New Capital Constraints May Spell Opportunity for MNCs

This is good news for foreign companies who compete along dimensions of product quality and performance. Factors such as lifetime costs, MTBF, functionality, and productivity performance of capital goods will ascend as key drivers of purchasing decisions, even despite “buy local” influences from some quarters. Despite the public rhetoric, for the executives making the capex decisions, the risks of financial distress or failure will necessarily outweigh the benefits of buying local. Fair competition concerns amidst rising trade tensions provide a useful foil.

Changes are also likely in purchasing practices. Decentralized (siloed) purchasing by SOEs – a legacy bureaucratic and political-economy feature of the market – will begin to be scrutinized by both top management and their bureaucratic overseers and rationalized in the interests of enhancing efficiency. The legacy approach of parsing procurement as a means of dividing and conquering vendors to obtain the lowest possible unit price despite the efficiency losses at the aggregate level caused by heterogeneous platforms and interoperability issues, will come under question. Strategic procurement will ultimately gain traction as a concept and practice for vanguard SOEs and flagship private companies.

MNCs will need to adjust their sales, business development and relationship management approaches to take advantage of this transition, if not drive it. Early mover opportunities may exist to reposition domestic competition via innovative business practices and processes – e.g. bundling, pricing, and value proposition conveyance. Offering solutions that strengthen customer balance sheet performance will become a new and critical driver in sales performance.