Why Your Business Needs a 'Company Foreign Policy' to Manage Geopolitical Risk

Expanding your business into a new market often feels like a bold leap forward. It’s a chance to tap into new customer bases, explore growth opportunities, and achieve economies of scale. However, for many companies, this leap becomes a misstep—one that erodes profits and endangers their reputation. The culprit? Failing to account for and navigate geopolitical risk.

Geopolitical risk isn’t just a term for government analysts or multinational corporations; it’s a critical consideration for businesses of all sizes. From changing trade policies to regional instability, geopolitical risk can derail even the most well-thought-out expansion plans. For startups and businesses experiencing rapid scaling, this issue warrants particular attention. The pace at which they grow often means decisions are made quickly, leaving little time for deeper analysis.

As the Harvard Business Review explains, to mitigate this issue, businesses must adopt "company foreign policy"—a structured framework that aligns their expansion goals with a pragmatic understanding of geopolitical realities. This approach can empower organizations to scale sustainably, set boundaries on acceptable risks, and prevent making costly mistakes in unfamiliar markets.

Why Geopolitical Risk Matters to Startups and Scaling Businesses

For startups and rapidly scaling enterprises, entering foreign markets can seem like a goldmine of opportunity. But in reality, expanding into unfamiliar territories without adequate preparation can pose invisible but monumental risks to the business.

The Problem with Moving Too Fast

Startups, by nature, operate at breakneck speeds. Founders are often racing to seize market share, attract investors, or capture cultural momentum. This urgency, while understandable, can sometimes result in a narrow focus on short-term wins—such as immediate market size—while overlooking long-term risks like political instability, compliance barriers, or shifts in national sentiment.

For example, a growing startup may invest heavily in a country only to find itself entangled in red tape due to unexpected regulatory changes. Or worse, the business may face reputational damage due to insufficient research into cultural or political sensitivities.

The High Stakes of Geopolitical Failure

Even established multinational corporations struggle to manage geopolitical risks, as demonstrated by BP’s decision to exit Russia in early 2022. This swift move came amid escalating political tensions following the invasion of Ukraine. Forced to sell its 19.75% stake in Rosneft and two joint ventures, BP incurred over $20 billion in write-downs in a single quarter, according to ForeignPolicy.com. If major corporations with established risk management frameworks can face such severe losses, smaller and less-resourced enterprises are even more vulnerable.

For startups and scaling businesses, a single miscalculation could result in supply chain disruptions, operational shutdowns, or catastrophic brand damage that could take years to repair.

Current Geopolitical Risk Factors Facing Businesses

Before crafting a foreign market entry strategy, companies need to understand today’s geopolitical landscape. Below are some of the most pressing factors businesses should account for:

• Politically Driven Economic Sanctions

Increasing trade sanctions can significantly impact cross-border business operations. For example, the sanctions imposed on Russia have triggered ripple effects across industries, from energy to technology. Businesses must prepare to adapt should such restrictions arise.

• Regulatory Uncertainty

Expanding into regions with unpredictable regulatory frameworks can cause delays, significantly increase costs, and expose businesses to compliance risks. Countries with highly dynamic policy environments may require frequent investments in legal resources to stay compliant.

• Regional Instability and Conflicts

Civil unrest or armed conflicts within a region can pose physical threats to employees and disrupt business operations. Businesses entering regions prone to instability must develop contingency plans to avoid sudden operational shutdowns.

• Nationalistic Sentiment

An increasing trend of nationalistic or protectionist policies globally can create hostility toward foreign-owned enterprises. Companies need strategies to manage local perceptions and foster goodwill within the markets they enter.

How 'Company Foreign Policy' Can Help Businesses Prepare

To effectively manage geopolitical risk, companies need to borrow a concept from international relations—a “company foreign policy.” This structured approach defines a business’s internal risk tolerance and establishes clear protocols for entering, operating within, or exiting markets.

Here are the steps businesses should take to create their own foreign policy:

1. Set a Clear Risk Appetite

Before expanding to a new market, stakeholders must align on the level of risk the company is willing to accept. Are you comfortable operating in countries with volatile regulations? What are your financial thresholds for unforeseen disruptions? Setting these limits from the start prevents entering markets that could jeopardize long-term stability.

2. Conduct Comprehensive Risk Assessments

Risk management begins with better intelligence. Businesses should periodically conduct deep-dive assessments into potential markets:

• Understand political stability, economic outlooks, and cultural sensitivities in the region.

• Consult reports like the Global Risk Report from the World Economic Forum or hire security consulting firms for detailed geopolitical analyses.

• Monitor evolving risks, such as contentious elections or shifts in infrastructure development goals.

3. Create Signals for Delayed Entry or Early Exit

Your company’s foreign policy must include well-defined triggers for delaying entry into a market or exiting prematurely. Signals could include:

• A certain level of economic sanctions or new tariffs.

• The outbreak of widespread civil unrest in the region.

• A notable shift in pro-foreign business policies.

Creating these criteria prevents decision-makers from relying on gut reactions during volatile situations.

4. Establish Cross-functional Risk Teams

When planning entry into a foreign market, diverse risk factors—legal, operational, reputational, and physical—must all be considered. Create cross-functional internal risk teams consisting of legal advisors, marketing leaders, and operations managers to comprehensively evaluate risks.

5. Invest in Corporate Security Programs

Models of corporate security often focus on physical safety, but this needs to expand to digital and reputational safety:

• Invest in crisis communication plans to protect brand reputation in case of geopolitical fallout.

• Build cybersecurity infrastructure to prevent breaches in less-regulated IT environments.

• Develop strategic partnerships with local corporations to safeguard assets on the ground.

6. Monitor Regional Dynamics Regularly

Navigating dynamic markets requires a proactive approach. Leverage tools that continuously monitor updates in trade policies relevant to your industry. Subscribe to industry reports, hire regional consultants, and establish proprietary tracking systems to maintain updated risk profiles for all active regions.

Addressing Geopolitical Risk Starts with Preparation

Global expansion holds immense potential, but only for those businesses equipped to tackle its inherent challenges. By failing to address geopolitical risks, companies risk becoming casualties of their own ambition. But for proactive, strategic organizations, these risks represent opportunities to develop resilience and foresight.

Your business’s foreign policy is not just about risk management—it’s an essential strategy for profitable, sustainable growth. Moving forward, take the time to build a strategy that protects your business’s long-term viability and growth potential.

If your organization is ready to scale confidently into new markets, consider partnering with experts who specialize in geopolitical risk management and security consulting. Prepare your company to not only grow but thrive in a complex global landscape.