Fears about the direction of globalization are not new. However, these fears have finally become codified in hard policy.

In 2022 two significant pieces of legislation by the U.S. government, the Creating Helpful Incentives to Produce Semiconductors and Science Act and the Inflation Reduction Act, ushered in a new era where geopolitics shape corporate strategies. In this transformed global operating environment, geopolitical dynamics play an increasingly important role in business decisions.

CEOs seem ready to seize this challenge and lead from the front. Almost all 1,200 CEOs (97%) surveyed in the latest quarterly EY CEO Outlook Pulse have altered their planned investment strategies in response to these challenges, with almost a third (32%) halting a planned investment. Others are choosing to adapt supply chains, relocate operational assets, and even exit particular markets.

For the first time in three years, restrictive regulatory, trade, and investment policies have supplanted ongoing COVID-19-related issues as the key reason for altering international investment plans, with 28% citing it as their main driver.

CEOs are examining their global footprint, operations, assets, and addressable markets through the geopolitical lens. CEOs are looking deeply into their value chains and positioning to navigate the increasing barriers that governments are raising.

They are doing this from both a risk management angle–in case they can no longer trade with a particular country–while also seeking opportunities to assess levels of support or barriers to doing business if they choose to relocate to one country over another. They are correctly weighing risk and reward and positioning their companies to create maximum optionality and drive faster growth.

These shifts are also impacting cross-border mergers and acquisitions (M&A). The average share of deal value allocated to cross-border deals in 2022 was just 25%. For the decade prior to 2022, it was 30%. The figure for the years 2007-2011, the height of the current phase of globalization, it was 34%.

One key characteristic of planned transactions in 2023 is “friendshoring,” with CEO investment plans aligning with geopolitical considerations. Most CEOs (78%) will look to conduct M&A in countries geopolitically and economically aligned with their home country. Of those planning an acquisition in the next 12 months, less than one in 10 will now consider acquiring in a market where their home country does not have a strong geopolitical and economic relationship.

The biggest reversal in M&A flows has been between China and the U.S. and Europe. In 2016, Chinese investors acquired assets valued at $135 billion in these areas. In 2022 it was just $8 billion. With the increased oversight and intervention being put in place by governments, especially with regard to Chinese companies buying assets overseas, it is hard to see these flows returning to the levels seen at that height of the phase of globalization any time soon.

CEOs and boards cannot wait for clarity before setting their future strategy. Political risk analysis is a critical part of today’s strategic planning–not least in judging current and future geographical footprint risks and opportunities, such as tax credits. By taking bold action now, CEOs can make strategic investment and operational decisions across their markets, business models, and supply chains that will position their company to grow during the likely turbulent times ahead.

Andrea Guerzoni is EY’s global vice chair of strategy and transactions.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

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