Geopolitics can create substantial risks for businesses, especially if countries move into volatile situations such as a regime change, have sanctions imposed, or, in the worst-case scenario, face war. Here are some of the ways geopolitics can drastically influence businesses and their success.
Trade Wars/Tariffs
One of the most common risks international businesses face is trade wars and tariffs. Any good enterprise risk management software will include this, but it is still important to be aware of, especially how common it is becoming.
In short, tariffs make importing and exporting goods not only more expensive, but can also disrupt supply chains, especially for those businesses that rely on certain regions for the bulk of their business.
Supply Chain Disruption
Speaking of supply chain disruption, there are multiple ways for this to occur. A government can make a drastic change to a policy that cuts off the supply of raw materials, or there could be a conflict that prevents materials from leaving the country.
While this is typically not a massive problem for large conglomerates, smaller businesses may struggle, especially if they don’t have backup suppliers in other parts of the world.
Sanctions
Sanctions, whether imposed on your country or on a country/countries you export to, can drastically cut how much business you do. Sanctions can be imposed for a multitude of reasons, but the repercussions could spell disaster.
Sanctions imposed on other countries can disrupt trade, but are often not the final nail in the coffin for companies such as Coca-Cola or Amazon; however, for smaller businesses, it can be incredibly difficult to get around and survive them, depending on the industry they are in.
Political Instability
Political instability, especially things like regime changes, can cause enormous problems for businesses within the country where the instability is happening. Trade restrictions, nationalization of industries, and policy reversals can all affect different businesses.
Cybersecurity Threats/Hacks
One issue that has become a major problem for businesses over the past twenty years is cybersecurity threats and hacks. While we all know the major problems that hacks and cyber attacks can cause, the bigger issue is understanding why they happen.
These hacks can happen for countless reasons, which makes them very difficult to predict. Therefore, it is always best to have the most advanced and updated cyber protection available to, at the very least, limit any damage a hack could cause.
Regulation Changes
Regulation changes are another issue that businesses can face, and once again, can happen for multiple reasons. Changing regulations for the sake of the country, for example, can impact both imports and exports.
There have been countless examples of governments limiting the import of certain goods to help local businesses gain a market share. Another example would be a country banning the import of food, because there are ingredients within the food that have become illegal.
Market Restrictions
Market restrictions happen on different levels, ranging from boycotts, to the outright ban of certain companies. These restrictions can go both ways as well; countries can stop trade with companies within a country that started a war, is in a regime change, etc. On the other hand, countries can ban or boycott businesses within them due to political or social issues.
These restrictions can be exceptionally difficult to get around if your business is in a country that is being boycotted, but there are ways to get around them if you export to a country that has these restrictions imposed.
Reputation Damage
Reputation damage is one risk that we are seeing come to fruition more and more each day due to the several conflicts and instabilities around the world. For example, a business that aligns itself with the “wrong side” can face worldwide condemnation and boycotts.
The one potential high point for this is that it is a risk within the control of the business itself. However, making the wrong decision can cause short-term and long-term problems for the company.
Increased Costs
Depending on the type of volatility a country could face, businesses may face increased costs to export to it. For instance, if you export using ships that are often the targets of attacks by pirates, you will need to pay more for insurance, security, etc.
If this does become an issue, you may face even more costs if you have to transport goods by plane, which can’t carry as much as would require more trips.
Asset Damage
Finally, asset damage is another problem businesses could face, especially if the assets are within a war zone. If a distribution hub for a region is hit with a missile, for example, it can be completely destroyed and become wholly inoperable.
While this is an unlikely situation, it is still something that needs to be factored in, especially if you do a lot of business within a volatile region.
In conclusion, geopolitics creates a wide variety of risks for businesses, with many being difficult to predict and solve. However, once you are aware of them, it does become slightly easier to prepare, and to make it out the other side unscathed.
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