The Impact of Political Instability on Global Sourcing
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 5, 2021
Political Instability and the Impact on Global Supply Chains
Political instability is the propensity for regime or government change, political
upheaval, or violence in society, or instability and uncertainty in government policy, such as
regulatory, tax, property, or human rights law. Any political shift involving one or more of
the aforementioned triggers has the potential to cause concern at a local level as well as
create major global supply chain turmoil.
Political instability can affect global supply chains with varying degrees of damage to
organizations and the economy. The shift to leaner, more efficient, last-minute global
sourcing strategies means delivery delays and re-routed resources when political unrest
occurs. Organizations must proactively prepare for adverse conditions around the world.
For example, recent political events in North Africa, the Middle East and Ukraine
threaten global supply chains and cause concern among organizations that have any portion
of their supply chain in those areas. Other recent developments reflecting the varying
effects of political instability include:
Companies with operations or suppliers in Crimea, Ukraine, have reevaluated their
current circumstances and, in some cases, initialized emergency plans due to strong political
unrest.
Nestlé with 4,500 employees and three factories in Ukraine on alert.
Astras, a Swiss logistics provider in Ukraine, reported a 20% employee turnover rate
recently.
Government assistance to farmers in Ukraine has nearly disappeared.
Although there are 620 German companies in Ukraine that employ more than
300,000, Deutsche Post has stopped package delivery to that area.
Clearly, continued unrest in Ukraine poses a global sourcing threat that senior leaders
must take seriously. Organizations also need to consider supplier relationships two or three
levels deep. If any of those partners have ties to the unstable region, a reverberation can be
felt at every link in the chain. The complexity and trickle-down effect of this issue can make
it difficult to address, but its impact is undeniable.
Reducing Political Volatility in the Global Supply Chain
It’s important to understand operations and partnerships before deploying proven
strategies. Being mindful of how an organization’s supply chain operates and understanding
the true flow of raw, unfinished and finished materials and components is critical in today's
fast-paced, global supply network. Prioritizing strategic partnerships will better position a
company when it’s faced with a politically volatile situation.
The first step to reducing risk to the global supply chain is understanding the nature of
the political risk. Conversations with local government leaders, as well as, influential non-
government organizations can yield valuable insight. It is important to separate rhetoric
from true problems that will adversely affect the supply chain. After an initial probing
conversation with local sources, an organization can determine if there is a credible threat
to its global sourcing strategy. Depending on the specific political scenario, there are
different ways to mitigate risk:
Engage local, regional, and national policymakers to impact regulatory change.
Train employees and enforce strong codes of conduct to prepare for and reduce the
potential effect of political volatility.
Educate employees on what to do if they are faced with an unstable situation.
Establish positive local relationships. Local outreach and social responsibility help
align an organization's image with the local community and establishes a positive rapport.
Being seen in a positive light by residents and the community assists with transparency and
decision-making.
Although issues related to the health and vibrancy of an organization’s global supply
chain are complex, a strong contingency and emergency plan can help mitigate the effects
of threats. There are several principle-based tips that can help organizations reduce risks
linked to their global sourcing strategy:
Think strategically. A lean, holistic and integrated supply chain strategy is a must in
today's global environment. Senior leaders need to be mindful of the global lens when
developing policy and strategy.
Broaden the scope. A supply chain strategy should include near-sourcing
partnerships that may come with greater costs and lower risks with more global suppliers
that reward with lower costs.
Balance the strategy. Incurring supply chain risk and exposing an organization to
regions with potential political instability is a business choice that senior leaders are forced
to make.
Typically, lower supply chain costs come with greater risks, and adverse relationships
can result. The challenge is to create a global sourcing strategy that aligns with
organizational goals and embraces these calculated risks, but also adjusts periodically.
Designing a plan that anticipates threats will aid an organization’s survival, as political
unrest around the world continues to threaten global sourcing strategy. Strong supplier
partnerships and relationships with local government and non-government entities are
extremely helpful if political volatility occurs. Creating a balanced strategy that mixes global,
low-cost suppliers with near-sourced suppliers also helps mitigate risk. Performing due
diligence and being abreast of current global events related to political change prior to
sourcing strategy design helps protect organizations from the potential of a devastatingly
negative impact. In the end, political instability is a very serious threat to global sourcing
that organizations must address in a way that considers today and well into the future.
