Footprint Decisions in an Age of Geopolitical Change:
What the next location decision depends on

For decades, footprint optimisation followed a simple division: volume production goes where labour, energy and taxes are cheap, while development and high-tech stay in the home market. As long as tariff rates, export rules and energy prices remained predictable, this division held. It does, however, presuppose that conditions change more slowly than the plant is depreciated.

Anyone choosing locations on a cost matrix alone today is optimising for the conditions of the 2010s.

For most of the past decade, trade policy uncertainty behaved episodically: it spiked at shocks such as the 2018 trade war or the 2020 pandemic and returned to its baseline afterwards. Since 2024 it has sat permanently at a multiple of its earlier range. A baseline it could fall back to has not been reached since.^1,7

For the location decision, this changes how time is handled: a cyclical shock allows a company to stick to the plan and postpone the investment until things calm down. After two years at an elevated level, when that calm will come is an open question. Anyone who ties the investment to it defers it indefinitely.

What has also changed is which kind of risk dominates. Until recently it was trade policy, and trade policy is at least partly negotiable and comes with a timetable. Since early 2026, geopolitical instability has taken that place, driven by energy markets, straits and bloc formation.² For planning, this is the harder case: a tariff rate can be entered into the calculation as soon as it is announced, whereas a blocked strait has neither a date nor an amount.

Part of the risk already carries a date

Some events of this shift, however, are in the calendar, with a deadline and a threshold. This part of the risk can be quantified before it occurs.

ECB Economic Bulletin 6/2025; MOFCOM/GAC Announcements No. 55-58, 61 and 62, suspension No. 70

None of the three rules below attaches to the place of manufacture. They attach to the material, to the legal basis and to the transport route. Relocation alone therefore no longer protects against them, and that affects every relocation that was conceived as an evasive manoeuvre.

When a risk has a date, the probability of occurrence is no longer any help. Then all that counts is what the location costs on 10 November 2026.

The classic location matrix rests on cost dimensions. A separate axis for geopolitical risk is missing because it was long regarded as a soft background factor that could not be quantified. McKinsey now lists a third group of forces: geopolitically driven factors with tax incentives, export controls, investment restrictions and tariffs as instruments.¹⁴ Each of these instruments has a price in euros, so the argument that geopolitical risk cannot be quantified no longer holds.

How much capital hangs on this axis is visible in Germany's investment stock: direct investment in China alone adds up to around 110 billion euros, and its expected return shifts with every escalation.⁶

Even on cost, the real strength of the classic calculation, the snapshot does not carry far: pure unit cost comparisons miss the actual location costs by 20 to 30% once freight, tariffs, inventory costs, quality and exchange rates are added.¹⁵ And the labour cost advantage, the simplest building block of this calculation, shrinks while the plant is still being depreciated.

Most location comparisons use today's labour costs and tacitly hold them constant. According to Eurostat, labour costs in industry rose by 11.2% a year in Bulgaria between 2016 and 2025, by 10.6% in Romania and by 8.8% in Poland, but by only 2.9% in Germany.¹⁶ Slovenia, the most expensive of these locations, stands at 30.40 euros an hour today and grows at 6.8% a year: over a ten-year investment horizon it ends up at 58.80 euros, above today's German level.

The ranking that a cost optimisation shows today does not hold for ten years: in the same projection, Greece, whose labour costs grow by only 1.4% a year, moves from ninth to second place among the cheapest locations. The geopolitical axis moves faster still, in months rather than years, and shifts the optimum correspondingly more often.

Once the optimum moves, the exit question becomes more important than the entry question: what does it cost to abandon this location again in five years? Financial theory has held a framework for this for decades, real options analysis. Its core proposition, as Robert Pindyck at MIT puts it: the greater the uncertainty, the greater the value of the options to act and the incentive to preserve them.³

Net present value and internal rate of return do not capture this: they value a fixed stream of payments and have no line item for the possibility of changing it. Real options theory names three such possibilities: to switch location, to defer a decision, to abandon a commitment. Under uncertainty, each has a value that does not appear in the investment appraisal.

Empirically, companies react the other way round: the same uncertainty that makes flexibility more valuable leads them to scale back their investments.⁴ Both are expensive: freezing cedes market position to competitors who keep acting, while sticking unchanged to the original plan carries the full risk of the committed investment. Anyone who instead invests deliberately in optionality buys the ability to correct the decision later without a total loss.

In 25 years I have not seen an investment proposal that puts a figure on dismantling, the redundancy scheme and the ramp-up at the replacement site.

What this optionality looks like in practice is shown by location data from Japanese multinationals between 2009 and 2022: companies responded to rising geopolitical risk not with decoupling or reshoring but with geographic diversification. Relocation writes off sunk investments and gives up established supplier networks, so firms hedge step by step rather than making a clean break.⁵

Diversification only lowers risk, however, if a company knows what it depends on, and this is where visibility ends for most of them.

McKinsey & Company, Decoding disruption to reshape manufacturing footprints, January 2026

In this gap sits the concentration risk that devalues a location decision after the fact: two plants in two countries source the same component from the same sub-supplier, and because this sub-supplier sits at tier three, it does not appear in the decision paper. Without this depth of visibility, a relocation merely changes the address.

Flexibility therefore comes from an ongoing process that keeps the supply chain visible down to the deeper tiers and translates every event into its effect on the company's own footprint. An expert report delivers this picture once and is out of date from the day it is handed over; continuous monitoring recalculates with every shift.

Cost and geopolitical risk belong in the same calculation, and that calculation has to stand before the capital is committed. The cockpit below brings both axes together: labour costs on one, the Pangea Risk Score calculated daily on the other.⁸ How heavily risk weighs against cost is a decision for the company and not a property of the data, which is why that weight sits here as a slider.

A location that sat in the target quadrant ten years ago can sit in the risky one today without a single decision having been taken there: it is enough that wages rise faster than in the reference country and the risk level shifts. Because the classic method never carried risk as an axis of its own, this drift stayed invisible until the capital was committed. Anyone who moves the time horizon in the cockpit from today to ten years sees the cost side of this drift within seconds; the stress surcharge lays the risk side over it.

The market is already working on this change from two sides: consultancies supply the methodology, for large corporations and at fees to match, while monitoring platforms answer the question of where the fire is right now. What is missing in between is the price of flexibility, the figure that ought to stand in the investment proposal next to labour, energy and taxes.

The companies that will make sound location decisions in the coming years carry cost and risk in the same calculation, see their supply chain in depth and recalculate as soon as one of the two axes moves. The Mittelstand in Germany, Austria and Switzerland brings two strengths to this that appear in no cost matrix: engineering depth and a practised ability to take complex decisions under uncertainty. What remains open is the information base on which it deploys that strength.

Let's talk about your upcoming footprint decisions

25 years of location and restructuring practice in advanced manufacturing, combined with continuous geopolitical risk analytics. We run your next decision against both axes before capital is committed.

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Martin Kieckebusch Advanced Manufacturing & Mobility

Martin Kieckebusch

Founder of AM&M Business Advisory, advising companies in advanced manufacturing and the mobility industry on strategic transformation and performance improvement for more than 25 years.

Felix Kleiner Supply Chain & Geopolitics

PangeaIntelligence

Felix Kleiner

Leads Pangea Intelligence and writes about how geopolitics feeds through to supply chains, with a focus on critical dependencies and nearshoring dynamics.