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June 2025 Geopolitics Practice Multinationals at a crossroads: Adapting to a new geopolitical era Leaders of multinational companies are grappling with fundamental questions about how to operate globally in a fragmenting world. The answer lies in reimagining their organizations for an evolving business environment. This article is a collaborative effort by Bob Sternfels, Shubham Singhal, Cindy Levy, Brooke Weddle, and Matt Watters, with Zoe Fox, representing views from McKinsey’s Geopolitics and People & Organizational Performance Practices. -- 1 of 11 -- 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 sidebar “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 multinational-corporation 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. 2 Multinationals at a crossroads: Adapting to a new geopolitical era -- 2 of 11 -- 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. Trade. Trade globalization has stagnated over the past decade. The creation of the General Agreement on Tariffs and Trade (GATT) in 1947 and its subsequent evolution into the World Trade Organization (WTO) in 1995 created a rules-based approach to trade, characterized by low and predictable trade barriers. This global consensus began to fray with China’s accession to the WTO, the rise of unilateral trade actions by major economies, and the failure of comprehensive trade negotiations (such as the WTO’s Doha Round).1 More focused bilateral and regional trade agreements (RTAs) have become many nations’ preferred method of cooperation, with the number of RTAs in force rising by approximately 30 percent since 2017 (from 291 in 2017 to 375 in 2025).2 China, for example, notified the WTO of ten new RTAs coming into force between 2017 and 2025,3 while the European Union signed the largest trade deal in its history with 1 “World Trade Organization,” Congressional Research Service, updated February 12, 2025. 2 Regional Trade Agreements Database, World Trade Organization, updated May 28, 2025. 3 Regional Trade Agreements Database: RTAs currently in force, 1948-2025, World Trade Organization, updated May 28, 2025. 4 Frederico Steinberg, “What are the implications of the EU-Mercosur free trade agreement?,” Center for Strategic & International Studies, December 6, 2024. 5 “General agreement on tariffs and trade,” Encyclopedia Britannica, May 27, 2025. 6 The total comprises 10 percent International Emergency Economic Powers Act (IEEPA) reciprocal tariffs and 20 percent IEEPA tariffs based on the fentanyl-related national-security emergency. 7 McKinsey Global Institute analysis. 8 Cindy Levy, Matt Watters, Shubham Singhal, and James Ivers, “From protection to promotion: The new age of industrial policy,” McKinsey, May 16, 2025. 9 Cindy Levy, Matt Watters, Shubham Singhal, and James Ivers, “From protection to promotion: The new age of industrial policy,” McKinsey, May 16, 2025. 10 Cindy Levy, Matt Watters, Shubham Singhal, and James Ivers, “From protection to promotion: The new age of industrial policy,” McKinsey, May 16, 2025. 11 Cristina Enache, “Corporate tax rates around the world,” Tax Foundation, December 12, 2023; Kari Jahnsen and Kyle Pomerleau, “Corporate income tax rates around the world,” Tax Foundation, September 7, 2017. 12 Cristina Enache, “Corporate tax rates around the world,” Tax Foundation, December 12, 2023. South America’s Mercosur bloc in early December 2024.4 Tariffs. Between 1947 and 1994, average global tariff rates on industrial goods fell nearly 90 percent (from an average of 40 percent in 1947 to 5 percent in 1994).5 Although some large economies continued to maintain relatively high tariffs, a consensus emerged to keep trade barriers low. The United States’ recent tariff actions have reversed this trend. These new measures include a 30 percent tariff on imports from China6 on top of existing tariffs imposed during the first Trump administration, a 10 percent blanket tariff on all US imports, a 25 percent tariff on goods from Mexico and Canada not compliant with the United States–Mexico–Canada Agreement (USMCA), and a 25 percent tariff on steel, aluminum, and automobiles. On June 3, the trade-weighted average tariff rate on US imports stood at 13.5 percent—more than quadruple what it had been in January and the highest in nearly 100 years.7 This rate does not factor in a package of reciprocal tariffs that the US government paused for 90 days starting April 9 (for all countries except China; the China tariffs were paused on May 14). If imposed, these additional tariffs could raise the US trade-weighted average import tariff rate to nearly 27 percent. Domestic industrial policies. Since the COVID-19 pandemic, many governments have increased their efforts to promote domestic industry through subsidies, tax credits, and other supports. Between 2017 and 2023, for instance, the European Union increased its annual number of new incentives by 465 percent, the United States by 518 percent, and China by 84 percent. (It’s worth noting that the Chinese baseline in 2017 was nearly quadruple its US counterpart and an even higher multiple of the European Union’s,8 making China by far the largest user of incentives.) Such incentives primarily take the form of financial, fiscal, and market-oriented supports, all of which have grown considerably in recent years.9 These incentives have a strong sectoral concentration, with 96 percent of the 2023–24 global subsidy value directed to only 13 product categories, including high-end equipment, defense, and semiconductors.10 Aside from industrial- policy measures, governments have been using tax policy to stimulate their economies. The worldwide average statutory corporate income tax rate, when weighted by GDP, dropped from 29.4 percent in 2017 to 25.6 percent in 2023—one of the steepest declines since the early 1990s.11 This drop was partly driven by the 2017 US Tax Cuts and Jobs Act, which brought the US statutory corporate income tax rate closer to the global median from what had been the fourth-highest rate in the world.12 The US Congress is currently weighing additional tax cut proposals. Domestic environmental, labor, and immigration policies. Diverging policy shifts can change countries’ and regions’ relative attractiveness for business. In the realm of environmental policies, for example, permit approvals for new capital projects can meaningfully alter the return on capital. Further, policies addressing 3 Multinationals at a crossroads: Adapting to a new geopolitical era -- 3 of 11 -- The ten geopolitical factors affecting global business (continued) environmental and climate change considerations can significantly shift energy costs, and thus operating expenses, particularly for energy-intensive industries. Uncertainty about policy direction can also affect companies’ ability to make capital commitments. Significant subsidies for electric vehicles, for instance, offered under the US Inflation Reduction Act, may be withdrawn in light of President Trump’s executive order proposing the elimination of the “electric vehicle mandate,”13 making it difficult for auto companies to commit to long-term investments in electric-vehicle (EV) infrastructure. Meanwhile, tightening immigration policies in many advanced economies may complicate multinationals’ ability to respond to labor market constraints. Export, import, and capital controls. The growing proliferation of export controls is being framed by governments as a response to rising national-security concerns. For example, when the United States tightened export controls on semiconductors, it stated that its action sought to impair “the PRC’s [People’s Republic of China’s] development of an indigenous semiconductor ecosystem—an ecosystem built at the expense of US and allied national security.”14 In recent years, the United States has expanded similar restrictions on technology with potential dual-use (both military and civilian) applications, such as simulation, modeling, and encrypted communications software. For its part, China recently implemented several export restrictions on dual- use technologies and critical minerals 13 “Executive order 14154: Unleashing American energy,” White House, January 20, 2025. 14 “Commerce strengthens export controls to restrict China’s capability to produce advanced semiconductors for military applications,” US Bureau of Industry and Security, December 2, 2024. 15 Amy Lv, Lewis Jackson, and Ashitha Shivaprasad, “China expands key mineral export controls after US imposes tariffs,” Reuters, February 4, 2025. 16 “EU sanctions against Russia following the invasion of Ukraine: Import and export bans,” European Commission, updated May 20, 2025. 17 Alexandra Prokopenko, “Russia’s capital controls are designed to aid Putin’s 2024 re-election,” Carnegie Politika, October 19, 2023. 18 “Treasury unveils new CFIUS enforcement website to provide further clarity and transparency regarding CFIUS penalties and other enforcement actions,” US Department of the Treasury press release, August 14, 2024. 19 “Investment screening,” European Commission, accessed on June 3, 2025. 20 “Foreign direct investment, net inflows (BoP, current US$),” World Bank Group, accessed on June 3, 2025. 21 Spencer Vuksic, “Sanctions year in review: How sanctions changed in 17 charts,” Castellum.AI, 2024. 22 Eleanor Hume and Kyle Rutter, “Sanctions by the numbers: 2024 year in review,” Center for New American Security, March 11, 2025. 23 “Where is OFAC’s country list? What countries do I need to worry about in terms of U.S. sanctions?,” US Department of the Treasury, accessed on June 3, 2025. 24 “EU sanctions tracker,” European Commission, updated May 2025. 25 Spencer Vuksic, “Sanctions year in review: How sanctions changed in 17 charts,” Castellum.AI, 2024. with potential defense applicability to “safeguard national-security interests.”15 Governments are also applying import restrictions and bans based on geopolitical factors. The European Union, for instance, has banned the import of Russian finished and semifinished steel products, helium, and gold, among other goods, in response to Russia’s invasion of Ukraine.16 The application of capital controls has also increased. In early 2024, for example, Russia mandated that some domestic exporters repatriate all foreign income and convert it to rubles in an effort to bolster national security and the domestic economy amid its ongoing war with Ukraine.17 Foreign-investment restrictions. In addition to using import, export, and capital controls to safeguard national security, many countries have increased restrictions on foreign direct investment (FDI). Between the start of 2023 and August 2024, the US Committee on Foreign Investment (CFIUS), the body responsible for reviewing foreign investments in US companies, issued triple the number of penalties it had applied during its previous nearly 50 years of existence.18 The scope of CFIUS rulings has also expanded from traditional defense applications to areas such as pharmaceuticals and media (TikTok being a notable example). The European Union, meanwhile, has proposed the requirement that all member states create national screening mechanisms for foreign investments that may pose risks to security or public order.19 As for China, Beijing’s restrictions on foreign investments in the country over the past several years— including foreign-ownership caps and requirements to form joint ventures with domestic firms—contributed to a nearly 90 percent drop in net inflow of FDI in two years, from $344 billion in 2021 to just $43 billion in 2023.20 Sanctions. The use of sanctions has expanded dramatically since Russia’s invasion of Ukraine. In 2024, the United States issued more sanctions than all other major countries combined,21 according to a financial-crime risk-screening consultancy, targeting Russia, Iran, and North Korea in particular.22 Additionally, the number of entries on the US Treasury Department’s Specially Designated Nationals List grew by nearly 20 percent last year, bringing the total to approximately 17,000.23 In the European Union, approximately 60 percent of the roughly 4,000 sanctioned individuals were added to its list between 2022 and 2024, with the majority included in the wake of Russia’s invasion of Ukraine.24 China has also sharply raised its use of sanctions, with a 96 percent year-over- year increase in 2024 in the number of sanctions issued.25 Technology, data, intellectual property, and cyber controls. Governments’ goal of boosting national security through trade actions extends to the cybersphere, with nations viewing the safety of their citizens’ data as crucial to that aspiration. This dynamic was evident in the US effort to ban TikTok, which was largely motivated by concerns that ByteDance, TikTok’s Chinese parent, could use sensitive user data in ways that pose risks to US 4 Multinationals at a crossroads: Adapting to a new geopolitical era -- 4 of 11 -- The ten geopolitical factors affecting global business (continued) national security.26 Data localization rules, which mandate that data be stored and processed within a jurisdiction’s borders, have also proliferated, with 100 localization measures in place across 40 countries as of early 2023.27 Furthermore, 144 countries have enacted data protection and privacy laws to safeguard citizens’ personal data, resulting in 82 percent of the world’s population being covered by country- specific data privacy regulations.28 In the absence of global standards, some countries have aligned their data privacy laws with those of leading jurisdictions, as with Malaysia adopting provisions of the European Union’s General Data Protection Regulation.29 But significant variability exists, even within countries; the United States, for example, has a patchwork of sectoral and state-level privacy laws.30 Conflict. According to the United Nations, 2023 marked the highest number of violent conflicts around the world since World War II.31 The impact of these conflicts on lives is immeasurable. The impact on livelihoods, stemming from business 26 Sapna Maheshwari and Amanda Holpuch “Why TikTok is facing a U.S. ban, and what could happen next,” New York Times, January 17, 2025. 27 “The nature, evolution and potential implications of data localisation measures,” Organisation for Economic Co-operation and Development, November 10, 2023. 28 “Data protection and privacy laws now in effect in 144 countries,” IAPP, January 28, 2025. 29 “Data protection and privacy laws now in effect in 144 countries,” IAPP, January 28, 2025. 30 “Data protection and privacy laws now in effect in 144 countries,” IAPP, January 28, 2025. 31 “With highest number of violent conflicts since Second World War, United Nations must rethink efforts to achieve, sustain peace, speakers tell Security Council,” United Nations, January 26, 2023. 32 Outputs of the McKinsey forecast model based on data from NATO and national budget documentation. 33 “U.S., partners mark third year of AUKUS partnership,” US Department of Defense, September 17, 2024. 34 Kristy Needham, “Australia makes $500 mln AUKUS payment ahead of US defence secretary meeting,” Reuters, February 7, 2025. disruptions and strain on global supply chains, is also substantial. The increases in conflicts and geostrategic competition have also produced material spikes in defense spending. NATO countries, for example, are expected to increase their defense spending by 17 percent between 2023 to 2028, fueled in large part by a 35 percent spending increase by NATO’s European members. Elsewhere, India’s defense budget is projected to expand by 46 percent and Japan’s by 56 percent over the same period.32 Multilateral security agreements. Several recent multilateral agreements have created opportunities for multinational companies to leverage agreement-specific mandates to expand into new markets. For example, AUKUS, a security pact between Australia, the United Kingdom, and the United States, includes provisions for Australia’s acquisition of nuclear-powered submarines from the United States,33 which will bolster the latter’s defense industry.34 Similarly, NATO is working to build an alliance-wide cloud system, a project that will create opportunities for cloud service providers in member countries. 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? 5 Multinationals at a crossroads: Adapting to a new geopolitical era -- 5 of 11 -- — 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. The first, a US-based consumer technology company, faces significant geopolitical risk, particularly in its manufacturing and supply chain operations (Exhibit 1A). This elevated risk stems largely from a high concentration of tier-one suppliers and final product assembly sites in China. To mitigate this 6 Multinationals at a crossroads: Adapting to a new geopolitical era -- 6 of 11 -- Exhibit 1A Web <2025> <Multinationals crossroads> Exhibit <1A> of <2> Aggregate geopolitical distance of core functions from home country, illustrative, scale 0–10 Source: McKinsey Global Institute analysis The geopolitical distance of companies’ functions and operations can highlight exposure to geopolitical disruptions. McKinsey & Company 0 1 2 3 4 5 6 7 8 9 10 CLOSER IT and core functions FURTHER Talent Revenue Supply chain Manufacturing footprint US-based consumer tech company Instead of breaking this out into two separate exhibits, suggest this become a single scrolly exhibit. From the draft, the chunk of text “The first, a US-based... ...distance from the United States.” would become the trigger text for this panel Exhibit 1B Web <2025> <Multinationals crossroads> Exhibit <1B> of <2> Aggregate geopolitical distance of core functions from home country, illustrative, scale 0–10 Source: McKinsey Global Institute analysis The geopolitical distance of companies’ functions and operations can highlight exposure to geopolitical disruptions. McKinsey & Company 0 1 2 3 4 5 6 7 8 9 10 CLOSER IT and core functions FURTHER Talent Revenue Supply chain Manufacturing footprint European automotive manufacturer Instead of breaking this out into two separate exhibits, suggest this become a single scrolly exhibit. From the draft, the chunk of text “In contrast, the second ... ...consolidate or shift its footprint..” would become the trigger text for this panel (striking the Exhibit 2 reference) exposure while preserving value creation potential, the company may consider diversifying its supplier base and relocating manufacturing operations, either through nearshoring or by shifting to countries with lower geopolitical distance from the United States. In contrast, the second company, an automotive manufacturer, has a significantly lower exposure to geopolitical risk across its footprint, as most of its operational functions are located geopolitically closer to its home country (Exhibit 1B). While opportunities to further reduce geopolitical risk always exist, this company may not need to take immediate action to consolidate or shift its footprint. 7 Multinationals at a crossroads: Adapting to a new geopolitical era -- 7 of 11 -- 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,1 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. 1 “Public companies account for 62% of Hindustan Unilever Limited’s (NSE:HINDUNILVR) ownership, while institutions account for 21%,” Simply Wall Street, August 15, 2024. 8 Multinationals at a crossroads: Adapting to a new geopolitical era -- 8 of 11 -- 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 Geopolitical implications for multinationals’ workflow and talent models After addressing the strategic direction, governance, and organizational structures, multinational-corporation leaders face more nuanced organizational design considerations—those related to workflows and capabilities, talent, and culture. Below are some questions business leaders should consider: — Workflows and capabilities. Does our organization have sufficient capabilities in geopolitically relevant disciplines such as risk management, compliance, and external affairs? Do the leaders of these functions have sufficient seniority and senior-management visibility to foster transparency and speed? Do our workflows allow us to dynamically gather the insights and data necessary for monitoring and mitigating enterprise risk and ensuring operational compliance across jurisdictions? Do we have sufficient agility in our workflows, leveraging technology where appropriate, to ensure speed and flexibility in decision- making (as through mission-oriented teams and nerve centers)? — Talent. Does the geographic distribution of our organization’s workforce effectively balance cost, needed skills and capabilities, and potential exposure to geopolitical risk? Are senior executives capable of leading through dynamic change, which requires 21st-century leadership attributes such as adaptability, resilience, stakeholder management skills in global networks, and political fluency? — Culture. Should we evolve our organizational culture to propel performance in the current environment? Which aspects of the culture need to be consistent across all parts of the organization, and which should differ based on geography, function, and other factors? What operating systems and ways of working will enable the culture and reduce friction? How and on what topics should we communicate to motivate our workforce in an increasingly fractured environment? 9 Multinationals at a crossroads: Adapting to a new geopolitical era -- 9 of 11 -- Exhibit 2 Web <2025> <Multinationals crossroads> Exhibit <2> of <2> Organization model archetypes The choice of organizational model falls on a spectrum of centralization. McKinsey & Company Holding company Archetype Strategic architect Strategic controller Central operator • Corporate leadership provides high-level guidance and portfolio-oriented management to businesses and optimizes financials • Subsidiary leaders make ultimate business decisions • Business units maintain their own functions and services • Corporate leadership issues standard guidelines and facilitates cross-functional linkages (where appropriate) with few strict requirements • Businesses have wide operational flexibility • Business units maintain their own functions and services, although some key ones (eg, IT) are centrally owned • For cross-functional elements that drive most significant value for overall organization, corporate leadership tightly manages to standard set of requirements • Requirements enforce standard processes to promote value creation • Most functions and services are shared and centrally owned except for those that are highly region- specific (eg, legal) • Corporate leadership drives integration, leverages central skills, and actively manages the entity • All functions and services are shared and maintained internally Level of corporate guidance Degree of integration across the organization Description Operational Strategic planning Strategic guidelines INCREASING CENTRAL CONTROL Financial controls Stand-alone businesses Separate operations and processes Aligned operations and processes Single operating entity Pulled this off the matrix, given that each step on both of the axis only corresponds to a single archetype - table format makes most sense 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? 10 Multinationals at a crossroads: Adapting to a new geopolitical era -- 10 of 11 -- Scan • Download • Personalize Find more content like this on the McKinsey Insights App Designed by McKinsey Global Publishing Copyright © 2025 McKinsey & Company. All rights reserved. Bob Sternfels is McKinsey’s global managing partner and is based in the Bay Area office; Shubham Singhal is a senior partner in the Detroit office; Cindy Levy is a senior partner in the London office; Brooke Weddle is a senior partner in the Washington, DC, office, where Zoe Fox is an associate partner; and Matt Watters is a partner in the New Jersey office. The authors wish to thank Ashwin Mahadevan for his contributions to this article. This article was edited by Joanna Pachner, an executive editor in the Toronto office. — 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).2 In March, HSBC rebranded these units as “Asia and the Middle East” and “Europe and Americas,” respectively.3 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.4 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. 2 Kalyeena Makortoff and Julia Kollewe, “HSBC splits operations into east and west divisions in major overhaul,” Guardian, October 22, 2024. 3 “HSBC rebrands east-west divisions after speculation over split; UK bank IT outages totalled 33 days, says report,” Banker, March 6, 2025. 4 “HSBC unveils global restructuring to navigate east-west divide,” Global Treasurer, October 22, 2024. 11 Multinationals at a crossroads: Adapting to a new geopolitical era -- 11 of 11 --