In a recent internal conversation, the team at DCA Asset Management discussed the significant transformation in the relationship between the US and China over the last couple of decades. As businesses become more globalized, understanding the intricate dynamics between major economies becomes crucial. Listen in to their conversation, led by DCA President Michael J. Schnaus, in the video below or read on for insights pulled from their discussion.
 

Historical Context (2000-2010):

In the early 2000s, US businesses were enticed by the allure of China’s market size and cost-saving potential. As a result, one prominent strategy was offshoring, where companies moved operations to China to leverage significant savings it might offer in labor costs and supply chain.

Shift in Landscape (2010-2015):

But the honeymoon phase wasn’t to last. By the mid-2010s, China began flexing its muscles. The business landscape shifted to one where the Chinese government more aggressively supported Chinese businesses and demanded more control over foreign businesses operating in China. Foreign companies wanting to do business in China were often required to form joint ventures where the majority share was owned by Chinese partners, issues around intellectual property rights surfaced prominently, and restrictive regulations were imposed that changed the competitive landscape against foreign businesses.

Current Scenario:

Fast forward to the present, and the tides are changing again. Conflicts are growing. The world, led by prominent global corporations, is reassessing how it’s doing business in China, slowing down on Chinese investments and pushing back against some of China’s business practices. The recent conflict with Apple, where the Chinese government is banning iPhones for employees at government agencies and state-controlled businesses, is a testament to the rising tensions and the need for businesses to re-evaluate their dependency on China.

Supply Chain Dynamics:

One significant area of concern and reconsideration is supply chain dependency on China. For many years, companies built their supply chains around Chinese manufacturers in order to realize cost savings. Once established, supply chains can be very difficult to change or undo. However, the risks of global supply chain disruptions, particularly in critical components, have underscored the importance of diversification and having more control over supply chains. Consequently, companies are now taking steps to either bring supply chains back to the US or find alternative vendors in countries where the business environment is more compatible.

Investing in China:

Despite the challenges, turning a blind eye to the world’s second-largest economy isn’t the answer. While there will continue to be significant investment opportunities in China, businesses and investors must proceed with caution, weighing the political and economic risks associated with each one.

Conclusion:

Navigating the US-China business dynamics requires a nuanced understanding, strategic foresight, and the agility to adapt. Businesses must remain vigilant, diversify their strategies and investments, and always be ready to pivot as the landscape evolves.

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