Geopolitical risk is a top concern for most large-scale organizations. Leaders need to be nimble and adjust to the world’s daily changes in geopolitical tensions, politics, international relations, trade wars, sanctions, global financial markets, shifting power dynamics and country-specific conditions, each of which has the potential to wreak havoc throughout the global business arena.
In addition to today’s ever-changing global climate, advancements in globalization and technology innovations have added complexity to the business world. What happens in one country isn’t an isolated event; countries are both reliant upon each other for maintaining production of key goods and competitors at the very same time. Consider the conflict between the U.S. and China regarding semiconductors. China is striving to reduce its dependency on the U.S. and produce more of its own semiconductors, but to counter this, the U.S. has imposed restrictions on semiconductor imports to China. The rivalry between the two countries has broad implications; while it might just be two countries butting heads, the effects are felt around the world.
The list of adverse geopolitical events that might disrupt an organization’s operations is long and varied and organizations need to be prepared for whatever challenges their operations or the safety of their people.
Assessing Geopolitical Risk
The best way for organizations to ensure daily operations despite issues is to establish a strong geopolitical risk assessment process. This includes three key steps:
- Identify potential significant geopolitical risks
- Create subsequent risk assessment frameworks and methodologies
- Establish a list of early warning indicators
Leaders and their security teams must learn how to forecast geopolitical risks, most specifically:
- Political Instability: Security teams need to be evaluating risks related to political upheaval, regime changes, and policy shifts, as all of these issues can pose threat to operations and safety.
- Economic Sanctions: It is important for organizations to identify risks associated with global economy sanctions and trade restrictions, as shipping goods to a country that has changed its policies, there could be devastating costs and a loss of time that further complicate business operations.
- Military Conflicts: Lastly, assessing potential impacts of armed conflicts and military actions on business operations is paramount. This is important to the bottom line, and to the safety of all involved.
When it comes to keeping operations running smoothly and teams out of harm’s way, leaders must invest the time into planning. To that point, there are several reliable methodologies that help identify risks and develop contingency plans. Leaders should consider frameworks such as:
- The PESTLE Analysis uses Political, Economic, Social, Technological, Legal, and Environmental analysis to evaluate geopolitical risks.
- SWOT Analysis applies Strengths, Weaknesses, Opportunities, and Threats analysis to understand how geopolitical risks affect your business.
- Scenario Planning is the process of outlining how best to anticipate and prepare for various geopolitical outcomes.
The importance of forecasting, or identifying early warning indicators, is paramount to smart leadership. In support of this goal, it’s often beneficial for organizations to identify a partner that offers both real-time monitoring as well as historical data. Additionally, organizations should:
- Find the right technology partner is key. Organizations need to have the right data and that is only possible if they have access to tools that track geopolitical developments. Seerist is designed to offer these exact capabilities, fusing the power of machines and humans to identify and verify current risks and threats, while also having the ability to offer historical data and context. Historical context can be incredibly powerful, as understanding how a region typically reacts in specific scenarios is a massive indicator as to how things will play out in the future.
- Spend time focusing on early warning signs. When leaders are informed of indicators that might signal impending geopolitical risks, such as escalating tensions, policy shifts, or economic downturns, they are able to implement contingency plans, and oftentimes are able to avoid issues because they were thinking several steps ahead. This takes both time and financial investment, but is always well worth it.
Mitigating Geopolitical Risk
To help leaders mitigate geopolitical risk, they should develop diversification strategies, including geographic diversification, product and market diversification, and supply chain resiliency. It is also very beneficial for leaders to understand topics such as risk insurance and risk policies.
- Diversification: Geographical diversification focuses on spreading operations across different countries to reduce dependency on any single region. The benefits organizations receive due to geographic diversification are similar to the benefits of product and market diversification. In both cases, organizations can maintain operations as usual, even in the face of geopolitical disruptions.
- Supply Chain Mapping: Another tactic to mitigate geopolitical risks is to build resilient supply chains by supply chain mapping. This process will help identify supply chain vulnerabilities. Once this knowledge is available, it’s possible to establish relationships with alternative suppliers and partners – helping organizations adapt when existing relationships are strained due to geopolitical conditions.
- Crisis Plans: Having a solid crisis management and business continuity plan is also key in times of disruption. This plan will guide leaders on how to act with a sense of resilience as unforeseen challenges arise. This is a key subset of risk management, and will oftentimes help an organization maintain operations in the face of significant obstacles.
- Insurance: While this element of risk management is often left to the legal teams, insurance and risk transfer discussions should be a topic at the strategy table as well. Political Risk Insurance is designed to help businesses protect themselves from loss that is a result of political and economic turmoil or government actions. Similarly, Risk Transfer defines the responsibilities of the various parties involved, including specific risks and liabilities and identifies who is responsible for what risk. Risk Transfers also disclose force majeure clauses, or in other words, they identify the circumstances that will be deemed are beyond the parties’ control – such as environmental disasters, government actions, etc. – and establish a protocol to go into effect if the business relationship is impacted by one of these events.
Geopolitical Risk and Industry Sectors
Different geopolitical risks will impact different industries. For example, issues like energy price fluctuations affect energy sectors, while cybersecurity concerns often impact multiple sectors. Tech leaders, in particular, must consider factors like evolving regulations, intellectual property, and tech-specific supply chains.
When it comes to manufacturing, with a heavy reliance on sourcing and production, often in a variety of countries and spanning the globe, this sector must be on the constant watch for potential disruptions.
Regardless of industry, there are tactics to employ to mitigate and manage geopolitical risks. The first step is to conduct a rapid assessment of the event. Teams need both the bandwidth and access to information in order to quickly answer questions such as:
- Is this event anomalous versus part of a general trend?
- Is this event of a magnitude greater than the past?
- Is this event in a location not normally impacted by these types of events?
Once the initial assessment has been done, it is time to assess the impact of the event. Are people at risk? Has production been stalled or completely derailed? Was highly sensitive information breached that will impact stakeholders? If the event directly impacts the business, efficient decisions or actions are key to minimizing and mitigating the negatives.
Finally, it is time to determine what to do next. Security operations should align with crisis management protocols and communicate plans to all stakeholders. Prepared contingency plans and strategic tools like PESTLE, SWOT, and Scenario Planning equip leaders to make swift, effective decisions under pressure.
The Future of Geopolitical Risk
There are several emerging geopolitical trends, including shifting global power dynamics and an increase in regional trade agreements, which are impacting businesses today. Countries such as China and India will continue to strengthen their economic futures. Recognizing these emerging countries and understanding their unique laws and regulations is essential to keeping supply chains competitive and uninterrupted.
Regional conflicts will continue to have grave human and social ramifications; disrupting global trade flows, supply chains, and distribution plans, as well as impacting costs of goods.
It is important to realize that with each challenge, new opportunities become available. Businesses can leverage geopolitical volatility to drive innovation and explore new market opportunities. Instead of relying on a manufacturer across the globe to produce a particular product, perhaps it is possible to create an agreement with a closer partner. Forming new strategic alliances and partnerships in response to geopolitical changes might be unexpected, but long-term advantages.
Finding Success Despite Geopolitical Uncertainty
In an era marked by increased geopolitical conflicts and a shift toward nationalism, global companies, governments and NGOs are at risk in ways that were previously irrelevant to the industrialized world. The once-predictable landscape, formerly guided by the principles of globalization and open markets, has given way to a new normal – one in which continual volatility and chaos are the new norms. In this complex environment, situational intelligence and proper geopolitical risk management will be the path to guide organizations from chaos to clarity.
Proper risk management, including strong supply chain continuity and business continuity plans will position organizations to overcome serious disruption.
Additionally, involving security teams in strategic discussions – before, during, and after a crisis – is essential. The security team should be viewed as in-house experts who can provide insight on what the current political risks are, what hot buttons are expected in the near future, and also offer context based on historical intelligence.
Seerist is a resource offering risk mitigation support, as well as acting as an extension of an organization’s in-house team – providing knowledge, bandwidth, regional context, and countless tools to help businesses and government agencies across all sectors develop their best security and risk management strategies. Every organization and entity wants to keep its people safe and achieve financial success. Seerist is the threat intelligence solution to help achieve this goal.
