The managerial and behavioural aspects of the theory of the firm is considered important, especially after the considerable research work of William Baumol and in the mean time Richardson had already worked out some crucial findings on the transactional cost theory and its relation to the market price. The Chinese firms already have a host of rare mineral excavation plans and they looking forward to enhance their profit margin all the more. The ‘theory of the firm’ postulates states that the profit of an organisation should be increased in order to gain from the market dynamics playing in the hands of demand-supply (Jensen, 2003).
The employees of Chinese firms are pretty cheap in comparison to the other countries and so the overall production price remains within the reach. Competitors such as U.K and USA have to devise ways derived from the ‘firm theory’ to innovate the neo-classical theories of the 21st century.
Richard Cyerd was one the prominent persons to have worked on the behavioural aspect of ‘theory of the firm’ (Foss, 2000). It states the importance of the decision making procedure of a firm. The Chinese companies are always very quick and accurate in assessing the market, so the decisions are taken pretty confidently. Also the managers of the Chinese firms are far more powerful than the managers of a capitalist country.
The Chinese world market has recently seen a growth of almost 6% which has potentially attracted a lot of analysis by the Pentagon (China Manufacturing – Facts, n.d.). The system of governance and the firms has to excel, and so the ‘theories of the firm’ has to be applied, innovated, and executed repeatedly.