So what?

Resources are limited. Why invest in geopolitical resilience?

Geopolitics is now a cost of doing business. Just as shareholder lawsuits became part of M&A budgets, companies must account for how geopolitics impacts business operations, investment decisions and a firm’s licence to operate. Geopolitics can disrupt supply chains, restrict where you can sell, dictate what approvals you need, and limit how you hire. These risks are diverse and unpredictable. A Plan B—or even Plan C—is often no longer optional.

About Alternative Futures

How can scenario-planning help build resilience in a dynamic geopolitical environment?

The only thing we can be certain of is that the future is uncertain. So, organisations must prepare for different outcomes, rather than seeking to predict one. Take the US election as an example—we did not know whether Trump or Harris would win, but we were able to plan for both.

Using our Alternative Futures methodology, we help companies to develop a matrix which covers potential political outcomes and then tailor it to specific sectors or policies. This means combining political expertise with sector-specific insights.

During the election campaign, for example, our political experts familiar with both the Trump and the Harris camps were able to assess their policy positions, while our sectoral policy experts brought valuable insights into the likely regulatory impact of the possible election outcome. Merging these perspectives, means that companies can make informed decisions on investments, divestments, and other strategic moves, whatever the outcome.

Implementation

How can companies move from analysing a political situation to taking strategic action?

This is best done by way of a three-step approach:

First, companies need a foundation of solid intelligence and research: what is the status quo, what are the potential policy outcomes, and who are the decision-makers?

Then, companies need to apply foresight – to anticipate specific challenges and opportunities arising from these different policy outcomes – and apply informed judgment to assess the likelihood of each.

Finally, they need to implement a strategy effectively. This should include proactive measures, such as engaging policymakers or regulators on a proposed law or decision, as well as defensive measures, such as reviewing supply chains, acquisitions or divestitures, adapting internal governance structures and compliance processes.

Throughout the three-step process, companies can speed up the process and elevate their learnings by engaging in analysis which combines political and sectoral/policy intelligence and expertise. Through this, companies can pinpoint and identify likely outcomes, enabling them to prepare for what is ahead in a meaningful and targeted way, rather than trying to read tea leaves and predict the results of often increasingly complex political processes.

Example: The European Commission conducted an anti-subsidy investigation into the Chinese Electric Vehicle (EV) sector. The issue for western EV manufacturers and their suppliers is that it's not only Chinese companies affected by tariffs on Chinese EVs— various US and European car companies also produce in China, meaning their imports to Europe are subject to tariffs, which significantly impact their business models.

Analysing supplier locations and anticipating EU action on Chinese EV subsidies helps assess potential outcomes and plan strategies, such as rerouting supply chains.

Areas of application

Where do you see geopolitical scenario-planning being deployed?

Geopolitical scenario-planning is useful in any aspect of our globally interconnected business landscape, for example:

In global supply chains, companies are forced to react quickly to developments, such as sanctions on Russia, and to adjust by finding new suppliers or rerouting goods. Scenario planning helps them prepare for such disruptions.

Example: The war in Ukraine disrupted critical neon gas supplies (vital for semiconductor production), with Ukraine temporarily having to halt production and Russia reportedly restricting the export of the gas, prompting global chipmakers to rapidly source alternative suppliers outside Eastern Europe.

Access to capital also gets tighter during geopolitical instability, making borrowing more expensive. Companies can prepare and factor these risks into their business strategies to secure funding more effectively.

Example: In 2019, a Chinese AI startup postponed its Hong Kong IPO due to US trade restrictions (“blacklisting”), which raised borrowing costs and complicated capital access.

For investors, geopolitical risks increase transaction costs but there are also opportunities that can arise from a decoupling of markets.

Example: A leading social media platform, facing potential bans and forced sales in the U.S., prompted its Chinese parent company to explore local data-storage solutions—raising its costs of operation—and preparing for a potential shutdown in the U.S. However, these interventions may also make room for smaller players with new innovations to gain a foothold in the U.S. market.

Also, changes in policy, like the US Inflation Reduction Act or any reforms resulting from Europe’s Draghi report, can open new doors for investment.

How can companies factor geopolitical changes into their strategic planning?

Many companies struggle to translate geopolitical trends into practical business decisions, particularly when faced with limited internal expertise and tight budgets.

Recent events such as the Russia-Ukraine war, tensions in the South China Sea, and global shifts in energy policy highlight the growing importance of businesses being swift in adapting their activities in the changing geopolitical landscape. The real challenge lies not in identifying these trends but turning outside influences into actionable internal strategies. Experts who can engage with regulators in key hubs like Washington and Brussels are pivotal to help companies shape policy and navigate sector-specific risks effectively.

Incorporate scenario-planning into ROI Frameworks

How can you make informed decisions as to where and how much you invest in shaping certain policy outcomes given the inherent uncertainties involved in political processes?

It’s all about identifying the risks that you are facing. Once you have identified the risks, you can plan accordingly and make informed choices.

Ideally, companies should gather all relevant data, apply it to a model, and estimate the probabilities of various outcomes. Based on this analysis, they can make informed decisions.

At my firm, one of the tools we use is an Alternative Futures matrix to map out potential political scenarios. We assign probabilities to each scenario and propose decisions accordingly.

Let’s assume the company is considering expanding into the manufacturing of solar technologies. For each political scenario (see the infographic), we assign a probability (e.g., 30% for Progressive Expansion, 40% for MAGA Reversal) and assess the financial impact of solar-related government incentives on the potential Return-On-Investment.

Using a weighted approach, we calculate expected returns across all scenarios and evaluate whether the investment aligns with the company’s risk tolerance. Sensitivity analysis can further explore how changes in incentive levels or trade policies might influence outcomes, ensuring the decision is robust under various future conditions.

Planning & Budgeting

What should companies budget for in terms of time commitment and costs?

Geopolitical risks are now a cost of doing business.

Companies should allocate resources for geopolitical risk analysis and advocacy in their budgeting, just as they would for legal advice. The rationale for including this in budget planning is to avoid the potentially high costs of making uninformed decisions. Failing to account for geopolitical risks can lead to significant expenses and disruptions, which could have been mitigated with proper foresight and planning. The question is: how to spend resources wisely?

Several key components should be reflected in the budget:

• ‍“Balcony view” risk scan: Regular high-level “balcony view” risk scans to assess the company’s overall exposure and to identify key challenges affecting the business. This scan should be refreshed at least quarterly to remain current.‍
• Scenario planning & risk audits: If certain risks are identified as material, the budget should allocate for ongoing scenario planning and systematic risk audits. These processes should be conducted at least quarterly to ensure risks are monitored and addressed in a timely manner.‍
• Advocacy: Targeted advocacy can influence regulatory outcomes and mitigate risks. While advocacy needs will vary on a case-by-case basis, it can become highly important, particularly in complex or politically sensitive markets. Allocating sufficient budget provisions for this ensures that the work can be done with speed and efficiency, as and when it is needed.‍
• Training: Geopolitical training should not only be provided to the C-suite, but also to a wider group of employees focused on Public Affairs, Legal, Risk Management, and Communications issues where geopolitical developments can have the greatest impact.‍
• Transactions: For planned transactions, the budget should include provisions for geopolitical due diligence. This involves mapping out the target company’s activities, identifying those which may attract government scrutiny (e.g., government contracts, dual-use goods, sensitive data, AI). It should also identify relevant stakeholders (e.g., ministries, local authorities, trade unions) and assess government-to-government relations with any foreign entities whose approval may be required (e.g., current diplomatic relations, existing tensions). The outcome of this work can inform bid pricing, value creation and risk management strategies.

Implementation

Who typically takes responsibility for managing geopolitical risks or exploring geopolitical opportunities in companies?

I have seen various functions take the lead—investor relations, general counsels, heads of public affairs, and sometimes CEOs or board members. Companies should assign this responsibility to those that are best placed to address such concerns or opportunities strategically and proactively.

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Sebastian Vos is a Partner at FGS Global, based in Brussels, and Global Practice Lead Public Affairs.