How to measure geopolitical forecasting
Using a risk-based approach grounded in comprehensive data, companies can better manage supply chains in an unpredictable world
Businesses involved in importing and exporting have been subject to changing global regulations, geopolitical upheaval, and logistical disruptions, are now looking for ways to build resilience in their supply chains and even gain a competitive advantage in the face of such rapid change.
Companies are also increasingly attuned to issues which are affecting how they approach their suppliers and vendors. Trade sanctions imposed on Russia and the recently enforced Uyghur Forced Labor Prevention Act have only increased uncertainty and geopolitical risks in already shaken supply chains in the post-pandemic environment.
See how organizations are developing strategies to mitigate different forms of geopolitical risk in our free on-demand webinar, Impact of Sanctions and Export Controls on Global Supply Chains
At the 2022 Reuters Supply Chain Execution Conference, Thomson Reuters’ experts, Satnam Singh and Virginia Thompson described how using data-led strategies could help alleviate much of this geopolitical risk pressure.
Singh, Chief Product Officer for Corporate Tax & Trade at Thomson Reuters, said that companies are asking “What are the changes that I can make, to be better prepared for the future?” At least part of the answer is improving transparency and readiness through data, he added.
The challenge of geopolitical change
Maneuvering through numerous agencies and departments issuing directives, understanding the depth, and understanding how people and processes are affected by new regulations can be cumbersome. And timing is important, both in preparing for new rules and responding quickly to unexpected geopolitical risk.
Sometimes, fire drills are unavoidable, as in the case of recent sanctions involving Russia. But regulators occasionally catch companies flat-footed, too, with unclear directions or last-minute rollouts. That happened recently with the Uyghur Forced Labor Protection Act. The law, passed last year and enacted on June 21, 2022, targets work practices in China’s Xinjiang Uyghur Autonomous Region and covers goods that may be imported from any country if a component originated from this region. An exception process allows importers to legally receive goods should US Customs and Border Protection (CBP) find the companies have complied with “specific conditions” and showed “clear and convincing evidence” that no forced labor was used to produce them.
CBP issued its guidance for exceptions on June 13, a week before the law went into effect. Highlighting the frustrations of a fast-moving regulatory landscape, Virginia Thompson, a senior product manager in Thomson Reuters ONESOURCE Global Trade, said companies were forced to guess how to qualify for exceptions under the Act until the guidance came. “Here we are, just days away from enforcement going into effect and everybody’s throwing up their hands and saying, ‘What’s going to happen?’.”
The US has prohibited entry of imported goods made with forced labor since the Tariff Act of 1930. For decades, however, the laws were loosely policed. Over the past six years, the US federal government has taken steps to tighten the laws and ramp-up enforcement: amending the Tariff Act, establishing a Forced Labor Task Force, and starting to issue “Withhold Release Orders” on shipments suspected of being violative. As a result, companies have been increasingly vigilant in response to this type of geopolitical risk.
Strategy #1 – Transparency through data
As global conditions become more complex, so does data transparency. One key component to more effectively managing supply chains in this increasingly complex world is combining in-house intelligence with open-source resources that feature published data from regulators, including sanctions, rules, and denied entities.
Marrying these resources together can expose potential vulnerabilities in compliance, highlight “hot spots” where reputational and operational risks exist and prepare companies to respond to unexpected shocks. “There are a lot of regulations, and they’re changing fast,” said Thompson. “And then there’s a lot of your data, and it’s changing fast too.”
For example, it is critical to update data profiles to ensure the integrity of the data coming in. When dealing with suppliers, businesses must conduct robust due diligence and verify information through detailed questionnaires, documentation, pictures, and even on-site audits. Leaning on industry associations, software and other third-party service providers can help frame an approach if required.
Strategy #2 – Be prepared against risk
Companies need to “be prepared,” Singh and Thompson advised, by collecting as much information as possible about suppliers, regularly reviewing those suppliers against a changing geopolitical and regulatory backdrop, and modeling scenarios to adapt when needed. “It’s not easy to shift these around very quickly, but at the same time you want to keep doing your scenarios.”
Companies can use a risk-based methodology, grounded in data, to build a process of ongoing supplier due diligence. This process should include regularly reviewing the entities that are moving in and out of the supply chain and even familiar partners who may be subject to new regulations. “You’ve got people you were relying on to make your supply chain run smoothly, and maybe you can’t deal with them anymore,” Thompson said. “The people that you can’t work with are changing so fast.”
Whatever the process, “don’t wait until the last minute” to gather and analyze data, Singh urged, because data can serve as an important paper trail for regulators and a window into understanding the future.