Looming geopolitical risks: Impact on supply chains and corporate preparedness

What is geopolitical risk? What is it and how does it affect supply chains?

Geopolitical risk refers to the risk that could have a significant impact on economic activity and the business environment, triggered by factors such as tensions in international relations and security, conflicts between nations, and domestic political turmoil.
In the supply chain, this is embodied in the following ways:

• Disruption to the supply of raw materials and parts: Import and export restrictions and sanctions bring procurement to a sudden halt.
• Logistics disruptions: Port blockades and unstable shipping routes make delivery dates uncertain.
• Rising costs: Rising transportation costs and volatile resource prices are putting pressure on profits.
• Credit risk: Suppliers may be suspended due to regulatory or human rights violations.

In other words, geopolitical risk is a real management risk that can shake up a company's supply chain itself.

Recent examples: invasion of Ukraine, US-China friction, and Middle East unrest

If we look at some real-life examples, we can see the magnitude of the impact.

• Invasion of Ukraine (2022) *1
  The suspension of grain exports, including wheat and corn, and restrictions on natural gas supplies had a significant impact on the food, chemical, and Energy Industry. In Japan, wheat prices rose, forcing bread and noodle manufacturers to raise prices one after another.
• US-China friction (2018-present) * 2
  The additional tariffs imposed by the United States on Chinese products and China's restrictions on rare metal exports have had a direct impact on the electronics parts, automobile, and battery Industry. The supply chain for EV batteries has once again highlighted its high dependency on China, highlighting the need for European and Japanese companies to diversify their risks.
• Unrest in the Middle East (2024 and beyond) * 3
  The growing tension between Iran and Israel and security issues along the Red Sea route are threatening the stability of crude oil and LNG transport. Delays in maritime transport and rising insurance costs are affecting not only the Manufacturing industry but also the Retail industry.

These cases are concrete examples of geopolitical risks directly manifesting as supply chain risks. Conflicts between nations and sanctions are no longer merely diplomatic issues; they are incorporated into the real business environment as legal regulations, resulting in the suspension of raw material procurement, disruptions in logistics, and rising costs.

In other words, events such as the invasion of Ukraine, US-China friction, and unrest in the Middle East are nothing more than manifestations of supply chain risks that arise against the backdrop of economic security frameworks.

In other words, for companies to understand these phenomena and prepare for the future, it is essential that they do not separate geopolitical risks from supply chain risks, but rather view them holistically from the perspective of economic security.

What kind of "risk management" is required for companies?

So how can companies prepare for these risks?
By examining international risk management frameworks (such as OECD guidance and ISO 31000) and the recommended processes of various consulting firms, the ideal response steps that companies should take can be roughly divided into the following 5 stages.

1. Supply chain visibility

The first step is to visualize your company's procurement network. By mapping not only your major Tier 1 suppliers but also lower-tier suppliers such as Tier 2 and Tier 3, you can clarify which countries and supply tiers pose risks. This will allow you to understand the components and countries on which you are overly dependent.

2. Self-assessment (risk assessment)

Next, we objectively assess the risks our company faces.

• Which raw materials, regions, and suppliers are we most dependent on?
• If supply is interrupted, how much will it affect business continuity?
• What vulnerabilities exist in terms of legal regulations and economic security?

By setting priorities from these perspectives, you can clarify where to start taking measures.

3. Resilience measures

Based on the evaluation, we will proceed with specific resilience efforts.

• Diversifying procurement: Ensuring multiple procurement routes without relying on specific countries or suppliers
• Consider alternative routes and materials: Prepare backup plans in advance in case logistics routes or raw materials are cut off.
• Decentralization of production location: Deploying production functions in multiple regions, including reshoring and nearshoring *
• Settings the right inventory level: Settings a level that can absorb risk, not excess inventory
• Introduction of digital monitoring: Utilizing ESG data infrastructure and risk visualization tools to achieve constant monitoring and alerts

*Reshoring: Returning production location or operations that have been relocated overseas to the home country *Nearshoring: Relocating production location or operations from one country to a country that is geographically and culturally close

4. Risk monitoring and scenario analysis

It is important to systematize continuous risk monitoring rather than one-off investigations. By quantitatively grasping trends in geopolitical risk and Settings multiple scenarios to simulate the impact on revenue and supply capacity, it becomes possible to make swift and flexible management decisions.

5. Strengthening internal collaboration

Finally, it is important not to limit the response to "efforts by the procurement department."
Effective risk management can only be achieved by establishing a system in which the corporate planning, legal, and sustainability departments work together across the board and respond strategically.

Geopolitical Risk Watch: A Strategic Decision-Making Aide

Geopolitical risks can suddenly manifest, so it is important to regularly keep up to date with the latest information on "what risks are currently lurking in which regions." However, it is not realistic for individual personnel to keep up with overseas situations and regulatory changes one by one. This is why a system for regularly understanding geopolitical risks is needed.

How can we efficiently grasp geopolitical risks?

• Understand geopolitical risks based on the current international situation
• Simply answer questions about your company's response status to receive a score
• Understand your company's position by comparing it with other companies

Repeating this cycle will increase your sensitivity to geopolitical risks. Geopolitical risks are not something that only affect other people. Based on this score, it is important to have an early dialogue with management about how your company can prepare.

This type of risk visualization system can also assist companies in strategic decision-making, creating a foundation for procurement, planning, corporate planning, and sustainability departments to quickly discuss risk responses based on a common premise.

By answering questions about your company's response to geopolitical risks, we provide a Service that helps you efficiently understand the latest risks and strengthen your company's risk management system. "Geopolitical Risk Watch"From the perspective of economic security, why not develop an eye for risk that allows you to accurately identify vulnerabilities hidden in your company's supply chain and business environment, and evolve into a company that is resilient to risk?Service details here

Summary: Addressing geopolitical risks is ESG management itself

Responding to geopolitical risks is not just about crisis management. Protecting the foundations of our business activity, such as procurement, production, and sales, is also an effort to strengthen the environment (E), society (S), and governance (G).

In other words, geopolitical risk management is an element of ESG management and is at the core of sustainability strategies.

To help companies make these efforts more effective, Zeroboard offers the following Service. Please see each Service page for details.

• Geopolitical Risk Watch : We help you understand the latest geopolitical risks and build management systems.

• Dataseed SAQ : A cloud Service that streamlines the collection and management of SAQs (Self-Assessment Questionnaires) from buyers to suppliers.

• Zeroboard ESG : We can collect and analyze ESG data that meets domestic and international sustainability legal disclosure requirements, such as the European CSRD, securities reports, and SSBJ.

* 1 Source: Nikkei Newspaper, May 7, 2022: Wheat prices surpass rice prices as Ukrainian invasion pushes prices higher. https://www.nikkei.com/article/DGXZQOUB265TT0W2A420C2000000/

* 2 Source: JETRO, "The Impact of the US-China Conflict on US Supply Chains" https://www.jetro.go.jp/biz/areareports/special/2023/0904/299f5f4e8cb02b20.html (October 16, 2023)

* 3_Tei.com_Impact of the Iran-Israel War on Japan: Latest Analysis [2025 Edition] https://boueki.standage.co.jp/impact-of-the-iran-israel-war-on-japan/ (June 18, 2025)