Geopolitics as a Business Risk: Rethinking Supply Chains

Why does geopolitics now hit small businesses too?

The order is signed, the machine is almost finished, and then a control module costing 80 euros is missing. The supplier stalls, and its own supplier is located in a country nothing is leaving right now. Your customer is waiting, and so is your invoice. This is what geopolitical risk looks like in everyday business: small in purchase value, large in effect.

The pandemic, the war in Ukraine, trade conflicts, and disruptions to major sea routes have shown within a few years how quickly well-rehearsed supply chains tear. The assumption that goods arrive reliably and cheaply from any part of the world is no longer a basis for planning.

Surveys of German manufacturers by the ifo Institute, a Munich-based economic research institute, show how much the situation swings. In March 2022, 80.2 percent of firms reported shortages of materials and intermediate products. By February 2024 the share had fallen to 14.6 percent. In January 2026 it stood at 5.8 percent and rose again to 17.2 percent by June 2026. The ifo Institute attributed the increase to disruptions in international supply chains.

The curve shows two things. Shortages pass. And they come back, often within a few months and from a direction nobody had on their list beforehand. The question this article sets out to answer: how does a small business recognize where geopolitical risks hit its supply chain, and how much precaution pays off? To answer it, we first clarify the paths through which the risk arrives and why upstream suppliers matter, then introduce the bottleneck grid, assess Europe's dependence on raw materials, and finally ask what resilience costs and what it means for delivery commitments.

Through which channels does the risk reach your business?

Geopolitics is a big word. In a business it arrives through a few clearly distinguishable channels. Looking at them separately helps you find out faster where you are vulnerable.

The Red Sea crisis showed how strongly the transport channel can bite. According to the UN trade body UNCTAD, around 12 to 15 percent of global trade passed through the Suez Canal in 2023. In early 2024, transits were 42 percent below their peak because shipping lines chose the detour around the Cape of Good Hope.

Why does your supplier's supplier decide the outcome?

Most businesses know their direct suppliers well. Your wholesaler is in the next region, your component supplier in a neighboring country, all close and familiar. The real risk often lies one or two stages further back: in the chip, the magnet, the chemical precursor that your supplier buys in itself.

Specialists speak of second-tier suppliers, or tier 2. You have no contract with them and usually no contact. Their ability to deliver nevertheless determines yours. A supplier in the neighboring town does not protect you if its key component comes from a single factory overseas.

Asking about origin is not a vote of no confidence. Good suppliers know their own chain and will answer. Those who evade either do not know themselves or do not want to say. Both are information.

The bottleneck grid: how do you review your own supply chain?

You do not need a risk management system to get started. A spreadsheet with the few parts that everything really depends on is enough. I call the approach the bottleneck grid. It consists of five questions that you answer in this order.

1. What stops us?

   List the ten parts, raw materials, or services whose absence would bring production or service delivery to a halt within four weeks. Purchase value is irrelevant here.

2. Where does it really come from?

   For each item, note the country of origin including the most important upstream suppliers. Where you do not know, put a question mark and ask.

3. Is there a vetted alternative?

   Record whether a second supplier exists that has already been sampled and approved. A name from the internet does not count.

4. How long will stock last?

   Work out the stock coverage in weeks and compare it with the time a replacement would realistically take to source.

5. Who is affected on the customer side?

   Map which customers, orders, and markets would be affected by a failure and whether tariffs or sanctions directly threaten sales there.

The result is a traffic light for each item. Red is anything that comes from a single source, has no vetted alternative, and lasts for less time than a replacement takes. For a machine builder it could look like this:

In this worked example, the cheapest part is the most dangerous. That is no coincidence. Expensive items get attention, cheap ones run on the side.

How dependent is Europe when it comes to raw materials?

The EU, too, has recognized that concentration on individual countries of origin is a structural problem. The Critical Raw Materials Act has been in force since May 23, 2024. It sets benchmarks for strategic raw materials up to 2030, measured against the EU's annual demand.

The fourth value is the remarkable one. That the EU sets a ceiling of 65 percent from a single country as a target says a lot about the starting position. A simple rule of thumb for your business follows from it: when policymakers talk about dependence on a material, it is worth asking whether that material sits inside your red items.

Benchmarks are targets and not a guarantee. It takes years before new mines, refineries, and recycling plants are operating. Waiting for government programs is therefore not a strategy for the next twelve months.

What does resilience cost, and where is it worth it?

Second suppliers, inventory, and regional production cost money. Complete protection is unaffordable. What makes sense is to hedge the few red items and to accept for the rest that a disruption would be expensive but not a threat to the company's existence.

A worked example makes the trade-off tangible. Suppose the control module from the grid costs 80 euros, you need 500 units a year, and a standstill costs you 40,000 euros in contribution margin per week. Additional stock for three months ties up 10,000 euros. A four-week outage costs 160,000 euros.

Resilience is insurance, and as with any insurance it only pays for the losses you cannot bear on your own.

What does this mean for sales and delivery promises?

Supply chain risk is seen as a purchasing topic. It is felt in sales. That is where dates are promised, fixed prices are offered, and contractual penalties are accepted, often without a glance at the red items.

• Tie promises to bottlenecks: Sales should know which products depend on red items and quote more cautious delivery dates for them.
• Limit price commitments: Shorter quote validity and price adjustment clauses for highly volatile materials prevent an order from turning into a loss. The wording belongs in the hands of a lawyer.
• Inform early: Customers forgive an announced delay more readily than a surprise. Define who informs whom, and within what time, when a disruption occurs.
• Show your ability to deliver: If you know your chain and can point to alternatives, you have an argument in tenders that goes beyond price.

First steps for this week

The first pass through the bottleneck grid takes half a day if purchasing, production, and sales sit at the table together. After that you know where you need to ask questions.

• With purchasing and production, write down the ten items that would stop the business within four weeks.
• For each item, enter the country of origin and the most important upstream supplier, and mark unknowns with a question mark.
• For the question marks, ask suppliers this week about the origin of the key component.
• For each item, write stock coverage and the realistic lead time for a replacement side by side.
• Rate each item red, yellow, or green and name a person responsible for the red ones.
• For the two most dangerous items, work out what extra stock would cost and what a standstill would cost.
• Give sales the list of products that depend on red items.
• Put a fixed date in the calendar each quarter for updating the grid.

The opening question was how a small business recognizes where geopolitical risks hit it and how much precaution pays off. The risk usually arrives through intermediate products the business does not buy itself, so for critical parts the supplier's supplier also needs to be in view. Resilience costs margin and only pays off for a few deliberately chosen items. Whoever knows these items can make delivery commitments in sales that they keep.