Relatedly, the US has for some time restricted Chinese access to advanced AI chips on national security grounds, while China has increasingly encouraged domestic firms to reduce dependence on US suppliers and support the development of local alternatives. CHANGING DYNAMICS The significance of these developments from a strategy perspective is that they illustrate the changing dynamics of competition in frontier technologies. For firms such as Anthropic, OpenAI, and other developers of advanced AI systems, access to critical inputs is increasingly shaped not only by markets, but also by states’ national security priorities. Their ability to develop and commercialise AI models depends on access to advanced chips and international markets, both of which are becoming subject to greater political scrutiny and regulation. The implications extend beyond the firms developing these technologies. A growing number of companies are using AI tools in their internal processes and products. An organisation that integrates a particular AI model into its processes may face changing access conditions leading to costly disruptions and adjustments. In this sense, managers need to think not only about technological dependence, but also geopolitical dependence: whether a key technology, a supplier, a client, or a platform can become unavailable because of where it is produced, or which state now regards it as strategically sensitive. GLOBAL PROCESSES A similar logic can be seen in strategic decisions around supply chain configurations and international strategy. For years, many firms designed their supply chains around efficiency and cost considerations. But in a more fragmented geopolitical environment, such efficiency can become a source of vulnerability. For example, Apple has started diversifying its production beyond China for some time, but the risk of US tariffs appears to have accelerated that process as it made the risks of geographic concentration more salient. The criteria by which firms evaluate these strategic decisions are therefore changing. Managers need to think about which locations offer greater political flexibility and which dependencies can become too risky. HOW TO ADAPT? How, then, should firms respond? The answer will necessarily vary depending on the size of the organisation, the resources it possesses, and the extent to which its industry and markets are exposed to geopolitical pressures. Smaller firms, for instance, may lack the financial, organisational, or political resources that enable large firms to build geopolitical expertise, engage with policy makers, and absorb costs that result from diversifying supply chains. But the common challenge is how to adapt their strategy process and organisational structures to a world characterised by geopolitical fragmentation. At managerial level, the current environment requires greater geopolitical awareness and knowledge. The mental models through which we see and analyse the world need to incorporate geopolitical considerations. Managers require a stronger understanding of how geopolitics, trade restrictions, industrial policy and regulatory changes may affect their firms’ markets. They need sufficient knowledge to recognise when political developments may alter the assumptions on which strategic decisions are based. At the organisational level, firms need to think carefully about their structure and the coordination between different functions. In many companies, responsibility for political issues analysis is dispersed across government relations, legal, compliance, and procurement teams. In a more fragmented world, this dispersion can become a weakness. Firms need organisational arrangements such as cross-functional teams and task forces that allow information about political developments to feed into strategic decision-making and strategy making processes. This may involve developing clearer internal processes and routines for monitoring geopolitical exposure and more systematic processes for linking political analysis to decisions on market selection and entry, sourcing, investment, partnerships, etc... In this sense, the challenge is not simply to react to geopolitical shocks as they arise, but to incorporate geopolitical analysis into the everyday practice of strategy. FIFTY FOUR DEGREES | 9 Dr Ziad Elsahn in a Senior Lecturer in Strategy in the Department of Entrepreneurship and Strategy. His research focuses on organising and strategising processes and practices in the context of internationalisation, innovation, institutional change, and sustainable transition. z.elsahn@lancaster.ac.uk
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