You might think geopolitical risk isn’t something your business has to worry about. But more now than ever, companies with stakes in global markets are realizing that geopolitical risk is not just a matter of state-sponsored actions (as with recent Chinese trade tensions). Geopolitical risk is now more a matter of the multiplicity of internationally interconnected and often uncontrollable events, actors, and forces (such as COVID-19) that impact markets and power-interests, both governmental and private.
At Pivot International, we’re global leaders in single-source product design, development, manufacture, and supply chain management who have helped our partners mitigate geopolitical risk, survive supply chain disruption, and adapt to rapidly changing market conditions. With locations worldwide, company-owned facilities, Industry 4.0 technologies, and advanced market insights, we’ve formed powerful alliances with global partners and suppliers to help our customers successfully scale in both favorable and challenging conditions.
Companies should no longer assume that geopolitical risk does not apply to them. The question is not whether a company will face geopolitical risk, but rather how they can best confront it. This entails a five-step process that enables companies to effectively plan, predict, prevent, manage, and learn from geopolitical risk.
Analyze Your Appetite for Risk
Different kinds of companies have different levels of tolerance for risk. Companies need to get clear about the point where their appetite for risk begins and ends. This involves the analysis of variables like time horizons required for ROI, the ease of access to alternative investments, the likelihood of sunk costs related to asset divestment, whether assets can be reasonably relocated, and how transparent operations are to consumers. Companies that have undertaken this kind of analysis are better prepared to confront and mitigate geopolitical risk.
Identify and Question Assumptions
No matter a company’s appetite for risk, leaders need to know the answers to two critical questions: “How can we see what we can’t yet see?” and “What if we’re wrong?” Identifying blind spots depends on identifying and questioning assumptions. Businesses that promote a culture of conformity, resist unfamiliar ways of approaching a problem, dismiss ideas out of hand, or ignore “wake up calls” unless they originate in the C-Suite are nearly certain to fall prey to blind spots. Effective simulation exercises and scenario planning require the ability to question what seems to be in favor of an exploration of what could be, along with the implications of such.
Take a Preventative Approach
Most companies don’t integrate risk analysis into their strategic planning and everyday operational management. Instead, they take an ad hoc approach when geopolitical fires or other disruptions flare. But an ounce of prevention is worth a pound of cure. Even during the best of times, companies can benefit from using risk-assessment tools and techniques to protect investments and inform strategy. These include risk registers, probability-and-impact matrices, causal loop mapping, analyses of Google Trends search-data, the latest applications in AI, and more.
Become Highly Proactive
It’s impossible to avoid geopolitical risk altogether, but it can be significantly reduced with three sound strategies: key-asset distribution, supply chain diversification, and “strength in numbers.” (This latter term refers to an intra-industry brain trust that marshalls collective strategies for buffering threats.) Companies that recognize their vulnerability to geopolitical risk tend to be those that are most proactive in deploying risk assessment and risk management rather than waiting for government agencies or industry reports to advise them. These companies have complex contingency plans for worst-case scenarios — scenarios that less proactive companies generally fail to consider.
Apply New Learning to Increase Resiliency
Businesses often learn their most powerful lessons, not from what went right but from what went wrong. Smart companies rightly regard this kind of data as one of their most valuable assets. These feedback loops are crucial for recognizing and assessing geopolitical risk, developing strategies for avoiding it, and adaptively responding to and learning from geopolitical crises to increase resiliency against future threats.
If your company is seeking solutions for mitigating geopolitical risk and surmounting disruption, Pivot can help. With a global supply chain network to get your logistics back on track and advanced strategies for threat-reduction to secure your operations, we can help your business survive and thrive in the face of challenge. Contact us today.