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A proactive approach to navigating geopolitics is essential to thrive

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Geopolitical conditions have always influenced companies’ fortunes, but at least since the end of the Cold War, they’ve tended to take a back seat to macroeconomic, strategic, and operational concerns.

No longer.

Business leaders today view geopolitical tensions as the biggest risk to economic growth, according to the latest McKinsey Global Survey on economic conditions. Regional conflicts and international trade divergences have intensified in recent years, testing the resilience and strategies of multinational corporations. For instance, tariffs on goods exchanged between the United States and China have increased up to six times since 2017, and globally, trade interventions have surged 12-fold since 2010.

Given their fiduciary responsibilities, business leaders understandably tend to focus primarily on the downsides of such shifts, asking questions such as: Which of my products and operations are geopolitically sensitive and how does this sensitivity differ by region? At what point do I need to switch suppliers? How much of my workforce requires visas and how might visa approval challenges affect our productivity in certain parts of the world?

It is important to craft risk and response plans to address those and other potential downsides. But even as they improve their resilience to shocks, business leaders should focus on opportunities for risk-adjusted value creation. They should consider tailoring their growth strategies, core business operations, technology stacks, talent footprints, capital asset portfolios, and organizational capabilities with an eye toward thriving and not just surviving.

Business leaders should be asking themselves questions such as, will our competitors’ products be more or less expensive than ours because of new tariffs and taxes? When and how can we align our business with trade flows into new corridors? What new economic and security alliances could also create opportunities for us to grow or to change our cost structure? What industrial policy incentives might present significant growth potential for us? How is our risk-adjusted cost of capital changing across geographies and how might we optimize our capital deployment?

When organizations view geopolitics through a value-creation lens, they can realize outsize benefits. Consider these examples:

  • A North American medical-devices company that shifts its manufacturing operations and supply chain to Mexico from another country to take advantage of trade agreements could save 15 to 25 percent on operating costs while increasing its operating resilience.
  • A payments company that moves into the Asia–Pacific region by 2027 could access an additional $1.5 trillion in revenues.
  • A semiconductor company that changes its sales and marketing strategy to include targets in the Taiwan-to-Singapore corridor could gain an additional $47 billion in market share.

By contrast, business leaders who disproportionately focus on the downsides can find themselves paralyzed, perpetually on guard for the occurrence of high-severity but low-probability geopolitical events. Instead, they should be systematically and continually assessing the full complement of value drivers across trade, economic, and industrial policies and in the areas of defense and security (Exhibit 1). These include tariffs, the provision of subsidies in support of national industrial policies, and governments’ bias toward investing in geopolitical allies across supply chains, talent, technology and data, capital deployment, and other business domains.

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