How to Manage Geopolitical
Risks

Businesses are balancing on a geopolitical precipice. Political tensions are more likely to impact a global enterprise’s operations, performance, or workforce as tensions develop. According to global management consulting firm McKinsey, the difficulties that geopolitical concerns bring about will worsen. The struggle for global influence will certainly intensify over the course of the next 20 years, which may be in its highest level since the Cold War.

Geopolitical risks that companies are facing today

1. Domestic and international political events

Elections and changes in head of states can all affect businesses. Another pressing event this year is the soaring oil prices. Late in February, the fear of a Russian invasion of Ukraine became a reality, sending crude oil prices temporarily above $100 per barrel before falling back below $90. According to David Bahnsen, chief investment officer at The Bahnsen Group, “the Russia-Ukraine crisis significantly changed global oil supply forecasts and this is a key input into how oil is priced globally.” Following the increase in oil prices, many countries also saw a rise in inflation rates, affecting local and even international businesses.

2. Cyberattacks and a lack of cybercrime enforcement

Clients on numerous countries may be affected by an attack on global IAAS (Internet as a Service or cloud computing) providers. A cyberattack in one country may cause receivables in other countries to be delayed by days or weeks, which would pose a significant risk to the economy. The absence of international laws, treaties, and agreements hinders cybersecurity, making it simple for hackers to take advantage of the unpredictability of the cybersecurity industry.

3. Conflicts related to trade

Cross-border trade, customs, and tariffs were thrown into a whirlwind following Britain’s exit from the European Union. Growing tensions and conflicts also pose a threat for companies trading with other countries or sourcing their supplies from other countries.

4. Climate Change

Not only are the oceans rising and severe weather is getting more frequent, but younger people in particular are refusing to support businesses and goods that could hasten climate change. This has the potential to become a significant geopolitical risk factor.

How to manage geopolitical risks

Geopolitical risks are always present and are not limited to the list mentioned above. So how should company respond? Here are some recommendations.

1. Strategic planning sessions with your leaders

Geopolitical risks are already debated to varying degrees by many corporate boards. However, the talks frequently center on a particular project, investment, or market entry or exit. They consequently neglect to consider the larger strategic environment, the whole spectrum of risk scenarios and repercussions, or important decision-making points. Instead, as part of a larger board effort to create more resilient businesses, boards should set aside regular standing time to study how to respond to the geopolitical risks that their companies confront.

Assessing the risks that are most important to a firm is one method to start moving in a more strategic direction. The board of the company can use a materiality test to determine what matters are worth talking about. For example, the strategic rivalry between China and the United States will likely be at the top of many businesses’ lists of ongoing risk concerns. A baseline assessment that incorporates the historical context, current state, important forecasts to watch for, and action plan could serve as the starting point for such a discussion.

Boards can broaden their viewpoint by seeking outside counsel on pertinent issues from influential figures in business and politics, embassies and other governmental institutions, as well as nongovernmental organizations. By ignoring outside viewpoints, one runs the risk of adopting an overly limited or solitary strategy. In addition to enhancing decision-making and determining an organization’s appetite for risk, providing a regular platform for a board to review pressure points and operating realities from various angles and air opposing viewpoints aids in building consensus among leadership on current concerns.

2. Plan for short-term, midterm, and long-term

Geopolitical hazards can be addressed by organizations in a variety of time spans. A corporation can handle a rapidly changing crisis or disaster by developing short-, mid-, and long-term reaction strategies. This also allows the company to make the investments necessary to take advantage of opportunities and become more resilient.

3. Examine your corporate narrative

The narrative a corporation presents about itself in one market won’t stick there in the age of instant knowledge. Additionally, a story that resonates in one location may limit business potential in another or raise regional sensitivities. The implications of a company’s core narrative are taken into account as part of managing geopolitical risk. Think about the trade-offs of framing the company’s self-talk in a particular way, whether that story may cause disputes with internal or external stakeholders, and what viable solutions there may be.

4. Prepare resiliency plans

Terrorist or politically motivated assaults can occur suddenly. In order to prepare for a probable incident, it is crucial to implement good crisis management and resilience planning. Assess the potential effects of a crisis on your customers, staff, and other stakeholders after identifying vital functions. They can be better protected in an emergency by developing and testing crisis plans that guarantee good communication with employees.

Learn more about current affairs in the B2B space that may impact your organization

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