Geostrategic priorities to manage these risks
How should companies manage these political risks? While the specific geostrategy considerations differ for each, there are five overarching actions leaders should take to manage political risk in the year ahead:
1. Dynamically monitor your company’s political risk environment.
Include political risks as part of your company’s risk register or other risk identification processes and then dynamically monitor them throughout the year. This will be especially important in 2021, given the high levels of political and policy uncertainty generated by COVID-19. Two key risks that bear monitoring, as they are likely to evolve as the year progresses, are US policy realignment and the debt situation in a variety of emerging markets.
2. Assess how these political risks could affect your company.
Model the impact of potential political risk events across key business functions, such as revenue, supply chain, data and intellectual property. A regular assessment of how evolving US-China relations affects your company is prudent. And the geopolitics of technology and data also warrants close assessment, as some executives may be unaware how widespread the impact of this risk could be on their business.
3. Incorporate political risk analysis into strategic decisions.
Use scenario analysis about political risks to capture the uncertainty associated with their trajectory in the coming years and inform strategic decisions — including market entry and exit, M&A, and other transactions. This is particularly important in the current environment, in which COVID-19 is acting as a great accelerator for geopolitical trends. For instance, how geopolitical dynamics in the Indo-Pacific and the EU’s pursuit of strategic autonomy play out in 2021 is likely to affect the global business environment for years to come.
4. Communicate and coordinate political risk management across the company.
As revealed in our Geostrategy in Practice 2020 survey of global executives, too often political risk identification, assessment, and management is siloed within various business functions. Companies should leverage the cross-functional teams and lessons learned from COVID-19 crisis management to enable better communication on the political risks stemming from the pandemic. Such coordination should also help foster greater agility and flexibility in company operations — another capability sharpened by the pandemic.
5. Leverage stakeholder relationships to manage political risk.
Public opinion and political intervention will continue to target companies on a variety of issues. But your company’s relationships with policymakers, employees, customers, non-governmental organizations (NGOs), community groups, and other stakeholders can be leveraged to manage political risks — often turning potential challenges into opportunities. This is particularly true for shifting climate policies, neo-statism shaping domestic economies, and the rise in social unrest in a variety of markets. Companies should proactively engage stakeholders on these issues.