Amid climate change, the AI revolution, talent shortages, high interest rates, and other challenges, many corporate leaders have overlooked the impact of geopolitics. But in an increasingly fractured world, businesses need the right talent, approach to decision-making, and leadership to sense and respond to shocks. 

by Nikolaus Lang

In times of relative peace and prosperity, geopolitics can feel like an afterthought for business leaders. When goods are exchanged smoothly and talent moves freely, it can be easy to default to a hope-for-the-best mind-set. 

Many of today’s leaders came of age during such a time. In the 1990s and 2000s, free trade was the dominant paradigm, and global institutions advanced the liberal agenda worldwide. But that era is now fading from view, as multiple spheres of influence align along divergent economic, technical, and military interests.

In this world, the ability to respond to geopolitical risk and crisis is not a one-off. Rather, it is a muscle that must be strengthened and toned continuously. At the core of this exercise is the ability to develop a broad but plausible set of scenarios for how the geopolitical landscape could evolve by 2030. Why scenarios? Because they tend to be precisely wrong – but generally right.

The Future Sits Between Opposite Extremes

On the one hand we can imagine a scenario that is popular and comfortable but, unfortunately, not very likely. We call it “back to the future,” because the world’s major powers would once again come to embrace the benefits of greater cross-border cooperation and minimal military conflict. In this scenario, free trade and multilateral institutions would be dominant, enabling constructive collaboration on global issues. 

On the other hand, we can envision a scenario characterised by global escalation. The increasing proliferation of conflicts in the last few years, such as those in Ukraine, the Middle East, and Sudan, has had an unimaginable human toll and massive macroeconomic effects. Under this scenario, conflicts would continue to spiral – in particular, in the Indo-Pacific region, with catastrophic implications on nations, societies, and the world economy.

Despite some recent sharp rhetoric, I do not believe that this extreme scenario is very likely – at least in the coming years – because of how intertwined the global economic system continues to be. Instead, the most likely scenario is the establishment of a multipolar world. 

The Rise of Multipolarity

The Western bloc, made up of the U.S., Europe, and their allies in the Indo-Pacific, is growing more integrated as it flexes its collective economic might through coordinated trade agreements and shared financial markets. Technologically, the West is pushing innovation through joint research, especially in AI, cybersecurity, and clean energy. We’ve also seen a recent strengthening of military alliances – in the re-awakening of NATO, but also in the stringent build-up of a net of U.S.-led alliances such as the QUAD and AUKUS.

A “new” Eastern bloc, led by China and Russia and tied to nations like North Korea and Iran, is advancing economically through cross-regional infrastructure projects such as the China-led Belt and Road Initiative. Technologically, the Eastern bloc is focusing on self-reliance, particularly in semiconductors and telecommunications. Military collaboration is on the rise: consider the maritime drill that brought together Russian, Chinese, and Iranian navies in the Gulf of Oman in March of this year.

We also observe the emergence of a third group, made up of regional powers such as India, Indonesia, or the Gulf countries. These nations share a strategic goal of mastering the balancing act between West and East. They are harnessing their assets – be it natural resources, abundant talent, or attractive geolocations – to shape a non-aligned path and to create new, independent spheres of influence across South Asia, the Middle East, or Africa.

How Leaders Can Build Their Geopolitical Muscle

As these blocs continue to build influence and resources, global business will inevitably experience shocks and disruptions. To prepare, they must develop their geopolitical muscle. What does this entail?

1. Acquire and empower the right talent. You need people in your organisation capable of sensing and anticipating shocks, tailoring and monitoring scenarios, and designing resilient supply chains and operating models. And you’ll need to equip them with the tools and resources to be able to respond in the event of crisis.

2. Integrate geopolitics into everyday decision making. Geopolitical risk can’t be pushed to the side, and only considered when a global event occurs. It should be part of every major strategic move your company makes, similar to finance or legal considerations.

3. Cultivate a new leadership mind-set. Traditional leadership needs a geopolitical update. Corporate leaders should be inspired by historians, economists, and diplomats when assessing and responding to geopolitical shifts – ready to pivot strategies as the global risk landscape evolves.

The flip side of risk is opportunity. Corporations have a choice: Keep geopolitics as a “nice to have,” leaving them vulnerable and in a state of perpetual reaction, or make a decisive move to build their geopolitical muscle – and turn global shifts into advantage.

Dr Nikolaus S. Lang is a managing director and senior partner in BCG’s Munich office and has been working for the firm since 1998. Nikolaus is the global leader of the BCG Henderson Institute, BCG’s think tank, global vice chair of BCG’s Global Advantage practice, and chair of the Center of Geopolitics.

Dr Lang is co-author of the book Beyond Great: Nine Strategies for Thriving in an Era of Social Tension, Economic Nationalism, and Technological Revolution (PublicAffairs, 2020).