Can businesses build relationships that politics can't?
In today’s world, global trade acts as an integrator or force for more peaceful relationships between countries.
“We’re depending on each other and need to work together to protect our own interests,” said Johan Gott, principal at A.T. Kearney.
Trade policy over the past few decades has been relatively stable. In the past, there’s been a movement to less and not more tariffs. “We’re seeing a more aggressive stance, and companies need to figure out how they can best manoeuvre through these,” said Johan.
Sometimes, companies have to work around contentious relationships between two governments. There are specific ways to do this.
Lobby and Advocate
US companies have been vocal in the press and made statements about the tariffs because these will ultimately affect profits. There are many conversations around how to shape tariffs in a way that doesn’t hurt American companies.
Maximize Competitive Position
“While things may become expensive, it becomes equally expensive for everyone who imports goods into the US,” said Johan. “Companies need to navigate the situation to have an advantage over the competition.”
Through their footprint, a company can maximize voids to the tariffs and minimize costs by shifting suppliers: “There might be more intricate situations like buying parts from China and building in the US, or shipping from China to a different place and then into the US."
Look at Business Models
Every company needs to determine how to operate within a specific industry. Sometimes that means opening patents for others to use and innovate. An intellectual property model that was designed half a century ago may not work best today because it impedes with innovation and makes businesses less fluid, said Edward.
Absorb Costs or Raise Product Prices
Pricing takes time to work itself through the supply chain. For many products, shifting production or suppliers might not be feasible because of long-term contracts and few alternatives, said Johan: “If you’re switching to a different place, that supplier might be saturated, and they have the ability to raise prices.”
Shift Domestic Producers
Buying domestically creates a price advantage for domestic products, but there needs existing capacity to take up this need. For this to work though, “these companies need to have production domestically and the ability to ramp up production rapidly,” said Johan. “In the short-term, this is quite difficult. In the medium and long-term, the supplier base can build out an effective network.”
Adjust Supply Chains
Supply chains evolve over time, but when the network is disrupted, companies have to assess the impact of that disruption. Short-term changes are difficult to make, but over the medium to long-term, making changes to a company’s footprint is possible with proper planning and analysis.
A company can request its suppliers do not divulge certain trade secrets. These relationships are built by individual companies and not governments. “American companies have done more for American consumers by having these relationships with Chinese companies, but also for Chinese workers who were living on sustenance farms – in many cases not making enough to survive for very long,” said Edward. “Lifting these people out of poverty and bringing them into the world economy has benefited Americans, Chinese people and made both countries richer as a result.”
China recently announced that it will begin to widen market access to foreign investors as a way to open the economy. Also, automakers will be allowed to own more than 50% of business units in time. A company would have to carefully consider this move though, as unwinding a joint venture that works well in exchange for independence and control may be at too high a price.
Read part one of this article: Is a trade war brewing, and why?
About the author
Andrea Murad is a New York–based writer. Having worked on both Wall Street and Main Street, she now pursues her passion for words. She covers business and finance, and her work can be found on BBC Capital, Consumers Digest, Entrepreneur.com, FOXBusiness.com, Global Finance and InstitutionalInvestor.com.