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Published in: Management International Review 1/2021

03-03-2021 | Research Article

China’s Rise, World Order, and the Implications for International Business

Authors: Robert Grosse, Jonas Gamso, Roy C. Nelson

Published in: Management International Review | Issue 1/2021

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Abstract

It is increasingly clear that China’s economic and political power rivals that of the US. This is potentially a serious problem for multinational companies, since China’s rise could lead to more US–China trade conflict and disruption of supply chains, threatening new and ongoing foreign direct investment, and drawing other countries into the jostling for power. However, we argue that globalization is not necessarily endangered by China’s emergence as a comparable power to the US. The US and China both have vested interests in maintaining the open economic order, and these two countries are each providing the global public goods that incentivize economic openness among other countries of the world. In this paper, we develop a theory corresponding to this argument and provide evidence that globalization has not declined even as the global distribution of power has shifted. While global integration is likely to persist, disruptive skirmishes between the US and China will occur with some regularity. Therefore, we suggest that international company strategies today should focus more on risk management related to policy shifts stemming from China’s rise and less on achieving least-cost global supply chains. We present a risk management framework for this purpose.

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Appendix
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Footnotes
1
It should be noted that there are dissenting opinions to this emerging conventional wisdom, as some analysts are skeptical of US decline (e.g., Brooks and Wohlforth 2016a, b), others are skeptical of China’s rise (e.g., Lynch 2019), and still others propose that a multipolar world order has emerged (e.g., Mearsheimer 2019).
 
2
While one could debate the appropriateness of R&D spending as a measure of innovation, the US-China dual leadership also is evidenced by patents and trademarks granted, and by other measures collected by the World Intellectual Property Organization (2019). While no measure of innovation is complete, the various indicators all point toward US-China leadership.
 
3
US-China trade was valued at $578 billion, with a US deficit of $347 billion, in the last year of the Obama administration (2016). US-China trade was valued at $558 billion, with a US deficit of $345 billion, in 2019.
 
4
“More Americans than Gallup has seen in a quarter century view foreign trade positively, with 79% calling it "an opportunity for economic growth through increased U.S. exports" (Saad 2020).
 
5
This is not to deny the real trade barriers that have been imposed on US-China trade by President Trump since 2017, and the retaliation by China’s government. These restrictions, mainly tariffs, have had some impact on that trade, though it continues fairly similar in volume and value to previous years, with some exceptions.
 
6
Of course, this does not take into account the impacts of COVID 19 on global trade.
 
7
It would be logical to expect Hong Kong, or even Shanghai, to join London and New York as the chief global financial centers. For several reasons, mainly to do with political risk of the Chinese government in Hong Kong, this last center has not (yet) developed on the level of the London or New York.
 
8
If the company is changing an existing activity, such as moving production out of China, or contracting production to a third party, then this is adaptation. If the company adds new operations outside of China or the US to deal with this geopolitical risk, then this would be diversification, as discussed in the next category.
 
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Metadata
Title
China’s Rise, World Order, and the Implications for International Business
Authors
Robert Grosse
Jonas Gamso
Roy C. Nelson
Publication date
03-03-2021
Publisher
Springer Berlin Heidelberg
Published in
Management International Review / Issue 1/2021
Print ISSN: 0938-8249
Electronic ISSN: 1861-8901
DOI
https://doi.org/10.1007/s11575-020-00433-8

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