GEOPOLITICAL CONFLICT

Revealing where the pressure is building

GEOPOLITICAL CONFLICT

Rising tension causes
STRAIN IN
SUPPLY CHAINS

The GPI states that Europe, APAC, and North America are the three most peaceful regions globally. In contrast, the Middle East and Africa, not covered as regions in this report, remain more volatile based on recent years.

Using the Global Peace Index (GPI), we profile the relative likelihood of disruption due to domestic and international conflict. According to the GPI, 2024 marked the fifth consecutive year that global peacefulness deteriorated, with militarization being the most significant contributing factor.

First and foremost, geopolitical tensions and conflict are a trigger for devastating humanitarian crises. However, in the context of this report, they can also rapidly disrupt supply chains. Our data pinpoints Russia and Turkey as the two highest-risk countries globally when considering how sourcing could be disrupted.

Russia’s inclusion will come as no surprise. Russia’s invasion of Ukraine was, and remains, a defining moment of this century. The resulting sanctions targeting trade, finance, and resources have had immediate, sector-wide effects, underlining how fast geopolitical events can rewire supply chains.

Part of that rewiring has seen Russia pivot toward non-sanctioning partners like China, India, and Turkey. That adds direct risk for those countries that may be subject to disruption as events on the battlefield unfold. However, it also adds risk for global procurement teams through the danger of indirect exposure to sanctioned trade.

THE COMPETING PULLS IN TURKEY

Turkey’s location at the intersection of Europe, Asia, and the Middle East contributes to its uniquely complex geopolitical and trade environment. As a NATO member with customs union ties to the EU, Turkey balances Western alignment with strong political and economic relations with key allies such as Russia, China, and India. Regional volatility within Turkey adds another layer of complexity. In addition, Turkey suffers from both internal instability via the decades-old conflict in its Kurdish region and involvement in conflict in neighboring countries such as Syria.

As a key supplier of automotives, textiles, and appliances to Europe, Turkey has emerged as an alternative to China. Political stability and alignment with Europe are critical enablers of this role. However, despite the benefits of customs union access to the EU, Turkey’s domestic trade policies can be unpredictable, posing a risk for businesses that rely on Turkey as a stable partner or alternative.

BALANCING TRADE DEALS
with the East and West

MEXICO is the largest
import trading partner
to the US

THE UNSTOPPABLE RISE OF MEXICO

Mexico ranks third on the index. Backed by geographic proximity, cost-competitive labor, and the preferential terms of the United States-Mexico-Canada Agreement (USMCA), it has rapidly become the key nearshore hub for North America. Particular growth has been enjoyed in manufacturing-led sectors such as automotive, aerospace, and electronics.

Interestingly, Mexico’s trade growth with the US, seemingly at China’s expense, may, in part, be a function of Chinese investment. In recent years, Chinese companies have ramped up investment into Mexico, particularly in the automotive sector, using it as an indirect route into the US market to maintain sales and sidestep tariffs. Buyers should be aware of ‘rules of origin’, and how they may apply to purchased goods.

Mexico’s positioning on the index reflects a range of geopolitical and domestic challenges. While localized risks such as cartel activity, organized crime, and infrastructure constraints are well-documented, Mexico’s exposure to US domestic politics may be the more strategic concern. Shifts in US policy on trade, immigration, energy, or industrial subsidies have been shown to have immediate knock-on effects for Mexican businesses.

MEXICO

TURKEY

PROXIMITY DOES NOT MEAN RISK-FREE

Mexico and Turkey are good examples of how businesses must weigh the upside of proximity against operational realities. Proximity is an advantage if the underlying environment is stable. Buyers operating in Mexican markets, for example, should consider how security risks, regulatory enforcement, labor rights compliance, and the reliability of energy supply play into their sourcing strategies.

These countries are also good examples of how the US and China effectively shape and influence global trade, either directly or indirectly. When interpreting the data, it’s important to consider the dual role of these superpowers as stabilizers and contributors to geopolitical tension.

THE EMERGENCE OF COLOMBIA AND THE PHILIPPINES

Colombia and the Philippines make up the top five; both offering the potential for strategic advantages in global sourcing. Whereas Colombia has strength in depth in sectors like mining and oil and gas, it is an emerging nearshore hub for agriculture, textiles, and manufacturing. The Philippines, famous for business process outsourcing, also occupies a strategic position in the South China Sea and is emerging as a major hub for global electronics supply chains, often as part of multi-country assembly processes.

Both countries rank high on the Global Sourcing Risk Index, albeit for different geopolitical reasons. Colombia faces persistent challenges related to political instability, armed groups, and localized crimes, while the Philippines is highly vulnerable to regulatory volatility. While their cost and location advantages are attractive, sourcing from either market demands careful risk mitigation and resilience planning.

INDUSTRY PERSPECTIVE

From an industry perspective, food and beverage, retail, and aviation rank as the riskiest, which reflects their multi-country/multi-component supply chains, often located in areas more susceptible to geopolitical risk.

COLOMBIA &

THE PHILIPPINES

SOURCING AND SUPPLY TACTICS

Geopolitical shocks can abruptly disrupt supply or inflate costs. One answer is to spread sourcing across multiple locations. For example, "Expansive Sourcing" has become a go-to diversification strategy, shifting investment to locations such as India, Vietnam, Turkey, and Mexico. But change also carries risk. Organizations must align their supply choices to their risk appetite, balancing low-cost/high-risk locations with high-cost/low-risk locations. Secondary sites must also be viable or developed for capacity, skills, and infrastructure.

Apple, for example, expanded production to India and Vietnam amid tensions between the US and China. BMW and Tesla spread battery and semiconductor production across Asia and Europe to reduce exposure.

Design contracts that cater for risk scenarios. Market conditions change, and when they do, buyers want protection. Contracts should reflect identified risks and include adjustment clauses to avoid renegotiation under duress. However, as is increasingly evident, agility isn't just contractual; it's relational. During COVID-19, suppliers prioritized their most trusted customers, not just those with airtight contracts. Buyers must assess their standing with key suppliers and the true strength of those relationships.

Airbus offers a recent example: it built dual-sourcing clauses into contracts, enabling a rapid pivot between titanium suppliers after sanctions hit Russian supply lines.

Sanctions, border closures, or port strikes could hit overnight. It pays to simulate risk scenarios and define response plans. Scenario and contingency planning help businesses anticipate and act early in a crisis. Technology is enabling this shift, providing data, insight, and early warnings across supply tiers. Further, digital twins now allow companies to simulate events and assess operational impact across the supply chain before they happen.

Maersk, for example, uses a digital twin of its global network to model port closures and reroute shipments in real-time. Siemens integrates digital twins into key supplier relationships, embedding risk resilience into commercial agreements.

3 | ACTIVE SCENARIO AND
RESPONSE PLANNING

2 | STRONG, FLEXIBLE, AND
RELATIONAL CONTRACTS

1 | NATIONAL SUPPLY
DIVERSIFICATION

SOURCING AND SUPPLY TACTICS

For sourcing professionals today, geopolitical risk is as much about agility and adaptability as it is about stability.