Borders and breakthroughs: How geopolitics is reshaping corporate innovation

AS INNOVATION becomes the battlefield of geopolitical tensions, corporate nationality is increasingly defining which firms can access new knowledge, innovate, and find new sources of competitive advantage. When national security considerations are high, the key question defining a company’s innovation output is this: Where are you from?

The answer to this question drives the reaction of governments, regulators, and other stakeholders. The main concern is that resources that contribute to a global company’s innovation efforts – and the innovation itself – would be exploited by the company’s home country to gain an advantage in geopolitical competition. As a result, companies that come from perceived rival countries face challenges and hostilities when undertaking global innovation.

Techno-nationalism and keeping innovations at home

Techno-nationalism broadly alludes to the idea of retaining a domestic technological edge in sectors that are key to national security. In these sectors, a key concern is that foreign firms do not undermine domestic innovation efforts or gain a relative advantage.

With these goals in mind, governments around the world have increased scrutiny of foreign firms and carefully assess whether foreign acquirers will pose national security threats. Such restrictions can dramatically lower the likelihood of foreign transactions and limit exchange between foreign and domestic firms.

In one study, researchers examined a national security related foreign investment screening law in the US that empowered regulators with broad new powers to revise or reject foreign acquisition of domestic firms in national security related industries. The researchers found that there was a significant decline in foreign takeovers of US firms following the adoption of this law, especially among research-intensive national security firms.

Another policy tool is export restrictions, which have expanded. In the US, for example, the Commerce Department maintains an Entity List or a blacklist of people and organisations to which US companies cannot export technology without first securing a licence. In 2023, there were more than 600 Chinese entities on that list, an increase of about 50 per cent from 2021.

In 2025, the Chinese government introduced new export restrictions on several rare earth metals, which are used in electric vehicles, lithium-ion batteries, and other electronics. Foreign companies would need special approvals to access or export them. An Al Jazeera report quoted a Chinese Ministry of Commerce spokesperson as noting that the potential dual use (civilian and military applications) of these materials has caused “significant damage or posed potential threats to China’s national security and interests”.

Decoupling: researchers and standards

There is no monopoly on good ideas; they can come from anywhere in the world. Multinational companies know this. They scan the globe for fresh knowledge and innovative ideas. When a firm operates in multiple countries, it has access to local knowledge networks in different geographic locations. It is precisely by facilitating collaboration across these different knowledge sources that innovative solutions can be found.

To pull this off, multinational companies look to facilitate collaboration among scientists across countries as well as aligned technical standards. Both, however, show greater divergence in an era of techno-nationalism.

First, collaboration among scientists, engineers, and researchers located in different – and especially perceived rival – countries has been declining. In 2021 and 2022, papers jointly written by American and Chinese researchers fell for the first time in nearly 20 years and the number of visas issued by the US to Chinese students and academics declined dramatically from the peak in 2015.

The US Chips and Science Act that provided government subsidies and funding for semiconductor research and development, production, and workforce development has strict “guardrails” to limit recipients of US funding from engaging in joint research or technology licensing efforts with foreign entities of concern.

At the same time, Chinese rules make the export of many different types of data more challenging and foreign social science researchers find it harder to access foreign economic and social surveys in the country. Employment by Chinese firms in the US declined by more than 60 per cent between 2017 and 2021, and Chinese foreign direct investment in the US was US$2.49 billion in 2022, the smallest since 2009.

The decline in joint research is not limited to US-China cooperation. Scientific collaboration between Russia and the West also dropped dramatically with the Ukraine war.

In addition to the decline in scientific collaboration across countries, global companies’ innovation efforts may also be adversely impacted by the growing divergence in technical standards.

Technical standards play an important role in fostering innovation. They are non-proprietary but create a technological base in an industry upon which more advanced and complex products can be developed. They can increase efficiency of technology development and commercialisation.

One study of UK manufacturing firms found that the use of technology standards significantly enables a firm’s incremental innovation (although reducing its incentive to deliver radical innovation). When there are collaborative arrangements across firms to promote the adoption of technology standards, the rate of follow-on innovation based on those shared standards increases by about 14 per cent.

But technical standards are increasingly contested. It is possible that in areas where US-China rivalry is high – such as the technology enabling the IoT (Internet of Things), semiconductors, and artificial intelligence – technology standards may end up divided into two competing and incompatible stacks. And companies may find themselves stuck in one system, unable to build on or use features of the other system without incurring high costs. Needless to say, multinational companies’ innovation efforts may be impacted.

Looking ahead

One of the core advantages of global companies is their ability to identify and incorporate new knowledge and innovation from different parts of the world. But geopolitical challenges threaten this key advantage. How can forward-looking leaders balance the conflicting pressures? Here are some options:

• Consider the trade-offs between greater diversity of knowledge and the increased geopolitical tensions. They could weigh the benefits of international talent integration against the potential operational and strategic vulnerabilities that come from navigating across strained geopolitical environments. Striking the right balance calls for robust risk management and nuanced understanding of the shifting global political climate.
• Keep more sensitive projects at home. This means creating a supporting organisation structure where some of the company’s R&D workforce do not have access to projects being carried out in other locations.
• Differentiate between technologies needed in different markets. If an innovation is valuable in a foreign market but not the local one where it is developed, then geopolitical pressures may be less of a concern.

Geopolitical tensions can also create opportunities. Greater restrictions have forced some companies to innovate further. They shifted priorities and attention to specific problems. For example, many companies have turned their in-house research efforts to the development of technologies that can no longer be accessed from foreign suppliers. According to one study in Research Policy, anti-dumping sanctions had the unintended consequence of prompting targeted firms to become more innovative.

Ultimately, managers have to recognise a company’s innovation efforts are going to be defined by their corporate nationality. They have to figure out a strategy to respond to challenges that have less to do with their operations and more to do with their country of nationality.

The writer is a professor of management at Essec Business School, and author of the new book, The Great Disruption: How Geopolitics is Changing Companies, Managers, and Work