How Companies Can Manage Geopolitical Risk in an Era of Escalating Tensions
Read The Key Takeaways Here
• Geopolitical tensions are becoming a greater risk for companies, with competition between powers like China and the US intensifying.
• Companies must approach geopolitical risk management with a strategic, multi-layered framework to ensure resilience.
• A proactive, top-down approach is critical for identifying, assessing, and mitigating these risks effectively.
• Leaders must also consider the impact of their corporate narrative and the diverse perspectives of their global workforce.
As political frictions heat up globally, companies are increasingly finding themselves walking a geopolitical tightrope. In an era where international relations are rapidly shifting, the risk that these changes will disrupt business operations, market access, or even the safety of personnel is growing. According to the US National Intelligence Council’s Global Trends 2040 report, competition for global influence is set to reach levels not seen since the Cold War. Companies must therefore prepare not only for the external pressures of geopolitics but also for the internal challenges that accompany them, such as balancing market priorities and managing a divided workforce.
One of the most pronounced examples of this tension is the ongoing rivalry between the US and China, which affects businesses globally. With both countries controlling a large share of the world’s top companies, especially in sectors like technology, businesses must navigate complex regulatory landscapes, avoid falling prey to reputational damage, and carefully manage international relations to protect their bottom lines.
The risks are further compounded by the rise of nationalistic policies, fragmented global standards, and shifting allegiances among key international players. This increasingly unstable geopolitical landscape makes it crucial for companies to approach risk management with foresight, agility, and robust strategic frameworks.
Global companies are increasingly exposed to geopolitical risks, particularly in sectors like technology, trade, and finance. For example, the ongoing US-China tensions have highlighted the strategic importance of emerging technologies such as 5G and artificial intelligence (AI), where companies must balance the opportunities these technologies present with the regulatory and reputational challenges they entail.
To successfully navigate these risks, company leadership must adopt a proactive, multi-pronged approach that involves regular risk assessments, effective communication with stakeholders, and careful strategic planning.
Start with the Board: Leadership and Strategy at the Top
Geopolitical risk management must start at the highest level of a company. While many boards already discuss geopolitical risks in the context of specific investments or markets, these conversations often lack the broad, strategic perspective required in today’s geopolitical environment. Companies must dedicate time in regular board meetings to analyse geopolitical risks across the entire strategic landscape, rather than merely addressing isolated incidents or regional issues.
A strategic approach begins with a materiality test to identify which geopolitical risks are most relevant to the business. For instance, the strategic rivalry between China and the US is likely to be a top concern for most global companies, particularly in sectors such as technology, where both countries are competing for dominance. A company’s board should assess the current state of relations, anticipate potential flashpoints (such as Taiwan or trade policies), and develop plans to address the risks that may arise.
By fostering a regular forum for discussion, boards can establish a shared set of priorities and guiding principles, enabling quicker, more informed responses when geopolitical crises emerge.
Use a Trifocal Lens to Assess Risks Across Time Frames
Geopolitical risks evolve over time, and companies must be prepared to act in both the short- and long-term. Developing response strategies across three time frames—short-term, midterm, and long-term—allows companies to handle immediate crises while also preparing for future opportunities and threats.
1. Short-term actions:
In the short term, companies establish crisis-response units that can lead the identification of potential risks and implement mitigation strategies. These teams could monitor political events, assess risks to operations, and prepare for government inquiries into sensitive topics.
2. Midterm actions:
In the midterm, companies hold regular briefing sessions with senior leadership to review ongoing geopolitical risks. These discussions should focus on brand reputation, operational challenges (such as cybersecurity), and partnerships or products that may be affected by geopolitical shifts.
3. Long-term actions:
For long-term planning, companies conduct scenario exercises to assess their readiness for significant geopolitical events, such as regional conflicts or sudden regulatory changes. These exercises should include developing alternative strategies for protecting critical infrastructure or adjusting market positioning in response to geopolitical shifts. By balancing short-, mid-, and long-term planning, companies can not only react quickly to immediate risks but also invest in future resilience and opportunity.
Reframe the Corporate Narrative: Managing Perception Globally
In an interconnected world, the story a company tells about itself can have significant repercussions on its global reputation. As geopolitical tensions rise, corporate leaders must carefully consider how their company’s narrative may be received in different regions and how it aligns with their market strategies.
Some companies may choose to strengthen ties with specific countries where they are based, while others may want to position themselves as truly global entities, especially if that enables them to access emerging markets. However, a narrative that works in one market may create conflicts in another, particularly as nationalistic sentiments rise and regional interests diverge.
A key aspect of managing geopolitical risk involves critically assessing how a company’s narrative may impact its relationships with internal and external stakeholders, from employees to investors and customers. Ensuring that the corporate story is adaptable and sensitive to diverse geopolitical contexts is essential for minimising friction and capitalising on market opportunities.
Deploy Refreshed Risk Frameworks and Guidelines
To better navigate high-risk markets, companies can develop specific risk assessments for each region where they operate (TRS). These should outline clear criteria for assessing geopolitical risks, including financial, legal, political, and reputational risks. A TRS might also include a traffic-light-style system that categorises regions or sectors based on their level of risk, providing the company with a quick reference to guide decision-making.
Additionally, companies should seek insights from external stakeholders—such as embassies, international organisations, and peer companies—to maintain a sharp understanding of evolving geopolitical risks. This external network can provide crucial intelligence on potential threats and regulatory changes that might affect the business.
Secure Stakeholders’ Hearts and Minds: Building Trust Across Regions
A company’s ability to manage geopolitical risk is not just about external strategies; it also requires building trust and cohesiveness within the organisation. With employees and stakeholders holding diverse cultural and political views, it’s crucial to ensure that all regions are represented in decision-making processes.
Leaders must bring together stakeholders from different geographies to ensure that internal tensions are addressed, and that the company speaks with a unified voice on critical issues. By doing so, companies can maintain a strong, cohesive corporate culture, even as geopolitical pressures continue to rise.
As companies face mounting pressures from shifting global dynamics, it is essential for leadership to proactively assess risks, develop long-term strategies, and cultivate trust within the organisation. By doing so, they can navigate the increasingly unpredictable world of geopolitics and emerge stronger on the other side. For more information on how to safeguard your business against geopolitical risks or to explore our services, please contact us at enquiries@priavosecurity.com.