Businesses Are Impacted By Geopolitical Risk

April 9, 2024

Businesses that deal internationally need to be aware of the different political hazards they could face, including Business Risk Management. While there are many benefits to growing your company globally, you need to be aware of the hazards that could compromise its success. Guideline infractions can result in severe costs that could jeopardise the long-term viability of your business. Furthermore, ethical concerns like unfair labor practices might harm your reputation and discourage clients from doing business with you.

It's crucial to be aware of the potential geopolitical risks associated with doing business internationally. The consequences of not understanding these risks can be significant. Before engaging in business with a foreign company, it's essential to thoroughly research both the country and the company, including key executives involved in major deals. Additionally, it's important to examine the company's supply chain and other partners to minimize the risk of unexpected complications.

As joining forces with or purchasing a business can be a big decision, it's important to be fully aware of all the possible hazards. This is where Infortal's team of experts comes in; they have extensive knowledge in evaluating geopolitical risks. We'll take the time required to uncover these dangers and provide you with the knowledge required to make wise choices. Even if there might occasionally be large rewards, it's imperative to be aware of the dangers in order to avoid any unexpected results. Let's look at some of the ways that geopolitical issues could affect your company and the need for investigation.

Financial Effects and Corrective Measures

For actions taken by outside partners or vendors in other nations, especially if those nations have been the target of U.S. sanctions, your company may be penalized financially. Your business may face legal problems if you are unaware of these sanctions or if you neglect to properly investigate your partners' and suppliers' suppliers. Thus, in order to mitigate any potential dangers, thorough due diligence must be performed on all business relationships, including their vendors.

It is important to understand that both businesses and individuals can be subject to sanctions or included on comparable lists. Simply knowing which countries are sanctioned is not sufficient—you must also consider these additional lists. Moreover, it is important to recognize that sanctions are not permanent. New sanctions may be implemented, old ones may be removed, and existing sanctions may be adjusted in response to evolving political circumstances. Keeping informed with current information is essential.

Businesses that violate sanctions risk harsh repercussions, such as fines and penalties. The Indian company Godfrey Phillips India had to learn this lesson the hard way when they were fined $332,500 in March 2023 for breaking sanctions against North Korea. The infractions happened in 2017, but the scope of their misconduct wasn't made clear by the paper trail until two years later. This should be a warning to anyone who believes they can ignore sanctions violations because there haven't been any noticeable consequences right away. Even if they take their time, the US government is thorough and takes sanctions violations very seriously.

Harm to Your Image

Associating with vendors or other businesses involved in unethical practices can harm your company's reputation. Being linked to scandalous activities could result in serious damage to how your business is perceived. If your business partners engage in bribery, illegal mining, child labor, unsafe working environments, or other questionable practices, it may lead customers to question buying from you. Additionally, you risk losing partnerships and contracts by being associated with such entities.

Certain businesses exercise due diligence in examining the legal history of their vendors and partners, while others gamble with potential risks. A vendor may engage in unethical practices, such as bribery, and manage to avoid legal consequences, leaving you unaware of their questionable conduct. In some countries, such practices are commonplace and even condoned. For instance, workers participating in strikes may face arrest, termination, or violence in countries like Turkey, Colombia, and the Philippines. These actions can damage your company's reputation; would you want to be associated with such issues?

Certain businesses exercise due diligence in examining the legal history of their vendors and partners, while others gamble with potential risks. A vendor may engage in unethical practices, such as bribery, and manage to avoid legal consequences, leaving you unaware of their questionable conduct. In some countries, such practices are commonplace and even condoned. For instance, workers participating in strikes may face arrest, termination, or violence in countries like Turkey, Colombia, and the Philippines. These actions can damage your company's reputation; would you want to be associated with such issues?

Finding this information requires time and expertise. It is essential to have a good understanding of where and what to search for. Infortal's experts are skilled in locating such data and guiding you in assessing the potential risks to your company.

Asset Destruction and Loss

Wars and other geopolitical hazards like instability may be very dangerous for businesses. A region may encounter protracted supply chain disruptions if it undergoes civil instability, violence, or terrorist attacks. There is also the possibility of damage to your assets located in affected areas. For instance, companies with connections to Ukraine likely experienced losses and harm due to the Russian invasion that started in 2022.

When conflict and violence strike, the flow of goods and services is often severely impacted. If a country experiencing turmoil is the sole supplier of crucial components, it can have a domino effect on your production process. You may find yourself unable to complete the assembly of your products without those essential parts. Furthermore, if the city where your manufacturing facility is located becomes a target of attack or occupation, the very future of your business may be put at risk. Your production plant could be destroyed, and your employees may face imprisonment or even loss of life.

Conflicts may arise unexpectedly, but there are indications of potential danger that specialists can recognize. Frequently, these markers of unrest are noticeable long before any actual outbreak of conflict. By recognizing these indicators and grasping their interaction with other geopolitical threats, it is feasible to assess the probability of war or alternative military measures. Armed with this knowledge, you can make a well-considered choice on whether to engage in business activities in a specific area.

Potential Loss of Earnings

Comprehending the financial regulations of a nation, especially in relation to tax legislation, can significantly influence your business operations. Although not as critical as geopolitical risks such as war, it remains an important factor to take into consideration. Excessive taxation or strict regulations mandating certain materials or costly production methods can impact your profitability. It is essential to factor this in when deciding whether to operate in a particular country or engage with suppliers from that region. Alternatively, exploring more business-friendly countries should be part of your geopolitical risk evaluation.

It's important to consider that excessive regulation and high taxes can be signs of societal dissatisfaction. These factors suggest that the government is burdening businesses and individuals too heavily, potentially resulting in public demonstrations, labor disputes, and civil unrest. It's essential to understand the significant effects such events can have on your business.

What are the Benefits of Partnering With Infortal to Analyze Geopolitical Risks?

Obtaining and evaluating a large quantity of data is essential to guaranteeing informed business decisions, especially with geopolitical concerns. You may end up with incomplete data and possibly make poor decisions if you don't have the right tools or enough time to gather and analyze all the pertinent information.

One of Infortal's specialties is offering thorough risk evaluations to companies that want to grow internationally. Our team of seasoned professionals has created a special technique to assess the possible dangers associated with a certain place. This methodology considers a variety of aspects, such as historical backdrop, international ties, and current political and financial climates. By doing this, we reduce the possibility of unforeseen challenges or failures and empower our clients to make well-informed decisions regarding investing in or collaborating with companies in international markets.

We offer support with conducting thorough examinations of vendors located in foreign countries. Our process involves in detail and conducting evaluations of each vendor involved. This examination helps identify any breaches of sanctions or possible disruptions in the supply chain. We will then assist you in evaluating the different risks involved so that you may decide in a way that best suits your company's requirements.

Infortal provides services including executive due diligence, M&A due diligence, reputation risk management, and geopolitical risk intelligence in addition to helping you make decisions about partnerships with specific suppliers or investments in overseas companies.

 

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