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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Multinational enterprises (MNEs) do not respond to geopolitical tension with a single “stay or leave” decision. Their choices range from trying to shape relations between home and host governments, to adapting operations, limiting exposure, or exiting altogether. A corrected 2025 review by Stephanie Tonn Goulart Moura, Thomas C. Lawton, and Damian Tobin explains that the outcome depends mainly on two factors: the firm’s political capabilities and how flexible or committed its investment is.
What the 2025 review examined
Published online in the International Journal of Management Reviews on 17 April 2025 and corrected on 28 November 2025, the article synthesizes 93 papers from international business, strategy, and management. It brings those studies together through two ideas: real-options theory and the political-capabilities perspective.
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The authors use geopolitics in its original sense—the way geography shapes politics and international relations—but apply it to business decisions. For an MNE, geopolitical uncertainty is not simply a score assigned to the host country. It is produced by changing relations between the firm’s home country and the country where it operates, including shifts in alliances, sanctions, diplomatic disputes, security concerns, and competing claims over strategic industries.
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That distinction changes the management question. A subsidiary may face little immediate trouble inside its host market while becoming vulnerable because relations between the host and the parent company’s home government deteriorate. The firm’s nationality, political position, and exposure to both governments therefore matter alongside local economic conditions.
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The four strategic responses
Moura, Lawton, and Tobin organize the literature into four broad responses. They are not rigid stages: an MNE can move from one to another as diplomatic conditions, political capabilities, and investment commitments change.
| Response | Typical conditions | What the firm does | Likely outcome |
|---|---|---|---|
| Shaping engagement | Strong political capabilities and an ability to influence relevant decision-makers | Works actively with governments and other stakeholders to influence home–host relations and the surrounding political environment | Continued operation with an attempt to improve the political conditions |
| Adaptive engagement | Political capabilities are insufficient for active shaping, but the investment retains some flexibility | Adjusts ownership, sourcing, financing, market focus, governance, or operating arrangements while remaining present | Continued operation under a redesigned strategy |
| Non-engagement | High uncertainty combined with limited room to change the investment | Limits additional exposure, postpones expansion, reduces visibility, or avoids deeper political involvement | A smaller or more cautious presence |
| Exit | Weak political capabilities and a highly committed investment with few practical alternatives | Sells, closes, withdraws, or otherwise ends the operation | Withdrawal from the affected market or activity |
Shaping engagement
Shaping engagement is the most proactive response. Firms with strong political capabilities can communicate with ministries, regulators, diplomatic actors, industry groups, and local stakeholders in ways that affect how home–host tensions are interpreted and managed. The quoted conclusion of the article is that firms with strong political capabilities “often opt for a shaping engagement response to influence home–host country relations.”
Political capability is broader than having government contacts. It includes the knowledge, legitimacy, relationships, and organizational capacity needed to understand political objectives on both sides and to present the firm as a useful, credible participant. Because geopolitical disputes can change quickly, this capability must be maintained rather than treated as a one-time asset.
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Adaptive engagement
Adaptation keeps the firm invested but changes the way the investment is configured. An MNE may delay a new plant, diversify suppliers, alter the legal structure of a subsidiary, separate sensitive activities, reduce dependence on one market, or redirect capital to less exposed units. These moves preserve some economic value while reducing the consequences of a diplomatic shock.
Adaptive engagement is especially relevant when a company cannot materially influence government relations but can still redesign operations. It is not the same as normal efficiency improvement: the trigger is a change in political exposure, and the objective is to retain strategic flexibility.
Non-engagement
Non-engagement is a deliberate decision to avoid making the political exposure larger. A company may keep existing operations running while suspending expansion, limiting public advocacy, or declining projects that would create additional dependence on either government. This response can protect a firm when uncertainty is high but an immediate withdrawal would destroy too much value.
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Exit
Exit becomes more likely when a firm has little political leverage and its investment cannot be adjusted at reasonable cost. Large, specialized facilities, tightly integrated supply chains, or assets that cannot be redeployed leave fewer escape routes. In that situation, worsening home–host relations can turn uncertainty into a decision to sell or close rather than wait.
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Why investment flexibility changes the decision
Real-options theory treats an investment as a set of future choices, not merely a sunk cost. Flexible projects allow an MNE to delay, expand, contract, switch suppliers, redesign operations, or abandon a commitment after learning more about political conditions. The value of those options rises when uncertainty is high.
Committed investments have the opposite profile. The more specialized, irreversible, or politically exposed an asset is, the fewer viable responses remain. The framework therefore links geopolitical uncertainty to a flexibility–commitment trade-off: strong political capabilities can expand the practical value of available options, while weak capabilities narrow them.
- Flexible investment: delay or redesign may preserve value while conditions become clearer.
- Partly committed investment: adaptation can reduce exposure without abandoning the market.
- Highly committed investment: limited alternatives increase the probability of non-engagement or exit.
What geopolitical risk means for multinational investment
The framework rejects a purely host-country view of political risk. A stable domestic environment can still become unattractive if the host government and the MNE’s home government enter a prolonged dispute. Conversely, a difficult local environment may remain manageable if the two states maintain cooperative relations and the firm has effective political capabilities.
Managers should therefore track at least five dimensions together:
- The strength and credibility of the firm’s political capabilities.
- How reversible the investment is compared with how much capital and specialization it requires.
- The firm’s degree of engagement with governments, regulators, and other stakeholders.
- Its exposure to changes in diplomatic relations between home and host countries.
- The resulting path: continued operation, redesigned operation, limited exposure, or withdrawal.
Managerial implications
Build political capability before a crisis
Political capability is most useful before relations deteriorate. MNEs need internal teams that understand both jurisdictions, can identify which actors matter, and can coordinate legal, operational, communications, and government-affairs decisions. The article’s conclusion advises managers to cultivate and continuously reassess these capabilities because geopolitical change can alter both the value and the feasibility of their options.
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Design for reversibility
Capital-allocation decisions should include an assessment of how easily an asset, supplier, ownership structure, or market commitment can be changed. A lower-cost project is not necessarily safer if it is impossible to redeploy; a larger project may be manageable when it is modular and can be scaled in stages.
Reassess continuously
Geopolitical exposure is dynamic. A company that begins with a shaping strategy may later need to adapt or limit engagement if its access or legitimacy declines. Conversely, improved diplomatic relations or stronger local relationships can reopen options that previously appeared closed.
Implications for policymakers
Governments often evaluate foreign direct investment through jobs, tax receipts, technology, and supply-chain benefits. The article cautions that sovereignty-oriented actions can have indirect economic costs: measures intended to strengthen national control may reduce the attractiveness of the country to foreign investors, especially when firms cannot predict how home–host relations will evolve.
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1Clear out junk files and repair common Windows errors2Fix the driver behind crashes, sound loss and screen glitches3Repair Windows errors before they cause bigger problemsThis does not mean governments should avoid security or sovereignty measures. It means that policy design should account for how uncertainty affects corporate options, investment timing, and the willingness to make irreversible commitments.
What remains unanswered
The article is a synthesis and theory-building contribution, not a single-firm causal study, so it does not report one headline effect size. Its research agenda identifies several unresolved questions:
- How can researchers measure geopolitics in a way that captures changing interstate relationships rather than a static country score?
- How do different types of MNE—by nationality, ownership, industry, or political exposure—develop and use political capabilities?
- How does the value of a real option change as diplomatic conditions move from uncertainty to crisis or détente?
- When does government engagement protect an investment, and when can it increase political visibility or backlash?
- How do firms combine responses across subsidiaries, supply chains, and business lines instead of choosing one response for the entire corporation?
The practical answer
MNEs respond to geopolitics by matching political capability and investment flexibility to the severity and direction of home–host tensions. Firms that can influence the political environment may pursue shaping engagement. Those with less influence but adaptable assets can redesign their operations. Firms with little room to maneuver may limit further exposure or leave. The central management task is to preserve credible options while continually reassessing the political relationships that determine whether those options remain usable.
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