Global Race between American and Chinese Firms for Profitability and Survival

The Global Race between American and Chinese Firms

There is an intense and uber competitive race going on between American and Chinese firms for profitability and indeed, sheer survival. Ever since the Global Financial Crisis of 2008 hit the world economy, transnational firms have seen their profits dip, and indeed, some of them had to be bailed out by their respective governments of the countries where they originate. We shall return to this theme later in the article.

The race for profitability and survival is mainly because of the diminishing returns from investments in existing markets which is making them look for newer markets as well as use technology to innovate and grow their way out of the downturn.

Apart from this, the retreat of globalization in the aftermath of the 2008 crisis has made many nations insular and turn inwards which are threatening the business prospects of global firms.

Green Shoots in the Global Economy

There are some positive signs in recent months with the major economies of the world showing that there are rebounding from the crisis by reporting growth, though in modest increments.

Also, the initial shocks from Brexit and the 2016 Presidential Election have worn out, and the global financial and business community is again certain about the future. Further, the fact that globalization has not retreated entirely but only has shifted gears offers some hope for multinational firms wishing to enter new markets.

Indeed, the fact that countries such as India are welcoming global firms in addition to the so-called Frontier Markets in Central Asia and Africa entering the club of nations welcoming them as well is encouraging.

The Roles of the Respective Governments

However, when one talks specifically about American and Chinese firms, one has to keep in mind the roles of the respective governments in those countries that can make or break their growth prospects.

While both American and Chinese firms were bailed out in the immediate aftermath of the crisis, at the moment, it appears as though Chinese firms are better able to wrangle concessions and support from the Chinese government when compared to the American firms.

Of course, the fact remains that the American government is perhaps the friendliest dispensation including the present party which was always pro market and hence, one must qualify and explains what we mean by this assertion.

America First and Chinese Internationalism

Simply put, what worries American firms is the talk of “America First” by President Trump which includes tighter curbs on immigration and outsourcing which the Tech and Automotive firms depend on for their very survival and the banks and other sectors depend on for profitability.

In addition, the level of support that the Chinese government has been providing its firms by debt and equity infusions as well using soft power and diplomacy to support their international activities is simply far superior to the current levels of support that the American firms are getting.

One must also note that the cabinet of President Trump consists of Billionaires and prominent capitalists who are indeed cognizant of these concerns and are already putting in place measures and policies that would help American firms compete with Chinese firms.

Apart from this, the underlying agenda behind Tax Cuts and other measures that are being proposed is that American firms would be encouraged to bring back their profits which are now held in Offshore Tax Havens as well as make them competitive through flat taxes of around 20 percent instead of the very high top line rate of 35 percent.

Thus, it is clear that the global race between American and Chinese firms is going to become more competitive and intense in the days to come.

Some Worrying Signs for American and Chinese Firms

Perhaps the most worrying aspect for American firms is the threat of losing their innovativeness due to tighter immigration as well as lack of funding for research into Science and Technology. As for the Chinese firms, the worry is that they reach a point where their debt levels are so high that the government would not and cannot be able to bail them out.

Thus, given these imperatives, it is only how well they navigate the complex waters of domestic constraints and foreign market competition that would determine whether they would succeed.

The other aspect here is that the global market for Energy and Oil has reached a stage where the United States is relatively secure with all the gains from Shale Oil Fracking whereas China is dependent on foreign sources to meet its energy needs.

Thus, the race to the future would also be one where China would have to move towards renewable sources, and already, the Chinese government is investing in solar and wind as well as electric sources for its energy needs.

On the other hand, there is a level of complacency among the American policymakers who are reversing the rules related to investments and incentives for the renewable sector. Indeed, even withdrawing from the Climate Change Accord is something that must be seen in this context.

What Indian Firms Can Do?

Lastly, given these competing forces at work, it is a good time for Indian Firms to make the most of the situation by forming alliances with both the American and Chinese firms. While the former is already evident, concerns over security and other aspects are keeping partnerships with Chinese firms at bay. To conclude, as the global race between American and Chinese firms heats up, other firms worldwide can benefit by playing the middle role wherein they gain from the strengths of both and manage the weaknesses by adroit business strategies.

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.