Inna Brady is the founder of IB Law Firm, a boutique supply chain and business law firm serving clients in California, Washington, D.C. and Maryland. She focuses on commercial supply chain disputes and business ownership conflicts, providing strategic legal counsel to small and mid-market international businesses.
Not long ago, the operating mantra of global supply chains was simple: find the cheapest supplier.
Today, the map of global commerce is being redrawn. Export controls, sanctions, trade wars and the growing fragility of cross-strait relations in Asia have forced a reckoning in boardrooms worldwide. The old model of “cheapest at all costs” has been replaced by a new imperative: “secure at all costs.” Geopolitical risk is now a legal problem, not just an operational one.
Here is a simple example. Two years ago, Tesla, which relies on the “just-in-time” manufacturing model, had to pause production. Parts were supposed to arrive through the Red Sea, but Houthi militant activity disrupted shipping routes through the Suez Canal, necessitating rerouting through the Cape of Good Hope. The delay lasted two weeks and resulted in millions in losses.
As a result of geopolitical disruptions and global volatility, including tariffs, many manufacturers have reconsidered nearshoring and friend-shoring strategies. Some have started moving production to other countries.
How a Geopolitically Resilient Legal Strategy Helps Avoid and Mitigate Disruptions
Auditing an international supplier and distributor network for geopolitical risks does not require a foreign policy expert. It requires leadership teams to ask the right questions. While those questions depend on the industry and business goals, here are several examples business leaders should consider.
– Is the region risky enough to warrant an exit? What are the exit routes and alternatives?
Renault exited the Russian market in 2022 and sold its stake in local manufacturer AvtoVAZ for a nominal value of one ruble. Renault would reportedly need $1.3 billion to reenter the market.
Exiting a market or business partnership raises significant legal and operational questions. Companies should carefully evaluate available routes and alternatives, including restructuring, mergers and acquisitions, potential reentry options, asset distribution, trade secret protection, noncompete agreements and other legal considerations.
– When exploring new regions, what supplier-specific and region-specific risks exist?
Certain countries and regions carry elevated risks related to sanctions, export controls, trade restrictions, natural disasters, or unethical sourcing practices. Contracts should clearly define what happens during a disruption, including who bears the costs, how long a suspension may last and what remedies are available to the non-disrupted party.
– Looking at the supply chain as a whole, who are the second- and third-tier suppliers? What disruption risks do they face?
Lack of transparency remains a major issue in international procurement. Even if a first-tier supplier promises strong performance, its operations may depend on sub-suppliers with their own vulnerabilities. Buyer companies may want to require suppliers to disclose sub-supplier locations and maintain minimum inventory levels.
– Diversification: Should your company consider alternative suppliers to avoid a single point of failure?
Some companies may want to negotiate “step-in” rights in the event of a disruption. These rights allow operations to be rerouted through an alternative vendor without violating the original supplier agreement. Alternative vendors should be prequalified to avoid delays during a crisis.
– Are friend-shoring benefits optimized through a formal legal structure?
Shifting sourcing toward allied nations does not automatically eliminate geopolitical risks. Companies still need legal structures that account for cross-border arrangements, tariffs, tax credits, risk allocation and exit strategies. If the relationship depends on an international treaty, leadership should understand the treaty’s duration and stability. A supplier agreement in Mexico, India, or Germany should fully leverage the specific legal and operational advantages of that jurisdiction.
– Planning for contingencies: In the event of a dispute, what remedies are available and how can the company exit the relationship?
Dispute resolution clauses should reflect business priorities and minimize operational disruption. Choosing the right governing law and arbitration or litigation forum is far more than a technical detail. It can determine whether a judgment is enforceable and whether the company has a practical legal remedy. Post-termination procedures, data transfer requirements and enforceable noncompete provisions can help protect the business even after a relationship ends.
The Takeaway
Geopolitical volatility and the ongoing shift toward nearshoring and friend-shoring require a deliberate legal strategy.
Supply chain resilience has become a board-level priority. Companies are investing in supplier mapping software, geopolitical risk dashboards and scenario-planning tools. Those investments are valuable, but they are limited without the right legal infrastructure in place. A company’s legal strategy can ultimately determine how resilient it remains in the face of geopolitical disruption.
Not long ago, the operating mantra of global supply chains was simple: find the cheapest supplier.
Today, the map of global commerce is being redrawn. Export controls, sanctions, trade wars and the growing fragility of cross-strait relations in Asia have forced a reckoning in boardrooms worldwide. The old model of “cheapest at all costs” has been replaced by a new imperative: “secure at all costs.” Geopolitical risk is now a legal problem, not just an operational one.
Here is a simple example. Two years ago, Tesla, which relies on the “just-in-time” manufacturing model, had to pause production. Parts were supposed to arrive through the Red Sea, but Houthi militant activity disrupted shipping routes through the Suez Canal, necessitating rerouting through the Cape of Good Hope. The delay lasted two weeks and resulted in millions in losses.
As a result of geopolitical disruptions and global volatility, including tariffs, many manufacturers have reconsidered nearshoring and friend-shoring strategies. Some have started moving production to other countries.
How a Geopolitically Resilient Legal Strategy Helps Avoid and Mitigate Disruptions
Auditing an international supplier and distributor network for geopolitical risks does not require a foreign policy expert. It requires leadership teams to ask the right questions. While those questions depend on the industry and business goals, here are several examples business leaders should consider.
– Is the region risky enough to warrant an exit? What are the exit routes and alternatives?
Renault exited the Russian market in 2022 and sold its stake in local manufacturer AvtoVAZ for a nominal value of one ruble. Renault would reportedly need $1.3 billion to reenter the market.
Exiting a market or business partnership raises significant legal and operational questions. Companies should carefully evaluate available routes and alternatives, including restructuring, mergers and acquisitions, potential reentry options, asset distribution, trade secret protection, noncompete agreements and other legal considerations.
– When exploring new regions, what supplier-specific and region-specific risks exist?
Certain countries and regions carry elevated risks related to sanctions, export controls, trade restrictions, natural disasters, or unethical sourcing practices. Contracts should clearly define what happens during a disruption, including who bears the costs, how long a suspension may last and what remedies are available to the non-disrupted party.
– Looking at the supply chain as a whole, who are the second- and third-tier suppliers? What disruption risks do they face?
Lack of transparency remains a major issue in international procurement. Even if a first-tier supplier promises strong performance, its operations may depend on sub-suppliers with their own vulnerabilities. Buyer companies may want to require suppliers to disclose sub-supplier locations and maintain minimum inventory levels.
– Diversification: Should your company consider alternative suppliers to avoid a single point of failure?
-
A company’s legal strategy can ultimately determine how resilient it remains in the face of geopolitical disruption.
Some companies may want to negotiate “step-in” rights in the event of a disruption. These rights allow operations to be rerouted through an alternative vendor without violating the original supplier agreement. Alternative vendors should be prequalified to avoid delays during a crisis.
– Are friend-shoring benefits optimized through a formal legal structure?
Shifting sourcing toward allied nations does not automatically eliminate geopolitical risks. Companies still need legal structures that account for cross-border arrangements, tariffs, tax credits, risk allocation and exit strategies. If the relationship depends on an international treaty, leadership should understand the treaty’s duration and stability. A supplier agreement in Mexico, India, or Germany should fully leverage the specific legal and operational advantages of that jurisdiction.
– Planning for contingencies: In the event of a dispute, what remedies are available and how can the company exit the relationship?
Dispute resolution clauses should reflect business priorities and minimize operational disruption. Choosing the right governing law and arbitration or litigation forum is far more than a technical detail. It can determine whether a judgment is enforceable and whether the company has a practical legal remedy. Post-termination procedures, data transfer requirements and enforceable noncompete provisions can help protect the business even after a relationship ends.
The Takeaway
Geopolitical volatility and the ongoing shift toward nearshoring and friend-shoring require a deliberate legal strategy.
Supply chain resilience has become a board-level priority. Companies are investing in supplier mapping software, geopolitical risk dashboards and scenario-planning tools. Those investments are valuable, but they are limited without the right legal infrastructure in place. A company’s legal strategy can ultimately determine how resilient it remains in the face of geopolitical disruption.
