[Editor’s note: the views expressed by Dr. Robert Gates do not necessarily reflect the views of Ardent Partners or its employees. Our goal with this piece is to present a view of global supply risk from someone who is outside the profession of supply management but who is well versed in the language of global stability, security, and risk.]
Ardent Partners’ analyst team attended the 100th annual Institute for Supply Management (ISM) conference in Phoenix a couple of weeks ago. Risk, in many of its forms, was a regular topic throughout the event – from Dr. Robert Gates’ opening keynote on global instability, to discussions about conflict minerals compliance, food risk, contract risk, and sustainability issues over the course of the event. As students of risk (new ones seem to pop up every year), we sat in on many of these presentations and thought that an interesting way to highlight them would be to present a series of discussions on the speakers and how each contributed to the conversation about global supply risk.
Robert Gates: Global Stability and Supply Risk
On Sunday afternoon, former Secretary of Defense and CIA Director, Dr. Robert Gates, Ph.D., kicked off ISM 2015 with a keynote speech on the role that U.S. foreign policy and global instability have had and will have on global supply risk. He touched on a number of issues that resonate with national security and supply management professionals, alike – from the threat of traditional global powers, to international terrorism, to domestic policies and laws, and how each can and does impact global commerce.
As Dr. Gates sees it, the post-Cold War era has been crumbling with the emergence of new world powers (China), the reemergence of old world powers (Russia), regional conflicts, civil war, and terrorism, all of which have been challenging U.S. global and regional dominance. He believes that over the past year, the world has been heading into unchartered waters with respect to global instability and a lack of American leadership abroad on myriad issues, like the annexation of Crimea and invasion of eastern Ukraine by Russia, the deteriorating security situations in the Middle East and North Africa, and territorial disputes in East Asia between China and neighboring countries.
After being at war for nearly 15 years in places like Southwest Asia, the Middle East, and Africa, U.S. government officials and the electorate have become increasingly war-weary. Many have lost their appetite for foreign intervention, particularly when there is much work to be done at home. As a result, Dr. Gates believes that the international system now resembles that of pre-World War One when the United States had little interest to engage and lead abroad. This, in turn, puts raw materials, trade routes, and freedom of seas at greater risk. “Freedom of navigation, trade… much rides on the way that U.S. policy makers respond to these threats,” said Dr. Gates. If the U.S. does not take the lead, global security, infrastructure, freedom of the internet, and other critical issues will be put at further risk from global, regional, and non-state actors, like the Islamic State in Iraq and Syria (ISIS).
After he delivered his keynote address, Dr. Gates sat down with ISM CEO, Thomas Derry (click here to read about our interview with him the following morning), who asked the former Defense Secretary a number of questions from the audience. One of the first things Derry asked Dr. Gates was what the U.S., Europe, and Asia can do to contribute, rather than exploit, emerging markets. His response was encouraging. “The U.S. and our allies have been taking the lead at building sustainable industries,” said Dr. Gates, noting that “most companies are mindful of the environment and regulation” compared to, say, Chinese companies, that will buy land for a mine in another country, but staff it with Chinese workers and completely disregard environmental concerns.
Asked how difficult it will be for supply management professionals to conduct business in and around the Middle East, the former Defense Secretary stated that it’d be wise to “disaggregate the Middle East” – that North Africa (aside from Libya), will probably be okay, as will the Persian Gulf states, such as Bahrain, Qatar, the United Arab Emirates, and others. But obviously, “the places where you already have a problem [like Iraq and Syria] you will have a problem.” When asked what is going on with Iranian naval forces seizing a U.S.-flagged cargo vessel (and then firing upon a Philippine-flagged vessel), Dr. Gates said that he doesn’t believe that Iranian authorities understand what is going on, either. He believes that some factions within the Iranian government (as there are within the U.S. government) could be pushing back against the recent nuclear agreement between Iran and the West because they do not want the deal to take place, and that this is spilling out in the Persian Gulf vis-à-vis commercial shipping.
Dr. Gates was then asked for his take on the Conflict Minerals provision of the Dodd-Frank Act – notably, the practicalities of imposing a regulatory burden on it despite the obvious virtues of the law (click here for our coverage of the regulation). “It’s hypocrisy,” said Dr. Gates, because the biggest source of titanium for the U.S. is Russia, and it gets other minerals from China. “There’s no specific legislation in the works to address these tainted relationships,” he added.
Despite the challenges set before the U.S. government, it allies, and risk and supply management professionals everywhere, Dr. Gates remains optimistic. “One of the things that I find most encouraging and promising is the talent of young people,” echoing a theme heard throughout the conference, particularly in the context of ISM’s spotlight on their 30-under-30 supply management finalists. It was a positive end to an otherwise sobering analysis of global instability and supply risk, one that continues to play out in the world’s most dangerous corridors and regions and challenges supply management professionals around the world.