Electronics firms previously could build one product, certify it once and sell it globally. That model is collapsing. As geopolitical fragmentation, industrial policy and regulatory divergence reshape the industry, flexibility is becoming a strategic imperative. Firms are redesigning operations, rethinking investment, reassessing market access and adapting dealmaking strategies to cope with shifting political and regulatory conditions. The companies best placed to succeed will not be those that can predict geopolitical shocks, but those that can adapt to them.
One consequence of this more fragmented regulatory environment is rising compliance costs. Almost six in ten respondents to our survey say high production or compliance costs now have the biggest impact on operations and research and development (R&D). The electronics industry has seen a 72% rise in compliance regulations since 2018, reaching nearly 30,000 by 2025, covering everything from cybersecurity and battery waste to product traceability and repairability. Rules are also diverging across jurisdictions. The EU’s Cyber Resilience Act imposes new obligations on connected-device manufacturers, while US-China technology tensions are creating new compliance obligations around semiconductors, data and advanced technologies. Increasingly, a product compliant in one market may no longer be compliant in another. As a result, firms are increasingly reassessing which markets to prioritise and how to maintain access to them as regulatory requirements diverge.
Almost six in ten respondents to our survey say that high production or compliance costs now have the biggest impact on operations and research and development (R&D).
Building flexibility is changing where firms invest, as governments increasingly influence the location of production and technological development. Governments still compete to attract investment, but they increasingly use subsidies, procurement rules and localisation incentives to shape where industries locate and expand. The United States and China have led this trend, particularly in strategic sectors such as semiconductors and advanced technologies. The EU is also adopting a more interventionist approach through initiatives aimed at strengthening technological sovereignty and industrial resilience. Industrial-policy interventions rose by 390% between 2017 and 2024, driven by competition over sectors such as semiconductors, robotics and artificial intelligence. Six in ten survey respondents say they have shifted joint programmes in response to the expansion of subsidy-backed initiatives.
India’s Production Linked Incentive scheme illustrates how firms are adapting investment strategies to preserve flexibility in a more interventionist policy environment. The programme offers financial incentives for goods manufactured domestically and has encouraged firms such as Tata Electronics to expand production at home. Foreign firms including Apple, Google and Hewlett-Packard have also shifted some manufacturing to India to benefit from the scheme. Governments are increasingly competing to attract specific manufacturing projects and production capacity.
Engineering for politics
A study of 200,000 foreign direct investment projects from 2015 to 2025 found evidence of growing “friendshoring”, with companies more likely to invest in countries with similar political and foreign-policy orientations. For electronics firms, whose investments in fabrication plants and other production facilities can take years to pay off, such decisions increasingly reflect assessments of long-term geopolitical stability as well as commercial considerations.
Firms are building greater operational flexibility by bringing more capacity in-house or closer to more ‘aligned’ jurisdictions.
But the need for flexibility is not just influencing where firms invest; it is also changing how they organise production. Firms are building greater operational flexibility by bringing more capacity in-house or closer to more ‘aligned’ jurisdictions. Respondents to our survey were most likely to have internalised design enablement and simulation (65.4%) and data infrastructure (65.1%), with only 9% maintaining fully globalised capabilities. The majority (68%) are exercising greater selectivity or due diligence in choosing partners and 62% are shifting to regional or “trusted” alliances. The electronics industry has high exposure to this disruption, as it has been historically clustered in Asia with extreme regional specialisation: Taiwanese chip fabrication, South Korean memory, Chinese assembly, Japanese materials and Southeast Asian component manufacturing. Now firms are increasingly being forced to duplicate capabilities across jurisdictions to build resilience in case of political shifts. This shift is also visible in Europe, where manufacturers are moving parts of their supply chains to Eastern Europe to diversify production and reduce geopolitical risk.
Five years ago, only 7% of respondents were shifting capital towards product lines with lower geopolitical exposure. Today, that figure is 41%. In industries such as electronics, such changes can take years to complete. Companies are, however, looking to strategies that give them flexibility, including dynamic supplier reallocation, multi-sourcing strategies and rapid qualification of alternative sources, picked by 58% of respondents, and modular or reconfigurable production lines that can switch between products or nodes, picked by 38%. Industries with simpler, modular supply chains are more adaptable, whereas those with capital-intensive or highly integrated production systems face greater friction.
Rethinking dealmaking
The search for flexibility also extends to growth strategies, as geopolitical tensions reshape mergers and acquisitions (M&A). M&A is a critical means of enhancing competitiveness, entering new markets, expanding customer bases, achieving scale and mitigating risk. However, these transactions now face greater scrutiny from regulators and governments. The US has strengthened CFIUS oversight of foreign investment. The EU has implemented coordinated FDI screening across member states and is considering additional constraints on investment in strategic sectors, including semiconductors. In China, M&A has fallen sharply as a result of intensive screening of both outbound and inbound deals.
While the Biden administration challenged some acquisitions by the likes of Microsoft, Meta, and Nvidia, the Trump administration has taken a more explicitly interventionist approach to M&A, involving the government in deals and taking stakes in private enterprises, similar to China’s strategy of taking stakes in subsidiaries of companies like Alibaba and Tencent, forcing companies such as Intel to prioritise US interests.
To preserve strategic flexibility, firms in our survey have shifted their deal structures and investments towards joint ventures or commercial alliances. After Chinese regulators scuppered Intel’s attempt to buy Tower Semiconductor in 2023, for example, the two semiconductor companies inked a commercial deal for Intel to use Tower’s processes to manufacture advanced analogue chips for power management and radio frequency.
Companies are relying more on minority stakes, joint ventures, licensing, and alliances and turning to alternative deal structures and cross-ecosystem partnerships as global dealmaking becomes more polarised.
With cross-border M&A harder to pursue, companies are relying more on minority stakes, joint ventures, licensing, and alliances and turning to alternative deal structures and cross-ecosystem partnerships as global dealmaking becomes more polarised amid countries’ efforts to secure AI capabilities. Across the economy writ large, M&A is increasingly domestically focused, with cross-border activity lagging.
Joint ventures have proven resilient over the last three decades as a means for firms to internationalise and benefit from local partnerships. Firms are also looking to hiring agreements and licences to manage anti-trust uncertainty, as with Microsoft’s licensing of Inflection AI and hiring its workforce. Meta and Google have adopted similar deal-making strategies to avoid scrutiny over market concentration and geopolitical risk.
One consequence of geopolitical fragmentation may be market concentration. Only the biggest companies can absorb the costs of duplicated compliance, multiple certification systems, maintaining local legal teams and building alternative supply chains. The result may be a more resilient electronics industry, but also a more concentrated one, as compliance complexity reinforces the position of the largest firms.
Large firms may become more dominant, but they will still depend on global networks of start-ups and specialist suppliers. Preserving access to innovation across borders will remain a source of strategic flexibility, not just competitiveness. In a fragmented world, firms will succeed not by trying to predict geopolitical shocks, but by building the flexibility to absorb them.
Build flexibility into operations: Firms are relying less on wholesale relocation and more on optionality through modular production lines, multi-sourcing strategies and secondary component markets. The aim is not to predict shocks but to adapt quickly when they occur.
Structure deals to survive political scrutiny: As cross-border acquisitions face tighter regulation, firms increasingly favour joint ventures, licensing agreements and minority stakes over full takeovers.
Invest where incentives and politics align: Industrial policy now shapes investment decisions as much as labour costs or efficiency. Firms are expanding in jurisdictions offering predictable regulatory environments, subsidies and geopolitical alignment, with predictability increasingly rivalling market size as a factor in investment decisions.
Regionalise strategically, not completely: Most firms are not abandoning globalisation. Instead, they are preserving global cores while regionalising sensitive production, data infrastructure and partnerships.
Scale helps, but flexibility matters too: Large firms can absorb the costs of fragmented regulation and duplicated supply chains more easily. Smaller firms are more likely to succeed through specialisation, regional partnerships and asset-light operating models that allow quicker adaptation to political and regulatory shifts.
