tag:theconversation.com,2011:/id/topics/alibaba-10293/articlesAlibaba – The Conversation2022-07-13T20:02:40Ztag:theconversation.com,2011:article/1867222022-07-13T20:02:40Z2022-07-13T20:02:40ZChina’s big tech problem: even in a state-managed economy, digital companies grow too powerful<p>China’s digital economy has advanced rapidly over the past two decades, with services, communications and commerce moving online. </p>
<p>The Chinese government has generally encouraged its citizens to accept digital technologies in all aspects of daily life. Today China has <a href="https://www.cnbc.com/2021/02/04/china-says-it-now-has-nearly-1-billion-internet-users.html">around a billion internet users</a>. </p>
<p>China has made clear it aims to be a global leader in digital infrastructure and technologies. Leadership in digital tech has been deemed critical to China’s <a href="http://www.cac.gov.cn/2017-10/27/c_1121867641.htm">future economic growth</a>, domestically and internationally.</p>
<p>Like Western countries, China has seen the rise of a handful of dominant digital platform or “big tech” internet companies. <a href="https://journals.sagepub.com/doi/10.1177/1329878X221105124">We studied China’s recent efforts</a> to regulate these companies, which may hold lessons for Western nations trying to manage their own big tech problems.</p>
<h2>China’s ‘big four’ tech companies</h2>
<p>China’s biggest tech firms are Baidu, Alibaba, Tencent and Xiaomi (often collectively called BATX for short). Broadly speaking, Baidu is built around search and related services, Alibaba specialises in e-commerce and online retail, Tencent focuses on messaging, gaming and social media, and Xiaomi makes phones and other devices.</p>
<p>Like their Silicon Valley counterparts Google, Amazon, Facebook and Apple (or GAFA), the BATX companies dominate their competitors. This is largely thanks to the enormous network effects and economies of scale in data-driven, online business.</p>
<p>The BATX businesses (again, like GAFA) are also known for gobbling up potential competitors. In 2020, Tencent <a href="https://detail.youzan.com/show/goods?%20from_source=gbox_seo&alias=2oivakrio2iju">reportedly</a> made 168 investments and/or mergers and acquisitions in domestic and international companies. Alibaba made 44, Baidu 43 and Xiaomi 70.</p>
<h2>The tech crackdown</h2>
<p>In the past 18 months or so, the BATX companies have come under increased scrutiny from the Chinese government. </p>
<p>In November 2020, an IPO planned for Ant Group, an affiliate of Alibaba, was effectively cancelled. <a href="https://fortune.com/2021/11/03/one-year-after-suspended-ant-ipo-alibaba-china-tech-crackdown-overseas-listings/#:%7E:text=%22Without%20risk%2C%20no%20innovation%20can,day%2C%20Ant's%20IPO%20was%20canceled">Ant Group was forced to restructure</a> after Chinese regulators “interviewed” the company’s founder. </p>
<p>The following month, Alibaba’s Ali Investment and Tencent’s Literature Group were <a href="https://industry-people-com-cn.translate.goog/n1/2020/1214/c413883-31965875.html?_x_tr_sch=http&_x_tr_sl=zh-CN&_x_tr_tl=en&_x_tr_hl=en&_x_tr_pto=wapp">fined RMB 500,000</a> (about A$110,000) each for issues relating to anti-competitive acquisitions and contractual arrangements. </p>
<p>At the same time, China’s General Administration of Market Supervision <a href="https://www.samr.gov.cn/xw/zj/202104/t20210410_327702.html">opened a case against Alibaba</a> for abuse of its dominant market position in the online retail platform services market.</p>
<p>In March 2021 more fines were issued including to Tencent and Baidu. They were <a href="https://www.samr.gov.cn/xw/zj/202103/t20210312_326737.html">fined RMB 500,000 each</a> for anti-competitive acquisitions and contractual arrangements.</p>
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<p>Then in April 2021, Chinese authorities <a href="https://www.samr.gov.cn/xw/zj/202104/t20210413_327785.html">met with 34 platform companies</a>, including Alibaba and Tencent, to provide “administrative guidance sessions” for internet platforms. That month Alibaba was also fined <a href="https://www.samr.gov.cn/xw/zj/202104/t20210410_327702.html">a spectacular RMB 18.228 billion</a> (around A$4 billion) and Tencent another RMB 500,000 for anti-competitive practices. </p>
<p>In July 2021, Chinese authorities <a href="https://www.samr.gov.cn/xw/zj/202107/t20210710_332525.html">prohibited</a> a merger between two companies that would have further consolidated Tencent’s position in the gaming market. </p>
<p>The government’s efforts are ongoing. Earlier this week, regulators <a href="https://www.reuters.com/world/china/china-regulator-fines-alibaba-tencent-disclosure-violations-2022-07-10/">imposed new fines on Alibaba, Tencent and others</a> for violating anti-monopoly rules about disclosing certain transactions. </p>
<h2>What’s motivating Chinese authorities to intervene?</h2>
<p>The evolution of China’s digital giants shows how data-driven markets work on a “winner takes all” basis in both state-managed and capitalist economies.</p>
<p>The BATX companies now wield significant social and economic power in China. This conflicts with China’s ideological commitment to state-managed social order.</p>
<p>In January 2022, President Xi Jinping <a href="http://www.gov.cn/xinwen/2022-01/15/content_5668369.htm">called for stronger regulation</a> and administration of China’s digital economy. The goal, he said, was to guard against “unhealthy” development and prevent “platform monopoly and disorderly expansion of capital”.</p>
<p>State-orchestrated social order is not possible where there is an excessive accumulation of private power.</p>
<p>China’s digital policy agenda is designed to achieve strong economic growth. However, the Chinese Communist Party also <a href="http://www.gov.cn/zhengce/2020-11/03/content_5556991.htm">seeks to maintain strong state control</a> over the structure and function of digital markets and their participants to ensure they operate according to Chinese values and Chinese Communist Party objectives.</p>
<h2>What can we learn from China’s approach to ‘big tech’?</h2>
<p>How can we regulate digital platforms, particularly to improve competition and public oversight? This remains a largely unsolved public policy challenge.</p>
<p>Australia and the EU, like China, have demonstrated significant willingness to take up this challenge.</p>
<p>In Europe, for example, where the US platforms dominate, policymakers are actively seeking to achieve <a href="https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/651992/EPRS_BRI(2020)651992_EN.pdf">independence from foreign technology companies</a>. They are doing this by improving their own domestic technology capacities and imposing rules for privacy, <a href="https://gdpr.eu/what-is-gdpr/">data collection and management</a>, and <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_22_2545">content moderation</a> that align with European values and norms.</p>
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Read more:
<a href="https://theconversation.com/chinas-tech-and-finance-crackdown-is-a-challenge-to-western-ideas-that-cuts-across-developing-world-171059">China's tech and finance crackdown is a challenge to western ideas that cuts across developing world</a>
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<p>While the EU and China are aiming at very different goals, both are willing to take a significant role in regulating digital platforms in accordance with their stated economic, political and social values.</p>
<p>This stands in stark contrast to the situation in the US, which has so far had little appetite for meaningfully restricting the behaviour of tech companies. </p>
<p>In theory, China’s centralised political power gives it space to try different approaches to platform regulation. But it remains to be seen whether Chinese authorities can successfully overcome the tendency for monopolies to form in digital markets. </p>
<p>If China succeeds, there may be valuable lessons for the rest of the world. For now we must wait and watch.</p>
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<a href="https://theconversation.com/tiktok-and-geopolitics-how-digital-nationalism-threatens-to-entrench-big-tech-160919">TikTok and geopolitics: how 'digital nationalism' threatens to entrench big tech</a>
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<img src="https://counter.theconversation.com/content/186722/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joanne Gray has previously received research funding from Meta Platforms Inc. formerly known as Facebook Inc. </span></em></p><p class="fine-print"><em><span>Yi Wang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Like the EU and unlike the US, China is trying to rein in the power of big tech companies. Can we learn from these efforts?Joanne Gray, Lecturer in Digital Cultures at The University of Sydney, University of SydneyYi Wang, Early Career Researcher and Sessional Academic in Creative Industries, Digital Platforms and Knowledge Exchange, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1643952021-07-14T05:02:08Z2021-07-14T05:02:08ZFacial recognition for gamers, app store bans for Didi: what’s behind China’s recent crackdown on big tech?<figure><img src="https://images.theconversation.com/files/411168/original/file-20210714-13-1cyeetx.jpeg?ixlib=rb-1.1.0&rect=24%2C128%2C5316%2C3347&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Mark Schiefelbein/AP</span></span></figcaption></figure><p>Over the past few weeks, the Chinese government’s crackdown on big tech companies has intensified. The giants have <a href="https://www.scmp.com/tech/big-tech/article/3140770/meituan-quietly-revives-its-stand-alone-ride-hailing-app-didi-chuxing">all felt</a> the brunt of heightened regulatory scrutiny. </p>
<p>At the end of last year, Ant Group (which owns the payment platform AliPay) failed to go public on the stock market. Chinese regulators cited <a href="https://www.businessinsider.com.au/what-happened-ant-group-ipo-jack-ma-alipay-2020-11">a lack of compliance with new fintech regulations</a>, which were abruptly introduced a week after founder Jack Ma publicly criticised the existing regulatory regime. </p>
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<a href="https://theconversation.com/chinas-record-fine-against-alibaba-spells-the-end-of-big-techs-romance-with-the-state-158878">China's record fine against Alibaba spells the end of big tech’s romance with the state</a>
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<p>Since then, the calculated reining-in of China’s largest tech firms by the government continues unabated, culminating in several high-profile cases over the past month. Two of China’s largest e-commerce platforms, Taobao and Pinduoduo, were taken to task last week over online vendors <a href="https://www.globaltimes.cn/page/202107/1228216.shtml">publishing fake product inspection reports</a>.</p>
<p>Meanwhile, China’s largest food delivery platform, Meituan, has been the subject of an <a href="https://www.scmp.com/tech/big-tech/article/3131456/meituan-faces-big-fine-antitrust-violation-just-alibaba-analysts-say">antitrust probe</a> since April. </p>
<p>Social media platforms aren’t spared either. The popular platform Xiaohongshu (which translates to “Little Red Book”) has come under <a href="https://jingdaily.com/wealth-flaunting-china-social-media-xiaohongshu/">regulatory scrutiny</a> for enabling “wealth-flaunting” behaviour.</p>
<p>But these practices have been going on for some time. So what’s behind the government’s sudden choke-hold? And given the economic benefits these companies bring to China, is the government shooting itself in the foot, or are other forces at play?</p>
<h2>The curious case of Didi</h2>
<p>It used to be a source of great national pride when a Chinese tech firm was listed on a foreign stock exchange. On June 30 this year, Didi — China’s version of Uber which operates around the world and in Australia — achieved just that. It debuted on the New York Stock Exchange at US$14 per share. </p>
<p>The initial public offering (IPO) raised US$4.4 billion and valued the company at US$68 billion, making it the second-largest US IPO by a Chinese company, after Alibaba. Just days after the phenomenal success, however, Didi was <a href="https://www.scmp.com/news/china/article/3140593/chinese-regulators-order-25-more-didi-linked-apps-removed-stores">abruptly pulled</a> from China’s app stores, along with 25 other apps linked to the company. </p>
<p>From a height of more than US$16 per share, Didi shares have lost a third of their value to date. The company is now subject to a class action lawsuit from investors who bought into its IPO, for not revealing its <a href="https://www.bbc.com/news/business-57744983">ongoing legal issues</a> relating to compliance with China’s data security regulations. </p>
<p>The Cyberspace Administration of China claimed Didi was guilty of serious violations of laws and regulations in the collection and use of personal data, the Global Times <a href="https://www.globaltimes.cn/page/202107/1227859.shtml">reported</a>. But Didi has been in the Chinese market for more than nine years, so surely these issues should have surfaced sooner. </p>
<p>Analysts have <a href="https://www.npr.org/2021/07/12/1015371400/china-removed-didi-from-app-stores-accused-the-company-of-violating-security-rul">speculated</a> the Chinese government is more concerned the data owned by Didi — a company that accounts for about 90% of China’s taxi and rideshare services — would end up in the hands of the US government following its listing on the US stock exchange.</p>
<p>This data could be used to construct detailed travel logs of Chinese residents, with obvious implications for national security. This concern may be legitimate, as US government agencies routinely request data from even homegrown tech firms. </p>
<p>Firms have the right to <a href="https://apnews.com/article/government-and-politics-technology-business-ed50baf4ffb09ca50cda9b8a262c54ad">challenge such requests</a>. But this is naturally at the firm’s discretion, and a lack of direct control is something the Chinese government traditionally eschews. </p>
<p>The fallout from Didi’s regulatory troubles has spread more widely as other US-listed tech firms have also come under <a href="https://www.ft.com/content/771f6d40-ecd2-4855-8193-d0550f1d2e3d">increased scrutiny</a>, signalling regulatory reforms may be on the horizon. </p>
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<a href="https://images.theconversation.com/files/411173/original/file-20210714-13-nhdh6z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/411173/original/file-20210714-13-nhdh6z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/411173/original/file-20210714-13-nhdh6z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/411173/original/file-20210714-13-nhdh6z.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/411173/original/file-20210714-13-nhdh6z.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/411173/original/file-20210714-13-nhdh6z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/411173/original/file-20210714-13-nhdh6z.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/411173/original/file-20210714-13-nhdh6z.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">China’s big tech firms are under the pump, with the possibility on new regulations on the horizon.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<h2>The primacy of social good</h2>
<p>To understand the rationale behind the Chinese govenrment’s recent moves, we must first understand the parallel universe that is China’s technological landscape. In China, technology must never be harnessed solely for an individual or organisation’s gain. Social good is always emphasised, as defined and enforced by the Chinese government. </p>
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<a href="https://theconversation.com/chinese-propaganda-goes-tech-savvy-to-reach-a-new-generation-119642">Chinese propaganda goes tech-savvy to reach a new generation</a>
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<p>Didi’s listing on the New York Stock Exchange would have undoubtedly fuelled the company’s global expansion. But in the eyes of the Chinese government, it could have also hurt the nation’s collective interests. It remains to be seen whether this apparent contradiction can be resolved. </p>
<p>China’s collectivist approach to technology consumption is also evident in its regulation of mobile games. </p>
<p>This week <a href="https://www.nytimes.com/2021/07/08/business/video-game-facial-recognition-tencent.html">news emerged</a> that Tencent — which owns WeChat and is one of the largest gaming companies in the world — will <a href="https://mp.weixin.qq.com/s/Cr17TKWQ3XcuNzDw085OLw">use a facial recognition</a> feature called “Midnight Patrol” to restrict the activities of under-18 gamers. Tencent <a href="https://mp.weixin.qq.com/s/Cr17TKWQ3XcuNzDw085OLw">said</a> the feature was already being used in 60 games, with more additions planed. </p>
<p>In 2019, the Chinese government imposed a video game curfew on minors, banning them from playing between 10pm and 8am — allegedly <a href="https://www.nytimes.com/2019/11/06/business/china-video-game-ban-young.html">to curb</a> gaming addiction. South Korea is the only other country with such a curfew. </p>
<p>It’s expected the Midnight Patrol rollout will prevent minors from using their parents’ devices or identities to circumvent the curfew. Facial recognition trials for this purpose started in 2018, but Midnight Patrol is unique in its scale of implementation. </p>
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<span class="caption">In 2019 the Chinese Government introduced a video game curfew for people under 18.</span>
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<p>From a Western point of view, such measures may seem a draconian violation of privacy and freedom. In China, however, they are generally <a href="https://www.globaltimes.cn/page/202105/1223204.shtml">lauded and welcomed</a>. The prevailing view is tech firms may profit commercially from the exploitation of technology, but not at the expense of social good. </p>
<p>For consumers of Chinese tech services in Australia and other countries, the good news is these firms have always tried to differentiate their services for domestic and international markets. </p>
<p>For example, the massively popular video-sharing platform TikTok is named Douyin in China, where it abides by vastly different rules to the TikTok used by the rest us. And if there are privacy concerns, international consumers can always choose to not use these services. </p>
<p>Chinese consumers, unfortunately, don’t have this choice.</p><img src="https://counter.theconversation.com/content/164395/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Barney Tan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With the recent travails of Didi, and the emergence of Tencent’s facial recognition feature, China’s tech sector is undergoing major upheaval.Barney Tan, Associate Professor, Business Information Systems, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1588782021-04-16T06:12:35Z2021-04-16T06:12:35ZChina’s record fine against Alibaba spells the end of big tech’s romance with the state<figure><img src="https://images.theconversation.com/files/395389/original/file-20210416-18-1rdet68.jpg?ixlib=rb-1.1.0&rect=54%2C27%2C5960%2C4290&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">ALEX PLAVEVSKI/EPA</span></span></figcaption></figure><p>China’s state-run <a href="https://www.bloomberg.com/news/articles/2021-04-13/china-orders-34-tech-firms-to-curb-excesses-in-antitrust-review">anti-monopoly bureau</a> has tightened its regulations on big tech players, as shown by its recent move against the country’s largest e-commerce company, Alibaba Group.</p>
<p>Alibaba was <a href="https://www.bbc.com/news/business-56713508">hit with</a> a record antitrust fine of 18.2 billion yuan (more than A$3.6 billion) over the weekend for supposedly abusing its market dominance. The company, which operates the digital payment platform Alipay and offers bank loans to entrepreneurs, issued a <a href="https://www.forbes.com/sites/robertolsen/2021/04/10/jack-mas-alibaba-hit-with-28-billion-fine-for-abusing-its-dominant-market-position/?sh=7297894937d1">public apology</a>:</p>
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<p>Alibaba accepts the penalty with sincerity and will ensure its compliance with determination. To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems, and build on growth through innovation.</p>
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<p>Meanwhile, questions have been asked about the whereabouts of Alibaba’s founder Jack Ma. In October last year, Ma lashed out at China’s <a href="https://www.abc.net.au/news/2021-01-10/alibaba-investigation-amid-speculation-jack-ma-whereabouts-china/13042044">financial watchdogs and banks</a>. </p>
<p>Among other complaints, he criticised the state-managed financial sector and was subsequently hauled into a meeting with regulators. After that, the always-visible Ma was not seen in public for months. </p>
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<a href="https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Jack Ma rocking out on stage" src="https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Jack Ma, founder of Alibaba Group, put on a performance at the company’s 20th anniversary in 2019.</span>
<span class="attribution"><span class="source">ICHPL Imaginechina/AP</span></span>
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<p>Ma’s sudden withdrawal is just one of several developments that point to a huge shift in the regulation of China’s digital space. The lenience once accorded to tech companies by the state no longer holds true. </p>
<p>And recent actions against Alibaba may signal the beginning of the end of the romance between Chinese big tech and the government.</p>
<h2>A fawning apology</h2>
<p>The first real test for this relationship came late last year. China’s State Administration for Market Regulation charged Alibaba’s affiliate Ant Group (also owned by Ma) with anti-competitive behaviour. </p>
<p>Some of Ma’s <a href="https://www.bbc.com/news/technology-56448688">comments</a> around that time were not received well in Beijing. In October, <a href="https://www.reuters.com/article/us-ant-group-ipo-suspension-regulators-i-idCAKBN27L1BB">he claimed</a> China’s banks operated with a “pawn-shop mentality”.</p>
<p>According to <a href="https://www.wsj.com/articles/china-president-xi-jinping-halted-jack-ma-ant-ipo-11605203556">reports</a>, President Xi Jinping himself authorised the subsequent withdrawal of Ant Group’s initial public offering launch on the Shanghai and Hong Kong stock exchanges.</p>
<p>The company was then forced to incorporate itself as a financial institution and subject itself to supervision by China’s state-controlled central bank.</p>
<p>The anti-monopoly ruling dealt out to Ant Group last year, and Alibaba more recently, aren’t incompatible with corporate governance in Western democracies. However, the chief executives of Western tech companies generally <a href="https://theconversation.com/facebook-is-merging-messenger-and-instagram-chat-features-its-for-zuckerbergs-benefit-not-yours-147261">don’t make fawning apologies</a> to government following accusations of anti-competitive behaviour. </p>
<h2>Back when big tech was in the state’s pocket</h2>
<p>There was a time in China when big tech firms lived the dream. Historically, China’s regulators have given its internet companies much more latitude than afforded to the tightly controlled state-owned media.</p>
<p>In 2000, when Alibaba was just one year old, only <a href="https://www.internetlivestats.com/internet-users/china/">1.8% of the Chinese population was online</a>. This number now exceeds 50% of the population.</p>
<p>As my colleagues and I explain in <a href="https://anthempress.com/china-s-digital-presence-in-the-asia-pacific-hb">our book</a>, the Chinese government’s decision in 2007 to require all video-sharing platforms to be licensed led to the rapid market dominance of Baidu, Alibaba and <a href="https://www.fool.com/investing/2021/04/12/after-massive-alibaba-fine-tencent-fears-it-could/">Tencent</a>. These were followed by Bytedance (which owns TikTok), Kuaishou and Meituan. </p>
<p>The licensing requirement was a response to pressure from international copyright holders, including the Motion Picture Association of America. It eliminated less financially robust operators, many of whom were breaching copyright.</p>
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<a href="https://theconversation.com/china-could-be-using-tiktok-to-spy-on-australians-but-banning-it-isnt-a-simple-fix-142157">China could be using TikTok to spy on Australians, but banning it isn’t a simple fix</a>
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<p>Aware of their social responsibility, many big tech leaders espoused the Chinese Dream: Xi Jinping’s roadmap for national rejuvenation. And Alibaba led the way. </p>
<p>Over the past decade it <a href="http://www.xinhuanet.com/english/2019-08/02/c_138278689.htm">set up</a> rural e-commerce hubs called Taobao villages to play to the government’s tune of “<a href="https://www.scmp.com/economy/china-economy/article/3116360/revitalising-chinas-rural-regions-xi-jinpings-next-priority">rural revitalisation</a>”.</p>
<p>In 2015, when the central government announced a campaign to activate grassroots entrepreneurship, Alibaba partnered with the local provincial government in Zhejiang. The resulting project was aptly named “Dream Town”, which the <a href="http://tsxz.zjol.com.cn/system/2016/07/08/021219849.shtml">governor of Zhejiang</a> described as:</p>
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<p>a new type of mass entrepreneurial space, a giant incubator, a young entrepreneurial community, a new information economy motor, an internet start-up ecosystem.</p>
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<p>All the while, Alibaba had been adding several enterprises to its war chest, mostly acquisitions of smaller companies. It took the major share of popular video site Youku Tudou and bought into the film business, getting closer to younger audiences.</p>
<h2>The state steps in</h2>
<p>China’s internet companies have built the infrastructure of China’s digital economy, which is now estimated to account for <a href="https://www.globaltimes.cn/page/202101/1212840.shtml">36.2% of GDP</a>. This growth is largely due to the forces unleashed by China’s new breed of digital capitalists. </p>
<p>Alibaba has invested heavily in research and development over the years. It has <a href="https://www.cnbc.com/2019/09/11/we-went-inside-alibabas-global-headquarters-heres-what-we-saw.html">a modern campus</a> in the Yuhang district in Hangzhou, recruiting foreign talent. Other tech giants aren’t far behind. Tencent has similar campuses in Guangzhou and Shenzhen, and Huawei has one in Dongguan.</p>
<p>As Stephen Barthlomeusz of the Sydney Morning Herald <a href="https://www.smh.com.au/business/companies/disrupted-china-is-slamming-the-brakes-on-big-tech-20201117-p56faf.html">notes</a>, the state regulator’s recent targeting of Alibaba (and <a href="https://www.bbc.com/news/business-56741551">other major tech companies</a>) doesn’t come without cost.</p>
<p>China’s tech market has driven growth and innovation. In fact, China’s <a href="http://www.lawinfochina.com/display.aspx?id=6351&lib=law&EncodingName=big5">anti-monopoly laws</a> have existed since at least 2007. But their enforcement was lacking, as the state opted for innovation by <a href="https://www.bloomberg.com/opinion/articles/2018-04-12/china-is-nationalizing-its-tech-sector">nationalising the tech sector</a> and letting it develop.</p>
<p>Putting a squeeze on activities now runs the risk of slowing down China’s economy. At the same time, the Chinese public is <a href="https://www.scmp.com/comment/opinion/article/3115061/china-joins-other-governments-seeing-dark-side-big-tech-or-has-it">growing disillusioned</a> with the predatory practices of big tech. Sound familiar? </p>
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Read more:
<a href="https://theconversation.com/hundreds-of-chinese-citizens-told-me-what-they-thought-about-the-controversial-social-credit-system-127467">Hundreds of Chinese citizens told me what they thought about the controversial social credit system</a>
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<h2>The visible hand</h2>
<p>At the same time, China’s tech companies owe a great deal of their success to the government. The state allowed them to benefit from policies designed to keep foreign competitors at bay, and to attract human capital back to China to work in these enterprises. </p>
<p>In return, the companies have helped the Chinese state further its technocratic model of surveillance, through investing in the <a href="https://www.wired.co.uk/article/china-social-credit-system-explained">social credit system</a> and facial recognition.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">China’s social credit system is a national surveillance mechanism that will track citizens, companies and government entities, rating their ‘trustworthiness’. The state missed its rollout deadline for last year.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<p>But the market no longer offers the pretence of distance from government intervention. And new laws allow the Chinese government to <a href="https://www.smh.com.au/business/banking-and-finance/jack-ma-s-ant-group-is-becoming-a-member-of-a-club-he-despises-20210413-p57irp.html">access information</a> about the users of China’s tech platforms. </p>
<p>This is the status of the relationship going forward. The question now is whether this will lead to a permanent chill. In the year celebrating the <a href="https://www.ap.org/live-and-location-services/events/china-anniversary">100th anniversary</a> of the Chinese Communist Party, perhaps it would be more expedient for China’s tech companies to toe the party line. </p>
<p>With the state’s propaganda apparatus reminding people of its victory over capitalism, it’s in the interest of incumbent players to adopt the principles of socialism, rather than play to their shareholders.</p><img src="https://counter.theconversation.com/content/158878/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Keane has received funding from the Australian Research Council. </span></em></p>It would be useful for China’s big tech firms to toe the party line. But the once mutually-beneficial relationship between these companies and the government is becoming increasingly strained.Michael Keane, Professor of Chinese Digital Media and Culture, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1527122021-01-06T15:18:52Z2021-01-06T15:18:52ZJack Ma: China’s spat with billionaire is part of bigger push to control big tech – Silicon Valley could be next<p>Chinese tech billionaire Jack Ma has allegedly fallen out with the Beijing government. <a href="https://www.theguardian.com/business/2021/jan/05/where-is-jack-ma-chinese-tycoon-not-seen-since-october-alibaba">Several</a> <a href="https://www.ft.com/content/a91dfeae-da1e-4348-8212-bbfbe94d93bd">recent articles</a> reported that Ma offended the Chinese authorities by delivering a speech in Shanghai in October criticising financial regulation, and that he and his colleagues were called in for questioning. </p>
<p>The planned IPO of his financial services powerhouse, Ant Group, for over US$30 billion, was suddenly suspended. Antitrust investigations were instigated against his other major company, online retailer Alibaba (and also Chinese tech giant, Tencent). </p>
<p>Towards the end of the year, <a href="https://www.sharecast.com/news/international-companies/china-plans-rectification-drive-divide-alibaba-empire--7763825.html">Ma then received</a> a “rectification order” from the People’s Bank of China (PBoC), the central bank, outlining five ways in which Ant Group must comply with the regulator. To cap it all, the entrepreneur has reportedly not been seen in public since October. </p>
<p>Whatever the reality behind Ma’s government relations, many of these actions are part of steps to increase Chinese tech regulation that have been years in the making. After several decades of allowing experimentation by big tech companies, this is in fact overdue. Indeed, Ma almost asked for it himself when he mentioned in his October speech that China’s financial sector lacks regulation. The reforms may also provide a glimpse of what might happen elsewhere – Silicon Valley should take note.</p>
<h2>China’s antitrust regime in three acts</h2>
<p>There have been three major movements in Chinese tech regulation in the past decade. The first Anti-Monopoly Law came into effect in August 2008. It outlawed monopolistic practices, but the authorities were hesitant to enforce the rules against tech companies in the heyday of China’s internet boom. Except for a few high-profile cases, such as a <a href="https://www.antitrustlawblog.com/2013/07/articles/uncategorized/qihoo-360-v-tencent-a-landmark-decision-under-chinas-anti-monopoly-law/">private action</a> concerning anti-virus software that was brought under the act against Tencent by rival Qihoo 360, China’s focus was on building digital capabilities and increasing consumption. </p>
<p>Major new laws began to appear a decade later. The <a href="https://www.chinalawtranslate.com/en/p-r-c-e-commerce-law-2018/">E-Commerce Law</a> became effective in January 2019, for example. E-commerce operators were required to register as market entities, and more importantly they became <a href="https://www.scmp.com/tech/apps-social/article/2180194/heres-how-chinas-new-e-commerce-law-will-affect-consumers-platform">jointly liable</a> with merchants for selling counterfeit merchandise. Operators could be fined up to US$300,000 for serious intellectual property infringement. </p>
<p>But it was really in 2020 when China’s antitrust regime for big tech came into focus. July saw the first concrete action as China’s State Council’s Anti-Monopoly Commission <a href="https://www.reuters.com/article/us-alipay-wechat-pay-china-exclusive-idUSKCN24W0XD">investigated</a> Ant Group payments arm Alipay and Tencent’s WeChat Pay. The Alipay investigation did not seem to cool investor interest in the Ant Group IPO. But well ahead of the November suspension and Ma’s Shanghai speech, it was a clear warning to the market. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Consumer using WeChat Pay on their phone" src="https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377356/original/file-20210106-17-5ur2kk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">WeChat Pay has also been in the firing line.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/beijing-china-on-october-9-2019-1526450492">An Ming</a></span>
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<p>We also saw major data-protection legislation during the year: the <a href="http://www.ahwx.gov.cn/zcfg/gfxwj/202007/t20200708_4629245.html">Draft Data Security Law</a> was issued for public comments in July, followed by the <a href="https://thediplomat.com/2020/09/chinas-draft-data-security-law-a-practical-review/">Draft Personal Data Protection Law</a> in October. Together with the <a href="https://thediplomat.com/2017/06/chinas-cybersecurity-law-what-you-need-to-know/#:%7E:text=China's%20Cybersecurity%20Law%20comes%20into,global%20best%20practices%20for%20cybersecurity.">Cybersecurity Law</a> of 2016, it means that three fundamental pieces of legislation are now in place in this area. </p>
<p>On the back of this, the <a href="http://www.npc.gov.cn/npc/c30834/202006/75ba6483b8344591abd07917e1d25cc8.shtml">Civil Code of the People’s Republic of China</a>, which became effective on January 1, expressly provides the right of privacy and personal information protection to citizens. This regime is clearly with an eye to the EU data protection rules, and coincides with a new <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2541">investment treaty</a> between China and the EU that gives them more access to one another’s markets. </p>
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Read more:
<a href="https://theconversation.com/chinas-new-civil-code-has-angered-feminists-the-chinese-communist-party-is-now-trying-to-appease-them-151165">China's new civil code has angered feminists – the Chinese Communist Party is now trying to appease them</a>
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<p>November then saw a <a href="http://www.samr.gov.cn/hd/zjdc/202011/t20201109_323234.html">consultation draft</a> of the Anti-Monopoly Guidelines on the Sector of Platform Economies. It was published one day before Single’s Day, China’s huge retail extravaganza on November 11 to celebrate people not in relationships, which has become Alibaba’s hallmark annual sales event. </p>
<p>These anti-monopoly guidelines attempt to address shortcomings in applying the existing rules to companies like Ant Group. <a href="https://www.paulweiss.com/practices/litigation/antitrust/publications/china-s-draft-anti-monopoly-guidelines-on-platform-economy?id=38602">They restrict</a> behaviour such as price discrimination favouring certain types of consumers, preferential treatment for merchants who sign exclusive agreements with platforms, and compulsory collection of user data. </p>
<p>In sum, Chinese big tech will likely have to fundamentally rethink the way it does business in future. The window of opportunity to scale at will without boundaries has closed shut.</p>
<h2>Pay attention, Google and Facebook</h2>
<p>What will the immediate effects be? Newcomers like Bytedance and Pinduoduo were already eating market share from Alibaba and Tencent, and the antitrust reforms could well accelerate that trend. </p>
<p>Flagship changes like loosening merchant exclusivity might have had more impact several years ago, before competition intensified, but the direction of travel is clear. In a sign of its new tougher stance, the authorities also <a href="https://www.cnbc.com/2020/12/14/alibaba-and-two-other-firms-fined-for-not-reporting-deals-to-chinese-regulators-.html">issued fines</a> of 500,000 yuan (£56,738) in December against Alibaba, Tencent subsidiary China Literature and Shenzhen Hive Box Technology for not declaring past acquisitions. </p>
<p>Meanwhile, the central bank’s December order to Ant Group will broadly require the company to go back to its <a href="https://theconversation.com/ant-group-is-holding-the-biggest-ipo-of-all-time-heres-what-it-is-147403">roots as online payments business Alipay</a>, which was originally spun out of Alibaba. Having branched into areas like insurance, credit and wealth management, these businesses now have to be restructured into a separate holding company. Ant Group must also introduce new data privacy rules and improve compliance around the securities that it manages for investors. </p>
<p>Some players not (yet) facing the same scrutiny appear to be paying close attention. JD Finance, another fintech spin-off, this time from Alibaba rival JD.com, has <a href="https://www.caixinglobal.com/2020-12-22/jdcoms-fintech-unit-reshuffles-executives-ahead-of-ipo-101642174.html">appointed</a> its former chief compliance officer as the new CEO. And while incumbents look over their shoulders, TikTok owner Bytedance just moved into financial services by launching a one-stop consumer finance app in October. </p>
<p>If we compare all this with the <a href="https://www.theguardian.com/us-news/video/2020/nov/18/facebook-and-twitter-ceos-face-senate-hearing-over-handling-of-2020-us-election-video">recent US congressional hearings</a> for Facebook’s Mark Zuckerberg and Twitter’s Jack Dorsey, it’s tempting to conclude that while China acts, America puts on a show. Of course, US antitrust cases are underway against <a href="https://www.ft.com/content/4be47818-e889-4442-a009-1d1adda25b0d">Facebook</a> and <a href="https://www.cnbc.com/2020/12/18/google-antitrust-cases-in-us-and-europe-overview.html">Google</a>. But now that China has taken a major step towards a comprehensive regime for regulating competition among digital platforms, the big question is to what extent this chilling wind will blow to the west.</p><img src="https://counter.theconversation.com/content/152712/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Greeven does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s not only Alibaba and Ant Group that are feeling the heat.Mark Greeven, Professor of Innovation and Strategy, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1499402020-12-22T16:05:05Z2020-12-22T16:05:05ZChanging the rules to control monopolies could see the end of Facebook domination<p>No one raised an eyebrow when Mark Zuckerberg <a href="https://www.wsj.com/articles/SB10001424052702303815404577333840377381670">bought tiny Instagram</a> in 2012 for US$1 billion. Now regulators want to unwind the deal, by forcing Facebook to sell Instagram, and WhatsApp. This move may <a href="https://www.washingtonpost.com/technology/2020/12/11/facebook-breakup-antitrust/">spell the disintegration</a> of the Facebook empire. </p>
<p>But this is not only about Facebook, or Amazon, Google, and Apple. It is a global shift of the boundaries within which monopolies can function. </p>
<p>The US Justice Department <a href="https://www.justice.gov/opa/pr/justice-department-sues-block-visas-proposed-acquisition-plaid">recently blocked</a> Visa from buying Plaid, which provides payment processes and works in a similar way to Stripe. Plaid provides the plumbing that lets apps like Venmo, a cash transfer service, or Robinhood, a stock trading platform, access user bank accounts. </p>
<p>Today, Plaid acts as a link between fintech apps and some 11,000 financial institutions. Visa and Mastercard aid in electronic funds transfers between bank accounts but Plaid can take out these middle men. One day, consumers might make purchases without a debit or credit card, paying merchants directly from their bank accounts. That’s why Visa wants Plaid – it can’t afford to miss the next big thing. As the late Intel CEO, <a href="https://www.amazon.com/Only-Paranoid-Survive-Andrew-Grove/dp/0385482582">Andy Grove</a> said, only the paranoid survive. </p>
<p>Regulators <a href="https://www.wsj.com/articles/justice-department-files-antitrust-lawsuit-challenging-visa-s-planned-acquisition-of-plaid-11604591434">worry</a> that an acquisition could “deprive American merchants and consumers of this innovative alternative to Visa”. This change in attitude indicates that companies may no longer be able to simply buy out their competition. Many regulators globally have broadened their field of view, and “consumer welfare” has a wider scope. Regulation seems to indicate that pricing is no longer the only consideration - there has been a shift towards protecting a competitive marketplace.</p>
<h2>Cornering the market</h2>
<p>Datasets become exponentially more valuable when you combine them. When Google introduced Gmail, it built a new dataset of people’s identities. In addition to the existing search engine dataset, Google then also had people’s email addresses and IPs. As a result, Google’s AdWords can now provide more refined targeting for advertisers.</p>
<p>The same happened with Google Maps. When Google tied people’s identity and purchase intent to their geo-location, advertisements became even more accurate to target consumers.</p>
<p>In today’s economy, this ability to predict behaviour, curate offerings, and fulfil orders automatically, offer the single most important <a href="https://hbr.org/2019/05/the-age-of-continuous-connection">advantage</a>: helping an organisation expand. Sure, the initial entrepreneurial insights are still important - discovering your customer’s needs is the first step. But once you’re past the stage of a minimal viable product, your ability to scale determines your success.</p>
<p>That’s why tech giants are sweeping up the start-up field – buying up other businesses has been an important route for growth. It is also harder for entrepreneurs to stay independent and IPOs have been <a href="https://www.theatlantic.com/magazine/archive/2018/11/private-inequity/570808/">on the decline</a>. And in the case of Instragram, its co-founders kept fighting against Zuckerberg even after the acquisition. Eventually, they abandoned Instagram and <a href="https://www.wired.com/story/facebook-mark-zuckerberg-15-months-of-fresh-hell/">left</a> Facebook altogether. </p>
<p>What we see now is the blocking of tech giants from buying up small firms. Or, in the case of Facebook, it might unwind its deals executed a decade ago. The logic is to prevent the concentration of industrial power, because too much concentration always leads to systemic risks. </p>
<h2>China leads the charge to stricter regulation</h2>
<p>This is what happened in China. Just hours before the launch of Ant Group’s mega IPO, Chinese authorities cited “major issues” with the company. The release of the US$300 billion <a href="https://theconversation.com/ant-group-is-holding-the-biggest-ipo-of-all-time-heres-what-it-is-147403">fintech disruptor</a> IPO has now been put on pause.</p>
<p>At the heart of Ant Group is a product called Alipay, created by Alibaba in 2004 as a payment tool for its online marketplaces. It then went into financial services, such as lending, wealth management, and insurance, all of which were offered through Alipay. Like all things in China, Ant Group’s growth has been epic. China now aims <a href="https://theconversation.com/ant-group-jack-mas-biggest-market-debut-suspended-amid-fears-over-regulation-149475">to limit it’s size and reach</a>, and that is what regulators are navigating across the globe.</p>
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Read more:
<a href="https://theconversation.com/ant-group-jack-mas-biggest-market-debut-suspended-amid-fears-over-regulation-149475">Ant Group: Jack Ma's biggest market debut suspended amid fears over regulation</a>
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<p>When it comes to Amazon, no one is saying that the company is monopolising retail or that it is charging prices that are too high and hurting consumers; its <a href="https://www.gfmag.com/global-data/economic-data/largest-companies">revenue is still smaller than Walmart’s</a>. But regulators are <a href="https://www.pcmag.com/news/eu-access-to-data-from-third-party-sellers-gives-amazon-an-unfair-edge">saying</a> Amazon’s own rules allow it to use data from its third parties to have an unfair advantage over its competition.</p>
<p>Similarly, Facebook also fears competition. In one example it reportedly <a href="https://www.wired.com/story/copycat-how-facebook-tried-to-squash-snapchat/">slowed down Snapchat’s growth</a> by copying and using features created by Snapchat. Vanity Fair <a href="https://www.vanityfair.com/news/2017/04/facebooks-campaign-to-destroy-snapchat-is-getting-vicious">called it</a> a “campaign to destroy Snapchat”. </p>
<p>The ease and speed with which large companies can use such tactics reveals the extent to which the playing field is not level.</p>
<h2>Where do we go from here?</h2>
<p>In each of these examples, it’s not only the market share won by the tech giants that’s causing concern. It’s also the ease at which a company can cut across all verticals and use its data advantage to overwhelm competition. What might emerge from this is that tech giants may simply be barred from entering certain sectors entirely, such as healthcare, finance, transport, and more.</p>
<p>It wouldn’t be the first time. The reason AT&T didn’t participate in the computer business was not for a lack of technology - it had been prohibited from doing so in a <a href="https://www.investopedia.com/ask/answers/09/att-breakup-spinoff.asp">1956 agreement</a> after the company was deemed a “natural monopoly.” Until it was broken up in 1984, AT&T <a href="https://www.washingtonpost.com/archive/politics/1982/01/09/us-ends-antitrust-suits-against-at38/6545a672-b488-4915-9064-8baf4da21590/">had been barred</a> from entering the computer business.</p>
<p>What could come out of banning large companies from entire sectors? You protect and make space for progression and development. Regulators can help to create a level playing, giving new players a chance, and stopping larger companies becoming such enormous monopolies that their self-preservation hinders progression – which benefits us all.</p><img src="https://counter.theconversation.com/content/149940/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As massive companies buy up their competition with ease, the answer may be to ban them from sectors all togetherHoward Yu, Professor of Management and Innovation, International Institute for Management Development (IMD)Angelo Boutalikakis, Research associate, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1494752020-11-04T13:30:22Z2020-11-04T13:30:22ZAnt Group: Jack Ma’s biggest market debut suspended amid fears over regulation<figure><img src="https://images.theconversation.com/files/367456/original/file-20201104-21-zr0zqj.png?ixlib=rb-1.1.0&rect=2%2C7%2C932%2C615&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Back to the start?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-may-16-2019-chinese-1404202478">Frederic Legrand - COMEO /Shutterstock</a></span></figcaption></figure><p>In a surprise <a href="https://www.bbc.co.uk/news/business-54798278">last minute decision</a>, the flagship stock exchange listing of Ant Group was suspended by regulators <a href="http://www.sse.com.cn/disclosure/announcement/general/c/c_20201103_5253315.shtml">in China</a> and <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1103/2020110302285.pdf">Hong Kong</a>. The Chinese tech giant, backed by Alibaba billionaire Jack Ma, <a href="https://theconversation.com/ant-group-is-holding-the-biggest-ipo-of-all-time-heres-what-it-is-147403">was to be the biggest</a> initial public offering (IPO) in history. </p>
<p>The suspension puts in doubt the future of the US$34.4 billion share sale, part of the US$313 billion dual listing of this giant financial technology (fintech) payments company. The move followed <a href="https://www.bloombergquint.com/markets/jack-ma-summoned-by-china-financial-regulators-on-eve-of-ant-ipo">a regulatory interview</a> between the Chinese Financial Stability and Development Committee and Ma, the company’s ultimate controller. The committee’s chair, Vice Premier Liu He, was of the opinion that fintech companies needed to be better regulated amid an ongoing global debate about whether fintechs should be regulated as <a href="https://www.aljazeera.com/economy/2020/11/3/ahead-of-giant-ipo-chinas-ant-faces-key-question-what-is-it">financial companies or technology companies</a>.</p>
<p>Liu made a valid point, albeit with unfortunate timing. Similar debates are being conducted in the US where <a href="https://www.frbsf.org/banking/fintech/regulators/">fintech companies face multiple regulators</a> with overlapping authorities. The issue goes to the heart of the fintech revolution and the future of banking: what constitutes financial intermediation?</p>
<h2>Traditional banking vs fintech</h2>
<p>A bank <a href="https://www.jstor.org/stable/2976705?casa_token=vBJFK1blhQIAAAAA%3AMpzOxyOKSPPHbvBbcoX-JRjnrLsfqVuKWqCPSVfBHK20NcaIxnAX-1c-7AQ9VaxmKdrLlB9yRhHiH8Ewv4Ut5-3KcmmxvZ5E9t2X03FUduEDu4UZ686o&seq=1#metadata_info_tab_contents">is an intermediary</a>. It has a customer relationship and borrows funds by way of deposits (liabilities). It uses these to lend or invest (assets). In facilitating this mediation banks provide a service by providing a store of money and a mechanism to transmit that money. With improvements in fintech, however, money can be stored electronically, lenders and investors can source funds directly over the internet, and money transfer can be done digitally.</p>
<p>As a result, fintech companies such as Ant Group have the potential to disintermediate banking. To put it in simple terms, financial technology can cut out the middle man and enjoy a regulatory advantage. This increases the reach of financial services, but it raises the question of whether we need to fundamentally change the way we conduct financial transactions. The solution in China is to simply extend the regulatory net.</p>
<p>Many fintech companies, such as the Ant Group, are essentially brokers. They are not asset transformers. They do not have banking licenses, and as such don’t have access to deposits or insurance protection. Banks, however, are dependent on capital availability and borrowers’ credit. During the process of intermediation between loans and deposits, there is a mismatch between long-term assets and short-term deposits. This results in the risk of bankruptcy for traditional banks, unless it’s well managed. As a result, the banking sector is one of the most regulated sectors in the world. And a bank’s capital liquidity is intrinsically linked to its ability to function. Fintech companies do not face the same regulatory scrutiny.</p>
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<img alt="Ground view of Ant Financial hedquarters" src="https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/367454/original/file-20201104-13-hf2na9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Ant Group HQ.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hangzhou-chinamarch-10-2018ant-financial-services-1662877429">wcarrot_007/Shutterstock</a></span>
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<p><a href="https://www1.hkexnews.hk/app/sehk/2020/102484/documents/sehk20082500535.pdf">As of June 30, 2020</a>, about 98% of Ant Group’s credit balance originated through its platform was underwritten by its partner financial institutions or securitized. <strong>page 137</strong> As a credit broker, it does not shoulder much default risk. Potential <a href="https://www.nasdaq.com/articles/china-issues-draft-rules-to-regulate-online-micro-lending-business-2020-11-03">new rules</a> in China on micro-lending suggest this might change by setting a requirement for small online lenders to provide at least 30% risk sharing for any loan they fund jointly with banks. The Chinese Financial Stability and Development Committee are rightly concerned that <a href="https://www.aljazeera.com/economy/2020/11/3/ahead-of-giant-ipo-chinas-ant-faces-key-question-what-is-it">such a major change in business model</a> imposed by the regulator on Ant Group needs to be fairly disclosed to investors, hence the suspension of the listing. The IPO had marketed Ant Group as more of a technology company than a financial one. The regulator took a slightly different view, so a lot of face has been lost.</p>
<p>The regulation of fintech is not just a Chinese issue, and it would be unfair to criticise their regulatory intervention. In October 2020, the Federal District Court in New York <a href="https://www.businessinsider.com/office-of-comptroller-of-currency-fintech-charter-takes-hit-2019-10?r=US&IR=">reached a ruling</a> that also put the nature of fintech regulation in the US spotlight. </p>
<p>It decided the US Office of the Comptroller of the Currency could not grant charters to fintech companies, something it had previously planned to do for non-deposit taking fintech companies. This suggests such companies will be forced to use the traditional route to regulation, a banking license. This is a heavy regulatory burden and may hold back US innovation in fintech.</p>
<h2>Designing new regulations</h2>
<p>Europe is <a href="https://www.ebf.eu/priorities/cybersecurity-innovation/eu-framework-for-experimentation/">a more innovation-friendly environment</a> for fintechs. </p>
<p>The European Supervisory Authorities, part of the EU’s financial supervision system, have been asked <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52018DC0109&from=EN#footnote15">to systematically consider fintech</a> in all their activities and consider ways in which the regulatory environment can be adapted. This treats fintechs more like technology companies and as such is a more flexible approach than taken in China or the US. </p>
<p>In the UK, the government’s strategy has been to make the UK the best place to start and grow a fintech business, including a desire <a href="https://www2.deloitte.com/uk/en/pages/financial-services/articles/regulating-fintech.html">to co-create regulation</a> with fintechs in mind. The Financial Conduct Authority’s Project Innovate, Fintech sandbox and the Bank of England’s FinTech accelerator are examples of <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/801277/UK-fintech-state-of-the-nation.pdf">this approach</a>. This approach may well prove more adaptable and help shape the debate on the future of regulation of fintech companies globally. No doubt Ant Group wishes it was operating in such an accommodating regulatory environment.</p><img src="https://counter.theconversation.com/content/149475/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel Broby is affiliated with Centre for Financial Regulation and Innovation.</span></em></p>Last minute decision suspends world’s biggest IPO. But it exposes debates still ongoing about how to regulate fintech companies.Daniel Broby, Director, Centre for Financial Regulation and Innovation, University of Strathclyde Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1474032020-10-29T14:49:17Z2020-10-29T14:49:17ZAnt Group is holding the biggest IPO of all time – here’s what it is<figure><img src="https://images.theconversation.com/files/366228/original/file-20201028-17-1vd01rb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ant climax. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hangzhou-chinamarch-10-2018ant-financial-services-1662877429">wcarrot_007</a></span></figcaption></figure><p>Ant Group is likely to pull off the largest initial public offering (IPO) <a href="https://theconversation.com/ant-group-why-america-is-missing-out-on-the-biggest-ipo-in-history-145405">in history</a> when it goes public on the Hong Kong and Shanghai exchanges on November 5. The Chinese digital finance giant is <a href="https://www.bbc.co.uk/news/business-54692537">hoping to raise</a> US$34.4 billion, eclipsing flotations by <a href="https://uk.reuters.com/article/us-saudi-aramco-stocks/saudi-aramco-raises-ipo-to-record-29-4-billion-by-over-allotment-of-shares-idUKKBN1ZB03D">Saudi Aramco</a> (US$29.4 billion) and its cousin <a href="https://www.ft.com/content/0f97cc70-4208-11e4-a7b3-00144feabdc0">Alibaba</a> (US$25 billion). </p>
<p>The IPO is likely to value Ant Group at US$313 billion. This will make it the fourth biggest financial company in the world (after Berkshire Hathaway, Visa and Mastercard). </p>
<p>Many are asking what Ant Group is, how it has become so successful, and why it is worth so much. There are also questions about how it relates to the rest of the empire of Alibaba founder Jack Ma. Let’s start at the beginning.</p>
<h2>The rise of Alipay</h2>
<p>Unlike many emerging digital giants, Ant Group <a href="https://www.businesstimes.com.sg/opinion/us200b-ipo-for-ant-will-be-a-cheap-buy">has been profitable</a> from the get go. It started life as Alipay, a third-party online payment tool created by <a href="https://www.alibaba.com/">Alibaba</a> in 2004. </p>
<p>The catalyst for this move was eBay announcing plans to enter the Chinese market in 2003. Alibaba was China’s star in online retail, but was focused on selling goods for businesses. It now launched <a href="https://world.taobao.com/">Taobao</a>, a cross between eBay and Amazon, to serve consumers. </p>
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<a href="https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Jack Ma giving a presentation" src="https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366231/original/file-20201028-13-ikl0f5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Alibaba co-founder Jack Ma launched Taobao and Alipay to head off eBay’s incursion into China.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-may-16-2019-chinese-1404202358">Frederic Legrand - COMEO</a></span>
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<p>Taobao conjured up millions of users, but didn’t initially make much revenue since listings were free and there were no commissions. There was also an issue of trust between vendors and buyers; imagine a rudimentary eBay without PayPal. </p>
<p>To address this, Alipay began as <a href="https://www.bloomberg.com/news/articles/2020-08-30/as-ipo-looms-all-you-need-to-know-about-jack-ma-s-ant-group">a simple escrow service</a> to secure transactions between independent buyers and sellers on Taobao. Alipay did not have the appropriate licences, but <a href="https://www.biznews.com/interviews/2015/02/09/the-incredible-story-behind-alibabas-jack-ma-an-inspiration-that-will-span-generations">Jack Ma insisted</a> they push forward within a grey zone of legality, believing that e-commerce in China depended on it. </p>
<p>Collaboration with Chinese banks was the next step, but there were archaic and bureaucratic obstacles, and online banking was still very basic. Building a new infrastructure from scratch was the only way to scale, in collaboration with the Industrial and Commercial Bank of China and Sun Microsystems.</p>
<p>By 2006, over 300,000 merchants in everything from travel to gaming had adopted Alipay. By 2010, it had connections with over <a href="https://www.researchgate.net/publication/323877493_How_a_Little_Ant_Challenges_Giant_Banks_The_Rise_of_Ant_Financial_Alipay's_Fintech_Empire_and_Relevant_Regulatory_Concerns">200 banks in China</a> and started providing payment services for online retailers outside Alibaba Group. </p>
<p>As Alipay grew, regulation became a hot topic. China precluded foreign-owned companies from operating banks, which technically included Alibaba, since Yahoo and Softbank controlled over 50% of the company. Jack Ma and Xie Shihuang, another Alibaba co-founder, <a href="https://www.marketwatch.com/story/how-alibabas-mistake-damaged-chinas-market-2011-06-14">purchased back the majority</a> of Alipay stock to create a Chinese-controlled entity that could operate legally. </p>
<h2>Ant invasion</h2>
<p>Today, Alipay <a href="https://techcrunch.com/2020/07/14/ant-alibaba-1-3-billion-users/#:%7E:text=Alipay%2C%20the%20brand%20of%20Ant's,active%20users%20as%20of%20March.">has 1.3 billion</a> active users. Alipay has captured a huge amount of value for Alibaba by enhancing its sales proposition, though it could have taken more from mobile payment fees for itself: around <a href="https://finance.sina.cn/chanjing/gsxw/2020-03-15/detail-iimxyqwa0537070.d.html">50% of transactions</a> are free and Alibaba transactions are heavily discounted. </p>
<p>Alipay faces <a href="https://fintechnews.hk/12618/mobilepayment/alipay-maintains-dominance-in-china-over-tencents-wechat-pay-and-qq-wallet/">fierce competition</a> to maintain its 55% share of Chinese mobile payments, with rival Tencent’s WeChat Pay and QQ Wallet closing in on 40% combined. <a href="https://www.weekinchina.com/2020/07/its-all-about-the-money/">And once</a> the digital yuan being developed by the People’s Bank of China is released, new payment channels could reduce all the incumbents’ market share.</p>
<p>But if growth in user numbers is <a href="https://www.forbes.com/sites/sarahsu/2018/05/30/how-will-ant-financial-chinas-fintech-giant-be-impacted-by-new-regulations/#773f25943df4">beginning to plateau</a>, the revenue stream per user promises to continue rising. Alipay has long understood that capturing value depends on how long it retains customers’ loyalty. Payments alone were never going to be enough. Alipay has built on its <a href="https://www.researchgate.net/publication/323877493_How_a_Little_Ant_Challenges_Giant_Banks_The_Rise_of_Ant_Financial_Alipay%27s_Fintech_Empire_and_Relevant_Regulatory_Concerns">two main resources</a> – access to funds and customer data – to branch into other financial services. </p>
<p>Ant Financial was established in 2014 as a vehicle for the entire operation, amid <a href="https://www.ft.com/content/dcd9fc62-1638-11e5-a58d-00144feabdc0">a private fundraising</a>. The insect name is a metaphor for no transaction or investment being too small – when added up, they become significant. Alibaba owns a 33% equity interest, with the remainder controlled by Ma (about 50%) and early investors. </p>
<p>Ant Group now offers services across five domains - payments, wealth management, lending, credit scoring, and insurance. Wealth management relates to Yu'e Bao (“leftover treasure”), launched in 2013 to allow even the smallest customers to invest leftover funds. It offers an average of 2% greater returns than traditional bank deposit interest, plus lower fees to its asset management partners. It is one of the <a href="https://www.wsj.com/articles/investors-pull-cash-from-chinas-money-market-behemoth-as-yields-tumble-11592481715">largest money market funds</a> in the world.</p>
<p>Ant Financial has also created a wealth management platform, Ant Fortune, which enables users to choose between Yu'e Bao and other funds offered by rivals. It <a href="https://www.shine.cn/biz/tech/1906207041/">now boasts</a> over 4,000 wealth management products from over 100 asset management companies.</p>
<p>Elsewhere, <a href="https://www.ft.com/content/ba163b00-fd4d-11e8-ac00-57a2a826423e">Sesame Credit</a> was created to leverage Ant’s access to personal data to create credit score profiles for borrowers, as well as offering them financial advice. <a href="https://fortune.com/2019/07/29/jack-ma-mybank-lending/">MYbank</a> was launched to use big data and AI to lend to small and medium-sized firms that were underserved by larger banks. </p>
<p>In 2018, Ant Group launched <a href="https://www.scmp.com/business/companies/article/3039554/ant-financials-mutual-aid-platform-xiang-hu-bao-attracts-100">Xiang Hu Bao</a>, a mutual insurance platform designed to address the lack of affordable healthcare for lower-wage workers. Free to join and only charging premiums upon treatment, 100 million users joined in the first year alone. </p>
<p>This ecosystem of service offerings is why Ant Group is worth so much today. The company cross-sells them extremely well. <a href="https://www.alibabagroup.com/en/ir/investorday">As many as</a> 80% of customers use three or more services, and 40% use all five. By taking a platform approach, direct competition with traditional financial institutions has been reduced. </p>
<p>The ambition doesn’t end at financial services, <a href="https://m.chinaknowledge.com/News/DetailNews?id=64408">as evidenced by</a> the Ant/Alibaba acquisition of online food delivery group Ele.me in 2018. As a company spokesperson put it, “The idea is that people are living their lives through this platform.” </p>
<h2>The big picture</h2>
<p><a href="https://www.antgroup.com/en/ir/notices">In 2019</a>, Ant Group made profits of more than US$2.6 billion from US$17.5 billion in revenues. Profits in just the first half of 2020 superseded 2019 at US$3.2 billion (PayPal’s net income over the same period was <a href="https://www.statista.com/statistics/478481/paypal-quarterly-net-income/#:%7E:text=PayPal%3A%20quarterly%20net%20income%202014%2D2020&text=In%20the%20second%20quarter%20of,dollars%20from%20the%20previous%20quarter.">US$1.6 billion</a>).</p>
<p>There appears strong potential for Ant Group to grow outside China, having formed strategic partnerships with mobile payments providers in <a href="https://mnacritique.mergersindia.com/news/alibaba-ant-financial-invest-in-paytm/">India</a>, <a href="https://www.scmp.com/business/article/2041909/ant-financial-forms-strategic-partnership-thai-fintech-ascend-money">Thailand</a> and <a href="https://iupana.com/2018/04/26/alipay-hunts-for-latam-opportunities-after-openpay-deal/?lang=en">Mexico</a>. <a href="https://www.antgroup.com/en/ir/notices">These added</a> another US$90 billion to the US$17 trillion in processed transactions in China in 2019. Besides new revenues, they have also proven to be a successful conduit for drawing new users into the services ecosystem. Recently, however, Ant Group has <a href="https://www.nasdaq.com/articles/insight-ant-group-curbs-support-for-overseas-partners-in-strategy-rethink-ahead-of-listing">dialed back</a> some of its global expansion ambitions to focus on consolidating its gains in the Chinese market ahead of the IPO. </p>
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<a href="https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Mobile phone with Ant Financial app in front of keyboard and headphones" src="https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/366233/original/file-20201028-23-1hd5erv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Stand by for the ant invasion.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/july-26-2020-brazil-this-photo-1785414962">rafapress</a></span>
</figcaption>
</figure>
<p>To offer expanded financial services, Ant Group has also developed a portfolio of tech capabilities including <a href="https://www.forrester.com/report/The+BATJ+Firms+Are+Driving+Digital+Financial+Services+For+All/-/E-RES144756">cloud and blockchain platforms</a>. It has been selling these tech services to financial companies, emphasising that the group is primarily about tech not finance, coining itself “techfin” not “fintech”. Indeed, <a href="https://go.forrester.com/blogs/ant-groups-next-move/">these tech services</a> produced 50% of 2019 revenues, compared to payments bringing in 36%, and this switch has further excited investors. </p>
<p>Ant Group would not be worth as much, or as scaleable, had it stuck to disrupting China’s payments market. It is only by having become a digital enabler of all financial services that such a large IPO is now about to take place.</p><img src="https://counter.theconversation.com/content/147403/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most people would be content to pull off one of the world’s top five IPOs, but Jack Ma is on course for his second.Michael Wade, Professor of Innovation and Strategy, Cisco Chair in Digital Business Transformation, International Institute for Management Development (IMD)Elizabeth Teracino, Research Fellow, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1454052020-09-01T13:01:50Z2020-09-01T13:01:50ZAnt Group: why America is missing out on the biggest IPO in history<figure><img src="https://images.theconversation.com/files/355820/original/file-20200901-24-wcq991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ant Group is the payments powerhouse behind Alibaba.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/konskie-poland-september-06-2018-ant-1174445692">Piotr Swap</a></span></figcaption></figure><p>The US capital markets are being shunned by the largest initial public offering in history. This is an <a href="https://www.theguardian.com/commentisfree/2020/jun/23/the-guardian-view-on-china-trump-and-the-rest-might-right-and-trade-bait">indirect result</a> of the recent China-baiting by US politicians, led by Donald Trump. </p>
<p>Ant Group’s <a href="https://edition.cnn.com/2020/08/26/tech/ant-group-ipo-hnk-intl/index.html">US$200 billion</a> (£168 billion) flotation would normally have been a candidate for either the NYSE or NASDAQ, but will instead take place on the Hong Kong Stock Exchange (as well as Shanghai). This is especially galling to the US stock markets considering American financial royalty Citigroup, JP Morgan and Morgan Stanley are among those overseeing the listing. </p>
<p><a href="https://marker.medium.com/how-ant-group-became-the-biggest-fintech-company-in-the-world-7afae29ec1d3">Ant Group</a> is an online payments powerhouse that grew out of Alibaba, China’s answer to Amazon, and is ultimately controlled by Alibaba co-founder Jack Ma and his longstanding executives. The fact that it not listing in the US looks very likely to be the latest instalment in the very real and potentially dangerous political spat taking place between China and the US. </p>
<p>In August, Trump <a href="https://www.cnbc.com/2020/08/07/trump-issues-executive-orders-to-ban-us-transactions-with-wechat-tiktok.html">issued executive orders</a> restricting transactions related to two other Chinese tech gians: Tencent, which owns WeChat, and TikTok owner ByteDance. The president also issued an executive order to TikTok to make it destroy all copies of data on its US customers. </p>
<p>Meanwhile, the US Bureau of Industry and Security <a href="https://www.jdsupra.com/legalnews/updated-list-of-u-s-national-security-20966/">is restricting</a> Chinese companies from using US-origin technology in their products. And there is the “<a href="https://www.datacenterdynamics.com/en/news/us-clean-network-program-seeks-build-clouds-cables-and-apps-free-china/">clean network program</a>”, which started as a snub to Huawei’s superior 5G wireless technology and has since been expanded to restrict storage on cloud-based systems by certain other Chinese companies. </p>
<p>Finally, and perhaps most relevant of all to Ant Group, there is the proposed “<a href="https://www.lexology.com/library/detail.aspx?g=c7cdc8c4-5e0e-493b-b548-f49e23720117">Holding Foreign Companies Accountable Act</a>”. This legislation is designed to enforce compliance with certain company rules, including complying with US audits and disclosing foreign government ownership or control. </p>
<p>Failure to comply by the <a href="https://www.forbes.com/sites/kenrapoza/2020/08/19/why-200-chinese-companies-may-soon-delist-from-the-us-stock-exchange/#4126dcca3fe7">230 Chinese companies</a> listed in the US, which are worth circa US$1 trillion, would see them removed from American stock exchanges. These <a href="https://www.investors.com/etfs-and-funds/sectors/baba-stock-own-biggest-chinese-stocks-hit-list/">companies include</a> Alibaba, internet giant Baidu, e-commerce group JD.com and PetroChina. The proposals are supposed to have a three-year timeframe, but Trump has politicised them and is planning on using yet another executive order to speed up the process.</p>
<h2>Pension impact</h2>
<p>In much the same way as US capital markets have missed out on the listing of Ant Group, those who will be harmed by this act are the US pension funds and other financial institutions with <a href="https://www.researchgate.net/profile/Tatiana_Didier/publication/265449561_Information_Asymmetry_and_Institutional_Investor_Mandate_Evidence_from_US_Mutual_Fund_Foreign_Holdings/links/5523c77d0cf2c74f0dff1927/Information-Asymmetry-and-Institutional-Investor-Mandate-Evidence-from-US-Mutual-Fund-Foreign-Holdings.pdf">restrictive investment mandates</a> that stipulate that they can only buy shares in companies with US listings. </p>
<p>Qualified institutional buyers within the meaning of rule 144A under the US Securities Act will still be able to buy companies overseas, as indeed they might with Ant Group. The problem is that not all US institutions are mandated to invest outside of US capital markets. As for the Chinese companies themselves, they would not be starved of capital because they would simply relist elsewhere. </p>
<p>Some investors will therefore be forced sellers under the proposed act. There is <a href="https://www.jstor.org/stable/2330828">academic evidence</a> that delisting causes a company’s share price to fall: a sample of 520 companies demonstrated an average decline of 8.5%. As such, the biggest losers will be those US pension funds that diversified into these Chinese stocks, following <a href="https://www.buildalpha.com/mean-variance-optimization-portfolio-construction/">established techniques</a> for building more profitable portfolios. </p>
<p>Although there are very sound reasons for punishing rule breakers, delisting for the kinds of violations included in the proposed act has been the exception in the US. The legislation, which sets a precedent, is being viewed as targeted specifically at Chinese companies. Although it applies to all foreign companies, it <a href="https://www.forbes.com/sites/kenrapoza/2020/08/19/why-200-chinese-companies-may-soon-delist-from-the-us-stock-exchange/#d5f18793fe71">will be hard</a> for the Chinese to comply because of the state’s particularly tangled relationship with businesses. </p>
<p>The China Securities Regulatory Authority, in a bid to reduce the tension, <a href="https://www.bloombergquint.com/onweb/china-securities-regulator-sends-new-proposal-on-u-s-audits">approached the</a> US Public Company Accounting Oversight Board in August with an offer to let it audit a few selected state-owned enterprises. It is unlikely that this will pacify the China hawks in the US administration. If it doesn’t, the biggest losers will be US capital markets and investment funds – and ultimately ordinary Americans trying to save for their retirement. </p>
<p>Targeted punitive action against companies, individual sanctions and nationalistic legislation will likely mean that Ant Group is not the last non-US company to decide against a listing in the US. As a result, <a href="https://heinonline.org/HOL/LandingPage?handle=hein.journals/busl50&div=21&id=&page=">the hegemony</a> of US capital markets may well be under threat. It could all potentially be powerful ammunition for the Democrats in their battle to unseat the president in November. </p>
<hr>
<p><em>The original version of this article suggested that Ant Group may also have avoided the US because of different rules about disclosing controlling shareholders in Hong Kong, but the rules are in fact not different in this respect.</em></p><img src="https://counter.theconversation.com/content/145405/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel Broby is affiliated with the Centre for Financial Regulation and Innovation. He is a Chartered Fellow of the CISI and a Fellow of CFA Society of the UK.</span></em></p>In the teeth of the crackdown on foreign listed companies, Ant Group has opted for Hong Kong – ultimately to the cost of American savers.Daniel Broby, Director, Centre for Financial Regulation and Innovation, University of Strathclyde Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1435172020-07-28T21:31:03Z2020-07-28T21:31:03ZLawmakers keen to break up ‘big tech’ like Amazon and Google need to realize the world has changed a lot since Microsoft and Standard Oil<figure><img src="https://images.theconversation.com/files/350020/original/file-20200728-13-10an37w.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3250%2C2096&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">House lawmakers grilled these four CEOs on July 29.</span> <span class="attribution"><span class="source">AP Photo</span></span></figcaption></figure><p>Big tech is back in the spotlight. </p>
<p>The chief executives of Amazon, Apple, Facebook and Google <a href="https://www.nytimes.com/2020/07/28/technology/amazon-apple-facebook-google-antitrust-hearing.html?action=click&module=Top%20Stories&pgtype=Homepage">testified before Congress</a> on July 29 to defend their market dominance from accusations they’re stifling rivals. Lawmakers and regulators are increasingly talking about <a href="https://www.wsj.com/articles/justice-department-is-preparing-antitrust-investigation-of-google-11559348795">antitrust action</a> and possibly breaking the companies up into smaller pieces. </p>
<p>I study the effects of <a href="https://sites.tufts.edu/digitalplanet">digital technologies on lives</a> and livelihoods across 90 countries. I believe <a href="https://www.politico.com/2020-election/candidates-views-on-the-issues/technology/tech-competition-antitrust/">advocates</a> of breaking up big technology companies, as well as <a href="https://www.weforum.org/agenda/2019/07/these-are-some-of-the-best-quotes-about-technology-monopolies-in-2019/">opponents</a>, are both falling prey to some serious myths and misconceptions. </p>
<h2>Myth 1: Comparing Google with Standard Oil</h2>
<p>Arguments for and against antitrust action <a href="https://www.nytimes.com/1998/10/19/business/microsoft-trial-precedents-previous-antitrust-cases-leave-room-for-both-sides.html">often use earlier cases</a> as reference points.</p>
<p>The massive <a href="https://theconversation.com/for-tech-giants-a-cautionary-tale-from-19th-century-railroads-on-the-limits-of-competition-91616">19th-century monopoly Standard Oil</a>, for example, has been referred to as the “<a href="https://www.nytimes.com/2018/02/20/magazine/the-case-against-google.html">Google of its day</a>.” There are also people who are recalling the 1990s <a href="https://www.nytimes.com/2018/05/18/opinion/microsoft-antitrust-case.html">antitrust case against Microsoft</a>. </p>
<p>Those cases may seem similar to today’s situation, but this era is different in one crucial way: the global technology marketplace. </p>
<p>Currently, there are two “big tech” clusters. One is in the U.S., dominated by <a href="https://theconversation.com/big-tech-isnt-one-big-monopoly-its-5-companies-all-in-different-businesses-92791">Google, Amazon, Facebook and Apple</a>. The other is in China, dominated by <a href="https://singularityhub.com/2018/08/17/baidu-alibaba-and-tencent-the-rise-of-chinas-tech-giants/">Baidu, Alibaba, Tencent, Huawei</a> and <a href="https://www.nytimes.com/2020/07/26/technology/tiktok-china-ban-model.html">TikTok</a>-maker ByteDance. </p>
<p>This global market is subject to very different political and policy pressures than regulators faced when dealing with Standard Oil and Microsoft. For example, the Chinese government <a href="https://www.scmp.com/tech/china-tech/article/2120913/china-recruits-baidu-alibaba-and-tencent-ai-national-team">has blocked most</a> of the U.S. companies from entering its market. And the <a href="https://www.bloomberg.com/news/articles/2018-06-27/alibaba-pulls-back-in-u-s-amid-trump-crackdown-on-chinese-investment">U.S. government has done likewise</a>, blacklisting some Chinese outfits over perceived national security threats while discouraging others.</p>
<p>Since the COVID-19 outbreak, the Chinese government <a href="https://www.amnesty.org/en/latest/news/2020/04/how-china-used-technology-to-combat-covid-19-and-tighten-its-grip-on-citizens/">has doubled down</a> on championing its own technology companies.</p>
<p>U.S. companies’ size and data accumulation capabilities give the country economic and political influence around the globe. If the U.S. technology giants are broken up, the result would be a vastly uneven global playing field, pitting fragmented U.S. companies against consolidated state-protected Chinese firms.</p>
<h2>Myth 2: Antitrust is about money</h2>
<p>There are two main views of antitrust action among legal experts. </p>
<p>One focuses on consumer welfare, which has been the prevailing approach federal lawyers have taken <a href="https://www.jstor.org/stable/724991">since the 1960s</a>. The other suggests that regulators should look at the <a href="https://www.yalelawjournal.org/note/amazons-antitrust-paradox">underlying structure of the market</a> and potential for <a href="https://www.pbwt.com/antitrust-update-blog/a-brief-overview-of-the-new-brandeis-school-of-antitrust-law">powerful players to exploit</a> their positions.</p>
<p>Those two sides seem to agree that price plays a key role. People who argue against breaking up the tech giants point out that Facebook and Google provide services that are <a href="https://slate.com/technology/2019/06/facebook-big-tech-antitrust-breakup-mistake.html">free to the consumer</a>, and that Amazon’s marketplace power drives its products’ costs down. On the other side, though, are those who say that <a href="https://www.yalelawjournal.org/note/amazons-antitrust-paradox">having low or no prices</a> is evidence that these companies are artificially lowering consumer costs to draw users into company-controlled systems that are <a href="https://techcrunch.com/2019/02/04/why-no-one-really-quits-google-or-facebook/">hard to leave</a>.</p>
<p>Both sides are missing the fact that the monetary price is less relevant as a measure of what users pay in the technology industry than it is in other types of business. Users <a href="https://theconversation.com/how-much-is-your-data-worth-to-tech-companies-lawmakers-want-to-tell-you-but-its-not-that-easy-to-calculate-119716">pay for digital products with their data</a>, rather than just money.</p>
<p>Regulators shouldn’t focus only on the monetary costs to the users. Rather, they should ask whether users are being asked for more data than is strictly necessary, whether information is being collected in <a href="https://theconversation.com/7-in-10-smartphone-apps-share-your-data-with-third-party-services-72404">intrusive or abusive ways</a> and whether customers are <a href="https://www.axios.com/mark-warner-josh-hawley-dashboard-tech-data-4ee575b4-1706-4d05-83ce-d62621e28ee1.html">getting good value in exchange for their data</a>.</p>
<h2>Myth 3: Trust-busting is all or nothing</h2>
<p>There aren’t just two ways for this debate to end, with either a breakup of one or more technology giants or simply leaving things as they are for the market to develop further. </p>
<p>In my view, the best outcome is right in the middle. The errant company is sued to make necessary changes but isn’t broken up. The very fact that the government filed a lawsuit leads to progress with other companies. That is exactly what happened in past cases against the Bell System, IBM and Microsoft. </p>
<p>In the 1956 federal consent decree against the <a href="https://www.beatriceco.com/bti/porticus/bell/bellsystem_history.html">Bell System</a> telephone company, for example, which settled a seven-year legal saga, the company wasn’t split up. Instead, Bell was required to <a href="https://economics.yale.edu/sites/default/files/how_antitrust_enforcement.pdf">license all its patents royalty-free</a> to other businesses. This meant that some of the most profound technological innovations in history – including the <a href="https://www.computerhistory.org/atchm/who-invented-the-transistor/">transistor</a>, the <a href="https://www.popsci.com/article/science/invention-solar-cell/">solar cell</a> and the <a href="https://www.photonics.com/Articles/A_History_of_the_Laser_1960_-_2019/a42279">laser</a> – became widely available, yielding computers, solar power and other technologies that are crucial to the modern world. When the Bell System was <a href="https://www.cio.com/article/3267826/breaking-up-is-hard-to-do-why-the-bell-system-breakup-isn-t-a-model-for-tech.html">eventually broken up</a> in 1982, it did not do nearly as much to spread <a href="https://si.wsj.net/public/resources/images/BF-AV826_ATT_16U_20171120171814.jpg">innovation and competition</a> as the agreement that kept the Bells together a quarter-century earlier. </p>
<p>The antitrust action against IBM lasted 13 years and didn’t break up the company. However, as part of its tactics to avoid appearing to be a monopoly, IBM agreed to <a href="https://www.cnet.com/news/ibm-and-microsoft-antitrust-then-and-now/">separate pricing for its hardware and software products</a>, previously sold as an indivisible bundle. This created an opportunity for entrepreneurs Bill Gates and Paul Allen to create a new software-only company called Microsoft. The surge of software innovations that have followed can clearly trace their origins to the IBM settlement. </p>
<p>Two decades later, Microsoft was itself the target of an antitrust action. In the resulting settlement, <a href="https://www.theverge.com/2018/9/6/17827042/antitrust-1990s-microsoft-google-aol-monopoly-lawsuits-history">Microsoft agreed to ensure its products were compatible</a> with competitors’ software. That made room in the emerging internet marketplace for web browsers, the predecessors of Apple’s Safari, Mozilla’s Firefox and Google Chrome.</p>
<p>Even Margrethe Vestager, the European Union’s top antitrust official and frequent tech-giant nemesis, has said that “<a href="https://www.nytimes.com/2018/02/20/magazine/the-case-against-google.html">antitrust prosecutions are part of how technology grows</a>.” But that doesn’t mean they all have to achieve their most extreme ends and be broken up. </p>
<h2>Myth 4: COVID-19 and the end of tech bashing</h2>
<p>The current pandemic has highlighted the value of the technological innovations of the big tech companies. </p>
<p>Americans are relying more than ever on the internet and online shopping and delivery, while <a href="https://www.google.com/covid19/mobility/">mobility data</a> has been critical in gauging social distancing behaviors and guiding policy. <a href="https://sites.tufts.edu/digitalplanet/covid-19-hotspots-rural-america/">Digital tools</a> for tracking coronavirus cases, deaths and social distancing behaviors in the smallest counties <a href="https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6">have circulated widely</a>, and social media and smartphone videos were <a href="https://www.nytimes.com/2020/06/18/technology/social-media-protests.html">crucial</a> to the recent protests and calls for social justice. </p>
<p>Altogether, this has led to a <a href="https://www.coindesk.com/public-opinion-shifts-on-big-tech-and-privacy-during-pandemic">softening</a> of <a href="https://www.coindesk.com/public-opinion-shifts-on-big-tech-and-privacy-during-pandemic">public opinion toward big tech</a> and <a href="https://www.theverge.com/interface/2020/3/26/21193902/tech-backlash-covid-19-coronavirus-google-facebook-amazon">calls</a> for an <a href="https://www.brookings.edu/techstream/covid-and-the-future-of-techlash/">end to talk</a> of <a href="https://www.mercurynews.com/2020/04/09/opinion-covid-19-response-will-end-all-the-big-tech-bashing/">breaking them up</a>. </p>
<p>But the pandemic has also revealed numerous digital fault lines: differences in access by <a href="https://hbr.org/2020/04/which-countries-were-and-werent-ready-for-remote-work">country</a>, <a href="https://sites.tufts.edu/digitalplanet/how-digital-disparities-across-the-us-disproportionately-hurt-black-and-latinx-communities/">race</a> and <a href="https://sites.tufts.edu/digitalplanet/urban-rural-divide-in-the-us-during-covid-19/">region</a>; the ability of tech companies to <a href="https://www.theguardian.com/technology/2020/jul/27/california-investigations-amazon-workers-coronavirus">exploit labor</a>; and potential for new kinds of misuse of <a href="https://www.brookings.edu/techstream/the-dangers-of-tech-driven-solutions-to-covid-19/">data</a>. </p>
<p>Far from giving the technology industry a free pass, the pandemic is an opportunity to take a more balanced view. Yes, let’s celebrate the Silicon Valley’s value, but let’s not turn a blind eye to the problems they create or worsen. </p>
<p>During the hearings, you’ll likely hear politicians accentuate the bad stuff, while the tech CEOs will paint an overly rosy image of themselves. Antitrust is complicated enough without misconceptions clouding their judgments as well. </p>
<p><em>This is an updated and expanded version of an <a href="https://theconversation.com/3-myths-to-bust-about-breaking-up-big-tech-119283">article originally published</a> on July 17, 2019.</em></p><img src="https://counter.theconversation.com/content/143517/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bhaskar Chakravorti has founded and directs the Institute for Business in the Global Context at Fletcher/Tufts that has received funding from Mastercard, Microsoft, the Gates Foundation, the Rockefeller Foundation, Omidyar Network and the Onassis Foundation. He is a Non-Resident Senior Fellow at Brookings India and a Senior Advisor on Digital Inclusion at the Mastercard Center for Inclusive Growth.</span></em></p>As the government considers antitrust action against big US technology companies, a global business scholar identifies four myths that need busting first.Bhaskar Chakravorti, Dean of Global Business, The Fletcher School, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1317282020-04-02T16:43:47Z2020-04-02T16:43:47ZHow China is revolutionising e-commerce with an injection of entertainment<figure><img src="https://images.theconversation.com/files/324930/original/file-20200402-74869-1i712ec.jpg?ixlib=rb-1.1.0&rect=33%2C0%2C3693%2C2205&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">E-commerce in China has driven innovative approaches not yet seen in the West.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/stone-united-kingdom-january-15-2020-1616680666">Ascannio/Shutterstock</a></span></figcaption></figure><p>While some sectors of the economy struggle for survival in a sudden, new, harsh reality, <a href="https://theconversation.com/coronavirus-your-guide-to-winners-and-losers-in-the-business-world-134205">e-commerce</a> is again faced with massive demand. With many of us confined to our homes, we have become reliant on online shopping. And while your weekly grocery shop or a book order might seem to have changed little in recent years, there is great innovation in e-commerce. </p>
<p>To find it though, look to China. There, the familiar and dull experience of buying online is becoming a thing of the past. Even before people were forced to spend more time at home, there were two key trends in China radically changing e-commerce, by adding entertainment to the mix: social buying and live commerce.</p>
<h2>Social buying</h2>
<p>Alibaba is China’s largest ecommerce company by far. Number two is a company called PinDuoDuo (PDD). PDD was only founded in 2015, yet today its valuation of just under <a href="https://www.wired.com/story/china-ecommerce-giant-never-heard/">US$40 billion</a> makes it worth more than eBay or Twitter. </p>
<p>PDD’s meteoric rise has taken many by surprise. By 2017 it had attracted 200 million active users, in mid-2018 it floated on the Nasdaq at a <a href="https://www.reuters.com/article/us-pinduoduo-ipo/chinas-pinduoduo-prices-us-ipo-at-top-of-range-raises-16-billion-sources-idUSKBN1KG05J">valuation of US$23.8 billion</a>.</p>
<p>Through PDD, consumers can buy a product immediately at a market price, or they can enjoy lower prices by inviting their contacts through social networks to form a joint purchasing team. The more people sign up, the larger the discount – <a href="https://techcrunch.com/2018/07/26/the-incredible-rise-of-pinduoduo/">sometimes as high as 90%</a>. </p>
<p>PinDuoDuo’s business model is similar to US-based Groupon. But Groupon has <a href="https://www.cnbc.com/2020/02/18/shares-of-groupon-fall-over-20percent-after-fourth-quarter-earnings-and-revenue-miss-estimates.html">fallen on hard times</a> as it struggled to convince people to register and download its app. PDD, by contrast, piggybacked on the almost one billion people already using the WeChat messaging app. Its owner Tencent is <a href="https://www.bloomberg.com/news/articles/2018-07-26/tencent-backed-pdd-is-said-to-price-1-6-billion-u-s-ipo-at-top">PDD’s principal shareholder</a>.</p>
<p>Founder <a href="https://www.forbes.com/profile/colin-zheng-huang/">Colin Huang Zheng</a>, a former Google engineer, has described PDD’s business model as “<a href="https://money.cnn.com/2018/07/26/technology/pinduoduo-ipo-china-startup/index.html">a combination of Costco and Disneyland</a>”. PDD’s tag line is “Together, more savings, more fun”. The Chinese word <a href="https://dictionary.hantrainerpro.com/chinese-english/translation-pin_spell.htm"><em>pīn</em></a> means to group together, a reference to the company’s aim to provide a more social shopping experience. It regularly offers time-limited deals (often under two hours) and competitions. </p>
<p>Manufacturers and factories are also seeing benefits. So-called “Pin factories” have popped up to produce huge quantities of single products for sale on PDD. Due to the scale of their operations, they can afford to offer bulk discounts.</p>
<h2>Live commerce: infomercials rebooted</h2>
<p>Infomercials are a long way from their heyday in the 1970s. Today, they only exist on fringe cable channels, trying to sell items few people need, typically fronted by D-list celebrities. The format is in desperate need of a makeover – and once again, China has offered it.</p>
<p>Live commerce is the convergence of live steaming and e-commerce, and it has become very popular with Chinese consumers. During China’s Singles’ Day festival last year, Alibaba’s Taobao Live contributed around 20 billion Yuan (US$2.86 billion) gross merchandise volume, or <a href="https://coresight.com/research/insights-from-china-opportunities-in-chinas-63-billion-livestreaming-e-commerce-market/">about 7.5% of the company’s total sales</a>. According to Chinese financial services firm Everbright Securities, the live commerce market was worth <a href="http://pdf.dfcfw.com/pdf/H3_AP201911141370743941_1.pdf">440 billion Yuan (US$63 billion) in 2019</a>, a 220% increase on 2018. Around 25% of consumers are daily users, while 71% watch a live commerce event at least once a week, according to <a href="https://www.iimedia.cn/c1020/65755.html">research from iiMedia</a>. Interestingly, the <a href="http://www.iresearchchina.com/content/details8_55544.html">live commerce sales conversion rate is much higher</a> than traditional content-driven platforms. Recent evidence suggests that the popularity of live commerce in China <a href="https://technode.com/2020/03/09/insights-brands-turn-to-livestreaming-as-china-stays-home/">has increased during the COVID-19 crisis</a> as <a href="https://www.bbc.com/news/world-asia-china-51636621">people stay away from shops and showrooms</a>.</p>
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<p>Live commerce in China is celebrity driven, not by traditional stars of film or television but by online celebrities. These include <a href="http://www.timeoutshanghai.com/features/Blog-Shopping/66596/3-things-to-know-about-super-famous,-lipstick-selling-livestreamer-Austin-Li.html">Austin Li</a> “the lipstick king” (22.1 million followers), and <a href="https://blog.rehub.tech/the-queen-of-china-live-streaming-e-commerce-and-we-are-talking-fire-breathing-money-here/">Viya</a> (18.1 million followers). While boasting their own fanbases, from time to time they invite celebrities to join them: in November 2019, Viya welcomed Kim Kardashian-West, who took only a few minutes to sell <a href="https://www.latimes.com/world-nation/story/2019-11-08/kim-kardashian-china-e-commerce">15,000 bottles of her KKW-branded perfume</a>. </p>
<p>This approach can also sell high-value items like cars. In one live event featuring Geng Shuai, a kitsch creator dubbed “<a href="https://www.insider.com/china-useless-edison-viral-inventions-2019-2">China’s useless Edison</a>”, the hosts engaged with 4.5 million viewers and <a href="https://k.sina.cn/article_1653603955_628ffe7302000q130.html?from=auto&subch=oauto&ab=qiche&http=fromhttp">sold 1,623 cars in two and a half hours</a>.</p>
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<p>Live commerce hosts use limited-time discounts to encourage quick orders, often with a limited number of products available to increase the sense of urgency for shoppers. Prize draws are also a popular way for hosts to engage with viewers, with some giving away high-value goods to the tune of tens of thousands of dollars.</p>
<p>But despite the boom in Asia, live commerce has got nowhere in the West, where <a href="https://theconversation.com/watching-others-play-video-games-is-the-new-spectator-sport-31036">livestreaming focuses on gaming</a> via platforms such as Facebook or Twitch. Amazon launched its <a href="https://techcrunch.com/2019/02/08/amazon-live-is-the-retailers-latest-effort-to-take-on-qvc-with-live-streamed-video/">Amazon Live</a>, but it lacks many interactive features and has so far failed to connect with consumers. </p>
<p>So behind China’s <a href="https://news.cgtn.com/news/2020-04-02/China-s-retailers-tap-into-livestreaming-e-commerce-amid-pandemic-PmkToa87YY/index.html">booming e-commerce sector</a> are evolving tools and services that are radically changing online shopping by making it more exciting for the Chinese buyer. Perhaps there is an opportunity now for Western companies to refresh their approach to online shopping.</p><img src="https://counter.theconversation.com/content/131728/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China is re-inventing ways to make online shopping more fun, and it’s proving very successful indeed.Jialu Shan, Research Associate at Global Center for Digital Business Transformation, International Institute for Management Development (IMD)Michael Wade, Professor of Innovation and Strategy, Cisco Chair in Digital Business Transformation, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1316622020-02-13T19:10:24Z2020-02-13T19:10:24ZVital Signs: a connected world makes this coronavirus scarier, but also helps us deal with it<p>The health implications of the Wuhan coronavirus (now called “Covid-19”) outbreak are, obviously, deeply concerning.</p>
<p>At the time of writing, it had infected <a href="https://www.nytimes.com/2020/02/12/world/asia/coronavirus-china-covid-19.html?auth=login-google1tap&login=google1tap">more than 50,000 people</a> and killed more than 1,300. Cities and cruise ships are in lockdown. Major trade shows like the <a href="https://www.theguardian.com/technology/2020/feb/12/mobile-world-congress-axed-coronavirus-fears">Mobile World Congress</a> have been cancelled. Even the Dalai Lama has <a href="https://www.dalailama.com/schedule">indefinitely postponed</a> all public appearances.</p>
<p>It has been widely noted that the crisis is having a large economic effect, not only on China but on countries such as Australia.</p>
<p>Those ripple effects stem from the fact that, compared to the time of the SARS outbreak in 2003, China is both a much larger economy and vastly more interconnected with the rest of the world.</p>
<p>Take Australia’s connections. China is Australia’s largest source for international students, with <a href="https://www.abc.net.au/news/2020-02-04/coronavirus-scare-sees-chinese-students-miss-uniniversity/11929948">nearly 190,000 Chinese</a> studying in our tertiary institutions. China is also Australia’s <a href="https://www.reuters.com/article/us-australia-economy-tourism/chinese-tourists-to-australia-slow-but-record-americans-head-down-under-idUSKCN1VW0OZ">largest source of tourists</a> and biggest trading partner.</p>
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<a href="https://theconversation.com/we-depend-so-much-more-on-chinese-travellers-now-that-makes-the-impact-of-this-coronavirus-novel-130798">We depend so much more on Chinese travellers now. That makes the impact of this coronavirus novel</a>
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<p>Even if other countries don’t have the same level of exposure, the whole world is now radically interconnected. Global supply chains for products from cars to mobile phones run across multiple countries.</p>
<p>The components of an iPhone, for example, <a href="https://www.arcgis.com/apps/MapJournal/index.html?appid=391276eb829344289df9bce81e083fce">come from manufacturers</a> in the United States as well as China, Taiwan, South Korea, Japan, Germany, Italy and the Netherlands.</p>
<p>The tectonic technological forces that have driven globalisation also mean an unprecedented “<a href="http://markets.ft.com/research/Lexicon/Term?term=black-swan">black swan</a>” health crisis can quickly turn into a full-blown economic crisis.</p>
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<a href="https://theconversation.com/how-does-coronavirus-kill-130864">How does coronavirus kill?</a>
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<h2>Digital technology to the rescue</h2>
<p>Against this backdrop, it is striking that the same technological forces behind global interconnectedness are key to coping with the coronavirus crisis.</p>
<p>An example comes from the <a href="https://www.alibabagroup.com/en/about/overview">Alibaba Group</a> – arguably China’s leading e-commerce company. It is using everything from food delivery to cloud computing to help combat the crisis.</p>
<p>One of the first things that happens in a crisis is demand surges for goods and services in limited supply – face masks, for example.</p>
<p>Alibaba has encouraged sellers on its platforms to increase the supply of masks and other in-demand equipment. It has also used its influence to discourage the kind of price-gouging often seen during natural disasters.</p>
<p>On top of that, consider what life is like for about 11 million people in Wuhan, a city where normal life has ground to a halt as people avoid going out. How do they get groceries and other essentials? </p>
<p>A week before Chinese New Year, demand for takeaway food and other services increased 129%, according to Alibaba.</p>
<h2>Deploying platforms</h2>
<p>It’s worth pausing to reflect on how much worse the quarantine imposed on Wuhan and surrounding areas would be without the technology that makes transport and logistics today so sophisticated.</p>
<p>Keeping medical staff well cared for in Wuhan has also been crucial. </p>
<p>Leveraging Alibaba’s 18 <a href="https://www.alizila.com/hema-supermarket-offers-shoppers-new-retail-experience/">Freshippo</a> techno supermarkets in Wuhan, the group has set up a dedicated food-delivery team to provide free food and safe drinking water to local hospitals, rescue teams, reporters and volunteers. The group’s Amap Taxi operation has organised a volunteer force to provide free transport for all medical staff 24 hours a day. Alibaba’s travel platform “Fliggy” is be used to offer free accommodation to medical staff – a total of more than 10,000 rooms.</p>
<p>Finally, Alibaba’s cloud-computing business Ali Cloud – similar to Amazon Web Services – has helped health authorities track the outbreak and its spread. It has provided unlimited computing capacity to global medical researchers to accelerate the finding of a cure for the virus. It is also collaborating with Zhejiang Province’s Disease Control Centre to develop an artificial intelligence gene-analysis system that could could slash diagnosis time from two hours to half an hour.</p>
<p>At a time when globalisation is being sharply questioned, it is important to remember the upsides as well as the downsides of an interconnected world.</p>
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Read more:
<a href="https://theconversation.com/fear-spreads-easily-thats-what-gives-the-wuhan-coronavirus-economic-impact-130780">Fear spreads easily. That's what gives the Wuhan coronavirus economic impact</a>
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<p>Yes, radical global interconnectedness makes the world more vulnerable to financial and public health crises. Yet those same forces have also lifted roughly 2 billion people out of extreme poverty in the past 30 years.</p>
<p>Those same technological forces drive the e-commerce platforms, cloud computing and artificial intelligence that help mitigate the effects of these crises.</p><img src="https://counter.theconversation.com/content/131662/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden was an invited speaker at the Luohan Academy Annual Digital Economy Conference in 2019.</span></em></p>The same technological forces that make the Wuhan outbreak a global concern are also key to managing the crisis response.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1304952020-02-06T17:13:12Z2020-02-06T17:13:12ZChina: rise of a new philanthropic power<figure><img src="https://images.theconversation.com/files/314023/original/file-20200206-43119-uc3v3r.jpg?ixlib=rb-1.1.0&rect=0%2C7%2C1022%2C654&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Jack Ma speaks at a meeting of the World Economic Forum Foundation in 2015.</span> <span class="attribution"><a class="source" href="https://live.staticflickr.com/8658/16159152258_4f0d7bf7a3_b.jpg">Jolanda Flubacher/World Economic Forum</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>In response to the ongoing coronavirus emergency, on January 31, Chinese billionaire Jack Ma pledged the equivalent of <a href="http://philanthropynewsdigest.org/news/jack-ma-commits-14.4-million-for-coronavirus-vaccine-efforts">US$144 million for medical supplies for Wuhan and Hubei</a> as well as $14 million to help develop a vaccine. Just a few months ago, the former teacher had left the reins of a company of more than 100,000 employees, valued $450 billion, stating that he wanted to <a href="https://www.nytimes.com/2019/09/10/business/alibaba-jack-ma-retire.html">devote himself to philanthropy</a> in the <a href="https://www.norrag.org/building-new-bonds-for-social-impact-in-education-by-beth-yu/">field of education</a>. The emergence of the coronavirus threat showed his commitment to supporting public-health efforts as well.</p>
<p>In China, public figures have long since practised philanthropy – understood as <a href="http://www.iupress.indiana.edu/product_info.php?products_id=67601">“voluntary action for the public good”</a> – often quietly. But given the magnitude of Jack Ma’s fortune, <a href="https://www.forbes.com/profile/jack-ma/#564772991ee4">21st in the world</a> at approximately $43 billion, this decision indicates that Chinese philanthropy is at a historic turning point.</p>
<h2>The revival of a thousand-year-old philanthropic tradition</h2>
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<img alt="" src="https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1010&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1010&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1010&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1269&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1269&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310881/original/file-20200120-69539-6xltr9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1269&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Confucius, bronze. Gratitude and societal harmony are at the heart of Confucian thought.</span>
<span class="attribution"><a class="source" href="https://fr.wikipedia.org/wiki/Confucianisme#/media/Fichier:Konfuzius.jpg">Wikimedia</a></span>
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<p>One of the often-overlooked aspects of Chinese capitalism is the relative absence of private philanthropy on the part of the wealthy classes toward the most modest, <a href="https://www.chinacenter.net/2017/china_currents/16-1/giving-harder-earning-philanthropy-china/">until recently</a>. Historically, however, the country has a tradition of generosity dating back <a href="https://www.globalchinesephilanthropy.org/gcpi/report/178332">more than 3,000 years</a>, echoed by <a href="https://www.britannica.com/topic/Confucianism">Confucianism</a>. This tradition stagnated after 1949, in the early years of the People’s Republic: nationalisation of assets; foreign organisations dissolved or expelled from the territory. The socialist state had to provide for social needs and private initiatives were discouraged.</p>
<p>This chronology contrasts sharply with <a href="https://www.abc-clio.com/ABC-CLIOCorporate/product.aspx?pc=A1391C">US economic history</a>, where philanthropy emerged early on as a <a href="https://press.princeton.edu/books/hardcover/9780691128368/philanthropy-in-america">remedy for the social ills</a> of laissez-faire capitalism in the Gilded Age.</p>
<p>Philanthropy served for over a century as “soft power” for the countries that practised it. Historical examples abound, as in the Cold War when it was used by the West to <a href="http://audrajwolfe.com/freedoms-laboratory/">fight Marxism</a>. The developing world today is a vast area of multiple philanthropic influences, invoking the pursuit of the United Nations’ <a href="https://sustainabledevelopment.un.org/hlpf/2019/philanthropy">Sustainable Development Goals</a>.</p>
<p>There is already a growing number of researchers of Chinese origin in the academic community dedicated to nonprofits and philanthropy (<a href="https://www.arnova.org/page/conferenceschedule">ARNOVA 2019 conference</a>), and China is the subject of more <a href="https://link.springer.com/article/10.1007/s11266-019-00142-3">extensive research</a>.</p>
<p>Since the “open door” policy under Deng Xiaoping, China has experienced tremendous growth, which generated wealth but also more inequalities. The first private foundations flourished in the 1980s and ‘90s in attempt to halt this process and assist the state in its social spending. It was not until 1994 that the <a href="https://www.globethics.net/documents/4289936/17452664/GE_China_Ethics_7_isbn9782889311781.pdf">compatibility between philanthropy and socialism was officially admitted</a>. Today, we are witnessing a real <a href="https://www.chinacenter.net/2017/china_currents/16-1/giving-harder-earning-philanthropy-china/">renaissance of the spirit of private philanthropy</a> in the country.</p>
<h2>Multiplication of billionaire philanthropists</h2>
<p>The proliferation of Chinese philanthropists is directly linked to the rise of fortunes. In 2017, there were 373 billionaires in mainland China (the second largest concentration in the world after the 585 billionaires living in the United States), including 89 new individuals, an average of <a href="https://www.bbc.com/news/business-45989908">nearly two new billionaires every week</a>. Their number slightly decreased in 2018, in line with the global market downturn, after five years of continuous growth.</p>
<p>Among rising self-made entrepreneurs, some influential national figures want to inspire a new generation of philanthropists.</p>
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<a href="https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310803/original/file-20200120-118315-1bgmhl0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Dr. Charles Chen Yidan, founder of the Yidan Prize for education.</span>
<span class="attribution"><span class="source">Yidan Prize Foundation</span></span>
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<p>Dr. Charles Chen Yidan, co-founder of Tencent, left the company in 2013 after becoming one of the wealthiest men in the country, to devote himself to promoting education. The <a href="https://yidanprize.org/the-prize/">Yidan Prize</a> ($3.8 million) is the world’s <a href="https://thediplomat.com/2019/01/chinas-philanthropy-boom/">most generous award for educational research</a>.</p>
<p>Another prominent figure is Ms. He Quiaonv, who in 2017 made a $1.5 billion pledge for <a href="https://www.bloomberg.com/news/articles/2017-10-12/beijing-philanthropist-he-qiaonv-commits-1-5-billion-to-conservation">biodiversity conservation</a>, the largest donation ever for this cause.</p>
<p><a href="https://www.cof.org/content/nonprofit-law-china#deductibility">Tax incentives for philanthropy</a> have recently been increased. Individuals can deduct donations up to 30% of their taxable income, and businesses up to 12% of their annual profits.</p>
<h2>Observatories of philanthropy</h2>
<p><a href="https://link.springer.com/article/10.1007/s11266-019-00142-3">Research</a> is expanding on Chinese philanthropy, as are institutions aimed at supporting the growth of the sector and training executives of new foundations.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=878&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=878&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=878&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1103&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1103&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310798/original/file-20200120-118319-1hi1zkx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1103&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Growth in Number of Chinese Foundations (2006–2016).</span>
<span class="attribution"><a class="source" href="https://www.international.ucla.edu/media/images/GCPI-Image.PNG-n5-0qa.png">China Foundation Center, GCPI</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The China Foundation Center counted 5,545 foundations (endowed by wealthy individuals or using an annual public fund) in 2016, a figure that has <a href="https://www.globalchinesephilanthropy.org/gcpi/report/178332">more than quadrupled (+430%)</a> in a decade since 2006. Their number then grew to <a href="https://www.alliancemagazine.org/blog/the-4-unique-drivers-leading-chinas-philanthropy-ecosystem/">6,322 foundations in 2017</a> and <a href="https://chinaphilanthropy.ash.harvard.edu/uploads/files/425dfc92-63ae-43a8-a188-585d39d01478-2017%C2%A0%20Reprot%C2%A0%20v3_EN.pdf">7,048 foundations in 2018</a>. In 2014, their total gifts amounted to <a href="https://www.cn.undp.org/content/china/en/home/library/poverty/unleashing-the-potential-of-philanthropy-in-china-.html">102 billion yuan</a> ($16.7 billion).</p>
<p>On the American side, Harvard University created a <a href="https://chinaphilanthropy.ash.harvard.edu/">database</a> to gather the most accurate data possible on Chinese philanthropy. It also offers several <a href="https://ash.harvard.edu/china-programs-executive-education">high-level trainings</a> for leaders in this emerging field.</p>
<p>The number of Sino-American foundations listed in the US has quadrupled since 2000 to reach <a href="https://www.scpr.org/news/2017/09/06/75367/first-generation-chinese-americans-growing-their-i/">1,300 entities in 2014</a>. Bilateral cooperation is underway in attempt to align the interests and strategies of the two global philanthropic giants.</p>
<p>The <a href="http://en.cgpi.org.cn/auto/index.html">China Global Philanthropy Institute</a> was founded in 2015 by five Chinese and American philanthropists, including Bill Gates and Ray Dalio. The objective is to inspire others by “bringing out exemplary philanthropists and professional leaders in the philanthropic sector”, with a national and international dual focus. To this end, the Institute relies on a triptych of academic training, support for good practices, and study tours.</p>
<p>Moreover, the <a href="https://philanthropyinfocus.org/2019/11/26/china-foundation-center-launched-china-philanthropy-big-data-research-institute-in-beijing/">China Philanthropy big data Research Institute</a> was launched in 2019 to mobilise the entire field of science and technology, including artificial intelligence, in favour of charitable activities with a stated intent for international cooperation.</p>
<p>These steps are aligned with China’s more general activism, which seeks prominence in the field of technology applicable to financial transactions via the imminent adoption of a <a href="https://www.technologyreview.com/s/614905/china-digital-currency-dcep-test/">digital currency</a> or mastery of the <a href="https://www.reuters.com/article/us-china-blockchain/beijings-backing-could-tip-scales-in-race-for-blockchain-supremacy-industry-figures-say-idUSKBN1X91K1">blockchain</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=344&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=344&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=344&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=432&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=432&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310801/original/file-20200120-118365-186h9ut.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=432&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">International giving to American universities (2007–2013), Jason Chow, <em>Wall Street Journal</em>, September 2014.</span>
<span class="attribution"><a class="source" href="https://www.international.ucla.edu/media/images/GCPI-Image.PNG-br-zmv.png">Infographics GCPI</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>A predictable international projection</h2>
<p>Greater China, including Hong Kong, is already the main source of external funding to American universities through donations made by alumni, far ahead of traditional sources such as the United Kingdom and Canada. These exchanges also foster criticism in a broader context of tension between China and the United States, which <a href="https://foreignpolicy.com/2019/05/19/universities-arent-ready-for-trade-war-casualties-china-trump-us/">affects universities</a>.</p>
<p>To date, Chinese foundations have made international donations on all continents, especially in response to natural disasters. A dozen have even established <a href="https://link.springer.com/article/10.1007/s11266-017-9868-7">offices or pilot projects abroad</a>.</p>
<p>On the world stage, China intervenes more visibly than before through its <a href="https://www.aei.org/china-global-investment-tracker/">foreign direct investments</a> and <a href="https://carnegieendowment.org/2019/05/21/logic-behind-china-s-foreign-aid-agency-pub-79154">official development aid</a>, particularly in Africa.</p>
<p>President Xi Jinping’s thought on “socialism with Chinese characteristics for a new era” include <a href="http://www.china-un.org/eng/zgyw/t1571296.htm">specific guidelines for diplomats</a> called to build a <a href="http://www.chinadaily.com.cn/a/201806/28/WS5b34179da3103349141df593.html">“shared future for mankind”</a>. If the authorities deployed a similar vision to direct the huge potential for philanthropic flows outward with equal long-term determination, there is no doubt that China will rise to the status of “great philanthropic power”.</p>
<h2>Foresighted world influence</h2>
<p>Although the great masses of Chinese philanthropy are still contained within national borders, <a href="https://www.theguardian.com/global-development-professionals-network/2017/jun/28/seven-things-you-probably-didnt-know-about-chinese-philanthropy">all the ingredients are now there</a> for its exponential international projection. This will likely have two consequences.</p>
<p>On one hand, the landscape of international philanthropy will be influenced by the increased presence of Chinese actors – yet no one currently knows what orientations they will favour. How will they fit into existing peer networks? How will they contribute to the emergence of a <a href="https://wings.issuelab.org/resource/what-makes-a-strong-ecosystem-of-support-to-philanthropy.html">global philanthropic infrastructure</a>?</p>
<p>How will this rise and the redistribution of power within the global philanthropic ecosystem be managed, given that the field has traditionally been under <a href="https://knowledge.wharton.upenn.edu/article/global-philanthropy-why-western-models-may-not-work-everywhere/">strong Western influence</a> through its cardinal values, its financial networks, and its operational modes?</p>
<p>Symmetrically, internationally active Chinese foundations and philanthropists will probably nurture, enrich, and undoubtedly adjust their visions in contact with their foreign counterparts. Will this global sharing of experiences be a source of inspiration for the domestic philanthropic sector? How will China manage this two-way exchange of concepts, ideas, techniques, and perhaps even personnel?</p>
<p>Whatever the answers to these questions, China’s philanthropic sector will become a force to be reckoned with far beyond its borders in the 21st century. One must carefully look at this expansion today among the <a href="https://www.belfercenter.org/publication/rise-and-fall-great-powers-twenty-first-century-chinas-rise-and-fate-americas-global">corollaries of the nation’s upward trajectory</a>.</p><img src="https://counter.theconversation.com/content/130495/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Fabrice Jaumont has received funding from various entities for his research and for the educational initiatives that he has fundraised for, including grants from several American foundations, French governmental agencies, corporations, and individual contributors. He is affiliated with Fondation Maison des Sciences de l'Homme in Paris, FACE Foundation in New York, and the Embassy of France to the United States. His views are his own and in no way represent those of the organizations that he is affiliated to or that have supported his work.</span></em></p><p class="fine-print"><em><span>Charles Sellen has received funding from Indiana University and from the Franco-American Fulbright Commission to conduct research on philanthropy. He is currently affiliated with Indiana University’s Lilly Family School of Philanthropy in Indianapolis. His views are his own and in no way represent those of the organizations that he is affiliated to or that have supported his work.</span></em></p>From helping fight coronavirus to supporting education and biodiversity projects, China’s tech billionaires have moved boldly into philanthropy, continuing what is an ancient tradition.Fabrice Jaumont, Chercheur en sciences de l'éducation, Fondation Maison des Sciences de l'Homme (FMSH)Charles Sellen, Global Philanthropy Fellow, Lilly Family School of Philanthropy, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1309102020-01-31T15:06:14Z2020-01-31T15:06:14ZWhy is Tesla selling insurance and what does it mean for drivers?<figure><img src="https://images.theconversation.com/files/312902/original/file-20200130-41554-1bboukb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">From premium to premiums. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/electric-car-head-light-close-on-1327475573">Medvedsky.kz</a></span></figcaption></figure><p>In the past year, Elon Musk and Tesla have fascinated the world with new innovations like the <a href="https://www.tesla.com/en_gb/cybertruck">Tesla Cybertruck</a>. There is excitement about most new Tesla products, but one hugely important one has been largely overlooked. With far less fanfare and no stage performance by Musk, Tesla <a href="https://www.Tesla.com/blog/introducing-Tesla-insurance">started offering</a> car insurance last September. In the long run, this is going to have a major impact on most of our lives – perhaps even greater than Tesla’s more eye-catching innovations. </p>
<p>Tesla Insurance is only available for Tesla vehicles in some states of the US at present. It will expand the number of territories gradually over time. But as with the Tesla Cybertruck, the company first wants to see how the business holds up to whatever is thrown at it and whether it cracks under pressure. </p>
<p>For those eligible for Tesla Insurance, the company <a href="https://techcrunch.com/2019/08/28/tesla-promises-up-to-30-lower-rates-with-new-car-insurance-play/">claims to offer</a> premiums 20% to 30% lower than rivals. Yet even if you are in an area where you can request a quote, Tesla won’t necessarily make you an offer. It sometimes still refers drivers to a traditional insurance partner instead. It may be that Tesla chooses the clearer, less risky cases and sends more complex ones to insurers with more experience and appetite to handle them. </p>
<p>So why is Tesla selling car insurance? For one thing, it has the real-time data from all its drivers’ behaviour and the performance of its vehicle technology, including camera recordings and sensor readings, so it can estimate the risk of accidents and repair costs accurately. This reliance on data may well mean it never branches into selling insurance to drivers of other manufacturers’ cars. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/312918/original/file-20200130-41527-9pdi3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/312918/original/file-20200130-41527-9pdi3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/312918/original/file-20200130-41527-9pdi3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=373&fit=crop&dpr=1 600w, https://images.theconversation.com/files/312918/original/file-20200130-41527-9pdi3o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=373&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/312918/original/file-20200130-41527-9pdi3o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=373&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/312918/original/file-20200130-41527-9pdi3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=469&fit=crop&dpr=1 754w, https://images.theconversation.com/files/312918/original/file-20200130-41527-9pdi3o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=469&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/312918/original/file-20200130-41527-9pdi3o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=469&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Data, data, data.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/luxury-salon-electric-vehicle-inside-driver-1399099625">Lipik Stock Media</a></span>
</figcaption>
</figure>
<p>At the moment, Tesla is offering insurance premiums calculated with aggregated anonymous data. In future it could roll out more customised services, like the ones offered by <a href="https://www.insurethebox.com/telematics">insurers using telematic black boxes</a>, to offer drivers (cheaper) quotes based on how they actually drive. </p>
<p>Every time there is an accident, Tesla has instant access to data about the driver behaviour that led to it. One attraction for the company is that it can evaluate how some of its technologies, like <a href="https://www.tesla.com/en_GB/autopilot">autopilot</a>, <a href="https://www.tesla.com/en_GB/blog/how-track-mode-works">stability control</a>, <a href="https://electrek.co/2018/12/07/tesla-enhanced-anti-theft-first-look/">anti-theft systems</a> and <a href="https://www.nextbigfuture.com/2019/11/tesla-cybertruck-unveiling-in-five-hours.html">bullet-resistant steel</a>, can reduce risk. </p>
<p>Another motivation for Tesla is that <a href="https://www.whatcar.com/advice/owning/are-electric-cars-more-expensive-to-insure/n18043">some insurers charge</a> a relatively high premium for Tesla cars. One reason is that they still don’t have much historic information about the cost of repairs of electric vehicles. By <a href="https://www.investopedia.com/terms/v/verticalintegration.asp">vertically integrating</a> insurance into its offering, Tesla brings down the price of owning its products. </p>
<p>At the same time, insurance is a barrier to many innovations that Tesla is targeting for the future. With the insurance taken care of, it will be easier to sell self-driving vehicles or send people to Mars (with sister company <a href="https://www.spacex.com/">SpaceX</a>). Like many things Elon Musk does, this both solves a short-term problem and fits the longer-term strategy. It’s a little like how Tesla focused on producing luxury vehicles first to finance the infrastructure for selling cheaper cars like the Tesla Model 3. </p>
<h2>How insurance is changing</h2>
<p>Tesla has one more reason for offering insurance, which is that the sector is changing: a tech company disrupting it fits the zeitgeist perfectly. <a href="https://emeraldopenresearch.com/articles/1-15">My research</a> at Loughborough University has looked into this disruption. I evaluated 32 insurance providers around the world including Tesla and found that <a href="https://theconversation.com/the-fourth-industrial-revolution-could-lead-to-a-dark-future-125897">artificial intelligence</a>, <a href="https://theconversation.com/tech-firms-are-winning-the-ai-race-because-they-understand-data-other-sectors-need-to-catch-up-128833">big data</a>, the <a href="https://www.wired.co.uk/article/internet-of-things-what-is-explained-iot">internet of things</a>, <a href="https://theconversation.com/is-blockchain-all-hype-a-financier-and-supply-chain-expert-discuss-106584">blockchain</a> and <a href="https://theconversation.com/forget-the-cloud-soon-well-be-on-the-edge-when-it-comes-to-smart-tech-103501">edge computing</a> were all rewiring insurance, both literally and metaphorically. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/312920/original/file-20200130-41481-bps9im.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/312920/original/file-20200130-41481-bps9im.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/312920/original/file-20200130-41481-bps9im.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/312920/original/file-20200130-41481-bps9im.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/312920/original/file-20200130-41481-bps9im.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/312920/original/file-20200130-41481-bps9im.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/312920/original/file-20200130-41481-bps9im.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/312920/original/file-20200130-41481-bps9im.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Stormy times.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/insurance-agent-holding-red-umbrella-three-716965849">24Novembers</a></span>
</figcaption>
</figure>
<p>Broadly speaking, the work of the insurer is shifting from local human expert underwriters to automation driven by big data and AI. The existing industry players that I evaluated essentially fell into three categories. Some had recognised they cannot compete with tech companies. They were focusing on interacting with customers, branding and marketing, while outsourcing everything else to companies with the relevant skills. </p>
<p>Other insurers were trying to add new technologies to their existing business model. For instance, some are using chatbots that apply machine learning and natural language processing to offer live customer support. Yet another group had more fully embraced the new technological capabilities. For example, life insurers like Vitality and Bupa now encourage customers to use wearable monitoring devices to offer them guidance on improving their health and avoiding accidents.</p>
<p>Alongside all these were the new breed of insurers, with Tesla perhaps the best example. Others include Chinese giants <a href="https://www.the-digital-insurer.com/cif-alibaba/">Alibaba</a> and <a href="https://www.the-digital-insurer.com/dia/tencent-strengthens-its-positioning-within-insurance/">Tencent</a>. Just like Apple and Google <a href="https://www.cnbc.com/2020/01/03/big-tech-will-push-into-finance-in-2020-while-avoiding-bank-regulation.html">are making incursions</a> into banking and finance, these are tech-savvy companies with many existing customers who are adding insurance to their portfolio of services. In every case, the capabilities of AI and big data-driven automation have acted as a catalyst. </p>
<h2>What it means for drivers</h2>
<p>In the short term, Tesla drivers can look forward to insurance that is arguably more seamless and convenient and may well be cheaper – particularly if they clock up fewer miles and drive safely. (Drivers should still compare prices with other insurers: the likes of <a href="https://www.progressive.com/">Progressive</a> and <a href="https://www.geico.com/">GEICO</a> are among those that insure Tesla vehicles.) </p>
<p>In the longer term, this is a sign that insurance – like <a href="https://acadgild.com/blog/big-data-in-banking">banking</a>, <a href="https://www.rac.co.uk/drive/news/motoring-news/new-road-tax-could-soon-be-pay-as-you-drive/">road tax</a> and many services – will be driven by real-time data. It will probably change our behaviour for the better. We will probably drive slower, eat healthier food and exercise more – even if libertarians will be uneasy. </p>
<p>This shift will challenge our attitudes towards personal information privacy. Some of us will value the benefits of being open and transparent with our personal information, while others might seek solutions that keep their data with them. <a href="https://theconversation.com/forget-the-cloud-soon-well-be-on-the-edge-when-it-comes-to-smart-tech-103501">Edge computing</a> has potential here, since it allows some data processing to be done on your device so that your personal data doesn’t need to be sent to a central server. </p>
<p>So Tesla and Elon Musk have not just added another revenue stream to their many successful endeavours. They are also helping to fundamentally change the way that we interact with insurance providers. In the future, insurers will be more like a partner on our journey both by car and on foot – both on Earth and beyond.</p><img src="https://counter.theconversation.com/content/130910/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Zarifis is funded partly by grants from the UK government via UKRI/ Innovate UK. </span></em></p>It seems no traditional finance company is safe from the marauding tech giants.Alex Zarifis, Research Associate in Information Management, Loughborough UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1192832019-07-17T11:18:19Z2019-07-17T11:18:19Z3 myths to bust about breaking up ‘big tech’<figure><img src="https://images.theconversation.com/files/284118/original/file-20190715-173342-1ji5sep.jpg?ixlib=rb-1.1.0&rect=45%2C0%2C5069%2C3376&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Before taking on tech giants, shatter a few misconceptions.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/iron-hammer-breaking-glass-window-340890053">W. Scott McGill/Shutterstock.com</a></span></figcaption></figure><p>As the public and government regulators around the world discuss <a href="https://www.npr.org/2019/06/09/731044346/big-tech-and-antitrust">whether and how</a> to manage the power of technology companies, one idea that keeps coming up is breaking up these large conglomerate corporations into smaller pieces. Public distrust for tech companies has shifted to talk of <a href="https://www.wsj.com/articles/justice-department-is-preparing-antitrust-investigation-of-google-11559348795">antitrust action</a> against them. Facebook, for instance, might then have to <a href="https://www.mercurynews.com/2018/05/21/facebook-owns-instagram-messenger-whatsapp-now-theres-a-call-to-break-it-all-up/">compete with Instagram for photo-sharing</a> and WhatsApp for messaging – rather than owning both. </p>
<p>The idea has managed to garner support from both <a href="https://www.politico.com/2020-election/candidates-views-on-the-issues/technology/tech-competition-antitrust/">Massachusetts Sen. Elizabeth Warren</a>, a Democrat, and <a href="https://www.nbcnews.com/politics/donald-trump/trump-claims-collusion-between-big-tech-democrats-backs-antitrust-fines-n1015726">Republican President Donald Trump</a>.</p>
<p>However, <a href="https://www.politico.com/2020-election/candidates-views-on-the-issues/technology/tech-competition-antitrust/">advocates</a> and <a href="https://www.weforum.org/agenda/2019/07/these-are-some-of-the-best-quotes-about-technology-monopolies-in-2019/">opponents</a> of breaking up big technology firms are falling prey to some serious misconceptions. I study the effects of digital technologies on lives and livelihoods across 85 countries and lead Tufts Fletcher School’s <a href="https://sites.tufts.edu/digitalplanet/">Digital Planet</a> initiative studying technological innovation around the world. In my opinion, there are three myths worth busting before considering taking on big tech. </p>
<h2>Myth 1: Comparing Standard Oil and Google</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=901&fit=crop&dpr=1 600w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=901&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=901&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1132&fit=crop&dpr=1 754w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1132&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1132&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">John D. Rockefeller, founder of Standard Oil.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:John_D_Rockefeller_1872.png">Urbanrenewal/Wikimedia Commons</a></span>
</figcaption>
</figure>
<p>Arguments for and against antitrust action against tech firms rely heavily on the <a href="https://www.nytimes.com/1998/10/19/business/microsoft-trial-precedents-previous-antitrust-cases-leave-room-for-both-sides.html">experiences of earlier cases</a>. The massive <a href="https://theconversation.com/for-tech-giants-a-cautionary-tale-from-19th-century-railroads-on-the-limits-of-competition-91616">19th-century monopoly Standard Oil</a> has, in fact, been referred to as the “<a href="https://www.nytimes.com/2018/02/20/magazine/the-case-against-google.html">Google of its day</a>.” There are also people who are recalling the 1990s <a href="https://www.nytimes.com/2018/05/18/opinion/microsoft-antitrust-case.html">antitrust case against Microsoft’s dominant position</a> in the era of personal computers. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=490&fit=crop&dpr=1 600w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=490&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=490&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=615&fit=crop&dpr=1 754w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=615&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=615&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Google co-founders Sergey Brin, left, and Larry Page.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Schmidt-Brin-Page-20080520_(cropped).jpg">Joi Ito/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Those cases from the past may seem similar to today’s situation, but this era is different in one crucial way: the global technology marketplace. Currently, there are two parallel “big tech” clusters. One is in the U.S., dominated by <a href="https://theconversation.com/big-tech-isnt-one-big-monopoly-its-5-companies-all-in-different-businesses-92791">Google, Amazon, Facebook and Apple</a>. The other is based in China, dominated by <a href="https://singularityhub.com/2018/08/17/baidu-alibaba-and-tencent-the-rise-of-chinas-tech-giants/">Baidu, Alibaba, Tencent and Huawei</a>. This global market is subject to different political and policy pressures than regulators faced when dealing with Standard Oil and Microsoft.</p>
<p>Both clusters are attempting to add users to <a href="https://hbr.org/2019/01/which-countries-are-leading-the-data-economy">accumulate reservoirs of data</a>, which will fuel the next stage of competitiveness in a future run by artificial intelligence. The Chinese government has blocked most of the U.S. companies from entering the Chinese market, protecting its “<a href="https://www.scmp.com/tech/china-tech/article/2120913/china-recruits-baidu-alibaba-and-tencent-ai-national-team">AI national team</a>.” The <a href="https://www.bloomberg.com/news/articles/2018-06-27/alibaba-pulls-back-in-u-s-amid-trump-crackdown-on-chinese-investment">U.S. government has done likewise</a>, blacklisting some Chinese outfits for a period while discouraging others.</p>
<p>If the U.S. technology giants are broken up, the result would be a vastly uneven global playing field, pitting fragmented U.S. companies against consolidated state-protected Chinese firms.</p>
<p>Geopolitical factors aren’t limited to the U.S.-China rivalry. The European Union, Russia and India are also heavy users of Silicon Valley technologies, and each is <a href="https://www.ft.com/content/3eb00398-9815-11e9-8cfb-30c211dcd229">exploring its own options</a> for legislation and regulation too.</p>
<p>U.S. companies’ size and data accumulation capabilities give the country economic and political influence around the globe. Their power would change if they were broken up – and, in my view, that should be a key consideration in regulators’ decisions.</p>
<h2>Myth 2: Price is right</h2>
<p>There are two main views of antitrust action in these discussions. One focuses on consumer welfare, which has been the prevailing approach federal lawyers have taken <a href="https://www.jstor.org/stable/724991">since the 1960s</a>. The other view suggests that regulators should look at the <a href="https://www.yalelawjournal.org/note/amazons-antitrust-paradox">underlying structure of the market</a> and potential for <a href="https://www.pbwt.com/antitrust-update-blog/a-brief-overview-of-the-new-brandeis-school-of-antitrust-law">powerful players to exploit</a> their positions.</p>
<p>Those two sides seem to agree that price plays a key role. People who argue against breaking up the tech giants point out that Facebook and Google provide services that are <a href="https://slate.com/technology/2019/06/facebook-big-tech-antitrust-breakup-mistake.html">free to the consumer</a>, and that Amazon’s marketplace power drives its products’ costs down. On the other side, though, are those who say that <a href="https://www.yalelawjournal.org/note/amazons-antitrust-paradox">having low or no prices</a> is evidence that these companies are artificially lowering consumer costs to draw users into company-controlled systems that are <a href="https://techcrunch.com/2019/02/04/why-no-one-really-quits-google-or-facebook/">hard to leave</a>.</p>
<p>Both sides are missing the fact that the monetary price is less relevant as measure of what users pay in the technology industry than it is in other types of business. Users <a href="https://theconversation.com/how-much-is-your-data-worth-to-tech-companies-lawmakers-want-to-tell-you-but-its-not-that-easy-to-calculate-119716">pay for digital products with their data</a>, rather than just money. Regulators shouldn’t focus only on the monetary costs to the users. Rather, they should ask whether users are being asked for more data than is strictly necessary, whether information is being collected in <a href="https://theconversation.com/7-in-10-smartphone-apps-share-your-data-with-third-party-services-72404">intrusive or abusive ways</a> and whether customers are <a href="https://www.axios.com/mark-warner-josh-hawley-dashboard-tech-data-4ee575b4-1706-4d05-83ce-d62621e28ee1.html">getting good value in exchange for their data</a>.</p>
<h2>Myth 3: Trust-busting is all or nothing</h2>
<p>There aren’t just two ways for this debate to end, with either a breakup of one or more technology giants or simply leaving things as they are for the market to develop further. </p>
<p>My own idea of the best outcome would take a page from the history of antitrust litigation: The company that is sued is not broken up, and yet the very fact that there was a lawsuit leads to progress. That has happened in the past, in the cases against the Bell System, IBM and Microsoft.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=538&fit=crop&dpr=1 600w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=538&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=538&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=676&fit=crop&dpr=1 754w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=676&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=676&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A replica of the first transistor, developed at AT&T’s Bell Laboratories in 1947.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Replica-of-first-transistor.jpg">National Archives</a></span>
</figcaption>
</figure>
<p>In the 1956 federal consent decree against the Bell System, which settled a seven-year legal proceeding against the company, the company wasn’t split up, but Bell was required to <a href="https://economics.yale.edu/sites/default/files/how_antitrust_enforcement.pdf">license all its patents royalty-free</a> to other firms. This meant that some of the most profound technological innovations in history – including the <a href="https://www.computerhistory.org/atchm/who-invented-the-transistor/">transistor</a>, the <a href="https://www.popsci.com/article/science/invention-solar-cell/">solar cell</a> and the <a href="https://www.photonics.com/Articles/A_History_of_the_Laser_1960_-_2019/a42279">laser</a> – became widely available, yielding computers, solar power and other technologies that are crucial to the modern world. When the Bell System was <a href="https://www.cio.com/article/3267826/breaking-up-is-hard-to-do-why-the-bell-system-breakup-isn-t-a-model-for-tech.html">eventually broken up</a> in 1982, it did not do nearly as much to spread <a href="https://si.wsj.net/public/resources/images/BF-AV826_ATT_16U_20171120171814.jpg">innovation and competition</a> as the agreement that kept the Bells together a quarter-century earlier. </p>
<p>The antitrust action against IBM lasted 13 years and didn’t break up the firm. However, as part of its tactics to avoid appearing to be a monopoly, IBM agreed to <a href="https://www.cnet.com/news/ibm-and-microsoft-antitrust-then-and-now/">separate pricing for its hardware and software products</a>, previously sold as an indivisible bundle. This created an opportunity for entrepreneurs Bill Gates and Paul Allen to create a new software-only company, called Microsoft. The surge of software innovations that have followed can clearly trace their origins to the IBM settlement. </p>
<p>Two decades later, Microsoft was itself the target of an antitrust action. In the resulting settlement, <a href="https://www.theverge.com/2018/9/6/17827042/antitrust-1990s-microsoft-google-aol-monopoly-lawsuits-history">Microsoft agreed to ensure its products were compatible</a> with competitors’ software. That made room in the emerging internet marketplace for web browsers, the predecessors of Apple’s Safari, Mozilla’s Firefox and Google Chrome.</p>
<p>Even Margrethe Vestager, the European Union’s top antitrust official and frequent tech-giant nemesis, has said that “<a href="https://www.nytimes.com/2018/02/20/magazine/the-case-against-google.html">Antitrust prosecutions are part of how technology grows</a>.” But that doesn’t mean they all have to achieve their most extreme ends, of breaking up the companies. </p>
<p>Antitrust rules are complicated enough, and plenty of experts will be called on to give their views on what to do with “big tech.” Technology pervades every aspect of modern lives, giving each person a responsibility to weigh in on this issue without misconceptions clouding their judgments. Technology has become a political issue. In a politically overheated climate, public sentiments may matter even more than the opinions of experts.</p><img src="https://counter.theconversation.com/content/119283/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bhaskar Chakravorti has founded and directs the Institute for Business in the Global Context at Fletcher/Tufts that has received funding from Mastercard, Microsoft, the Gates Foundation, the Rockefeller Foundation and the Onassis Foundation. He is a Non-Resident Senior Fellow at Brookings India and a Senior Advisor on Digital Inclusion at the Mastercard Center for Inclusive Growth.</span></em></p>Advocates and opponents of breaking up Facebook, Google and other technology giants are falling prey to some serious misconceptions.Bhaskar Chakravorti, Dean of Global Business, The Fletcher School, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1186162019-06-12T11:45:59Z2019-06-12T11:45:59ZOnline shopping: why its unstoppable growth may be coming to an end<figure><img src="https://images.theconversation.com/files/278908/original/file-20190611-32373-1m41xwl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What goes up ...</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/online-shopping-concept-1070185271?studio=1">Bogdan Vija</a></span></figcaption></figure><p>Many people probably assume that online stores are making a fortune, without all the costly bricks and mortar. But the reality is rather different. Many ecommerce activities are, in fact, unprofitable; if people had to pay the true cost of what they bought online, they would probably buy less. In fact, we think there is <a href="https://www.bostonglobe.com/ideas/2018/12/06/how-amazon-prime-will-change-way-our-cities-look/POt25dZIWoaph01gNKkJoN/story.html">an inflection point</a> approaching, when consumers will either have to pay more for online purchases or end up with fewer products and services to choose from. </p>
<p>Let’s start with the online retail leviathan Amazon, which <a href="https://ir.aboutamazon.com/quarterly-results">chalked up</a> record profits and revenues in 2018. This is great news for Amazon shareholders, but deeper scrutiny reveals a different picture. To begin with, most of the profit was not from retail activities. Amazon Web Services, a cloud-hosting business unrelated to ecommerce, <a href="https://www.zdnet.com/article/in-2018-aws-delivered-most-of-amazons-operating-income/">generated</a> more <a href="https://www.investopedia.com/ask/answers/122714/what-difference-between-operating-income-and-revenue.asp">operating income</a> than the company’s entire North American retail operation – and with margins over five times higher. </p>
<p>Even then, this was a much better performance from the retail division than in 2017, when the North American operating income was completely offset by international retail losses. In that year, Amazon’s positive operating income was <a href="https://www.zdnet.com/article/all-of-amazons-2017-operating-income-comes-from-aws/">entirely thanks</a> to the cloud-hosting business. </p>
<h2>Profit push</h2>
<p>Amazon’s retail improvement in 2018 came on the back of a profitability drive, much of which involved raising the consumer cost of ecommerce. For example, Amazon <a href="https://www.theverge.com/2018/4/26/17287528/amazon-prime-annual-membership-cost-increase-price-hike">increased</a> the annual membership cost of priority customer service <a href="https://www.amazon.co.uk/gp/help/customer/display.html?nodeId=201910360">Prime</a> by 20% to US$119 (£94) in the US, along with comparable rises in other countries. </p>
<p>According to one estimate, this US hike <a href="https://www.fool.com/investing/2018/10/27/surprise-amazons-e-commerce-beats-walmart.aspx">accounted for</a> nearly a third of Amazon North America’s operating margin in 2018. Yet not all of this extra profitability looks sustainable: Amazon is <a href="https://www.nytimes.com/2019/04/25/technology/amazon-earnings-one-day-prime-shipping.html">now seeing</a> shrinking growth in Prime membership in North America and declines in some countries as customers at the margin decide to walk away. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=992&fit=crop&dpr=1 600w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=992&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=992&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1246&fit=crop&dpr=1 754w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1246&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/279108/original/file-20190612-32351-1nlcn7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1246&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">CRaP water.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/plastic-bottle-drinking-water-isolated-on-146174870?src=phc4zvgW61mkTOdv9QKQSg-1-89&studio=1">Tarasyuk Igor</a></span>
</figcaption>
</figure>
<p>Amazon has also been targeting its <a href="https://www.businessinsider.fr/us/amazon-wants-to-stop-selling-unprofitable-items-report-2018-12">CRaP products</a>, which stands for “cannot return a profit”. Product lines end up in this category because of small margins or logistical challenges such as their weight or size. Bottled water, fizzy drinks and snack foods are all examples. </p>
<p>Amazon has been pressuring the manufactures of these products to lower sales costs. It’s unlikely that this will succeed on the whole, since in many cases there’s little room for improvement. This will force Amazon to choose between charging more for these products or delisting them, which will translate into higher prices for consumers or a narrower selection on the site. </p>
<p>Not all of Amazon’s initiatives are at the expense of the consumer, it should be said. The company <a href="https://www.nytimes.com/2019/04/25/technology/amazon-earnings-one-day-prime-shipping.html">recently reported</a> a 4% drop in the cost of fulfilling orders, mainly because it has been building fewer new warehouses and ramping up throughput at existing sites instead. This is a welcome development for the company, since the costs of both fulfilling orders and shipping <a href="https://www.supplychain247.com/article/amazons_ever_increasing_ecommerce_shipping_costs">increased</a> as a percentage of sales each year between 2010 and 2017. </p>
<p><strong>Shipping and fulfilment as a % of Amazon sales</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=372&fit=crop&dpr=1 600w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=372&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=372&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=468&fit=crop&dpr=1 754w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=468&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/278881/original/file-20190611-32361-129gyrx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=468&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.supplychain247.com/article/amazons_ever_increasing_ecommerce_shipping_costs">Statista</a></span>
</figcaption>
</figure>
<p>Within its warehouse network, Amazon handles own-brand goods and those of many of the other vendors who sell via the platform. These vendors have the <a href="https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/">choice between</a> paying Amazon a premium to completely handle their distribution and pricing, giving them full access to the Prime customer base; or having a looser relationship that can involve paying Amazon or an independent logistics company to use the warehouse network instead. </p>
<p>Amazon <a href="https://www.visualcapitalist.com/breaking-amazon-makes-money/">has</a> succeeded in growing these different types of looser relationships – they <a href="https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/">now make up</a> over half of total retail sales. Developing the third-party logistics strand is creating a new revenue stream and lowering working capital, since it means that Amazon covers less of the cost of overall sales fulfilment. This resembles the <a href="https://www.investopedia.com/articles/investing/061215/difference-between-amazon-and-alibabas-business-models.asp">business model</a> of the Chinese ecommerce giant Alibaba. Yet saving on working capital doesn’t represent an inherent efficiency, since offloading some distribution expenses is likely to eventually be passed on to consumers as higher prices from costs incurred elsewhere. </p>
<h2>Competitors</h2>
<p>Major rival Walmart has its own techniques for trying to make online sales more profitable. Its new approach to CRaP products <a href="https://www.wsj.com/articles/why-walmart-shoppers-are-finding-more-items-out-of-stock-1535716801?mod=searchresults&page=1&pos=7">is to</a> hide them from view in Walmart consumer search results, showing as out of stock alongside alternatives that are more profitable to the company. </p>
<p>Interestingly, Walmart is also <a href="https://news.walmart.com/2019/05/14/free-nextday-delivery-without-a-membership-fee?mkt_tok=eyJpIjoiTmpFd1pHRm1ObVkwT0RFeSIsInQiOiJYWm5QNzljWktHT21SaTZSeHNLMTRMQXhKVkhBMXhFZ2dCRWFUMHdxMWlsM0J2U0VEZWp5b0dPd0xUV1ZQNUJLeExoc2g2MXFGbnVaVUJmQ3BFejBNM0xXSDY0dXBHdnNFYloyTmxRbENDZDc2RWlPN2RXaWpiTmlON1JMbVR5NyJ9">piloting</a> free next-day deliveries from its stores in the US without customers having to be members of any Prime-equivalent service. The wrinkle is that the offering is limited to only high-volume, higher margin products. In both examples, Walmart is therefore pruning consumer choice in its search for more profitability online. </p>
<p>Walmart is <a href="https://news.walmart.com/2019/05/14/free-nextday-delivery-without-a-membership-fee?mkt_tok=eyJpIjoiTmpFd1pHRm1ObVkwT0RFeSIsInQiOiJYWm5QNzljWktHT21SaTZSeHNLMTRMQXhKVkhBMXhFZ2dCRWFUMHdxMWlsM0J2U0VEZWp5b0dPd0xUV1ZQNUJLeExoc2g2MXFGbnVaVUJmQ3BFejBNM0xXSDY0dXBHdnNFYloyTmxRbENDZDc2RWlPN2RXaWpiTmlON1JMbVR5NyJ9">also</a> one of <a href="https://www.tesco.com/groceries/en-GB/zone/Same-day-delivery">numerous</a> big retailers that offer same-day grocery delivery, but this too is not all it seems.</p>
<p>An experienced grocery retail manager has told us that online grocery is necessary as a marketing loss leader but “impossible” to make money from. Such delivery offers are only possible, he said, because online grocery is just 2% of the overall market, since most consumers don’t buy these products online. <a href="https://www.capgemini.com/wp-content/uploads/2019/01/Report-Digital-%E2%80%93-Last-Mile-Delivery-Challenge1.pdf">A recent study</a> agreed with this thinking, finding that online grocery orders have a negative margin of about 15%. It is reminiscent of that old business joke about losing money on every sale but making it up in volume. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=434&fit=crop&dpr=1 600w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=434&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=434&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=545&fit=crop&dpr=1 754w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=545&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/278910/original/file-20190611-32373-1b7394x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=545&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Basket case?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/online-shopping-concept-1070185271?studio=1">Billion Photos</a></span>
</figcaption>
</figure>
<p>To understand the mindset of retailers like Walmart and other smaller rivals who are not purely online, a supply chain consultant <a href="https://www.imd.org/research-knowledge/articles/the-hidden-cost-of-cost-to-serve/">told us</a> last year that they are placing a priority on speed of change before profitability, amid pressure to stay competitive with the likes of Amazon. “It’s a logic of desperation as much as it is of strategy,” he said. </p>
<p>We can see the consequences in an <a href="http://www.neeley.tcu.edu/Centers/Center_for_Supply_Chain_Innovation/PDFs/Future_of_Supply_Chain.aspx">interesting survey</a> which found that in 2017, 61% of supply chain executives reported increasing product lines due to ecommerce, up from 55% in 2013. When asked about the impacts on distribution, 26% said they were implementing smaller, more localised warehouses, up from 20% in 2013. These changes <a href="https://theconversation.com/will-amazon-do-to-the-grocery-industry-what-it-did-to-ecommerce-96874">inevitably</a> lead to higher costs, which will again be passed on, at least in part, to the consumer. </p>
<p>Viewed as a whole, the inflection point in online shopping that we mentioned earlier could be getting close. We may have reached peak convenience and cheap prices, and might now be entering a world of more targeted offerings, with less geographic coverage, variations in order turnaround and perhaps even higher prices – all of which will slow the growth curve. At least for high street retailers who have been living with seemingly endless freefall, this may be the best news in a very long time.</p><img src="https://counter.theconversation.com/content/118616/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Even Amazon can’t defy gravity forever.Ralf Seifert, Professor of Operations Management, International Institute for Management Development (IMD)Richard Markoff, Supply Chain Researcher, EPFL – École Polytechnique Fédérale de Lausanne – Swiss Federal Institute of Technology in LausanneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1159862019-04-26T10:50:41Z2019-04-26T10:50:41ZDon’t buy that Gucci knockoff: Your bargain benefits organized crime while endangering countless others<figure><img src="https://images.theconversation.com/files/271095/original/file-20190425-121241-1t84ate.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Those cheap fakes might be tempting, but the hidden costs are high.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bangkok-thailand-march-15-fake-handbags-276027005?src=96-F1hrH68eormXOUBqBAg-1-2">Settawat Udom/Shutterstock.com</a></span></figcaption></figure><p>If you’ve ever been to <a href="https://www.nycgo.com/boroughs-neighborhoods/manhattan/chinatown">New York’s Chinatown</a>, <a href="https://www.thesanteealley.com/">Los Angeles’ Santee Alley</a> or <a href="https://fathomaway.com/best-street-markets-in-hong-kong/">Hong Kong’s Gage Street</a>, you know what draws the crowds: the chance to snag knockoff Jimmy Chu shoes, a Rolex watch or a pair of Ray-Ban sunglasses for a <a href="https://www.researchgate.net/profile/Martin_Eisend/publication/252248476_Explaining_Counterfeit_Purchases_A_Review_and_Preview/links/0a85e5395b8b8297a9000000/Explaining-Counterfeit-Purchases-A-Review-and-Preview.pdf">fraction of the retail price</a>. </p>
<p>While consumers may think it’s a “<a href="https://globalnews.ca/news/4163571/counterfeit-goods-economy/">victimless crime</a>” that only hurts big corporations, counterfeiting harms countless individuals as well, from sweatshop workers who toil without legal protections to consumers themselves, <a href="https://www.reuters.com/article/us-pharmaceuticals-fakes/tens-of-thousands-dying-from-30-billion-fake-drugs-trade-who-says-idUSKBN1DS1XJ">many thousands of whom die annually</a> due to fraudulent drugs and foods. It’s also the biggest source of profit for criminal gangs. </p>
<p>President Donald Trump <a href="https://www.apnews.com/71d9d74bb31a4447b7a34446cf2410be">highlighted the problem</a> in early April when he ordered U.S. federal agencies to do more to stem the flow of counterfeit goods online. But what has been lost in debates about how to curb counterfeiting is the <a href="https://doi.org/10.1108/07363761111115980">role consumers play</a>. </p>
<p><a href="https://scholar.google.com/citations?user=mZOfzEkAAAAJ&hl=en">I’ve spent the past five years studying</a> the serious problem of product counterfeiting as part of my ongoing research on crimes committed against businesses. Just as <a href="https://www.journals.uchicago.edu/doi/pdfplus/10.1086/449181">U.S. demand fuels illegal drug trafficking</a>, it has become exceedingly clear to me that consumers play an integral part in the persistence and growth of product counterfeiting. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/271091/original/file-20190425-121228-vwbsn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/271091/original/file-20190425-121228-vwbsn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/271091/original/file-20190425-121228-vwbsn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/271091/original/file-20190425-121228-vwbsn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/271091/original/file-20190425-121228-vwbsn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/271091/original/file-20190425-121228-vwbsn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/271091/original/file-20190425-121228-vwbsn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">New York police sized over $1 million in counterfeit Gucci, Prada, Fendi, Rolex and Coach goods in a Chinatown raid in 2008.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Counterfeit-Bust/76c222a460184c5385238a39d629b649/16/0">AP Photo/Bebeto Matthews</a></span>
</figcaption>
</figure>
<h2>‘Wild West’ of retail</h2>
<p>The growth of e-commerce, which the Trump administration compares with the lawless “Wild West,” <a href="https://www.adweek.com/brand-marketing/counterfeit-goods-are-a-460-billion-industry-and-most-are-bought-and-sold-online/">is making it easier for counterfeiters</a> to reach U.S. consumers.</p>
<p>In the U.S., the number of <a href="https://www.cbp.gov/document/stats/fy-2017-ipr-seizure-statistics">counterfeit products seized</a> at ports of entry has more than doubled over the past decade. </p>
<p>Globally, counterfeiters sold an estimated <a href="https://www.apnews.com/ef15478fa38649b5ba29b434c8e87c94">US$1 trillion of fake goods</a> in 2017, a figure that is expected to soar past $1.8 trillion by 2020. As a result, businesses suffered an estimated $323 billion in losses in 2017. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/271094/original/file-20190425-121262-1euqoyf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/271094/original/file-20190425-121262-1euqoyf.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/271094/original/file-20190425-121262-1euqoyf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=434&fit=crop&dpr=1 600w, https://images.theconversation.com/files/271094/original/file-20190425-121262-1euqoyf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=434&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/271094/original/file-20190425-121262-1euqoyf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=434&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/271094/original/file-20190425-121262-1euqoyf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/271094/original/file-20190425-121262-1euqoyf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/271094/original/file-20190425-121262-1euqoyf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">E-commerce sites are rife with cheap knockoffs like this one.</span>
<span class="attribution"><a class="source" href="https://www.ebay.co.uk/itm/Brand-new-Gucci-laveugle-par-amour-pouch-clutch-bag-wash-bag-toiletry-bag/133033171076?_trkparms=aid%3D111001%26algo%3DREC.SEED%26ao%3D1%26asc%3D20180816085401%26meid%3Dddad6341c9f944d6a38a1eaa7f48808c%26pid%3D100970%26rk%3D2%26rkt%3D4%26sd%3D113727232248%26itm%3D133033171076&_trksid=p2481888.c100970.m5481&_trkparms=pageci%3Ace6455ee-6799-11e9-8eef-74dbd1802eb6%7Cparentrq%3A5636c13b16a0ad4b56ac0358fff22937%7Ciid%3A1">eBay</a></span>
</figcaption>
</figure>
<p>Profits earned from the sale of counterfeit goods <a href="http://archive.fortune.com/magazines/fortune/fortune_archive/2006/05/01/8375455/index.htm">benefit legitimate companies</a> who manufacture, sell or distribute counterfeits, as well as illegal businesses and criminal organizations.</p>
<p>Trump’s directive focused on getting online marketplaces like eBay, Amazon and Alibaba to do more to remove knockoffs from their virtual shelves or trying to stem the flow of goods over the border. While this makes some sense <a href="https://www.gao.gov/assets/690/689713.pdf?mod=article_inline">given estimates</a> that a large share of goods being sold on these sites are counterfeit, what it does not do is address the source of the problem: consumer demand. </p>
<h2>Counterfeit accomplices</h2>
<p>A common saying among brand owners, the companies that own legitimate trademarks, is that the only sure way for a company to avoid a counterfeiting problem is to produce a product that no one wants to buy. </p>
<p>If <a href="https://strathprints.strath.ac.uk/4461/">no one wanted</a> Coach, Chanel or Michael Kors handbags, for example, there would be no point in knockoffs. </p>
<p>The lesson to take away from this is that consumer demand for legitimate goods creates incentives for counterfeiters to create and sell fakes. And while the majority of shoppers have <a href="http://a-capp.msu.edu/product-counterfeiting-in-michigan-and-the-expectations-and-priorities-for-state-and-local-law-enforcement-assessing-the-awareness-of-and-response-to-the-problem/">no desire to purchase counterfeit products</a> – and in fact are themselves victims of this deception – there are many <a href="https://doi.org/10.1016/0148-2963(95)00009-7">who willingly buy counterfeit goods</a> in order to get what they perceive is a bargain. </p>
<p><a href="http://dx.doi.org/10.1002/(SICI)1520-6793(199808)15:5%3C405::AID-MAR1%3E3.0.CO;2-B">Researchers have found</a> that there are two general price-focused reasons consumers choose to purchase counterfeit goods. They may feel that the cost of the desired legitimate good is too high, thus they settle for a knockoff that costs a fraction of the price. Or, even if they could afford the legitimate good, they choose the fake because it seems to be a savvy shopping decision. </p>
<p>Regardless of the reason, their decision <a href="https://www.emeraldinsight.com/doi/abs/10.1108/07363769310047374?casa_token=ubbt3hy2uowAAAAA:b69Q7hIe1XIRgJQ6FvAqLx_FoFbUdDQ6N_X3VB7F0MB3Mt3CIn-rwUcT7ZJFGWo1wyGCHR1I_mMFrgc">makes them accomplices</a> to this illegal activity, providing counterfeiters with more financial resources. And more importantly, it can place them at risk for serious harm. </p>
<p>While it may seem normal and not harmful to rationalize the purchase of a counterfeit purse as a way to save money, <a href="https://doi.org/10.1177/0002764217734264">my own research</a> has found that the same logic can lead people to <a href="https://www.independent.co.uk/news/long_reads/smuggling-cigarettes-tobacco-counterfeit-illicit-trade-black-market-crime-a8479021.html">buy tobacco laced with arsenic</a> and tainted medications that have led to <a href="https://www.nature.com/articles/434132a">serious illness</a> or <a href="https://link.springer.com/article/10.2165/00002018-200326140-00001">even death</a>.</p>
<h2>Who gets hurt</h2>
<p>While it may be difficult for consumers to care about the losses suffered by a multinational company like Gucci, Chanel or Rolex, they should be able to sympathize with the plight of other victims of counterfeiting.</p>
<p>For example, the people producing counterfeit goods include <a href="https://www.cnbc.com/id/38229835">children forced to work in sweatshop</a> conditions for hours on end and <a href="https://heinonline.org/HOL/Page?handle=hein.journals/cardplp15&div=16&g_sent=1&casa_token=&collection=journals&t=1556223833">underpaid people forced to work in dangerous conditions</a> under threat of punishment from factory owners.</p>
<p>Some <a href="https://share.america.gov/whats-wrong-with-buying-counterfeit-goods/">counterfeiting schemes</a> have even been tied to human smuggling rings, international organized crime groups and drug gangs. The United Nations lists counterfeiting as one of the <a href="http://www.unicri.it/topics/counterfeiting/organized_crime/">most lucrative criminal activities</a> for transnational organized gangs. In fact, <a href="https://www.occrp.org/en/27-ccwatch/cc-watch-briefs/6240-ngo-transnational-organized-crime-groups-make-us-2-2-trillion-a-year">counterfeiting is more profitable</a> for these groups than drug smuggling or human trafficking.</p>
<p>Put another way, counterfeiting is not an issue of who is losing money. It’s about who is getting the money: criminals. And the victims include pretty much everyone else, from the workers to unsuspecting consumers themselves.</p><img src="https://counter.theconversation.com/content/115986/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay Kennedy has received funding from CropLife International and MarkMonitor. The Center for Anti-Counterfeiting and Product Protection receives support from a variety of corporations, which can be found on the Center's website: a-capp.msu.edu</span></em></p>The Trump administration recently announced a plan to curb counterfeiting on websites and at ports of entry. But what’s missing is the role consumers play in supporting this criminal activity.Jay Kennedy, Assistant Professor of Criminal Justice, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1031252018-11-09T11:42:39Z2018-11-09T11:42:39ZSingles Day shows China’s global retail power<figure><img src="https://images.theconversation.com/files/244653/original/file-20181108-74760-liy9cl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A mascot for Alibaba's online shopping site Tmall urges customers to buy on Singles Day.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/China-Singles-Day/05c8096ec07044a88e48abf0d962d424/12/0">AP Photo/Ng Han Guan</a></span></figcaption></figure><p>Nov. 11, or 11/11, has been celebrated as Singles Day – a sort of <a href="https://en.wikipedia.org/wiki/Singles%27_Day">anti-Valentine’s Day</a> for single people – since 1993. Chosen because its date has four ones in a row, the holiday originated in China and has become the largest shopping day of the year, in both online and offline retail sales around the world. It’s a signal of shifting power in the global retail sales market, moving away from the U.S. and toward Asia – specifically China.</p>
<p>Alibaba, the giant Chinese e-retailer that promoted the day as an opportunity – or excuse – for single people to treat themselves with new purchases, has seen its revenues on Nov. 11 grow from <a href="https://www.theatlas.com/charts/EJ8yZP5Ml">US$100 million in 2009</a> to 250 times that in 2017, <a href="https://www.statista.com/statistics/364543/alibaba-singles-day-1111-gmv/">$25 billion</a>. And that was only <a href="https://www.digitalcommerce360.com/2017/11/13/chinas-singles-day-online-shopping-extravaganza-nets-38-23-billion-sales/">two-thirds of total online sales</a> that day.</p>
<p>Singles Day dwarfs the three other largest online retail mega-events. In 2017, Thanksgiving weekend online sales – <a href="https://www.statista.com/statistics/266010/online-revenue-on-thanksgiving-and-black-friday/">including Black Friday</a> and <a href="https://www.statista.com/statistics/194643/us-e-commerce-spending-on-cyber-monday-since-2005/">Cyber Monday</a> – totaled $7.3 billion. The third, Amazon’s Prime Day, in 2017 took in <a href="https://www.statista.com/statistics/728120/annual-amazon-prime-day-sales/">$100 million an hour</a> – but Alibaba raked in <a href="https://www.statista.com/statistics/364543/alibaba-singles-day-1111-gmv/">10 times that amount</a> on Singles Day that year.</p>
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<h2>Getting in on the action</h2>
<p>By 2022, Chinese middle-class shoppers as a group are projected to <a href="https://www.businessinsider.com/chinas-middle-class-is-exploding-2016-8">both outnumber and outspend U.S. customers</a>. Retailers around the world are seeking to take advantage of this growing Chinese economic power, offering their own Singles Day deals and even seeking to expand the day into a longer festival: Alibaba is keeping its discounts going for 48 hours, and its main Chinese competitor, JD.com, began an 11-day festival from Nov. 1 to Nov. 11 with a set of limited-time discounts that <a href="https://technode.com/2018/11/01/jd-com-logs-rmb-6-billion-in-sales-within-the-first-hour-of-singles-day-campaign/">grossed $865 million in its first hour</a>.</p>
<p>Global brands like <a href="https://www.adweek.com/digital/singles-day-is-the-worlds-biggest-shopping-day-but-dont-expect-to-find-it-here/">Adidas, Mattel, Mondelez, Nike and Unilever</a> participated in 2017 by offering deals on a variety of their products. <a href="https://www.fool.com/investing/2017/10/22/jdcom-tencent-and-wal-mart-join-forces-against-ali.aspx">JD.com teamed up with Tencent</a> – another Chinese e-commerce behemoth – and Walmart to offer one another’s customers the same special deals on Singles Day 2017. In 2018, Alibaba subsidiary Lazada is offering Singles Day sales <a href="https://econsultancy.com/singles-day-2018-alibaba/">in six Southeast Asian countries</a>. </p>
<h2>Online or in store?</h2>
<p>For 2018, Alibaba is promising <a href="https://www.businessinsider.com/alibaba-plans-for-singles-day-this-year-2018-11">special discounts on 1.5 million products</a> in 3,700 categories, from 180,000 brands from China and 74 other countries. The company plans to fulfill much of the enormous order volume from its <a href="https://www.cnbc.com/2018/10/30/alibaba-cainiao-chinas-biggest-robot-warehouse-for-singles-day.html">robot-automated warehouse</a> where 700 robots will automatically pick up items and assemble packages for shipping to customers.</p>
<p>Many companies are working to develop their electronic customer base, <a href="https://theconversation.com/more-businesses-are-trying-mobile-apps-to-lure-and-keep-consumers-88684">particularly with mobile apps</a>. But there is still big money in the real world.</p>
<p>Though <a href="https://theconversation.com/how-sears-helped-make-women-immigrants-and-people-of-color-feel-more-like-americans-105278">landmark retailers like Sears</a> and J.C. Penney are struggling in the U.S., the vast majority of global shopping is still <a href="https://theconversation.com/in-store-shopping-still-matters-this-holiday-season-87494">done in-person</a>, rather than online. Newer <a href="https://multichannelmerchant.com/blog/omnichannel-investments-pay-off-brick-mortar-retailers/">mega-retailers like Walmart, Target and Best Buy</a> are thriving in the U.S. and elsewhere. Even pure e-commerce retailers such as Amazon are moving offline, opening <a href="https://www.businessinsider.com/amazon-go-stores-close-on-weekends-2018-10">cashierless Amazon Go stores</a> and physical bookstores, <a href="https://theconversation.com/amazon-dives-into-groceries-with-whole-foods-five-questions-answered-79638">buying Whole Foods</a>, and partnering with Kohl’s to handle product returns. </p>
<p>In China, Alibaba has moved into physical stores, too, <a href="https://www.forbes.com/sites/greatspeculations/2017/11/21/alibaba-takes-next-step-in-new-retail-with-2-9-billion-investment/">acquiring the InTime department store and mall chain</a> and <a href="https://www.businessinsider.com/chinas-hema-market-has-two-advantages-over-amazon-go-2018-2">opening 60 Hema supermarkets</a> that don’t accept cash and where customers’ food purchases can be prepared before they check out. The company has also <a href="https://technode.com/2018/02/14/alibaba-new-retail/">set up 100,000 convenience stores</a> as places where customers can try on products in augmented reality and pay with facial recognition systems.</p>
<h2>The future of retail</h2>
<p>Shoppers around the world want to be able to buy both online and in physical space, from any device and by any payment method – all while getting a high level of customization and service experience. This goes beyond the simple mechanics of telling a smart speaker like Amazon Echo, Google Home or Apple’s HomePod to order more laundry detergent. </p>
<p>Artificial intelligence systems are analyzing customers’ behavior, which can make routine shopping for items like facial tissues and soap faster and easier, by remembering what brands a customer likes, and how often to order refills. AI can also suggest products customers might want to buy, based on their previous purchases – as <a href="https://www.wired.com/story/amazon-artificial-intelligence-flywheel/">Amazon already does</a>. That can make shopping for luxury products, splurges and gifts more fun and engaging. </p>
<p>The global retail market is adjusting to China’s rising economic power, and Chinese customers’ desire for AI-enhanced mobile shopping experiences. Singles Day’s spread across the world suggests a new chapter of computer-enhanced shopping experiences is beginning.</p><img src="https://counter.theconversation.com/content/103125/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Venkatesh Shankar does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Chinese customers spend billions on Nov. 11. Why, and what does it mean for the global retail marketplace?Venkatesh Shankar, Professor of Marketing; Director of Research, Center for Retailing Studies, Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/994772018-07-12T14:04:37Z2018-07-12T14:04:37ZThree ‘living labs’ which show how autonomous robots are changing cities<figure><img src="https://images.theconversation.com/files/227434/original/file-20180712-27018-1k0hs6z.jpg?ixlib=rb-1.1.0&rect=44%2C29%2C4947%2C3300&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-asian-engineer-flying-drone-over-1131933119?src=tSSPiJ4FMuSoruX-NsvEUA-1-8">Shutterstock.</a></span></figcaption></figure><p>Ready or not, autonomous robots are leaving laboratories to be tested in real-world contexts. With more and more people <a href="https://esa.un.org/unpd/wup/publications/files/wup2014-highlights.pdf">living in cities</a>, these technologies offer ways to cope with ageing populations and poorly maintained infrastructures, while promoting safer transport, productive manufacturing and secure energy supplies. </p>
<p>Urban “living labs” are one way scientists are trying to understand how autonomous robots – or Robotics and Autonomous Systems (RAS), to give them their full title – will affect our everyday lives. Autonomous robots are interconnected, interactive, cognitive and physical tools, which can perceive their environments, reason about events, make or revise plans and control their own actions. These technologies are designed to draw on big data and connect with the <a href="https://theconversation.com/explainer-the-internet-of-things-16542">Internet of Things</a>, to make our lives easier by increasing accuracy and efficiency. </p>
<p>But the everyday dynamics of cities are complex, which makes them far less predictable than the usual test zones. City leaders recognise that <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/664563/industrial-strategy-white-paper-web-ready-version.pdf">real world experimentation</a> can support innovation, as well as attracting international investment. As a result, cities around the world are competing to become urban test beds. But as a new <a href="http://hamlyn.doc.ic.ac.uk/uk-ras/sites/default/files/UK_RAS_wp_Urban_single_1.4.pdf">white paper</a> by researchers from Sheffield University’s Urban Institute sets out, there are some big challenges when it comes to promoting RAS technologies and ensuring meaningful trials in cities.</p>
<h2>Last mile logistics</h2>
<p>Logistics companies are under pressure to meet growing customer expectations for quick delivery, while battling against traffic congestion. Companies aim to fill this gap with last mile delivery robots. <a href="https://www.theverge.com/circuitbreaker/2018/5/31/17413836/alibaba-driverless-robot-deliver-packages-speed">Alibaba recently announced</a> that their bot, the G Plus, will go from being road-tested at their headquarters in Hangzhou, eastern China, to commercial operations by the end of 2018. </p>
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<p>In this trial, consumers download an app, place a grocery order and pinpoint where they want their goods to be delivered. Purchased items are placed into the driverless bot, which can carry several packages of different sizes. The robot has a built-in navigation system that relies on LIDAR – a technology that bounces light off nearby surfaces to create a 360-degree 3D map of the world around it. It drives autonomously, at speeds of up to 9.3 miles per hour, to the delivery location, where the customer enters a PIN code to retrieve their shopping. </p>
<p>Similar tests are taking place in <a href="https://www.bbc.co.uk/news/technology-43949554">Milton Keynes, in the UK</a>, and the US city of San Francisco. But these trials have not been without error – some delivery bots have experienced navigation issues, such as <a href="http://www.abc.net.au/news/2017-11-23/delivery-robots-could-they-solve-australias-logistic-problem/9185794">getting stuck or crashing</a> into obstacles including people, not to mention resistance from <a href="https://www.bbc.co.uk/news/technology-42265048">citizens and activists</a> interested in protecting public space and pedestrian safety.</p>
<h2>Self-repairing cities</h2>
<p>Buried under city streets are millions of kilometres of pipe and cable networks that provide essential water, drainage and energy services. There is mounting pressure on cities and utility companies to maintain these ageing invisible infrastructures, while dealing with the challenges of growing urban populations, ecological turbulence and citizens’ expectations. </p>
<p>Autonomous robots can detect defects in infrastructure – such as cracks in the asphalt – and identify and eliminate their triggers, whether it’s a leaking pipe or physical overloading. For example, The University of Leeds, together with local councils and industry partners, are running a project on <a href="http://selfrepairingcities.com">self-repairing cities</a> to test a range of autonomous robotic technologies. </p>
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<p>There are drones that can perform remote maintenance of street lights; swarms of flying vehicles for autonomous inspection and repair of potholes on motorways; and hybrid robots designed to inspect, repair, meter and report the condition of utility pipes. </p>
<p>These robots can go where human access is impossible (inside pipes) or undesirable (at height in the streetscape) and work systematically over long periods (during overnight closures). Such technologies could greatly extend the life of vital city infrastructures, reduce maintenance expenditure and lead to massive savings. </p>
<p>But questions remain about how city areas and residential populations are selected to benefit from these upgrades. Authorities will need to ensure that it’s not just the affluent and well-connected areas of cities that benefit from RAS trials. </p>
<h2>Robots that care</h2>
<p>Humanoid robots are touted as the solution to <a href="https://futurism.com/dubai-wants-robots-to-make-up-25-of-its-police-force-by-2030/">urban policing</a>, <a href="https://www.businessdestinations.com/relax/hotels/japans-hospitality-robots/">customer service</a> and <a href="https://www.bbc.co.uk/news/education-38770516">social care challenges</a>. Pepper – a white humanoid robot standing just over a metre tall – has already taken up employment meeting, greeting and advising customers in over 140 SoftBank mobile phone shops in Japan, and <a href="https://www.softbankrobotics.com/emea/en/robots/pepper">Nestle is planning on installing Pepper in 1,000 sales outlets</a>. </p>
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<p>According to his developers, “<a href="https://www.softbankrobotics.com/emea/en/robots/pepper">Pepper</a> has been designed to identify your emotions and to select the behaviour best suited to the situation”. Programmed to meet the individual care needs of patients, social robots such as Pepper are now being trialled as personal companions, to augment the role of human carers. </p>
<p>In 2017, care homes in <a href="http://www.dailymail.co.uk/health/article-5014079/15-000-robot-look-elderly-Southend-care-home.html">Southend, Essex</a> adopted the companion robot to interact with the elderly, raising fears that they could replace staff. Yet it’s forecast that the UK will need up to <a href="https://www.nao.org.uk/wp-content/uploads/2018/02/The-adult-social-care-workforce-in-England.pdf">700,000</a> more care workers by 2030. </p>
<p>Robots may help alleviate this pressure on care homes and hospitals, by allowing people to live independently in their own homes for longer, providing entertainment via memory games, and enabling better connection with loved ones through smart appliances. But while robots may be able to facilitate patient monitoring and help with physical tasks, arguably there can be no replacement for human emotional connection and sensitivities.</p>
<p>No longer simply fantasy or limited to niche applications, autonomous robots are slowly becoming a part of our everyday lives. While developers strive for RAS technologies to be neutral in design and to work seamlessly with the city and its citizens, there will always be challenges associated with this aspiration. That’s why urban “living labs” are crucial in demonstrating the opportunities and limits of autonomous robots, and ensuring that policies and standards are put in place to protect human rights, and guard against widening social inequalities.</p><img src="https://counter.theconversation.com/content/99477/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rachel Macrorie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Delivery bots, maintenance drones and care robots are all being tested in real world contexts – and that’s just the beginning.Rachel Macrorie, Research Associate in Urban Automation and Robotics, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/929822018-03-15T13:01:10Z2018-03-15T13:01:10ZHow China is rebooting retail<p>The story of shops closing and the decline of retail has become a familiar one across the Western world. Giants such as <a href="https://graphics.wsj.com/table/walmart_012016">Walmart</a> and <a href="http://uk.businessinsider.com/macys-stores-closing-list-2018-1">Macy’s</a> in the US, and <a href="http://www.cityam.com/279784/your-local-ms-closing-full-list-store-closures-announced">Marks and Spencer</a> in the UK have been forced to close stores amid falling sales. Toys ‘R’ Us is shutting up shop altogether <a href="https://www.reuters.com/article/us-toys-r-us-bankruptcy/toys-r-us-plans-to-close-all-u-s-stores-33000-jobs-at-risk-source-idUSKCN1GQ36S?mc_cid=8a3caac8e6&mc_eid=64128eabee">in the US</a>.</p>
<p>E-commerce is often blamed. This accounted for just <a href="https://www.digitalcommerce360.com/article/us-ecommerce-sales/">13% of total 2017 retail transactions in the US</a>, largely spurred on <a href="http://uk.businessinsider.com/amazon-accounts-for-43-of-us-online-retail-sales-2017-2?r=US&IR=T">by Amazon’s growth</a>. But this pales in comparison to what is happening in China. Alibaba, China’s answer to Amazon, generated an astonishing US$25.3 billion of revenue in the 24-hour “Singles Day” shopping holiday frenzy last November, <a href="https://techcrunch.com/2017/11/11/alibaba-smashes-its-singles-day-record/">smashing its previous record</a>. The company’s profit rocketed 146% to US$2.6 billion in the last quarter of 2017, while its stock price doubled during the year. </p>
<p>And yet, real-life retail is enjoying an unlikely resurgence at the same time in China. Xiaomi, the Chinese tech giant that previously focused exclusively on online retail, is investing heavily in the offline market. In 2017, Xiaomi opened <a href="https://www.gizmochina.com/2017/10/02/xiaomi-opened-200-mi-stores-china-year-alone-planned/">more than 200 stores across China</a> and <a href="https://www.theverge.com/2017/11/7/16610720/xiaomi-spain-mi-mix-2-launch-europe-android-business">another 130 official Xiaomi stores abroad</a>. Internet-only sales used to help Xiaomi keep its operational costs down, but in order to reach consumers in rural areas, Jun Lei, company CEO and cofounder, <a href="https://www.bloomberg.com/news/articles/2017-02-10/xiaomi-goes-all-in-on-retail-to-revive-china-smartphone-sales">stated</a>: “Our model can no longer be online, it has to be new retail.” </p>
<h2>Introducing ‘new retail’</h2>
<p>The concept of “new retail” was first coined by Alibaba in 2016. In a letter to company shareholders in October of that year, founder and Chairman Jack Ma <a href="https://www.forbes.com/sites/deborahweinswig/2017/04/14/alibabas-new-retail-integrates-e-commerce-stores-logistics-is-this-the-next-gen-of-retail/">argued</a>: </p>
<blockquote>
<p>Pure e-commerce will be reduced to a traditional business and replaced by the concept of new retail – the integration of online, offline, logistics and data across a single value-chain.</p>
</blockquote>
<p>Hema, Alibaba’s technology-powered fresh food focused supermarket, illustrates Ma’s comments perfectly. Consumers can search for product information in store by scanning a product code, place an order for home delivery (30-minute delivery within a 3km radius), make a payment, and even order fresh food – including live seafood – to be cooked and eaten in store, all via a dedicated Hema app. </p>
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<img alt="" src="https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/210589/original/file-20180315-104673-9uyhjj.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Alibaba’s Taobao website is one of the world’s biggest e-commerce sites.</span>
<span class="attribution"><span class="source">Annabel Bligh</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>Alibaba relies heavily on analytics to drive its retail strategy. Hema knows everything about its customers: phone numbers, purchasing history, payment and financial activities, home addresses. This data is leveraged to offer enticing deals. </p>
<p>According to <a href="http://www.alizila.com/hema-supermarket-offers-shoppers-new-retail-experience/">company reports</a>, store sales per unit area are three to five times those of other supermarkets. Hema is a good example of the new retail concept, with its focus on the in-store experience combined with a drive to push offline customers to shop online. Huge growth is <a href="http://www.alizila.com/hema-to-open-30-new-stores-in-beijing/">planned</a>.</p>
<p>Alibaba is also experimenting with an unmanned supermarket <a href="http://www.marketing-interactive.com/alibaba-unveils-staff-less-tao-cafe-and-smart-speaker-to-revolutionise-offline-retail/">called Tao Café</a>. With just a scan of a personalised QR code at the entrance, consumers can pick up items and simply walk out while the items are automatically detected and charged to their Alipay account. On top of this, Alibaba made a <a href="https://www.bloomberg.com/news/articles/2017-01-09/alibaba-others-to-privatize-intime-for-up-to-hk-19-8-billion">string</a> of <a href="https://uk.reuters.com/article/us-alibaba-bailian/alibaba-expands-bricks-and-mortar-retail-push-with-bailian-deal-idUKKBN15Z08C">other</a> <a href="https://uk.reuters.com/article/uk-alibaba-sun-art-retail/alibaba-goes-offline-with-2-2-billion-stake-in-chinas-top-grocer-idUKKBN1DK07N">big</a> <a href="https://uk.reuters.com/article/uk-lianhua-m-a-alibaba/chinas-lianhua-supermarket-says-alibaba-takes-18-percent-stake-idUKKBN18P0EW">investments</a> in large Chinese retailers in the last year. </p>
<h2>Offline and online</h2>
<p>Of course, Alibaba is not the only player in the new retail era. In early 2018, JD.com, China’s second largest e-commerce company, launched its first offline high-tech supermarket in Beijing, 7Fresh. And tech giant Tencent invested in a number of supermarket ventures across the country and opened its first unmanned shop, We Life, in January 2018. </p>
<p>New retail extends to clothes, too. Success comes from having the same products and prices across online and offline channels, an integral part of new retail. This is demonstrated by Japanese clothes company Uniqlo. China is Uniqlo’s biggest overseas market with more than 500 stores in the country. </p>
<p>It goes to great lengths to offer the same deals online and in store. It also offers a “click and collect” service, enabling people to buy online and pick items up in store. This gives customers a huge amount of flexibility and choice and allows Uniqlo to dramatically reduce return rates – all making it <a href="http://www.vmarketing.cn/index.php?mod=news&ac=content&id=12327">highly profitable</a>.</p>
<h2>Games and entertainment</h2>
<p>Gamifying retail is not new – loyalty programs and flash sales have been around <a href="http://blog.onestop.com/a-quick-history-of-gamification-in-brand-marketing">for a long time</a>. But Chinese companies are experimenting with new technologies like virtual and augmented reality to engage customers as much as possible in the shopping experience. </p>
<p>Last year, Alibaba released an updated Pokémon Go-like AR mobile game in its app two weeks before the bonanza “Singles Day” shopping holiday. Gamers were able to follow a cat mascot both online and offline via their smartphones for prizes and coupons, which could be used both online and offline in stores like Starbucks and KFC. It also <a href="https://www.thestreet.com/story/14367763/1/alibaba-advances-11-11-chinese-global-shopping-day-offerings.html">rewarded users</a> with coins and coupons to be redeemed on Singles Day through bonus games. </p>
<p>Alibaba also put on a four-hour gala on the eve of Singles Day, spawning the idea of <a href="https://www.forbes.com/sites/helenwang/2017/11/12/alibabas-singles-day-by-the-numbers-a-record-25-billion-haul/#2e6b895d1db1">“retail-tainment”</a>. It featured big names like popstar Pharrell Williams and Chinese movie star Fan Bingbing. Seen by 400m viewers, it encouraged them to “Watch now, Buy now” in real time from the comfort of their homes. </p>
<p>So while the traditional store of the past may be dead, the physical store is not. On the contrary, it is a key component in China’s new retail ecosystem. Online giants, such as Alibaba, JD.com and Tencent, have been actively investing in the offline space. They are battling to differentiate themselves not just by offering convenience and competitive pricing, but also by giving customers an experience that is easy, dynamic, personalised, and seamless between offline and online formats.</p><img src="https://counter.theconversation.com/content/92982/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Old retail might be dying in the West, but it’s been given new life in China.Michael Wade, Professor of Innovation and Strategy, Cisco Chair in Digital Business Transformation, International Institute for Management Development (IMD)Jialu Shan, Research Associate at Global Center for Digital Business Transformation, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/883482018-01-15T11:35:12Z2018-01-15T11:35:12ZChina’s dystopian social credit system is a harbinger of the global age of the algorithm<p>The Chinese government’s ongoing attempts to create a social credit system aimed at rating the trustworthiness of people and companies have generated equal measures of fascination and anxiety around the world. Social credit is depicted as something uniquely Chinese – a <a href="https://www.economist.com/news/leaders/21711904-worrying-experiments-new-form-social-control-chinas-digital-dictatorship">nefarious</a> and perverse digital innovation that could only be conceived of and carried out by a regime like the Chinese Communist Party. </p>
<p>The proposed system will draw on data gathered from individuals and businesses to provide social credit scores based on both economic and social behaviour. While government proposals provide little detail about how scores will be calculated, current pilots use both online <a href="https://cpianalysis.org/2017/12/04/contextualizing-chinas-online-credit-rating-system/">consumer behaviour and the scores of others</a> in a person’s network.</p>
<p>The <a href="http://www.gov.cn/zhengce/content/2016-12/30/content_5154830.htm">stated aim</a> is to “provide the trustworthy with benefits and discipline the untrustworthy … [so that] integrity becomes a widespread social value”. The official documents are light on detail, but have suggested various ways <a href="http://press-files.anu.edu.au/downloads/press/n2543/pdf/ch06_forum_loubere.pdf">to punish</a> untrustworthy members of society with low scores, such as through restrictions on employment, consumption, travel, and access to credit.</p>
<p>It is seen as a signal of a dystopian future, but one that could only exist in China’s authoritarian context. But China’s plans to “build an environment of trust” – as the Chinese government’s State Council <a href="https://www.google.com/url?q=http://www.gov.cn/zhengce/content/2016-12/30/content_5154830.htm&sa=D&ust=1513869721474000&usg=AFQjCNEPR8ROLRcO4BkN2vGa9olilA1Low">puts it</a> – using the data generated from digital activity is not uniquely Chinese. And the country’s experiments are a natural extension of a global trend where data is being used to control society.</p>
<h2>Pilots underway</h2>
<p>The impetus to create a social credit system in China came largely from the country’s dearth of a credit rating infrastructure; most people have <a href="https://cpianalysis.org/2017/12/04/contextualizing-chinas-online-credit-rating-system/">no credit score</a>. In 2014 the government <a href="https://chinacopyrightandmedia.wordpress.com/2014/06/14/planning-outline-for-the-construction-of-a-social-credit-system-2014-2020/">outlined plans</a> to create a nationwide social credit system by 2020. </p>
<p>Today, the Chinese social credit system is far from unified or centralised. Like most new policies in China, it is being subjected to China’s distinctive <a href="http://www.journals.uchicago.edu/doi/abs/10.1086/tcj.59.20066378?journalCode=tcj&">policy modelling process</a>. Local governments produce their own interpretations of policies, which then vie to become national models. Currently, over 30 local governments have been piloting social credit systems, using different approaches to arrive at their social credit scores.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"816839913945595904"}"></div></p>
<p>In contrast to other policies, however, <a href="https://www.ft.com/content/f772a9ce-60c4-11e7-91a7-502f7ee26895">until recently</a> social credit was also being piloted by eight large Chinese internet companies. The most well-known of these is Alibaba’s <a href="https://www.cnbc.com/2017/03/16/china-social-credit-system-ant-financials-sesame-credit-and-others-give-scores-that-go-beyond-fico.html">Sesame Credit</a>, which uses opaque algorithms to arrive at social credit scores for their customers drawn from data provided by an affiliate company called Ant Financial. Those with high scores – the top score is 950 – have been able to access <a href="https://cpianalysis.org/2017/12/04/contextualizing-chinas-online-credit-rating-system/">a range of benefits</a> from other Alibaba businesses and their partners. In mid-2017 the government <a href="https://www.ft.com/content/f772a9ce-60c4-11e7-91a7-502f7ee26895">declined to renew</a> the licenses for the private pilots over conflict of interest concerns. However, the door has been left open for these pilots to be merged into the ongoing attempts to construct a nationwide government-run system.</p>
<p>The expansion of these social credit systems fits neatly into moral and economic narratives that are now prominent in China. These are linked to <a href="https://theconversation.com/chinas-plan-to-put-two-faced-citizens-on-credit-blacklist-isnt-all-that-foreign-51102">a percieved</a> “trust deficit” in the country. High profile cases of economic and social fraud regularly go viral on Chinese social media. This has resulted in a popular discourse of the decline of morality and the inability to trust other people or companies. </p>
<p>Social credit is also presented as a way to improve financial inclusion. Supporters argue that expanding financial services and credit to previously excluded groups is good for socioeconomic development. They believe intrusive methods of assessing creditworthiness <a href="https://chinadigitaltimes.net/2017/02/qa-shazeda-ahmed-on-chinas-social-credit-system/">are justified</a> in order to reduce the risk to lenders. In this way, Chinese social credit mirrors financial inclusion initiatives elsewhere, such as the use of <a href="https://www.economist.com/news/finance-and-economics/21707978-how-personality-testing-could-help-financial-inclusion-testscharacter">psychometrics and other personal digital data</a> to determine whether someone is eligible for a loan.</p>
<h2>Social credit beyond China</h2>
<p>Socio-economic credit systems are not confined to China. Most industrialised nations have relied on credit ratings for decades to quantify the financial risks associated with countries, firms, and <a href="https://link.springer.com/article/10.1186/s40854-015-0005-6">individuals</a>. But social factors are increasingly being included to make more accurate predictions. </p>
<p>In China, Alibaba’s Sesame Credit <a href="https://www.wired.com/story/age-of-social-credit/">factors in credit scores</a> of a debtor’s social network. This means that those with low-score contacts will see a negative impact on their own scores. In the US, Affirm, a San Francisco-based lender headed by PayPal co-founder Max Levchin, combs through a wide range of sources, such as social networks, to <a href="http://fortune.com/2015/12/01/tech-loans-credit-affirm-zest/">evaluate the default risk of a creditor</a>. And Lenddo, a Hong Kong-based company, took an even bolder approach and <a href="http://knowledge.wharton.upenn.edu/article/the-social-credit-score-separating-the-data-from-the-noise/">informed debtors’ friends on Facebook</a> when they didn’t pay instalments in time.</p>
<p>So, credit scores based on social action aren’t just unique to China and authoritarian regimes. However, this doesn’t make them less concerning. </p>
<p>The primary downside of public rating systems like social credit is the far-reaching consequences of low ratings. In China, a recent administrative regulation dictates that defaulting debtors will be listed and shamed on <a href="https://www.forbes.com/sites/sarahsu/2017/10/12/debtors-exposed-in-china-as-social-credit-system-unfolds/#6712f41e45c5">online platforms</a>. Similar measures have taken place in the US. The New York Post, for instance, filed a Freedom of Information request and published the performance ratings and names of teachers evaluated by a <a href="https://www.ted.com/talks/cathy_o_neil_the_era_of_blind_faith_in_big_data_must_end/transcript">“secret algorithm”</a> in an attempt to shame those deemed not to be performing as well.</p>
<h2>Rule by algorithms</h2>
<p>Experiments repeatedly confirm that data and algorithms are as biased as society is and reproduce real life segmentation and <a href="http://www.telegraph.co.uk/news/2017/08/24/ai-robots-sexist-racist-experts-warn/">inequality</a>. In her book the <a href="http://www.telegraph.co.uk/news/2017/08/24/ai-robots-sexist-racist-experts-warn/">Weapons of Math Destruction</a>, American mathematician Cathy O’Neil warned that we need algorithmic <a href="https://www.ted.com/talks/cathy_o_neil_the_era_of_blind_faith_in_big_data_must_end/transcript">audits</a>. </p>
<p>Algorithms that measure social credit and trustworthiness could theoretically be fair – but those in positions of power may well find a way to circumnavigate them. And even though social credit schemes are supposed to extend access to financial resources to previously excluded populations, it’s likely that credit solutions driven by big data will exacerbate existing social divides. In the US, for example, 45m Americans do not have a credit score because they lack a credit history and minority groups and low-income neighbourhoods have a disproportionately <a href="https://www.cnbc.com/2015/05/05/credit-invisible-26-million-have-no-credit-score.html">high rate of credit invisibility</a>. For China, it’s <a href="https://chinadigitaltimes.net/2017/02/qa-shazeda-ahmed-on-chinas-social-credit-system/">likely</a> something similar could emerge.</p>
<p>Social credit has the potential to cement and exacerbate existent power imbalances in societies, while simultaneously closing down spaces of resistance. The social credit system in development in China is a phenomenon that belongs to a global trend with a transformative potential that is just as threatening in Western democracies. It is but one harbinger of a likely common digital future marked by a shift away from the rule of law and towards rule by algorithms.</p><img src="https://counter.theconversation.com/content/88348/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stefan Brehm receives funding from the Swedish Research Council for a research project on "Digital China". </span></em></p><p class="fine-print"><em><span>Nicholas Loubere does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Plans for China to rate its citizens for their trustworthiness have been depicted as uniquely Chinese. Don’t be so sure.Stefan Brehm, Researcher, Lund UniversityNicholas Loubere, Associate Senior Lecturer in the Study of Modern China, Lund UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/756972017-04-06T05:36:43Z2017-04-06T05:36:43ZApple Pay may have won the battle but it may not win the war<p>The <a href="https://www.accc.gov.au/media-release/accc-denies-authorisation-for-banks-to-collectively-bargain-with-apple-and-boycott-apple-pay">Australian Competition and Consumer Commission’s (ACCC) decision</a> to deny some of Australia’s major banks the ability to collectively bargain with Apple and boycott Apple Pay, might have opened a whole new door for digital wallets in Australia.</p>
<p>The banks wanted to bargain with Apple for access to the Near-Field Communication controller in iPhones, enabling them to offer their own integrated digital wallets to iPhone customers. This would have been in competition with Apple’s digital wallet, but without using Apple Pay. </p>
<p>A digital wallet is essentially an app on a mobile phone that can provide some of the same functions as a physical purse or wallet. This includes making payments in-store and storing information such as loyalty program points. </p>
<p>In the example of Apple Pay, it used a digital wallet to allow customers to use their phones like “tap-and-go” bank cards. Mobile payments can also be made via wearable devices, such as the Apple Watch and various fitness devices.</p>
<p>Part of the ACCC’s rationale in deciding on the banks/Apple case was that, “digital wallets and mobile payments are in their infancy and subject to rapid change”. So the ACCC is uncertain as to how competition will develop in this space.</p>
<h2>The Australian market for digital wallets</h2>
<p><a href="http://www.rba.gov.au/publications/bulletin/2017/mar/7.html">Recent research from the Reserve Bank of Australia (RBA)</a> confirmed the use of mobile payments accounted for only around 1% of the number of point-of-sale transactions over the week of the survey, which was conducted in November 2016. By contrast, the same research revealed that the share of the number of payments made using credit and debit cards had increased to 52%, driven by the use of these payments cards for lower value transactions. </p>
<p>This has been facilitated by the rapid adoption of contactless payments by both consumers and merchants and according to the RBA’s research, in 2016 around one-third of all point-of-sale transactions were conducted using contactless cards.</p>
<p><a href="http://www.apca.com.au/docs/default-source/2016-Media-Releases/digital-payments-taking-over-from-cheques.pdf">According to the Australian Payments Clearing Association</a> by 2016, 77% of Australians owned a smartphone and yet mobile payments at the point-of-sale remain relatively rare. </p>
<p>The very success of contactless payment cards in Australia means that consumers do not see what extra advantage there is in mobile payments. Tap-and-go is increasingly available for even relatively low value transactions at the point-of-sale. Financial institutions have been speedy to issue such cards to their customers and this is matched by merchant’s adoption of the terminals to facilitate these payments. </p>
<p>For mobile payments to become significantly more attractive than contactless card payments, it would require the wallets to have additional functionality to appeal to consumers. Examples of this include: the ability to use mobile payment devices on mass transit journeys, to hold loyalty program points, to verify identity and enabling person-to-person transactions.</p>
<p>This breakthrough in functionality for digital wallets could come from another direction, other than the current mobile payments options of Apple Pay, Android Pay and Samsung Pay. Indeed, China provides an alternative example of how digital wallets can be developed, that will in retrospect make the ACCC’s decision on Apple Pay, rather passe.</p>
<h2>Digital wallet companies expanding from China</h2>
<p>According to <a href="http://www.scmp.com/tech/china-tech/article/2064396/chinas-internet-users-grew-2016-size-ukraines-population-731-million">Chinese government statistics</a>, about 750 million Chinese had moved online by 2016, with 95% of them accessing the internet via their smartphones. China’s digital payments market was by then nearly 50 times greater than that in the United States.</p>
<p>This is partly explained by the <a href="https://www.ft.com/content/00585722-ef42-11e6-930f-061b01e23655">lack of other viable alternatives</a> in China for non-cash payments. Credit card penetration is low compared to other developed markets, debit cards are not contactless and hence require authentication at the point-of-sale. </p>
<p>China appears to have <a href="https://www.researchgate.net/publication/251630948_Credit_cards_in_a_Chinese_cultural_context-The_young_affluent_Chinese_as_early_adopters">jumped directly from cash to mobile payments</a> and hence missed the step into payment cards, particularly credit cards, to which the Chinese consumers appear to have a cultural aversion. </p>
<p>The use of digital wallets in China is being driven by the success of the so-called financial technology firms in China, particularly Alibaba and Tencent. These companies have a vast and protected domestic market at their disposal and an <a href="https://uk.practicallaw.thomsonreuters.com/4-519-9017?__lrTS=20170406051212471&transitionType=Default&contextData=(sc.Default/)&firstPage=true&bhcp=1">almost complete absence of data regulations.</a></p>
<p>These companies have been able to move on from offering just instant messaging platforms, to being payment providers via Alipay and WeChatPay, respectively. These apps on a smartphone allows consumers to scan a QR code from a merchants point-of-sale terminal or smartphone, to complete a transaction. </p>
<p>Person-to-person transfers can also be done through these apps. Chinese company Tencent’s WeChat was originally a social media platform, but it has now expanded to include payments services, music streaming, taxi booking, photo sharing and a news service, to name only a few functions. </p>
<p>Its <a href="https://www.statista.com/statistics/255778/number-of-active-wechat-messenger-accounts/">over 800 million worldwide active users</a> now have fewer and fewer reasons to leave its integrated full platform of services. WeChatPay is also increasingly accepted by bricks and mortar merchants in China. </p>
<p>And now WeChat is planning to expand its services into the UK and Europe and is also looking to enter markets in the United States and Southeast Asia. Part of the company’s planned expansion is driven by the ever-increasing flow of Chinese overseas tourists. </p>
<p>This flow was 120 million in 2015 and <a href="http://www.goldmansachs.com/our-thinking/pages/chinese-tourist-boom.html">forecast to be 220 million by 2025</a>. Australia is already a popular destination for Chinese tourists, many of whom will be users of WeChatPay. </p>
<p>Who is to say that Facebook and/or Amazon will not follow Tencent’s path into digital wallets? While Apple Pay may have won the battle against some of Australia’s banks, it may lose the war against the providers of digital wallets, such as Tencent and Alibaba.</p><img src="https://counter.theconversation.com/content/75697/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steve Worthington does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While Apple Pay may have won the battle against some of Australia’s banks, it may lose the war against the providers of digital wallets, such as Tencent and Alibaba.Steve Worthington, Adjunct Professor, Swinburne University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/660462016-10-05T19:16:04Z2016-10-05T19:16:04ZA Chinese firm could buy Twitter in the coming wave of cross-border tech acquisitions<figure><img src="https://images.theconversation.com/files/140194/original/image-20161003-20205-zvsjxy.jpg?ixlib=rb-1.1.0&rect=9%2C21%2C1007%2C358&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Alibaba Founder and CEO, Jack Ma meeting with David Cameron the then UK Prime Minister at 10 Downing Street during his visit to London in October 2015.
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/number10gov/22305846916/">number10gov/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>As the financial media speculates about <a href="http://www.wsj.com/articles/twitter-is-expected-to-field-bids-this-week-1475621345">Twitter being acquired</a> by Salesforce, <a href="http://www.bloomberg.com/news/articles/2016-10-04/an-analyst-gives-six-reasons-why-google-should-buy-twitter">Alphabet (formerly Google)</a> or even <a href="http://venturebeat.com/2016/08/03/heres-who-might-buy-twitter/">Apple</a>, companies outside the Californian tech scene have received little attention as potential suitors. </p>
<p>There’s now clear interest, appetite and capacity for cross-border mega deals in online tech, as Tencent’s acquisition of Supercell in June this year has shown.</p>
<p>“Asian strategic investment in European Tech firms has grown steadily over the last decade but this year it has gone through the roof” says London-based Jack Fisher, Senior Business Development Manager of Global Deals Data provider, <a href="http://pitchbook.com/">PitchBook</a>.</p>
<p>Tencent is China’s largest online social media and gaming company. Its landmark majority investment in Finland’s Supercell (makers of the global smash hit mobile game Clash of Clans) valued the 200-person company at US$10.2 billion. This crowned it as Europe’s first “Decacorn” or private startup online tech company to reach a valuation of more than US$10 billion. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In June 2016 Finland’s Supercell (and maker of Clash of Clans) became Europe’s 1st Decacorn (Private tech co valued at over $10Bn) thanks to a majority investment from China’s Tencent.</span>
<span class="attribution"><span class="source">bata/flickr</span></span>
</figcaption>
</figure>
<p>In another Transatlantic mega deal, Japanese Tech Investment Giant SoftBank’s US$31.4 billion back in July acquisition of British chip designer ARM Holdings, whose success has been buoyed by the use of their chips in tens of billions of web connected devices for Apple, Samsung and others is the biggest ever purchase of a European technology company ever and SoftBank’s largest overseas acquisition. </p>
<p>In September last year, China’s other online giant Alibaba hired Michael Evans, the former Vice-Chair of Goldman Sachs, to lead the company’s quest for offshore expansion. Evant has since overseeen five acquisitions, all worth more than US$200 million, and each of them outside China - in Singapore, India, Hong Kong and the US. The latest one is the largest yet — a US$1 billion deal for a controlling stake in the number one South-East Asian e-commerce startup, Singapore based <a href="http://www.lazada.com/">Lazada Group</a>.</p>
<p>While Twitter may not be on the radar of overseas investors, there is now a large and growing stream of international global mergers and acquisitions in the technology sector every month. Cross-border deal flow has steadily increased each year since the emergence of the web and shows how the new economics of <a href="http://www.aimia.com.au/community-news/what-is-online-gravity">“online gravity”</a> is accelerating globalisation. </p>
<p>This new economics has helped forge the five most valuable companies in the world right now — each now valued at more than US$300 billion. They include Apple (with a fortune built on the web connected iPhone), Alphabet (formerly Google), Microsoft (now parent to LinkedIn and Skype), Amazon and Facebook. Two more companies with massive fortunes also built on the incredible economics of the web, the Chinese online giants Tencent and Alibaba, also now enjoy market valuations in excess of US$250 billion each. They now rank among the worlds largest companies. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=404&fit=crop&dpr=1 600w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=404&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=404&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=508&fit=crop&dpr=1 754w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=508&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=508&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Global tech cross-border dealflow is accelerating. October 2016.</span>
<span class="attribution"><span class="source">Paul X McCarthy</span></span>
</figcaption>
</figure>
<p>Since 2000, US technology companies have acquired 230 Asian tech companies with the numbers steadily increasing each year. With even more dramatic growth, Asian tech companies have acquired 373 companies since 2000. Between 2011-2013 Asian tech companies were acquiring between 20 to 30 US companies per year and now it’s double this rate with between 50-60 major deals being consummated each year.</p>
<p>Recent noteworthy large-scale deals include:</p>
<table>
<tbody>
<tr>
<td><b>Acquirer</b></td>
<td><b>Acquired</b></td>
<td><b>Valuation at acquisition</b></td>
<td><b>Date</b></td>
</tr>
<tr>
<td>Softbank, Japan</td>
<td>ARM Holdings, UK</td>
<td>US $31.4 Billion</td>
<td>July 2016</td>
</tr>
<tr>
<td>Tencent, China</td>
<td>Supercell, Finland</td>
<td>US $10.2 Billion</td>
<td>June 2016</td>
</tr>
<tr>
<td>Tencent, China</td>
<td>Riot Games, US</td>
<td>US $400 Million</td>
<td>February 2011</td>
</tr>
<tr>
<td>
Rakuten, Japan
</td>
<td>
Ebates, US
</td>
<td>US $1 Billion</td>
<td>September 2014</td>
</tr>
<tr>
<td>Rakuten, Japan</td>
<td>Viber, Cyprus</td>
<td>US $900 Million</td>
<td>February 2014</td>
</tr>
</tbody>
</table>
<h2>Acquisitions — one of the keys to tech innovation</h2>
<p>Mergers and acquisitions are a key but often overlooked part of the digital economy and central to the success of the global technology innovation ecosystem as we know it. Most of Alphabet’s significant innovation since it created the world’s most famous search engine has been the result of its 190 acquisitions. Google Maps, for example, was an acquisition, so too Google Docs, Gmail, and YouTube. Many elements at the core of Google’s breathtaking commercial success in online advertising rely on innovation from startups that were acquired and integrated into Google’s own internal efforts.</p>
<p>The impact of the web on accelerating globalisation can be seen beyond the tech sector too. Many digitally transformed traditional industries like media, telecommunications and electronics have also become the subject of major Asia-based cross-border acquisitions including: </p>
<table>
<tbody>
<tr>
<td><b>Industry</b></td>
<td><b>Acquirer</b></td>
<td><b>Acquired</b></td>
<td><b>Valuation at acquisition</b></td>
<td><b>Date</b></td>
</tr>
<tr>
<td>Publishing</td>
<td>Nikkei, Japan</td>
<td>Financial Times, UK</td>
<td>US$1.32 billion</td>
<td>2015</td>
</tr>
<tr>
<td>Electronics</td>
<td>Toshiba, Japan</td>
<td>Landis+Gyr, Switzerland</td>
<td>US$2.3 Billion</td>
<td>2011</td>
</tr>
<tr>
<td>Telecommunications</td>
<td>Singtel, Singapore</td>
<td>Optus, Australia</td>
<td>US$8.5 billion</td>
<td>2001</td>
</tr>
</tbody>
</table>
<h2>Not first time there’s been a surge in cross-border deals</h2>
<p>In the early 1990s Japanese consumer electronics giants were on the hunt for Hollywood movie studios. They wanted media, software or “content” as it has become known to complement their hardware. Japanese companies invested more than US$13 billion (nearly US$25 billion adjusted to today’s money) in the US film and television industry, which included the mega acquisitions of two of the six largest Hollywood film studios — Matsushita’s acquisition of MCA and Sony’s purchase of Columbia Pictures. Even Walt Disney turned to Japan for US$600 million in financing for its films.</p>
<p>It remains to be seen whether we may see a repeat of this scale of deal making with any of today’s US online giants given their unprecedented scale. What’s almost certain is we will see more frequent and larger scale cross-border acquisitions of companies up to the size of Twitter (around US$30 billion) and perhaps even at the scale of Paypal or eBay (US$50 billion+). </p>
<p>At a smaller scale again, expect to see many more yo-yo deals with companies criss-crossing the planet to acquire others in their efforts to dominate a vertical market or technology sub-sector. Examples of these style deals include:
</p><ul>
<li> <a href="http://www.leeco.com/">LeEco</a> (Beijing)‘s $10m acquisition of Sydney based <a href="https://octopustv.com/">Octopus TV (London)</a> in January*
</li><li><a href="http://www.carsales.com.au/">Carsales (Melbourne)</a> estimated $15m purchase of <a href="http://www2.chileautos.cl/chileautos.asp">Chileautos (Santiago)</a> in March and
</li><li><a href="http://www.naspers.com/">Naspers (Cape Town)</a> $180m takeover of <a href="http://www.citruspay.com/">Citruspay (Mumbai)</a> last month.
<ul><p></p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=610&fit=crop&dpr=1 600w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=610&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=610&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=767&fit=crop&dpr=1 754w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=767&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=767&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">This Chord diagram using seals data from Crunchbase illustrates the total number of Global cross-border technology deal flows since 2000 organised by continent. It shows the increasing amount of criss-crossing of the planet of capital chasing tech deals to consolidate global positions in market segments and technology verticals.</span>
</figcaption>
</figure>
<p><em>*This article was amended post publication to reflect a transcribing error.</em></p></ul></li></ul><img src="https://counter.theconversation.com/content/66046/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul X. McCarthy does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Cross-border tech deals are on the rise, meaning the usual expectations on acquisitions are changing.Paul X. McCarthy, Adjunct Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/598642016-06-10T15:38:08Z2016-06-10T15:38:08ZBusiness moguls seek to build a Wanda-full future for sport in China<p>Wang Jianlin of Wanda Dalian. Jack Ma of Alibaba. Heard of them? Not many people outside of China have, but they are the modern-day moguls powering China’s entrepreneurial sprint towards economic supremacy. They are also largely responsible for the surge of interest in Chinese sport, at home and abroad. </p>
<p>Until his early 40s Ma was a high school teacher, now he is the founder of e-commerce giant Alibaba, an organisation that <a href="http://qz.com/545687/alibaba-vs-amazon-how-the-worlds-two-online-shopping-giants-stack-up/">dwarfs the likes of Amazon</a> and eBay in both scale and scope of operations. Wang, founder of the Wanda Dalian group, monopolises Chinese retail and entertainment and in 2012 <a href="http://articles.latimes.com/2012/may/20/entertainment/la-et-ct-amc-wanda-20120517">acquired the US cinema chain AMC</a> for US$2.6 billion to aid his global ambitions. Some might argue that Wang has been raised with a “red spoon in his mouth” given his father’s role alongside Chairman Mao in the cultural revolution, but his desire to see China rival the West on every level is undisputed.</p>
<p>Traditional views of markets tend to focus on supply and demand. This leads us to overlook the intermediaries that help shape, craft and bring supply and demand together in markets. Chinese sports market could be viewed as a blend of suppliers (manufacturers, club teams, and athletes) and demand (customers, consumers, and sports fans). But what draws them together? This is where Ma and Wang come in – they, and their firms, are the intermediaries driving investment, development and interest. So how have they done it?</p>
<h2>Alisport</h2>
<p>One route was created by premier Xi Jinping’s relaxation of <a href="http://www.scmp.com/sport/china/article/1908849/how-alibaba-aims-transform-chinas-sports-market-and-help-bring-world-cup">barriers to entry in the Chinese sports market</a>. </p>
<p>One man to take advantage was Ma. In September 2005, <a href="http://www.businesswire.com/news/home/20150908006846/en/Alibaba-Group-Establishes-Sports-Group">Alibaba launched AliSport</a>. The aim is to revolutionise sports media events, ticketing, coaching, fan experience, and access to sports services using Alibaba’s e-commerce, digital marketing, and cloud computing network. Alibaba’s technology arsenal is seen as the tool which will connect Chinese consumers to the sports industry. </p>
<p>Through Alipsort, Chinese sport consumers have a gateway into this new sector. From live events and streamed content to next-day delivery of sporting goods, memorabilia and risk-free ticket purchases, Alisport is trying to immerse people in their favourite sports.</p>
<p>Alisport CEO Zhang Dazhong cited the ability of sport to create and share “happiness”, and “encourage healthy lifestyles”. He argued that by surrounding the the Chinese sports industry with a constant online feed of access and content, people will get better products and services. From an economics perspective, these could be seen as the positive cultural effects that will build demand and help sustain the Chinese economy in the long term. From a sporting perspective, future investment and sustainability hinges on strong, resilient consumer activity. </p>
<p>Alibaba’s horizons extend beyond this domestic intermediary network. As well as owning half of China’s most successful football club, <a href="http://gzevergrandefc.com/english/default.aspx">Guangzhou Evergrande Taobao FC</a>, Alisport recently agreed a multi-million dollar deal with <a href="http://www.ft.com/cms/s/0/fb269480-ff00-11e5-ac98-3c15a1aa2e62.html">World Rugby</a> for development and sponsorship. China is not a rugby hotbed, at least for now. But the deal helps give Alibaba a foothold in more global markets. The sight of a major Chinese organisation associating with an international sporting body ultimately reflects on Chinese sport, raising the profile of an infant domestic industry and sowing the seeds of future growth in the brand power of sport in China. </p>
<h2>The Magic Wanda</h2>
<p>While Alisport mediates the operational rise of China’s sport industry, Wang and his Wanda Dalian group are taking the media and entertainment route – most recently in the spotlight for <a href="http://shanghaiist.com/2016/05/29/wang_jianlin_wanda_world_nanchang.php">a bold swipe at Disney</a> as Wang launched his own theme-park. In January 2015 he <a href="http://www.bbc.co.uk/news/business-30910664">purchased a 20% stake in Spanish soccer giant Atletico Madrid</a>, and quickly followed that up with a <a href="http://www.fifa.com/about-fifa/news/y=2016/m=3/news=wanda-group-becomes-new-fifa-partner-2771032.html">sponsorship deal with FIFA</a>.</p>
<p>It is yet more evidence of the drive to position China as a global player in sports business. Deals like Wang’s may not deliver cash directly into the country’s sporting infrastructure but they substantiate China’s rise in the industry. Over the longer-term, the diversification into international sport could significantly aid the sponsorship potentiality and investment within Chinese sport. </p>
<h2>Beyond performance</h2>
<p>Wang and Ma undoubtedly have personal motivation to see Chinese sport develop. Helping their president in his quest to <a href="http://www.independent.co.uk/news/world/asia/chinas-xi-jinping-loves-football-so-much-hes-put-it-on-the-national-curriculum-but-can-he-secure-the-10071110.html">bring the World Cup and co to China</a> would likely have profound long-term benefits for them and their respective firms. More than this however, they see sport as the language in which to communicate with China’s consumers. </p>
<p>The rising wealth of the middle classes (largely through a booming real-estate sector) is fertile ground for companies. In practical terms, people simply have more cash to spend on leisure activities and sporting enthusiasms than they ever had before. Wanda’s desire for Chinese enterprise, and Alibaba’s market innovation enables this – but is it just the moguls behind this market revolution that stand to benefit?</p>
<p>The beautiful thing about intermediaries is that the value they create (initially for themselves) often spills over elsewhere. <a href="https://www.sportengland.org/research/benefits-of-sport/">Investment in sport can be beneficial on numerous levels</a>. Better facilities, safer environments to play and train, more qualified coaches, and improved sporting education can create memorable shared experiences, and foster greater social cohesion. It’s not just about deep pockets, it is about building something <a href="https://theconversation.com/chinas-huge-punt-on-football-needs-a-heart-as-well-as-deep-pockets-58173">that has, for want of a better word, a heart</a>.</p>
<p>Intermediary moguls like Ma and Wang understand the potential riches of the Chinese consumer market, and sport is one way of accessing this. They also highlight the opportunity for others to invest in an industry that has huge potential.</p><img src="https://counter.theconversation.com/content/59864/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Cockayne does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new industry is being created under President Xi Jinping. Meet the two men making it happen.David Cockayne, Senior Lecturer: University of Huddersfield Business School, University of HuddersfieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/562812016-03-20T23:51:10Z2016-03-20T23:51:10ZAlgorithms are changing business: here’s how to leverage them<figure><img src="https://images.theconversation.com/files/115230/original/image-20160316-8485-1k9pcnz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Algorithms have the potential to change every business.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/t_e_brown/8677750589/in/photolist-edPJVt-xX4JU-61NDgC-6iuPvZ-7W9qZf-6hY1kf-679ZEB-a6aESH-69uQAG-wR4xs-JotJq-fxuGhK-4VhrM6-nCqYFo-JotHf-66g5BN-4VGs42-9HDd8G-o1EUDP-c5aJ81-nUE9Z8-7RiMs2-7ZQWbh-dTdyTF-r3Ztui-Qi3bP-gTuJ3- """>Tom Brown/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>When Google’s algorithm <a href="http://www.cnet.com/news/google-alphago-artificial-intelligence-victor-in-game-of-man-vs-machine/">AlphaGo beat South Korean Go Grandmaster Lee Se-dol</a> by 4-1 last week, it was a significant event in the world of algorithms and artificial intelligence. This is because it represented a new form of artificial intelligence: intuitive artificial intelligence, something which is remarkably more challenging than standard artificial intelligence.</p>
<p>The disruption happening thanks to algorithms is happening all around us. The largest taxi company in the world, Uber, owns no taxis, but uses smart algorithms to connect drivers and passengers. The largest telephone company in the world, WhatsApp, has no telecom infrastructure, but sends over 35 billion message per day. Finally, the world’s second most valuable retailer, Alibaba, owns no inventory but uses algorithms to help others sell products.</p>
<p>Companies like Uber, WhatsApp and Alibaba clearly show that smart algorithms can disrupt an entire industry. But we are just at the start of this disruption and the coming decade will likely see all industries being disrupted thanks to algorithms. Gartner calls this trend the <a href="https://datafloq.com/read/7-Reasons-Algorithmic-Business-Change-Society/1676">“Algorithmic Business”</a> and it will fundamentally change how we do business.</p>
<h2>From data to algorithms</h2>
<p>With the advance of technology, companies and consumers are generating more and more data. Some organisations, such as <a href="https://datafloq.com/read/big-data-walmart-big-numbers-40-petabytes/1175">Walmart</a>, create and store dozens of petabytes a day. But collecting and storing massive amounts of data is not enough to gain competitive advantage. In order to beat the competition, organisations must do more than simply analyse the data. It’s now about what actions you can derive from your data in order to add value. Bring in the algorithms.</p>
<p><a href="https://datafloq.com/read/7-big-data-trends-for-2016/1699">Algorithms</a> define actions and they are pieces of software that are extremely good at very specific actions, much better than humans are. As a result, the more algorithms are used within organisations; the more people will be out of a job in the future. In fact, 2013 <a href="http://www.bbc.com/news/technology-34066941">research</a> from Oxford University and Deloitte estimated that in the UK alone, more than 35% of current jobs are at high risk due to computerisation. </p>
<p>And the UK is not alone. The same research estimated that almost 47% of US jobs could be lost due to algorithmic business within one or two decades. A society with nearly half of the workforce without a job does sound frightening, but if we prepare ourselves now it also offers great possibilities to drastically improve our societies.</p>
<h2>From financial reports to your dinner; all can be automated</h2>
<p>This enhanced use of algorithms is happening at a staggering pace. Already organisations like Associated Press use algorithms to write financial reports at a rate of 2000 stories per minute. Of course, these are not in-depth award-winning articles, but business-related stories, such as quarterly earnings, involving stock market performance and corporate profits. Stories, however, that used to be written by humans. Does that mean robot journalists are putting journalists out of business? No, at least not yet, although the developments in artificial intelligence that can write a readable novel are progressing rapidly.</p>
<p>Another example in the financial world is the Venture Capital firm Deep Knowledge Ventures. In 2014, this Hong Kong VC fund appointed an algorithm to its board of directors that gets to vote on whether an investment in a certain company is made or not. The VC fund focuses on life sciences and age-related disease projects and the algorithm, called VITAL, analyses data from multiple sources including clinical trials, financial details, previous funding rounds, intellectual property and others. Although the algorithm is not yet running the VC fund by itself, it is a giant leap forward in how venture capital firms approach investments.</p>
<p>A third disruptive algorithm is Chef Watson, the supercomputer from IBM that acts as your personal chef. Founded on extensive research and using IBM Watson’s supercomputer, the algorithm is capable of creating unique recipes based on all the ingredients in the world, food chemistry, human taste preferences and thousands of recipes from Bon Appetit. Users can simply enter several ingredients and Chef Watson comes up with a wide range of recipes ranging from very experimental to more traditional. </p>
<h2>How to leverage algorithms in your business</h2>
<p>The question then of course remains, how can you apply algorithms to gain competitive advantage and ensure your business doesn’t become redundant? </p>
<p>There are five steps you can follow to automate your business:</p>
<p>1) Determine which processes within your business can be automated and think out-of-the-box when you do so. After all, who would have thought that financial reporting could be automated?</p>
<p>2) Secondly, collect and store data. Algorithms require lots of it to make validated decisions. Find relevant data sources that you can use and make your business environment smart by applying the <a href="https://theconversation.com/explainer-the-internet-of-things-16542">internet of things</a> to tap into new data sources;</p>
<p>3) Ensure that you collect high-quality data because feeding your algorithms low-quality data will provide poor results;</p>
<p>4) Develop your algorithms and test, iterate, train, validate, improve in a continuous cycle to create better algorithms that can add value to your business;</p>
<p>5) Repeat the first four steps to slowly automate more processes within your business.</p>
<p>The move towards algorithms is happening fast, much faster than we expect, let alone policymakers can keep up with. It’s therefore important for us to be aware how algorithms will change how we do business, how we live and how we run our societies because before we know it, algorithms have taken over the world.</p><img src="https://counter.theconversation.com/content/56281/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark van Rijmenam does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The disruption happening thanks to algorithms is happening all around us.Mark van Rijmenam, PhD Candidate in Big Data and Strategic Innovation, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/439652015-07-27T10:02:30Z2015-07-27T10:02:30ZHas Taylor Swift finally figured out how to shake off Chinese counterfeits?<p>Last week, JD.com and Alibaba, the two largest online retailers in China, <a href="http://ir.jd.com/phoenix.zhtml?c=253315&p=irol-newsArticle&ID=2069059">announced</a> their deals to sell authentic merchandise associated with Taylor Swift. JD.com will also market an exclusive <a href="http://www.wsj.com/articles/taylor-swift-counters-knockoffs-in-china-1437492360">fashion line</a> that the singer will design for the Chinese market.</p>
<p>After having <a href="http://www.cnn.com/2015/06/22/entertainment/taylor-swift-apple-feat/">criticized</a> the music streaming services provided by Spotify and <a href="https://theconversation.com/what-apples-new-music-streaming-service-will-mean-for-underpaid-songwriters-42230">Apple Music</a>, Swift again finds herself at the center of the intellectual property debate. This time, the debate turns to a country notorious for being a knockoff haven.</p>
<p>Will her new arrangements with JD.com and Alibaba finally solve the massive counterfeiting problem in China? What are their strengths, and what are their limitations? Should other celebrities follow her lead to fend off Chinese infringers? </p>
<h2>What these deals can achieve</h2>
<p>Swift’s deals with JD.com and Alibaba can provide at least five main benefits. First, the dedicated online channels will provide a means of <a href="http://www.chinadaily.com.cn/world/2015-07/23/content_21384814.htm">authentication</a>. They will send important signals to the public about where to purchase official goods. Gone is the tired excuse of not knowing where to shop for authentic merchandise in China.</p>
<p>These channels will also help those who have difficulty distinguishing between counterfeits and legitimate products as well as those who <a href="http://blogs.barrons.com/asiastocks/2015/07/21/jd-com-peddles-its-u-s-mall-with-taylor-swift-at-plaza-hotel-event/">fear</a> to shop online. Although many of us frequently buy from Amazon and eBay, both of which were launched about two decades ago, e-commerce did not <a href="http://www.wsj.com/articles/western-firms-caught-off-guard-as-chinese-shoppers-flock-to-web-1434274202">take off</a> in China until the mid-2000s.</p>
<p>Second, the dedicated channels will enable Swift’s Chinese fans to develop a direct relationship with the singer. Many “Swifties” no longer find it enough to listen to her CDs and go to <a href="http://taylorswift.com/news/253073">her concerts</a>; they also want to have her style and wear clothes designed by her. By getting music fans to buy products directly from authentic sources, the channels will educate customers about the importance of intellectual property protection.</p>
<p>Third, Swift’s deals will increase her leverage in demanding response and expedited action should counterfeiting problems arise. JD.com and Alibaba may also consider taking preemptive anti-counterfeiting measures to keep the singer happy.</p>
<p>After all, if she is disappointed by the high volume of knockoffs found on their websites, she may stop selling products there. Any benefits the online retailers will gain from selling Swift-related counterfeits will be quickly offset by the loss of sales of authentic merchandise associated with not just the singer but also potentially other celebrities.</p>
<p>Fourth, the recent deals will help Swift obtain stronger protection for her merchandise on websites owned by JD.com and Alibaba. Although the official merchandise will be sold in Alibaba’s highly popular TMall, that company also runs Taobao, which reportedly has been filled with counterfeits related to the singer.</p>
<p>Cooperation is important because policing online networks can <a href="http://www.bloomberg.com/news/articles/2010-11-29/ebay-wins-round-against-tiffany-as-high-court-rejects-appeal">cost</a> tens of millions of dollars. Determining which listing contains fake items and which does not is also difficult. Thus, by showing her willingness to cooperate, Swift has taken a highly welcome approach to working proactively with Chinese online retailers to combat counterfeiting.</p>
<p>Instead of relying on the stick, which foreign <a href="https://ustr.gov/sites/default/files/2015-Special-301-Report-FINAL.pdf">governments</a> and businesses are known to use, the deals can serve as the much-needed carrot to get Chinese retailers to work harder to remove unauthorized merchandise. They will also help avoid the “bad blood” that usually develops following the use of strong-armed tactics.</p>
<p>Finally, the deals will send useful signals to other websites, especially those filled with knockoffs related to the singer. The hidden message is clear: if you are willing to clean up your act, you may also be able to get business from Swift and perhaps other major celebrities. Given the size of the growing celebrity-driven market, such a message will have considerable persuasive power.</p>
<h2>What these deals will not do</h2>
<p>Unfortunately, Swift’s deals with JD.com and Alibaba can solve only part of the massive counterfeiting problem in China.</p>
<p>Not everybody is willing to pay the full price for authentic products. Some cannot afford them. Some do not think they are worth the sticker price. And some are just content with buying low-quality knockoffs at much lower prices.</p>
<p>The problem with the counterfeiting debate – whether about China or elsewhere – is our tendency to lump the different types of counterfeit purchaser together. We also assume that counterfeits will be indistinguishable from the originals.</p>
<p>In a place with a massive counterfeiting problem such as China, consumers have become quite sophisticated in distinguishing products. If they buy counterfeits, they often know what they are getting into – just like those shopping in a dollar store.</p>
<p>To further complicate matters, most products are now made in China, and the production cost is a small fraction of the retail price. If any of these products are unfortunately leaked to the market without the right holder’s authorization – for example, when <a href="http://archive.fortune.com/magazines/fortune/fortune_archive/2006/05/01/8375455/index.htm">unlicensed extras</a> have been made through a widely dreaded “ghost shift” – those low-priced, unlicensed products will have the same quality as the licensed ones.</p>
<p>It is therefore understandable why some Chinese consumers are so eager to buy counterfeits, especially given the significant price differences. If they are lucky enough, they may even find unlicensed goods made in the same factory using the same raw materials.</p>
<h2>Challenging questions remain</h2>
<p>In sum, there are still many challenging questions concerning how celebrities can protect their intellectual property in China. There are also business-driven reasons that are unrelated to intellectual property protection. </p>
<p>For example, did Swift reach the recent deals in part to ensure the success of her upcoming tour in China? Was cooperation with local companies badly needed given that the tour’s title, <a href="http://www.telegraph.co.uk/news/worldnews/asia/china/11755679/Taylor-Swift-Chinese-clothing-line-with-TS-and-1989-touches-Tiananmen-Square-nerve.html">1989</a>, reminds people of the massive student protests in Tiananmen Square?</p>
<p>Regardless, Taylor Swift has certainly gone in the right direction when she agreed to team up with JD.com and Alibaba to provide authentic merchandise. Other celebrities are well-advised to follow her proactive, partner-based approach to protect their intellectual property in China.</p><img src="https://counter.theconversation.com/content/43965/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter K. Yu does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The singer-songwriter has signed deals with two Chinese retailers to sell authentic merchandise in the country in hopes of stemming the tide of knockoffs.Peter K. Yu, Professor of Law and Co-Director of the Center for Law and Intellectual Property , Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.