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Geopolitics and Technology

It may appear at first glance that international trade relations holds little relevance to the day-to-day activities and career trajectories of individual IT consultants. 

However, the interdependencies of global economies and the ripple effects of geopolitical events can have profound implications on all industries, including the IT sector.

The COVID-19 global pandemic was a stark reminder of how sudden, worldwide events can drastically alter global markets.

For SAP consultants, this meant an urgent need to adapt to new ways of working, with an increased demand for implementing stable, scalable, and flexible SAP solutions that could support remote work environments and supply chain management. This affected project timelines, and demanded a quick adaptation of skills to meet new demands, like better knowledge of cloud-based SAP modules.

This shows how awareness of the broader economic and political context of IT services is valuable for SAP consultants, particularly in their capacity as strategic advisors to clients.

This week IgniteSAP will explore the impact of the US-China trade war on SAP services and show how SAP consultants can navigate a shifting global economic context, ensuring their skills remain relevant and in high demand.

This article is not comprehensive of such a vast subject, and should be seen as an encouragement to SAP consultants to more fully understand economics and geopolitics as part of their professional practice, along with training in business skills, interpersonal skills, and SAP technology. 

US-China Relations and the Global Economy

The economic ties between the United States and China are among the most significant bilateral relationships in the world, influencing global economic patterns and policies.

This trade relationship is important because they are the world’s largest and second-largest economies, together accounting for over a third of global GDP. Their interaction sets economic conditions worldwide, affecting global supply chains, international trade norms and economic policies.

The trade relationship between the US and China has evolved from cautious engagement to intensive interdependency over the past few decades.

This relationship saw significant expansion after China’s entry into the World Trade Organization in 2001, marked by a rapid increase in trade volumes. Growth was not without tensions, primarily due to trade imbalances and intellectual property concerns, culminating in the recent trade war initiated under the Trump administration in 2018. 

Tariffs were imposed on billions of dollars worth of goods by both countries, which not only affected bilateral trade but also had wider implications for the global economy.

The trade war initiated in 2018 significantly impacted both countries’ exports. US exports to China fell by 26.3%, with a modest 2.2% increase to the rest of the world, costing US firms about $2.4 billion per month in lost exports. China’s exports to the US declined by 8.5%, with a 5.5% rise to other countries. 

Interestingly, the trade war indirectly boosted global trade by about 3% as other nations capitalized on the situation, leading to a reorganization of value chains, particularly in East Asia. This also intensified the contraction of both economies during the Covid-19 pandemic.

Understanding the nature of this interaction is intensely complicated because it is not just a trading relationship between two parties, but involves many countries as partners of China and America, thousands of companies, and millions of employees.

Implications for Global Business Operations

The trade war between the US and China introduced both direct and indirect economic pressures, particularly in industries associated with manufacturing and technology, such as electronics and machinery.

Companies operating within, or dependent on supply chains between these two countries faced increased costs and disruptions. The uncertainty and instability in global markets led to far more cautious investment strategies, tighter financial conditions, and slower economic growth. These factors together contributed to a climate of economic unpredictability that affected global markets at multiple levels.

Impact on Global SAP Implementations

For global SAP implementations, the US-China trade war has created challenges.

As businesses grappled with increased operational costs and market uncertainties, IT budgets were scrutinized more closely, leading to delays or scaling back of planned SAP implementations and upgrades. The increased tariffs also led to higher costs for hardware components sourced from affected regions, impacting the budgeting and financial planning phases of SAP projects.

Conversely, the need for agility in response to rapidly changing trade policies has highlighted the importance of flexible and scalable SAP solutions to adapt to new business realities quickly. Companies have been forced to reevaluate their supply chain models, pushing SAP consultants to innovate and adapt SAP systems to provide real-time insights into supply chain disruptions, currency fluctuations, and changing regulatory requirements.

So, as with the Covid-19 pandemic, the US-China trade war resulted in challenges for SAP consultants, but also emphasized their importance to their clients as facilitators of continuity. 

Global Utilization of SAP Services

SAP plays a crucial role in the operational framework of corporations across all industrial and commercial sectors. The global usage of SAP’s products and services extends to thousands of companies in over 180 countries relying on SAP solutions to manage their day-to-day operations, from supply chain and human resources to financials and customer relationship management.

By providing a unified platform to manage and analyze data, SAP helps businesses maintain efficiency and competitiveness in a fast-paced and interconnected market. It enables companies to standardize processes, comply with various international regulations, and gain insights into market trends and consumer behavior: enhancing decision-making processes and operational agility.

The dual impact of direct logistical challenges and indirect economic pressures has necessitated a strategic reassessment among SAP consultants and service providers.

It is important to understand how these global economic forces shape the demand for SAP services, and to strategize around maintaining the effectiveness and efficiency of SAP implementations amidst such disruptions: including other global events such as the Ukraine war, and the conflict in Gaza, which has significantly disrupted shipping through the Gulf from Asia to Europe.

Shifts in Manufacturing and Supply Chains

The US-China trade war and other events have significantly altered global manufacturing and supply chains. As tariffs and trade barriers increase the costs and complexities of cross-border transactions, many companies are reassessing and restructuring their supply chains. As a response to trade tariffs, this often involves relocating manufacturing bases to countries not subject to these tariffs, a process known as “tariff engineering.”

For SAP users, these changes necessitate a rapid adaptation of their systems to accommodate new supply chain configurations.

The realignment of supply chains has forced SAP consultants to focus on enhancing features like real-time tracking, risk management, and predictive analytics within SAP systems to maintain operations despite frequent changes in the supply chain structure.

Manufacturing Locations and SAP Implementations

The migration of manufacturing facilities requires substantial modifications in SAP implementations. A move to a new production site may be accompanied by changes in regulatory compliance needs, tax implications, and business practices, all of which must be reflected in SAP systems. This often requires a redesign of the SAP architecture to ensure that it aligns with local business regulations and practices while maintaining integration with the global enterprise framework.

IT and Silicon Chip Shortages

The trade tensions have also exacerbated shortages in essential components like silicon chips (also worsened by the Ukraine war), which are crucial for the IT infrastructure supporting SAP environments: particularly in on-premise deployments for larger customers. This also affects the supply chain of manufacturers with requirements for silicon chips, like the automotive industry, and consumer goods. 

The scarcity of these components has led to increased costs and extended lead times for server and storage solutions, which are used in deploying and maintaining some SAP systems.

The shortage of silicon chips also impacts SAP environments by hindering the ability of businesses to scale operations or implement new SAP projects. As hardware becomes more difficult and expensive to procure, companies may experience delays in SAP project rollouts or expansions, affecting overall business agility and competitiveness.

Strategies To Mitigate These Challenges

To navigate these hardware shortages and their impact on SAP implementations, companies can adopt several strategic approaches:

Increased Cloud Adoption: Migrating to cloud-based SAP solutions reduces the dependency on physical hardware and alleviates some of the challenges associated with the silicon chip shortage. Cloud platforms can offer scalability, flexibility, and cost-efficiency, enabling businesses to adapt more quickly to changing market conditions.

Enhanced Forecasting and Inventory Management: Using SAP’s advanced analytics capabilities to improve forecasting accuracy and optimize inventory management can help companies better manage their resources during shortages.

Long-term Vendor Agreements: Establishing long-term partnerships with hardware vendors can secure priority access to necessary components, mitigating the risk of shortages and price volatility.

Investment in Alternative Technologies: Exploring alternative technologies that require less silicon or different types of chips could also be a viable strategy, involving use of newer, more efficient hardware that can perform the same tasks with less reliance on scarce resources.

These strategies demonstrate how SAP consultants must be well-versed in both the technical aspects of SAP systems and the broader supply chain and economic issues that can impact these systems. By understanding and anticipating these challenges, SAP professionals can guide their clients through disruptions.

Using SAP Capabilities to Enhance Resilience

Improving client resilience requires using SAP solutions to fortify against future uncertainties. This could include the implementation of more powerful data analytics tools to give clients a clearer insight into market conditions, or enhancing ERP functionalities to improve operational agility.

Integration of AI and machine learning technologies into SAP systems offers opportunities to improve efficiency and automate processes. AI-driven analytics can provide deeper insights into consumer behavior and market trends, for more informed decision-making. Similarly, machine learning can optimize supply chain decisions, reducing waste and improving response times.

Cloud technology plays a crucial role. Migrating to a cloud-based SAP environment can help businesses adjust more readily to market changes with scalable resources that support growth or consolidation as needed without physical infrastructure.

Sustainability has become a critical consideration in business operations, and SAP implementations. Consultants need to advocate for and design SAP solutions that support sustainable practices, such as energy-efficient processes or modules that help manage sustainable sourcing and compliance with international environmental standards. Sustainable practices can also mitigate risks associated with supply chain disruptions and regulatory changes, through methods like shortening supply chains.

Automation is another trend changing business strategy and SAP implementations. As automations take over routine tasks and other technologies change business operations, the role of SAP consultants is evolving from technical specialists to strategic advisors.

Identifying Growth Areas Within SAP Specializations

To meet changes in the global economic environment such as the changing relationship between the US and China, SAP consultants should focus on areas of growth such as SAP S/4HANA, cloud services, and integrated business planning. 

Specializing in these areas can provide consultants with a competitive edge as more businesses look to upgrade their systems and use new SAP functionalities. Consultants with expertise in specific verticals such as retail, or manufacturing can offer tailored solutions that address unique industry challenges.

Ongoing education and certification in newer SAP modules and technologies are crucial. Also, knowledge of how global events affect market conditions can help consultants anticipate changes in client needs and suggest SAP solutions that align with evolving business strategies.

This broader perspective is invaluable, as it allows consultants to respond to current client needs but also anticipate and prepare for future challenges.

Current State of US-China Trade Relations

The trade relationship between the United States and China remains complex and fluid, with ongoing negotiations, shifts in policy, and intermittent tensions. Despite phases of conciliation and promises of trade agreements, the underlying challenges persist.

For SAP consultants and their clients, this situation underscores the necessity of remaining agile and informed, as the decisions made today in these trade arenas can rapidly reshape market landscapes.

The Connection Between Global Events and Individual Careers

The careers of SAP consultants, like the rest of the IT industry, are intricately linked to global events. The COVID-19 pandemic has already demonstrated how quickly and drastically global crises can impact market demands and professional roles. It will not be the last global disruption.

The ability to quickly adapt to new challenges, anticipate future trends, and continuously refine one’s skill set in response to the global economic climate is essential for long-term career success in the SAP field.

Evolving US-China trade relations is just one example of how large-scale events can affect the careers of individuals.

In the interests of maintaining a reasonable scope we have only focussed on the US-China trade war, and only briefly mentioned the current wars in Ukraine and the Middle East, which have also profoundly affected the global economy and the IT industry, along with millions of lives.

With every election around the world, legislation and trade relations evolve. Developing an awareness of geopolitics can provide any professional with an extra set of skills to guide their own careers and to help others too. By developing a mindset and a skillset geared towards growth and resilience, SAP consultants can ensure they remain invaluable resources to their clients, helping them navigate an increasingly complex and interconnected world.

By staying informed, adaptable, and proactive, SAP consultants can navigate these changes more easily, chart a path of enduring relevance and success in their careers, and use their global awareness for good. 

If you are an SAP professional looking for a new role in the SAP ecosystem our team of dedicated recruitment consultants can match you with your ideal employer and negotiate a competitive compensation package for your extremely valuable skills, so join our exclusive community at IgniteSAP.