3 days ago
Businesses Worried About Tariffs Could Follow Chinese Firms
Singapore is seen as a key location by Chinese businesses. (Photo by)
This week's ruling by the U.S. Court of International Trade that Donald Trump had no authority to use the emergency economic powers legislation cited when he imposed global trade tariffs last month may have given succour to the President's many critics. However, with the administration quickly launching an appeal and leading trade adviser Peter Navarro insisting 'nothing has changed,' the move will do little to ease the confusion and uncertainty confronting business leaders around the world. Clearly, executives need to start thinking of different approaches if they are to survive, let alone thrive, in an environment in which established business models are under threat.
One route could be, as business school professor Shameen Prashantham suggests, to follow the example of certain Chinese companies, which have, of course, more experience than most in dealing with Trump's policies. Put simply, these businesses are increasing their international activities by shifting their focus from regions and countries to particular places where they see opportunity.
Prashantham, Professor of International Business and Strategy at China Europe International Business School (CEIBS) in Shanghai, says that firms have been forced to look outward because confidence in the domestic Chinese economy did not return after the pandemic. China's move into Africa and other developing parts of the globe under the Belt and Road Initiative is well known. Indeed, only this week it was reported to have pledged to open its markets to more products from the Pacific Islands and increase assistance to a region from which the U.S. has been retreating. But Prashantham says it is less appreciated that some businesses have seen the potential in some very specific places, where the presence of resources, talent or skills can be critically important to the ability to scale up operations.
In taking this approach, they are following a strategy set out by the McKinsey Global Institute. Identifying 40,000 'micro-regions' around the world (in place of the 178 countries that it had previously looked at) the research arm of the management consultancy pointed out how this 'granular data' could better inform decisions about where to locate factories and plants than more general country information. As the study found, 'within-country differences are often far more pronounced than between-country variations.' Among the areas described are the Eastern Economic Corridor in Thailand and Chihuahua in Mexico. But many more are becoming the lenses through which Chinese leaders in particular see opportunity, says Prashantham, who has described how this works in a business review article co-authored with Lola Woetzel, a senior partner emerita of McKinsey in Shanghai.
A key approach is to establish strategic hubs for emerging regions. Examples include Singapore for South-east Asia or Dubai for the Middle East and North Africa, chosen for infrastructure, talent and agility. Another case is Mauritius, which is seen as the intersection of Asia and Africa and during the pandemic was one of many countries to actively encourage the arrival of 'digital nomads' through golden visas and the like. In addition, Casablanca in Morocco is consciously positioning itself as a link between the Middle east, Africa and Europe.
Another is to find new routes into old markets. Chinese companies have been adept at relocating operations to micro-regions where trade and innovation advantages bring added value. This explains the large Chinese populations (often from particular regions in their home country) in certain towns in Spain and Italy.
With modern technology, it is also possible to use virtual teams and platforms to create digital talent hubs and so sidestep regulatory hurdles and scale without borders.
All of which suggests that international trade is more resilient than some policy makers and politicians might believe. With few modern businesses content to operate in their domestic markets alone, expect to see more efforts to find ways around tariffs or to seize opportunities where the rewards outweigh any disadvantages imposed by them.
