctions, and
interventions
Social unrest, ethnic violence, migration, nationalism, separatism, federalism,
civil wars, coups, and revolutions
Changes in foreign ownership rules, taxation, environmental regulations, and
national laws
Government reneging on contracts, including expropriations and politically
motivated credit defaults
Discriminatory taxation and systemic bribery
Unilateral sanctions and criminal investigations and prosecutions
Politically motivated changes to the supplies of energy and rare earth
minerals
Events or opinions that go viral, facilitating collective action
Politically motivated threats or violence against persons and property
Theft or destruction of intellectual property; espionage; extortion; and massive
disruption of companies, industries, governments, and societies
Source: Rice and Zegart - HBR 2018
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American diplomat, and Professor - US Secretary of State (20052009) and as the US National Security Advisor (2001-2005).
“Micro-level decisions …in Brazil or India, national-level strategies of
countries like China and Russia, and multi-national regimes, policies, and
norms are all affecting global businesses in significant and often
surprising ways”.
McKinsey, WEF, Morgan Stanley, EY and many other consulting firms
produce reports highlighting that corporate executives have seen
political risk increasing markedly in recent years, however staff
struggle to guard against this risk because few have been trained
appropriately.
Reality: for many firms politics not an issue of major concern and
lack a culture to deal with it. They have not prioritised the need to
employ staff whose education has included the study of
politics/international relations.
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How Geopolitics affects Business
• Reduction in sales and revenues
– Consumer preferences can be driven by nationalist sentiment, government policy
(e.g., tariffs, quotas or regulation)
– Actions of state and civil society targeting specific companies or products
negatively impacting sales and revenue.
• Australia relationship with China and the curtailment of trade
• Restrictions on the sale of Russian products into Europe due to the RussiaUkraine Conflict
• Disruption to FDI and M&A
– A wide body of research has demonstrated the medium- to long-term negative
impact of political risk on foreign direct investment and the magnitude of M&A
• Chinese FDI inflow into Australia has collapsed in the last five years.
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How Geopolitics affects Business cont…
• Rising costs
– E.g. Political risk increases R&D costs and can result in a loss of market share.
– In countries with high levels of political risk, companies have had intellectual
capital forcibly transferred and potentially used in competing products.
Technologically leading firms were, in one study, eight times more sensitive to
political risk than their technologically lagging counterparts.
• Higher cost of capital
– Investors and creditors are wary of corporations that are facing significant
political risk. They perceive these organization as riskier investments, which
results in an increase in cost of capital.
• Reputation – damage to social license to operate
– If they lose trust corporations can trigger political reactions and may lose their
social license to operate. Driven by factors such as environmental degradation,
displacement of homes, inadequate compensation, corruption, criminal activity,
inadequate planning and state bias in favour of industrial development.
– E.g. Crown Casinos – Royal Commissions in NSW and Victoria
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How Geopolitics affects Business cont…
• Loss of Property Rights
– A group of legal rights that allows access and use of a resource and any income made
from it. Can be violated through private action, public action and corruption
Loss of property rights can occur through:
Nationalization: process undertaken by government which sees the transfer of
ownership of an industry or company from private to public sector. Why might this occur?
– E.g. Saudi Arabian government nationalized the oil producer company Aramco in 1980
Expropriation: government takes over private property for public good, should pay
‘just’ compensation may or may not occur.
– E.g. Venezuela expropriated General Motors in 2017
Confiscation: government takes over private property without the owner's consent
and without compensation.
– E.g. Zimbabwe government confiscated white owned farm land to redistribute to native
population.
IP Theft : Intellectual Property rights can be stolen or used without appropriate
authorization. E.g. Online hacker infiltration
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Corporate Tactics to Manage Risk
• Stay Home
• Become more “strategic” at home
• Use your state to combat other states
• Strike alliances with locals
• Diversify
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Corporate Tactics to Manage Risk
Stay Home
• Stay home less political risk but less business likely, lose out to global competition.
• Keep out the foreign competition. Nationalist campaigns – e.g. MAGA
Become more “strategic” at home
• Convince home government of your strategic importance to the national interest
• Domestic campaign to ward off potential foreign competition – highlight your strategic
importance - protection from foreign competition.
• E.g. Google, Facebook, Twitter all blocked in China, Weibo rules the social media
waves in China
Compelling TikTok to sell their US interests to US firms – Oracle and Walmart
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Corporate Tactics to Manage Risk
Use your state to work with other states
• Some companies use government-to-government relations to sort out problems.
– E.g. Easing of the boycott on Arla Danish Dairy Co - Danish diplomats
intense political, diplomatic and social exchanges and weeks of dialogue
between Danish representatives and businessmen and Muslim leaders and
communities.
Strike alliances with locals
• Join forces with local partner in return for safe passage.
• A partnership with a local company or benefits for locals can help shed the foreign
label.
• TESLA has agreed to assist Chinese car makers develop electric car industry and
China has granted unprecedented concessions to TESLA
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Corporate Tactics to Manage Risk
Diversify
• Multi-business strategy can be compelling for multinationals.
– GE has dozens of investments in China, spanning different sectors
– China is an important market, GE’s largest single country market outside the US.
– Presence in energy, aviation, and healthcare, as well as horizontal business units
including financing, advanced manufacturing, R&D, and digital.
– GE’s corresponding development strategies in China – comprehensive localization,
global partnership, and full-speed digitalization, help support China's economic
transformation and upgrading.
• Practically may mean, co. trading away its IP, company can only sell products in
China, if it allows local partners to “adopt” its technologies.
• GE constantly upgrades investments and sets up new ones. One sector down
always another sector can pick up the slack.
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Core Concepts
The following are key concepts and ideas that you will need to
understand as they will be used frequently throughout the unit.
• The State
• Globalization
• Polarity
• Conceptuality
• Political Ideology
• Interests – National/State, Corporate, Civil
• Political Power
– Lobbying
– Structural Power
• Hegemony
• World Order
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What is a state?
A political entity with sovereignty which it exercises within given territorial
borders.
The "human community that (successfully) claims the monopoly of the
legitimate use of violence within a given territory.“ – enforced by the
police and military (Weber)
Relies on institutions that emanate from the centre and tell people how
life is to be lived in all its forms.
Two factors make government/the state different from the private sector
• Membership is universal –you cannot opt out
• Powers of compulsion – mainly governments rely on voluntary
compliance – depends on type of government (Stiglitz).
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Globalisation
Held, McGrew, Goldblatt and Perraton (1999)
- “globalisation is the “widening, deepening
and speeding up of worldwide
interconnectedness in all aspects of
contemporary social life”
• from the cultural to the criminal’
• ‘the financial to the spiritual’
• ‘encompasses everything from global
markets to the internet’
Primarily an economic phenomenon
underpinned by mobility of capital, greater
information flow across borders, driven by
improvements in technology, resulting in the
opening up of new production sites and
markets across the globe.
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Polarity
• The ways in which power is distributed within the international political
system. It describes the nature of the international system at any
given period of time.
• One generally distinguishes three types of polarity
• Unipolar - power rests in the main with one state which exercises is
power through cultural, economic, and military influence. No other
competitive power.
• Bipolar - in the international system the majority of global power rests
between two states e.g. Cold War – USA and USSR
• Multipolarity - distribution of power in terms military, cultural, and
economic influence is shared equally among a number of states, more
than two.
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Conceptuality
• Concepts/Ideas used as a toolbox that help you explore and
investigate key topics in geopolitics.
• Conceptuality refers to the various ways in which it is understood
societies should be governed.
• For example in political economy there is a primary distinction in the
current world between Capitalism and Socialism
• Secretary Pompeo July 2020:
– "This isn't about picking America versus China. This is about
choosing freedom and democracy against tyranny and an
authoritarian regime”.
• What is a worldview?
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Political Ideology
• A set of ideals, principles, doctrines, institutions of a large group of
people that provides the basis for how a society should function.
• It helps explain how society should work, by providing a political and
cultural road map for that society’s social order.
• Political ideologies can be complex because they need to deal with a
multitude of different tenets in society, including (for example):
government, the economy, education, health care, law and justice,
social welfare, commerce and trade etc.
• Political ideologies have two key dimensions:
– Goals: how society should work and to what ideal end
– Methods: what is the best and most appropriate ways to achieve this ideal end
arrangement.
• E.g. Free market capitalism as distinct from socialism
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National Interests
Primary Interest - Survival of the State
Defence Interests: protection of the nation-state and its citizens against the threat
of violence directed from another state, and/or an externally inspired threat to its
government system.
Economic interests: the enhancement of the nation-state's economic well-being in
relations with other states.
World Order interests: the maintenance of an international political and economic system
in which the nation-state may feel secure, and in which its citizens and commerce may
operate peacefully outside its borders.
Ideological interests: the protection and furtherance of a set of values which the people of
a nation-state share and believe to be universally good
‘USA has no permanent friends or enemies, only interests’ - Henry Kissinger
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Corporate Interests
Multiple goals and objectives but bottom line is profit
Other interests may modify the extent to which business interests are
able to prioritise profit over other objectives.
Civil Society Interests - Citizens
Wellbeing
Security
Prosperity
Participatory Voice
Both multi-party and
single party States
must accord attention to
civil society. Why?
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Political Power - Business
Lobbying
• Attempts by individuals or private interest groups to influence the decisions of
government.
• Originally - efforts to influence the votes of legislators, generally in the lobby outside the
legislative chamber. Lobbying is inevitable in any political system.
Structural Power
• The power of business cannot be equated solely with lobbying activities.
• Economic power which rests in the "business community" and the decisive importance of
its actions (or of its non-actions) for major aspects of economic policy,
• The ability of private companies to make decisions over investment and employment that
affect society as a whole.
• Any government with serious pretensions to reform must either seek to appropriate that
power or find room for action within the confines of often rigidly circumscribed
requirements of business "confidence”.
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Tools used to understand Geopolitical Issues
• Geography and Maps
• Information Diversity
• History & Projection
• Doubt
• Theory
All these aid key actors to
scenario plan
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Geography and Maps:
US military bases around China
Chinese Port Investments in Africa
iv
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Information Diversity
Need to consider the information coming out of the countries you are
investigating to get the in-country perspective
Australia - Australian Financial Review/Age/Guardian
USA - Wall Street Journal/New York Times
China - China Daily/Global Times/CGTN
Russia - RT/Moscow Times
Range of Websites, You Tube Videos and Podcasts
Be wary of search engines which rely on algorithms that can be politically
loaded
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History & Projection
Do not dismiss history, in informing the present and projecting the future.
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Doubt
Rene Descartes
‘I doubt, therefore I think, therefore I am.”
Populations believe they are the good guys, those who
act contrary to State interests are the bad guys.
“Voice or no voice, the people can always be brought to
the bidding of the leaders. That is easy. All you have to do is
tell them they are being attacked, and denounce the pacifists
for lack of patriotism, and exposing the country to greater
danger.” - Herman Goering at the Nuremberg trials
If you find oneself becoming hostile to those who your
government is hostile, doubt your own views.
To doubt one’s own is difficult and can be costly.
Why?
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Theory
• Theory is central to making sense of the complexity of geopolitics and
global business.
• It allows for well thought-out observations and explanations of the
natural world, through the use of scientific method, that brings together
many facts and hypotheses.
• A good theory looks to simplify the complexity we find in the world in
order to highlight forces that are central to understanding of patterned
behaviour (Donnelly 2013).
• Draw out what is the core of significance so that we can understand
what is happening and also helps us bring about change
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Hegemonic Theory
Hegemony: Dominance of one group or nation over others.
Hegemon: The dominant actor, group, class, or state that exercises a
level of power that others must respond to and that largely determines
and enforces the ruling ideas and practices.
Hegemon Defined
https://www.youtube.com/watch?v=FiPDaJzp7k8
(Source: United 4 Social Change)
Global hegemony: A nation-state plays a dominant role in organizing,
regulating, and stabilizing the world political economy and sets the rules
and determines the norms of what is appropriate behavior
Hegemonic Stability theory - there is likelihood of greater stability in
the international order when a single nation-state is the dominant world
power or hegemon.
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Hegemonic Theory cont…
Hegemon:
Has enough power to inflict severe costs on any potential contester in
a global or regional domain;
Dominates control of resources, capital and markets;
Has competitive advantages in the production of value;
Generates ruling ideas and supporting regulations;
Provides public goods such as global rules and commercial and
financial stability.
Challenging the Hegemon
Allies and challengers must decide;
What costs and benefits will be generated by supporting and/or
challenging the hegemon;
What economic, military, alliance and cultural power can be drawn
upon when responding to the hegemon.
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What is World Order ? (Kissinger 2015)
An accepted mechanism of how states/people interact based on power and legitimacy
Concepts of what the world needs to ‘look like’ underpinned by just arrangements and
power distribution that can be applied to the whole world or a substantial part of it.
Two components:
– a set of commonly accepted rules that define the limits of permissible action
– a balance of power that enforces restraint where roles break down, preventing one
political unit from subjugating all others.
A system of world order, to be sustainable, needs to be seen as just by leaders and
citizens.
It must reflect two truths:
– order without freedom eventually creates a counter effect,
– freedom cannot be sustained without a framework of order to keep the peace.
Order and freedom are interdependent.
No truly global - all encompassing – “world order” has ever existed
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What is World Order? cont…
Of all the concepts of order, the Westphalian principles are the generally recognized
basis of what exists of a world order.
The Westphalian system, (Westphalian sovereignty), underpins the system of
international law,
Each state has exclusive sovereignty over its territory - enshrined in the UN Charter
"nothing ... shall authorize the United Nations to intervene in matters which are essentially
within the domestic jurisdiction of any state.“ (UN Charter Chapter 1, 1945)
Q: is there any requirement that the world must be governed by one single order concept?
Is there a possibility for a peaceful bi or multi-world order concept?
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Where are we today – the USA as hegemon
Post WW2 - United States set the rules of the World Order and exerted significant
power over many other countries, and had sufficient power to be classified as a
hegemon.
Bi-polar Cold War – some challenge from the USSR but could not really compete
However, today the hegemon that has decided the rules of game for business and
governments over the last 75 years, is being challenged.
Two views on US Hegemony
“US Hegemony and its Perils” (20/02/2023) – Ministry of Foreign Affairs PRC
https://www.fmprc.gov.cn/mfa_eng/wjbxw/202302/t20230220_11027664.html
“A Superpower, Like It or Not: Why Americans Must Accept Their Global Role” (2021)
Kagan, R. Foreign Affairs Vol 100, Iss. 2 (Mar/Apr 2021)- Reading Week 7
https://www.proquest.com/docview/2492332165?OpenUrlRefId=info:xri/sid:primo&accountid=12528
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Conclusion
Geopolitics by taking into account, geography (human and physical), political
economy, strategy and history helps us to understand the manoeuvring of states
as they look to influence each other and what impact all this has on business.
Politics and Business and inextricably linked. Companies can face geopolitical
risk, from loss of sales to expropriation of property and a lot in-between.
Despite an understanding that in recent years political risk has increased,
companies find it hard to guard against it because staff have not been trained
appropriately.
Tools used in helping us understand geopolitics such as geography and maps,
information diversity, history, critical questioning and theory all help us to also
scenario plan
• Ultimately the realm is very much about how vested interests (all actors) maintain,
challenge or contain hegemonic power, as the outcome has significant
consequences for all.
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