Companies Turn to Developing World for Financial Returns

July 23, 2012

In a post-recession world where Western governments no longer offer the lucrative investment options that they once did, companies are increasingly turning to the developing world in order to generate financial returns. This tendency now seems to be converting into a scramble, as economic powerhouses like Russia, China and the United States compete to get their domestic companies ample business, says Alexander Benard in Foreign Affairs.

In this regard, American policymakers should take a peek at the playbook of their Chinese counterparts, whose aggressive domination of opportunities in the developing world is quickly shutting out competition from American companies. To this end, Chinese officials employ a number of shrewd but effective policies that promote their own business ventures at the expense of Western ones.

  • By opportunistically employing its vast currency reserves in order to become the banker of developing nations, China is able to negotiate from a position of strength on its firms' behalf.
  • The Chinese government also subsidizes many of its largest, multinational firms, thereby allowing them to undercut potential competitors in contract bidding processes.
  • Further, bids for developing world contracts are often coupled with promises of vast infrastructure investment, the latter of which is paid for by the government.

The result of these unyielding policies is a drastic increase in Chinese involvement in global trade: its annual trade and investment in Africa, for example, has increased from $10 billion 10 years ago to $120 billion today.

If American policymakers fail to learn vital lessons from Chinese actions, then their firms will be in danger of missing out on crucial investment opportunities. Though it would be uncharacteristic of the federal government to play such a direct role in domestic firms' overseas operations, this does not mean that it cannot reform its many appendages so as to stay out of the way.

  • Current assistance operations for multinational corporations are spread across several departments and agencies that often work at cross-purposes; combining these programs into a single office would better facilitate their use.
  • Washington should also revise its policies regarding the promotion of individual companies -- while attempting to remain transparent, the government misses perfectly ethical opportunities to promote domestic firms.
  • Regulators should also reconsider many of their burdensome rules that govern international commerce.

Source: Alexander Benard, "How to Succeed in Business," Foreign Affairs, July/August 2012.

For text:

http://www.foreignaffairs.com/articles/134977/alexander-benard/how-to-succeed-in-business

 

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