Bloomsbury Group, the publisher of the Harry Potter series and the Winston Churchill archive, experienced a significant impact from the US-China trade war in 2019. Many of its illustrated titles are produced in China, leading to a sudden 15% increase in costs due to US tariffs. This situation underscores how companies with global supply chains can become "unwitting victims" of international political disputes, directly affecting their profits.
The broader context of geopolitical risk for businesses is highlighted by events such as Russia's invasion of Ukraine in 2022, which led to significant economic sanctions and the withdrawal of major brands like McDonald's and Coca-Cola from the Russian market. These actions resulted in billions of dollars in writedowns and damaged corporate reputations, demonstrating how geopolitical events, often unforeseen, can devastate company operations and financial standing.
Financial Times Professional outlines a framework for boards of directors to prepare for such risks. This involves systematically scanning the horizon for potential threats, calculating the company's exposure to each risk (e.g., falling revenues, supply chain disruption), determining their risk appetite, and assessing their resilience. Companies like General Motors, with extensive global supply chains, require specialized teams to interpret intelligence on local politics, security, and regulations.
Ultimately, companies need to develop a clear response strategy for geopolitical risks, which could include accepting minor, unlikely risks; transferring risk through insurance or hedging; or increasing preparedness and resilience by investing in expertise and redundant systems. This proactive approach helps boards allocate resources effectively and manage potential crises, as seen by the struggles of Bloomsbury Group and other multinational corporations facing unexpected political headwinds.
