Can your company remain global and if so, how?

Weekly Business Insights from Top Ten Business Magazines

Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 349 | May 17-23, 2024 

Strategy & Business Model Section | 1

Can your company remain global and if so, how?

By Andrew Grant et al., | McKinsey & Company | May 17, 2024

Extractive Summary of the Article | Listen

Rising geopolitical tensions are testing the resilience of global organizations and challenging existing growth strategies. Wars in Europe and the Middle East and escalating US–China competition have the attention of the executive suite and the boardroom. Global business leaders are asking, “What is the future of the global corporation? Do we need to fundamentally shift strategies and structure?”

The authors analysis shows that business leaders can take a systematic approach to building what they call geopolitical resilience. One element of that approach is conducting geopolitical-scenario planning, thinking through a set of “black swans, gray rhinos, and silver linings”—unpredictable and probable high-impact events, as well as potential opportunities amid the storm clouds. A second element involves upgrading board capabilities on geopolitical risk.

There is another emerging aspect of geopolitical resilience that increasingly arises in the authors’ conversations with business leaders—one that they refer to as “structural segmentation.” Structural segmentation describes a cluster of moves that global corporations are considering to mitigate geopolitical exposure, to enable locally informed decision making, and to clear a pathway to safe, stable growth.

The premise of a fully globalized world, which underpinned these moves, is now in question, and companies should respond. Legal, regulatory, economic, political, and social contexts are shifting. Companies are increasingly seeking an integrated approach to taking coordinated action across six domains: operations (that includes production and supply chains), R&D, technology and data, legal entity structure, capital, and people. Across each of these domains, we find that organizations typically contemplate either (re)committing to globality or structurally segmenting activities across geopolitically distant markets.

Structural segmentation can take several forms across a continuum. Full structural segmentation involves localizing parallel activities in multiple locations across the world. Factories, for example, may produce only for the regions in which they are located (often in a region or regions that have higher “geopolitical distance” from the company’s home market).

As an alternative, some companies are relocating toward home or geopolitically aligned countries, at least in select domains. In general, this involves preserving global connections—for example, housing most technologies in a home country, while creating a minimal viable footprint in geopolitically distant countries. In its most extreme form, however, this might include a major move, such as housing all R&D in the home market.

The intent is to respond to geopolitical realities while preserving the benefits of global reach and seizing opportunities for resilient growth.  Although there is a range of ways multinationals can employ segmentation, there are six main areas:  reshaping production and supply chains for resilience, Ring-fencing research and development, derisking technology stacks and data lakes, creating decision-making distance through legal entities, safeguarding capital invested in geopolitically distant regions, and securing people and connections.

3 key takeaways from the article

1. Rising geopolitical tensions are testing the resilience of global organizations and challenging existing growth strategies.
2. Business leaders can take a systematic approach to building geopolitical resilience. One element of that approach is conducting geopolitical-scenario planning, thinking through a set of “black swans, gray rhinos, and silver linings”—unpredictable and probable high-impact events, as well as potential opportunities amid the storm clouds. A second element involves upgrading board capabilities on geopolitical risk.  
3. There is another emerging aspect of geopolitical resilience refer to as “structural segmentation.” Structural segmentation describes a cluster of moves that global corporations are considering to mitigate geopolitical exposure, to enable locally informed decision making, and to clear a pathway to safe, stable growth.  Six main areas of structural segmentation are:  reshaping production and supply chains for resilience, Ring-fencing research and development, derisking technology stacks and data lakes, creating decision-making distance through legal entities, safeguarding capital invested in geopolitically distant regions, and securing people and connections.

Full Article

(Copyright lies with the publisher)

Topics:  Global Economy, Geo-political Risk, Economic Risk, Technology Risk, Strategy, Business Model, Supply Chain, MNCs, Production, Marketing, Distribution