Preparing for the Trade War Impact

April 24, 2019
All Posts

Over the past few months, international company executives with operations in China have been asking us a lot of questions: What is the best way to act in light of the circumstances? Is taking sides really necessary? How can one work freely these days in the world’s largest market?

Remaining Flexible and Independent

Over the past three years, at least from our point of view, the revenues of foreign companies operating in China have been growing significantly. As long as the United States places no restrictions on American companies in the Chinese market, other foreign companies do not have much to be concerned about. That said, in our opinion they should structure their business to be flexible and independent in case such measures are put in place. Currently, it is hard to predict whether an active presence in China would add value to a company or become a future liability. Therefore, flexibility and independence are more than simply nice to have traits. They are a strategic necessity.

Finding The ‘Middle of the Road’

International companies deliberating whether to avoid a closer relationship with China due to treatment imposed by the United States, or enter into a binding agreement/joint venture with Chinese companies, are advised to opt for a ‘middle of the road’ approach.

This approach allows international companies to remain neutral for the next few years while maintaining managerial independence of their foreign-owned company in China, and enjoying the freedom to choose the collaborations that serve their goals.

An independent position is also smart in terms of future investment. It is advantageous for negotiating with potential Chinese investors, who regard it as proof of feasibility and would add significantly to the company’s value in upcoming financing rounds.

Potential investors will seek to find out if the companies they are examining can operate within the Chinese market. At the same time, they will want to make sure that these companies are not restricted by American pressure. Naturally, a company that can operate in both these two markets has higher investment value. This is only possible through smart management of diversified collaborations in China, implemented via flexible and independent decision-making.

To sum up our recommendation:
Maintaining a strategy of managerial independence in China
better prepares you for the potential trade war impact.

Investing in Independence Pays Off

In order to achieve independence, entrepreneurs may have to invest more resources early on to train and employ local staff. However, independence offers great payoffs down the road: it allows companies to acquire firsthand knowledge of market conditions and the strategic players that can impact their business future.

Want to talk China? Get in touch. We can provide a free assessment of your business infrastructure needs, and present smart solutions for practical issues associated with the fieldwork in China.

For nearly two decades, PTL Group provides business services and operational support to multiple international companies operating in China. We have implemented over 250 projects for the companies we serve – helping them set up a stable business infrastructure, cut costs, establish sound governance and cut time-to-market. Learn more about Market Entry Operational Support