Back in 1959, our former colleague Gil Clee cowrote an article in Harvard Business Review that urged CEOs to embrace the challenge of creating “world enterprises.” Given the rapid expansion of international trade taking place at that time, the article advised CEOs “to view [their] responsibility as global in scope … and to organize [their] corporation in such a way that its major decisions are considered and made in the light of world conditions and opportunities.”
In the decades since, large corporations have evolved from predominantly domestic organizations with stand-alone international divisions into enterprises with global corporate capabilities supporting multiple geographic or product-aligned business units. In so doing, multinational corporations (MNCs) have been able to harness the best capabilities, assets, and talent across their geographies, delivering significant economic growth and productivity.
Today, the morphing geopolitical order is raising cross-border constraints, producing escalating friction for global operators. Leaders of multinational companies now face the challenge of
adapting their organizations to fit this fragmenting, complex, and uncertain global business environment. CEOs of MNCs are frequently asking how to reimagine their operating models for the future. While answers vary based on the nature of each business and where it is headquartered, one truth spans all scenarios: The MNC model will need to move beyond enabling growth and efficiency to also embedding the adaptability to capture opportunities and the resilience to withstand geopolitical shocks.
Successful MNC leaders will increasingly make business decisions informed by the impact of geopolitics on their strategic priorities. In particular, they need to weigh the implications of ten geopolitical factors, most of which increase the complexity of doing business globally supported by formal governance and organizational structures (see interactive deep dive “The ten geopolitical factors affecting global business”).
As the impact of each geopolitical driver unfolds, new norms will in time take form. In the meantime, MNC leaders should prepare for different scenarios stemming from the geopolitical shifts by exploring three fundamental aspects of their organizations: value at stake, governance structure, and organizational structure.
The ten geopolitical factors affecting global business
After World War II, Western allied countries established a common set of rules and institutions to govern global trade and economic cooperation, which supported international market expansion. The end of the Cold War further solidified a common global framework for cooperation on economic and security interests, laying the foundation for multinational enterprises. In recent years, however, the rise of geostrategic competition has caused norms to fray, increasing the risks, complexity, and costs for multinational operators. Today, the multinational corporation (MNC) must contend with geopolitical shifts across ten dimensions (see interactive deep dive below).
These geopolitical factors will have varied, and sometimes contradictory, implications for multinational companies. Some, including export controls, sanctions, and investment restrictions, may constrain MNCs’ ability to operate globally, limiting their scale and growth prospects. Conflicts and tariffs may affect their supply chains, causing costly operational disruptions for companies that have not made contingency plans. Other drivers, however—such as domestic industrial supports and trade and security agreements—may create paths for MNCs to expand into new markets and trade corridors and take advantage of significant new investment opportunities or incentives. Critically, these shifts will have a different impact depending on the company’s business and geographic mix, thereby affecting competitors’ relative advantages. MNC leaders should be prepared to both protect their current franchises and propel forward to create value.
Value at stake
Most MNCs have well-defined value creation theses for their businesses. However, recent geopolitical developments may have made the assumptions behind these theses obsolete. Business leaders should stress-test and, where necessary, modify their companies’ strategic plans by considering the following questions:
- Value at stake. What is our company’s geopolitical value at stake, both enterprise-wide and by business area? To what extent will geopolitical exposure create swings in revenues, costs, and capital requirements?
- Positioning for the upside. Does our value creation thesis account for changing trade corridors to capture potential new areas of organic or inorganic growth? Does it factor in new industrial incentives or opportunities to realign global operations to improve cost or capital efficiency?
- Risk appetite. What level of value erosion can our enterprise tolerate if certain geopolitical scenarios were to cause such a decline? What level of value erosion relative to our competitors can we accept? What mitigations are we ready to employ to limit losses in value under these scenarios, such as plans to exit markets or reduce resources, streamline product portfolios, or rationalize operations in geographies that become less attractive because of geopolitical developments?
To understand the risk and value at stake, companies should evaluate the geopolitical exposure embedded within their global footprints. To do so, they can use the metric of “geopolitical distance.” Grounded in patterns derived from UN voting records, geopolitical distance serves as a proxy for the degree of alignment between countries’ foreign policies. Greater geopolitical distance between two countries signals more divergent foreign policy positions, which are often associated with increased geopolitical tension, such as the imposition of tariffs, sanctions, or export controls. Accordingly, the higher the geopolitical distance of a company’s operational functions from its home country, the greater its potential exposure to events that can adversely affect value, whether through disrupted growth or reduced operational efficiency.
MNCs should assess geopolitical distance across at least five facets of their footprint, with a focus on geopolitically divergent geographies:
- profit and loss and balance sheet exposure: the spread of the company’s revenues, earnings, and capital
- manufacturing footprint exposure: deployment of manufacturing operations and fixed assets across jurisdictions
- IT and service functions exposure: proportion of functions (including IT, call centers, and finance), particularly those serving cross-border needs, in different jurisdictions
- supply chain exposure: dependence on different jurisdictions for both finished goods and components, raw materials, technologies, and intellectual property necessary for production
- talent exposure: the geographic distribution of employees, contractors, and the talent pipeline, particularly those serving cross-border needs
Over time, some companies may choose to reduce their geopolitical distance on one or more of the above dimensions to diminish risk. This could involve streamlining their operations and business portfolios to be geopolitically closer to their home locations or aligning operations more closely with end markets to limit exposure to cross-border complexities. Others may opt to retain a higher risk profile due to outsize value creation opportunities, be they accessing a better cost structure, critical talent, or a growing market. In either case, these decisions involve trade-offs—between growth, scale, efficiency, flexibility, and risk—that should align with the company’s strategy and geopolitical context.
Consider two companies’ geopolitical exposure across their operational footprints (Exhibit 1).
Governance structure
Given the geopolitical uncertainty, embedding flexibility into the company’s legal and capital structure can help business leaders both access new opportunities as they emerge and pull back from markets quickly when necessary and without stranded costs. Accordingly, MNCs should consider whether it would be advisable to establish independent legal entities in geopolitically distant geographies to create structural separation. Local entities can better align with and respond to the laws and policies of their respective jurisdictions, help the broader enterprise tap regional business opportunities, and ensure financial reporting, capital adequacy, and resilience at the appropriate level for the jurisdiction. Such entities can also facilitate swifter exits from high-risk markets, if needed.
When weighing these considerations, MNC leaders should ask themselves the following questions:
- Degree of legal localization. For which jurisdictions do the local compliance and policy requirements merit setting up a legal corporate entity? Does such an entity need to be country specific, or could it be regional in nature if enabled by common regulations under a regional free trade agreement? Where is the presence of such a legal entity essential to engaging stakeholders or attracting the necessary talent and services to operate effectively?
- Capital flexibility and third-party governance. Which jurisdictions merit a separate capital structure? Where might joint ventures or minority equity partners help us reduce capital exposure today and potentially enable swift further reductions in the future? Where should we consider attracting third parties and local leaders onto independent legal-entity boards? What playbooks exist to assist us in timely decisions, based on predefined triggers, about legal-entity measures?
- Degree of cross-entity interdependence. What is the desirable level of service provision and interdependence between our legal entities, considering potential geopolitical developments? Where is it essential to have the option of fully separating the entity from the broader enterprise? Where can we enact future service level agreements and for what categories of services?
Of course, MNCs have long wrestled with such decisions. RELX, a UK-based information and analytics provider, for example, established LexisNexis Special Services Inc. (LNSSI), a wholly US-owned subsidiary with a distinct board of directors, to gain eligibility for contracts with US government agencies. This structure enables the organization to comply with regulatory and operational requirements specific to the US public sector. More recently, a large investment firm restructured into three independent regional partnerships to better respond to increasingly complex and divergent compliance regimes, investment restrictions, and geopolitical tensions across key markets.
To simultaneously manage opportunity and risk, some companies adopt hybrid ownership models in which subsidiaries are majority foreign owned but locally listed. This approach allows companies to access local capital markets and build local brand equity, while helping the multinational organization comply with local regulations, manage local capital controls, and retain strategic optionality, including potential profit repatriation. Unilever, for example, owns 62 percent of Hindustan Unilever, a publicly listed subsidiary on the Bombay Stock Exchange. Similarly, Heineken Malaysia Berhad is listed on Bursa Malaysia but is majority owned by Heineken N.V., the Dutch parent company.
Organizational structure
In addition to formal governance changes, MNCs may need to adjust their organizational structures in response to geopolitical shifts. Unlike governance changes, these adaptations do not necessarily involve modifications to legal entities but rather reflect strategic reorganizations to centralize or separate business units, functions, and shared services across distinct geopolitical spheres. Organizational adaptations may also entail different approaches to workflows and capabilities, talent, and culture (see sidebar “Geopolitical implications for multinationals’ workflow and talent models”).
The choices organizations face go beyond simply being global or local. The degree of centralization is instead a spectrum, ranging from business units operating as stand-alone entities within a holding company to the entire organization functioning as one cohesive unit (Exhibit 2). Each corporate function may have unique requirements along the global versus country-specific spectrum. For example, HR may have local immigration functions, and finance may require country-specific capital control compliance mechanisms, as may IT to comply with data sovereignty restrictions.
When considering which model would work best for their organizations, MNC leaders could consider the following questions:
- Business unit structure and role of headquarters. What should be our operating-unit structure for the coming geopolitical era? Will business lines need a more geographic axis or a more global one? Should strategic and operational decision flows and resources mirror business unit structures to enable speed of execution? What is the role of headquarters and corporate leadership in the future organization model (a central operator, strategic controller, strategic architect, or holding company)?
- Geopolitical-intelligence units for evaluating scenarios and strategic implications. How should we assemble and update geoeconomic insights, strategies, and responses for all geographies? Are our geopolitical-intelligence needs better served by a more centralized approach or one where more devolved units develop perspectives and strategies for their own most critical commercial corridors?
- IT and data model. What is our organizational model for technology and data, given one-, three-, and five-year outlooks for data localization and technology resilience requirements? What central standards and capabilities can we maintain, and where is localization essential?
- Geopolitical risk management and compliance. Is our geopolitical risk management set up to effectively identify exposures, concentrations, and mitigations? Do we have sufficient legal and compliance capacity to meet rising geopolitical requirements, from tariffs to sanctions? Which teams should be centralized and which need to be local in specific jurisdictions?
- Operations and manufacturing. Do centralized material- or capital-intensive units for operations or manufacturing have sufficient knowledge to optimize local supply chain strategies, or should supply chain functions be operated at the local level?
- Shared services and functions. Should marketing, legal, IT, HR, finance, and other services and functions be shared across jurisdictions or localized? What is the right balance between deriving value from economies of scale, global excellence in capabilities and skills, and access to the best talent versus the need for local compliance?
As with formal governance structures, MNCs have increasingly weighed these factors in recent years. For example, HSBC has been pursuing greater decentralization. In late 2024, the company split its operations into two business units: Eastern markets (headquartered in Hong Kong) and Western markets (based in London). In March, HSBC rebranded these units as “Asia and the Middle East” and “Europe and Americas,” respectively. The company’s leaders viewed this shift as a way to remain agile across their global operations and respond to regulatory changes and increasing economic uncertainty in key markets without needing to establish separate joint ventures or subsidiaries.
Multinational corporations have created significant value for their stakeholders by harnessing the opportunities created in a low-friction global order. As the geopolitical climate changes, so must MNCs’ design. With the right adaptations, global companies can access new opportunities and maintain resilience in the face of shocks. The challenge for their leaders will be making cohesive choices in developing their strategies, governance, and organizational structures in the face of persistent uncertainty.
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