Geopolitical Archives

“It’s Going to Get Worse Before It Gets Better” Navigating Supply Chain Geopolitical Risks: Insights from National Security Experts

Posted on August 4, 2024August 27, 2024 by Interos

by Alea Marks & Dianna ONeill

Interos’s new executive insights series, “Voices of Innovation,” hosted a critical conversation on escalating geopolitical threats to supply chain security.

The inaugural session brought together former NSA Director and US Cyber Command head, Admiral Mike Rogers (Ret.) and Andrea Little Limbago, Ph.D., Head of Applied AI, Interos, and a frequent speaker on geopolitical risk and cybersecurity.

Five Key Quotes

1-Supply Chain Vulnerabilities

In an era of global interconnectedness, supply chains have become increasingly complex and efficient. However, this integration introduces acute new vulnerabilities. Today’s multinational ecosystems can easily encompass thousands of sub-tier suppliers, fueling continued supply chain disruptions that cost the global economy $3 trillion in annual losses.

Admiral Rogers highlighted this double-edge sword, noting the ripple effect across interconnected systems:

“There’s definitely been a tradeoff,” Rogers observed. “The downside is we have to acknowledge, as we can see with CrowdStrike being the latest issue, that we’ve got fundamental vulnerability inherent in the system.”

2-Geopolitics and Corporate Boards

Given the global footprint of many large enterprises, Admiral Rogers highlighted the growing concern among corporate boards regarding geopolitical risk:

“I spend a lot of time talking to corporate boards on geopolitics. They are trying to understand, the world around me seems to be changing. That has implications for my business model, and it has implications for my liability and responsibility.”

Rogers emphasized that companies are increasingly recognizing the need to better understand the global context and for their supply chain operations, identify risks, and develop strategies for risk mitigation and prioritization.

3-Criminals Targeting Supply Chains

In discussing evolving digital cyber threats, Admiral Rogers expressed surprise at the recent trend of criminals targeting digital supply chains:

“I never thought I would see criminals go into supply chain, supply chain route in terms of an attack vector. That was true until about 15 months ago, but we’re now seeing criminals going down this route. So, organizations now are routinely asking themselves, do I understand the dimensions of my supply chain? And what steps am I taking to try to mitigate that risk?”

4-Proactive Risk Mitigation

Anticipating and preparing for potential disruptions emerged as a critical theme. Rogers emphasized the value of proactive planning and regular practice in enhancing an organization’s resilience:

“The more time you put up front in thinking through and anticipating, the better your performance in crisis,” he advised. “I can’t anticipate every scenario, but the more I train, the more I simulate, the more I practice, the more efficient and effective I’ll be in responding to disruption and generating resilience.”

5-Evolving National Security Landscape

The conversation addressed the changing nature of national security, which now encompasses economic security and digital advantage. Rogers highlighted how this shift is leading to increased government involvement in previously private sector domains.

“Governments are getting much more directive and much more broadly involved,” Rogers observed. He noted a significant shift in cybersecurity strategy: “The biggest shifts in [cybersecurity] strategy were, number one, it’s no longer the individual user to hold accountable – it’s the entities that are in the best position to achieve a broad impact.”

Interos Watchtower™: A Strategic Solution

Rogers and Little Limbago also discussed Interos Watchtower™, AI-driven technology that provides personalized risk models to defend against geopolitical threats. Rogers noted the criticality of mapping and prioritizing threats, emphasizing:

“We have got to get to prioritization. Because if we can’t prioritize, if we can’t figure out the best use of limited resources, we got real problems.”

Watchtower highlights vulnerable suppliers based on potential business impact, allowing organizations to prioritize and remediate regulatory, cyber, government intervention, and foreign ownership risks, among others.

Looking Ahead

Admiral Rogers concluded with a sobering yet hopeful outlook:

“It’s going to get worse before it gets better.” However, he noted that more businesses and senior leaders are acknowledging the challenge, stating, “You can’t solve a problem if you don’t acknowledge it.”

The conversation made clear the pervasive nature of geopolitical supply chains impacts. From trade tensions to shifting nation-state alliances, a host of changing global dynamics present new opportunities for disruption. Organizations that fail to adopt a proactive, technology-driven approach to these realities risk falling behind.

Technologies like Interos Watchtower™ are a significant advancement, offering the personalized, actionable intelligence necessary to enhance supply chain strength and security in a volatile landscape.

Learn more HERE.

Posted on June 4, 2024June 5, 2024 by Interos

By Alberto Coria & Daniel Karns

Supply chain leaders are weighing the implications of a power shift affecting America’s largest trading partner. Over the weekend Mexico held its biggest election in history, electing Claudia Sheinbaum its first female president and granting her Morena party an apparent super-majority in Congress that could bring about policy changes.

Markets reacted warily in the immediate aftermath, with one global analyst noting that her victory, “opened the possibility of changes in the Constitution, which alters, or better put, deteriorates the risk balance of Mexico, causing capital to leave the country.”

Mexico surpassed China as America’s biggest trading partner last year. In addition to the political transition, the new administration faces multiple supply chain-related challenges:

Security Risks and Cargo Theft

High levels of violent crime could jeopardize the country’s supply chain stability through relatively common occurrences such as cargo truck hijackings. In 2022, the Mexican federal government reported 7,644 violent cargo truck hijackings—a 3% increase compared to 2021, however; the Transported Asset Protection Association (TAPA Americas) reported that 76,599 cargo truck hijackings occurred during President AMLO’s administration, according to their investigation. A stark contrast to the numbers provided by the federal government.

Major companies including Ford, DJI, Danone, Wal-Mart, Pepsi, and Coca-Cola, have all suffered losses due to stolen truckloads of merchandise in Mexico. The new president, Claudia Sheinbaum, is largely expected to continue AMLO’s approach of “hugs not bullets” for combatting the cartel while simultaneously empowering the military.

Energy Sector and Pemex

Mexico’s national oil company, Pemex, operates under a $102 billion USD debt burden, with the federal government reported to be considering absorbing up to $40 billion USD to assist the company in its ability to service debts. In the past, this debt has regularly affected Mexico’s oil output due to Pemex having to submit late payments to suppliers and alleged corruption within the company.

With the chronic mismanagement of Pemex affecting Mexico’s oil industry, the country’s overall oil production is now less than half of what it was in 2004, despite massive budgetary allocations from the federal government throughout various administrations. Sheinbaum has pledged to remove corruption from Mexico’s energy sector to increase oil production. Sheinbaum is expected to continue AMLO’s policies of leaning strongly on Mexico’s oil production for national revenue and is likely to continue heavily funding Pemex. Under a Sheinbaum administration, customers should not expect any major swings in Mexico’s energy policies.

Mexican Peso and Near-shoring

Mexico’s currency has risen 19% over the past twenty-four months to around 16.7 per USD, now one of the best-performing emerging market currencies due to low volatility and high interest rates. The Mexican Peso is also one of the few major currencies that have gained against the USD this year. This is largely due to the increase of foreign investment in the country through near-shoring and high levels of trade with the U.S.

Sheinbaum is seen as pro-business and is unlikely to enact any policies to deter the ongoing trend of near-shoring given its substantial boost to the Mexican economy. “Turmoil in the U.S.-China relationship has provided Mexico with a historic window to present itself as an alternative to China,” according to a statement from the U.S. Chamber of Commerce.

While the Sheinbaum administration faces significant challenges in addressing security concerns, managing the energy sector, and maintaining currency stability, the near-shoring trend is expected to continue, presenting opportunities for U.S. companies to strengthen their supply chains in Mexico.

Potential Industries at Risk

Interos monitors supply chain lifecycle risk for some of the world’s largest public and private organizations. Our customers have extensive connections to Mexico-based suppliers, including heightened concentration risk for some sectors, such as chemical manufacturing, due to sub-tier supplier relationships.

The data below illustrates key sectors whose supply chains could be impacted by future administrative or policy shifts under Mexico’s new government.

In Tier 1
- Total: 2,880
- Top Industries
  - Merchant Wholesalers, Durable Goods
  - Transportation Equipment Manufacturing
  - Chemical Manufacturing
- In Tier 2
  - Total: 16,251
  - Top Industries
    - Merchant Wholesalers, Durable Goods
    - Merchant Wholesalers, Nondurable Goods
    - Machinery Manufacturing
    - Chemical Manufacturing
  - In Tier 3
    - Total: 26,468
    - Top Industries:
      - Merchant Wholesalers, Durable Goods
      - Merchant Wholesalers, Nondurable Goods
      - Fabricated Metal Product Manufacturing
      - Machinery Manufacturing
      - Plastics and Rubber Products Manufacturing
      - Chemical Manufacturing
      - Transportation Equipment Manufacturing

U.S.-China Trade Wars Reignite: White House Announcement on New Tariffs References “Supply Chains” Eleven Times

Posted on May 14, 2024May 14, 2024 by Dianna ONeill

Sweeping new U.S. tariffs on Chinese clean-energy products are inflaming tensions between the world’s two dominant economies, raising the stakes for risk leaders already navigating concurrent crises in the Middle East and Europe.

The sanctions announced today by the Biden administration target $18 billion in Chinese imports, quadrupling existing levies on Chinese-made EVs, while imposing new tariffs ranging from 50% on solar panels to 25% on other essential sectors including semiconductors, aluminum, critical minerals, batteries and more.

The White House statement repeatedly references shoring up U.S. supply chains amid anti-competitive practices from China, noting “China’s forced technology transfers and intellectual property theft have contributed to its control of 70, 80, and even 90 percent of global production for the critical inputs necessary for our technologies, infrastructure, energy, and health care—creating unacceptable risks to America’s supply chains and economic security.”

The new tariffs build on existing Trump-Biden Chinese sanctions, which the global think tank Tax Foundation estimates will cut long-run GDP by 0.21%, wages by 0.14% and employment by 166,000 full-time equivalent jobs.

The Ripple Effect: How Geopolitical Events Impact Your Supply Chain

Whether fueled by trade disputes, military conflicts, or regulatory changes, political shocks can reverberate throughout global supply chains, disrupting procurement, production, and distribution.

This dynamic is exacerbated by complex and interconnected supply chains that hide multiple potential sub-tier failure points.

A U.S. Federal Reserve report reveals a heavy dependence on foreign suppliers across various industries, citing the automotive (23.7%), machinery and equipment (18.4%), basic metals (16.8%) and electrical equipment (16.5%) sectors among the top sectors relying on foreign value for exports. This globalized reality necessitates a proactive approach to supply chain risk management.

Beyond Borders: The Globalized Reality of Modern Procurement

The key to strong collaboration with supply partners includes a heavy emphasis on real-time analysis of the extended supplier base – ensuring all stakeholders are positioned for economic success amid volatility.

Here are five strategies for securing supply chain lifecycle risk for maximum adaptability:

1. Implement Real-Time Monitoring and Intelligence

Real-time extended supply chain monitoring enables organizations to detect and gain intelligence for proactive actions from fluid risk events quickly. One leading global defense contractor used supply chain life cycle risk intelligence from Interos to identify concentration risk in a vital $5 billion weapons program, isolating and mitigating the threat in days, rather than weeks, before there was a ripple effect across the enterprise.

2. Transition to Leading Indicators

Moving from lagging to leading risk indicators ensures organizations keep pace with click-speed disruptions. Interos intelligence on another simmering political issue – China’s potential annexation of Taiwan – reveals U.S. companies have almost 70,000 direct (tier-1) relationships with Taiwanese suppliers. In the event of a Chinese attack, Bloomberg Economics estimates up to $10 trillion in potential losses, or about 10% of global GDP. Interos is the only solution to quantify and score enterprise risk to plan for a crisis at this level, enabling enterprises to tailor their risk register for threat management by exception, at scale.

3. Utilize Predictive and Prescriptive Insights

Supply chains are a big data problem built on massive data sets. By leveraging AI to consolidate and analyze trends, companies can proactively identify vulnerabilities and implement preemptive measures. For instance, a global energy company facing rising levels of ESG risk leveraged Interos’ platform to triple its supplier due diligence capacity in one year, without expanding headcount.

4. Invest in Advanced Supply Chain Mapping

AI-powered continuous supply chain mapping enables companies to proactively identity suppliers facing urgent geopolitical and other risks, at speed and scale. In the case of the Russia-Ukraine conflict, Interos’ platform enabled customers to instantly identify key sub-tier suppliers located in harm’s way for alternate sourcing.

5. Foster Collaboration and Information Sharing

Cross-enterprise teams including finance, operations, risk, procurement and sourcing play critical roles in next generation supply chain risk management. Establishing comprehensive and consistent communication channels for trusted risk intelligence is the foundation for speed and clarity in response. Interos ensures companies better understand and align against systemic threats within a single, intuitive platform.

These strategies are essential starting points in meeting the scale and scope of today’s global disruptions. By navigating multi-factor risk with foresight and innovation, organizations can secure their brand, reputation, and profitability – a win for stakeholder at every supply tier of the supply chain.

Read more about global supply chain threats and opportunities in Invisible Threats: Interos’ Annual Supply Chain Industry Risk survey.