The Importance of Geopolitics, International Relations, and Bilateral Relations for Businesses: A Simple Guide for MSMEs

In today’s interconnected world, running a business isn’t just about making products and selling them locally. For Micro, Small, and Medium Enterprises (MSMEs) in India, understanding geopolitics, international relations, and bilateral relationships is essential. Whether you’re a small-scale manufacturer or an emerging exporter, global events and relationships between countries can directly impact your operations, costs, and growth opportunities.

Let’s break down these concepts in simple terms and explore how they affect MSMEs in India.

1. Geopolitics: The Domino Effect of Global Events

Geopolitics is essentially about how political decisions and events between countries impact the world. You might wonder how events happening far from India can affect your MSME. The reality is that global events often have a domino effect, and even small businesses feel the impact.

Example: The Russia-Ukraine Conflict and Middle East Tensions

Consider the ongoing Russia-Ukraine war and rising tensions in the Middle East, particularly between Iran and Israel. Although these conflicts are happening far from India, their impact is felt worldwide. Both situations have led to fluctuating oil prices, affecting transportation and manufacturing costs. The Middle East is a crucial supplier of oil, so any conflict or sanctions in this region tends to drive up global oil prices. Indian MSMEs, particularly those in manufacturing, feel this impact through increased costs for fuel, logistics, and raw materials.

Why It Matters to You: MSMEs typically have limited financial reserves compared to large companies, making them more vulnerable to sudden cost increases. When geopolitical events disrupt supply chains or increase costs, you have to adjust quickly. By staying aware of these geopolitical shifts, you can better prepare, whether by finding new suppliers or reducing costs elsewhere.

2. International Relations: India’s Trade Ties and Opportunities

International relations refer to how countries interact, impacting trade agreements, tariffs, and regulations. India has developed strong relationships with several countries, and as an MSME, these ties can create significant opportunities for your business.

Example: India-UAE Partnership

The India-UAE Comprehensive Economic Partnership Agreement (CEPA), signed in 2022, is a great example. The UAE is one of India’s largest trading partners, and this partnership has opened up huge opportunities for Indian businesses, especially in sectors like jewellery, textiles, and electronics. If you’re an MSME exporting to the UAE, you benefit from lower tariffs and easier access to the market.

Why It Matters to You: Strong trade relationships can make exporting simpler, more affordable, and profitable. If your business has global ambitions—or even if you’re just starting to explore exports—following India’s trade agreements can guide you in deciding where to focus your efforts. India’s Make in India initiative also encourages MSMEs to expand exports, and strong trade ties with countries like the UAE make it easier to grow internationally.

3. Bilateral Relations: The Power of Two Countries Working Together

When two countries form a strong partnership, it’s called a bilateral relationship. These relationships are often built on mutual benefits like trade, technology exchange, or investment. India has several strong bilateral relations that provide MSMEs with access to new markets, resources, and technology.

Example: India-Japan Cooperation

India and Japan have developed a strong partnership in areas like technology, infrastructure, and manufacturing. For MSMEs, this relationship opens doors to Japanese technology, which can improve productivity and product quality. Whether you’re in electronics, automotive parts, or even agriculture, taking advantage of this partnership can provide a competitive edge.

Why It Matters to You: Bilateral agreements often include specific benefits for small businesses, such as lower tariffs, relaxed trade regulations, or access to advanced technology. For MSMEs aiming to scale or explore international markets, keeping an eye on these agreements can help you identify the right opportunities.

The Indian Context: How Global Relations Impact MSMEs

Indian MSMEs play a vital role in the economy, contributing about 29% of the country’s GDP and almost 48% of total exports, according to a Press Information Bureau (PIB) report published on April 1, 2022. Given this significant role, it’s no surprise that global events and international relationships impact MSMEs in various ways:

Rising Costs: Geopolitical tensions, like the Russia-Ukraine war and Middle East conflicts, drive up fuel and raw material costs, directly impacting production expenses for MSMEs.
New Market Opportunities: Strong trade relationships, such as those with the UAE and Japan, make it easier for MSMEs to explore exports and expand into new markets.
Access to Technology: Bilateral relationships allow MSMEs access to advanced technology from countries like Japan, promoting growth and innovation.

Practical Tips for MSMEs to Navigate Global Dynamics

Stay Informed: Regularly follow global news and trade updates that might affect your industry. You don’t need to be a political expert, but staying informed can help you anticipate changes and prepare.
Diversify Suppliers: Geopolitical disruptions can cause challenges if you rely on a single supplier or region. Try to work with multiple suppliers from different countries to reduce risk.
Leverage Government Support and Trade Opportunities: The Indian government frequently introduces programmes to support MSMEs in expanding globally, and many new trade agreements are also on the horizon. India is actively pursuing several Free Trade Agreements (FTAs) expected to create more export opportunities for Indian businesses.
- India-European Union (EU) FTA: India and the EU have recently resumed negotiations, aiming to strengthen bilateral trade and investment. This FTA could open new markets for Indian goods and services in Europe.
- India-United Kingdom (UK) FTA: India and the UK have been in ongoing discussions, focusing on key areas like goods, services, and investment. A finalised agreement could significantly boost trade between the two countries.
- India-United States (US) Trade Discussions: India has proposed expanding its memorandum of understanding on critical minerals with the US into a comprehensive partnership, potentially setting the stage for a broader FTA.

These FTAs reflect India’s strategic efforts to strengthen economic ties and provide businesses, including MSMEs, with new avenues for growth through preferential access to international markets. Staying informed about these agreements will help you tap into new opportunities as they arise.

Final Thoughts: Think Global for Local Success

In today’s world, no business is too small to be impacted by global events. For Indian MSMEs, understanding geopolitics, international relations, and bilateral relationships isn’t just an intellectual exercise—it’s essential for growth. By staying informed and adaptable, you can navigate the complexities of the global market and help your business thrive in any environment.

As India continues to build stronger international relationships, the outlook for MSMEs looks promising. Now is the time to think globally and position your business for sustained