When the war economy forces businesses to reinvent themselves

David Baverez
3 min readMay 12, 2023
© James Ferguson | Financial Times

This column has been previously published in Les Echos on 11th april 2023

Geopolitics has re-entered the world of business with a jolt, causing them to reverse their peacetime benchmarks.

Two eras have just ended — ones to which we had become dangerously accustomed. The first was a 30-year period in the West during which the hope was entertained of westernizing the whole world. The second was a 20-year period in China, during which China opened up and internationalized itself — which should have led to “happy globalization”.

Today, we are entering into a second Cold War — between the United States and China — that is destined to be long-lasting, with Europe on its way to being “Yemenized”, i.e. in the same way as Iran and Saudi Arabia are currently battling it out in Yemen, Beijing and Washington are waging war not on their own territory but on another one.

In this new Cold War, it is not Iran and Saudi Arabia who are pillaging us, but China which is getting hold of Russian hydrocarbons at an extremely low price, whilst the USA is selling us gas for a ridiculously high price! When you put this together with the threefold costs of environmental transition, re-globalization and the agro-food crisis, the European energy umbrella — of over €800 billion since the invasion of Ukraine — augurs a future crisis in GNP that will be twice or three times as serious as the 1973–75 crisis, which forced our parents to change their lifestyle.

Pete Ryan — The Economist

Geopolitics has burst back into the business world, which had almost forgotten about it during the previous era and decades of prosperity. In a “war economy”, peacetime benchmarks are reversed: the economy is no longer led by demand but by the supply bottlenecks; confidence gives way to mistrust; the balance of power becomes dependency; bilateral relationships have to become multilateral; legal becomes arbitrary; free trade is replaced by borders; cyber-risks move from the public to the private domain; and conflict rises from low to high intensity.

For businesses, this means a whole new modus vivendi: operating leverage is replaced by risk control; sub-contracting in marketplaces disappears in favor of vertical integration, so that businesses can get back control over their value chain; concentration becomes diversification; the framework contract is replaced by “deal by deal”, and just-in-time logistics now have to adapt to to a “just in case” scenario.

Today, we are entering into a second Cold War that is destined to be long-lasting, with Europe on its way to being “Yemenized”

Pricing policy is now based on safety premiums, and no longer on volume-discounts; “pricing power” is replacing the cost-based approach; government grants hold sway over private demand; competition is becoming cartel; and “value for money” is being upended to become “money for value”. Cost management is having to be completely rethought; deflation is becoming structural inflation; the mono-structure has to divide into a double structure for the two power blocs; and B2C digitalization is now shifting towards B2B. Lastly, balance sheet policy has to take into account past over- and under-investment; destocking is having to give way to strategic restocking, the financial lever of low interest rates is having to be corrected by debt-relief with high interest rates; and financial stability is being swept away by monetary instability.

This new war economy will lead to a situation of permanent crisis yielding a re-globalization. It will undoubtedly be the private Chinese entrepreneurs such as Geely, BYD and CARL who — because they are used to dealing with uncertainty and chaos — most threaten to take the lead in Europe’s industries of the future.

Faced with this new situation, European businesses can only survive by moving speedily towards a new ESG benchmark: the Environmental, Social and Governance criteria must be replaced by the triple header, “Energy — Security — War”. This change of software is a brutal one. How many of our Boards of Directors are prepared for it?



David Baverez

Business angel / demon. Based in Hong Kong since 2011. Columnist, author of “Paris-PekinExpress”, “Beijing Express” and “Génération Tonique”.