Since David Ricardo introduced the concept of comparative advantage, trade has been positioned as an essential pillar to support the world economy. Up until recently, I believed the competitiveness of a company or a country over others can be compensated by quantitative and qualitative prosperity. That was because I tried to find the market leader in tech-savvy industries where our company usually grabs the investment opportunity.
However, IRA has been announced in August 2022 and the conflict between the global top two countries, the US and China, has become more serious. Recently I got an email from a venture capitalist who wanted us to join their current deal. He said that the target company will have a tailwind and it will rapidly increase the market share in the US based on the tax credits from IRA. Regardless of the beneficial policy toward the renewable energy market, I decided not to participate in the deal since the original strategy of the company that we talked about was focused on developing countries in the Asian market. Although the decision for the startup was unavoidable due to its rapidly changing conditions in the US market, I could not trust the sincerity of their long-term plan.
Similar situations are happening in other areas aside from the directly affected sectors such as electric vehicles and renewable energy due to the IRA. In the bio sector, pharmaceutical companies are required to build their manufacturing facilities in the US and change their globalization plan. Many pharmaceutical companies will be forced to decouple their Chinese facilities or business entities with R&D resources in the US. According to the recent change from globalization to nationalism, it becomes more critical for companies to prioritize strategic options and balance portfolios for a sustainable business operation.
The geopolitical and economic change in the global landscape casts important questions about hypothetical scenarios and strategies for them. The current target requirement for a new opportunity is no longer valid and how to obtain competency should be readdressed from a different point of view. The globalization that drove the global trade system has been replaced with nationalism and regional hegemonism. It’s time for countries and companies to consider which bloc or what kind of regional solidarity can be more beneficial for them while they prepare for counter benefits.