GROWTH & MITIGATING STRATEGIES OF CONSUMER ELECTRONICS COMPANIES DURING THE US-CHINA TRADE WAR

Abstract

Bilateral tariffs of up to 25% between the two largest economies - United States of America (US) and People's Republic of China (China) - can have significant ramifications to business sustainability and economic stability. Research has shown that import tariffs could lead to economic impacts such as decreases in employment, gross domestic product (GDP) and bilateral trade. However, current research have yet to explore the actual impacts of the bilateral tariffs on the operating performance and strategic plans of businesses in the US and China. This inductive research aims to determine how businesses can adapt and grow amidst this increasingly protectionist regime. Based on the review of primary sources such as government reports, quarterly financial disclosures by companies and publications from US central banks, the consumer electronic industry was identified to be most affected from the bilateral tariffs. This paper seeks to identify and analyse the impacts of bilateral tariffs from a quantitative and qualitative perspective. Quantitatively, this paper aims to assess the observable financial impacts of the bilateral tariffs by analysing the financial statements of selected consumer electronic companies. Qualitatively, Apple was identified as the leading company in the consumer electronics industry as it was successful in maintaining high profitability ratios and generating significant amounts of free cashflow that were returned to its shareholders. Through its virtuous capital allocation policy, Apple led the industry by returning $305B (1.15x of 2018 revenue) to its shareholders from 2012 - 2018, whereas its closest peer, Samsung, returned only $45B (0.20x of 2018 revenue). Through this paper, Apple's parameters of success will be identified and highlighted as a model for other companies in the consumer electronics industry. From the quantitative analyses, this paper found that despite the implementation of import tariffs, all selected consumer electronic companies generated higher cash-flow from operations post-tariff implementation. This suggests that consumer electronic companies that have strong competitive advantages and significant means to overcome macro headwinds from import tariffs. Key competitive advantages include market position, product innovation, brand value and high customer satisfaction and loyalty. This paper recommends that consumer electronic companies such as Lenovo consider streamlining its product portfolio and adjust its pricing policy. This can significantly improve Lenovo's profitability ratios and competitive advantage against its peers. A knowledge gap is identified in this study and future research is required to determine if social and political considerations could hinder the ability of companies to adjust their business models for shareholders' wealth maximization.