In brief
The article discusses geopolitical hedging and its impact, where the phrase refers to an approach wherein countries and companies diversify their risk exposure and reduce their dependence on one geographical area, supply chain, market, or technology ecosystem.
Introduction
In terms of international economics and politics, geopolitical hedging refers to an approach wherein countries and companies diversify their risk exposure and reduce their dependence on one geopolitical area, supply chain, market, or technology ecosystem.
In today’s context, geopolitical hedging is happening at two broad levels:
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Government/ Country Level: Governments are not binding themselves with one power. They are trying to establish a balance between rival powers and maintain friendship and allies in multiple directions. India is calling this ‘strategic autonomy’. This enables investment from multiple regions – US-led economies, the Middle East, Russia and China-led economies, etc., even during the ongoing geopolitical unrest around the world.
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Company Level: Companies are focusing on diversifying their markets, manufacturing processes, production, and supply chains to mitigate political and regulatory risk and conflicts. A classic example of this is ‘China +1 strategy’ introduced after COVID-19 which requires that the presence of a manufacturing/ assembly chain in China, be supplemented by the presence of manufacturing/ assembly chains in other economically beneficial jurisdictions such as Vietnam, India, Indonesia, Bangladesh, etc.
To put ‘geopolitical hedging’ in one simple line, it would be:
“When you don't know which way the wind will blow, you don't pick one direction. You stand somewhere you can move from.”
Why hedging is becoming important
Hedging strategies have seen a rise due to:
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supply chain disruptions (COVID-19 aftermath and ongoing tensions in the Middle East)
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ongoing regional conflicts (Russia – Ukraine, US – Middle East, etc.)
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US – Russia – China strategic competition
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imposition of consequential sanctions and trade restrictions, resulting in significantly decreased ease of doing business
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technological advancements such as rising use of AI, proliferation of semiconductors, etc.
Global foreign direct investment (“FDI”) is being reshaped due to these abovementioned factors. As per the UN Trade and Development global investment trends monitor, in 2025, global FDI was up by 14% and the FDI inflow alone in India increased by 73%.1 However, the infusion of capital was concentrated among geopolitically aligned countries (such as India, Indonesia, Malaysia, Singapore, Brazil, etc.), especially in strategic sectors including manufacturing, digital infrastructure (including data centres), services, clean energy, etc. This means that investors/ companies are no longer choosing investment locations solely on the basis of cost and efficiency – they are now also taking into account political factors, trade restrictions, sanctions exposure, sector growth, supply chain security, and regulatory predictability. As a result, more FDI is flowing to countries which are considered ‘safe’ and ‘neutral’ to political risks.
How geopolitical hedging impacts FDI
Before 2019, manufacturing companies used to decide jurisdictions basis a simple rule – manufacture things in the cheapest and most efficient place. Manufacturing companies still want to undertake cost-effective production. However, multinational companies want this to be undertaken in countries which are safe and have a low risk of getting sanctioned, tariffed or subjected to any other regulatory restrictions. These multinationals are now opting for resilience over low-cost production.
A classic example of this is Apple. Before COVID-19, Apple’s production and assembly lines for its smartphones were based in China. While Apple didn’t completely leave China post COVID-19, it diversified its risk and added manufacturing facilities in India and Vietnam alongside China.2 By 2025, Apple was assembling almost 25% of its global smartphone output in India.
As per recent trends, countries that offer increased political stability, incentives, skilled labour, access to major markets, reliable infrastructure, free trade, and low risk of sanctions are receiving greater FDI as opposed to countries offering cheap production bases or supply chains. Even the International Monetary Fund is of the view that investors are redirecting FDI toward geopolitically aligned economies and, resultantly, high-risk countries may face capital flight or lower greenfield investment.
What does this mean for India
India is well-positioned to benefit from geopolitical hedging, as India has a lot to offer to investors/ multinationals – a large domestic market, growing digital structure, policies which facilitate ease of doing business in India, skilled and cheap labour, strategic connection to various countries and a relatively neutral geopolitical area.
Given these advantages, it is expected that FDI inflows will substantially increase in India. As per the UN Trade and Development global investment trends monitor, in 2025, India saw a large FDI inflow in services (finance, IT (data centres), and R&D) and manufacturing sector.3 India is one of the few large economies where inflow of capital from all major countries can happen without facing any political pushback. In the present time, India is considered a unique piece of geography for making investments.
However, at the same time, there are other emerging countries, also offering a geopolitical neutral haven to investors/ multinationals, which are directly competing with India – such as Vietnam, Thailand, Malaysia, and Indonesia.
Conclusion
Geopolitical hedging is making FDI more fragmented, selective and strategic in nature – it no longer remains a purely economic decision. Multinationals and investors are spreading in neutral geographies. FDI is moving towards countries which are offering a combination of market opportunity, neutral political environment, less regulatory restrictions, and skilled labour. Basis current trends, India is in a great position to receive capital as it is everyone’s hedge and remains hedged by its refusal to take any sides.
Footnotes
1. https://unctad.org/system/files/official-document/diaeiainf2026d1_en.pdf
3. https://unctad.org/system/files/official-document/diaeiainf2026d1_en.pdf.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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