This is part two in our in-depth two-part series exploring the evolving geopolitical landscape. In this article, Acera Insurance’s Aliya Daya, Senior Client Executive, provides actionable insights into how Canadian businesses can protect themselves from the new era of geopolitical risks. Read part one to explore the various ways that geopolitical risks are impacting Canadian businesses.
In today’s interconnected world, Canadian companies are increasingly vulnerable to a wide array of geopolitical risks that extend far beyond traditional trade and political concerns. As global tensions escalate, Canadian businesses face challenges like economic decoupling, cybersecurity threats, supply chain disruptions and climate-related vulnerabilities. Navigating this landscape requires not only awareness but a strategic approach to mitigate risks and protect business continuity.
Canadian companies must adopt critical strategies to strengthen their resilience against geopolitical disruptions. By implementing robust risk management strategies and leveraging specialized insurance solutions, Canadian businesses can enhance their ability to adapt and thrive in an increasingly complex global environment. Here are seven strategic steps Canadian companies can take to protect themselves:
1: Geopolitical risk analysis, modeling and scenario planning
Geopolitical risk modeling goes beyond just identifying potential risks — it involves using data, trends and expert insights to build predictive models that help businesses prepare for a range of outcomes. Here’s how Canadian companies can leverage this tool effectively:
Conduct scenario planning
Work with geopolitical experts and use available data to create different scenarios that could affect your business — such as supply chain interruptions, regulatory changes or trade restrictions. Develop contingency plans for each scenario, outlining specific actions the business will take if the risks materialize.
Stress test business models
Run stress tests on your business operations by simulating various geopolitical crises, like trade embargoes, energy shortages or economic sanctions. Assess how these factors would impact your cash flow, production and market access.
Invest in geopolitical risk analytics
Use advanced analytics platforms that track political events, economic trends and conflict zones in real time. These platforms can offer early warnings for potential disruptions, allowing businesses to adjust their operations before crises escalate.
Example: How to analyze, model and plan for geopolitical risks
A Canadian automotive parts manufacturer that exports to the US and China could use risk modeling to anticipate potential tariffs or export bans in each market. Based on the outcomes of these models, the company could preemptively diversify its customer base or adjust its pricing strategies.
2. Supply chain management and manufacturing hubs
One of the most effective ways to mitigate geopolitical risks is to diversify supply chains and avoid over-reliance on any single region or country for critical supplies or components. Here’s how Canadian companies can ensure supply chain resilience:
Source from multiple regions
Identify alternative suppliers in different geographical areas to minimize exposure to regional disruptions. For example, if a company sources raw materials primarily from China, they could also secure suppliers in Southeast Asia, Latin America or Europe to spread risk.
Invest in nearshoring
Consider nearshoring manufacturing and production closer to home, either within North America or in politically stable regions. This strategy can reduce transportation risks and costs while also protecting the business from international trade disputes or tariffs.
Implement supply chain monitoring tools
Use digital supply chain monitoring platforms that provide real-time insights into potential disruptions, such as port closures, labour strikes or political unrest. These tools help companies respond to issues faster, minimizing delays and financial losses.
Example: How to diversify supply chains and manufacturing hubs
A Canadian electronics company relying on semiconductors from Taiwan could face disruptions if tensions between China and Taiwan escalate. To mitigate this, the company could establish alternative suppliers in countries like South Korea or the US, or even invest in domestic production.
3. Strengthen cybersecurity and collaborate with government agencies
Given the rising threat of state-sponsored cyberattacks, Canadian companies must bolster their cybersecurity efforts, especially those in critical industries such as energy, finance and telecommunications. Here’s what they can do:
Adopt a comprehensive cybersecurity framework
Implement an advanced cybersecurity framework based on international standards, such as ISO 27001 or the NIST Cybersecurity Framework. Regularly assess the company’s vulnerabilities and strengthen defenses through network segmentation, encryption, deployment of AI security tools and multi-factor authentication.
Conduct regular penetration testing
Periodically test systems through penetration testing to identify weaknesses before they can be exploited. This helps ensure the company’s defences are up to date with evolving cyber threats.
Collaborate with government agencies
Work with government agencies like the Canadian Centre for Cyber Security and Public Safety Canada to stay informed about the latest cyber threats. These agencies offer threat intelligence and resources to help businesses prevent or respond to cyberattacks.
Develop a cyber incident response plan
Have a detailed cyber incident response plan in place that outlines the steps your company will take in the event of a data breach, ransomware attack or operational disruption due to a cyber incident. Ensure key staff are trained in their roles in the event of a breach. Make sure to review and update said incident response plan regularly.
Example: How to strengthen cybersecurity and collaborate with government agencies
A Canadian bank operating in Latin America could strengthen its cybersecurity framework by partnering with both private and public sector agencies, allowing it to receive real-time updates on cyber threats. The bank could also perform regular security audits and simulations to ensure its prepared for any cyberattack scenario.
4. Strengthen supplier due diligence and risk assessments
Supplier risk management is essential for companies with global supply chains. By performing detailed due diligence on suppliers, companies can better assess the geopolitical risks associated with specific regions or partners.
Conduct regular supplier audits
Assess your suppliers for potential geopolitical risks, including the political stability of their operating regions, compliance with local laws and adherence to international trade agreements. Regular audits help ensure suppliers can continue delivering in times of crisis.
Use geopolitical risk indices
Utilize geopolitical risk indices, such as the Global Risks Report by the World Economic Forum (WEF), to gauge the risk levels of specific countries where your suppliers operate. Tailor your sourcing strategies accordingly by selecting suppliers in low-risk countries or regions.
Diversify contracts with suppliers
Instead of having long-term exclusive contracts with a few suppliers, consider signing short-term or flexible contracts with multiple suppliers across different regions. This gives your business the ability to switch suppliers quickly in the event of a disruption.\
Example: How to perform detailed due diligence on suppliers
A Canadian pharmaceutical company that sources active ingredients from India could perform regular audits to ensure compliance with international trade standards. Additionally, the company might seek alternative suppliers in Europe or South America to reduce dependency on one region.
5. Build relationships with local partners and leverage regional expertise
Having strong local partnerships can be invaluable when navigating geopolitical challenges in foreign markets. Canadian companies should focus on building long-term relationships with trusted partners who have regional expertise and a deep understanding of local laws, regulations and political dynamics.
Establish joint ventures or strategic alliances
Consider forming joint ventures or partnerships with local firms that have established networks and a thorough understanding of the geopolitical landscape. These alliances can help your business gain a competitive edge and reduce exposure to risks.
Leverage local expertise
Use the knowledge of local experts, including legal advisors, consultants and government contacts, to navigate complex regulatory environments and minimize the impact of political instability on your operations.
Monitor political developments
Regularly monitor political developments in key regions where your business operates. By staying informed, your company can make quicker decisions about scaling up or down operations in response to changing political environments.
Example: How to build relationships with local partners
A Canadian mining company operating in Africa could build ethical relationships with local government agencies, business associations and community leaders to stay informed about political developments. This local intelligence can help the company prepare for potential changes in regulation or political unrest.
6. Implement a financial hedging strategy and currency risk management
Canadian companies operating in international markets are particularly vulnerable to currency fluctuations and sovereign debt crises in emerging markets. Hedging strategies can help businesses mitigate the impact of these risks.
Use currency hedging
Protect your company against currency risk by using hedging strategies such as forward contracts, options and swaps. These financial instruments lock in exchange rates, protecting your business from sudden currency devaluations or fluctuations.
Monitor sovereign debt ratings
Pay close attention to sovereign debt ratings in the countries where your company operates or exports. Countries facing high debt burdens are at greater risk of default or currency devaluation, which can negatively affect your operations.
Establish local banking relationships
Work with local banks in the regions where you operate to manage financial transactions and mitigate risks related to capital controls or currency inconvertibility.
Example: How to implement a financial hedging strategy
A Canadian agriculture firm exporting to Argentina could hedge against currency risks by entering into forward contracts that lock in the exchange rate. If the Argentine peso depreciates, the firm will still receive payments in Canadian dollars at the pre-agreed rate.
7. Leverage comprehensive insurance solutions
Insurance has become a critical tool for Canadian companies to protect their operations and investments from geopolitical disruptions. By investing in tailored insurance solutions, companies can significantly reduce their financial exposure to geopolitical disruptions.
Here are a few key types of insurance coverage that can help Canadian businesses navigate this challenging environment:
Political risk insurance
Political risk insurance protects companies from losses due to government actions or political instability in foreign markets. It includes protection against expropriation, nationalization, political violence and currency inconvertibility.
Trade credit insurance
Trade credit insurance safeguards businesses against non-payment by buyers or suppliers due to political events such as war, sanctions or economic collapse.
Cyber and privacy breach insurance
With cyberattacks on the rise, particularly those linked to geopolitical conflicts, cyber insurance has become crucial for protecting businesses from legal liabilities due to data breaches, ransomware attacks, and financial loss due to operational downtime and reputational harm.
Terrorism insurance
Terrorism insurance covers losses related to terrorist attacks, including property damage, business interruption and liability claims. This type of insurance also covers the indirect effects of terrorism, such as loss of income from business closures due to a terrorist attack.
Supply chain insurance
Supply chain insurance provides coverage for disruptions in global supply chains caused by events such as natural disasters, transportation delays, political unrest, trade embargoes or sanctions.
Marine and cargo insurance
Marine and cargo insurance protects goods being transported by sea, air or land from losses due to damage, theft, piracy or delays. This coverage is particularly important for companies that rely on international shipping routes.
Currency risk insurance
Currency risk insurance protects businesses from losses due to fluctuations in exchange rates or currency devaluation in foreign markets, ensuring that businesses do not suffer financially when repatriating earnings.
Environmental liability and climate risk insurance
Environmental liability and climate risk insurance helps businesses manage risks related to environmental damage, pollution and climate change. It also provides coverage for liabilities arising from environmental incidents, such as spills or contamination.
Directors and officers liability insurance
Directors and officers liability insurance protects the personal assets of corporate directors and officers in the event they are held legally responsible for mismanagement or decisions that negatively affect the company. This includes covering defence costs, settlements and fines.
Kidnap, ransom and extortion insurance
Kidnap, ransom and extortion insurance protects businesses and individuals against the financial losses associated with kidnapping, extortion and wrongful detention. This coverage includes the cost of ransom payments, crisis management services, negotiation expertise, and post-incident recovery support such as counseling and medical care.
Navigating a new era of geopolitical risks
Canadian companies are facing a complex and ever-evolving geopolitical landscape; the global nature of Canada’s economy also means that external disruptions can have profound effects on domestic industries. From rising global tensions and political instability to cyber threats, technology decoupling and supply chain disruptions, businesses must be prepared for the unexpected.
By adopting a proactive approach and deploying comprehensive risk management strategies, supported by tailored insurance coverage, Canadian businesses can protect their assets, ensure long-term success in the global marketplace and confidently navigate the uncertainties of today’s geopolitical environment.
In case you missed it, read part one of this series to explore how the evolving geopolitical landscape is affecting Canadian businesses, as well as the specific impact it’s having on certain industries.
Aliya Daya, Senior Client Executive, serves as a Cyber Technical Specialist and National Mixed Specialties Practice Team Lead at Acera Insurance. With more than 25 years of experience in the insurance industry, Aliya specializes in innovation, technology, cyber insurance and privacy breach, political risk, manufacturing/fabrication/wholesale/distribution, hospitality, non-profit and faith-based organizations, as well as disruptive and emerging industries.
You can reach Aliya at 403.717.5895 or [email protected].