These are anxious times for the bosses of Western multinational companies. After decades of being wooed by governments the world over, many now live with an ever-present fear of being caught in the crossfire of fraying geopolitical relations. An increasingly assertive China has now taken to slapping exit bans on the executives of foreign firms. The latest example came on September 29th, when a Hong Kong-based restructuring consultant at Kroll, an American advisory firm, was reported to have been barred from leaving the mainland.
Doing business in China is far from the only source of worry. American chief executives are contending with the regulatory zeal of Brussels just as their European counterparts are dealing with a more interventionist America. Both groups are trying to tap the cash gushers of the Gulf without appearing to cosy up to its authoritarian rulers. A diplomatic spat between Canada and India over the alleged assassination of a Sikh activist on Canadian soil will have sent shivers down the spines of many Western business grandees. Trouble, it seems, is everywhere.
Luckily, an industry of consiglieri is at hand to help multinational firms traverse these treacherous waters. Although geopolitical advisers have existed for decades, demand for their services is now soaring, thanks to the growing complexity of doing business abroad. Bankers, lawyers and management consultants are pouring into the field. What was once a niche and secretive business is entering the mainstream of professional services.
Retiring statesmen have long sought to cash in on their knowledge and foreign connections. In 1982 Henry Kissinger, previously America’s secretary of state, set up Kissinger Associates to that end. Later administrations produced their own equivalents, from McLarty Associates and Albright Stonebridge Group to WestExec Advisors and plenty more. All are packed full of former government luminaries.
Lee Feinstein, a one-time ambassador who now works for McLarty, notes that many clients value advice from those who have been “in the room where it happens”. The exact services these firms offer are opaque and vary between them, but generally range from gauging the policy intentions of foreign governments to helping open doors for companies that want to sell or manufacture in a new market.
Spooky action at a distance
Such “formers” are not the only source of specialist counsel available to multinationals. Geopolitical consultancies like Eurasia Group and Oxford Analytica rely less on retired bigwigs and more on professional analysts who monitor global affairs and provide briefings to clients. (EIU, The Economist’s sister company, competes in this business.) Another flavour of service is provided by Hakluyt, a firm founded in 1995 by former British spooks. It sources intelligence from a global network of associates with connections in high places, and offers clients the inside scoop on anything from a regulator’s opinion of a possible takeover to the probity of a potential supplier. Geopolitics now permeates nearly everything it does, says Varun Chandra, the firm’s managing partner. (The chairman of Hakluyt is also chairman of The Economist’s parent company.)
In recent years the breadth of advice being sought has widened. Amy Celico of Albright Stonebridge notes that the focus of her firm’s work has broadened from helping companies expand overseas to also helping them defend themselves against a deteriorating geopolitical climate. An increasing number of multinationals are finding themselves used as pawns in global politics, rarely to their advantage. In May China banned memory chips made by Micron, an American company, from being used in the country’s critical infrastructure. The firm generates a quarter of its sales in China, half of which it now expects to lose. Advisers can help businesses pre-empt such blows, and in some cases lobby against them.
The focus of geopolitical advice is expanding beyond emerging markets, too. Mr Chandra observes that America’s technology giants are increasingly coming to Hakluyt for assistance in navigating Brussels. An executive at another firm notes that America’s Inflation Reduction Act, with perhaps $1trn in handouts for climate-friendly investments, has brought many clients to its doors.
The upshot has been a surge in growth. Most advisers keep their revenue figures closely guarded. Hakluyt, which does not, has doubled its sales in the past four years, according to Mr Chandra. Younger entrants are also gaining steam. Macro Advisory Partners, founded a decade ago, has more than doubled the size of its team since 2018, according to Nader Mousavizadeh, its chief executive.
Larger corporate advisers, eyeing an opportunity, have muscled in. McKinsey, a management consultancy, has launched a geopolitical-risk practice. Ziad Haider, who co-leads it, says that demand from clients has rocketed. EY, a professional-services giant, has set up a similar service.
Dentons, a multinational law firm, helped launch Dentons Global Advisors (DGA), a stand-alone advisory firm that acquired Albright Stonebridge in 2021. Ed Reilly, DGA’s boss, explains that its services have a “natural adjacency” to the practice of law. Lazard, an investment bank, is also building a geopolitical advisory business. Teddy Bunzel, who oversees the effort, says that geopolitical questions have become central to much of Lazard’s conventional advisory work. In October last year the bank hired Jami Miscik, formerly the chief of Kissinger Associates.
Such moves are happening thick and fast as firms in the industry race to nab talent. The supply of good geopolitical advice is constrained, argues Ms Miscik. Michèle Flournoy, managing partner of WestExec, says that her line of work “is all about the people, and those people can’t be manufactured”. But they can be acquired. After the takeover of Albright Stonebridge by DGA, McLarty and WestExec were bought by, respectively, Ankura and Teneo, two management consultancies. Eurasia now has a partnership with KPMG, a professional-services heavyweight.
After years of trimming their public affairs departments, many multinational companies have been busily hiring geopolitical experts, too. Mr Reilly says such teams are fast becoming DGA’s biggest competitors. Eventually, that could force the fragmented industry of advisers to consolidate. For now, it reinforces the growing realisation among multinationals’ bosses that global politics will shape their success in the years ahead. ■
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Source: Business - economist.com
