Of late, political leaders and business captains are talking about two fancy words: decoupling and derisking. Enlightened debate is going on in public domain about what these words actually mean, and who adopts what. Let me give a broad brush stroke of decoupling & derisking:
Decoupling is there for sometimes. Functioning as business strategy this concept entails a situation where two or more activities are separated or not allowed to progress in similar and uniform manner. Simply put, it aims to separate one from another in terms of resource allocation & management attention. The obvious goal is to make a gap between the two so that that intention and outcome are co-ordinated seamlessly.
In business relationship this means one part disengages from another so that disadvantages emanating from such relationship eliminated, losses reduced, cash-flow improved and the leverage one has over the other is secured. While decoupling works best as business strategy where the dependency syndrome is imperfect, so to speak. It could turn out to be a major failure where dependency syndrome is perfect, that is to say one cannot disassociate with the other without incurring loss of income and profit. So both of them are in bind. Both rise and fall together.
Derisking is a business tactics. Its primary aim is to avoid risk rather than manage risk. Every business has a risk profile that need to be managed well to succeed in the market place. Restricting or in the worst case terminating a successful business relationship could bring negative results. Having said that, relationship between two parties need to be revisited on and off in order to protect distinct advantages one party has over the other. The scope of such restrictions would hover around financial flow and critical technologies that afford one party the edge over the other.
Joe Biden is right in saying that derisking China trade involves protecting technologies that are critical for national security from falling onto the hands of Chinese manufacturers. Opting for derisking business tactics is a moderate way to bring about a balance between America and China. But the whole issue rests on cause and effect theory. Nobody can easily predict how derisking would proceed and what consequences it would entail. Confusion is compounded because uncertainty apart there is ambiguity as to the meaning and content of a derisking formula.
Therefore America views that both decoupling and derisking must go together as strategy and tactics in order to get the best results. EU differs on this score. EU cannot take up decoupling business strategy vis-à-vis China as she depends more on the latter regarding economic recovery post Ukraine war. Indeed it is right and proper decision. EU places much hope and trust on China trade and investment. Say no to decoupling and yes to derisking. Evidently, a milder version of de-risking is what EU has in mind!
Cheers!
Muthu Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business Strategist
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