From AI To Tariffs: The Impossible Choices for Global CEOs
The global trade wars, triggered by Trumpian tariffs, have CEOs across the globe worried as they are unable to make future predictions. But could these tariff doldrums also serve as a period of reckoning?
Jeff Immelt, former CEO of American conglomerate GE and the man who succeeded Jack Welch, told me in an interview some years ago that it was not a CEO’s job to stargaze upon how countries might evolve their industrial policy.
He was responding to a question about how businesses should be prepared for the future.
“I think business people spend too much time worrying about government and cajoling government. Our job is to be the reactor to whatever is happening and be good at that,” Immelt had said.
He obviously did not mean that business leaders should be divorced from policy developments, but at the same time, should not spend time completely focused on it.
Immelt’s words ring true for any business leader, including in India today. For two new reasons.
A Changing World
Business leaders are usually used to grappling with maybe one or two significant variables at any point in time. One is always the marketplace and its competitive forces. The other is a company’s internal teams, finances and overall gearing, including the state of infrastructure, technology and plant and machinery.
There are two more elements in that mix which, in some ways, have overshadowed the above two.
Tariffs are obviously one. CEOs are already saying they are not able to provide guidance on upcoming financial results, as the factors in their control are not so much in their control. For example, Mercedes Benz, Stellantis, General Motors, Delta Airlines, Snap of Snapchat and American Airlines, among many more, have said they are unable to provide guidance, a critical input in normal times for analysts and the Street in general.
The second is artificial intelligence (AI). The pressure to bring in artificial intelligence to drive business efficiency and competitiveness is rising in intensity almost by the day now. Companies in information technology, whether products or services, are already saying they can do more with less.
Microsoft CEO Satya Nadella said on Tuesday that almost 30% of the code in his company is now written by artificial intelligence.
C Vijay Kumar, CEO of IT services major HCL Infotech, told me in an interview a few weeks ago that the industry had to transition from an input-centric model to an outcome-centric model.
But more businesses are now being forced to explore the use of AI within their businesses. And no business seems to be exempt.
Clinical trials, patent filings and drug research and development in pharmaceutical majors are gathering speed because of AI.
Consumer product companies are using AI to make distribution systems more efficient.
The Economist magazine pointed out last week that from ports like Rotterdam and power companies to steel manufacturers and mining companies, AI is driving efficiencies in traditional businesses like never before.
Rotterdam port uses AI software to analyse several dozen factors, tracking vessels, port emissions and estimated arrival times.
Oil giant Shell reportedly used the software to reduce “idle time”, affecting departures of barges and bulk shipments across all ports, by 20%, The Economist reported.
AI is a fast-moving technology that can alter competitive landscapes dramatically. But it is still something business leaders and boards are in a better position to proactively respond to, including the big challenge of galvanising their internal teams for change.
The Tariff Shock
The external threat of tariffs is not easy to respond to, and many businesses, small and large, have expressed helplessness, mostly because of the suddenness of it all.
If you go by Wall Street or Dalal Street, it is evident that the markets are breathing sighs of relief for every minor concession that US president Donald Trump makes — like the latest one for automotive manufacturers — even as there is a collective hope that the problem will somehow go away.
This is also evident in how Indian manufacturers have been reacting to the 90-day pause in tariffs, or by contrasting the tariffs India will face, which will be lower compared to China and Vietnam.
At a macro level, we rightly take some comfort from the fact that India is more of a domestic economy and thus more protected from tariff tantrums.
The Question Of ‘Normalcy’
Here is where the big challenge lies.
Should companies hope for a return to normalcy or move forward that there will be no normalcy any more?
Just like AI is forcing a new internal normal, tariffs are forcing a new external normal. One in which there is no guarantee of price protection or market access, like before.
Also that the past logic of market stability does not hold when political imperatives are shifting so dramatically, where the United States can declare friends and foes as economic enemies overnight.
Could it happen elsewhere too, and could it get worse? The US has responded with protection and a seeming thrust towards local manufacture, seeming because the arguments in favour are not clear to most at this point.
There is nothing to say that there will not be similar waves of political response to domestic politics in other markets and countries.
Will business leaders have to think of only local manufacturing with market proximity, and if so, will it make sense everywhere? If not, then how do they plan ahead?
Will old business models and industries hold true?
Time For Reckoning
China is effectively facing a trade embargo, given the levels of duties it is facing for exports into the US. At these levels, does it even make sense for Chinese companies to manufacture toys or other home goods for export or move out of toy making altogether?
One way to see it is that the capacities for many of these export-led industries only came up or scaled up in the last 20 years or so. Maybe the economic argument for their continuance is weakening. This is the question facing CEOs and entrepreneurs.
I was speaking with Vikash Mittersain, chairman of Nazara Technologies, a large Indian gaming company he founded in 1999, and run by his son Nitish as CEO.
Mittersain told me some years ago that he was in the textile business and had decided to get out of it. The idea was to move into a business that had technology as its underpinning.
And that’s how Nazara was born, aided by the massive boom in mobile telephony and data consumption.
This is not a new story.
Many large businesses that had a grounding in textiles, including some of India’s largest conglomerates from Tatas and Birlas to Reliance, mostly got out of it or went up the value chain.
Or it is a relatively small part of the overall business.
Business leaders and entrepreneurs have to face a similar reckoning now. They have to decide what to drop and discard forever. And focus on a new future.
There was something else that Immelt said to me, and this was in 2019, before the pandemic. He believed that businesses needed to be more adaptable and more local than they were before.
“We have to know that people are counting jobs, whether you’re in India or the US or China or Europe, people care about where work gets done, and we need to be facile around that.
So, we went from an era where business people didn’t have to worry about where work got done to an era where business people have to care about where work gets done. It’s not a bad thing or a good thing, it just is what it is.”
