Both the tactical and strategic risk industries are poised to change. When I refer to “tactical” risk/intelligence, I mean intelligence and risk factors that pertain to more granular, specific questions such as, “What are the reputational risks involved in working with X company?” or “What are my competitors main weaknesses?” When I refer to “strategic” risk or intelligence, I mean intelligence and risks that pertain to more “big picture” or geopolitical questions such as, “Why would a state-owned company behave in a certain fashion within the context of X country?”
I have spent roughly a decade analyzing and making sense of geopolitical trends within Latin America while conducting field research in complex operational environments. I’ve been involved in the supply chain of both industries and I can personally attest that the business models of both the tactical and strategic intelligence industries will need to evolve. By marrying the tactical with the strategic, at Armada Risk Consulting we are choosing to evolve. On the one hand, we are choosing to focus on field work and human intelligence necessary for collecting solid, tactical intelligence, while, on the other hand we are complementing that intelligence with strategic analysis. At the end of the day, this means we go out to the field, wherever the answers are, leveraging our collective investigative, field operations, and military experience, in volatile regions, to get our clients the answers they need.
Our decision to evolve is driven by the fact that the business models of the aforementioned industries are lagging behind. Let’s start with the geopolitical risk sector, also known as the political risk industry.
Geopolitical risk firms are mainly focused on providing their clients with context regarding global geopolitical events. This context, codified, and erroneously labeled as “intelligence,” is essentially the security, political, technological, societal and economic landscape of a particular jurisdiction. The idea is to connect these particular elements with other global macro trends, only to then contextualize how these global trends might have an impact in a particular country or sector in the near future. The business model of geopolitical risk firms has gravitated toward selling massive subscriptions to “teach” globally engaged companies about global geopolitical dynamics. This is normally in addition to offers of ad-hoc consulting, through which clients are provided with custom-made analyses, access to analysts, and regular conference calls and presentations.
The problem with this approach is that, essentially, anyone with a laptop, an Internet connection, and a basic understanding of international relations and political economy can do it. Despite the size of geopolitical risk firms, generally speaking, geopolitical risk “analysts” lack real-world or field experience in the very same regions they analyze, partly due to the refusal of management to fund both training and actual field research. The effect of this type of corporate policy is that analysts are pressured to find answers that are impossible to answer through open sources, thus making them over-reliant on Google. The result is not intelligence but a regurgitation of open source information with a thin layer of informed opinion.
Whether using qualitative or quantitative research methods, the reality is that the geopolitical/strategic risk sector is failing its customers by failing to answer the following questions: Where is the real uniqueness of their products? If basically anyone can produce an informed political opinion through open sources, why should clients pay for these products? If I can find a plethora of free media reports on global events, why would anyone pay hundreds of thousands of dollars for this so-called intelligence? What’s the real difference between your geopolitical risk company and a media outlet? Why would fortune 500 companies’ take advice from so-called experts sitting in plush London and Manhattan offices, who refuse to send their analysts to obtain hard answers to tough questions in the field?
In my experience, these are the questions many clients of geopolitical risk firms have begun asking executives that work in this industry. Because of these internal dynamics, I believe the geopolitical risk sector will continue to fragment during the coming years. Without serious attempts to answer the aforementioned questions, the industry’s products will continue to lose value. It is a sink or swim scenario.
Interestingly, compared to the geopolitical risk sector, when it comes to the tactical intelligence sector, it is safe to say that business is booming. Regardless of protectionist trends in some countries, the truth of the matter is that American, European and Asian businesses want—and will continue want—to invest in regions like Latin America, Sub-Saharan Africa, the Indian sub-continent, Southeast Asia, amongst other places. In addition, multinational corporations from emerging markets, such as China, India, Mexico, South Africa, Turkey, and Brazil are already investing in the above-mentioned regions. These global economic trends, herald a growing demand for services like pre-transactional due diligence and business intelligence investigations. Companies operating in an increasingly complex compliance environment and simultaneously spurred on to foreign investment by both market trends and their business development departments need to understand the lay of the land. As a result, it is not surprising that the tactical intelligence sector is faring far better than the geopolitical one.
Contrary to the geopolitical risk sector’s refusal to delve into more granular field work, the tactical intelligence industry’s challenge is a worldview characterized by a sort of “tunnel vision.” Tactical intelligence consulting groups outside the Global South often seek to apply investigative models that are effective in their home jurisdictions without considering cultural and legal factors relevant to the developing world. For instance, in the US, one may be able to simply cold call a source or show up to the source's office or home. Such behavior is generally culturally unacceptable in regions like Latin America and Sub-Saharan Africa, if not viewed with outright suspicion (in some countries it makes sources very apprehensive due to security concerns). But the problem goes far beyond improper application of investigative techniques. Many attorneys, former prosecutors, and former law enforcement officials operating in the tactical intelligence industry view emerging and frontier markets through the same lenses they used in their home countries. As such, they often seek to apply the same techniques and strategies used in their home jurisdictions to regions, like Latin America, which are radically different operating environments for investigators.
A common refrain among firms in the investigative industry is that they operate solely as “fact-finders,” but the truth is, in regions like Latin America, not all “facts” are created equal. As a result, in the work of many tactical intelligence consulting firms, for instance, a pre-transactional due diligence, contains a heavy dose of media or open source analysis comprising a “laundry list” of “issues” or “red flags.” Not only do these reports offer very little forward-looking analysis, they often lack context that’s critical to clients’ understanding of the “facts” presented. Just because it’s in a newspaper does not mean it is factual, especially in Latin America or Sub-Saharan Africa. But work product in the industry will often contain little to no consideration of media outlet ownership, biases, constraints, and possible political motivations for governmental actions such as prosecutorial investigations. That’s crucial context for understanding how the “facts” gathered fit into the overall picture in emerging and frontier markets. Sadly, the tactical intelligence industry suffers from some of the same shortsightedness of the geopolitical risk industry. Many “analysts” or “investigators” sit in New York, London, or even Miami, but have had little appreciable experience living in and conducting field work in the regions they manage. Once you’ve had even a few years of experience conducting intelligence and investigative field work in places like Latin America, your point of view changes in a way that’s difficult to communicate to those not from the region who, ultimately, will always be outsiders. Once you’ve seen planted newspaper articles, people jailed as a means of extortion, and a pervasive lack of judicial security you tend to view things, even press reports, very differently.
Further complicating the picture for tactical intelligence firms is the fact that, precisely because they lack such field experience and reach, they must subcontract much of their work. This means that, ultimately, their reports are as good as their local subcontractors’ work. If you have a mediocre local subcontractor, more often than not, there will be a lot of “makeup” in the final product. In essence, these reports tend to lack critical, strategic thinking. They contain a lot of description, but very little, if any, emphasis on the strategic context of the operating environment that influences the behavior of the players of interest.
Ultimately, companies operating in emerging markets need to ask themselves if they want to fully understand the reputational risks posed by their local business partners. If you were entering a new frontier market, wouldn’t you want to understand the mechanics of the local social ecosystem, and, by extension, which stakeholders could potentially threaten your operations? What about anticipating competitor behavior or attempting to map the hidden drivers behind a local government’s attitude towards your business?
These are the sorts of questions we seek to answer by marrying tactical and strategic intelligence. We believe this is the best way to create value for clients because, ultimately, without this marriage of perspectives, clients will only have part of the puzzle.