How has the experience of the pandemic changed the way companies operate and prepared them for some of the impacts of the war in Ukraine?

The war in Ukraine and the growing geopolitical tensions took companies in the Czech Republic and Europe by surprise, similarly to the Covid-19 pandemic a few years ago. However, the experience of the pandemic helped companies to better face the impacts of geopolitics on the supply chain. More than two-thirds of European companies are not sufficiently prepared for the consequences of rising geopolitical tensions. Almost four-fifths of companies worldwide consider these tensions to be one of the most serious threats to their business. Alongside this, the number of companies that do not feel adequately prepared for the risk of potential cyberattacks has also doubled.

The Covid-19 pandemic has exposed significant weaknesses in supply chains. These were primarily based on maximising efficiency and potential risks were mainly associated with the reliability of the suppliers themselves. As a result, a number of companies found themselves without supplies of key components, seriously disrupting their operations. Many responded by creating alternative supply chains. Just under 60% of firms in the survey said they had already built such alternatives, and another quarter plan to do so soon. It is the existence of alternative supply chains that has enabled most companies to significantly reduce the negative impact of the Ukrainian conflict on the supply of components and materials.


Czech companies have expanded inventories of key components and sought alternative suppliers

Even before the outbreak of the war in Ukraine, a number of Czech companies began to react to the identified weaknesses in their supply chains, mainly by increasing their inventories of materials and components, diversifying their suppliers and securing selected activities in-house. Thus, instead of one supplier for key materials and components, they cooperate with multiple suppliers who provide supplies in a 60-30-10 ratio, for example. However, this process is not easy. Suppliers must go through a complex qualification and vetting process. Sub-suppliers, typically in the automotive industry, are thus looking for other ways to secure themselves efficiently. For example, they are considering importing only components instead of supplying whole parts and then assembling these parts themselves in the Czech Republic.


Czech second-tier subcontractors are under twice as much pressure

Not all Czech companies have the same space to deal with the current situation. Staying with the automotive industry, for example, second-tier subcontractors are having problems. These companies usually do not have a direct link to the car companies that set the final price of cars for the end customer. It is therefore very difficult for them to reflect rising costs in their prices. They first must negotiate with their Czech customer, who usually must agree on any price increase with the Czech customer's parent company and the car company itself. Some subcontractors may therefore consider discontinuing the production of loss-making products.


European firms began to scrutinise their suppliers more closely after Covid; now it's paying off

During the pandemic, European and Czech companies, which depend mainly on supplies of materials from Asia, often realised that they did not know their partners' business models and subcontractors sufficiently, or the problems they may face. Often it was a component failure in the third or fourth line of the supply chain that caused suppliers to be unable to meet their commitments. Therefore, companies made a great effort to know the entire subcontracting chain and to have an overview not only of the final deliveries but also of the status of subcontracting and which entities were providing it.

As a result, European companies are among those with the greatest visibility of their suppliers and subcontractors. As many as 88% of them say they have a very good understanding of potential threats that could disrupt their supply chain, compared to just under half of US firms. Two-fifths of European companies also have a good overview of what is happening in the first, second and third tiers of their supply chain. For US firms, this is only 17%, and in the Middle East only 13%.


War exposes companies' cybersecurity weaknesses, one-fifth feel vulnerable to these threats

The war in Ukraine and its effects in cyberspace have significantly shaken the confidence of companies in securing their IT infrastructure. More than a fifth of companies said they were not prepared for cyberattacks. Meanwhile, 12% of companies felt unprepared in 2020 and only 9% in 2021. At the same time, half of companies said they had significantly increased investment in their cybersecurity. Companies are not only worried about attacks on their own systems, but also attacks on supply chain vulnerabilities. Many companies believe that their cybersecurity ends at the edge of their firewall. However, every attacker is looking for the weakest points, and these are clearly employees and, increasingly, their technology suppliers, software or digitally connected business partners. Therefore, continuous internal awareness among employees, vulnerability testing, including a security component in the DNA of every project with IT elements, as well as active monitoring and security management of key suppliers and partners of the company are essential. Security should therefore become a regular agenda for the top management of companies.

The data is based on the GLOBAL RISK LANDSCAPE REPORT 2022, which involved 500 companies from around the world.