Geopolitics and managing risk

Mar 04 2015 by Brian Amble Print This Article

Any business that operates outside its home turf needs a grasp of geopolitics. Understanding the geopolitical stakes in a country or region helps them make the right choices and minimize risks. Businesses also need to adapt to a country or a region's economic, political, social and demographic contexts. Not doing so can be risky and can sometimes result in dramatic consequences.

Jean-François Fiorina, vice dean of Grenoble Ecole de Management and editor of the CLES notes on geopolitics, shares his perspective on the issue.

1. Adapt your strategy

A company cannot use a single unchanging strategy for every aspect of its international development. Whether a company wants to develop sales relations or work with sub-contractors, the geopolitical situation of a country must guide the company's strategic decisions. This is crucial for the coherence, efficiency and longevity of the activity.

"This is important for example when we want to understand how to set up a compensation and benefits system in a region." says Fiorina.

2. Manage risks

Several examples can serve to highlight the connection between risk management and geopolitics:

Dealing with an embargo

How to find a new market? How to manage a decrease in prices? These questions among others are essential when dealing with a country under embargo.

The conflict between Russian and Ukraine, which started last summer, is a good example of this situation. The impact of the Russian embargo on French food industry exports, for example, is estimated at €275 million by Ubifrance. The future of around 400 French subsidiaries in Russia from companies such as Total, Renault, PSA and Danone, is also called into question by this conflict.

Preventing kidnapping

The risks faced by companies operating in at-risk countries, in particular in Africa and parts of the Middle East, are still very present. Companies working in these regions have to take important security measures and be ready to handle a crisis situation should an employee be kidnapped. Each company must decide if the cost-benefit ratio is worth it.

"Large companies have the means to negotiate or call upon help from their government. This is not always the case for smaller organizations," Fiorina points out.

Handling an epidemic

The SARS epidemic hit in 2003 and the H1N1 flu in 2009. Since 2013, the Ebola virus has been having a dramatic impact on western Africa. Airline and tourism companies are among the first to be affected by these outbreaks. Strategic decisions have to be made in order to overcome the economic challenges of health risks.

Fighting cybercrime

Cybercrime is the single biggest risk in the future. PwC's 2014 crime survey indicates that 23% of participating businesses were victims of cybercrime and this figure will continue to increase. The hacking of Sony Pictures last November highlighted that even the biggest companies' IT systems are vulnerable to attack.

"The consequences could be catastrophic if someone hacks a nuclear power plant or a pacemaker IT system. We have a responsibility to take adequate preventive measures," Fiorina says.

3. Integrate a different culture

A company's international development and management of human resources requires an understanding of local culture codes. At stake is the ability to understand local partners and adapt business and sales relations to fit the local context. This is essential to integrate and stay in a region over the long term.

Companies faced with these challenges don't have to become geopolitical experts. However these examples highlight the fact that businesses must develop the tools to anticipate and react to local and regional events.