Research foundation: Bank for International Settlements (BIS), Working Paper No. 1386, Geoeconomic Pressure, 19 October 2026.
From Globalisation to Geoeconomic Confrontation
For nearly four decades, the international economy operated on a powerful assumption: businesses would organise production wherever costs were lowest, technologies were available and markets offered the highest returns. Governments negotiated trade agreements, reduced tariffs and encouraged foreign investment, while multinational corporations constructed production networks across national borders.
The collapse of the Soviet Union, China's integration into the global trading system and the expansion of digital technologies accelerated this transformation. International competitiveness increasingly depended on specialisation, scale, logistics and the ability to participate in global value chains.
However, the economic logic of globalisation is undergoing a fundamental transformation.
Countries are no longer concerned only with how efficiently goods are produced. They are increasingly concerned with who controls production technologies, who supplies critical components, where sensitive information travels and whether economic relationships create strategic vulnerabilities.
The international economy is gradually shifting from a system organised primarily around efficiency towards one increasingly influenced by security, political alignment and strategic control.
This transition has introduced a powerful instrument of international economic influence: geoeconomic pressure.
Export controls, financial sanctions, tariff threats, investment restrictions and technology-access limitations are no longer exceptional policy instruments. They have become increasingly important elements of economic statecraft.
What makes this development particularly significant is that governments do not necessarily need to impose restrictions to influence corporate decisions. The possibility of future restrictions can itself change investment, innovation, sourcing and market strategies.
The Invisible Economic Shock: When Threats Matter More Than Restrictions
The October 2026 BIS working paper offers an important perspective on this emerging reality.
Using large-scale textual analysis of corporate disclosures and policy developments, supported by a structured language-model methodology, the research examines how firms respond to different forms of geoeconomic pressure.
Its central contribution is the recognition that economic coercion operates not only through restrictions that have already been implemented but also through expectations about what governments might do next.
Consider a semiconductor manufacturer dependent on specialised equipment imported from a politically sensitive country.
Even without an immediate export prohibition, the possibility of future restrictions may encourage the manufacturer to search for alternative suppliers, invest in domestic research, accumulate strategic inventories or redesign production processes.
Similarly, a multinational company operating in a country facing possible sanctions may begin reducing its exposure before sanctions are formally announced.
These decisions can reshape international production networks without necessarily producing an immediate decline in recorded trade.
This exposes a serious weakness in conventional economic analysis.
Trade statistics generally capture transactions that have occurred. Investment statistics record capital expenditure. Industrial production indicators measure output.
Yet none of these measures adequately captures the commercial relationships abandoned, investments postponed or technological strategies redesigned because firms anticipate geopolitical intervention.
The emerging geoeconomic economy is therefore influenced as much by anticipated political decisions as by actual economic restrictions.
Export Controls: From Technology Dependence to Forced Innovation
One of the most interesting findings highlighted by the research concerns corporate responses to export controls.
Traditional economic reasoning suggests that restricting access to advanced technologies damages the productive capabilities of the targeted economy. In the short term, this may certainly happen.
However, restrictions can also create powerful incentives for technological substitution.
When firms lose access to critical technologies, they may intensify research and development to develop domestic or alternative solutions.
This creates a paradox.
A country imposing export controls may succeed in restricting technological access in the immediate period while simultaneously encouraging the targeted economy to accelerate indigenous technological development.
The semiconductor industry illustrates the broader strategic tension. Restrictions affecting advanced chips, production equipment and specialised technologies can increase costs and delay production. At the same time, they can strengthen incentives to invest in alternative technological capabilities.
But forced innovation should not automatically be interpreted as successful innovation.
Research expenditure may increase without producing commercially viable technologies. Domestic substitutes may remain more expensive, less reliable or technologically inferior. Firms may also duplicate capabilities already available internationally, reducing global economic efficiency.
The long-term outcome depends on scientific capacity, engineering skills, capital availability, industrial ecosystems and access to complementary technologies.
For developing economies, the lesson is important.
Technological self-reliance cannot be achieved simply by restricting imports or announcing domestic manufacturing programmes. It requires sustained investment in research institutions, industrial engineering, supplier development, technical education and commercial innovation.
Sanctions and the Great Reorganisation of Supply Chains
Sanctions create a different form of economic adjustment.
Where export controls primarily influence access to specific technologies, sanctions can disrupt entire commercial relationships.
Banks may refuse transactions. Insurance providers may withdraw coverage. Shipping companies may alter routes. Multinational enterprises may terminate supplier agreements, and international buyers may seek alternative production locations.
Such developments can create both economic destruction and commercial opportunity.
A company losing access to an established market may experience declining sales and stranded investments. However, a competing company located in a third country may gain access to customers previously served by the sanctioned supplier.
This process is particularly relevant for economies such as India, which maintain commercial relationships across several geopolitical groupings.
Indian manufacturers may encounter opportunities when established international suppliers become commercially or politically unacceptable to particular buyers.
Such opportunities could arise in engineering goods, chemicals, pharmaceuticals, automotive components, electronics and specialised industrial products.
However, the availability of a commercial opening does not guarantee that Indian firms can capture it.
International buyers require reliable quality, competitive prices, regulatory compliance, delivery discipline and technical consistency.
A supplier relationship cannot be replaced merely because an alternative country is politically acceptable.
The replacement producer must also possess the industrial capabilities needed to meet the buyer's requirements.
This distinction between geopolitical opportunity and industrial readiness is fundamental.
The Rise of Third-Country Winners: Opportunity Without Permanent Advantage
The BIS research highlights another important dimension of geoeconomic pressure: firms outside the countries directly involved in a geopolitical confrontation can benefit from disrupted commercial relationships.
Third-country enterprises may enter markets abandoned by sanctioned firms or replace suppliers affected by export restrictions.
India, China and other internationally connected economies may therefore experience changes in market access that cannot be explained solely by their own productivity improvements or conventional trade competitiveness.
But such gains must be interpreted carefully.
A temporary increase in export orders following geopolitical disruption is not necessarily evidence of a durable competitive advantage.
The original supplier may return if restrictions are relaxed. Buyers may diversify their sourcing across several countries rather than establish a long-term relationship with one replacement producer. Alternatively, geopolitical pressure may eventually extend to the third-country supplier itself.
There is also a distinction between gross export growth and domestic value creation.
An Indian company may secure additional export orders but remain dependent on imported machinery, foreign technology, specialised intermediate inputs or internationally controlled distribution networks.
In that situation, the apparent export opportunity may generate limited domestic value addition.
The critical question is not simply whether India gains market share.
It is whether Indian enterprises use the opportunity to acquire technological capabilities, deepen domestic supplier networks, strengthen product development and establish lasting customer relationships.
Geopolitical disruption can open the door to a market, but only industrial competitiveness can keep that door open.
The Four Corporate Responses That Will Reshape Globalisation
The research identifies four important forms of strategic adjustment: relocation, substitution, innovation and market exit.
These responses represent fundamentally different pathways through which geoeconomic pressure changes the international economy.
How geoeconomic pressure changes corporate strategy
Relocation
Production and sourcing move towards politically or commercially safer locations
Substitution
Restricted suppliers, inputs and technologies are replaced with alternatives
Innovation
Firms invest in R&D to overcome technological restrictions and dependencies
Market exit
Companies withdraw from markets where political exposure becomes too costly
Conceptual framework based on the response categories described in the BIS research.
These responses also have different implications for economic development.
Relocation may attract investment to alternative manufacturing destinations, but it can create costly duplication of production capacity.
Substitution can strengthen domestic supply chains, but it may also reduce access to efficient international suppliers.
Innovation may accelerate technological learning, although its commercial success remains uncertain.
Market exit can create opportunities for competitors, but it can also destroy valuable business relationships and reduce competition.
Consequently, geoeconomic fragmentation should not be treated as either universally beneficial or universally harmful.
Its economic effects depend on firm capabilities, sector characteristics, technological dependencies and the duration of political restrictions.
India's Industrial Policy Challenge: Moving Beyond Trade Diversion
India's response to geoeconomic pressure requires a fundamental change in the way export opportunities and industrial competitiveness are assessed.
Traditional export promotion focuses on identifying foreign markets, participating in trade exhibitions, facilitating buyer-seller meetings and providing financial incentives.
These instruments remain useful, but they are increasingly insufficient in an economy where geopolitical restrictions can rapidly alter sourcing decisions.
India needs a more sophisticated system of industrial intelligence.
Such a system should identify technologies facing export restrictions, products vulnerable to sanctions, international buyers searching for alternative suppliers and production networks undergoing strategic reorganisation.
However, collecting information is only the beginning.
The real challenge is converting geopolitical intelligence into commercially viable manufacturing opportunities.
For example, if international restrictions disrupt the supply of a specialised engineering component, Indian cluster institutions should be capable of identifying domestic firms with relevant production capabilities, assessing technological gaps, arranging testing and certification, and facilitating buyer qualification.
This requires close cooperation among export promotion councils, industry associations, technology institutions, financial organisations and cluster development agencies.
The traditional distinction between trade promotion and industrial development is becoming increasingly artificial.
Future export competitiveness will depend on the ability to connect market intelligence with technological upgrading.
MSME Clusters: The Missing Link in India's Geoeconomic Strategy
The implications for Indian MSME clusters are particularly significant.
Large multinational enterprises possess specialised teams for geopolitical risk analysis, regulatory compliance, supply-chain planning and international market intelligence.
Most MSMEs do not.
A small engineering enterprise in Ludhiana, an automotive-component manufacturer in Pune, an electronics supplier in Chennai or a pharmaceutical producer in Hyderabad may be technically capable of replacing an international supplier but remain unaware of the opportunity.
Even when the opportunity is identified, the enterprise may lack the financial and technical resources required to qualify as an approved supplier.
This creates a strong case for cluster-level institutional intervention.
India should consider developing Geoeconomic Opportunity and Risk Cells within major industrial clusters.
Their responsibilities could include tracking international trade restrictions, identifying affected products and technologies, mapping emerging sourcing opportunities, assessing cluster capabilities and supporting firms in meeting international buyer requirements.
These institutions should not function merely as information centres.
They should facilitate practical industrial upgrading through common testing facilities, technology partnerships, engineering support, certification services, export finance and direct engagement with international buyers.
Importantly, their success should be measured through commercially meaningful outcomes.
The number of reports prepared, meetings organised or companies contacted is not sufficient.
Performance should be evaluated through qualified supplier relationships, executed export orders, domestic value addition, technological capabilities acquired and the durability of international contracts.
This would represent an important shift from scheme-oriented industrial development towards capability-oriented economic transformation.
The Hidden Risks of Geoeconomic Opportunities
A critical reading of the emerging geoeconomic environment also requires recognising several risks.
First, geopolitical opportunities may be temporary. Investments based on short-lived restrictions can leave enterprises with underutilised capacity if political relationships change.
Second, firms replacing restricted suppliers may become vulnerable to secondary sanctions, export-control compliance requirements or changes in rules of origin.
Third, new production relationships may require technologies or components that remain controlled by the very countries imposing restrictions.
Fourth, politically motivated sourcing decisions can increase costs and weaken international productivity.
Finally, excessive reliance on geopolitical opportunities can distract policymakers from the deeper foundations of industrial competitiveness.
India should therefore avoid treating every international trade disruption as an automatic opportunity for domestic manufacturing.
Before encouraging major investment, policymakers and enterprises should assess the expected duration of the opportunity, technological requirements, buyer commitments, profitability, compliance exposure and alternative market possibilities.
The objective should be to build capabilities that remain commercially valuable even after the geopolitical disruption has ended.
The Measurement Problem: What Corporate Disclosures Can and Cannot Tell Us
The BIS study's methodological contribution is particularly important because it examines strategic responses through corporate disclosures rather than relying exclusively on aggregate trade statistics.
This approach can reveal changes in corporate intentions and strategic priorities that conventional economic indicators may overlook.
However, the evidence also has limitations.
Corporate disclosures are selective. Larger and internationally exposed firms are more likely to produce detailed public statements, while smaller enterprises and informal suppliers remain less visible.
Companies may announce diversification, relocation or research investments without fully implementing those plans.
Even when a strategic response occurs, it may not produce commercial success.
Furthermore, textual classification using language models introduces measurement uncertainty. The identification of corporate responses depends on how disclosures are interpreted and categorised.
Consequently, the research should be understood as an important contribution to measuring corporate adjustment, not as definitive evidence that every reported strategy has been successfully implemented.
Future research would benefit from connecting corporate disclosures with observed investment, patent activity, supplier transactions, production relocation and long-term profitability.
This distinction matters greatly for policymaking.
Economic strategy should not be built on announcements alone. It should be based on measurable changes in industrial capabilities and commercial performance.
Towards 2035: The Emergence of a Geoeconomic Industrial Order
Looking towards 2035, the international economy may become increasingly organised around overlapping technological, financial and security networks.
The traditional globalisation model encouraged enterprises to search for the lowest-cost production locations.
The emerging model may require them to balance cost efficiency with political reliability, technological sovereignty, supply-chain resilience and regulatory compatibility.
This does not necessarily mean the end of globalisation.
Rather, it suggests the emergence of a more politically conditioned form of global economic integration.
Countries may continue trading extensively while simultaneously restricting sensitive technologies, diversifying strategic suppliers and protecting critical industries.
For India, this environment presents a major strategic choice.
One possibility is to remain a reactive beneficiary of international disruptions, securing temporary export orders whenever established commercial relationships break down.
The alternative is to build a manufacturing system capable of converting those temporary opportunities into permanent technological and industrial advantages.
The second pathway requires stronger engineering capabilities, domestic supplier development, applied research, quality infrastructure, export finance and internationally connected industrial clusters.
It also requires avoiding excessive dependence on any single geopolitical bloc.
India's long-term advantage may lie not in choosing between competing economic powers but in developing the technological capabilities and institutional credibility needed to participate competitively across multiple international production networks, within applicable legal and security constraints.
The Future Belongs to Economies That Can Convert Pressure into Capability
The central message emerging from the BIS research is that geoeconomic pressure changes corporate behaviour even before formal restrictions take effect.
This has profound implications for international economics.
Economic power is increasingly exercised not only through tariffs, sanctions and export controls but also through the expectations these instruments create.
Firms respond by relocating production, replacing suppliers, investing in alternative technologies and abandoning commercially risky markets.
These adjustments can generate new opportunities for third-country economies, including India. However, such opportunities do not automatically translate into sustained industrial development.
The decisive issue is whether countries possess the technological, institutional and entrepreneurial capabilities to convert geopolitical disruption into lasting competitiveness.
For India, the policy priority should therefore move beyond identifying export opportunities towards systematically preparing industrial clusters to capture them.
The next generation of economic winners may not be the countries that benefit most from geopolitical conflict. They may be the countries that develop the strongest industrial capabilities while others are forced to reorganise their economic relationships.
Geoeconomic pressure may determine where opportunities emerge. But technological competence, institutional preparedness and industrial productivity will determine who ultimately captures their value.
Research reference: Bank for International Settlements, Working Paper No. 1386, Geoeconomic Pressure, 19 October 2026. This blog is an independent policy interpretation based on the research summary supplied, with additional forward-looking analysis concerning India, MSMEs and industrial clusters. The proposed policy measures and 2035 outlook are analytical recommendations, not findings attributed to the BIS paper.
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