Geopolitical tensions have increasingly threatened the function of the global economy given that the world is now much more interconnected than it was before.
At present, the major conflicts that are grabbing headlines are Russia-Ukraine conflict and the crisis in the Middle East. These two especially have been closely watched by markets around the world given that it could have major implications as far as crude prices are concerned. The other point is that corporates in today's world are no longer content with doing business in their home countries. They have a strong established presence overseas as well. For example, for many of the listed Western firms, around 20-30% of revenues comes from emerging markets.
Naturally, geopolitical tensions such as the ones we are witnessing now bring some degree of nervousness in case they hamper business operations of companies and thereby dent profitability. One such example is McDonalds, which has had to shut many of its chains in Russia, once the US imposed sanctions on the former.
But are we reading too much into these risks? According to an article in the Economist, that is quite possible. For one, the Middle East, North Africa, Russia and Ukraine together produce just 7% of world economic output. But on a much broader level and not just limited to the current conflicts, multinationals (MNCs) themselves are becoming more adept at absorbing risks. They are not overtly concentrating on one region alone. So problems in one region may not have a significant impact on the overall business as there is a cushion from other markets. Further, there has actually been a positive fallout from the subprime crisis. And that is cop0roations are looking to becoming cash rich to strengthen the ability to withstand shocks.
This is the case with Indian companies as well. Most companies in sectors such as pharmaceuticals, IT, automobiles, auto ancillaries and energy among others have established their presence in markets other than India. These not just include the developed economies of the US and Europe but also encompass Africa, Latin America and Asia. But those who have a wider geographical reach have perhaps withstood the threat of conflicts or regulatory hurdles better than the others.
That is not to say that geopolitical risks should be entirely ignored. In the current context, tensions in Russia could escalate and if the crisis in the Middle East worsens all the more, the impact on crude prices could be worrying. That is why it has increasingly become important for companies including those in India to understand the dynamics of the markets whose potential they wish to tap. Further, should an opportunity not pan out as envisaged, there has to be a plan ready to cut losses and exit and capitalise on other prospects elsewhere.
At present, the major conflicts that are grabbing headlines are Russia-Ukraine conflict and the crisis in the Middle East. These two especially have been closely watched by markets around the world given that it could have major implications as far as crude prices are concerned. The other point is that corporates in today's world are no longer content with doing business in their home countries. They have a strong established presence overseas as well. For example, for many of the listed Western firms, around 20-30% of revenues comes from emerging markets.
Naturally, geopolitical tensions such as the ones we are witnessing now bring some degree of nervousness in case they hamper business operations of companies and thereby dent profitability. One such example is McDonalds, which has had to shut many of its chains in Russia, once the US imposed sanctions on the former.
But are we reading too much into these risks? According to an article in the Economist, that is quite possible. For one, the Middle East, North Africa, Russia and Ukraine together produce just 7% of world economic output. But on a much broader level and not just limited to the current conflicts, multinationals (MNCs) themselves are becoming more adept at absorbing risks. They are not overtly concentrating on one region alone. So problems in one region may not have a significant impact on the overall business as there is a cushion from other markets. Further, there has actually been a positive fallout from the subprime crisis. And that is cop0roations are looking to becoming cash rich to strengthen the ability to withstand shocks.
This is the case with Indian companies as well. Most companies in sectors such as pharmaceuticals, IT, automobiles, auto ancillaries and energy among others have established their presence in markets other than India. These not just include the developed economies of the US and Europe but also encompass Africa, Latin America and Asia. But those who have a wider geographical reach have perhaps withstood the threat of conflicts or regulatory hurdles better than the others.
That is not to say that geopolitical risks should be entirely ignored. In the current context, tensions in Russia could escalate and if the crisis in the Middle East worsens all the more, the impact on crude prices could be worrying. That is why it has increasingly become important for companies including those in India to understand the dynamics of the markets whose potential they wish to tap. Further, should an opportunity not pan out as envisaged, there has to be a plan ready to cut losses and exit and capitalise on other prospects elsewhere.
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