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48 min ago 3 min read
As the Middle East crisis continues to impact the global business environment, companies that understand the shifting dynamics and reshape their production footprints, capital allocation, and operating models will be best positioned to thrive.
The McKinsey Global Institute has modelled trade corridor growth patterns and found that the value at stake (the difference between minimum and maximum values of corridor trade across various scenarios) could equal 31% of total projected trade in 2035, or about $14 trillion.
McKinsey recently published a paper highlighting its top five steps for turning geopolitical volatility into commercial advantage.
1. Identify priority trade corridors and growth pockets
Leaders can categorise corridors based on those corridors’ resilience in different trade scenarios, from safe bets (for example, India-linked corridors are projected to grow the fastest in all trade scenarios) and cautious bets (corridors linking emerging markets to advanced economies, such as between the Association of Southeast Asian Nations and the US or between Europe and Latin America, for example), to uncertain bets (such as China- or Russia-linked corridors).
2. Deploy capital strategically
In the past, organisations established manufacturing footprints largely to ensure just-in-time supply. Today, preserving optionality and leveraging industrial incentives are more important considerations. Flexibility in production networks matters as much as cost in today’s volatile trade environment. Keep your eye out for relevant industrial incentives too.
3. Strengthen operational resilience
Maintaining global operations can be a considerable competitive advantage, enabling organisations to swiftly reconfigure supply and product volumes when disruptions occur. However, a global footprint also exposes companies to geopolitical risks. Assess and diversify supplier networks, build flexibility into workforce models, and optimise data and technology stacks regionally. However only 42% of global supply chain executives say they understand the operations of suppliers below the first tier, a smaller share than in 2022.
4. Expand organisational agility and foresight
Agility can boost a company’s ability to capture growth opportunities while reducing risk from exposure to geopolitically distant markets. By planning, thinking through contingencies, and exploring scenarios, businesses can develop strategic foresight that can enhance their agility.
5. Manage near-term earnings exposure
New tariffs, pricing disruptions, or increases in cross-border transaction costs usually require quick action to protect quarterly earnings. Strong balance sheets and access to capital are also necessary for companies to absorb geopolitical shocks and seize opportunities – shifting supply, establishing inventory buffers, or reallocating capital as needed.
Key takeaway
Geopolitical disruption is no longer transitory but structural. CEOs should now challenge their assumptions on a permanent basis. While global trade is not slowing, its growth is volatile and concentrated in specific trade corridors. Those who recognise the opportunities in today’s geopolitical realignment can create leading global institutions in the new trade era.
