Global tensions strain weak links in tech supply chains

Technology often transcends borders. The internet is the clearest example: a network encircling the globe, connecting billions of people for everything from business to romance. Its role in enabling remote working has been underlined during the two years of the pandemic.

Yet, as it has become ever clearer that the development, reach and success of technology are highly dependent on tightly linked supply chains, the very structure of those connections has become increasingly fragile. From the Russian invasion of Ukraine to national digital security concerns, geopolitics can threaten both the supply of physical components and the tech communities that are essential for innovation.

For business students, it is becoming essential to understand that, while globalisation has been of great benefit to companies, they must also be aware of the risks posed by international turbulence such as trade disputes and security concerns — and consider ways to mitigate them.

The physical supply chains of technology have been the subject of discussion and dispute for years, most notably focused on Chinese tech group Huawei. In 2019, the US blacklisted the company on security grounds and warned its allies they should not use Huawei equipment for 5G mobile networks.

The inability to access crucial US computer chips led to a significant decline in Huawei’s revenue last year, forcing the company to try to expand other parts of its business, including its cloud services and the manufacturing of components for electric cars.

But Huawei is far from the only company with a reliance on vulnerable international supply chains. Eric Thun, associate professor in Chinese business studies at Oxford university’s Saïd Business School, says it has become harder than ever to isolate a business from risks to supply chains. “You’ve seen an increasing complexity in supply chains and they scale much more rapidly than before,” he says.

A growing concentration of market share at each level of production has actually created fragmentation — a company may dominate in microchips, but is reliant on another firm for the raw materials. In turn, that makes it difficult for governments to secure supply chains as a whole for complex products with dozens of parts, each made up of smaller components.

Employers must also consider that while the internet, and the remote working it enables, mean workers can now be drawn from further afield, geopolitical issues can have a serious impact on their lives and on the businesses that employ them.

Globalisation’s advantages must be weighed against the need for employee safety

Russia’s invasion of Ukraine highlighted this problem, given that both countries were tech hubs for companies elsewhere looking for relatively cheap but highly skilled developers and programmers. Some Ukrainian employees have fled the violence, while others are obliged, under government rules, to stay and fight. Companies relying on Russian developers, meanwhile, may find it difficult to settle their bills since various banking and payment services were suspended.

“What has been very interesting is that almost every company in fintech has been impacted,” says Itamar Lesuisse, co-founder and chief executive of crypto company Argent. “It’s personal for a lot of people,” he continues, noting that Ukraine has been a hub for cryptocurrency project developers and engineers.

It also creates a considerable moral imperative for businesses to actively intervene with local partners. “A lot of companies are looking at moving teams to Lviv [in the west of Ukraine], and helping those who can leave to get out,” Bruce Macfarlane, co-founder and managing partner at MMC Ventures, told the FT in March.

Some companies have supported staff who are at risk. For instance, Revolut, the digital-only bank, offered relocation support for Ukrainian employees either within the country or abroad in February.

But the situation does not end with temporary assistance for Ukrainian workers, Macfarlane stressed. In the longer term, companies will have to deal with the issue of employees who wish to return to their home countries.

At a time when ESG (environmental, social and governance) concerns have come to the fore, business executives and students need to carefully consider the ethical aspects of supply chains. The advantages of globalisation and an increasingly remote workforce in sectors such as technology must be weighed against the challenges and need for employee safety.

The geopolitics of business are difficult to navigate, particularly when the situation on the ground can change so rapidly. The Russian invasion of Ukraine transformed supply chains within a month, with companies forced to make swift political decisions. For those working both upstream and downstream, the impact can be felt quickly and without warning.

Such challenges make it essential that business school teaching engages with these problems. If the leaders of tomorrow consider such concerns only once they face a crisis, it may be too late.