Mark Weil, CEO of TMF Group, spoke to fDi about multinational firms’ derisking operations in a new world order and why the security risk associated with artificial intelligence (AI) security may well make its way into prime position for TMF’s Global Business Complexity Index 2024.

Q What has the impact of war in Ukraine been on FDI flows and the complexity of doing business and setting up operations overseas?

A I would say that in the main the war in Ukraine has had a relatively modest impact. The Ukrainian economy has taken a hit, as you’d expect. There have been significant sanctions which have had an impact on the services sector, such as if you’re a bank, insurer or a service provider like us. But for most of our clients, the direct effect of the war in Ukraine has been modest, outside Ukraine itself, and the hydrocarbons impact with its knock-on effect on inflation.

Q Reshoring and regionalisation have become defining terms for the globalised world’s direction of travel. Is this accurate?

A What we’re seeing is firms opening up businesses elsewhere in the region where they’re operating. I don’t think ‘reshoring’ or ‘regionalisation’ quite capture it. We’re not seeing much evidence of domiciliation of jobs back home. In fact in our client base there’s more jobs moving from high-cost labour markets, like the UK or western Europe, to traditional outsourcing destinations like India and Poland. With regionalisation, what firms are trying to do is reduce a single-path dependency, especially in the light of the China lockdowns last year. 

We’re not seeing ‘deglobalisation’ either. But we are seeing people having to dance around Russia sanctions, dance around China supply chain risks and contend with potential future US-China political risks. It’s more nuanced than a retreat from globalisation. So much is how to do it in a more fragmented multipolar world.

Q Following the unveiling of ChatGPT last year, what risks does AI pose to global supply chains?

A There is concern from our large multinationals about supply chain risk and integrity. A large majority of multinationals’ activities are managed by local firms providing various services. That looks vulnerable to me, whether it’s in terms of geopolitical risk, regulatory risks or security risks. From an AI point of view, this is going to loom large and it will probably become topical when some big breach happens.

If you ask me what next year’s report is going to be about, I suspect it’ll take one breach and there’ll be a huge emphasis on supply chain security risk, because of the exposure it creates by doing business in certain countries.

Q And lastly, with the EU set to follow in the footsteps of the US by implementing outbound FDI screening, how far will protectionism go?

A We don’t have any privileged insight into where this will go, but it’s clearly on the up. If a business thinks about its future investment, it’s one more factor to consider and it does somewhat argue for regionalisation because a firm may have to pass various tests to be seen as legitimate in terms of where things are done or made, country of origin, and so on. Because it remains a political question – what will happen in the US elections in 2024, what’s the future direction of the EU — I can only speculate. But it goes back to the fact that we’re moving away from a [Milton] Friedmanesque globalised world. Firms have to accept a significant frictional cost where they operate and employ people, so they can be agile in response to things like trade protectionism.

This article first appeared in the June/July 2023 print edition of fDi Intelligence