Business leaders today confront a changing world order: intensifying regional conflicts, rising instability, and potential shifts in trade relationships and policy. On this episode of The McKinsey Podcast, Cindy Levy and Shubham Singhal, global coleaders of McKinsey’s geopolitics work, speak with global editorial director Lucia Rahilly about how leaders can orient themselves within this evolving geopolitical landscape and, in particular, begin to move beyond mitigating risk to finding and mobilizing on new opportunities.
The McKinsey Podcast is cohosted by Lucia Rahilly and Roberta Fusaro.
The following transcript has been edited for clarity and length.
Lucia Rahilly: Coming out of the holidays, I have consumers on my mind, Roberta. I’m a consumer, of course, and I was also reading about a sea change in what motivates consumers to buy. We published an article about the “value now” consumer, which says that until recently, consumer sentiment and spending tracked in sync, but not anymore. Now, consumers might feel pessimistic about the economy—and spend anyway.
Roberta Fusaro: Something else that may influence consumer spending in 2025 is the potential for increased tariffs. But tariffs are nothing new; they go all the way back to ancient Rome, where imported goods were taxed at a rate 25 times higher than domestic goods. I picked up this cool little fact from our article on tariffs. It digs into the history, explains when and why governments might use them, and suggests ways that businesses can respond to them.
More than mitigating risk
Lucia Rahilly: Geopolitics has been all over the headlines, given rising tensions among regions across the globe. Cindy, what does the term geopolitics encompass in today’s context?
Cindy Levy: Geopolitics is driven by the competing strategic priorities of nations. And nations will utilize a number of methods and measures to execute that strategic competition. That goes beyond security. It includes industrial and trade policies, as well as security policies, including conflict.
And whereas the impact of geopolitics on most global companies used to be relatively benign, we now see a break in this trend. This is a very big value swing for companies. We only need to look at some of the recent events and the impacts they’ve had. During the last Suez Canal disruption, certain EU–China trade routes became three times costlier. If you look at the Russia–Ukraine conflict, there are estimates suggesting that European companies may have lost $100 billion in enterprise value.
The value swings are significant. As a consequence, leaders now say geopolitics is the number-one agenda item that could change value or create disruption for their enterprises. Therefore, geopolitical muscle involves a more rigorous, quantitative, forward-looking view so that companies can factor in how to operate and change strategic agendas.
Lucia Rahilly: These dynamics obviously present risks. Do they also present new opportunities for leaders?
Cindy Levy: Yes. The definition we’re using and the engagement we’re having with leaders is to look at both opportunities and risks. How is trade shifting? In what regions? For which subsectors? For which goods? Companies need to understand these factors because they can present immense opportunities.
Companies are starting to build their geopolitical muscle by deeply understanding scenarios—to quantify what they mean for the economies in which they operate and for forecasting opportunities and risks, as well as for their operations and where they might need to diversify. For example, some companies that want to diversify in, say, consumer goods or manufactured products are now thinking, “Maybe we should bring forward our India market entry by a year. How do we create an entry strategy that is fast and has high impact?” We are expanding those conversations on market entry into eight to ten high-growth markets.
Global financial firms that are very connected to trade finance and payments are asking, “How do we really understand these trade corridors? Southeast Asia to the US has blossomed as a trade corridor. Have we really put coverage and infrastructure in Vietnam, Thailand, and Cambodia to make sure we benefit from the growing trade in those regions?” Those are examples of opportunities. There is an imperative to look at both the opportunities and the risks.
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Where to start
Lucia Rahilly: Clearly, business leaders have been navigating years of potentially destabilizing disruption. And the operating environment for leaders has been tough and uncertain. Is there some starting point for them to begin assessing where the opportunities lie for their organizations?
Shubham Singhal: We advise leaders to ask themselves, “How does this affect value creation, and where might it drive growth?” Cindy gave some examples; I’ll give you a couple of others.
There are at least two things we ask our clients to really think about. One is the global footprint of their businesses: the portfolio, the scale they have, the market entry decisions they’ve made, and where they have placed their operations. That is very important and drives a lot of the M&A divestiture partnerships.
The second is around commercial acceleration. For example, one of the banks that has a significant business around trade finance really stepped back and looked at how the trade corridors would shift over time. In parts of Africa, they said, “OK, as the shifts play out, and perhaps trade moves from the US–China corridor into others, are we aligning our commercial teams against those opportunities? Are those teams briefed on what changes and triggers to watch for that would prompt businesses to take action and move? Are they there and having conversations with their customers at those points in time?”
Geopolitics and global talent
Lucia Rahilly: Talk to us about the implications of these geopolitical shifts on talent for global businesses. Does being smart on geopolitics also mean rethinking where leaders hire or the kinds of skills they need in different geographies?
Shubham Singhal: As we know, for a business, a big part of productivity and outcomes is driven through talent infrastructure. This is perhaps the biggest challenge that most global institutions have: How do you knit together the greatest talent and create workforce cohesion across cultures and nationalities but, at the same time, deal with the shifts you have to make?
For example, one global bank looked at its call centers across multiple geographies and did a geopolitical scan—not just based on business continuity to the point of opportunity but also looking at available labor skills, as well as wage rates. How are they likely to move? What domestic incentives might be in place? How do changes in labor laws and immigration patterns alter those equations? And where do we need to place some of our people and operations so they align with changes in cross-product trade flows and with the markets in which we operate?
Issues related to visa and trade restrictions, which all get negotiated as part of the trade agreements governments conduct, become major decision points in creating your global talent footprint. And then being able to bring that group together to feel like part of a global whole is a real culture management challenge.
Strategy and scenario planning
Lucia Rahilly: Cindy, how should executives think about monitoring and mobilizing against these geopolitical risks at the corporate strategy level?
Cindy Levy: First, there’s a need to present much more rigorous scenarios to management teams. For example, the banking sector has already developed pretty sophisticated geopolitical stress-testing regimes. Banking leaders are able to take potential trade policies or industrial policies and really run through how they might affect GDP in all major markets, as well as interest rates and inflation rates. A series of actions comes out of those tests that are then fed into business decisions.
A second element we’re discussing a lot is how to structure a global enterprise today, given these geopolitical agendas. We’ve had an era where being globally optimized was better. Now, there are different concerns. Do companies need operations in different parts of the world organized in separate legal entities that perhaps have their own governance and their own boards? And do they need to be more readily separable, or at least reducible under different scenarios? Do tech and data have to be more separable for different parts of the world because of data priorities that each nation might have?
Do firms also need to ensure that certain functional processes, like finance and people processes, are more tailored to the region? Also, what is the company’s geopolitical operating model going to be? Some firms have very significant in-house teams, while others rely on external insights. How is that organized?
And finally, crisis scenarios. There’s more and more of an imperative to play through what could happen and what it will mean and to think early about what an organization’s responses might be. If the next wave of tariffs is going to be X, and I’m a big importer, what are the next five countries I need to move to? These are some of the corporate muscles that will need to be augmented in the next era.
Getting thoughtful on tariffs
Lucia Rahilly: Shubham, talk a bit about how leaders might think about tariffs.
Shubham Singhal: We advise our clients to understand what national interest is sought to be served by the imposition of tariffs. The number of reasons tariffs are being applied is broadening. That’s important because it determines whether a tariff will be applied for a long period of time, or perhaps be announced and then negotiated away, or perhaps be announced, go into place, and then be taken away once conditions are met.
Three or four reasons to mention. One is to balance trade. When there’s a belief that there isn’t a fair exchange, a set of tariffs could be put in place, and if a deal isn’t reached between nations, it might continue to be in place.
Second, national security. There are a number of areas where tariffs in a strategic competition get placed even without the trade view, just to put up some walls. Some folks have called this the “small yard, high fences” model.
Third could be the increasing discussion on whether tariffs can be used as a tool of foreign policy by the US, more so than sanctions, and preemptively be deployed to bring parties to the table to negotiate settlements, rather than have them open out into bigger conflicts.
Each of these different types will have a different longevity and a different set of outcomes. Once clients understand that, then they can act. Tariffs that are likely to go in and stay in do require, as we described earlier, changes to supply chains, manufacturing sites, or where leaders operate their businesses. Others require more tactical, short-term management of exposures organizations might have.
One final thing we’d say is that, as Cindy mentioned, a very close ear to the ground is necessary to understand what is likely to play out versus what just shows up in the news.
Different sectors, different challenges
Lucia Rahilly: Cindy, you alluded to global financial institutions earlier in this discussion. Could you say a bit more about how leaders of financial institutions and investors should be thinking about navigating these challenges?
Cindy Levy: Yes, we’re getting questions from all sectors. And we’re developing sector-tailored perspectives, appropriately so.
In general, financial institutions could understand all aspects of trade policy better—tariffs, export controls—because financial services often mirror the real economy, and all their prospects are linked to the real economy. There is the need to understand over time what will happen subsector by subsector: which sectors are vulnerable and where there might be a change in corporate health in different sectors. Where do I need to worry about the creditworthiness of different sectors and different geographies because of some of these exposures?
Therefore, there are a number of medium-term builds that financial services will need to make. There are also some more immediate opportunities that may emerge on the back of potential US election consequences. And there are things like digital assets. Will there be more acceptance of digital assets as a set of national policies? A surge in transactions: Will regulation and the lessening of certain regulatory impediments create a wave of deal flow? There are some immediate mobilizations needed to make sure global financial firms are ready to move into these opportunities.
To Shubham’s point, there will always be some policy moves that might be immediate. But then there are some—I would call them more “known knowns”—medium-term secular trends that also need to be responded to with capabilities built over time.
Lucia Rahilly: Shubham, anything data or tech leaders need to keep in mind?
Shubham Singhal: The biggest challenge for data and tech leaders is that the global infrastructure around data and your tech stack has become impossible. Many industries have dealt with this over time, so it’s not a new problem. It’s quite important to understand how to optimize that for the varying degrees of regulation and security controls being put in place in a way that is cost-effective. That requires fundamentally understanding your business—how the flows work across the business and how work gets done—and then being able to look at your technology stack and realign it, including the earlier points on moving operations around. It’s an interesting and complex question.
