Ukraine war accelerates new era of vertical globalization
Corporations can no longer put profits over politics
Abishur Prakash is a geopolitical futurist at Toronto-based consultancy Center for Innovating the Future and author of "The World Is Vertical: How Technology Is Remaking Globalization."
What if you lost access to your servers overnight?
This is what Moscow threatened because of data. After the Ukraine conflict began, many Western technology companies left Russia. This led to a cloud crisis, leaving Russia with only two months of data storage capacity. To alleviate this, the Russian government threatened to seize the servers of those companies that had exited.
The case of Russia's cloud problem goes well beyond Ukraine-Russia geopolitics. It has to do with a new era of globalization that has already begun. As the technology revolution continues, countries are being pulled apart from one another.
Instead of the world being more open and accessible, as it has been for decades, it is now becoming a place full of technology-based walls and barriers, things that I classify as vertical. These new vertical borders that are forming are enough to put every company in the world in the hot seat.
Are you ready to pick between Saudi Arabia or the United Arab Emirates? Starting on Jan. 1, 2024, any company that wants to do business with the Saudi government, including state-owned companies, must base their regional headquarters in Saudi Arabia. This is part of what Riyadh calls "Program HQ," a new tech-focused strategy to localize everything.
Through it, Saudi Arabia wants Riyadh to replace Dubai as the region's new economic hub, and it is already in talks with 7,000 global companies to achieve this. Instead of cooperation between these two neighboring Gulf states, Saudi Arabia and the UAE might soon find their hitherto friendly relationship undermined by competitive rivalry.
With Program HQ, tech-megacities like Saudi Arabia's Oxagon, the world's largest proposed floating industrial complex, are changing the status quo of the Gulf. Saudi Arabia is, in effect, taking on the whole Arab world. Whose side will you be on?
Another case in point is Europe. With the European Union launching a cloud ecosystem called "Gaia-X" to replace the likes of Amazon Web Services and China's largest cloud provider Alibaba Group Holding, the EU wants European data to be stored on European servers.
This is what the EU calls "tech sovereignty," but it comes with the same binary choice as Program HQ, forcing a similar question: are you prepared to be locked out of Europe? Because Gaia-X is essentially a wall that could block non-European technology companies.
A similar story is underway with talent. A $220 million initiative called "ELLIS" will see Artificial Intelligence-labs built across the EU to stop European AI talent from leaving the union. And remember, ELLIS itself is modeled on the European Organization for Nuclear Research, which was created after World War II to stop European physics talent from going to the U.S.
With technology, the EU is establishing new barriers against the world. The era when Europe was open and accessible has ended. And what company wants to be the next Huawei Technologies, which is facing bans and sanctions all over the world, and whose sole objective now is survival.
Of course, Huawei is not the only Chinese company come under fire. In India, Alibaba has paused investment into Indian startups because of growing anti-China sentiment. In the Pacific, Australian telecommunications operator Telstra spent $1.6 billion on Digicel Group, the Pacific's biggest telecommunications company, in order to limit China's influence in the region after it was even rumored that Digicel was being sold to China Mobile.
Countries are approaching technology as a way to lockout China. Instead of reducing barriers, technology is doing the opposite for Chinese companies. The very technologies businesses are deploying or developing, from AI to fifth-generation, or 5G, mobile networks, are also fragmenting the globe. To remain competitive, businesses must create a new playbook. CEOs must accept that the era of picking profits over politics is over. From now on, companies will have to pick sides.
For example, in March, French bank BNP Paribas began limiting how its staff in Russia could access computer systems. In other words, companies are no longer one big family. As the world splits, multinational corporations will have to treat their workforce along ethnic and political lines.
Global supply chains are also becoming exclusive. Already, the four Quad nations, which consist of the U.S., Japan, India and Australia, are exploring China-free supply chains for rare earths. What CEO would want to tap the Quad's rare earths supply chains at the risk of angering China? Or vice versa?
Globalization, and the world, is now vertical. The ideas, systems and institutions that have governed the world for more than 70 years are being discarded. And, companies are being disrupted like never before. Already, LinkedIn and Yahoo have exited China as economies and societies are being walled off from one another.
Losing access to certain markets, or being unable to hire or move talent, or being cut off from capital financing are all scenarios that highlight the fact that the axis the world has spun on for decades is slowing down and that old expectations of technology are being proven wrong.
In ancient India, there was an old proverb, "When an elephant is in trouble, even a frog will kick him." If the vertical world is not knocking on the door yet, be assured that it will soon enough. Will you be the elephant, caught off guard, or the frog, ready to leap forward?