June 24, 2024

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Navigating geopolitical turmoil: 8 strategies for business leaders

2 min read

Conduct scenario planning

Scenario planning exercises can help businesses future-proof their operations and investments against potential disruptions. By considering various contingencies over a 10–25-year timeframe, such as geopolitical conflicts or political transitions, companies can better prepare for uncertainties and mitigate risks. Differentiating between long-term strategic positioning and short-term contingencies (the potential re-election of Donald Trump as US President this year is top of mind for many executives, as is China’s threat to forcefully reunite with Taiwan if it resists unification indefinitely) can help companies effectively plan for a range of scenarios. Longer term, the climate transition is a key priority for many executives.

Define geopolitical risk appetite

Businesses must explicitly discuss and define their tolerance for geopolitical risks to inform decision-making and risk management strategies. Assessing the potential impact of geopolitical developments on operations and weighing them against the costs of mitigation measures can help companies determine their risk appetite. This involves evaluating the trade-offs between staying in regions of geopolitical tension versus relocating operations. For example: reconfiguring supply chains, with some firms repatriating production due to the fallout from COVID-19, often leads to higher capital costs.

Engage with officials early

Leveraging their teams’ expertise, businesses can engage with policymakers early in the process of policy formulation to help generate more effective and efficient policy decisions. With their informational advantage, companies can provide valuable perspectives on the potential consequences of policy choices and help shape more favorable outcomes for firms. However, it’s crucial to engage with officials in a constructive manner that avoids appearing self-serving.

Collaborate with industry peers

Collaboration with other businesses and industry associations can be instrumental in promoting stability in geopolitical relations and de-escalating tensions. By joining forces, businesses can amplify their voices and advocate for policies that foster cooperation and mitigate the risks of geopolitical conflict. This collaborative approach can also provide insulation from political backlash, particularly for companies operating in sensitive sectors like semiconductors or pharmaceuticals.

Overall, as geopolitical tensions continue to shape the global business landscape, proactive and strategic approaches are essential for any multinational firm. By recognizing the significance of geopolitical rivalry, enhancing understanding, avoiding siloed responses, maintaining perspective, conducting scenario planning, defining risk appetite, engaging with officials, and collaborating with industry peers, businesses can better position themselves to withstand geopolitical disruptions.

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