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Geopolitical Risk Identification, Analysis, and Management Toolkit
Practical Law Toolkit w-042-3084 (Approx. 12 pages)
Geopolitical Risk Identification, Analysis, and Management Toolkit
by Practical Law Finance
| Maintained • USA (National/Federal) |
A Toolkit containing resources counsel can use to identify, understand, assess, and mitigate geopolitical risks in cross-border transactions, including lending, acquisitions, joint ventures, supplier and vendor relationships, and distribution agreements. These resources explain typical risks investors may encounter in these transactions, including political risk, national security and strategic concerns, and resource nationalism.
Investors with assets and investments in foreign countries or that have material relationships with third parties in foreign jurisdictions (whether as supplier, vendor, distributor, customer, or otherwise) should ensure they identify and understand the political, national security, and other risks that apply to their assets, investments, and relationships and craft risk management and mitigation policies that address these risks.
The globalization of supply chains, the interconnectedness of the global economy, and increasing national security concerns, especially regarding natural resources, strategic geopolitical competitors, or countries with which the US does not have friendly diplomatic relations, have broad implications. Companies and investors may be affected by (and may need to develop strategies to respond to) issues that occur far from home regardless of the nature and size of their business.
The scope and breadth of these issues may affect the ability of investors and companies to:
- Secure inputs for their manufacturing processes, especially if those inputs are only available from a limited number of suppliers or are of strategic importance.
- Receive or ship their goods. Wars, political instability, and other political violence may affect global maritime shipping lanes and the cost of transporting goods.
- Buy inputs or sell their products. These products may be subject to tariffs, duties, or sanctions that increase their costs, impose conditions on these transactions, or subject companies and investors to civil or criminal liability.
- Sell or buy any percentage of a business to or from a foreign party.
- Extend financing or otherwise invest in a foreign business or venture.
- Accept financing or other investment from a foreign party.
There is no single strategy that can be adopted regarding this risk assessment, management, and mitigation. The mitigation mechanisms investors and companies employ will vary depending on several factors, including:
- The investor's sector and size.
- The nature, location, and size of the investor's operations (and the value of the investment) in the relevant country. The analysis required for a significant subsidiary is different from that required for a supplier.
- The relative importance of the foreign investment or relationship to the investors' and companies' overall business and strategy.
This Toolkit contains resources investors can use to understand political risks, national security, and geostrategic issues that may affect their business and how to craft policies to respond to these risks.