McKinsey · Ideas & Institutions
TIER 4 Wed, 13 Aug 2025 18:34:00 +0000
How businesses can adapt to geopolitical turbulence | | --- | | | | --- | | --- | | | | --- --- | | FRESH TAKES ON BIG IDEAS --- | | --- | | | | | --- | | #### ** ON BUSINESS AND GEOPOLITICS Business in a time of geopolitical change ** --- | _ Matt Watters_ --- | --- | --- | | | For much of the last 30 years, geopolitics has been an ancillary consideration for business leaders—taking a back seat to macroeconomic, strategic, and technological concerns. Not anymore. In late 2024, a McKinsey global survey of 900 executives found that they consider geopolitical tensions the single greatest risk to economic growth. Trade norms and economic policy assumptions are shifting, and a new geopolitical era seems to beckon. Amid this turmoil, it’s important to remember that disruption can offer opportunities alongside its challenges. Turning a blind eye to disruption—or viewing it solely as a danger to be guarded against—can cause executives, and the companies they lead, to get left far behind when the dust settles. Across industries, in work conducted alongside my colleague Shubham Singhal in McKinsey’s Geopolitics Practice, we see forward thinking leaders asking how to thrive in the face of new market dynamics catalyzed by geopolitics. When looking to create value during a time of geopolitical change, businesses can take three core actions: **Prepare for the moment.** To stay ahead, businesses can build dedicated, in-house geopolitical assessment teams that provide input into high-level decision-making. These teams should not only consider _what_ could happen but also _how_ to react, with an eye toward value creation as much as risk mitigation. These units can run scenarios and develop playbooks that include event-based triggers. Emphasis should be placed on strategies that enable organizations to capitalize on potential policy shifts—such as new industrial incentives or trade agreements. As the saying goes, luck is when preparation meets opportunity. --- | | | --- | | ## “For agile organizations, global shake-ups can present opportunities to thrive.” --- | | --- | | | **Identify opportunities for commercial acceleration.** Businesses can seek avenues for commercial acceleration relating to several geopolitical levers. --- | | | | • --- | _Tariffs:_ While tariffs can affect everyone, the impact on margins and cost of goods will likely be greater for some than for others, due to varying supply chain footprints and cost structures. Organizations may want to pursue targeted growth opportunities by scaling in advantaged markets and aligning their operations with shifting trade priorities. They may also be able to use strategic pricing to capture market share from their more affected peers. --- | | | | • --- | _Industrial policy:_ Tax credits, subsidies, and other industrial policies intended to promote domestic industries have grown nearly four times larger since 2017. Incentives included in the 2022 CHIPS Act in the US, to take one example, boosted the return on capital for several semiconductor companies that prioritized US manufacturing. Because these policies can change, it’s important for companies to consider whether potential investments will remain viable even in the policy’s absence. --- | | | | • --- | _Free trade agreements and trade deals:_ New agreements regulating international trade can widen the total addressable market for businesses, creating opportunities to expand into heretofore untapped trade corridors. Regional trade agreements have increased by roughly 30 percent since 2017. These agreements often lower trade barriers by, for instance, simplifying customs procedures, and they can create more favorable conditions for businesses to invest and scale. Organizations might consider entering markets where demand is proven, and competitors face more exposure. --- | | | | • --- | _Export controls:_ When governments limit exports in key sectors—including emerging technologies such as quantum computing and nuclear fusion—unaffected foreign businesses can move to fill resulting market gaps. --- | | | | • --- | _Investment controls:_ Similarly, when governments apply investment controls to safeguard national security, domestic investors can move to capitalize on a lack of competition from foreign capital, enabling them to consolidate domestic market share and expand margins. --- | | **Play offense and defense.** Businesses can adopt an opportunistic mindset and aim to secure a first-mover advantage. At the same time, they can balance their aggressive initiatives with “no regrets” defensive actions to reduce exposure and reinforce supply and cost certainty. Diversifying supply chains to geographies with lower tariff volatility, securing inventory buffers to guard against short-term disruptions, locking in pricing with key suppliers, and implementing dual-sourcing and multiplant strategies are all actions that can help reduce risk. What’s important is to remember that offensive and defensive moves are not mutually exclusive and can be deployed concurrently. --- | | _—Edited by Seth Stevenson, senior editor, New York_ --- | | | **Share Matt Watters’ insights** | | | | --- | --- | --- | | --- | | | **ABOUT THIS AUTHOR ** --- | | | **Matt Watters** is a partner in McKinsey’s New Jersey office. --- | | --- | | | **MORE FROM THIS AUTHOR ** --- | | | | | | --- | ## **From protection to promotion: The new age of industrial policy** --- | Government subsidies, investment incentives, and other industrial-policy actions have almost quadrupled since 2017. Here’s how business leaders can navigate the impact of industrial policy on their markets. --- | **More** --- | | | | --- | ## **A proactive approach to navigating geopolitics is essential to thrive** --- | Business leaders must go beyond mitigating geopolitical risks to seizing the opportunities presented by the new world order. Here’s how. --- | **More** --- | | | **UP NEXT** --- | | ## **Ani Kelkar on industrial robotics** --- | | ### The next wave of industrial robots could be humanoid. How can companies prepare for introducing robot employees into their workforces? --- | | --- | | | --- | | | | | --- | **Follow our thinking** | | | | ---|---|--- | | | | | **McKinsey Insights** \- Get our latest thinking on your iPhone, iPad or Android. --- | | | | ---|---|--- | | This email contains information about McKinsey's research, insights, services, or events. By opening our emails or clicking on links, you agree to our use of cookies and web tracking technology. For more information on how we use and protect your information, please review our privacy policy. --- | You received this email because you subscribed to our _McKinsey Quarterly_ alert list. --- | **Manage subscriptions** | **Unsubscribe** --- | Copyright © 2025 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007 ---