Creating risk management strategies through deep industry expertise, advanced analytics, and specialist global knowledge to help you optimize your business. Exploring government strategy. (See Exhibit 1.) Geopolitical forces at work in the economy. Not engaging in such discussions in the current geopolitical context would be malpractice. Subscribed to {PRACTICE_NAME} email alerts. The new geopolitics of global business, Economist, June 5, 2021, economist.com. Global geopolitical risk and economic uncertainty have increased dramatically over the past decade, according to leading indices. Andrew S. Grove, Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company, New York, NY: Currency, 1996. BCG's international trade consulting experts help companies make the right movesand mitigate riskto unlock competitive advantage. JPMorgan said it had provisioned roughly $300 million to cover markdowns on its Russian loans. firms, Access global tax, legal, For the past three decades, going global meant unlocking specialization and . If companies operate in markets that are high risk because of political instability or the threat of international sanctions, they can develop market-specific assessments or compacts that fuse corporate strategy and risk management. Violence and Civil Unrest Some companies, however, not only navigate disruption successfully but actually thrive because of it. Henry EnglerThomson Reuters Regulatory Intelligence, The war in Ukraine has shed an unflattering light on the ability of large US financial firms to manage geopolitical risk, a type of risk that relies more on qualitative and subjective analysis than models and spreadsheets. Nowhere is the fallout from current geopolitical tensions more apparent than the unfolding competition between China and the United States. If political risk has hurt your company, political risk insurance can help mitigate the financial cost. New market entry CFOs' assessments of the economy in Q3. Consider the trade-offs of framing how the company talks about itself, if that narrative could create conflicts with stakeholders, and what the potential remedies could be. Companies should also be vigilant about risks presented by suppliers. 4 Convert risk into opportunity with bespoke solutions. Understand counterparty risk with forward-looking analysis of reputational, legal and political risks associated with new or existing partners, Risk Quantification We offer a unique combination of advanced analytical methods and an innate understanding of intelligence gathering other security sources don't possess. A sports industry client was exploring hosting a large televised event in a Middle Eastern city. But so do some pharmaceutical, technology, and packaged goods companies. Geopolitical Risk and uncertainty are major challenges for business operations and frequently listed among the top three risks in major corporate C-suite surveys. "autoplay":true, Geopolitical risks affecting banks or banks customers have expanded significantly in recent years, according to a global survey report issued late last year from consulting firm EY. Responsibilities: Provide cogent geopolitical risk analysis to a diverse array of clients and various internal teams in written or recorded deliverables. Discussions can focus on three risk areas: brand and reputation; operational issues, such as cybersecurity strategy; and products, services, and partnerships. Geopolitics is personal. A company could apply the warning system to the sectors in which it operates. Creating short-term, midterm, and long-term response strategies ensures that a company can not only handle a fast-changing situation or emergency but also make the investments needed to seize opportunities and become more resilient. The geopolitical risk firm that helps you understand the world. 2. American Express. A board could begin such a conversation with a baseline assessment that includes the following: Boards can gain perspective by soliciting outside opinions on relevant topics from business and political leaders, embassies and other government agencies, and nongovermental organizations. One test could explore the conditions in which the company may be compelled to ring-fence its IT infrastructure (to protect against cyberattacks or comply with regulatory requirements) or split off its business in a particular region. Instead, it alleviated the concerns by moving aggressively to open more data centers in customers home countrieswith no negative effect. In 2017, France started mandating large French companies to conduct human rights due diligence, requiring them to establish and publish corporate vigilance plans to prevent adverse human rights impacts. Resource shortages likely to disrupt critical supply chains in South Africa, US Weekly Economic Commentary: Stubborn inflation clouds the outlook, Weekly Pricing Pulse: Commodities down as energy crisis recedes, The global economy moves forward, averting recession, #China is set to cut its #crude throughputs in March from the recent highs in February as maintenance season starts https://t.co/A7vYRC0Y8R, Maintaining #economic stability and security of #energy supply requires investing in "today's energy system" as wel https://t.co/tasDJgCSAR, Africa energy review and outlook 2022-23: Turbulence on the road to recovery. Comprehensive spectrum of risk-based screening and due diligence solutions. If there is unrest onshore it could spill out into territorial waters, as was seen with Somalian . Deglobalization is poised to accelerate amid knock-on effects of Russias increased isolation from the global economy, ongoing sanctions and export controls, and the accompanying emphasis on self-reliance and the diversifying supply chains.. Corporate strategy, corporate risk management, corporate finance, insurance underwriters and exposure managers, investors, data analytics teams, and intelligence and security departments all partner with us to evaluate opportunities; identify key geopolitical risks to business plans, portfolios, and suppliers; allocate resources more efficiently and effectively; model and prepare for potential economic and geopolitical shocks; and communicate better with other internal and external stakeholders. Each event carries it own risks, and each risk its own consequences. "Heightened political risk globally raises the threshold for unrest, with implications for shipping, such as the ability to secure crews and access ports safely. 5. They should regularly look up from tending to the immediate needs of their operating environments to learn, adapt, and prepare for external and internal shocks and pressures. the most significant opportunities and challenges created by a constantly evolving geopolitical landscape and the investments or adjustments needed to address them, potential unintended consequences from taking a particular risk position, key takeaways from how peer companies responded to similar shock situations. But if those talks dont directly affect a companys operations, its board may not need to dedicate time to them. Leaders face an uncertain landscape. Political risk consulting. Marcin Grajewski, The EU strategic autonomy debate: What think tanks are thinking, European Parliament Think Tank, March 30, 2021, europarl.europa.eu. Understand how geopolitical trends impact your business We help organisations understand the complex issues defining international business, geopolitics and cross-border regulation so they can better anticipate change, identify opportunities, manage risks and ultimately shape the future of their organisation. A counterparty who defaults on a contract, or whose business . In 2016, Brazils Kayap indigenous community successfully stopped the construction of a gold mine, claiming that mercury and other pollutants from the mine would leak into the river Curu, the communitys main source of food and livelihood. Stratfor Worldview is the world's leading geopolitical intelligence platform. Human Rights Violations Political risk management through context intelligence and strategic planning is at the heart of what we do. Geopolitical shifts and technology changes are transforming international trade, creating both risks and opportunities for companies that can navigate this new environment. Utilize our expert insight and data to get risk scores tailored to your specific metrics, Benchmarking, Pricing and Aggregation, and Scenario Analysis Idiosyncratic geopolitical riskconstructed using the transcripts of firms' earnings calls, and Theyre the industrial goods companies that shift production from one country to another because they correctly predict that rising protectionist sentiment in some key markets will lead to trade actions that will alter the economics of manufacturing. Instead, boards can dedicate regular standing time to analyzing how to respond to the geopolitical risks that their enterprises face as part of a broader board effort to build more resilient companies. Andrew Grant is a senior partner in McKinseys Auckland office; Ziad Haider, based in the Singapore office, is the head of geopolitical risk and a director of risk in Asia; and Alastair Levy, based in the London office, is the global director of risk. And differences can dissolve into disagreements about risk and Our global multidisciplinary teams offer strategic legal and regulatory advice to help . Having an intimate knowledge of these diverse, complex and developing dynamics is critical in order to identify challenges before they become problems. Geopolitical risk assessments should be tailored to focus on relevant industries and customized to target specific concerns depending on the type of investment, expansion or partnership. This sentiment largely continued in the second . We believe that political science, sector/country expertise, and macroeconomics can be utilized to guide clients through volatile markets and build future value. Get the latest news and intelligence on global issues impacting business, politics, economics, military, security and energy. Nonetheless, the results highlighted the need for banks to embed political analysis into risk-based decision-making. Governments can confiscate assets, nationalize property, breach contracts, impose embargos or prohibit trade with specific countries. The survey, conducted with the Institute for International Economics, was taken before the crisis in Ukraine, so now CROs may be taking a different view. Risk entrepreneurs also take a holistic approach to geopolitical risk management, but they do so in a less structured and centralized way. A strong cross-functional interface is critical, especially for companies that take a holistic approach to risk assessment. As a result, they fail to examine the broader strategic landscape, full range of risk scenarios and consequences, or key decision points. The authors wish to thank Tristan Clement and Julia Nikolaeva, for their contributions to this article. for broadcasters and publishers, Explore our tax and As a result, the company was able to significantly expand its cloud business and gain advantage over competitors that were slower to act. These organizations take many forms. Geopolitics, corporate governance and ESG. We call these archetypes holistic-risk evaluators, risk entrepreneurs, systemic-risk managers, and nascent-risk managers. legal content, expertise, and technology, Find essential resources A compact could include a traffic-light-style warning system with red, yellow, and green lights that represent escalating risk levels. The companies with the most disciplined approach, however, often use a combination of processes and tools to look at risks during different time frames and with different rates of periodic review. . Technology, especially, has become what Chinese president Xi Jinping has called the main battleground of global power rivalry. The two countries account for 76 of the worlds 100 most valuable companies. Managing geopolitical risk. Regulatory Burdens Our privacy policy describes how your data will be processed. Many company boards already deliberate geopolitical risks to one degree or another. Managing volatility requires an understanding of the impact on business, customers and environment. Winning companies take calculated risks to improve profitability through both tailwinds and headwinds. Others may opt to identify as global entities because of the access it accords them to pursue business opportunities in emerging markets. Independent data and analysis for opportunity sizing, local partner selection, government stakeholder assessment and risk assessment. {"name":"login","url":"","enabled":false,"desc":", Discover more about S&P Globals offerings, Learn how we can help you manage geopolitical risk, Differentiating geopolitical risk for profitable investing, Let our risk ratings guide your decisions, M&A In Focus: Tech Acquisitions and the New Normal in 2023, Assessing the impact of the U.S. Government Accountability Office recommendations on Export Control Compliance at universities, Foresight Security for Corporate Security, Integrity Due Diligence & Integrity Consulting, Benchmarking, Pricing and Aggregation, and Scenario Analysis. Casper Wuite, 55 East 52nd Street 17 Fl Geopolitics is "the study of the effects of Earth's geography (human and physical) on politics and international relations.". Unfortunately, geopolitical risk commonly is misunderstood by the Its up to leaders to weave the fabric of a global organization so that it resists the tears that mounting pressures threaten to create. The risks to be assessed could be financial, hazardous to peoples safety, legal, political, or reputational. Our intelligence team works with regional field ops who know every corner of the . Banks are used to quantifying risks that can be measured, with long, historical data series serving as inputs to create future scenarios. High levels of corruption among lawmakers can make securing the necessary licenses, permits and registrations an arduous process, especially whilst also staying in compliance with wide-reaching laws like the U.S. FCPA. A key trend is leveraging more of that analysis into banks own decision-making processes, the report found. All rights reserved. Case Study 1 Geopolitical events can manifest themselves in many ways. New York NY 10055. The report draws on the survey results from nearly 700 experts and decision-makers globally who were asked about their concerns . We found that there is no uniform approach to geopolitical risk management. To sharpen their view of the shifting global landscape, a growing number of major multinational corporations have been investing in their abilities to identify trends early and to influence the decisions of host governments ahead of major transitions, such as sudden changes in trade agreements or national governments. Many companies, both financial and non-financial, were caught off guard, despite Putin having telegraphed his intentions for months in advance. With Thomson Reuters Regulatory Intelligence, you can find and get clarity on regulatory developments. For banks, with varying degrees of exposure to Russia, the costs of their miscalculation have been sizable, but most say that their losses are manageable. Integrate geopolitical signals and risk assessment into strategic-planning processes and define actionable strategies to both protect the business and take advantage of emerging opportunities. Short of outright expropriation, governments can discriminate against foreign firms by imposing stringent regulatory requirements, limiting foreign direct investment and allowing domestic industry monopolies to form. According to our research, therefore, the best practice is to tightly integrate geopolitical risk managementalong with the monitoring of technological, consumer, regulatory, and other trendsinto the strategic-planning process so that leaders can make informed choices and identify new opportunities. This combination of short-term and long-term monitoring allows for timely action. 08 March 2022. The ability to proactively navigate turbulence can mean the difference between prospering through a crisis or falling victim. Capital reserves, credit portfolios, investment policies and capital and debt profiles all demand constant scrutiny to adequately manage and mitigate risk. The geopolitical landscape is shifting rapidly and creates multi-dimensional challenges for global organisations. These circumstances can leave traditional risk management systems and teams flatfooted. Something went wrong. Citigroup, which had been trying to sell its Russian retail operations when the war started, said its potential losses could come to as much as $3 billion, and put aside $1 billion in loan-loss reserves. To enhance the role of geopolitical risk management and thus create tangible business opportunities, leaders should take the following steps: In every risk there is also an opportunity is a well-worn adage. They view disruption strategically, as a source of opportunity; embed risk management practices across the organization; and use advanced geopolitical-risk-monitoring tools and processes. Never miss an insight. Any investment in taxable fixed-income securities is subject to certain risks, including credit risk, interest-rate risk, foreign risk, and currency risk. Holistic-risk evaluators have the most highly developed geopolitical risk management operations. As a geopolitical risk analyst, your job is to conduct an analysis of the geographic and political risks to investments. The bank also attributed $120 million of a $524 million trading loss during the first quarter to its role as one of the counterparties in a short trade by Chinese metals group Tsingshan that went south amid the market turmoil that followed the outbreak of war. FS firms need to be agile and resilient to thrive. Some may, for commercial and strategic reasons, choose to strengthen ties to the countries where the companies are based. Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. 1 A holistic view uses four lenses: global geopolitical trends and scenarios, ongoing operations, investment decision making, and frequent monitoring of evolving events and development that can affect the business. Global multidisciplinary teams offer strategic legal and regulatory advice to help report draws on survey! Consulting experts help companies make the right movesand geopolitical risk consulting riskto unlock competitive advantage events can themselves! The top three risks in major corporate C-suite surveys non-financial, were caught off,... And developing dynamics is critical, especially, has become geopolitical risk consulting Chinese Xi... Its own consequences they become problems know every corner of the Access it accords them to pursue opportunities! 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Through volatile markets and build future value risk firm that helps you understand the world & # x27 ; leading. Has hurt your company, political, or whose business the latest news and intelligence on global impacting! Global multidisciplinary teams offer strategic legal and regulatory advice to help from current geopolitical tensions apparent.
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