In the age of COVID-19, supply-chain disruptions, ongoing competition with China, and the Ukraine invasion, companies have a lot to grapple with. This is especially true for companies with a global presence. The changing international landscape is likely to have an impact on business operations and strategy for decades. Thus, it becomes ever more important for businesses to understand international operations and make adjustments to their plans to mitigate risk.
Managing Geopolitical Risk
There are several ways for companies to navigate geopolitical risk in the new age. Initiating methods of mitigating geopolitical uncertainty is especially important for companies that have an international footprint.
1. Start from the Top
A company’s board has the ability to see the company from the very top of the organization. They will be familiar with all of the aspects of a company – it’s departments, leaders, locations, and strategic plan. The board is often in the best position to understand the potential risks that the company may face from an international perspective.
In the U.S., corporations are required to hold regular meetings of their board to discuss items affecting the company and how to manage them. Oftentimes, board meetings are used to discuss the company’s current financial performance, assess the potential for any new investments, and identify new, strategic ways to generate revenue.
However, boards can also introduce the discussion of geopolitical items that may affect the company. This can be done by setting aside a specific amount of time in each meeting to talk about items that have the potential to affect business functions.
If the board chooses to dedicate time in their meetings to discussing geopolitical risk, it’s important to bring in experts on the topic or have impartial information available. Everyone has their own opinion on politics, and you need to ensure that discussions remain unbiased and directly related to protecting the company.
2. Create a Framework for Risks
When developing a game plan for mitigating geopolitical risk, decisions must be made for the short-term, mid-term, and long-term. As an example, consider COVID-19. The disease broke out relatively quickly, initially occurring in the beginning months of 2020. However, by the first week of March, countries initiated lockdowns and a slew of regulations and restrictions designed to stop the spread of the virus. Companies responded quickly by moving as much of their businesses online as possible. Others were forced to close their doors.
The initial stages of the COVID-19 pandemic forced companies to adopt a short-term strategy designed to protect their employees, comply with local restrictions, and keep their businesses afloat. As the pandemic has continued and new variants of the disease have caused restrictions to be readopted and dropped, senior leadership has needed to endorse mid-term and long-term strategies to keep businesses operating successfully.
While COVID-19 continues to be a concern, there are rising tensions that companies will need to address. These include the invasion of Ukraine, rising competition between China and the U.S., and continuing supply-chain disruptions.
Senior leadership roles rely on their FP&A teams for financial forecasting and budget analysis. However, they also need to look outside company financial performance to consider what may occur should rising tensions develop further. Based on their analyses, they should develop short-term, mid-term, and long-term strategies to mitigate the effects that these risks may pose to the company.
3. Adopt a Neutral Narrative
Geopolitical items can be tough to navigate, especially when there are strong feelings involved. Consider the COVID-19 example again. There are people who are passionate about vaccinations and the need for facemasks and social distancing, and there are others who disagree completely. It’s important to respect the opinions of both sides when setting a business strategy designed to reduce risk to the company.
In the case of companies that operate globally or are considering expansion to other countries, it’s important to talk about the company in a way that is considerate of regional sensitivities. The senior leadership of companies that operate globally must be aware of political issues in the areas in which they operate. They should take the time to understand the history of the region and its current landscape. Doing so can help to foster stronger relationships and avoid potential mishaps due to insensitive remarks.
4. Be on Guard for Changes
Companies have to pay attention and be willing to adapt quickly to changes in the geopolitical situation that may affect their business. Thus, it’s wise to stay abreast of politics and consider how changes may impact the company from all angles.
For example, if a part for a good that is sold by the company is produced primarily in Ukraine, there may be issues with assembling the entire product if the company that supplies the part has been closed due to the invasion of the country. Thus, a company must be nimble-footed enough to have alternatives set up for worst-case scenarios.
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