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.

CEOs and boards understand that a shift in the global order is under way.  However, many have yet to grapple with an important implication: these geopolitical shifts present not only risks to mitigate but also opportunities to seize.  Given their fiduciary responsibilities, business leaders understandably tend to focus primarily on the downsides of such shifts

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.

Ten key value drivers that leaders should explore in the wake of geo-politics risks are:  trade agreements; import and export controls; domestic, environmental, labor and immigration policies; tariffs and other trade barriers; domestic industrial policies; foreign investment restrictions; sanctions, embargoes, and restricted lists; multilateral cooperation and alliances; conflicts; and technology, intellectual property, and cyber security controls.

Many management teams and boards have made a point of aligning their corporate strategies and capabilities with realities on the ground. They have appointed a chief geopolitical officer, set up geopolitical intelligence units to provide early warning of emerging events, developed response plans to empower CEOs in times of crisis, and protected their supply chains from external shocks.  A few advanced leadership teams are taking the next step, however, and exploring ways to create value amid geopolitical disruption. They are finding opportunities in three areas in particular—accelerating growth, optimizing business operations, and developing capabilities and strategies to address global disruption.

It’s one thing for a business executive to be informed about the potential upsides and downsides of geopolitics. It’s another thing entirely for the organization to have the capabilities required to respond to them—including corporate strategies that take geopolitics into account, building a dedicated geopolitical functional group, establishing a crisis response playbook, and capital structures that are sensitive to geopolitical realities.

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