Global Crisis
The Resilience Playbook
March 30th, 2022
20 min read
One month after Russia's unprovoked invasion of Ukraine, a horror-stricken world watches as the humanitarian crisis continues to escalate.
Thousands of people have been killed, millions of refugees displaced, and entire cities devastated. At this stage, it remains unclear how long the conflict will run or how it will play out. However, it is clear that its ramifications will be pervasive and potent.
The war has created incredible uncertainty in the business environment across the globe. An already fragile global economy, struggling with elevated inflation and lingering fatigue from the COVID-19 pandemic, has been hit hard by the ensuing turmoil. After months of protracted inflation, the prospect of additional price hikes in crucial commodities is immensely disconcerting.
While the parties directly engaged in the conflict may not represent major global end markets, they are major sources of supply for strategic global commodities, including oil and natural gas, minerals and metals, and several agricultural commodities. Consequently, the economic impact of the energy and food crises catalyzed by the horrific conflict between the two countries is already affecting nations in Europe and beyond.
In response to Russia's unjustifiable invasion of Ukraine, the West has coalesced at astonishing speed to form an unprecedented coalition and impose the most comprehensive sanctions package in the postwar era. The severity of these sanctions has crippled the Russian ruble and sent shockwaves reverberating throughout global markets. In addition to state-sponsored sanctions, several companies have pursued voluntary measures and decided to suspend operations in Russia of their own accord.
Such developments in the context of a highly interdependent global economy are likely to exacerbate existing financial strain by causing inflation to soar to even greater heights. As such, forecasters have moved to manage expectations by broadly lowering growth projections. However, it is worth emphasizing that, due to the high degree of volatility involved, significant caveats are embedded in these analyses.
By virtue of its proximity, the war in Ukraine poses existential implications for Eastern Europe, and the Western Balkans in particular. Geopolitical and macroeconomic factors render this region highly sensitive to spillover effects from the ongoing conflict. Thus far, most countries from the region have shown remarkable solidarity with Ukraine and resolve in condemning unjustified Russia's aggression.
In tandem with recent economic disruptions, the security threat posed by the nearby military conflict has produced asymmetrically adverse effects on the region. Due to pre-existing vulnerabilities, a new reality has rapidly emerged across all economic sectors, including energy, commodities, and food prices.
The compound effects of Russia's financial role in the region and its willingness to openly oppose the positions of the EU and the US with regard to the Western Balkans raise concerns that heightened tensions will propagate altercations. Hence, contained though it may seem, the invasion of Ukraine has undoubtedly dealt a blow to the region's stability and weakened the impetus for further European integration.
Concerns are also mounting about the capacity of the Western Balkans to accommodate the influx of Ukrainian refugees. While there is insufficient evidence to suggest that displaced Ukrainian citizens see the Balkans as a potential region for permanent settlement, as opposed to a temporary shelter, preparations for either outcome are warranted.
Contrary to widespread understanding, Russia's economic clout in the Western Balkans is not massive. In fact, Russia's presence is eclipsed by that of EU countries, which represent the region's predominant investors and trading partners. However, Russia remains a crucial player in the region in relation to certain strategic sectors.
The Western Balkans may have seen a faster-than-expected economic recovery from the Covid-19 pandemic. Nevertheless, the cascading effects of the conflict in Ukraine have confounded private sector leaders in the region. Given the looming possibility of further destabilization, companies have become increasingly compelled to respond to changing circumstances and reposition themselves in anticipation of future disruptions.
In recent years, businesses have indiscriminately been faced with increased structural instability across global markets, which have produced one crisis after another. Nonetheless, the extent of an organization's exposure remains a function of geographic footprint, scope of operations, and industry-specific idiosyncrasies.
In time, some companies have acquired sharper reflexes and been able to mobilize their responses to the ceaseless shocks at an accelerated pace. As a result, many organizations have effectively responded to the recent unrest in Ukraine by countering the short-term effects, starting with safeguarding the lives of their people.
It is of paramount importance for businesses to devise appropriate strategies and determine both proactive and reactive actions to be undertaken against different scenarios. Integrated and comprehensive strategies will enable organizations to not only overcome the coming crises but also grow more resilient and efficient over time. We recommend beginning by adhering to the following principles:
Evaluate Exposure
Companies often lack sufficient visibility of their exposure. Identifying implicit vulnerabilities is the first step in optimizing an organization's position in the global business environment. When gauging exposure, companies must avoid excessive focus on geopolitical factors and keep in mind that events are multi-dimensional.
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Rebalance Operations
Companies should assess the different ways their business would respond under possible scenarios and adjust their operations to rebalance exposures.
Build Agile Systems
Companies should account for error. Regardless of the precision with which forecasting is conducted, organizations always remain exposed to unanticipated eventualities. By building agile systems, companies can ensure that they can keep pace with changing circumstances.
Monitor Developments & Update Scenarios
Companies should be vigilant of shifting industry frontiers and unpredictable disruptions. The ability to adapt and thrive in a business climate is contingent upon the readiness to update strategy as new information becomes available.
The war in Ukraine is a tragedy that has already caused unspeakable suffering. Business leaders must consider that the fundamental changes spurred by this conflict will shape the future of the global economy beyond the immediate crisis. The challenges of the future will be different, as will the capabilities required to respond effectively.
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