Wars, political turbulence, and changing international relations are fundamentally transforming the nature of global trade. Geopolitical risks threaten the stability of global supply chains even more significantly than in the past decade. Companies must reassess their strategies and adapt to this new reality. Let’s take a look at the main challenges and potential solutions.
The Russian invasion of Ukraine and the tensions between the USA and China have shown how quickly geopolitical events can disrupt established business connections. It is precisely this type of event that forces companies to reassess their existing strategies and seek new ways to ensure supply stability.
How Geopolitical Risks in Supply Chains Are Changing the Rules of the Game
The days when companies maximized efficiency by concentrating production in just a few locations seem to be over. The vulnerabilities of this approach were exposed by the pandemic and subsequent geopolitical upheavals. Instead of relying on a single supplier or region, companies today are actively building diversified networks of partners across various countries. This trend is particularly growing in critical sectors such as chip manufacturing and pharmaceuticals.
Why Traditional Approaches to Risk Management Fail
Standard tools and analyses often cannot capture the impacts of geopolitical risks in a timely manner. Financial or operational risks can be relatively accurately quantified, while political turbulence arises suddenly, and their consequences are difficult to predict. For example, the sanctions imposed on Russia after the invasion of Ukraine affected companies that did not directly trade with Russia—simply having a company dependent on Russian raw materials in the supply chain was enough.
Specific Impacts on Supply Chains in 2024 and 2025
Current geopolitical risks are affecting supply chains in several critical areas:
- Disruptions in semiconductor supply from Taiwan impact 60% of global chip production, forcing automakers to cut production by up to 40%.
- Houthi attacks in the Red Sea are extending delivery times from Asia to Europe by 14 days and increasing shipping costs by 300%.
- The Russia-Ukraine conflict has caused shortages of neon gas for chip manufacturing (Ukraine previously supplied 50% of the world’s production) and increased grain prices by 40%.
- Tensions between the U.S. and China have led to a shift in production to other Asian countries—Vietnam, for example, has doubled its electronics exports to the U.S. compared to 2020.
How to Protect Your Supply Chain from Geopolitical Risks
Modern risk mapping systems can analyze supply chains down to the fifth tier of subcontractors. This in-depth analysis uncovers hidden dependencies that might otherwise go unnoticed. For example, an anonymized European automaker used such a system to identify early on that its electronic components supplier sourced 80% of its chips from a single Chinese manufacturer. This allowed the company to diversify its suppliers before the Taiwan crisis erupted. Data shows that companies using advanced mapping systems have reduced the impact of geopolitical shocks on their supply chains by an average of 35%.
How Technology Is Transforming Risk Management in Supply Chains
Artificial Intelligence Predicts Risks
Modern analytical tools process millions of data points daily from over 900,000 sources—allowing algorithms to detect early signs of emerging issues before they appear in mainstream news. For example, an early warning system identified rising tensions around Taiwan three months before the crisis escalated in the summer of 2023, giving companies time to prepare alternative supply routes.
Localization as a Response to Global Supply Chain Issues
The reshoring of manufacturing to Europe and the U.S. is gaining momentum. Intel is investing $20 billion in new chip factories in Arizona, while TSMC is building a €10 billion plant in Dresden. Lithium battery manufacturers, responding to U.S.-China tensions, are shifting part of their production to Mexico and Poland. While this strategy increases costs by an average of 15–20%, it reduces the risk of supply disruptions by up to 60%.
Practical Recommendations for Managing Geopolitical Risks
An analysis of the 500 most influential global companies has identified three key success factors in navigating geopolitical uncertainty:
- Conducting regular audits of the entire supply chain, including third-tier subcontractors.
- Building stockpiles of critical components (on average, 60 days’ worth compared to the previous 30 days).
- Systematically mapping alternative suppliers and transportation routes with the ability to activate them quickly.
Companies that implemented all three measures reduced the impact of geopolitical risks on their business by an average of 45% over the past two years.
The Future Belongs to Resilient Supply Chains
While in 2019 companies invested an average of 2% of their budgets in supply chain resilience, by 2024 this amount has risen to 8%. Growing geopolitical risks are fundamentally changing the way companies approach supply management.The winners of the next decade will be those firms that can quickly identify threats and respond flexibly. We are already seeing that companies with a robust risk management system achieve profitability that is 23% higher than their competitors.
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