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How Global Companies Can Manage Geopolitical Risks: Proactive Strategies for Stability

Companies are walking a geopolitical tightrope as escalating political frictions threaten global operations, performance, and personnel. The US National Intelligence Council’s Global Trends 2040 report predicts heightened global influence competition, reminiscent of the Cold War era. The US-China rivalry, with the two nations accounting for 76 of the world’s 100 most valuable companies, exemplifies this trend. Many companies seek “strategic autonomy,” particularly in technology, the “main battleground of global power rivalry” according to Chinese President Xi Jinping. Leaders must balance political scrutiny, market priorities, and divergent workforce views on data privacy and human rights. To address these challenges, we recommend a five-pronged approach to managing geopolitical risk, developed in consultation with experts from Fortune 500 companies.

  1. Start with the board

Many company boards discuss geopolitical risks but often focus on specific investments or markets. They should instead dedicate regular time to broader strategic analysis, examining key risks and scenarios to build more resilient companies. Boards can start by assessing the most critical risks, such as political instability, regulatory compliance, and human rights. For many, the US-China strategic competition will be a top priority. Regular, strategic discussions are essential in the current geopolitical context.

A board could begin such a conversation with a baseline assessment that includes the following:

  • How we got here: historical context of China– US relations
  • Where we are now: known knowns and unknowns
  • Where we are headed: key watchpoints to track—four likely candidates are human rights and domestic politics; other governments’ positions on relevant policy and trade issues; strategic flash points, such as Taiwan; and trade and technology
  • What to do about it: implications of the analysis and how to prioritize decisions about actions to take based on them

Boards can gain valuable insights by seeking external opinions from business and political leaders, embassies, government agencies, and NGOs. Ignoring outside perspectives risks a narrow approach. Regularly discussing pressure points and diverging views improves decision-making, establishes risk appetite, and builds leadership consensus. This consensus creates guiding principles and trust-based relationships, enabling rapid, purposeful reactions grounded in shared priorities when risks arise.

  1. Use a trifocal lens to assess potential risks

Organizations can prepare for geopolitical risks by creating short-term, midterm, and long-term response strategies. This ensures they can handle not only a fast-changing situation or emergency but also make the investments needed to seize opportunities and become more resilient.

  • Short-term actions

One short-term action is to establish a crisis-response unit to identify risks and develop mitigation strategies, such as analyzing political events or preparing responses to government inquiries.

Another action is to invest in strategy, PR, and government-relations teams to serve as points of contact with senior officials and stakeholders, sharing the company’s perspectives and gaining insights into potential regulatory actions or sanctions.

  • Midterm actions

A key midterm action is to hold regular briefings with the board and senior leaders on geopolitical risks. These sessions can discuss exposures and review mitigation efforts, focusing on brand and reputation; operational issues like cybersecurity; and products, services, and partnerships.

  • Long-term actions

For long-term planning, a company can conduct exercises to assess responses to major scenarios. For example, testing conditions that may require ring-fencing IT infrastructure or splitting off regional business, including execution timelines and technical options.

  1. Think critically about the corporate narrative

Walking a geopolitical tightrope may cause leaders to redefine their companies’ positioning. Some may strengthen ties to their home countries, while others identify as global entities to access emerging markets. In the age of instant information, a narrative that works in one market might create issues in another. Managing geopolitical risk involves considering the impact of a company’s core narrative, evaluating trade-offs, and addressing potential conflicts with stakeholders.

  1. Deploy refreshed risk frameworks and guidelines

Companies in high-risk markets should develop market-specific “compacts” combining strategy and risk management. These compacts clarify priorities, risk criteria, and deployment strategies, using a traffic-light system (red, yellow, green) to indicate risk levels. Companies should seek insights from embassies, NGOs, and other organizations to stay aware of local conditions. Additionally, they may need guidelines for cross-border issues, such as discussing sensitive topics or depicting contested borders.

  1. Secure stakeholders’ hearts and minds

Geopolitics is personal. Organizations have stakeholders from differing cultures with diverse views on issues like human rights and privacy, leading to disagreements about risk and strategy. Rising nationalism and fragmented standards exacerbate these tensions. Leaders must foster cohesiveness by including key stakeholders from all regions in discussions. This approach prevents internal conflicts that could harm culture, reputation, and performance.

 As former Intel CEO Andy Grove said, “Only the paranoid survive.” With geopolitical shifts, the climate crisis, and the Fourth Industrial Revolution, companies must stay vigilant. Regularly looking beyond immediate operational needs helps them learn, adapt, and prepare for external and internal shocks.

Click to read more: https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/how-global-companies-can-manage-geopolitical-risk

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