Multinational Companies: How Geopolitics Impact Big Business

Global firms are changing the way they do business. Political decisions from powerful countries are changing how multinational companies (MNC) make decisions on their operations. This can be seen in many countries where there is political instability, whether it is heavily sanctioned or a newly formed regime change. Many countries that are deemed risky are often in a region that has an abundance of natural resources or located near a strategic chokepoint or have a large workforce at their disposal. Some of the biggest issues that MNCs come up against are legal challenges, operational systems as well as commercial requirements when working overseas. Not only do these companies need to follow their home countries’ guidelines, but also the country where they want to establish another outpost. According to the World Economic Forum, the trend of globalisation is shrinking and regional cooperation is much more favourable. The risks that MNCs take on to establish business ties with volatile governments are becoming more uncertain than ever. 

Some of the most difficult issues that arise are when it comes to sanctions compliance, logistical costs, and brand boycotts. When a country is heavily sanctioned by more powerful countries, the MNCs are less likely to establish business ties or will cut ties as fast as possible. When the Assad regime fell in Syria, one of the first steps needed for the country to reestablish itself was to call for the removal of sanctions so that foreign businesses could start investing in infrastructure. Some of the sanctions were lifted but many MNCs are still in a “wait and see” mode to ensure that the country does not return to insecurity. One of the most significant examples of the business exodus is when Russia invaded Ukraine in 2022. At least one thousand businesses left after the invasion and according to Kirill Dmitriev, the head of Russia’s sovereign wealth fund, he believes that the “U.S. businesses lost over $300 billion from leaving the Russian market” during this exit. With relations between the U.S. and the EU in a precarious state, there is little appetite for MNCs to reestablish business in Russia. 

When it comes to logistic costs, the supply chain and transportation of goods is on the rise as well. With tariff wars and rising fuel prices, logistic service providers are absorbing the costs to ensure there is minimal economic shock. Many MNCs are also contending with brand boycotts. There are many examples of companies that have faced backlash due to controversial investments. One recent example is Spotify, who invested in AI battle drones, saw artists withdraw their music from the platform as well as users deleting the app. For MNCs, balancing these issues against the promise of profit is becoming more difficult in a geopolitically fraught environment.

The most interesting case for MNCs is China. The heavy investment throughout the 1990s had many western companies clamouring for a foothold in the country. These days, China can be more selective of where investment is coming from when it comes to MNCs. They are now technologically competitive with Chinese MNCs that many European firms are looking to collaborate on new projects. There is also competition with Western firms in China now that Chinese brands are becoming more popular. Companies like Starbucks are being replaced by Luckin and many countries in the Global South are looking for Chinese tech to fulfill their cellphone needs. With so much market competition, MNCs need to reevaluate how they do business globally to ensure that they are a competitive player. The ability to use their soft power with foreign direct investment is changing how they do business and it is being shaped by political decisions that are outside of their control.