And so we arrived at the end of ‘the end of history’. As we write this note, the heroic fight of courageous Ukrainians against the barbarian Russian invaders continues, against the overwhelming odds that they face. They are fighting for freedom – theirs and ours. The free world responded this time: Russia and its economy are facing massive sanctions. Sanctions that are likely to ricochet right back at us. Which brings us to the key question that needs to be considered by anybody running a business nowadays: how will geopolitics impact my business?
First, geopolitics will have an impact on your costs. For example, Russia is a major supplier of commodities. Not only wheat, oil and gas but also a number of metals, including 35 percent of the world’s palladium, 10 percent of platinum, 6 percent of aluminum and 5 percent of nickel. Large price increases are already happening. Even larger spikes are looming as hoarding will likely take place.
Key questions to consider are: what is my vulnerability to supply disruptions? Vulnerability to raw materials price increases? What if these raw materials are not available for some time? What do I do if my IT department is, for example, based in Ukraine? What can I do to mitigate these vulnerabilities: long-term contracts, hedging, substitution, other? Then, geopolitics will impact your revenues, through stock-outs, delays in shipments, customer cancellations to name a few. If you had Russian customers, it turns out that they were coming with a significant risk that one day they will stop paying and stop buying. Have you been pricing that in? Which other customers may fall by the wayside? What is likely to happen to your revenues if similar sanctions are imposed on China? Which of your customers will be impacted? And, by what?
Geopolitics adds complexity to running the business. But if you do your homework, chances are that you will stand out and gain share. Every discontinuity will produce winners and losers. Make sure that you are among the former. And let’s all bow to the spirit of freedom that Ukrainians are teaching us today!