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When Geopolitics and Business Collide

7 MINS READDec 4, 2018 | 10:00 GMT
Settlers sit in a shack north of the Palestinian village of al-Mughayyir near the Israeli settlement of Shilo in the occupied West Bank on Nov. 20, 2018.

Settlers sit in a shack north of the Palestinian village of al-Mughayyir near the Israeli settlement of Shilo in the occupied West Bank on Nov. 20, 2018. Human Rights Watch has urged Booking.com to follow the example of Airbnb and withdraw listings for rentals located in settlements in the Israeli-occupied West Bank. Airbnb said it would remove such listings, just ahead of the release of a critical report from the group.

  • Businesses tend to feel geopolitical tensions more acutely in areas of territorial dispute. 
  • China has used leverage over market access to force companies to effectively recognize Taiwan as its territory, even if they would prefer to avoid taking sides.
  • Given that territorial disputes around the world force companies into awkward foreign policy conflicts, companies would be wise to understand the nature of such geopolitical disagreements.

From Israel to China to Spain, companies are becoming increasingly embroiled in foreign policy disputes in the countries in which they operate. Territorial squabbles and ambiguous legal statuses are turning business decisions into foreign policy positions whether those companies like it or not. From Airbnb listings to maps of China, those decisions can create security and continuity concerns for companies caught in the middle. In response to these challenges, corporations need to gain a greater understanding of the disagreements so they can anticipate and head off any disruption to operations.

The Big Picture

Geopolitics are important not just to strategic business plans; in some circumstances, they directly affect business operations on the ground. If a company is to ensure the security of personnel, assets and intellectual property — as well as business continuity — it must know the flashpoints of its region of operation.

Airbnb Listings in Israel

Last month, the online short-term leasing service Airbnb announced that it would delist 200 properties in Israeli settlements in the West Bank. Within days, the announcement triggered lawsuits claiming that the popular vacation rental website was discriminating against Jewish property owners. Airbnb said its decision was based on safety concerns, an assessment of the larger dispute that the settlements played a part in, and how the company's involvement affected that dispute. Later, its representatives noted that major international hotels had also chosen to avoid the area. Though operating there is legal under U.S. and Israeli law, the Palestinian Authority and the United Nations contest the legality of the settlements.

Critics felt that Airbnb had singled out the West Bank settlements, pointing to its listings in other contested areas, such as Cyprus and Tibet. In its West Bank announcement, Airbnb claimed that it had removed properties in Crimea and that it was reviewing its policies on other contested areas. Human Rights Watch has lobbied both Airbnb and Booking.com intensely to end their offerings in Israeli settlements in the West Bank, yet Booking.com continues to work with local accommodations in the area.

A map shows the disputed areas in Israel and the Palestinian territories.

China or Taiwan?

Though the West Bank dispute is the most recent example of the challenge facing companies, the clash over Taiwan's independence has generated far more headaches for businesses during 2018. Most notable was a letter circulated among international airlines in April by China's Civil Aviation Administration; it advised them to clarify on their route maps and list of destinations that Hong Kong, Macau and Taiwan were Chinese territory. The airlines had a tendency to omit "China" as part of the location description and use map stylings that suggested those territories were separate from the People's Republic of China, much to the displeasure of Beijing. The letter went on to warn those airlines that if they did not comply, they would be referred to the "relevant cybersecurity authorities." In February, authorities shut down Chinese-language websites associated with Marriott Hotels after the company used location maps suggesting that Tibet and Taiwan were separate countries. The airlines saw the letter as a threat to their own websites and, by extension, to their access to customers in China. The country's unprecedented control over domestic internet connections allows authorities to rapidly block or censor content, so the threat had teeth.

The letter kicked off a monthslong debate over how to respond. Most non-U.S. based carriers complied with Beijing's demands, clearly labeling cities such as Taipei as being in "Taiwan, China." Seeking assistance from the U.S. Department of State, U.S.-based airlines such as United and American arrived at a different solution. They simply labeled the contested locations with their city name and airport code, without any broader national designation. Taipei, Taiwan, became simply Taipei. It wasn't necessarily a win for China, but it was a loss for Taiwan.

Taking a more defensive posture, Taipei raised the prospect of punishing airlines that labeled it as China. However, there has been no indication that those airlines that did change the location designations have faced any kind of official punishment. But one hotel owner in Taiwan did cut its ties with Marriott after the company complied with Beijing's demands and labeled Taiwan as part of China (even though the change was only visible on Chinese sites).

And airlines were also not the only targets. Shortly after those companies fought out their stalemate with Beijing, Chinese consumers called for boycotts of Ikea for using product packaging that designated Taiwan as an independent country. Around the same time, Chinese food delivery services refused to work with the Taiwan-based coffeehouse 85C Bakery Cafe after Taiwanese President Tsai Ing-wen visited one of the chain's outlets in Los Angeles. The stock of the bakery's parent company fell 9.8 percent as a result of the brief visit and the Chinese reaction. 

China has effectively been applying the same pressure on companies that it has been placing on countries with diplomatic relations with Taiwan. Beijing is gradually persuading those countries to switch from the Republic of China to the People's Republic of China, and it is pushing private companies to do the same. Companies are even more susceptible to economic pressure, so threats to cut access to Chinese markets have a serious impact on international airlines, hotels, retailers and others. By leveraging market access for official recognition, China is slowly changing the map to reflect a world in which Taiwan is under its control. Beijing's ultimatum is forcing companies to take a foreign policy stand when they may prefer the status quo — or to remain uncommitted. 

Western Pressure

In the U.S.-China rivalry, the United States and its allies have been pushing to block Chinese telecom equipment-maker Huawei from infrastructure upgrades to new 5G (fifth-generation) cellular data networks. New Zealand's intelligence agency blocked the company from a major project on Nov. 28, following a similar move by Australia in August. Germany, the United Kingdom and the United States have also voiced deep concerns over using Huawei equipment, citing the potential national security vulnerabilities that could arise from using a Chinese company for such sensitive projects. As espionage activity (and the U.S.-China rivalry in general) appears likely to intensify in 2019, Stratfor has noted that private companies are more and more likely to become caught up in the conflict and forced to choose one side or the other.  

Other territorial disputes also threaten to force companies into awkward foreign policy positions. During the 2017 Catalonia secessionist crisis, companies in Barcelona made it clear that it was in their best interests for the region to stay united with Madrid. However, they risked the ire of the Catalan independence movement, whose supporters comprised a significant share of their market. While that movement seems to have died down for now, the bid for independence is far from over and could force another crisis in the near future. And the escalation of the conflict between Russia and Ukraine in the Kerch Strait has had a chilling effect on shippers reliant on the Sea of Azov, as abiding by either set of competing authorities will inevitably alienate the other and lead to punishments that hurt business. 

In the Airbnb announcement about its delisting of the West Bank properties, the company acknowledged that it was not an expert on the matter and sought outside help on the decision. Considering the complexity of the Israeli-Palestinian conflict, the company was wise to seek assistance. Few conflicts are clear-cut, however, and the details of the disputes involving Taiwan, Ukraine, Spain and dozens of other territorial conflicts are complex. Business decisions also carry ramifications for companies operating in the midst of those clashes — as illustrated by how the designation of a destination on an airline website can affect its access to China's marketplace of 1.4 billion people. Developing a deep understanding of the disagreements — and the factors that shape them — allows companies to foresee how they may intersect with their operations and devise plans to maintain business continuity. Economics and commerce cannot be divorced from politics, meaning this type of strategic vision and planning is even more critical as connections in the global economy continue to multiply.

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