Unlock Business Potential in a Geopolitical World
How a Proactive Approach to Geopolitics Can Generate Value
Many management teams and boards have aligned their corporate strategies with geopolitical realities. They have appointed chief geopolitical officers, set up intelligence units, and developed response plans. Some advanced leadership teams are taking it a step further by exploring ways to create value amid geopolitical disruption.
Accelerating growth is one area where businesses can thrive. By assessing growth scenarios and identifying opportunities, companies can attract new customers and capture more market share. For example, Caterpillar was well-positioned to increase sales in Australia and Chile due to free trade agreements. Shifts in trade corridors are already reshaping industries, and business leaders must monitor where foreign direct investment lands.
Portfolio rebalancing is another crucial aspect. Geopolitical shocks can cause stable business segments to falter, while overlooked ones may offer new potential. Companies need to continuously assess and reallocate capital to higher-growth, lower-risk segments. One private equity fund redirected portfolio companies to more stable geographies, and a global dairy organization sold off a business unit and reinvested in a growing region.
Optimizing Core Business Operations
Business leaders can enhance organizational resilience by assessing how geopolitical shifts affect their operations. Operating footprint decisions are crucial, as seen with Samsung and Apple. Supply chain disruptions have led many companies to source from multiple vendors and use advanced technologies.
One CPG company constructed a digital twin of its supply chain to understand the effects of geopolitical shifts. It reduced reliance on third-party manufacturing sites and improved various aspects of its operations. Other companies are leveraging industrial policies for domestic production and supply chain localization, like Tesla.
Geopolitical tensions also complicate talent management. Companies can review talent concentration patterns and localize important functions. Egis maintained operations in Ukraine during the conflict by pivoting to remote work. A global bank relocated employees to avoid visa and trade restrictions.
Multinational organizations' technology and data footprints are exposed to geopolitical risks. Global IT leaders need to assess and hedge against these risks. Google chose Finland for data centers, and Malaysia offers incentives for data centers.
The Capabilities and Strategies Required to Respond to Geopolitical Disruption
Business executives need to broaden their view of corporate strategy. They must monitor geopolitical risks and economic policies and incorporate them into their planning. Scenario planning and tabletop exercises help leaders make informed decisions and focus on controllable factors.
Future-proofing multinational organizations is essential. Companies need to anticipate the impact of potential laws and regulations. Some rely on structural segmentation, while others focus on resolution planning to ensure stable growth pathways.
Establishing a dedicated geopolitical functional group can help companies respond quickly. Led by a geopolitics officer, it provides regular opportunities for boards and senior leaders to discuss geopolitical risks and opportunities.
Finally, establishing a crisis response playbook is crucial. It provides a guide for working through volatility during geopolitical events. One semiconductor company delegated responsibilities during supply chain disruptions.
As our overview shows, a proactive approach to geopolitics is essential but challenging. Organizations need insight, foresight, oversight, and the right capabilities. The effort is worthwhile, as those who act on the shifting world order will be tomorrow's market leaders.