Companies must be mindful of the geopolitical risks that could have a substantial influence on their operations, supply chains, and overall business success in today's more linked globe. Political unrest, trade tensions, economic penalties, and regional warfare are a few examples of geopolitical dangers. Companies are better positioned to accomplish growth and keep a competitive edge when they can successfully overcome these risks. The tactics businesses can use to reduce and manage geopolitical risks are covered in this article, along with examples from the real world.
Develop a Geopolitical Risk Management Strategy
To recognize, track, and reduce potential risks, businesses should build an extensive geopolitical risk management strategy. This plan should take into account the company's exposure to various regions and nations, an evaluation of potential dangers, and the creation of backup plans.
- Example: Apple started to diversify its supply chain by moving some production to nations like India and Vietnam as tensions between the US and China grew in recent years. This action reduced the possibility that Apple's supply chain might be impacted by more trade conflicts and tariffs.
Establish a Cross-Functional Risk Management Team
A dedicated cross-functional risk management team should be established by businesses, made up of professionals from several divisions like finance, operations, legal, and public relations. This group will be in charge of keeping track of geopolitical changes, determining how they might affect the business, and creating effective risk-reduction plans.
- Example: As an illustration, several UK-based businesses established cross-functional teams in the wake of Brexit to evaluate the potential effects of new trade laws and border controls on their business processes and supply chains as well as to create backup plans for alternative Brexit scenarios.
Enhance Supply Chain Resilience
To lessen the risk of interruption brought on by geopolitical events, businesses should diversify their supply chains and build solid partnerships with numerous suppliers.
- Example: As an illustration, major international automakers, such as Toyota and Nissan, reevaluated their supply chain strategy in the wake of the 2011 earthquake and tsunami in Japan in order to lessen their reliance on suppliers from a single source and increase the resilience of their supply chains to future disruptions.
Leverage Technology for Geopolitical Risk Monitoring
Companies may monitor geopolitical changes and spot new dangers in real-time using technology like data analytics and artificial intelligence. These resources can aid businesses in staying informed and reacting more rapidly to shifting geopolitical environments.
- Example: For instance, businesses have utilized IBM's Watson platform to scan vast amounts of news stories, social media data, and other sources in order to spot potential geopolitical threats and how they might affect the operations of the business.
Engage with Government and Industry Bodies
To stay updated about geopolitical developments and prospective regulatory changes, businesses should maintain open lines of communication with key government and industry organizations. This involvement may also offer insightful information about how other businesses and sectors are handling geopolitical threats.
- Example: To stay updated on the progress of the EU's General Data Protection Regulation (GDPR) and other legislative changes that might affect their operations, businesses operating in the EU have actively engaged with the European Commission and industry associations.
For businesses looking to preserve a competitive advantage, navigating the complex geopolitical landscape of today is a difficult but necessary effort. Companies can better position themselves to manage and mitigate geopolitical risks and seize new opportunities in an ever-changing global environment by developing a comprehensive risk management strategy, diversifying supply chains, utilizing technology, and engaging with government and industry bodies.